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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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PACIFIC SCIENTIFIC COMPANY
(NAME OF SUBJECT COMPANY)
PACIFIC SCIENTIFIC COMPANY
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(AND ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
694806
(CUSIP NUMBER OF CLASS OF SECURITIES)
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LESTER HILL
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
620 NEWPORT CENTER DRIVE, SUITE 700
NEWPORT BEACH, CALIFORNIA 92660
(714) 720-1714
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
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With Copies To:
ADAM O. EMMERICH, ESQ. WILLIAM J. SIMPSON, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ PAUL, HASTINGS, JANOFSKY & WALKER, LLP
51 WEST 52ND STREET 695 TOWN CENTER
NEW YORK, NEW YORK 10019 COSTA MESA, CALIFORNIA 92826
(212) 403-1000 (714) 668-6200
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Pacific Scientific Company (the
'Company' or 'Pacific Scientific'). The address of the principal executive
offices of the Company is 620 Newport Center Drive, Suite 700, Newport Beach,
California 92660. This Solicitation/Recommendation Statement on Schedule 14D-9
(this 'Statement' or this 'Schedule 14D-9') relates to the Company's common
stock, par value $1.00 per share (including the associated Existing Rights, the
'Common Stock'), and the associated preferred stock purchase rights (the
'Existing Rights') issued pursuant to that certain Shareholder Protection
Agreement dated as of November 7, 1988 between the Company and First Interstate
Bank, Ltd., as Rights Agent. All references herein to 'Shareholders' shall mean
holders of Common Stock.
ITEM 2. TENDER OFFER OF BIDDER.
This Statement relates to the tender offer by Torque Corporation
('Bidder'), a Delaware Corporation and a wholly owned subsidiary of Kollmorgen
Corporation, a New York corporation ('Kollmorgen' or 'Parent'), to purchase
6,347,241 shares of Common Stock (including the associated Existing Rights) (or
such greater or lesser number of shares of Common Stock that, when added to the
number of shares of Common Stock owned by Kollmorgen and Bidder, will constitute
a majority of the Common Stock outstanding on a fully diluted basis) (the
'Minimum Number'), at a price of $20.50 per share, net to the seller in cash on
the terms and subject to the conditions set forth in the Offer to Purchase,
dated December 15, 1997, and in the related Letter of Transmittal (which
together constitute the 'Kollmorgen Offer'). The Kollmorgen Offer is disclosed
in a Tender Offer Statement on Schedule 14D-1, dated December 15, 1997 (the
'Schedule 14D-1'), as filed with the Securities and Exchange Commission (the
'Commission'). The Kollmorgen Offer states that the principal executive offices
of Kollmorgen and Bidder are located at Reservoir Place, 1601 Trapelo Road,
Waltham, Massachusetts 02154.
According to the Schedule 14D-1, Parent is also seeking to negotiate with
the Company a definitive merger agreement pursuant to which the Company would,
as soon as practicable following consummation of the Kollmorgen Offer,
consummate a merger or similar business combination with Kollmorgen, Bidder or
another direct or indirect subsidiary of Kollmorgen (the 'Proposed Merger').
According to the Schedule 14D-1, in the Proposed Merger, each share of Common
Stock then outstanding (other than shares held by the Company or any wholly
owned subsidiary of the Company and Shares owned by Parent, Bidder or any other
direct or indirect wholly owned subsidiary of Parent and shares held by
Shareholders who properly exercised their appraisal rights) would be converted
into the right to receive shares of common stock, par value $2.50 per share, of
Kollmorgen ('Kollmorgen Common Stock'). The Schedule 14D-1 states that the exact
number of shares of Kollmorgen Common Stock into which each share of Common
Stock will be converted in the Proposed Merger will be determined by a formula
based upon the price of Kollmorgen Common Stock during a fixed period prior to
the time the Proposed Merger would be voted upon by the holders of Common Stock
and having a nominal value of $20.50 per share of Common Stock, subject to a
collar which could have the effect, should the price of the Kollmorgen Common
Stock fall below a specified trading price, of rendering the immediate market
value of the shares of Kollmorgen Common Stock which would be received in the
proposed Merger less than $20.50. The Kollmorgen Offer and Proposed Merger are
together referred to herein as the 'Business Combination.'
Also on December 15, 1997, Bidder and Parent filed proxy materials to
solicit Shareholders to act by written consent (the 'Kollmorgen Solicitation')
to call a special meeting of Shareholders, at which meeting Parent has stated
that it will ask the Shareholders to: (i) remove from office all members of the
Company's Board of Directors (the 'Board'); (ii) fill the newly created
vacancies on the Board by electing six persons nominated by Parent to the Board,
who are expected to take such actions, subject to their fiduciary duties under
applicable law, as may be necessary to consummate the Kollmorgen Offer and the
Proposed Merger; and (iii) repeal any and all provisions of the Bylaws of the
Company (the 'Company Bylaws') that have not been duly filed by the Company with
the Commission prior to August 11, 1997, including any and all amendments to the
Company Bylaws adopted on or after December 15, 1997. The Company has separately
filed with the Commission solicitation materials relating to the Kollmorgen
Solicitation. Shareholders are urged to read those materials carefully before
taking any action with respect to the Kollmorgen Solicitation.
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ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b) Except as described herein or on pages 2, 3 and 5 through 10 of the
Company's proxy statement, dated March 14, 1997 (the '1997 Proxy Statement'),
relating to the Company's 1997 Annual Meeting of Shareholders, which are filed
as Exhibit 1 to this Statement and are incorporated herein by reference, or as
otherwise set forth herein, to the knowledge of the Company, as of the date
hereof, there are no material contracts, agreements, arrangements or
understandings, or any actual or potential conflicts of interest, between the
Company or its affiliates and (i) the Company, its executive officers, directors
or affiliates or (ii) Bidder, Parent or their respective executive officers,
directors or affiliates.
Employment Agreements. The Company entered into an Employment Agreement
dated as of February 17, 1997 with Lester 'Buck' Hill, Chairman of the Board,
and Chief Executive Officer of the Company (the 'Hill Employment Agreement').
The Hill Employment Agreement is for a term ending on December 31, 2000 (which
automatically extends for one additional year if notice is not given by Mr. Hill
or the Company to the other that such term shall not be so extended), unless
further extended or sooner terminated as provided therein. The compensation
payable to Mr. Hill thereunder consists of (i) $325,000 annually; (ii) a
performance bonus payable within ninety days after the end of the fiscal year of
the Company in an amount to be determined by the Board, which amount is designed
to equal 75% of Mr. Hill's then current base salary if targeted performance is
achieved; (iii) the grant of a nonstatutory stock option to purchase 250,000
shares of Common Stock; and (iv) certain medical insurance and other benefits.
On June 18, 1997, the Board authorized the Company to enter into certain
employment agreements (the 'Additional Employment Agreements' and, collectively
with the Hill Employment Agreement, the 'Employment Agreements') with David L.
Schlotterbeck and Winston E. Hickman, who are, respectively, President and
Senior Vice President and Chief Financial Officer of the Company.
The Additional Employment Agreements are for a term ending on December 31,
2000 (which automatically extends for one additional year if notice is not given
by the Company or the employee that such term shall not be extended), unless
further extended or sooner terminated as provided in such agreement. The
compensation payable to Mr. Schlotterbeck and Mr. Hickman is comprised of (i)
$260,000 annually and $186,000 annually, respectively; (ii) a performance bonus
payable within ninety days after the end of the fiscal year of the Company in an
amount as determined by the Chief Executive Officer of the Company pursuant to
such Additional Employment Agreements, which amount is designed to equal 50% and
35%, respectively, of the executive's then current base salary if targeted
performance is achieved; (iii) the grant of a nonstatutory stock option to
purchase, with respect to Mr. Schlotterbeck, 150,000 shares of Common Stock, and
with respect to Mr. Hickman, 50,000 shares of Common Stock; and (iv) certain
medical insurance and other benefits.
Each of the Employment Agreements is terminable for (i) 'Cause,' as such
term is defined in such Agreements, (ii) death, (iii) disability, (iv) other
than for Cause, or (v) upon resignation for 'Good Reason,' as such term is
defined in such Employment Agreements. Upon termination for Cause, death or
disability, the executive is entitled to receive only the portion of salary that
has been earned up to the date of termination (including compensation for any
accrued and unused vacation, reimbursement for business expenses, applicable
life insurance proceeds, or applicable benefits) (the 'Minimum Payment'). Upon
termination for Good Reason, or other than for Cause, death or disability, the
executive shall receive the Minimum Payment and a severance payment of 24, 18
and 12 months of then-current salary of Messrs. Hill, Schlotterbeck and Hickman,
respectively, payable at the option of the executive in either (i) a lump sum
within thirty days after the date of termination, or (ii) in semi-monthly
installments over the applicable period after the date of termination. Pursuant
to the Employment Agreements, upon termination within one year following a
Change of Control of the Company (as such term is defined below), or in the
event the Company, following a Change of Control of the Company, delivers notice
to the executive that it is not extending the term of such executive's
employment for one year, then the Company shall be obligated to pay the
executive the items enumerated in the preceding sentence.
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The foregoing descriptions are qualified in their respective entireties by
reference to the Employment Agreements, copies of which are attached as Exhibits
3, 4 and 5 to this Statement and are incorporated herein by reference.
In lieu of receiving 1997 bonuses which would normally be payable during
the first 90 days of 1998, the Company will pay Messrs. Hill, Schlotterbeck and
Hickman bonuses in 1997 in the amounts of $290,000, $245,000 and $85,000. To the
extent such amounts exceed the bonuses which would otherwise be payable in 1998,
such excess shall reduce future bonuses and/or severance payments otherwise
payable to such executives.
Stock Option Agreements. Pursuant to the Hill Employment Agreement, Mr.
Hill has entered into a Nonstatutory Stock Option Agreement with the Company
dated as of February 18, 1997 (the 'Hill Stock Option Agreement') pursuant to
which the Company granted to Mr. Hill an option (the 'Hill Option') to purchase
250,000 shares of Common Stock (subject to adjustment in certain circumstances)
at an exercise price of $12.625 per share. The Hill Option is not intended to
qualify as an incentive stock option under the Internal Revenue Code of 1996, as
amended (the 'Code') and was not issued under the Company Stock Option Plan. The
Hill Option becomes exercisable in cumulative increments of 50,000 shares on
February 18 in each of 1997, 1998, 1999, 2000 and 2001. The Hill Option expires
on February 18, 2007. Pursuant to the Employment Agreements as described above,
Mr. Schlotterbeck and Mr. Hickman have entered into Nonstatutory Stock Option
Agreements with the Company as of July 7, 1997 (together with the Hill Option
Agreement, the 'Stock Option Agreements'). Pursuant to the Stock Option
Agreements the Company granted Mr. Schlotterbeck and Mr. Hickman the options
(the 'Options') to purchase with respect to Mr. Schlotterbeck up to 150,000
shares of Common Stock, and with respect to Mr. Hickman, 50,000 shares of Common
Stock (subject to adjustments in certain circumstances), at a price of $13.94
per share. The Options are not intended to qualify as incentive stock options
under the Code and were issued outside the Company Stock Option Plan. The
Options become exercisable in cumulative increments of, in the case of Mr.
Schlotterbeck, 37,000 shares, and in the case of Mr. Hickman, 12,500 shares, on
each of July 7, 1998, July 7, 1999, July 7, 2000 and July 7, 2001. The Options
expire on July 7, 2007. Notwithstanding the foregoing, upon a Change of Control
of the Company, the Options automatically become fully exercisable as to all
shares subject thereto.
For the purposes of the Employment Agreements and the Stock Option
Agreements, 'Change of Control' of the Company shall be deemed to have occurred
if (i) the shareholders of the Company approve a definitive agreement to sell,
transfer, or otherwise dispose of all or substantially all of the Company's
assets and properties; (ii) any 'person' (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act')) is or becomes the 'beneficial owner' (as defined in Rule 13d-3 of the
Exchange Act, directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the Company's then
outstanding securities; provided, however, that the following shall not
constitute a 'Change in Control' of the Company: (a) any acquisition directly
from the Company (excluding any acquisition resulting from the exercise of a
conversion or exchange privilege in respect of outstanding convertible or
exchangeable securities); (b) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; (iii) the shareholders of the Company approve the
dissolution or liquidation of the Company; or (iv) the shareholders of the
Company approve a definitive agreement to merge or consolidate the Company with
or into another entity or entities, the result of which merger or consolidation
is that less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by holders of the Company's common
stock immediately prior to the merger.
The foregoing descriptions are qualified in their respective entireties by
reference to the Stock Option Agreements, copies of which are attached hereto as
Exhibits 6, 7 and 8 and are incorporated herein by reference.
Severance Plan. On December 21, 1997, the Company adopted the 1997 Pacific
Scientific Company Change of Control Severance Plan (the 'Severance Plan') to
establish its severance policies and commitments in the change in control
context. The Severance Plan was adopted to guarantee severance benefits to key
employees in the event of their termination following a change of control. The
Severance Plan explicitly precludes any provision from taking effect to the
extent that it would prevent a business transaction from qualifying for pooling
of interests accounting. Similarly, the Severance Plan generally prohibits
payments that the Company believes will be subject to golden parachute tax
penalties or that would be nondeductible under the
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deduction limit on nonperformance-based compensation under Section 162(m) of the
Code. Under the Severance Plan, the Company has agreed under certain
circumstances to indemnify participants for the taxes, penalties and costs
incurred by them if it ultimately is determined that a participant received
excess parachute payments.
Subject to the foregoing, the Severance Plan authorizes the Company's
Executive Committee to extend participation selectively to the Company's
corporate officers and corporate staff, to its group and division presidents, to
persons who directly report to division presidents, to other comparable
employees and to other key employees. The Company's Executive Committee has thus
far extended severance benefits to 51 individuals. Pursuant to those benefits,
in the event a 'change in control' occurs and a participant is terminated by the
Company (or its successor) without cause or resigns for 'good reason' (as
defined under the Severance Plan), within two years from the date of such event,
the individual would receive a lump sum severance benefit of from 12 to 130
weeks of salary and target bonus, depending on the individual's position (130
weeks in the case of Messrs. Hill, Schlotterbeck and Hickman and from 52 to 104
weeks in the case of other executive officers), and would receive group
insurance benefit continuation for an equivalent period. In no event, however,
would participants receive less than one month of severance for each year of
service to the Company (subject to an 18 month cap).
For the purpose of the Severance Plan, a 'change of control' includes each
of the following: (i) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of substantially all the assets of another entity, in
each case, unless, following such transaction, (A) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Shares and the Company's outstanding voting securities immediately prior to
such transaction beneficially own, directly or indirectly, more than 60%,
respectively, of the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities, as the case may be, of
the surviving entity in such transaction in substantially the same proportions
as their ownership, immediately prior to such transaction of the
then-outstanding shares of common stock and then-outstanding voting securities,
as the case may be, (B) no individual, entity or group (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such transaction) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then-outstanding shares of common stock of the corporation
resulting from such transaction or the combined voting power of the outstanding
securities of such corporation except to the extent that such ownership existed
prior to such transaction, and (C) at least a majority of the members of the
board of directors of the corporation resulting from such transaction were
members of the Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such transaction; (ii) the acquisition
by any individual, entity or group of 20% or more of either the Shares or the
combined voting power of the outstanding voting securities of the Company (in
either case other than acquisitions by the Company, directly from the Company
and by employee benefit plans of the Company or any entity controlled thereby;
(iii) individuals who, as of December 21, 1997, constitute the Board (the
'Incumbent Board') cease for any reason to constituted at least a majority of
the Board (except that any individual becoming a director subsequent to such
date whose election, or nomination for election by the Shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest, including
a contest for the removal of directors and certain other contests); (iv)
approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company; and (v) the Board adopts a resolution to the effect
that, for purposes of the Severance Plan, a change in control has occurred.
The Severance Plan will expire on December 31, 2002, unless terminated
sooner, which the Company can do prior to a change in control, other than in
anticipation of a change in control.
As of the date of this Statement, the Executive Committee of the Board has
designated each of the Company's executive officers, among others, as
participants in the Severance Plan.
The foregoing description is qualified in its entirety by reference to the
Severance Plan, a copy of which is attached to this Statement as Exhibit 9 and
is incorporated herein by reference.
Option Plan Amendments. On December 21, 1997, the Company amended its
existing stock option plans (and all outstanding options issued pursuant to
those plans) such that in the event of a change in control (within
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the meaning of the Severance Plan), all outstanding options will be immediately
exercisable by the holder thereof as to all shares subject thereto, subject to
the Severance Plan's pooling and golden parachute limitations. See 'Certain
Stock Ownership Information' below for information respecting participation in
such plan by certain officers and directors of the Company. On the same date,
the Company entered into amendments to the Stock Option Agreements with Messrs.
Hill, Hickman and Schlotterbeck, respectively, providing for comparable
amendments giving them the benefit of such amendments to the extent such
amendments are more favorable than the existing provisions with respect to a
change of control of the Company.
The foregoing description is qualified in its entirety by reference to the
instruments effecting such amendments, copies of which are filed as Exhibits 10
through 14 to this Statement and are incorporated herein by reference.
Indemnification Agreements. On December 21, 1997, the Board approved
indemnification agreements between the Company and each of the Company's
directors and Messrs. Schlotterbeck and Hickman. The Company agreed to indemnify
and advance expenses to the individual indemnitees pursuant to terms of the
agreements and to the fullest extent permitted by law in effect on the date of
the agreement and to such greater extent as applicable law may from time to time
permit. In the event there is a change of control of the Company, the
indemnitees would be presumed to be entitled to indemnification under the
agreements if they submit a request for indemnification in accordance with the
agreement. The indemnitee's rights to be indemnified and to receive the
advancement of expenses as provided for in the agreements are not exclusive of
any other rights such persons may be entitled to under applicable law, the
Company's Articles of Incorporation or the Company Bylaws, any other agreement,
a vote of the shareholders, a resolution of the directors or otherwise.
The foregoing description is qualified in its entirety by reference to the
Form of Indemnification Agreement, a copy of which is attached as Exhibit 2 to
this Statement and incorporated herein by reference.
Certain Stock Ownership Information. In addition to the information set
forth in the 1997 Proxy Statement under the captions 'Common Stock Ownership,'
'Executive Compensation,' 'Option Grants in Last Fiscal Year' and 'Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values,' and in
addition to the information provided above, the following sets forth certain
information regarding securities of the Company owned beneficially or of record
by the Company's directors, executive officers and affiliates:
As of the date of this Statement, William T. Fejes, Senior Vice President
of the Company, is the holder of options to purchase (i) 800 shares of Common
Stock at an exercise price of $9.0625 per share which is fully exercisable; (ii)
3,600 shares of Common Stock at an exercise price of $13.8125 per share which is
exercisable as to 2,700 shares and becomes exercisable as to the remaining
shares in 1998; (iii) 5,000 shares of Common Stock at an exercise price of
$16.75 which is exercisable as to 2,500 shares and becomes exercisable as to an
additional 1,250 shares in each of 1998 and 1999; and (iv) 8,000 shares of
Common Stock at an exercise price of $20.875 per share which is exercisable as
to 2,000 shares and becomes exercisable as to an additional 2,000 shares in each
of 1998, 1999 and 2000.
As of the date of this Statement, Steven Breitzka, a Vice President of the
Company, beneficially owns 2,484 Shares. Mr. Breitzka is also the holder of
options to purchase (i) 6,150 and 5,000 shares of Common Stock at exercise
prices of $7.5625 and $9.0625 per share, respectively, each of which is fully
exercisable; (ii) 6,000 shares of Common Stock at an exercise price of $13.8125
per share which is exercisable as to 4,500 shares and becomes exercisable as to
the remaining shares in 1998; (iii) 4,000 shares of Common Stock at an exercise
price of $16.75 per share which is exercisable as to 2,000 shares and becomes
exercisable as to an additional 1,000 shares in each of 1998 and 1999; and (iv)
4,000 shares of Common Stock at an exercise price of $20.875 per share which is
exercisable as to 1,000 shares and becomes exercisable as to an additional 1,000
shares in each of 1998, 1999 and 2000.
On April 23, 1997, each of the members of the Board (other than Mr. Hill)
was granted an option to purchase 3,000 shares of Common Stock at an exercise
price of $13.00 which is fully exercisable, and Messrs. Fejes and Breitzka, and
Messrs. Richard Knoblock and Steven Yasbek, Vice Presidents of the Company, were
granted options to purchase 5,000, 8,000, 8,000 and 14,000 shares of Common
Stock, respectively, at an exercise price of $11.75 per share, each of which
becomes exercisable in four equal increments in each of 1998, 1999, 2000 and
2001. On May 29, 1997, Messrs. Fejes, Breitzka, Knoblock and Yasbek were granted
options to
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purchase 3,000, 1,000, 2,000 and 1,000 shares of Common Stock, respectively, at
an exercise price of $13.00 per share, each of which becomes exercisable in four
equal increments in each of 1998, 1999, 2000 and 2001.
The foregoing descriptions are qualified in their respective entireties by
reference to the texts of the applicable agreements, plans, policies, notes and
other documents, copies of which are filed as Exhibits 15 through 18 to this
Schedule 14D-9 and are incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) On December 9, 1997, the Company received a written proposal by
Kollmorgen (the 'Original Kollmorgen Proposal') for a business combination
between Kollmorgen and the Company in which Kollmorgen proposed that the
Shareholders would receive consideration of $20.50 per share, half in cash and
the balance in Kollmorgen stock (without specifying the basis on which such
stock would be valued), and related matters. At such meeting, the Board
authorized Mr. Hill to respond to Kollmorgen and inform it that the Company
would respond to the Original Kollmorgen Proposal after having had the chance to
fully consider the matter. A copy of the Original Kollmorgen Proposal is
attached hereto as Exhibit 19 and is incorporated herein by reference. The
Kollmorgen Offer was commenced on December 15, 1997. The Board met on December
17 and 21, 1997 to consider the Kollmorgen Offer and related matters. At those
meetings, the Board considered the Company's business, financial condition,
results of operations, current business strategy and future prospects, recent
and historical market prices for the Common Stock, the terms of the Original
Kollmorgen Proposal, the terms and conditions of the Kollmorgen Offer and the
Proposed Merger, strategic and other potential alternatives to the Kollmorgen
Offer and the Proposed Merger, and other matters, including information
presented by the Company's management, BancAmerica Robertson Stephens ('BARS'),
the Company's financial advisor, and the Company's legal advisors. At the
meeting on December 21, 1997 the Board unanimously determined that the
Kollmorgen Offer and the Business Combination are inadequate and not in the best
interests of the Company or its Shareholders and, although the Board has not
made any decision to sell the Company or engage in a business combination with
another company or in any other extraordinary transaction, also determined that
the interests of the Company and its Shareholders would be best served by the
Company exploring strategic and other alternatives available to it to maximize
Shareholder value. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS REJECT THE KOLLMORGEN OFFER AND NOT TENDER ANY SHARES PURSUANT
THERETO. The Board has directed management and the Company's advisors to explore
such strategic and other alternatives and to report back to the Board promptly
with respect thereto. See Item 7(a) below.
At its December 21st meeting, the Board unanimously (i) determined to
redeem the Existing Rights and simultaneously adopted a new Preferred Share
Purchase Rights Plan (the 'New Rights Agreement') and declared a dividend
distribution of new preferred share purchase rights ('New Rights') thereunder;
(ii) declined to render the Existing Rights or the New Rights inapplicable to
the Kollmorgen Offer or the Proposed Merger; and (iii) declined to recommend the
Kollmorgen Offer or the Proposed Merger or to approve the Proposed Merger for
purposes of Article FIFTH of the Company's Articles of Incorporation ('Article
Fifth'). See Item 8 below.
Copies of the letter to the Company's Shareholders communicating the
Board's recommendations and the press release relating thereto are filed as
Exhibits 20 and 21, respectively, to this Schedule 14D-9 and are incorporated
herein by reference.
(b) In reaching the conclusions and recommendations described above, the
Board considered a number of factors, including, without limitation, the
following:
(i) The Board's familiarity with, and information provided by the
Company's management as to, the business, financial condition, results of
operations, current business strategy and future prospects of the Company,
the nature of the markets in which the Company operates, the Company's
position in such markets, the historical and current market prices for the
Common Stock, and the strength of the Company's management team;
(ii) Information provided by BARS concerning the Company and the
financial aspects of the Kolmorgen Offer and the Proposed Merger, and the
written opinion of BARS to the effect that the
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consideration offered in the Business Combination is inadequate to the
Shareholders (other than Kollmorgen and Bidder), from a financial point of
view; the full text of such opinion, dated December 21, 1997, which sets
forth the assumptions made and matters considered and limitations set forth
by BARS, is included as Annex A hereto and should be read in its entirety;
(iii) The Board's commitment to protecting the best long- and
short-term interests of the Company and its Shareholders and enhancing the
value of the Company, including the possibility that these interests may be
best served by the continued independence of the Company, particularly in
light of the Board's belief that pursuit of the Company's strategic plan,
including refinements that may result from management's ongoing review,
will produce greater short-term and long-term value for the Shareholders
than the Business Combination, including the Kollmorgen Offer;
(iv) Information provided by the Company's management and by BARS
relating to certain strategic and other alternatives potentially available
to the Company for maximizing shareholder value;
(v) the view of the Company's management that a strategy of
investigating alternative strategic and other transactions could lead to a
value for the Shares in excess of that share of Common Stock offered in the
Kollmorgen Offer and the Proposed Merger;
(vi) The uncertainty as to the actual value to the Shareholders of the
shares of Kollmorgen Common Stock which would be received in the Proposed
Merger, resulting from, among other things, the lack of disclosure in the
Schedule 14D-1 concerning the Proposed Merger, the Kollmorgen Common Stock,
Parent and its business and operations, and the fact that Parent and Bidder
specifically state that there can be no assurance that the requirements for
tax-free reorganization treatment will be satisfied and neither Parent nor
Bidder is obligated to undertake to qualify the Proposed Merger as a
tax-free reorganization;
(vii) The fact that, as a result of uncertainties about the actual
value of the Proposed Merger and the merits of a longer-term investment in
Parent, the Kollmorgen Offer and the Business Combination are structured as
a two-tiered, front-end-loaded transaction that is intended to coerce
stockholders to tender their shares into the Kollmorgen Offer to avoid
receiving in the proposed squeeze out merger shares of Kollmorgen Common
Stock that may or may not have a value of $20.50 per Share;
(viii) The Board's and management's commitment to protecting the best
interests of the Shareholders and enhancing the value of the Company;
(ix) The disruptive effect the Kollmorgen Offer and the Proposed
Merger are having on the Company and the potential adverse effect of the
Business Combination on the interests of the Company and its employees,
suppliers, creditors and customers, and on the interests of the communities
in which the Company operates, which the Board also believes will adversely
affect the value of the Company and the interests of the Shareholders;
(x) The significant conditions of the Kollmorgen Offer, including,
among other things, the requirements that consummation of the Kollmorgen
Offer is conditioned upon, among other things:
(a) There being validly tendered and not withdrawn prior to the
expiration of the Kollmorgen Offer at least the Minimum Number of Shares
(the 'Minimum Condition');
(b) The expiration or termination of any applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended ('HSR Act') (the 'HSR Condition');
(c) Kollmorgen and Bidder obtaining, prior to the expiration of the
Kollmorgen Offer, on terms satisfactory to Kollmorgen, in its sole
discretion, sufficient financing to enable consummation of the
Kollmorgen Offer and the Proposed Merger (the 'Financing Condition'),
with regard to which the Board noted that the required financing has not
yet been obtained and is itself subject to a variety of conditions;
(d) Bidder being satisfied, in its sole discretion, that the
Existing Rights have been redeemed or invalidated or are otherwise
inapplicable to the Kollmorgen Offer and the Proposed Merger (the
'Rights Condition').
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(e) Bidder being satisfied, in its sole discretion, that the
Kollmorgen Offer and the Proposed Merger have been approved for purposes
of Article Fifth, or Article Fifth has been invalidated or is otherwise
satisfied with respect to the Kollmorgen Offer and the Proposed Merger
(the 'Article Fifth Condition');
(f) The approval of shareholders of Kollmorgen of the issuance of
the Kollmorgen Common Stock to be issued in the Proposed Merger; in that
regard the Board noted that Kollmorgen intends to hold a special meeting
of its shareholders on or about January 28, 1998, a full two weeks after
the Kollmorgen Offer is scheduled to expire, for the purpose of
approving the issuance of Kollmorgen Common Stock in the Proposed
Merger;
(g) That there shall not have been threatened, instituted or be
pending any action or proceeding, which, among other things, directly or
indirectly relates to the Kollmorgen Offer or which otherwise, in the
sole judgment of Bidder, might materially adversely affect the Company
or any of its subsidiaries or Bidder, Parent or any other affiliate of
Parent or the value of the Shares, or which otherwise, in the sole
judgment of Bidder, is reasonably likely to materially adversely affect
the business, operations (including, without limitation, results of
operations), properties (including, without limitation, intangible
properties), condition (financial or otherwise), assets or liabilities
(including, without limitation, contingent liabilities) or prospects of
either the Company or any of its subsidiaries or Parent;
(h) That there shall not have been any action taken, or any
statute, rule, regulation, legislation, interpretation, judgment, order
or injunction enacted, entered, enforced, promulgated, amended, issued
or deemed applicable to (i) Parent, Bidder or the Company or (ii) the
Kollmorgen Offer or the Proposed Merger or other business combination by
Bidder or Parent with the Company, by any legislative body, court,
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, other than the routine application of the
waiting period provisions of the HSR Act to the Kollmorgen Offer or the
Proposed Merger, which, in the sole judgment of Bidder, is reasonably
likely to result, directly or indirectly, in any of the consequences
referred to in paragraph (g) above;
(i) That there shall not have occurred any change, condition, event
or development that, in the sole judgment of Bidder, is or is reasonably
likely to be materially adverse to the business, operations (including,
without limitation, results of operations), properties (including,
without limitation, intangible properties), condition (financial or
otherwise), assets or liabilities (including, without limitation,
contingent liabilities) or prospects of the Company or any of its
subsidiaries;
(j) That there shall not have occurred (i) any general suspension
of, or limitation on prices for, trading in securities on the NYSE, (ii)
any decline, measured from the close of business on December 12, 1997,
in the Standard & Poor's 500 Index by an amount in excess of 15%, (iii)
any material adverse change in United States currency exchange rates or
a suspension of, or limitation on, currency exchange markets, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (v) any limitation (whether or
not mandatory) by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, on, or other event
that, in the sole judgment of Bidder, might affect the extension of
credit by banks or other lending institutions, (vi) a commencement of a
war or armed hostilities or other national or international calamity
directly or indirectly involving the United States or (vii) in the case
of any of the foregoing existing on December 12, 1997, a material
acceleration or worsening thereof;
(k) That the Company or any of its subsidiaries, joint ventures or
partners or other affiliates shall not have, directly or indirectly, (i)
split, combined or otherwise changed, or authorized or proposed a split,
combination or other change of, the Shares or its capitalization (other
than by redemption of the Existing Rights in accordance with their terms
as such terms have been publicly disclosed prior to the date of the
Kollmorgen Offer), (ii) acquired or otherwise caused a reduction in the
number of, or authorized or proposed the acquisition or other reduction
in the number of, outstanding Shares or other securities (other than as
aforesaid), (iii) issued or sold, or authorized or proposed the
issuance, distribution or sale of, additional Shares (other than the
issuance of Shares under option prior to the date of the Kollmorgen
Offer, in accordance with the terms of such options as such terms have
been publicly disclosed prior to the date of the Kollmorgen Offer),
shares of any other class of capital stock,
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other voting securities or any securities convertible into, or rights,
warrants or options, conditional or otherwise, to acquire, any of the
foregoing, (iv) declared or paid, or proposed to declare or pay, any
dividend or other distribution, whether payable in cash, securities or
other property, on or with respect to any shares of capital stock of the
Company (other than (A) a regular cash quarterly dividend not in excess
of $0.03 per Share, having customary and usual record and payment dates
and (B) in the event the Existing Rights are redeemed, the price of
redemption thereof), (v) altered or proposed to alter any material term
of any outstanding security (including the Existing Rights) other than
to make the Existing Rights inapplicable to the Kollmorgen Offer and the
Proposed Merger, (vi) incurred any debt other than in the ordinary
course of business or any debt containing burdensome covenants, (vii)
authorized, recommended, proposed or entered into an agreement,
agreement in principle or arrangement or understanding with respect to
any merger, consolidation, liquidation, dissolution, business
combination, acquisition of assets, disposition of assets, release or
relinquishment of any material contractual or other right of the Company
or any of its subsidiaries or any comparable event not in the ordinary
course of business, (viii) authorized, recommended, proposed or entered
into, or announced its intention to authorize, recommend, propose or
enter into, any agreement, arrangement or understanding with any person
or group that in the sole judgment of Bidder could adversely affect
either the value of the Company or any of its subsidiaries, joint
ventures or partnerships or the value of the Shares to Bidder, Parent or
any other affiliate of Parent, (ix) entered into or amended any
employment, change in control, severance, executive compensation or
similar agreement, arrangement or plan with or for the benefit of any of
its employees, consultants or directors, or made grants or awards
thereunder, other than in the ordinary course of business or entered
into or amended any agreements, arrangements or plans so as to provide
for increased or accelerated benefits to any such persons, (x) except as
may be required by law, taken any action to terminate or amend any
employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended) of the Company or
any of its subsidiaries, or Bidder shall have become aware of any such
action that was not disclosed in publicly available filings prior to the
date of the Kollmorgen Offer, or (xi) amended or authorized or proposed
any amendment to the Company's Articles of Incorporation or Bylaws, or
Bidder shall have become aware that the Company or any of its
subsidiaries shall have proposed or adopted any such amendment that was
not disclosed in publicly available filings prior to the date of the
Kollmorgen Offer;
(l) That a tender or exchange offer for any Shares shall not have
been made or publicly proposed to be made by any other person (including
the Company or any of its subsidiaries or affiliates), and it shall not
have been publicly disclosed and Bidder shall not have otherwise learned
that (i) any person, entity (including the Company or any of its
subsidiaries) or 'group' (within the meaning of Section 13(d)(3) of the
Exchange Act) shall have acquired or proposed to acquire beneficial
ownership of more than 5% of any class or series of capital stock of the
Company (including the Shares), through the acquisition of stock, the
formation of a group or otherwise, or shall have been granted any right,
option or warrant, conditional or otherwise, to acquire beneficial
ownership of more than 5% of any class or series of capital stock of the
Company (including the Shares), other than acquisitions for bona fide
arbitrage purposes only and other than as disclosed in a Schedule 13G on
file with the Commission prior to the date of the Kollmorgen Offer, (ii)
any such person, entity or group that prior to the date of the
Kollmorgen Offer had filed such a Schedule 13G with the Commission has
acquired or proposes to acquire, through the acquisition of stock, the
formation of a group or otherwise, beneficial ownership of 1% or more of
any class or series of capital stock of the Company (including the
Shares), or shall have been granted any right, option or warrant,
conditional or otherwise, to acquire beneficial ownership of 1% or more
of any class or series of capital stock of the Company (including the
Shares), (iii) any person or group shall have entered into a definitive
agreement or an agreement in principle or made a proposal with respect
to a tender offer or exchange offer or a merger, consolidation or other
business combination with or involving the Company or (iv) any person
shall have filed a Notification and Report Form under the HSR Act (or
amended a prior filing to increase the applicable filing threshold set
forth therein) or made a public announcement reflecting an intent to
acquire the Company or any subsidiary or significant assets of the
Company;
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(m) That any approval, permit, authorization or consent of any
governmental authority or agency shall have been obtained on terms
satisfactory to Bidder in its sole discretion;
(n) Bidder shall not having reached an agreement or understanding
with the Company providing for termination of the Kollmorgen Offer, or
Bidder, Parent or any other affiliate of Parent not having entered into
a definitive agreement or announced an agreement in principle with the
Company providing for a merger or other business combination with the
Company or the purchase of stock or assets of the Company; and
(o) That no material contractual right of the Company or any of its
subsidiaries or affiliates shall be impaired or otherwise adversely
affected, nor any material amount of indebtedness of the Company or any
of its subsidiaries, joint ventures or partnerships shall become
accelerated or otherwise become due before its stated due date, in
either case, with or without notice or the lapse of time or both, as a
result of the transactions contemplated by the Kollmorgen Offer or the
Proposed Merger and (ii) no covenant, term or condition in any of the
Company's or any of its subsidiaries', joint ventures' or partnerships'
instruments or agreements is or may be materially adverse to the value
of the Shares in the hands of Bidder (including, but not limited to, any
event of default that may ensue as a result of the consummation of the
Kollmorgen Offer or the Proposed Merger or the acquisition by Parent of
control of the Company);
(xi) The Board's belief, based in part on the factors referred to in
paragraphs (i) through (x) above, that the Kollmorgen Offer does not
reflect the current value inherent in the Company, and that the interests
of the Company and its Shareholders would be best served by the Company
exploring strategic and other alternatives available to it for maximizing
Shareholder value.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors and the amount of information considered, the Board did not
find it practicable to provide specific assessments of, quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. The determination to recommend that Shareholders reject the
Kollmorgen Offer and the Business Combination was made after consideration of
all the factors taken as a whole. In addition, individual members of the Board
may have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained BARS as its financial advisor with respect to the
Kollmorgen Offer and other matters arising in connection therewith, including
assisting the Company in exploring alternatives in light of the Kollmorgen
Offer. Pursuant to the letter agreement between BARS and the Company dated
December 15, 1997 (the 'BARS Engagement Letter'), the Company has agreed to pay
BARS as follows: (i) a retainer fee of $250,000, paid to BARS on acceptance of
the Engagement Letter; (ii) an advisory fee of $1,000,000 (the 'Advisory Fee')
of which one-half would be payable on June 15, 1998 and one-half on December 15,
1998; (iii) a fee of $250,000 in respect of, and due upon, the provision of a
fairness opinion to the Board, and $100,000 in respect of any subsequent
fairness opinion provided in respect of an alternative transaction proposed by a
person other than Parent, Bidder or an affiliate of either Parent or Bidder;
(iv) if during the term of BARS' engagement under the Engagement Letter, or
within 18 months after the termination of BARS' engagement thereunder, a Sale
Transaction (as defined below) occurs, then the Company shall pay to BARS a fee
of $1,500,000 plus four percent (4%) of the aggregate transaction value (as
defined below) thereof in excess of the 'aggregate transaction value' implied by
a per share transaction price of $20.50 per fully diluted common share; (v) if
during the term of the engagement under the BARS Engagement Letter, or within 18
months after the date of termination of BARS' engagement thereunder, a
Divestiture (as defined below) occurs, other than one described in (iv) above,
then the Company shall pay to BARS a fee equal to one and one-half percent
(1.5%) of the 'aggregate transaction value' of each such transaction, subject
(except in limited circumstances) to a minimum fee of $500,000 per transaction.
The retainer fee and opinion fees will be credited against the second
installment of the advisory fee, and all of such fees will be credited against
any Sale Transaction fee. Following payment of a Sale Transaction fee, no future
advisory fees will be payable. If during the term of the engagement under the
Engagement Letter, or until 18 months after the date of termination of BARS'
engagement thereunder, in the event that a transaction other than a Sale
Transaction or Divestiture is completed, and the Company retains
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an advisor or financing agent in connection with such transaction, the Company
agrees to retain BARS, or an affiliate of BARS, and will pay BARS or such
affiliate a mutually acceptable fee based on industry standards.
A 'Sale Transaction' will be deemed to occur in the event that, directly or
indirectly, in one or a series of related transactions, any merger involving a
change in control of the Company is effected, any sale or transfer of all or
substantially all of the business, properties or assets of the Company is
completed, or there shall occur an acquisition by a person or a 'group' of
persons (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) of beneficial ownership of any class of capital stock of the Company
constituting more than 50% of the outstanding shares of such class of capital
stock (or rights to acquire the same), by way of tender or exchange offer, open
market purchase, negotiated purchase or otherwise. 'Aggregate transaction value'
is defined to include, without limitation, all cash, security and notes paid by
the acquiring entity plus funded debt assumed, and in the case of consummation
of a Sale Transaction, the acquiror, upon completion of a Sale Transaction,
shall be deemed for purposes of calculating such fee to have acquired all of the
equity of the Company and assumed all of its funded debt. A 'Divestiture' will
be deemed to occur in the event that a divestiture of one or more segments or
businesses of the Company, or an acquisition of another entity by the Company,
is completed.
The Company has also agreed to reimburse BARS for its reasonable expenses
(including, without limitation, professional and legal fees and disbursements),
up to $50,000, incurred in connection with its engagement with respect to the
services to be rendered by it, and to indemnify BARS and certain related persons
against certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
BARS may also assist the Company in connection with the solicitation of
revocations of consents solicited in the Kollmorgen Solicitation. BARS will not
receive any fee for, or in connection with, any solicitation activities apart
from the fees it is otherwise entitled to receive under its engagement. BARS
does not admit or deny that any of its directors, officers or employees is a
'participant' as defined in Schedule 14A promulgated by the Commission under the
Securities Exchange Act of 1934, as amended, or that such Schedule 14A requires
the disclosure of certain information concerning such persons. In the normal
course of its business, BARS regularly buys and sells the Common Stock and other
securities for its own account and for the accounts of its customers, which
transactions may result from time to time in BARS and its associates having a
net 'long' or net 'short' position in the Common Stock or other securities or
option contracts or derivatives in or relating to the Company's securities. If
BARS assists the Company in connection with the solicitation of revocations of
consents solicited in the Kollmorgen Solicitation, such activity will be carried
out by a team of individuals consisting of officers and employees of BARS.
The Company has retained MacKenzie Partners, Inc. ('MacKenzie' ) to assist
the Company in connection with its communication with its Shareholders with
respect to, and to provide other services to the Company in connection with, the
Kollmorgen Offer and possible alternative strategic transactions. MacKenzie may
contact Shareholders by mail, telephone, telex, telegraph and personal interview
and may request brokers, dealers and other nominee Shareholders to forward
material relating to the Kollmorgen Offer to Shareholders. MacKenzie will
receive reasonable and customary compensation for its services and reimbursement
of out-of-pocket expenses in connection therewith. The Company has agreed to
indemnify MacKenzie against certain liabilities arising out of or in connection
with its engagement.
The Company has retained Morgen-Walke Associates, Inc. ('Morgen') to assist
the Company in connection with its communication with its Shareholders with
respect to the Kollmorgen Offer and possible alternative strategic transactions.
Morgen will receive reasonable and customary compensation for its services and
reimbursement of out-of-pocket expenses in connection therewith. The Company has
agreed to indemnify Morgen against certain liabilities arising out of or in
connection with its engagement.
Except as described above, neither the Company, nor any person acting on
its behalf, currently intends to employ, retain or compensate any other person
to make solicitations or recommendations to Shareholders on its behalf
concerning the Kollmorgen Offer.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the knowledge of the Company, except as described in the following
sentences, no transactions in Shares have been effected within the past 60 days
by the Company or any executive officer, director, affiliate or subsidiary of
the Company. As described in Item 4, above, the Company redeemed the Existing
Rights and adopted the New Rights Agreement and declared a dividend of New
Rights thereunder. See also Item 8 below, which sets forth certain information
as to the redemption of the Existing Rights, the New Rights and certain related
matters.
On December 15, 1997, the Company redeemed all the $16.978 million
principal amount of the Company's 7 3/4% Convertible Subordinated Debentures due
June 15, 2003, together with interest accrued thereon, in accordance with the
terms of the indenture for such securities.
(b) To the knowledge of the Company, its executive officers, directors,
affiliates and subsidiaries do not presently intend to tender, pursuant to the
Kollmorgen Offer, or sell any Shares which are held of record or are
beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
On August 21, 1996, Mr. Robert J. Cobuzzi, Kollmorgen's Senior Vice
President and Chief Financial Officer, telephoned Mr. Richard V. Plat, who was
at the time the Company's Executive Vice President, Chief Financial Officer and
Secretary, to discuss a possible transaction involving Kollmorgen and the
Company. No substantive discussions or negotiations ensued.
On or about July 18, 1997, Mr. Gideon Argov, Kollmorgen's Chairman,
President and Chief Executive Officer, telephoned Mr. Hill to suggest that they
meet to discuss ways in which Kollmorgen and the Company might cooperate and the
possibility of combining Kollmorgen and the Company. On August 1, 1997, Mr. Hill
met with Mr. Argov in Newport Beach, California. The two discussed the two
companies and the motion control industry, and Mr. Argov proposed a merger of
Kollmorgen and the Company. The merger proposed by Mr. Argov would have been
structured as a merger of equals transaction, and Mr. Argov indicated that the
key executives of Kollmorgen and the Company would become the senior executives
of the combined company. Mr. Hill indicated that he needed more time to consider
Mr. Argov's proposal.
On or about August 13, 1997, Mr. Argov telephoned Mr. Hill to ask whether
Mr. Hill had considered Mr. Argov's proposal. Mr. Hill responded that he had,
but that he needed more time to do so since the Company was in the midst of a
strategic planning process.
On or about September 15, 1997, Mr. Argov again telephoned Mr. Hill to ask
whether Mr. Hill was ready to discuss a possible business combination. Mr. Hill
again responded that he was not ready to discuss a possible combination because
of the Company's ongoing strategic planning process.
On October 21, 1997, Mr. Argov telephoned Mr. Hill and again proposed that
Kollmorgen and the Company commence discussions regarding a possible merger. Mr.
Hill responded that he had thought about Mr. Argov's suggestion and discussed it
with the Board and had concluded that it would not be in the best interests of
the Company.
On October 22, 1997, Mr. Hill telephoned Mr. Argov to offer to sell the
Company's Automation Intelligence, Inc. business to Kollmorgen. Mr. Argov
indicated that Kollmorgen would not be interested in acquiring only a small
piece of the Company's business.
On December 9, 1997, Mr. Argov telephoned Mr. Hill to inform Mr. Hill that
Mr. Argov was authorized by Kollmorgen's Board of Directors to make a proposal
to acquire the Company for $20.50 per share in cash and stock, and that Mr. Hill
should expect to receive a letter from Mr. Argov making such a proposal.
Following the telephone call, Mr. Argov sent to Mr. Hill a letter dated December
9, 1997 setting forth the Original Kollmorgen Proposal.
On December 12, 1997, Mr. Hill sent a letter to Mr. Argov by telecopy
stating the Company would respond to the Original Kollmorgen Proposal offer
after having had the chance to fully consider the matter.
At the meetings held in December, the Board considered and reviewed the
feasibility and desirability of exploring a variety of possible alternatives to
the Original Kollmorgen Proposal and the Kollmorgen Offer. As stated in Item
4(b) above and based on the factors referred to therein, the Board believes that
the interests of the
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Company and its Shareholders would be best served by the Company exploring
strategic alternatives available to it to maximize Shareholder value, including
a possible sale of or other extraordinary transaction involving the Company.
These alternatives could lead to and involve negotiations which relate to or
could result in a sale of the Company or other such extraordinary transaction,
including (i) a purchase, sale or transfer of a material amount of assets by the
Company or any of its subsidiaries or a sale or issuance of voting stock, rights
or other securities of the Company or any of its subsidiaries, (ii) a tender or
exchange offer for, or open market or privately negotiated purchases or other
acquisition of securities by or of the Company, (iii) a merger or reorganization
involving the Company or any of its subsidiaries, (iv) a material change in the
present capitalization or dividend policy of the Company, including a
recapitalization of the Company, or (v) a joint venture or other business
combination involving the Company or any of its subsidiaries. In this
connection, the Company is in the preliminary stages of discussions with various
other parties regarding their potential interest in such a possible transaction
involving the Company of the type described above and may enter into
confidentiality and standstill agreements concerning the furnishing of
confidential information to parties indicating an interest in such a transaction
and respond to due diligence inquiries.
The Board has determined that disclosure at this time with respect to these
possible transactions or the parties thereto, and the possible terms of any
other transactions or proposals of the type referred to above in this Item 7,
might jeopardize the initiation or continuation of any discussions or
negotiations that the Company may conduct. Accordingly, the Board, on December
21, 1997, adopted a resolution instructing management of the Company not to
disclose the possible terms of any such transactions or proposals, or the
parties thereto, unless and until an agreement in principle relating thereto has
been reached.
There can be no assurance that any of the foregoing will result in any
transaction being recommended to the Board or that any transaction that may be
recommended will be authorized or consummated, or that a transaction other than
those described herein will not be proposed, authorized or consummated. The
initiation or continuation of any of the foregoing may also be dependent upon
the future actions of Parent with respect to the Kollmorgen Offer. The proposal,
authorization, announcement or consummation of any transaction of the type
referred to in this Item 7 could adversely affect or result in withdrawal of the
Kollmorgen Offer.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Litigation. On December 15, 1997, Parent commenced an action against the
Company and its directors in the United States District Court for the Central
District of California. The complaint alleges that the defendants have or will
breach their fiduciary duties to the shareholders of the Company in connection
with the Business Combination, and seeks an order of the Court (i) declaring
that failure to redeem the Existing Rights or to render the Existing Rights
inapplicable to the Offer and the Proposed Merger, and/or failure to approve the
Offer and the Proposed Merger for purposes of Article Fifth would constitute a
breach of the defendants' duties under California law; (ii) invalidating the
Existing Rights or compelling the defendants to redeem the Existing Rights or
render the Existing Rights inapplicable to the Kollmorgen Offer and the Proposed
Merger; (iii) requiring the defendants to approve the Kollmorgen Offer and the
Proposed Merger for purposes of Article Fifth; and (iv) enjoining the defendants
from taking any actions to interfere with the Kollmorgen Offer, the Kollmorgen
Solicitation or the Proposed Merger. The time for defendants to respond to the
complaint has not yet elapsed.
On December 15, 1997, an action was commenced against the Company and its
directors in the Superior Court of California, County of Orange, by William
Steiner, purporting to bring suit as a shareholder on behalf of a proposed class
of all public shareholders of the Company. The complaint alleges, among other
things, that defendants are obligated to 'arrange for the sale of [the Company]
to the highest bidder and that, by virtue of certain conduct alleged to have
taken place with respect to the [Business Combination] contacts and Offer, and
otherwise, the defendants have breached their fiduciary duties and have failed
to exercise independent business judgment'. Plaintiff seeks an order, among
other things, requiring defendants to 'arrang[e] the sale of [the Company] to
the highest bidder', requiring defendants to 'utilize the poison pill in a
manner consistent with maximizing shareholder value', and awarding damages to
the proposed class in an unspecified amount. The time for defendants to respond
to the Steiner complaint has not yet elapsed.
The foregoing summaries of litigation are qualified in their respective
entireties by reference to the texts of the respective complaints, a copy of
each of which is filed as Exhibit 19 and Exhibit 20, respectively, to this
Statement and are incorporated herein by reference.
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Articles of Incorporation. Article Fifth provides that the adoption of any
agreement for the merger of the Company with, or any sale or other disposition
of all or substantially all of the assets of the Company (or in any case greater
than fifty percent (50%) of the then fair market value thereof) to, a person
that is an 'associate' of the Company (an 'Acquiring Associate') requires (i)
the affirmative vote of the holders of at least a majority of the outstanding
shares of stock of the Company entitled to vote exclusive of shares owned
beneficially by the Acquiring Associate, and (ii) the affirmative vote of the
holders of at least two-thirds of the outstanding shares of stock of the Company
entitled to vote. Shares held beneficially by an Acquiring Associate include
shares beneficially owned by any affiliate or associate of such person and
shares such person or its affiliates or associates have the right to acquire
pursuant to agreement or with respect to which such person or its affiliates or
associates have any agreement, arrangement or understanding for the purposes of
acquiring, holding, voting or disposing of voting securities of the Company.
Article Fifth thus has the effect of increasing the voting requirements that
would otherwise be required under applicable law for approval of extraordinary
transactions to which it applies.
Under Article Fifth, (i) an 'associate' of a specified person is (A) any
person who is, directly or indirectly, the beneficial owner of five percent (5%)
or more of any class of equity securities of such specified person or who is an
officer, director, trustee or partner of such specified person or any affiliate
of such specified person, (B) any trust or estate in which such specified person
has a substantial beneficial interest or as to which such specified person
serves as a trustee or in a similar fiduciary capacity, and (C) any relative or
spouse of such specified person, or any relative of such spouse, having the same
home as such specified person; and (ii) an 'affiliate' of a specified person is
any other person that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the specified
person.
The enhanced voting requirements of Article Fifth do not apply to any
transaction (i) between the Company and its wholly owned subsidiaries; (ii) that
is a merger for which approval of the Company's stockholders is not required
under California law; (iii) that is a merger in which the Company is the
'surviving entity' (as defined below); or (iv) that has been approved by the
Board either unanimously or prior to the acquisition by any associate of the
Company of the beneficial ownership of 5% or more of the outstanding Shares. The
Company will be deemed the 'surviving entity' in any merger in which (A) the
Company's stockholders immediately prior to the merger own immediately after the
merger the same stock of the Company they owned immediately prior to the merger
(subject to their appraisal rights, if any); and (B) such stockholders, other
than the other party to such merger and its affiliates and associates, own
immediately after the merger, subject to the same rights, if any, as dissenting
stockholders, stock possessing at least a majority of the voting power of the
Company, assuming the conversion of all equity securities convertible
(immediately or at some future time) into stock entitled to vote and excluding
stock received in the merger by reason of the ownership of stock of such other
party owned immediately prior to the merger.
The enhanced voting requirements imposed by Article Fifth also do not apply
to any transaction in which all of the following conditions are satisfied:
(1) The cash or fair market value of the property, securities or other
consideration to be received per share by holders of the Company's
stock in such transaction is not less than the higher of (i) the
highest per share price paid an Acquiring Associate in acquiring
any of its holding of Shares or (ii) an amount (not to exceed two
times the highest per share price determined in (i), above) which
bears the same or greater percentage relationship to the market
price of Shares immediately prior to the announcement of such
transaction as the highest per share price determined in (i) above
bears to the market price of Shares immediately prior to the
commencement of acquisition of Shares by such Acquiring Associate;
and
(2) After the Acquiring Associate becomes an associate of the Company
and prior to the consummation of such transaction, (i) the
Acquiring Associate shall not have acquired any newly issued
shares of capital stock, directly or indirectly, from the Company
(except upon conversion of convertible securities acquired by it
prior to becoming an associate of the Company, upon compliance
with the provisions of Article Fifth or as a result of a pro rata
stock dividend or stock split), (ii) such Acquiring Associate
shall not have received the benefit, directly or indirectly
(except proportionately as a stockholder) of any loans, other
financial assistance or tax credits provided by the Company, or
made any major changes in the Company's business or equity capital
15
<PAGE>
structure, and (iii) there shall have been no reduction in the
rate of dividends payable on the Common Stock, except as may have
been approved by unanimous vote of the Board; and
(3) A proxy statement meeting the requirements of the Exchange Act
shall be mailed to the public stockholders of the Company for the
purpose of soliciting stockholder approval of such transaction
setting forth (i) any recommendations as to the advisability (or
inadvisability) of the transaction which any of the directors may
choose to state, and (ii) the opinion of a reputable independent
national investment banking firm as to the fairness of the terms
of such business combination, from the point of view of the
remaining public stockholders of the Company.
Per share price calculations include brokerage commissions, soliciting dealers'
fees, dealer-management compensation, and other expenses.
The Board is empowered to determine for purposes of Article Fifth, on the
basis information then known to the Board, the fair market value of any assets
of the Company (including the total assets of the Company), the fair market
value of Company, whether any person is the beneficial owner of outstanding
securities of the Company entitled to vote and the extent of such beneficial
ownership, and the applicability of Article Fifth to a particular transaction.
Article Fifth further provides that all such determinations are conclusive and
binding for all purposes of Article Fifth.
Article Fifth may be amended only upon receiving the affirmative vote of
the holders of at least two-thirds of all outstanding shares of the Company
entitled to vote.
The foregoing description of Article Fifth is qualified in its entirety to
reference to the Restated Articles of Incorporation of the Company, a copy of
which is attached to this Statement as Exhibit 21 and is incorporated herein by
reference.
The Rights Agreement. On December 21, 1997, the Board redeemed the
Existing Rights (effective at such time, and only at such time, as (i) the
dividend of New Rights is actually paid and the New Rights have become in all
respects effective, (ii) the New Rights are duly registered pursuant to an
effective registration statement under the Securities Exchange Act of 1934, as
amended, and (iii) the New Rights are listed together with the Common Stock on
the New York Stock Exchange) and declared a dividend of a New Right for each
outstanding share of Common Stock. The dividend is payable on the earlier to
occur of (i) December 21, 1997, or (ii) such date as permitted by the New York
Stock Exchange (the 'Record Date') to the stockholders of record on that date.
Each New Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series B Junior Participating Preferred Stock, par
value $1.00 per share (the 'Preferred Shares'), of the Company at a price of $75
per one one-hundredth of a Preferred Share (the 'Purchase Price'), subject to
adjustment. The description and terms of the New Rights are set forth in the New
Rights Agreement. Holders of Common Stock will receive a distribution of $0.01
per share of Common Stock in respect of the redemption of the Existing Rights.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an 'Acquiring
Person') have acquired beneficial ownership of 10% or more of the outstanding
Shares or (ii) 10 business days (or such later date as may be determined by
action of the Board of Directors prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 10% or more of the outstanding Common Stock (the earlier of such dates
being called the 'Distribution Date'), the New Rights will be evidenced, with
respect to any of the Common Stock certificates outstanding as of the Record
Date, by such Common Stock certificate with a copy of this Summary of New Rights
attached thereto. In connection with its adoption of the New Rights Agreements,
the Board resolved, in accordance with the provisions of the New Rights
Agreement, that the Distribution Date will, for all purposes under the New
Rights Agreement, be deferred until the earlier of: (i) 10 days after the first
date of public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such; or (ii) such date as may be subsequently
determined by the Board.
The New Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the New Rights), the New Rights will be
transferred with and only with the Common Stock. Until the Distribution Date (or
earlier redemption or expiration of the New Rights), new Common Stock
certificates issued
16
<PAGE>
after the Record Date upon transfer or new issuance of Common Stock will contain
a notation incorporating the New Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the New Rights), the
surrender for transfer of any certificates for Common Stock outstanding as of
the Record Date, even without such notation or a copy of this Summary of New
Rights being attached thereto, will also constitute the transfer of the New
Rights associated with the Common Stock represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates evidencing
the New Rights ('Right Certificates') will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the New Rights.
The New Rights are not exercisable until the Distribution Date. The New
Rights will expire on December 21, 2007 (the 'Final Expiration Date'), unless
the Final Expiration Date is extended or unless the New Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the New Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain New
Rights or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding New Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each New Right are also subject
to adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the New Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Stock. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Stock. Each Preferred
Share will have 100 votes, voting together with the Common Stock. Finally, in
the event of any merger, consolidation or other transaction in which Common
Stock is exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Stock. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each New Right should approximate the value of one
share of Common Stock.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a New Right will thereafter have
the right to receive, upon the exercise thereof at the then current exercise
price of the New Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the New Right. In the event that any person or group
of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a New Right, other than New
Rights beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
Common Stock having a market value of two times the exercise price of the New
Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may exchange the New Rights
(other than New Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of one Common Stock, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per New Right (subject to adjustment).
17
<PAGE>
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the New Rights
in whole, but not in part, at a price of $.01 per New Right (the 'Redemption
Price'). The redemption of the New Rights may be made effective at such time on
such basis with such conditions as the Board of Directors in its sole discretion
may establish. Immediately upon any redemption of the New Rights, the right to
exercise the New Rights will terminate and the only right of the holders of New
Rights will be to receive the Redemption Price.
The terms of the New Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the New Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) the sum of .001% and the largest percentage of the outstanding
Common Shares then known to the Company to be beneficially owned by any person
or group of affiliated or associated persons and (ii) 10%, except that from and
after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the New Rights.
Until a New Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The foregoing summary of the New Rights is qualified in its entirety by
reference to the New Rights Agreement, a copy of which is filed as Exhibit 22 to
this Statement and is incorporated herein by reference.
California Takeover Statutes. California law requires that holders of
non-redeemable common stock receive non-redeemable common stock in a merger of a
corporation with a holder (or such holder's affiliate) of more than 50% of the
voting power of such corporation but less than 90% of such outstanding shares of
common stock, unless all of the holders of such common stock consent to the
transaction or it is approved by the California Department of Corporations at a
'fairness hearing' held with respect to such transaction. This provision of
California law may have the effect of making a 'cash-out' merger by a majority
shareholder more difficult to accomplish.
California law also provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization (including certain mergers) or
for a sale of assets is made by an interested party (generally a controlling or
managing party of the target corporation), an affirmative opinion in writing as
to the fairness of the consideration to be paid to the shareholders of the
target must be delivered to such shareholders. Furthermore, if a tender of
shares or vote is sought pursuant to an interested party's proposal and another
party subsequently makes a proposal at least ten days prior to the date set for
acceptance of the original interested party proposal, the shareholders of the
target company must be informed of the later offer and be afforded a reasonable
opportunity to withdraw any vote, consent or proxy theretofore given, or to
withdraw any shares tendered in response to the original interested party
proposal, as the case may be.
California law provides that in any action to attack the validity of a
reorganization (including certain mergers) or to have such reorganization set
aside or rescinded, a party to such a reorganization which controls another
party to the reorganization shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and a person who controls two or more parties to a reorganization shall
have the burden of proving that the transaction is just and reasonable as to the
shareholders of any party so controlled.
Several other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations that are incorporated in, or that
have substantial assets, shareholders, principal executive offices or principal
places of business in, or whose business operations have substantial economic
effects in such states. In Edgar v. MITE Corp., the Supreme Court of the United
States invalidated on constitutional grounds the Illinois Business Takeover
Statute which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1997 in
CTS Corp. V. Dynamics Corp. of America, the United
18
<PAGE>
States Supreme Court held that the State of Indiana permissibly could, as a
matter of corporate law and, in particular, with respect to those aspects of
corporate law relating to corporate governance, constitutionally disqualify a
potential acquiror from voting on the affairs of a target corporation without
the prior approval of the remaining shareholders. In such case, the law before
the Court was by its terms applicable only to corporations that had a
substantial number of shareholders in the state and were incorporated there.
The Company, directly or through its subsidiaries, conducts business in
numerous states throughout the United States, some of which have enacted forms
of anti-takeover laws. The Company can not state whether any of these laws could
or will, by their terms, apply to the Kollmorgen Offer or the Proposed Merger.
If it is asserted that one or more state takeover laws is or are applicable to
the Kollmorgen Offer or the Proposed Merger, and a court having jurisdiction
over such matter does not determine that it is inapplicable as applied to either
of them, Bidder or Parent may be required to file certain information with, or
receive additional approvals from, the relevant state authorities or be subject
to being enjoined from accepting payment for any Shares tendered pursuant to the
Kollmorgen Offer or from consummating the Proposed Merger, or the consummation
of either of them may be delayed.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
Exhibit 1 -- Pages 2, 3 and 5 through 10 of Proxy Statement dated March 14,
1997 relating to the Company's 1997 Annual Meeting of
Stockholders.*
Exhibit 2 -- Form of Indemnification Agreement by and between the Company and
each of the Company's directors and with Messrs. Schlotterbeck and
Hickman.*
Exhibit 3 -- Employment Agreement dated as of February 17, 1997 by and between
the Company and Lester Hill (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the period ending
March 28, 1997 (the 'March 1997 10-Q')).
Exhibit 4 -- Employment Agreement dated as of July 7, 1997 by and between the
Company and David L. Schlotterbeck (incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the period ended
June 23, 1997 (the 'June 1997 10-Q')).
Exhibit 5 -- Employment Agreement dated as of July 7, 1997 by and between the
Company and Winston E. Hickman (incorporated by reference to the
June 1997 10-Q).
Exhibit 6 -- Nonstatutory Stock Option Agreement dated as of February 18, 1997
by and between the Company and Lester Hill (incorporated by
reference to the March 1997 10-Q).
Exhibit 7 -- Nonstatutory Stock Option Agreement dated as of July 7, 1997 by
and between the Company and David Schlotterbeck (incorporated by
reference to the June 1997 10-Q).
Exhibit 8 -- Nonstatutory Stock Option Agreement dated as of July 7, 1997 by
and between the Company and Winston Hickman (incorporated by
reference to the June 1997 10-Q).
Exhibit 9 -- 1997 Pacific Scientific Company Change of Control Severance Plan.*
Exhibit 10 -- First Amendment to Pacific Scientific Company 1995 Stock Option
Plan.*
Exhibit 11 -- First Amendment to Pacific Scientific Company 1992 Key Employee
Stock Option Plan.*
Exhibit 12 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and David
Schlotterbeck.*
Exhibit 13 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and Lester Hill.*
Exhibit 14 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and Winston E.
Hickman.*
Exhibit 15 -- Letter to Mr. Lester Hill, Chairman and Chief Executive Officer of
the Company, from Mr. Gideon Argov, President and Chief Executive
Officer of Kollmorgen, dated December 9, 1997.*
Exhibit 16 -- Letter to Mr. Lester Hill, Chairman and Chief Executive Officer of
the Company, from Mr. Gideon Argov, President and Chief Executive
Officer of Kollmorgen, dated December 15, 1997.*
Exhibit 17 -- Letter to Shareholders of the Company dated December 22, 1997
(included with the Schedule 14D-9 mailed to Shareholders).*
Exhibit 18 -- Press Release issued by the Company on December 22, 1997.*
19
<PAGE>
Exhibit 19 -- Complaint in Kollmorgen Corporation vs. Pacific Scientific Company
(U.S. District Court for the Federal District of California) filed
on December 15, 1997.*
Exhibit 20 -- Complaint in Steiner vs. Pacific Scientific Company filed on
December 15, 1997 (Superior Court of California, County of
Orange).*
Exhibit 21 -- Restated Articles of Incorporation of the Company as filed with
the Secretary of State of the State of California on July 28, 1995
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ending June 30, 1995).
Exhibit 22 -- Preferred Share Purchase Rights Plan, dated as of December 21,
1997, by and between the Company and ChaseMellon Shareholder
Services, L.L.C. as Rights Agent.*
Exhibit 23 -- Pacific Scientific Preliminary Proxy Statement Pursuant to Section
14(a) of the Exchange Act as filed on December 22, 1997
(incorporated by reference to the Pacific Scientific Preliminary
Proxy Statement Pursuant to Section 14(a) of the Exchange Act as
filed on December 22, 1997).
Exhibit 24 -- Form of Certificate of Determination of Preference of the Series B
Junior Participating Preferred Stock.*
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*Filed herewith
20
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
PACIFIC SCIENTIFIC COMPANY
By: /s/ LESTER HILL
Name: Lester Hill
Title: Chairman and Chief Executive Officer
Dated: December 22, 1997
21
<PAGE>
ANNEX A
BancAmerica
ROBERTSON STEPHENS
December 21, 1997
Board of Directors
Pacific Scientific Company
620 Newport Center Drive
Suite 700
Newport Beach, California 92660
Members of the Board:
We understand that Torque Corporation ('Purchaser'), a Delaware corporation
and a wholly owned subsidiary of Kollmorgen Corporation ('Kollmorgen' and,
together with Purchaser, the 'Bidder'), a New York corporation, has proposed to
acquire all of the equity interests in Pacific Scientific Company, a California
corporation (the 'Company'), pursuant to (i) a tender offer (the 'Kollmorgen
Offer') to purchase, for $20.50 in cash per share, 6,347,241 shares of common
stock, par value $1.00 per share ('Common Stock') of the Company, including
certain associated preferred stock purchase rights (the 'Rights' and, together
with the Common Stock, the 'Shares'), and (ii) following consummation of the
Kollmorgen Offer, a merger or similar business combination pursuant to which
each Share would be converted into the right to receive a number of shares of
common stock, par value $2.50 per share, of Kollmorgen (the 'Kollmorgen Common
Stock') determined by a formula based upon the price of Kollmorgen Common Stock
during a fixed period prior to the time the Proposed Merger would be voted upon
by the holders of Common Stock and having a nominal value of $20.50 per share of
Common Stock (the 'Proposed Merger,' and together with the Kollmorgen Offer, the
'Business Combination'), all as set forth in the Offer to Purchase and Letter of
Transmittal, each dated December 15, 1997 (together, the 'Offer to Purchase')
and the Schedule 14D-1 of which the Offer to Purchase is a part.
You have asked our opinion with respect to the adequacy, from a financial
point of view, to the shareholders of the Company (other than the Bidder), of
the consideration offered in the Business Combination.
For purposes of this opinion we have (i) reviewed the Offer to Purchase and
the proposed terms of the Business Combination; (ii) reviewed financial
information with respect to the Company furnished to us by the Company,
including certain internal financial analyses and forecasts and projections
prepared by the management of the Company; (iii) reviewed publicly available
information relating to the Company; (iv) held discussions with the management
of the Company concerning the business, past and current operations, financial
condition and future prospects of the Company; (v) reviewed the stock price and
trading histories of the Company and Kollmorgen; (vi) reviewed publicly
available information relating to Kollmorgen; (vii) considered alternative
transactions possibly available to the Company; and (viii) made such other
studies and inquiries, and reviewed such other data, as we deemed relevant.
In connection with our opinion, we assumed and relied upon, without
independent verification, the accuracy and completeness of all information
reviewed by us in connection with our opinion and have relied upon the
assurances of management of the Company that they are not aware of any facts
that would make such information inaccurate or misleading. Furthermore, we did
not obtain any independent evaluation or appraisal of the properties or assets
or liabilities (contingent or otherwise) of the Company, nor were we furnished
with any such evaluation or appraisal. With respect to the financial forecasts
and projections (and the assumptions and bases therefor) of the Company which we
have reviewed, upon advice of the Company we have assumed that such forecasts
and projections have been reasonably prepared in good faith on the basis of
reasonable assumptions and reflect the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company, and that such forecasts and projections will be
realized in
A-1
<PAGE>
the amounts and in the time periods currently estimated by the management of the
Company. We have, with your consent, compared the consideration offered in the
Business Combination to strategic and other alternatives which may be available
to the Company and which we have discussed with you. We reviewed publicly
available information concerning Kollmorgen but did not hold discussions with
the management of Kollmorgen. We have also assumed that the Kollmorgen Offer
will be conducted upon the terms set forth in the Offer to Purchase without
material alteration thereof. We have relied as to all legal matters relevant to
rendering our opinion on the advice of counsel.
While we believe that our review, as described herein, is an adequate basis
for the opinion that we express, this opinion is necessarily based upon market,
economic, and other conditions as in effect on, and information made available
to us as of, the date hereof. It should be understood that subsequent
developments may affect this opinion and that we disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
this opinion which may come or be brought to our attention after the date of
this opinion.
Our opinion is limited to the adequacy, from a financial point of view and
as of the date hereof, of the consideration offered in the Business Combination.
We do not express any opinion as to the value of the Common Stock or the
Kollmorgen Common Stock.
We may, from time to time, trade in the securities of the Company and
Kollmorgen for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or a short position in such securities.
We are acting as financial advisor to the Company in connection with the
Kollmorgen Offer and may provide financial advisory and financing services with
respect to other transactions in the future. We will receive fees in connection
with the rendering of this opinion and rendering such services, and the Company
has agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion or such services.
Our opinion is being rendered at the request of and for the use and benefit
of the Board of Directors of the Company. Our opinion is not intended to be and
does not constitute a recommendation to any shareholder of the Company as to
whether to tender Shares in the Kollmorgen Offer or what actions to take with
respect to the pending consent solicitation by Kollmorgen or the Proposed
Merger.
Based upon and subject to the foregoing, it is our opinion, as investment
bankers, that, as of the date hereof, the consideration offered in the Business
Combination is inadequate to the shareholders of the Company (other than the
Bidder) from a financial point of view.
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
A-2
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
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Exhibit 1 -- Pages 2, 3 and 5 through 10 of Proxy Statement dated March 14,
1997 relating to the Company's 1997 Annual Meeting of
Stockholders.*
Exhibit 2 -- Form of Indemnification Agreement by and between the Company and
each of the Company's directors and with Messrs. Schlotterbeck and
Hickman.*
Exhibit 3 -- Employment Agreement dated as of February 17, 1997 by and between
the Company and Lester Hill (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the period ending
March 28, 1997 (the 'March 1997 10-Q')).
Exhibit 4 -- Employment Agreement dated as of July 7, 1997 by and between the
Company and David L. Schlotterbeck (incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the period ended
June 23, 1997 (the 'June 1997 10-Q')).
Exhibit 5 -- Employment Agreement dated as of July 7, 1997 by and between the
Company and Winston E. Hickman (incorporated by reference to the
June 1997 10-Q).
Exhibit 6 -- Nonstatutory Stock Option Agreement dated as of February 18, 1997
by and between the Company and Lester Hill (incorporated by
reference to the March 1997 10-Q).
Exhibit 7 -- Nonstatutory Stock Option Agreement dated as of July 7, 1997 by
and between the Company and David Schlotterbeck (incorporated by
reference to the June 1997 10-Q).
Exhibit 8 -- Nonstatutory Stock Option Agreement dated as of July 7, 1997 by
and between the Company and Winston Hickman (incorporated by
reference to the June 1997 10-Q).
Exhibit 9 -- 1997 Pacific Scientific Company Change of Control Severance Plan.*
Exhibit 10 -- First Amendment to Pacific Scientific Company 1995 Stock Option
Plan.*
Exhibit 11 -- First Amendment to Pacific Scientific Company 1992 Key Employee
Stock Option Plan.*
Exhibit 12 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and David
Schlotterbeck.*
Exhibit 13 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and Lester Hill.*
Exhibit 14 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and Winston E.
Hickman.*
Exhibit 15 -- Letter to Mr. Lester Hill, Chairman and Chief Executive Officer of
the Company, from Mr. Gideon Argov, President and Chief Executive
Officer of Kollmorgen, dated December 9, 1997.*
Exhibit 16 -- Letter to Mr. Lester Hill, Chairman and Chief Executive Officer of
the Company, from Mr. Gideon Argov, President and Chief Executive
Officer of Kollmorgen, dated December 15, 1997.*
Exhibit 17 -- Letter to Shareholders of the Company dated December 22, 1997
(included with the Schedule 14D-9 mailed to Shareholders).*
Exhibit 18 -- Press Release issued by the Company on December 22, 1997.*
Exhibit 19 -- Complaint in Kollmorgen Corporation vs. Pacific Scientific Company
(U.S. District Court for the Federal District of California) filed
on December 15, 1997.*
Exhibit 20 -- Complaint in Steiner vs. Pacific Scientific Company filed on
December 15, 1997 (Superior Court of California, County of
Orange).*
Exhibit 21 -- Restated Articles of Incorporation of the Company as filed with
the Secretary of State of the State of California on July 28, 1995
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ending June 30, 1995).
Exhibit 22 -- Preferred Share Purchase Rights Plan, dated as of December 21,
1997, by and between the Company and ChaseMellon Shareholder
Services, L.L.C. as Rights Agent.*
Exhibit 23 -- Pacific Scientific Preliminary Proxy Statement Pursuant to Section
14(a) of the Exchange Act as filed on December 22, 1997
(incorporated by reference to the Pacific Scientific Preliminary
Proxy Statement Pursuant to Section 14(a) of the Exchange Act as
filed on December 22, 1997).
Exhibit 24 -- Form of Certificate of Determination of Preference of the Series B
Junior Participating Preferred Stock.*
- ------------------
*Filed herewith
<PAGE>
EXHIBIT 1
brokers that do not receive instructions from beneficial owners are entitled to
vote on management proposals. In the event of a broker non-vote with respect to
a management proposal, arising from the absence of authorization by the
beneficial owner to vote as to a management proposal, the proxy will not be
deemed as present and entitled to vote as to the management proposal for
determining the total number of shares of which a majority is required for
adoption. Where no specification is made on a properly executed and returned
form of proxy, the shares will be voted in favor of the election of the nominees
for director and for the ratification of the appointment of Deloitte & Touche
LLP as independent public accountants, as indicated in the form of proxy.
COMMON STOCK OWNERSHIP
The Company knows of no beneficial owners of more that 5% of the Company's
Common Stock as of February 28, 1997.
The following table sets forth information with respect to beneficial
ownership of the Company's Common stock held by its directors, by each of the
executive officers named in the Summary Compensation Table beginning on page 5
(the "Summary Compensation Table"), and by all directors and executive officers
as a group, as of February 28, 1997.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1)(2) Percent of Class(3)
- ------------------------ -------------------------- -------------------
Directors:
Walter F. Beran 3,000 *
Ralph O. Briscoe 17,000 *
Lester Hill, Chairman 50,000(4) *
Ralph D. Ketchum 8,500 *
William A. Preston 10,000 *
Millard H. Pryor, Jr. 4,000 *
Officers:
Edgar S. Brower(5) 314,248 2.5%
Robert L. Day(6) 3,500 *
Richard G. Knoblock 12,250 *
Ronald B. Nelson 24,036 *
Richard V. Plat 241,278 1.9%
All Directors and Executive
Officers as a Group
(16 persons): 687,812 5.4%
- ------------
* Represents less than 1%.
(1) Information with respect to beneficial ownership is based upon the
Company's stock records, and data supplied to the Company by the
stockholders.
(2) Includes certain shares which the following have the right to acquire
within sixty days of February 28, 1997, through the exercise of stock
options under the Company's stock option plans: Mr. Brower, 179,000 shares;
Mr. Day, 3,500 shares: Mr. Knoblock, 12,250 shares; Mr. Nelson, 21,536
shares; Mr. Plat, 82,000 shares.
(3) The class consists of 12,724,048 shares.
(4) In February 1997, the Board awarded Mr. Hill an option allowing him to
purchase 250,000 shares of the Company's Common Stock at a price of
$12,625, the fair market value on the date of the grant. The vesting of
these shares is 50,000 immediately and 50,000 each on the next four
anniversaries of his employment.
(5) Mr. Brower resigned as a director and officer on February 19, 1997.
(6) Mr. Day retired from the Company on December 27, 1996.
2
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in beneficial ownership of Common Stock and other equity securities of
the Company. The Company is not aware of any holder of more than 10% of the
Company's Common Stock. The Company believes that during the fiscal year ended
December 27, 1996, its executive officers and directors complied with all
Section 16(a) filing requirements. In making these statements, the Company has
relied upon a review of the forms furnished to it and the representations of its
directors and officers.
ELECTION OF DIRECTORS
(Proposal No. 1)
At the annual meeting, it is intended that the persons named in the proxy
will vote for the election of the six nominees listed below, each director to
serve until the next annual meeting or until his successor is elected and
qualified. Directors are to be elected by a plurality of the votes cast at the
annual meeting in person or by proxy by the holders of shares entitled to vote
in the election. Mr. Brower resigned as Chairman, President and Chief Executive
Officer on February 19, 1997 and was succeeded by Mr. Hill. Mr. Thomas P.
Stafford, currently a director, has notified the Board of his intention to
retire as of the next election. Therefore, in February 1997, the Board amended
the Company's Bylaws, in accordance with the terms thereof, to reduce the number
of authorized directors from seven to six, effective with the reelection of the
Board on April 16, 1997. If any nominee, for any reason currently unknown,
cannot be a candidate for election, proxies will be voted for the election of a
substitute recommended by the Board.
The Board recommends that stockholders vote "FOR" all such nominees.
Biographical summaries and ages of individuals nominated by the Board of
Directors for election as directors appear below. Data with respect to the
number of shares of the Company's common stock beneficially owned by each of
them, directly or indirectly, as of February 28, 1997, appears on page 2 of this
proxy statement.
Information concerning Nominees for Director
Walter F. Beran; age 71; Chairman, Pacific Alliance Group
Mr. Beran was elected a director of the Company in 1987. He served as
Vice Chairman and Western Regional Managing Partner of Ernst & Young
LLP from 1971 until his retirement on September 30, 1986, when he
became an independent consultant. He joined the Pacific Alliance Group
(a financial services firm) in 1988, as Chairman. Mr. Beran also
serves as a director of Arco Chemical Company, Fleetwood Enterprises
Inc., and Vencor Inc.
Ralph O. Briscoe; age 69; Business Consultant
Mr. Briscoe was elected a director of the Company in 1985. Prior to
his retirement in 1986, Mr. Briscoe was President, Chief Executive
Officer and a director of Triton Group Ltd. Since his retirement, he
has worked as a business consultant.
Lester "Buck" Hill; age 53; Chairman of the Board, President and Chief
Executive Officer of the Company
Mr. Hill was elected a director, Chairman of the Board, President and
Chief Executive Officer of the Company in February 1997. Prior to
joining the Company, Mr. Hill was a business consultant since 1996;
from 1992 to 1995, he was Executive Vice President of the
Communications Division of General Instrument Corporation; from 1989
to 1992, he was President of Portable Systems Division of Symbol
Technologies, Inc.; from 1987 to 1989, he was President and CEO of
Data Design Laboratories Inc.; and from 1968 to 1987, he was employed
by TRW, Inc., most recently as Vice President and General Manager of
the Electronic Components Group. Mr. Hill also serves as a director of
Metrologic Instruments, Inc. and the Board of Advisors of
Femtometries, Inc.
3
<PAGE>
Nominating Committee
The Nominating Committee, consisting of Messrs. Beran, Briscoe and Stafford
(Chairman), makes recommendations to the Board of Directors regarding candidates
to fill future vacancies on the Board. There is no established procedure for
submission of nominations by stockholders. The Nominating Committee did not meet
during the last fiscal year.
Succession Committee
The Succession Committee, consisting of Messrs. Briscoe, Preston (Chairman)
and Stafford, makes recommendations, as required, concerning the selection of
the Company's executive officers. The Committee met six times during the past
year.
Director's Compensation
The Directors' Compensation Plan provides a $25,000 per year retainer with
no other meeting fees or additional retainer payable. Any employee of the
Company, who is also a director, receives no additional compensation or benefit
as a result of being a director.
Director's Retirement Plan
The Company maintains a retirement plan for non-employee members of the
Board. The annual benefit paid under the Plan is $12,000 for directors retiring
before 1994 and $16,000 for directors retiring after 1994. The benefit commences
any time after age sixty-five (65), provided the director is no longer serving
as a director of the Company. Directors who leave the Board before age
sixty-five (65) after completing five (5) years of Board service are eligible to
receive a benefit upon attaining age sixty-five (65).
The plan provides that the retirement benefit will be paid over the lesser
of twelve (12) years or the number of years a director serves on the Board. In
the event of death while a director, a surviving spouse is entitled to receive
an annual benefits equal to 50% of the annual retainer payable to the director
at the date of death, such benefit to be paid for a period equal to the total
number of years of service the deceased director served on the Board, not to
exceed twelve (12) years.
The benefits paid under this plan are a direct obligation of the Company
and are reflected as a financial statement liability determined in accordance
with accepted actuarial assumptions.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table discloses compensation received for the three fiscal
years ended December 27, 1996 by the Company's Chief Executive Officer, and the
Company's next four most highly paid executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensations Compensation
---------------------------------------------------- ------------
Other Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary($) Bonus($)(1) ($)(2) Options (a)(3) ($)(4)
--------------------------- ---- --------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edgar S. Brower(5) 1996 $403,198 - - 20,000 $ 4,750
Chairman of the Board, Director, 1995 376,640 $155,341 $6,000 20,000 90,620
President and Chief Executive Officer 1994 339,954 175,000 7,500 80,000 120,620
Richard V. Plat ....................... 1996 298,355 - - 10,000 4,750
Executive Vice President, 1995 284,904 100,924 - 10,000 4,620
Chief Financial Officer and Secretary 1994 234,365 90,000 - 34,000 4,620
Ronald B. Nelson ...................... 1996 179,036 61,805 - 5,000 4,476
Vice President and President, 1995 167,178 87,768 - 4,000 4,180
Motor Products 1994 158,415 75,000 - 7,000 3,850
Ronald G. Knoblock..................... 1996 163,270 66,086 - 5,000 4,031
Vice President and President, 1995 147,117 64,150 - 4,000 3,678
HTL/Kin-Tech and Electro Kinetics 1994 130,000 - - 5,600 1,875
Robert L. Day(6)....................... 1996 132,056 59,772 - 1,000 2,969
Vice President and President, 1995 128,657 12,343 - 2,000 2,722
Energy Dynamics Division 1994 117,416 21,208 - 5,200 2,248
- -------------------------
</TABLE>
(1) The amounts shown in this column reflects payments under the Company's
Management Incentive Plan which is described more thoroughly in the
Compensation Committee Report on Executive Compensation, which begins on
page 9 of this proxy statement.
(2) The amounts shown in this column reflect the non-preferential dividends
earned by Mr. Brower as part of his long-term incentive agreement with the
Company. Mr. Brower held 100,000 shares of restricted common stock. The
restricted term expired in July 1995, therefore, this amount represents the
non-preferential dividends paid by the Company during 1994 and the first
two quarters of 1995. The fair market value of the 100,000 shares of
restricted stock was $1,950,000 on the date that the restriction expired.
(3) For the three-year period ended December 27, 1996, no restricted stock
awards were made.
(4) The amounts disclosed in this column include:
(a) For Mr. Brower, the Company accrued $86,000 and $116,000 in fiscal
1995 and 1994, respectively, on behalf of Mr. Brower for his
supplementary Executive Retirement Plan. No accrual was necessary for
this Plan during 1996, as the Plan expense was fully accrued at
December 29, 1995. The Executive Retirement Plan is provided to Mr.
Brower only, and is in addition to and duplicates the benefits
provided by the Post-1985 Retirement Plan for employees hired after
January 1, 1985. This plan is not separately funded and rights to
receive payment are identical to those of an unsecured creditor.
(b) The Company contributions, under Pacific Scientific's Savings Plan, a
defined contribution, were:
1996 1995 1994
---- ---- ----
Mr. Brower............. 4,750 $4,620 $4,620
Mr. Plat .............. 4,750 4,620 4,620
Mr. Nelson ............ 4,476 4,180 3,850
Mr. Knoblock .......... 4,031 3,678 1,875
Mr. Day ............... 2,969 2,722 2,248
(5) Mr. Brower resigned as a director and officer on February 19, 1997.
(6) Mr. Day retired from the Company on December 27, 1996.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1996 to
the named executive officers.
<TABLE>
<CAPTION>
Individual Grants Potential
Number of % of Total Realizable Value at
Securities Options Assumed Annual
Underlying Granted to Rates of Stock Price
Options Employees in Exercise Appreciation
Granted Fiscal Year Price Expiration for Option Term(3)
Name (#)(1) 1996(2) ($/SH) Date 5% 10%
-------- ---------- -------------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Edgar S. Brower (4) 20,000 17% $20.88 June 2006 $680,064 $1,082,887
Richard V. Plar 10,000 9% 20.88 June 2006 340,032 541,444
Ronald B. Nelson 5,000 4% 20.88 June 2006 170,016 270,722
Richard G. Knobleck 5,000 4% 20.88 June 2006 170,016 270,722
Robert L. Day(3) 1,000 1% 20.88 June 2006 34,003 54,144
</TABLE>
(1) All options granted by the Company are pursuant to the Pacific Scientific
Company 1995 Stock Option Plan, as described in the Compensation Committee
report on Executive Compensation under the caption "Long-Term Incentive
Compensation" on page 10 of this proxy statement. The shares become fully
exercisable after four years with normal vesting occurring at a rate of 25%
per year. The Stock Option Plan grants broad discretion to the Board of
Directors to change or modify the material terms of option grants.
(2) The Company granted options representing 117,000 shares to employees in
fiscal 1996.
(3) The dollar amounts in these columns are determined using assumed rates of
appreciation set by the Securities Exchange Commission and are not intended
to forecast future appreciation, if any, in the market value of the
Company's Common Stock. Such amounts are based on the assumption that the
named persons hold the options for the full ten-year term. The actual value
of the options will vary in accordance with the market price of the
Company's Common Stock.
(4) Mr. Brower resigned as a director and officer on February 19, 1997.
(5) Mr. Day retired from the Company on December 27, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on the number of exercised and
unexercised options and the value of the in-the-money unexercised options held
by the named executive officers at December 27, 1996. The Company currently does
not grant stock appreciation rights.
<TABLE>
<CAPTION>
Number of Unauthorized Value of Unexercised
Options In-the-Money Options
at Fiscal Year-End(#) at Fiscal Year-end ($)(2)
--------------------- -------------------------
Shares
Acquired Value
On Exercise Realized
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edgar S. Brower(3) -- -- 174,000 100,000 $519,938 $ 85,938
Richard V. Plat ... 52,300 $614,525 79,500 44,500 248,438 34,375
Ronald B. Nelson .. -- -- 20,286 14,764 55,614 9,045
Richard G. Knoblock -- -- 11,000 13,200 19,125 6,375
Robert L. Day(4) .. -- -- 3,500 6,800 4,644 4,644
</TABLE>
(1) The amounts in this column were calculated using the difference between the
closing market price of the Company's Common stock at exercise minus the
option exercise price.
(2) The amounts in this column were calculated by using the difference between
the closing price of the Company's Common Stock on December 27, 1996 and
the option exercise prices. The closing price of the Company's Common Stock
on December 27, 1996 on the New York Stock Exchange was $11.50.
(3) Mr. Brower resigned as a director and officer on February 19, 1997.
(4) Mr. Day retired from the Company on December 27, 1996.
7
<PAGE>
Retirement Benefits
To provide for retirement income for its employees, the Company has pension
plans designed to qualify under applicable provisions of the Internal Revenue
Code of 1986, as amended. All full-time employees and certain part-time
employees in the United States are eligible to participate in a pension plan
after one year of service. The plans are funded solely by Company contributions.
Effective January 1, 1985, the Company's pension plans were revised to
combine all existing employee group retirement plans of the Company into one
defined benefit plan. Employees hired on and after January 1, 1985 participate
in the Post-1985 Retirement Plan. Employees hired prior to January 1, 1985 have
the option of receiving retirement benefits from the Pre-1985 or Post-1985
Retirement Plan whichever plan provides the higher benefit.
Pre-1985 Retirement Plan
Estimated Annual Retirement Benefits
Highest
Five-Year 15 20 25 30 35
Average Years of Years of Years of Years of Years of
Compensation Service Service Service(1) Service(1) Service(1)
- ------------ -------- -------- ---------- ---------- ----------
$125,000...... $ 48,800 $ 65,500 $ 80,000 $ 80,000 $ 80,000
175,000...... 70,700 94,700 115,000 115,000 115,000
225,000...... 92,600 123,900 150,000 150,000 150,000
275,000...... 114,500 153,100 185,000 185,000 185,000
325,000...... 136,400 182,300 220,000 220,000 220,000
375,000...... 158,300 211,500 255,000 255,000 255,000
425,000...... 180,200 240,700 290,000 290,000 290,000
475,000...... 202,100 269,900 325,000 325,000 325,000
525,000...... 224,000 299,100 360,000 360,000 360,000
Post-1985 Retirement Plan
Estimated Annual Retirement Benefits
Highest
Five-Year 15 20 25 30 35
Average Years of Years of Years of Years of Years of
Compensation Service Service Service Service(1) Service(1)
- ------------ -------- -------- -------- ---------- ----------
$125,000...... $ 26,100 $ 34,700 $ 43,400 $ 52,100 $ 60,800
175,000...... 37,300 49,700 62,200 74,600 87,000
225,000...... 48,600 64,700 80,900 97,100 133,300
275,000...... 59,800 79,700 99,700 119,600 139,500
325,000...... 71,100 94,700 118,400 142,100 165,800
375,000...... 82,300 109,700 137,200 164,600 192,000
425,000...... 93,600 124,700 155,900 187,100 218,300
475,000...... 104,800 139,700 174,700 209,600 244,500
525,000...... 116,100 154,700 193,400 232,100 270,800
(1) Maximum benefits are obtained at 24 pension service years.
The compensation covered by the plans for which benefits are summarized in
the tables above include salary, wages, bonuses and commissions. The covered
compensation for each of the executive officers named in the Summary
Compensation Table is the highest 5 consecutive years' average of the past 10
years of salary and bonus. Mr. Brower is provided with a supplementary Executive
Retirement Plan which is in addition to and duplicates the benefits provided by
the Post-1985 Company Plan, including the Pacific Scientific Company Pension
Restoration Plan. Mr. Hill is provided with a Special Supplemental Retirement
Plan, consisting of a monthly defined contribution of $5,000. This Plan is in
addition to the Company's regular Employee Pension Plan and the Pacific
Scientific Company Pension Restoration Plan.
8
<PAGE>
The officers named in the Summary Compensation Table have been credited
with the following years of service; Mr. Brower, 11 years; Mr. Plat, 19 years;
Mr. Nelson, 7 years; Mr. Knoblock, 8 years and Mr. Day, 15 years. Of these
officers Mr. Plat is the only one to have the option of receiving benefits in
either of the plans as described above.
The benefits under the Pre-1985 Retirement Plan are subject to the
deduction of a portion of Social Security of equivalent benefits (maximum
deduction limited to 50%, which is reached at 18.75 pension service years) and
are computed on the ten-year certain and life amounts.
The benefits under the Post-1985 Retirement Plan are not subject to any
deduction for Social Security (nor are there any other offset amounts) and are
computed on the basis of an excess plan.
During 1994, the Company adopted the Pacific Scientific Company Pension
Restoration Plan. This plan was implemented to restore the pension benefit that
would otherwise be payable but for the $150,000 per year pay limitation imposed
during 1994 by Section 401(A)(17) of the Internal Revenue Code. This plan
preserves the pension benefit in effect prior to 1994. As a result, if an
individual's compensation exceeds the prescribed limits, the excess benefits
will be paid by the Company pursuant to this plan.
Employment Contracts and Change in Control Arrangements
In February 1997, Mr. Hill joined the Company as Chairman of the Board,
Chief Executive Officer and President. Mr. Hill is to receive an annual salary
of $325,000 and other benefits. Mr. Hill is also eligible for a bonus based on
the achievement of agreed upon objectives. If Mr. Hill's employment is
terminated by the Company other than for cause, death or disability, Mr. Hill is
to receive a severance payment equal to 24 months of his then current salary. In
the event of a change of control of the Company, Mr. Hill may be entitled to
severance equal to 24 months of his then current salary and the options granted
to Mr. Hill upon joining the Company automatically vest. There are no special
termination benefits or change of control benefits for other officers of the
Company.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Compensation Committee of the Board of Directors (the "Committee") is
composed of outside directors and is responsible for developing and making
recommendations to the Board with respect to the compensation received by the
Company's executive officers (including the named executive officers).
The Committee has available to it an outside compensation consultant and
access to independent compensation data. The general objectives of the
compensation program are:
o Competitiveness and design flexibility to attract and retain top
caliber management
o Pay for performance
o Focus on stockholder value creation
The executive compensation program provides an overall level of
compensation opportunity that is competitive within similar industries as well
as within a broader group of companies of comparable size and complexity. Actual
compensation levels may be higher or lower than the average competitive levels
in the surveyed group of companies based upon the discretion of the Committee as
well as individual performance.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of base
salary, annual incentive compensation, long-term incentive compensation in the
form of stock options and various benefits including medical and pension plans
generally available to employees of the Company.
9
<PAGE>
Base Salary
Base salary levels for the Company's executive officers are competitive and
generally set at the median, relative to other comparable manufacturing
companies of similar size and complexity. In determining base salary, the
Committee also takes into consideration qualifications, experience, performance
and other specific issues particular to the Company.
Annual Incentive Compensation
The Management Incentive Plan is the Company's annual bonus program for
executive officers and key managers. Approximately 75 employees were eligible
for bonus incentive compensation during 1996. The purpose of the plan is to
provide a direct financial incentive in the form of an annual cash bonus to
executives and key employees to achieve their respective business units' or the
Company's annual goals. Target goals for the Company's and the business units'
performances are set at the beginning of each year. The measures of the
Company's performance include pre-tax income, management of receivables,
inventory turns and other factors. No bonus is paid unless a 75% performance
threshold is exceeded. A full target bonus is paid only if the goals are fully
met. Exceeding goals can result in a bonus equal to 150% of the target bonus.
Target bonus awards, as a percent of base salary, are set at a competitive level
for a board group of companies of comparable size and complexity. Discretionary
bonuses, usually not to exceed 10% of base salary, are sometimes awarded under
special circumstances to employees who have not qualified under the regular
bonus program but who, in the judgment of the Compensation Committee, have made
outstanding contributions during the past year.
The Omnibus Reconciliation Act of 1993 (OBRA) limited deductible senior
officer annual compensation to $1,000,000 unless the compensation qualifies as
"performance-based" compensation under Internal Revenue Code Section 162(m)
"Code Section 162(m)." In general, the Company does not believe the compensation
payable to the Company's senior officers will exceed $1,000,000, however, the
Company will continue to evaluate the requirements of the Code Section 162(m)
and consider the deductibility of senior officer compensation.
Long-Term Incentive Compensation
The 1995 Stock Option Plan is the Company's long-term incentive program for
executive officers and key employees. The objective of the program is to align
the executives' and stockholders' long-term interests by creating a strong and
direct link between executive pay and stockholder return and to enable the
executives to develop and maintain a significant, long-term stock ownership
position in the Company's common stock. The proportion of stock options awarded
is a function of salary and position in the Company.
Chief Executive Officer Compensation
Mr. Brower received a salary of $403,198, $376,640 and $339,954 in the
years 1996, 1995 and 1994, respectively. During 1996, his annual salary was
increased by 7%. This increase compares with a 4% average merit increase
received by the Company's other salaried employees in 1996.
Mr. Brower's annual base salary is at approximately the 50th percentile of
other chief executive officers' base salaries, calculated using a compensation
data base for manufacturing companies of like size and, where possible,
organized similarly to Pacific Scientific's divisional structure.
Mr. Brower received no bonus for 1996. For 1995 and 1994, he received
$155,341 and $175,000, respectively. These bonus payments were determined using
the same formula as used for all other key employees.
In accordance with the 1995 Stock Option Plan (as described above), Mr.
Brower received 20,000 stock options in fiscal 1996, 20,000 stock options in
fiscal 1995 and 80,000 stock options were awarded in fiscal 1994.
Members of the Compensation Committee
Thomas P. Strafford, Chairman
William A. Preston
Ralph D. Ketchum
10
<PAGE>
EXHIBIT 2
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into this ______ day of ____________, 199_
("Agreement"), by and between PACIFIC SCIENTIFIC CORPORATION, a California
corporation (the "Corporation", which term shall include any one or more of its
subsidiaries where appropriate), and __________________________________
("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
corporations as directors or officers or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to, and activities on behalf of, such corporations; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons;
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Corporation's shareholders and that the
Corporation should act to assure such persons that there will be increased
certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
undertake additional service for or on behalf of the Corporation on the
condition that he be so indemnified;
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to serve
as as director and/or officer of the Corporation for so long as Indemnitee is
duly elected or appointed and qualified or until such time as Indemnitee
(subject to any contractual obligation or any obligation imposed by operation of
law) tenders his resignation in writing or is removed as a director and/or
officer. This Agreement shall not impose any obligation on the Indemnitee or the
Corporation to continue the Indemnitee's position with the Corporation beyond
any period otherwise applicable.
2. GENERAL. The Corporation shall indemnify, and shall advance Expenses
(as hereinafter defined) to, Indemnitee as provided in this Agreement and to the
fullest extent permitted by law in effect on the date hereof and to such greater
extent as applicable law may thereafter from time to time permit.
<PAGE>
3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, wholly or partly by reason of his Corporate
Status (as hereinafter defined), he is, or is threatened to be made, a party to
any threatened, pending or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Corporation. Pursuant to this
Section 3, Indemnitee shall be indemnified against Expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in the
best interests of the Corporation, and, with respect to any criminal Proceeding,
had no reasonable cause to believe his conduct was unlawful.
4. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4 if, by
reason of his Corporate Status, he is, or is threatened to be made, a party to
any threatened, pending or completed Proceeding brought by or in the right of
the Corporation to procure a judgment in its favor. Pursuant to this Section 4,
Indemnitee shall be indemnified against Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he believed to be in the best interests of the
Corporation and its shareholders. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been adjudged to be liable to
the Corporation if such indemnification is not permitted by California or other
applicable law; provided, however, that indemnification against Expenses shall
nevertheless be made by the Corporation in such event to the extent that the
Superior Court of the State of California, or the court in which such proceeding
shall have been brought or is pending, shall determine.
5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 5 and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal or
withdrawal with or without prejudice, shall be deemed to be a successful result
as to such claim, issue or matter.
6. ADVANCE OF EXPENSES. The Corporation shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty (20) days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee
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to repay any Expenses advanced if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified against such Expenses.
7. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit
to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of such a request for indemnification, advise the Board in writing
that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 7(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the specific case;
(i) if a Change in Control (as hereinafter defined) shall have occurred, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board,
a copy of which shall be delivered to Indemnitee (unless Indemnitee shall
request that such determination be made by the Board or the shareholders, in
which case the determination shall be made in the manner provided below in
clause (ii) or (iii) of this Section 7(b)); (ii) if a Change of Control shall
not have occurred, (A) by the Board by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), (B) if a quorum of the Board
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (C) by the shareholders of the Corporation; or (iii) as provided in Section
8(b) of this Agreement; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information that is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Corporation (irrespective of
the determination as to Indemnitee's entitlement to indemnification), and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 7(b) of this Agreement, the Independent
Counsel shall be selected as provided in this Section 7(c). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board, and the Corporation shall give written notice to Indemnitee advising
him of the identity of the Independent Counsel so selected. If a Change of
Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
given written notice to the Corporation advising it of the identity of
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the Independent Counsel so selected. In either event, Indemnitee of the
Corporation, as the case may be, may within seven (7) days after such written
notice of selection shall have been given, deliver to the Corporation or to
Indemnitee, as the case may be, a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirement of "Independent Counsel" as defined in
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within twenty (20) days after submission by Indemnitee of a written request
for indemnification pursuant to Section 7(a) of this Agreement, no Independent
Counsel shall have been selected or, if selected, shall have been objected to,
in accordance with this Section 7(c), either the Corporation or Indemnitee may
petition the Superior Court of the State of California or other court of
competent jurisdiction for resolution for resolution of any objection that shall
have been made by the Corporation or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom an objection is favorably
resolved or the person so appointed shall act as Independent Counsel under
Section 7(b) of this Agreement. The Corporation shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 7(b) of this Agreement, and the
Corporation shall pay all reasonable fees and expenses incident to the
procedures of this Section 7(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of any
judicial proceeding or arbitration pursuant to Section 9(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
8. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a determination
with respect to entitlement to indemnification hereunder, the person, persons or
entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 7(a) of this Agreement, and the
Corporation shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
(b) If the person, persons or entity empowered or selected under Section 7
of this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made such determination within sixty (60) days after receipt by
the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made, and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such sixty-day period may be extended
for a reasonable time, not to exceed an additional thirty
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(30) days, if the person, persons or entity making the determination with
respect to entitlement to indemnification in good faith requires such additional
time for the obtaining or evaluating of documentation and/or information
relating thereto; and provided, further, that the foregoing provisions of this
Section 8(b) shall not apply (i) if the determination of entitlement to
indemnification is to be made by the shareholders pursuant to Section 7(b) of
this Agreement and if (A) within fifteen (15) days after receipt by the
Corporation of the request for such determination the Board has resolved to
submit such determination to the shareholders for their consideration at an
annual meeting thereof to be held within seventy-five (75) days after such
receipt and such determination is made thereat, or (B) a special meeting of
shareholders is called within fifteen (15) days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within sixty (60) days after having been so called and such determination is
made thereat, or (ii) if the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein by judgment, order, settlement or conviction, or upon a plea of nolo
contendre or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Corporation or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
9. REMEDIES OF INDEMNITEE.
(a) If (i) a determination is made pursuant to Section 7 of this Agreement
that Indemnitee is not entitled to indemnification under this Agreement, (ii)
advancement of Expenses is not timely made pursuant to Section 6 of this
Agreement, (iii) the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 7(b) of this Agreement and such
determination shall not have been made and delivered in a written opinion within
ninety (90) days after receipt by the Corporation of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Corporation of a
written request therefor or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 7 or 8 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of California, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator, pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within one hundred
eighty (180) days following the date on which Indemnitee first has the right to
commence such proceeding pursuant to this Section 9(a). The Corporation shall
not oppose Indemnitee's right to any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification,
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any judicial proceeding or arbitration commenced pursuant to this Section 9
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 9, the Corporation
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 9, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification or (ii) a
prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
(e) If Indemnitee, pursuant to this Section 9, seeks a judicial
adjudication of or an award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all expenses (of the types described in the definition of
Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
(10) SECURITY. To the extent requested by the Indemnitee and approved
by the Board, the Corporation may at any time and from time to time provide
security to the Indemnitee for the Corporation's obligations hereunder through
an irrevocable bank line of credit, funded trust or other collateral. Any such
security, once provided to the Indemnitee, may not be revoked or released
without the prior written consent of Indemnitee.
(11) NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE; SUBROGATION.
(a) The rights to be indemnified and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the
Corporation's Articles of Incorporation, as amended, or Bylaws, any other
agreement, a vote of shareholders or a resolution of directors, or otherwise.
This Agreement shall continue until, and terminate upon, the latter of: (a)
ten (10) years after the date that Indemnitee shall have ceased to serve as a
director and officer of the Corporation or
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fiduciary of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise that Indemnitee served at the request of the
Corporation; or (b) the final termination of all pending Proceedings in respect
of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 9 of this Agreement relating thereto. This Agreement shall be binding
upon the Corporation and its successors and assigns and shall inure to the
benefit of Indemnitee and his heirs, executors and administrators.
(b) If the Corporation maintains an insurance policy or policies providing
liability insurance for directors or officers of the Corporation or fiduciaries
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise that such person serves at the request of the
Corporation, Indemnitee shall be covered by such policy or policies in
accordance with the terms thereof to the maximum extent of the coverage
available for any such director or officer under such policy or policies.
(c) If any payment is made under this Agreement, the Corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Corporation to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
12. SEVERABILITY. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
13. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any claim, issue or matter therein, brought or
made by him against the Corporation, except as may be provided in Section 9(e)
of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) of
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Schedule 14A of Regulation 14A (or in response to any similar item or any
similar schedule or form) promulgated under the Securities Exchange Act of 1934,
as amended (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; provided, however, that, without limitation, such a
Change in Control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii) the
Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (iii) during any period of two (2)
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Corporation's shareholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board.
(b) "Corporate Status" describes the status of a person who is or was or
has agreed to become a director of the Corporation, or is or was an officer,
employee, agent or fiduciary of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
that such person is or was serving at the request of the Corporation.
(c) "Disinterested Director" means a director of the Corporation who is not
and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts and witnesses, travel expenses,
duplicating costs, printing and binding costs, telphone charges, postage,
delivery service fees, and all other disbursements or expenses of the type
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend or investigating a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither at the time of
designation is, nor in the five years immediately preceding such designation
was, retained to represent: (i) the Corporation or Indemnitee in any matter
material to either such party or (ii) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Corporation or Indemnitee in an
action to determine Indemnitee's rights under this Agreement arising on or after
the date of this Agreement, regardless of when the Indemnitee's act or failure
to act occurred.
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(f) "Proceeding" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing and any other
proceeding (including any appeals from any of the foregoing) whether civil,
criminal, administrative or investigative, except one initiated by an Indemnitee
pursuant to Section 9 of this Agreement to enforce his rights under this
Agreement.
15. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience of reference only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
16. MODIFICATION AND WAIVER. This Agreement may be amended from time to
time to reflect changes in California law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter that may be subject to indemnification or advancement of Expenses
covered hereunder; provided, however, that the failure to give any such notice
shall not disqualify the Indemnitee from indemnification hereunder.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i) if
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, at the time of delivery, (ii) if mailed
by certified mail (return receipt requested) with postage prepaid, on the third
business day after the date on which it is so mailed, or (iii) if sent by
facsimile or by telegraph, when confirmation of transmission is indicated by the
sender's telecopy or facsimile machine, and addressed:
(a) if to Indemnitee, to:
__________________________________
__________________________________
(fax)_____________________________
(b) if to the Corporation, to:
__________________________________
__________________________________
(fax)_____________________________
or to such other address as may have been furnished by like notice to Indemnitee
by the Corporation or to the Corporation by Indemnitee, as the case may be.
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19. GOVERNING LAW. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
California applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above set forth.
PACIFIC SCIENTIFIC COMPANY
By:____________________________
Name:__________________________
Title:_________________________
INDEMNITEE
_______________________________
Name:__________________________
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EXHIBIT 9
1997 PACIFIC SCIENTIFIC COMPANY
CHANGE OF CONTROL SEVERANCE PLAN
INTRODUCTION
The Board of Directors of Pacific Scientific Company recognizes that, from
time to time, the Company may explore potential transactions that could result
in a Change of Control. This possibility and the uncertainty it creates may
result in the loss or distraction of employees, to the detriment of the Company
and its shareholders.
The Board considers the avoidance of such loss and distraction to be
essential to protecting and enhancing the best interests of the Company and its
shareholders. The Board also believes that when a Change of Control could be
imminent, the Board should be able to receive and rely on disinterested service
from employees regarding the best interests of the Company and its shareholders
without concern that employees might be distracted or concerned by the personal
uncertainties and risks created by the Change of Control.
In addition, the Board believes that it is consistent with the Company's
employment practices and policies and in the best interests of the Company and
its shareholders to treat fairly its employees whose employment terminates in
connection with or following a Change of Control. Accordingly, the Board has
determined that appropriate steps should be taken to assure the Company of the
continued employment and attention and dedication to duty of its employees and
to seek to ensure the availability of their continued service, notwithstanding
the possibility or occurrence of a Change of Control.
ARTICLE I
ESTABLISHMENT OF PLAN
Effective December 21, 1997, the Company hereby establishes the Pacific
Scientific Company Change of Control Severance Plan, as set forth in this
document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings (unless the context clearly indicates otherwise):
<PAGE>
(a) Base Salary. The annual salary a Participant is entitled to receive
from an Employer, determined before any salary deductions or salary reduction
contributions, but excluding all other cash and noncash compensation and
benefits.
(b) Board. The Board of Directors of Pacific Scientific Company.
(c) Cause. A Participant shall have been terminated for "Cause" if he or
she is terminated because of (A) the Participant's continued willful failure
substantially to perform his or her duties (other than any such actual or
anticipated failure resulting from incapacity due to physical or mental illness
or after the Participant's resignation for Good Reason) after a written demand
for substantial performance is delivered to the Participant by the Company,
which demand specifically identifies the manner in which the Company believes
that the Participant has not substantially performed the Participant's duties;
or (B) the Participant's willful engaging in illegal conduct or gross misconduct
that is materially and demonstrably injurious to the Company. No act, or failure
to act, on the Participant's part shall be deemed "willful" unless done, or
omitted to be done, by the Participant in bad faith and without reasonable
belief that the act, or failure to act, was in the best interest of the Company.
(d) Change of Control. The first of any of the following events to occur
after December, 21, 1997:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under such Act) of 20% or more of either (a) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition pursuant to a
transaction that complies with clauses (A), (B) and (C) of subsection (iii) of
this Section 2(d); or
(ii) Individuals who, as of December 21, 1997, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to such date
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whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors of other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of substantially all the assets of another entity (a "Corporate
Transaction"), in each case, unless, following such Corporate Transaction, (A)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, more than 60%, respectively, of the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation that as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Corporate
Transaction of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such Corporate Transaction) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined voting
power of the then outstanding voting securities of such corporation, except to
the extent that such ownership existed prior to the Corporate Transaction, and
(C) at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Corporate Transaction; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company; or
(v) The Board adopts a resolution to the effect that, for purposes of
this Plan, a Change in Control has occurred.
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(e) Code. The Internal Revenue Code of 1986, as amended from time to time.
(f) Company. Pacific Scientific Company and any successor thereto.
(g) Disability. A termination for "Disability" shall have occurred where a
participant is terminated because, due to physical or mental illness; (i) the
Participant has been absent from the full-time performance of his or her duties
for substantially all of a period of 6 consecutive months; (ii) his or her
Employer notifies the Participant that it intends to terminate the Participant
on account of Disability; and (iii) the Participant does not resume the
full-time performance of his or her duties within 30 days after receiving notice
of his or her intended termination on account of Disability.
(h) Employee. Any regular, full-time or part-time employee of an Employer.
(i) Employer. The Company or any of its subsidiaries.
(j) Good Reason. A Participant's resignation shall be considered to be for
"Good Reason" if the Participant resigns and terminates employment within a 90
day period beginning on the occurrence of any one of the following events;
(i) The assignment of the Participant of any duties materially
inconsistent with the Participant's position at the Company as in effect
immediately prior to the Change in Control or a substantial adverse alteration
in the nature or status of the Participant's responsibilities for those in
effect immediately prior to the Change in Control; or
(ii) A reduction by the Company in the Participant's Base Salary as
then in effect; or
(iii) A change in the location of the Participant's job or office, so
that he or she will be based at a location more than 50 miles from the location
of his or her job or office immediately prior to the Change in Control; or
(iv) The failure by the Company, without the Participant's consent, to
pay to any Participant any portion of the Participant's current compensation or
to pay to any Participant any portion of an installment of deferred compensation
under any deferred
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compensation program of the Company, within 7 days of the date such compensation
is due; or
(v) The failure by the Company to continue in effect any compensation
plan in which the Participant participates immediately prior to the Change in
Control that is material to the Participant's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue the Participant's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Participant's participation
relative to other participants, as existed at the time of the Change in Control;
or
(vi) The failure by the Company to continue to provide the Participant
with benefits substantially as generous in the aggregate as those enjoyed by the
Participant under the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Participant was participating at the
time of the Change in Control, or the failure by the Company to provide the
Participant with the number of paid vacation days to which the Participant is
entitled on the basis of years of service with the Company in accordance with
the Company's normal vacation policy in effect at the time of the Change in
Control.
A Participant's right to resign for Good Reason shall not be affected by the
Participant's incapacity due to physical or mental illness. The Participant's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any act or failure to act constituting Good Reason hereunder.
(k) Participant. An Employee who meets the eligibility requirements of
Article 3 and is designated as a participant in accordance with Section 3.1.
(l) Plan. The 1997 Restated Pacific Scientific Company Change of Control
Severance Plan.
(m) Qualified Sale. With respect to any Participant, a sale, distribution
or other disposition by an Employer or an affiliate of an Employer of the
subsidiary, branch or other business unit in which the Participant was employed
before such sale, distribution or disposition, if the Participant is offered
employment with the purchaser of such subsidiary, branch or other business unit
(or corporation or other entity that is the owner thereof) on substantially the
same terms and conditions under which the Participant worked for the Employers
and with a legally binding agreement or plan covering such Participant providing
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<PAGE>
that, on a termination of employment with the subsidiary, branch or business
unit (or the corporation or other entity that is the owner thereof) or any
successor of the kind described in Article VI of this Plan, within 2 years after
the Change of Control of the Company, the individual's employer (or its
successor) will pay him or her the Separation Benefit and other benefits, if
any, that the individual would have received under this Plan had he been a
Participant at the time of such termination.
(n) Required Base Salary. With respect to any Participant, the higher of
[(i)] the Participant's Base Salary as in effect immediately prior to the Change
of Control and (ii) the Participant's highest Base Salary in effect at any time
thereafter.
(o) Retirement. A termination by "Retirement" shall have occurred where a
Participant's termination is due to his or her voluntary normal or early
retirement under a pension plan sponsored by an Employer or its affiliates, as
defined in such plan.
(p) Separation Benefit. The benefits payable in accordance with Section 4.2
of the Plan.
(q) Week of Pay. 1/52d of the Participant's Required Base Salary plus the
highest targeted bonus established by the Employers for the Participant for any
bonus computation period ending within 365 days before the Change in Control or
at any time thereafter. If a bonus computation period is shorter than a year,
the annualized equivalent of that period's targeted bonus shall be taken into
account.
ARTICLE III
ELIGIBILITY
3.1 Commencement of Participation. An Employee shall be eligible to be
designated as a [Plan] Participant if he or she is a corporate officer of the
Company, a group president, a division president, a direct report to a division
president, works on the Company's corporate staff, or is employed in another
similar position or is otherwise a key employee of the Company. Subject to the
limitations of Section 3.2 below, the [Company's] Executive Committee shall
have the power from time to time to designate those eligible Employees who shall
be Participants in this Plan, and to determine, from time to time, for each such
Participant, the Separation Benefit which such Participant would receive if a
Separation Benefit became payable to such Participant under the Plan, and
whether such Separation Benefit would be conditioned on the execution of a
general release, as authorized by Section 4.2. The Executive Committee shall
cause each eligible Employee who is designated as a Participant to be notified
of such designation, of the amount of his or her potential Severance Benefit and
of the requirement
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of such a release, if any, and of any changes thereto, and such information
shall be reflected on Schedule A hereto (as amended from time to time to reflect
any changes made by the Executive Committee).
3.2 Cessation or Reduction of Participation. Notwithstanding Section 3.1,
the Executive Committee shall not have the power to revoke an eligible
Employee's designation as a Participant, to reduce a Participant's potential
Separation Benefit, and/or to add a requirement of a general release, after a
Change of Control, at the request of a third party seeking to effect a Change of
Control, or otherwise.
ARTICLE IV
SEPARATION BENEFITS
4.1 Right to Separation Benefit. A Participant shall be entitled to a
Separation Benefit under Section 4.2 if a Change of Control has occurred and the
Participant's employment by an Employer is terminated: [(i)] by action of the
Employer or any of its affiliates, unless the termination is because of the
Participant's transfer to another Employer, death, Disability, or Retirement,
for Cause, or as a result of a Qualified Sale; or (ii) by the Participant's
resignation for Good Reason; provided, in either event, that either (A) such
termination occurs after such Change of Control and on or before the second
anniversary thereof, or (B) the termination described in clause [(i)], or the
event constituting Good Reason giving rise to the termination described in
clause (ii), as applicable, occurs before such Change of Control but the
Participant can reasonably demonstrate that such termination or event, as
applicable, occurred at the request of a third party who had taken steps
reasonably calculated to effect a Change of Control.
4.2 Separation Benefits.
(a) In General. Subject to the benefit limitations of Sections 4.4,
4.5 and 4.6, if a Participant becomes entitled to a Separation Benefit under
Section 4.1, the Employer shall jointly and severally be liable for paying the
Participant, within 10 days of the date his or her termination of employment
takes effect, a Separation Benefit in a lump sum in cash equal to the number
Weeks of Pay to which he or she is entitled, determined by the Executive
Committee in accordance with Section 3.1. The Company's Executive
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<PAGE>
Committee may condition entitlement to Separation Benefits on the Participant's
execution of a release, at the time and in the form prescribed by the Company,
of all claims he or she may have against the Employers and all related parties.
In such event, no benefits shall be payable under this Plan or under any other
severance program or policy of the Employers (other than a written, bilateral
employment agreement) unless the Participant timely signs the Company's
prescribed form of release and does not thereafter timely revoke that release.
(b) Welfare Benefits. In addition, a Participant entitled to a
Separation Benefit will continue to be provided for a period of weeks equal to
the number of Weeks of Pay in his or her Separation Benefit, with medical, life
insurance and other welfare benefits, comparable in scope and cost to the
Participant to the coverage that would have been provided if the Participant had
continued to be an Employee; provided, that if the Participant becomes employed
with another employer and is eligible to receive any such benefits from such
employer, the benefits provided pursuant to this sentence shall be secondary to
those provided under such other plans.
(c) Integration with Existing Severance Arrangements. Except as
provided in the next sentence, Separation Benefits include, and shall be paid in
lieu of, any other severance or similar benefits to which a Participant might
otherwise be entitled. In the case of a Participant who has a written employment
agreement that provides benefits in the event of termination of employment, the
benefits under this Plan shall be paid in addition to, not in lieu of such
employment agreement benefits, but benefits under this Plan shall be reduced by
any comparable benefits payable under the employment agreement (or the
equivalent thereof, as determined by the Executive Committee, if such other
benefits are payable in a different form or at a different time than benefits
under this Plan).
4.3 Other Benefits Payable. Except as provided in Section 4.2(c),
Separation Benefits provided pursuant to Section 4.2 shall be provided in
addition to, and not in lieu of, all other accrued or vested or earned but
deferred compensation, rights, options or other benefits that may be owed to a
Participant on or after termination, including but not limited to accrued
vacation or sick pay, amounts or benefits payable under any bonus or other
compensation plans, stock option plan, stock ownership plan, stock purchase
plan, life insurance plan, health plan, disability plan or similar or successor
plan.
4.4. Golden Parachute Limitation. Except as specified below in this Section
4.4., Participant's aggregate payments and benefits under this Agreement and all
other contracts, arrangements, or programs shall not exceed the maximum amount
that may be paid without triggering golden parachute penalties under Section
280G and related provisions of the Internal Revenue Code, as determined in good
faith by the Company's
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<PAGE>
independent auditors. If a Participant's payments or benefits must be cut back
to avoid triggering such penalties, they will be cut back in the priority order
the Participant designates or, if he or she fails promptly to designate an
order, in the priority order designated by the Company. If an amount in excess
of the limit set forth in this Section is paid to a Participant, he or she must
repay the excess amount to the Company on demand, with interest at the rate
provided in Code Section 1274(b)(2)(B). The Participant and the Company shall
cooperate with each other in connection with any administrative or judicial
proceedings concerning the existence or amount of golden parachute penalties.
Notwithstanding the foregoing, if a Participant, at the request of the Company,
agrees to cooperate with the Company to take steps (including without limitation
changing the timing of any payments of compensation or taking particular
positions regarding the proper characterization of, or calculation of the value
of, potential parachute payments) that the Company has determined will enable
the Participant and the Company to take a good faith tax reporting position that
the Participant will not be in receipt of any "excess parachute payments" as
defined in Section 280G of the Internal Revenue Code, then the first sentence of
this Section 4.4 shall not apply to such Participant and the Company shall
indemnify and hold the Participant harmless (on an after tax basis) from all
taxes, penalties, and other costs incurred if, notwithstanding such efforts, it
is finally determined that the Participant is in receipt of such "excess
parachute payments." The Executive Committee may at anytime determine that a
Participant has met the requirements of the preceding sentence and such a
determination, once made, shall be irrevocable and binding upon the Company.
4.5 Section 162(m) Limitation. To the extent payments or benefits under
this Plan would not be deductible under Code Section 162(m) if made or provided
when otherwise due, they shall be made or provided later, immediately after
Section 162(m) ceases to preclude their deduction, with interest thereon at the
rate provided in Code Section 1274(b)(2)(B).
4.6 Pooling of Interests Limitation. [If] the Company enters into a
business combination transaction that is intended to qualify for pooling of
interests accounting treatment and the transaction would qualify for such
treatment but for one or more provisions of this Plan, then this Plan, to the
extent practicable, shall be interpreted or limited so as to permit such
accounting treatment. To the extent that is not sufficient to preserve
pooling of interests accounting, any provisions of the Plan that would
preclude such accounting treatment shall be void. All determinations
under this Section shall be made by the [Company's independent
auditors.]
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<PAGE>
4.7 Payment Obligations Absolute. Subject to Sections 4.4, 4.5 and 4.6,
the Employers' obligation to pay benefits pursuant to this Article shall be
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any setoff, counterclaim, recoupment, defense or
other right that any entity may have against any Participant. In no event shall
a Participant be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to a Participant under any of the
provisions of this Plan, nor shall the amount of any payment hereunder be
reduced by any compensation earned by a Participant as a result of employment by
another employer.
ARTICLE V
SUCCESSOR TO COMPANY
This Plan shall bind any successor of the Company, its assets or its
businesses (whether direct or indirect, by purchase, merger, consolidation or
otherwise), in the same manner and to the same extent that the Company would be
obligated under this Plan if no succession had taken place. In the case of any
transaction in which a successor would not by the foregoing provision or by
operation of law be bound by this Plan, the Company shall require such successor
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Plan, in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. The
term "Company," as used in this Plan, shall mean the Company as hereinbefore
defined and any successor or assignee to the business or assets that by reason
hereof becomes bound by this Plan.
ARTICLE VI
DURATION, AMENDMENT AND TERMINATION
6.1 Duration. If a Change of Control has not occurred, this Plan shall
expire on December 31, [2002], unless sooner terminated as provided in Section
6.2, or unless extended for an additional period or periods by resolution
adopted by the Board. If a Change of Control occurs, this Plan shall continue in
full force and effect and shall not terminate or expire until after all
Participants who become entitled to any payments hereunder during the 2 year
period following the Change in Control have received such payments.
6.2 Amendment and Termination. The Plan may be terminated or amended in
any respect by resolution adopted by a majority of the Board unless a Change of
Control has previously occurred. However, in connection with or in anticipation
of a Change of Control, this Plan may not be terminated or amended in any manner
that would
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<PAGE>
adversely affect the rights or potential rights of Participants after a Change
of Control, at the request of a third party seeking to effect a Change of
Control, or otherwise in connection with or in anticipation of a Change of
Control.
6.3 Form of Amendment. The form of any amendment or termination of the
Plan shall be a written instrument signed by a duly authorized officer or
officers of the Company, certifying that the amendment or termination has been
approved by the Board. An amendment of the Plan in accordance with the terms
hereof shall automatically effect a corresponding amendment to all Participants'
rights hereunder. A termination of the Plan shall in accordance with the terms
hereof automatically effect a termination of all Participants' rights and
benefits hereunder.
ARTICLE VII
MISCELLANEOUS
7.1 Indemnification. If a Participant institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Employers shall reimburse the Participant for all reasonable costs and expenses
relating to such legal action, including reasonable attorney's fees and expenses
incurred by such Participant, unless a court or other finder of fact having
jurisdiction thereof makes a determination that the Participant's position was
frivolous. In no event shall the Participant be required to reimburse the
Employers for any of the costs and expenses relating to such legal action. The
Company's obligations under this Section 7.1 shall survive the termination of
this Plan.
7.2 Employment Status. This Plan does not constitute a contract of
employment or impose on the Participant or any Employer any obligation to retain
the Participant as an Employee, to change the status of the Participant's
employment or to change the Employers' policies regarding termination of
employment.
7.3 Validity and Severability. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
7.4 Governing Law. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of
California, without reference to principles of conflict of law.
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EXHIBIT 10
FIRST AMENDMENT TO PACIFIC SCIENTIFIC COMPANY
1995 STOCK OPTION PLAN
The Pacific Scientific Company 1995 Stock Option Plan (the 1995 Plan) is
hereby amended, effective as of December 21, 1997, as follows:
The following Section IX.I is hereby added:
IX.I Effect of Change in Control
Except as provided in this Section IX.I and notwithstanding
any other provision of this Plan, any options that are outstanding on
the date of a Change of Control (as determined under the 1997 Pacific
Scientific Company Change in Control Severance Plan as and if then in
effect (the "Severance Plan")) shall become fully vested and
exercisable, notwithstanding anything to the contrary in any stock
option agreement issued pursuant to this Plan, each of which shall be
deemed to include this Section IX.I. An individual's rights under this
Section IX.I shall be subject to the golden parachute limitations and
pooling of interests limitations of Sections 4.4 and 4.6 of the
Severance Plan.
<PAGE>
EXHIBIT 11
FIRST AMENDMENT TO PACIFIC SCIENTIFIC COMPANY
1992 KEY EMPLOYEE STOCK OPTION PLAN
The Pacific Scientific Company 1992 Key Employee Stock Option Plan is
hereby amended, effective as of December 21, 1997, as follows:
The following Section 2.3 is hereby added:
2.3 Effect of Change in Control
Except as provided in this Section 2.3 and notwithstanding
any other provision of this Plan, any options that are
outstanding on the date of a Change of Control (as determined
under the 1997 Pacific Scientific Company Change in Control
Severance Plan as and if then in effect (the "Severance Plan"))
shall become fully vested and exercisable, notwithstanding
anything to the contrary in any stock option agreement issued
pursuant to this Plan, each of which shall be deemed to include
this Section 2.3. An individual's rights under this Section 2.3
shall be subject to the golden parachute limitations and
pooling of interests limitations of Sections 4.4 and 4.6 of the
Severance Plan.
<PAGE>
EXHIBIT 12
AMENDMENT NO. 1 TO
NONSTATUTORY STOCK OPTION AGREEMENT
This Amendment No. 1 to the Nonstatutory Stock Option Agreement by and
between David L. Schlotterbeck ("Optionee") and Pacific Scientific Company, a
California corporation (the "Company") is dated as of December 21, 1997.
R E C I T A L S
A. Pursuant to a Nonstatutory Stock Option Agreement dated
July 7, 1997 (the "Option Agreement"), Optionee was issued an option to
purchase 150,000 shares of the Company's Common Stock.
B. Section 2 of the Option Agreement contains a "change of control"
acceleration provision and the parties hereto wish to provide alternative
provisions concerning a change in control as provided for in this amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
agree to amend Section 2 of the Option Agreement by adding the following
at the end of that section.
If more beneficial to Employee and notwithstanding any other
provision of this Agreement, to the extent the option granted under
this Agreement is outstanding on the date of a Change of Control
(as determined under the 1997 Pacific Scientific Company Change in
Control Severance Plan as and if then in effect (the "Severance
Plan")) the option shall become fully vested and exercisable.
Employee's rights under the preceding sentence shall be subject to
the golden parachute limitations, and pooling of interests limitations of
Sections 4.4, 4.5 and 4.6 of the Severance Plan.
IN WITNESS WHEREOF, the parties hereto have caused this amendment
to be duly executed as of the date first above written.
OPTIONEE: COMPANY:
PACIFIC SCIENTIFIC COMPANY,
a California corporation
_______________________ By:________________________________
David L. Schlotterbeck Name: Lester Hill
Title: Chairman and Chief Executive
Officer
<PAGE>
EXHIBIT 13
AMENDMENT NO. 1 TO
NONSTATUTORY STOCK OPTION AGREEMENT
This Agreement No. 1 to the Nonstatutory Stock Option Agreement by and
between Lester Hill ("Optionee") and Pacific Scientific Company, a California
corporation (the "Company") is dated as of December 21, 1997.
RECITALS
A. Pursuant to a Nonstatutory Stock Option Agreement dated February 18,
1997 (the "Option Agreement"), Optionee was issued an option to purchase 250,000
shares of the Company's Common Stock.
B. Section 2 of the Option Agreement contains a "change of control"
acceleration provision and the parties hereto wish to provide alternative
provisions concerning a change in control as provided for in this amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree to amend
Section 2 of the Option Agreement by adding the following at the end of that
section.
If more beneficial to Employee and notwithstanding any other
provision of this Agreement, to the extent the option
granted under this Agreement is outstanding on the date of a
Change of Control (as determined under the 1997 Pacific
Scientific Company Change in Control Severance Plan as and
if then in effect (the "Severance Plan")) the option shall
become fully vested and exercisable. Employee's rights under
the preceding sentence shall be subject to the golden
parachute limitations, and pooling of interests
limitations of Sections 4.4, 4.5 and 4.6 of the Severance
Plan.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to
be duly executed as of the date first above written.
OPTIONEE: COMPANY:
PACIFIC SCIENTIFIC COMPANY,
a California corporation
By:
- --------------------------- ---------------------------------
Lester Hill Name: David L. Schlotterbeck
Title: President and Chief Operating
Officer
<PAGE>
EXHIBIT 14
AMENDMENT NO. 1 TO
NONSTATUTORY STOCK OPTION AGREEMENT
This Amendment No. 1 to the Nonstatutory Stock Option Agreement
by and between Winston E. Hickman ("Optionee") and Pacific Scientific
Company, a California corporation (the "Company") is dated as of
December 21, 1997.
RECITALS
A. Pursuant to a Nonstatutory Stock Option Agreement dated July 7, 1997
(the "Option Agreement"), Optionee was issued an option to purchase 50,000
shares of the Company's Common Stock.
B. Section 2 of the Option Agreement contains a "change of control"
acceleration provision and the parties hereto wish to provide alternative
provisions concerning a change in control as provided for in this amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree to amend
Section 2 of the Option Agreement by adding the following at the end of that
section.
If more beneficial to Employee and notwithstanding any other
provision of this Agreement, to the extent the option
granted under this Agreement is outstanding on the date of a
Change of Control (as determined under the 1997 Pacific
Scientific Company Change in Control Severance Plan as and
if then in effect (the "Severance Plan")) the option shall
become fully vested and exercisable. Employees' rights
under the preceding sentence shall be subject to the golden
parachute limitations and pooling of interests limitations
of Sections 4.4, 4.5 and 4.6 of the Severance Plan.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to
be duly executed as of the date first above written.
OPTIONEE: COMPANY:
PACIFIC SCIENTIFIC COMPANY,
a California corporation
By:
- -------------------------- -----------------------------
Winston E. Hickman Name: Lester Hill
Title: Chairman of the Board
and Chief Executive Officer
<PAGE>
EXHIBIT 15
[LETTERHEAD OF KOLLMORGEN]
December 9, 1997
Mr. Lester Hill
Chairman of the Board, President
and Chief Executive Officer
Pacific Scientific Company
620 Newport Center Drive, Suite 700
Newport Beach, California 92660
Dear Buck:
In August, you and I met to discuss what we at Kollmorgen believe are the
compelling merits of a strategic business combination of Kollmorgen Corporation
and Pacific Scientific Company. We explored a broad range of topics related to
such a combination, all of which, I believe, lead to the conclusion that a
strategic merger of our two companies offers significant benefits to our
respective shareholders, customers and employees.
Among the many compelling reasons for this merger--most of which we touched upon
in our August meeting--are the following:
o A merger of Kollmorgen and Pacific Scientific would establish the combined
enterprise as a leader in high performance electronic motion control--one of
the fastest-growing segments of the motors and controls business. In a
fragmented industry, the combined enterprise would have the critical mass to
comprehensively serve the needs of our customers.
o Combining our highly complementary motion control product lines would enable
us to become a full-service provider. The combined company would capitalize on
the complementary product lines and differing strengths of Kollmorgen and
Pacific Scientific. The combined company would be able to provide the full
range of products and support services that today's sophisticated customers
demand, offering them a global supplier for their electronic motion control
requirements.
<PAGE>
2
o The combined enterprise would be well-positioned strategically, operationally
and financially to aggressively pursue attractive opportunities for external
and internal growth. Our increased size and scope would enable us to be a
leader in the accelerating consolidation of our industry, give us increased
access to the capital markets, and raise our visibility in the business and
financial communities.
o The increased size and global scope of the combined company would enable us to
more effectively market our products to customers worldwide. We at Kollmorgen
have already established a significant presence in India, Germany, France,
Israel, China and elsewhere. The combined enterprise would be well-positioned
to build on this foundation, particularly in Europe and the Pacific Rim. The
combined company would be able to expand its customer base and offer wouldwide
on-site product support to existing customers, while conducting more effective
and cost-efficient global research and development, marketing, production and
sourcing.
o The revenue and operating synergies I spoke of during our meeting are
significant and highly achievable. Based on public information, Kollmorgen
management has identified more than $15 million of annual pre-tax operating
synergies that the combined company could achieve in 1999, rising to more than
$20 million in 2000 and increasing thereafter. Management expects to achieve
these synergies from cross-selling opportunities and from net cost savings in
selling and marketing expenses, distribution cost savings, joint purchasing
savings, consolidation of research and development, and reduction in corporate
expenses.
o As for the people of our respective organizations, who are key to making such
a merger work, we know that many good people exist at both Kollmorgen and
Pacific Scientific. The challenge in a merger will be to harness the creative
energy and commitment of both sets of people. We at Kollmorgen are committed
to working closely with you and your colleagues on the Pacific Scientific
management team to determine--together--how best to combine our two
enterprises, including how best to create a combined company that will attract
and retain outstanding individuals at every level.
Given our strong belief that a merger of Kollmorgen and Pacific Scientific makes
compelling sense from a strategic, operational and financial point of view, we
are confident that, as you and your Board of Directors evalute this business
combination, you will embrace our strongly held view that this is an opportunity
for your constituents, as well as ours, that is clearly worth pursuing.
Specifically, the Board of Directors of Kollmorgen Coporation has unanimously
authorized me to formally propose a strategic business combination between
Kollmorgen and Pacific Scientific pursuant to which Pacific Scientific's
shareholders would receive consideration of $20.50 per share, half in cash and
the balance in Kollmorgen stock. The value of the stock consideration would be
protected by an appropriate collar.
<PAGE>
3
Among the key aspects of the transaction we propose are the following:
o A Premium of 34%--The purchase price of $20.50 per common share represents a
34% premium over Pacific Scientific's closing price of $15.3125 on the New
York Stock Exchange on Monday, December 8, 1997, and a 37% premium over the
company's average closing price for the preceding 20 trading days.
o Immediate Cash Payment for Half of Pacific Scientific's Capital Stock--Half of
Pacific Scientific's outstanding shares would be purchased for a cash payment
of $20.60 per share.
o Continued Participation in the Future Growth of the Combined Company--Because
Pacific Scientific's shareholders would receive Kollmorgen common stock in the
proposed merger, they would participate in the future growth and success of
the combined enterprise. Upon consummation of the proposed merger, Pacific
Scientific shareholders would hold an equity stake of approximately 43% in the
combined company, based upon an assumed market value for Kollmorgen common
stock of $17.125 per share.
o An Accretive Transaction--Kollmorgen is confident that the proposed
combination would be accretive to earnings per share in 1999, the first full
year of operations of the combined company, and increasingly so thereafter.
o Fully, Committed, Conservative Financing--Kollmorgen and Kollmorgen's
financial advisor, Salomon Smith Barney, have entered into a binding
commitment letter in which Salomon has committed to provide a conservatively
financed bank facility to fully finance the transaction, including the
refinancing of existing indebtedness and the provision of a working capital
facility for the combined company.
We continue to firmly believe that consolidation in our industry is inevitable,
and neither Pacific Scientific nor Kollmorgen can sit by idle while competitors,
many of which are much larger than Pacific Scientific and Kollmorgen, create the
global network and broad product offerings that our customers demand and
deserve. This reality, coupled with the natural fit of our two companies, the
complementary nature of our product lines and the combined talent of our two
management groups, make a Kollmorgen/Pacific Scientific combination compelling.
It is our sincere hope that once you have reviewed our proposal, you and your
Board of Directors will share in our vision and will enthusiastically support a
combination of our two companies. We are interested in proceeding with this
transaction on an expeditious basis and look forward to hearing from you in this
regard within the next few days. We and our advisors stand ready to meet with
you and your advisors at any time to discuss our proposal and commence the
negotiation of definitive documentation for the transaction. We have been
advised that there is no requirement
<PAGE>
4
for either of us to publicly disclose this proposal at this time. Your prompt
favorable response to us would result in your shareholders being able to receive
the benefits of our offer promptly and will allow the combined company's
management to begin integrating our two companies.
We hope to have the opportunity to work with you on this exciting initiative.
Very truly yours,
/s/ Gideon Argov
-----------------------
Chairman, President and
Chief Executive Officer
<PAGE>
EXHIBIT 16
[LETTERHEAD OF KOLLMORGEN]
December 15, 1997
Mr. Lester Hill
Chairman of the Board, President
and Chief Executive Officer
Pacific Scientific Company
620 Newport Center Drive, Suite 700
Newport Beach, California 92660
Dear Buck:
In August, you and I met to dicuss what we at Kollmorgen believe are the
compelling merits of a strategic business combination of Kollmorgen Corporation
and Pacific Scientific Company. We explored a broad range of topics related to
such a combination, all of which, my colleagues on the Kollmorgen Board and
senior management team firmly believe, lead to the conclusion that a strategic
merger of our two companies offers significant benefits to our respective
shareholders, customers and employees. On December 8, I again described for you,
both over the phone and in my letter of that date, what we at Kollmorgen believe
are some of the compelling strategic, operational and financial benefits of a
business combination of our two companies and the extraordinary value that
combination could represent for our respective shareholders.
We at Kollmorgen were thus quite disappointed that in August and again in
December you refused to seriously consider our proposal for this business
combination. Accordingly, we have decided to present our offer directly to the
shareholders of Pacific Scientific, and are today publicly announcing that we
will commence a tender offer to acquire half of Pacific Scientific's outstanding
shares for $20.50 per share in cash. Under our proposal, following completion of
the tender offer, Kollmorgen and Pacific Scientific will merge, and each
remaining share of Pacific Scientific stock will be exchanged for Kollmorgen
common stock with a value of $20.50 per share, based on the average price of
Kollmorgen stock during the twenty trading days ending five days prior to the
meeting of Pacific Scientific shareholders called to vote on the merger, subject
to a collar.
Among the key aspects of the transaction we propose are the following:
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<PAGE>
2
o A Premium of 33% -- The purchase price of $20.50 per common share represents
approximately a 33% premium over Pacific Scientific's closing share price of
$15.44 on the New York Stock Exchange on Friday, December 12, 1997, and
approximately a 37% premium over the average of the company's closing share
price for the preceding 30 trading days.
o Immediate Cash Payment for Half of Pacific Scientific's Capital Stock -- Half
of Pacific Scientific's outstanding shares will be purchased for a cash
payment of $20.50 per share if the tender offer is successfully consummated.
o Continued Participation in the Future Growth of the Combined Company --
Because Pacific Scientific's shareholders have the ability to receive
Kollmorgen common stock in the proposed merger, they will have the opportunity
to participate in the future growth and success of the combined enterprise.
Upon consummation of the proposed merger, Pacific Scientific shareholders will
hold an equity stake of approximately 43% in the combined company, based upon
an assumed market value for Kollmorgen common stock of $16.88 per share (the
closing price of Kollmorgen common stock on December 12, 1997).
o Operating and Revenue Synergies -- Based on public information, Kollmorgen
management believes that the combined company can achieve more than $15
million of annual operating synergies in 1999, rising to more than $20 million
in 2000 and increasing thereafter. Management believes these synergies can be
achieved principally from cost savings in selling and marketing expenses and
consolidation of research and development, and expects to realize additional
synergies from cross-selling opportunities, joint purchasing savings, and
reduction in corporate expenses.
o An Accretive Transaction -- Kollmorgen is confident that the proposed
combination will be accretive to earnings per share in 1999, the first full
year of operations of the combined company, and increasingly so thereafter,
based upon the synergies described above.
o Committed Financing -- Kollmorgen has entered into a binding commitment letter
with Salomon Smith Barney and its affiliate Salomon Brothers Holding Company
Inc in which Salomon Brothers Holding Company Inc has committed to provide,
subject to certain conditions, what Kollmorgen believes is a conservatively
financed secured bank facility to fully finance the transaction, including the
refinancing of existing indebtedness and the provision of a working capital
facility for the combined company.
We continue to firmly believe that consolidation in our industry is inevitable,
and that neither Pacific Scientific nor Kollmorgen can sit by idly while
competitors, many of
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<PAGE>
3
which are much larger than Pacific Scientific and Kollmorgen, create the
international network and broad product offerings that our customers demand.
Kollmorgen believes that this reality, coupled with the natural fit of our two
companies, makes a Kollmorgen/Pacific Scientific combination compelling.
Kollmorgen believes that the combined company will offer customers superior
products and services. Among the many advantages contributing to the combined
company's ability to achieve these goals would be:
o Creation of an Industry Leader. A merger of Kollmorgen and Pacific Scientific
will establish the combined enterprise as a leader in high performance
electronic motion control--one of the fastest-growing segments of the motors
and controls business. In a fragmented industry, the combined enterprise will
be better positioned to comprehensively serve the needs of customers and take
advantage of consolidation opportunities.
o Strategic and Operational Fit. Highly complementary motion control product
lines will enable the combined company to become a full-service provider. The
combined company will be well-positioned to capitalize on the complementary
product lines and differing strengths of Kollmorgen and Pacific Scientific,
enabling it to offer a broader array of products and support services to an
expanded customer base. In addition, the combined company would take advantage
of cost savings and efficiencies resulting from economies of scale in research
and development, marketing, production and sourcing.
o Enhanced Capability to Tap Foreign Markets. The increased size and global
scope of the combined company will enable it to more effectively market its
products to customers around the world. Kollmorgen has already established a
local presence in Germany, France, Israel, India, China and elsewhere. The
combined enterprise will be well-positioned to build on this foundation,
particularly in Europe and the Pacific Rim. Kollmorgen believes that the
combined company will be able to expand its customer base and offer
international on-site product support to customers, while conducting more
effective and cost-efficient research and development, marketing, production
and sourcing.
o Management Team with Proven Track Record. Kollmorgen management has delivered
year over year growth in sales and operating income from continuing operations
from 1994 through 1996, and will do so again in 1997. Kollmorgen has achieved
this by focusing on its core operations. Kollmorgen also believes that its
management has maximized its returns from non-strategic operations. In
addition, Kollmorgen's management has considerable expertise in managing debt,
having reduced Kollmorgen's debt and preferred stock obligations by more than
40% during the past three fiscal years and transitioned from fully-secured to
unsecured credit arrangements.
<PAGE>
4
o Enhanced Growth Opportunities. Kollmorgen believes that the combined
enterprise will be well-positioned, strategically, operationally and
financially, to aggressively pursue attractive opportunities for external and
internal growth. Kollmorgen is confident that the combined company's increased
size and scope will enable it to be a leader in the accelerating
consolidation of the motion control industry and raise its visibility in the
business and financial communities.
We believe that the proposed combination is a bold, exciting initiative for
Pacific Scientific, Kollmorgen, and the shareholders, customers and employees of
both companies. We are firmly committed to pursuing this matter and are
convinced that your shareholders will strongly support our proposal. Although it
is clear to us that you have not up to now given adequate consideration to a
Kollmorgen/Pacific Scientific combination, it is our sincere hope that you will
take this opportunity to do so. Your shareholders deserve no less than your
prompt and full consideration of our proposal and the opportunity to realize the
full benefits of this proposed combination. We are certain that once you have
undertaken an informed review of our proposal, you will share in our vision and
will support a combination of our two companies. We continue to be interested in
proceeding with this transaction on a friendly and expeditious basis so that
your shareholders, as well as ours, can begin to receive promptly the benefits
of our offer.
In order to ensure that your shareholders are permitted to choose freely to
accept our offer, we are also announcing today our intention to solicit consents
to call a special meeting of Pacific Scientific's shareholders to remove the
incumbent members of Pacific Scientific's Board of Directors and elect our
nominees to the Board. Subject to their fiduciary duties, if elected we expect
that our nominees would amend the Pacific Scientific rights plan or redeem the
rights to enable the consummation of the proposed transaction, approve the
proposed transaction if required under Pacific Scientific's charter, and take
all other actions necessary to remove any impediments to your shareholders'
ability to accept our offer. We also intend to submit a proposal designed to
prevent the current Board from taking any actions to frustrate the ability of
Pacific Scientific's shareholders to determine the future of their company.
We are also today commencing litigation against Pacific Scientific and the
Pacific Scientific Board in the United States District Court for the Central
District of California seeking to assure Pacific Scientific's shareholders the
right to replace the Pacific Scientific Board and an opportunity to accept our
offer and proposed merger.
We urge the Pacific Scientific Board of Directors to facilitate the proposed
transaction and remove all obstacles to the realization of the benefits of the
combination by your shareholders. As indicated above, our preference is to
proceed with the proposed transaction on a friendly basis and with the support
of Pacific Scientific's management and Board of Directors. Accordingly, we and
our advisors remain ready and willing to
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<PAGE>
5
meet with you and your advisors at any time to discuss our proposal and commence
the negotiation of definitive documentation for the transaction.
We look forward to hearing from you.
Very truly yours,
/s/ Gideon Argov
-----------------------
Chairman, President and
Chief Executive Officer
cc: Members of the Board of Directors
of Pacific Scientific Company
<PAGE>
[LOGO]
To Our Shareholders:
On December 15, 1997, a subsidiary of Kollmorgen Corporation began an
unsolicited tender offer for a majority of the outstanding shares of common
stock of Pacific Scientific at a price of $20.50 per share in cash, and
Kollmorgen proposed to enter into an agreement for the merger of Pacific
Scientific with Kollmorgen and in which the remaining Pacific Scientific common
stock would be converted into the right to receive shares of common stock of
Kollmorgen. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
KOLLMORGEN TENDER OFFER AND MERGER ARE INADEQUATE AND NOT IN THE BEST INTERESTS
OF PACIFIC SCIENTIFIC OR ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU REJECT THE KOLLMORGEN OFFER AND NOT TENDER YOUR
SHARES TO KOLLMORGEN.
In reaching the determination that the Kollmorgen offer and merger are
inadequate and not in the best interests of Pacific Scientific or its
shareholders, your Board gave careful consideration to Pacific Scientific's
financial performance and future prospects; the opinion of Pacific Scientific's
financial advisor, BancAmerica Robertson Stephens, that the consideration
offered to Pacific Scientific's shareholders (other than Kollmorgen pursuant to
the Kollmorgen offer and merger are inadequate to such shareholders from a
financial point of view; the significant conditions to consummation of the
Kollmorgen offer; and the other factors described in the attached Schedule
14D-9. We urge you to carefully read the attached document in its entirety,
including the opinion of BancAmerica Robertson Stephens included as an annex
(which sets forth the assumptions made and matters considered and limitations
set forth by BancAmerica Robertson Stephens), so that you will be fully informed
as to the Board's recommendation.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE KOLLMORGEN OFFER AND MERGER FAIL
TO RECOGNIZE THE CURRENT VALUE OF PACIFIC SCIENTIFIC. YOUR BOARD CONCLUDED THAT
THE INTERESTS OF PACIFIC SCIENTIFIC SHAREHOLDERS WOULD BE BEST SERVED BY PACIFIC
SCIENTIFIC EXPLORING ALTERNATIVES TO MAXIMIZE SHAREHOLDER VALUE, AND PACIFIC
SCIENTIFIC IS ACTIVELY ENGAGED IN THAT EFFORT.
Under the terms of the Kollmorgen offer, Kollmorgen cannot accept for
payment any shares before the later of 12:00 midnight, New York City time, on
Wednesday, January 14, 1998 and the time all of the conditions to the offer have
been satisfied or waived. Those conditions include, among others, an affirmative
vote of Kollmorgen's own shareholders at a meeting not expected to be held until
January 28, 1998. Accordingly, you need not take any action at this time to
participate in the Kollmorgen offer which is likely to be extended well beyond
the initial expiration date. In addition, any shares already tendered may be
withdrawn at any time before the offer's expiration.
If you have any questions or need any assistance in withdrawing your shares
from the Kollmorgen offer please contact MacKenzie Partners, Inc. at (800)
322-2885 Toll-Free or at (212) 929-5500 Collect. You may also check our website,
www.pacsci.com, for further developments.
Your Directors thank you for your continued support.
On behalf of the Board of Directors
Sincerely,
/s/ LESTER HILL
LESTER HILL
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 18
FOR IMMEDIATE RELEASE
- ---------------------
Contact: John Swenson
Morgen-Walke Associates
(415) 296-7383
Daniel Burch
Stanley Kay
MacKenzie Partners
(212) 979-5508
PACIFIC SCIENTIFIC BOARD REJECTS INADEQUATE KOLLMORGEN OFFER; URGES
SHAREHOLDERS NOT TO SUPPORT KOLLMORGEN'S CONSENT SOLICITATION
NEWPORT BEACH, CALIFORNIA, December 22, 1997 -- The Board of Directors of
Pacific Scientific Company (NYSE:PSX) has unanimously voted to reject the offer
of a subsidiary of Kollmorgen Corporation (NYSE:KOL) to purchase a majority of
the shares of Pacific Scientific common stock at a price of $20.50 per share,
and Kollmorgen's proposal to enter into an agreement with Pacific Scientific by
which Pacific Scientific would merge with Kollmorgen and in which the remaining
Pacific Scientific common stock would be converted into the right to receive
shares of common stock of Kollmorgen having a nominal value of $20.50 per share.
The Board urges Pacific Scientific shareholders not to tender any of their
shares to Kollmorgen in connection with this tender offer and not to support
Kollmorgen's consent solicitation to call a special meeting to replace the
current Board.
The Company stated "After considering a number of factors, including the opinion
of our financial advisor, BancAmerica Robertson Stephens, we concluded that the
Kollmorgen offer is financially inadequate, subject to a number of significant
conditions and not in the best interests of Pacific Scientific or its
shareholders. Management strongly believes Kollmorgen has significantly
undervalued the strength of the Company."
The Board has authorized management, working with BancAmerica Robertson
Stephens, to explore and pursue alternative strategic options available for
maximizing shareholder value, including a possible sale of or other
extraordinary transaction involving the Company.
The Board also today declared a dividend distribution of one Preferred Share
Purchase Right on each outstanding share of Pacific Scientific Company common
stock. Lester "Buck" Hill, Chairman and Chief Executive Officer of
Pacific Scientific Company, stated: "The Rights are designed to assure that all
of Pacific Scientific's shareholders receive fair and equal treatment and to
guard against partial tender offers, squeeze-outs, open market accumulations and
other abusive tactics to gain control of Pacific Scientific without paying a
fair price." The Board also redeemed the Company's existing Preferred Share
Purchase Rights, and delayed the distribution and separation of the new
Preferred Share Purchase Rights until such later date as may be determined by
the Board or the occurrence of certain events. Accordingly, the new Preferred
Share Purchase Rights will trade with the Company's common stock.
Headquartered in Newport Beach, CA, Pacific Scientific designs, manufactures and
markets motion control, process control and safety equipment.
<PAGE>
CERTAIN ADDITIONAL INFORMATION: Pacific Scientific Company (the "Company") has
filed consent solicitation materials with respect to a solicitation (the
"Company Solicitation") for the purpose of opposing the solicitation of
Kollmorgen Corporation (the "Kollmorgen Solicitation") of consents to call a
special meeting of the Company's shareholders. The following individuals may be
deemed to be participants in the Company Soliciation and as of December 22, 1997
may be considered to beneficially own the number of shares of common stock, par
value $1.00 per share of the Company (the "Common Stock") indicated (including
in each case shares subject to option): Lester Hill, Chairman and Chief
Executive Officer, 250,000 shares; David L. Schlotterbeck, President, 150,000
shares; Winston E. Hickman, Senior Vice President and Chief Financial Officer,
51,000 shares; Walter F. Beran, Director, 6,000 shares; Ralph O. Briscoe,
Director, 20,000 shares; Ralph D. Ketchum, Director, 11,500 shares; William A.
Preston, Director, 13,000 shares; and Millard H. Pryor, Jr., Director, 7,000
shares. The Company has retained BancAmerica Robertson Stephens ("BARS") to act
as financial advisor in connection with matters relating to the Kollmorgen
Solicitation. BARS will not receive any fee for, or in connection with, any
solicitation activities apart from the fees it is otherwise entitled to receive
under its engagement. The Company has agreed to indemnify BARS against certain
liabilities and expenses. BARS is an investment banking firm that provides a
variety of financial services for institutional and individual clients. BARS
does not admit or deny that any of its directors, officers, or employees is a
"participant" as defined in Schedule 14A promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
that such Schedule 14A requires the disclosure of certain information concerning
such persons. In the normal course of its business, BARS regularly buys and
sells the Company's Common Stock and other securities for its own account and
for the accounts of its customers, which transactions may result from time to
time in BARS and its associates having a net "long" or net "short" position in
the Company's Common Stock or other securities or option contracts or
derivatives in or relating to the Company's securities. BARS may assist in the
Company Solicitation, which will be carried out by a team of individuals
consisting of officers and employees of BARS. In addition, the Company has
retained MacKenzie Partners, Inc. ("MacKenzie") to, among other things, assist
in the Company Solicitation. MacKenzie will receive reasonable and customary
compensation for its services and reimbursement of out-of-pocket expenses in
connection therewith.
<PAGE>
EXHIBIT 19
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE
------------------------------------------------------
Pursuant to the Local Rules Governing Duties of Magistrate Judges, the
following Magistrate Judge has been designated to hear discovery motions for
this case at the discretion of the assigned District Judge.
/ / Robert N. Block (RNBx) / / Margaret A. Nagle (MANx)
/ / Rosalyn M. Chapman (RCx) / / Arthur Nakazato (ANx)
/X/ Elgin Edwards (EEx) / / Virginia A. Phillips (VAPx)
/ / Charles F. Eick (Ex) / / Brian Q. Robbins (BQRx)
/ / R.J. Groh, Jr. (JGx) / / Carolyn Turchin (CTx)
/ / Stephen J. Hillman (SHx) / / Andrew J. Wistrich (AJWx)
/ / Ann I. Jones (AIJx) / / Carla M. Woehrle (CWx)
/ / James W. McMahon (Mcx) / / Ralph Zarefsky (RZx)
Upon the filing of a discovery motion, the motion will be presented to
the United States District Judge for consideration and may thereafter be
referred to the Magistrate Judge for hearing and determination.
The Magistrate Judge's initials should be used on all documents filed
with the Court so that the case number reads as follows:
SACV-97-1017
------------
- --------------------------------------------------------------------------------
NOTICE TO COUNSEL
-----------------
A COPY OF THIS NOTICE MUST BE SERVED WITH THE
---------------------------------------------
COMPLAINT ON ALL DEFENDANTS.
----------------------------
- --------------------------------------------------------------------------------
CV-18 (10/97) NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE
<PAGE>
===============================================================================
United States District Court
CENTRAL DISTRICT OF CALIFORNIA
- -------------------------------------------------------------------------------
KOLLMORGEN CORPORATION and
TORQUE CORPORATION,
SUMMONS IN A CIVIL CASE
Plaintiffs,
V. CASE NUMBER: CV-
SACV 97-1017 GLT (EEx)
PACIFIC SCIENTIFIC COMPANY, WALTER F.
BERAN, RALPH O. BRISCOE, LESTER "BUCK"
HILL, RALPH D. KETCHUM, WILLIAM A.
PRESTON, and MILLARD H. PRYOR, JR.,
Defendants.
TO:
THE ABOVE-NAMED DEFENDANTS
YOU ARE HEREBY SUMMONED and required to serve upon PLAINTIFF'S ATTORNEY
JACULIN AARON (SBN 133983) JAMES P. TALLON (SBN 154035)
SHEARMAN & STERLING SHEARMAN & STERLING
777 So. Figueroa Street Citicorp Center
34th Floor 153 East 53rd Street
Los Angeles, CA 90017-5418 New York, New York 10022-4676
Tel: (213) 239-0300 Tel: (212) 848-4000
an answer to the complaint which is herewith served upon you, within 20 days
after service of this summons upon you, exclusive of the day of service. If you
fail to do so, judgment by default will be taken against you for the relief
demanded in the complaint. You must also file your answer with the Clerk of this
Court within a reasonable period of time after service.
SHERRI R. CARTER December 15, 1997
- ---------------- -----------------
CLERK DATE
JOSEPH JAMES [SEAL]
- --------------------
(BY) DEPUTY CLERK
<PAGE>
Jaculin Aaron (State Bar No. 133983) Filed
SHEARMAN & STERLING 97 DEC 15 AM 9:23
777 South Figueroa Street, 34th Floor Clerk U.S. District Court
Los Angeles, California 90017-5418 Central Dist. of Calif.
Tel: (213) 239-0300 Los Angeles
Fax: (213) 239-0381
-and- By:
----------------------
James P. Tallon (State Bar No. 154035)
SHEARMAN & STERLING
Citicorp Center
153 East 53rd Street
New York, New York 10022-4676
Tel: (212) 848-4000
Fax: (212) 848-5252
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION
KOLLMORGEN CORPORATION )
and TORQUE CORPORATION ) SACV 97-1017 GLT (EEx)
)
Plaintiffs, ) Case No. 97-Civ-_
)
v. ) COMPLAINT
) FOR DECLARATORY
PACIFIC SCIENTIFIC COMPANY, ) AND INJUNCTIVE RELIEF
WALTER F. BERAN, RALPH O. )
BRISCOE, LESTER "BUCK" )
HILL, RALPH D. KETCHUM, )
WILLIAM A. PRESTON, and )
and MILLARD H. PRYOR, JR. )
)
Defendants. )
)
- -------------------------------------------
Plaintiffs Kollmorgen Corporation ("Kollmorgen") and Torque Corporation
("Torque"), by their undersigned attorneys, and upon knowledge as to themselves
and upon information and belief as to all other matters, allege as follows:
JURISDICTION AND VENUE
----------------------
1. This court has jurisdiction of the subject matter of this action
pursuant to 28 U.S.C. ss. 1332 in that it is a
<PAGE>
dispute among citizens of different states and the matter in controversy exceeds
the sum of $75,000, exclusive of interest and costs.
2. Venue is proper in this district pursuant to 28 U.S.C.ss. 1391(a)
and (c).
NATURE OF THE ACTION
--------------------
3. During the second half of 1997, Kollmorgen has repeatedly presented
Pacific Scientific Company ("Pacific Scientific") with a proposal for combining
the two companies. Such a merger would create one of the world's leading
suppliers of electronic motion control solutions -- one better positioned to
compete globally and generate significant shareholder value -- in a transaction
that offers a 33% premium for Pacific Scientific's current shareholders as well
as a continuing significant equity interest in the combined company.
4. In response to Kollmorgen's overtures, Pacific Scientific has flatly
refused to negotiate the terms of the proposed business combination, even though
the combination would realize substantial benefits for the shareholders of
Pacific Scientific. There is only one possible explanation for the summary
treatment Pacific Scientific has afforded this unique and compelling opportunity
to enhance shareholder value: the desire of the Pacific Scientific Board of
Directors (the "Board" or the "Director Defendants") and of management to
perpetuate their current positions without regard for the best interests of the
company's shareholders.
5. Indeed, rather than permit Pacific Scientific's shareholders to
decide for themselves how to respond to
1
<PAGE>
Kollmorgen's offer, the Director Defendants have maintained structural takeover
defenses, including a poison pill (the "Poison Pill") and Article Fifth of
Pacific Scientific's Restated Articles of Incorporation ("Article 5"), a
so-called "fair price" provision that is intended to preclude certain types of
mergers. The Director Defendants are likely to implement additional defenses.
6. Unless restrained, defendants will invoke various anti-takeover
devices to prevent the successful completion of the contemplated merger between
Kollmorgen and Pacific Scientific (the "Proposed Merger") and the concomitant
benefits to the Pacific Scientific shareholders. Unless prevented from doing so
by this Court, the Proposed Merger's substantial -- and irreplaceable -- value
to Pacific Scientific's shareholders may be forever lost. As such, Kollmorgen
and Torque bring this action against Pacific Scientific and the Director
Defendants for injunctive and declaratory relief to prevent the defendants from
delaying or impeding Kollmorgen's tender offer (the "Offer") and the Proposed
Merger, through Pacific Scientific's anti-takeover devices or other defensive
measures.
THE PARTIES
-----------
7. Plaintiff Kollmorgen is a New York corporation whose principal place
of business is located at 1601 Trapelo Road, Waltham, Massachusetts 02154.
Kollmorgen is, among other things, one of the major worldwide manufacturers of
high performance electronic motion control components and systems. Kollmorgen's
products are manufactured and sold worldwide to the commercial & industrial and
aerospace & defense markets. For the
2
<PAGE>
nine months ended September 30, 1997, Kollmorgen had revenues of $163,054,000;
as of September 30, 1997, Kollmorgen had total assets of $142,144,000 and total
common shareholders' equity of $41,911,000. Kollmorgen beneficially owns common
stock of Pacific Scientific.
8. Plaintiff Torque is a Delaware corporation whose principal place of
business is located at 1601 Trapelo Road, Waltham, Massachusetts 02154. It is a
wholly-owned subsidiary of Kollmorgen, was formed for the sole purpose of
effecting the Offer and the Proposed Merger, and has not conducted any unrelated
activities since its organization. Torque owns common stock of Pacific
Scientific.
9. Defendant Pacific Scientific is a California corporation whose
principal place of business is located at 620 Newport Center Drive, Suite 700,
Newport Beach, California 92660. Pacific Scientific is a manufacturer and seller
of electrical equipment and safety equipment products. For the nine months ended
September 26, 1997, Pacific Scientific had revenues of $227,744,000; as of
September 26, 1997, Pacific Scientific had total assets of $220,800,000 and
total shareholders' equity of $102,865,000.
10. Defendant Lester "Buck" Hill ("Hill") is a citizen of California.
Hill was elected a director, Chairman of the Board, President and Chief
Executive Officer of Pacific Scientific in February 1997.
11. Defendants Walter F. Beran ("Beran"), Ralph O. Brisco ("Briscoe"),
Ralph D. Ketchum ("Ketchum"), William A. Preston ("Preston"), and Millard H.
Pryor, Jr. ("Pryor") are
3
<PAGE>
currently directors of Pacific Scientific and have been directors of Pacific
Scientific at all times relevant to this action. Upon information and belief,
Beran, Briscoe and Preston are citizens of California. Also upon information and
belief, Ketchum is a citizen of Ohio, and Pryor is a citizen of Connecticut. The
Director Defendants all owe fiduciary duties to Pacific Scientific and its
shareholders.
FACTUAL BACKGROUND
------------------
A. The Benefits of a Kollmorgen-Pacific Scientific Combination
-----------------------------------------------------------
12. As part of an ongoing effort to maximize value for its
shareholders, Kollmorgen has proposed a business combination with Pacific
Scientific.
13. Analysis of the business combination shows that such a combination
would produce compelling benefits for both companies. These opportunities
include:
(a) the creation of a leader in the high performance electronic motion
control segment of the motors and controls industry;
(b) a superior strategic and operational unit capitalizing on the
complementary product lines and differing strengths of Kollmorgen and Pacific
Scientific to provide products and support services globally;
(c) the enhanced capability to tap foreign markets through the combined
company's increased size and global scope, resulting in an expanded customer
base and the ability to conduct more effective and cost-efficient global
research and development, marketing, production and sourcing;
4
<PAGE>
(d) improved financial results for the combined companies through
synergies achieved from cost savings and through additional revenues gained from
global marketing and cross-selling efforts;
(e) the benefit of Kollmorgen's successful management team; and
(f) enhanced external and internal growth opportunities presented by
the combined company's increased rate and scope and higher visibility in the
business and financial communities.
B. Kollmorgen's Proposals and Pacific Scientific's Rebuffs
-------------------------------------------------------
14. On or about July 18, 1997, after detailed review of the
implications of a possible combination of the two companies, Gideon Argov,
Kollmorgen's Chairman, President and Chief Executive Officer, telephoned
defendant Hill, Pacific Scientific's Chairman, President and Chief Executive
Officer, to suggest that they meet to discuss ways in which the companies might
cooperate, and the possibility of merging Kollmorgen and Pacific Scientific.
15. On August 1, 1997, Mr. Argov met with defendant Hill in Newport
Beach, California. Mr. Argov discussed the two companies and the motion control
industry with defendant Hill and proposed a merger of Kollmorgen and Pacific
Scientific. Defendant Hill indicated that he needed more time to consider Mr.
Argov's proposal. Mr. Argov and defendant Hill agreed to speak again within the
next few weeks.
16. On August 13, 1997, Mr. Argov telephoned defendant Hill to ask
whether defendant Hill had considered Mr. Argov's
5
<PAGE>
proposal. Defendant Hill responded that he had but that he needed more time to
do so. Mr. Argov agreed to call defendant Hill in early September.
17. On September 15, 1997, Mr. Argov again telephoned defendant Hill to
ask whether defendant Hill was prepared to discuss a possible business
combination. Defendant Hill again responded that he was not ready to discuss a
possible business combination. Mr. Argov and defendant Hill agreed to speak
again on October 15 or 16.
18. On October 15, 1997, Mr. Argov attempted to telephone defendant
Hill, but defendant Hill did not return Mr. Argov's calls.
19. On October 21, 1997, Mr. Argov telephoned defendant Hill and again
proposed the commencement of discussions of a possible merger of Kollmorgen and
Pacific Scientific. Defendant Hill responded that he had thought about Mr.
Argov's suggestion and discussed it with the Director Defendants and had
concluded that it would not be in the best interests of Pacific Scientific.
20. On December 9, 1997, Mr. Argov telephoned defendant Hill to inform
defendant Hill that Mr. Argov was authorized by the Kollmorgen Board of
Directors to make a proposal to acquire Pacific Scientific, and that defendant
Hill should expect to receive a letter from Mr. Argov making such a proposal.
Mr. Argov reiterated Kollmorgen's belief that a combination of Pacific
Scientific and Kollmorgen offered unsurpassed benefits to both companies'
shareholders and expressed his hope that defendant Hill and the Pacific
Scientific
6
<PAGE>
Board would, once they had undertaken an informed review of Kollmorgen's
proposal, support the proposed combination and open substantive discussions with
Kollmorgen. Defendant Hill promised to telephone Mr. Argov with a response to
the proposal on Friday, December 12, 1997. Following that telephone call, Mr.
Argov sent to defendant Hill a letter outlining the contemplated terms of the
Proposed Merger.
21. On December 12, 1997, defendant Hill failed to telephone Mr. Argov
as previously agreed. Mr. Argov attempted to reach defendant Hill by telephone
without success. After the close of business on December 12, 1997, Mr. Argov
received a terse three-sentence letter by telecopy from defendant Hill.
Defendant Hill's abrupt letter did not include any indication of a willingness
to negotiate a business combination with Kollmorgen.
22. Kollmorgen was understandably surprised by Pacific Scientific's
disregard of the opportunities presented by a business combination between the
two companies -- this despite the clear and compelling benefits such a
combination offered to Pacific Scientific and its shareholders.
23. Rebuffed at every turn by the management of Pacific Scientific,
which has, with the full support of the Director Defendants, failed adequately
to consider the substantial opportunities presented by a proposed merger between
Kollmorgen and Pacific Scientific, Kollmorgen was left with no alternative but
to present its proposal directly to the shareholders of Pacific Scientific for
their evaluation. This Kollmorgen accomplished by commencing the Offer through
its
7
<PAGE>
subsidiary and by soliciting consents from Pacific Scientific's shareholders
(the "Solicitation") to call a special meeting of shareholders.
C. The Offer and the Proposed Merger
---------------------------------
24. On December 15, 1997, Torque commenced a tender offer to acquire
the number of Pacific Scientific Common Shares that, when added to the number of
Pacific Scientific Common Shares owned by Kollmorgen and Torque, would
constitute a majority of the Pacific Scientific Common Shares outstanding on a
fully diluted basis. The Offer is being made to all holders of Pacific
Scientific common shares at a price of $20.50 in cash per Pacific Scientific
Common Share (the "Pacific Scientific Offer Price"), net to the seller in cash,
representing a 33% premium to the market price of Pacific Scientific common
stock on the last trading day before the announcement of the Offer. The Offer is
conditioned, inter alia, on the valid tender of a majority of the outstanding
shares on a fully diluted basis, the redemption or invalidation of the Poison
Pill, and the approval of the Offer and the Proposed Merger for purposes of
Article 5 (if required).
25. The Offer, is successful, will be followed by the Proposed Merger,
by which Pacific Scientific will merge with Kollmorgen or a wholly-owned
subsidiary of Kollmorgen. All Pacific Scientific Common Shares not held or owned
by Kollmorgen, Torque or a wholly-owned subsidiary of Kollmorgen, or by
shareholders exercising their dissenters' rights, if any, will be converted into
the right to receive shares of Kollmorgen common stock with a value of $20.50
(i.e., the same value as the cash offer), subject to a collar. Kollmorgen has
filed a Registration
8
<PAGE>
Statement on Form S-4 with the United States Securities and Exchange Commission
(the "SEC") in connection with the Solicitation and the Proposed Merger.
26. To facilitate the Offer and the Proposed Merger, Kollmorgen
announced on December 15, 1997 its intention to solicit consents to call a
special meeting of Pacific Scientific's shareholders (i) to remove the incumbent
members of the Pacific Scientific Board, (ii) to nominate a slate of six
directors for election to Pacific Scientific's Board (the "Kollmorgen
Nominees"), and (iii) to repeal any Pacific Scientific bylaws that have not been
filed with the SEC as of August 11, 1997, and any amendments that have been
adopted after December 15, 1997. Subject to their fiduciary duties and if
elected, it is expected that the Kollmorgen Nominees would amend the Poison Pill
or redeem the rights to enable the consummation of the Proposed Merger, approve
the Proposed Merger if required under Pacific Scientific's charter, and take all
other actions necessary to remove any impediments to Pacific Scientific
shareholders' ability to accept the Offer and consummate the Proposed Merger.
D. Pacific Scientific's Anti-Takeover Measures
-------------------------------------------
27. Unless modified, Pacific Scientific's anti-takeover devices will
interfere with the Offer and the Proposed Merger. Given the nature of the Offer
and the Proposed Merger and their benefits to Pacific Scientific shareholders,
Pacific Scientific should not be permitted to impede them by employing
inappropriate defensive maneuvers. Nor should Pacific Scientific be permitted to
impede or delay Kollmorgen's efforts to conduct
9
<PAGE>
its Solicitation, activities to which Kollmorgen has a right under California
law.
1. The Poison Pill
---------------
28. In 1988, Pacific Scientific's Board of Directors adopted the Poison
Pill, which allows the Board to preclude consummation of any tender or exchange
offer, even those, such as the Offer, that are fully priced, noncoercive and
provide substantial benefits to Pacific Scientific shareholders. The Poison Pill
was amended in 1990.
29. The Board initially implemented the Poison Pill by declaring a
dividend distribution of one right to each Pacific Scientific shareholder of
record as of November 18, 1988 and on each such share issued thereafter (the
"Right"). Each Right entitles the holder thereof to purchase from Pacific
Scientific a unit consisting of one-hundredth of a share of Series A Pacific
Scientific Junior Participating Preferred Stock, at an exercise price of $45 per
share, subject to adjustment. The Rights expire on November 7, 1998.
30. The Rights do not separate from Pacific Scientific's shares of
common stock until the "Separation Time." The "Separation Time" is the earlier
of twenty days following (i) the date on which a person (or its affiliates or
associates) acquires, or obtains the right to acquire, beneficial ownership of
25% or more of the outstanding shares of common stock (the "Acquiring Person"),
and (ii) the date of commencement by any person of, or public announcement of
the intention of any person to commence, a tender or exchange offer for
outstanding shares of
10
<PAGE>
Common Stock that would result in such person owning beneficially 35% or more
of the outstanding shares of Common Stock.
31. After the Separation Time, each right entitles the holder (except
the Acquiring Person and certain related entities, whose Rights will be
disenfranchised) to buy $90 worth of Pacific Scientific stock for $45. This
"flip-in" feature dilutes the Acquiring Person's holdings and increases the
number of shares that the Acquiring Person would have to purchase in order to
consummate a merger.
32. In addition, if, after the Separation Time, Pacific Scientific has
not redeemed the Rights, certain "triggering events" -- most significantly a
merger in which Pacific Scientific is not the surviving corporation or its
common stock is changed or exchanged -- would also entitle each holder of a
Right to purchase $90 worth of the acquiring company's shares for $45 per right.
This "flip-over" feature subjects the Acquiring Person to a half-price sale of
its own stock, diluting the interest of its existing shareholders and impairing
its capital structure.
33. Due to the prohibitive costs the Poison Pill imposes on the
Acquiring Person, any tender offer or exchange offer (such as the Offer) that
would trigger the Rights cannot practically be consummated unless Pacific
Scientific's Board redeems the Rights or amends the Poison Pill. Pacific
Scientific's Board can redeem the rights at a redemption price of $0.01 per
right or can amend the Poison Pill to make the Rights inapplicable to the Offer.
Accordingly, simply by refusing to redeem or to amend the Poison Pill, Pacific
Scientific's Board
11
<PAGE>
can block the Offer regardless of the interests of Pacific Scientific's
shareholders. The triggering of the Poison Pill would be particularly
unjustified given the premium price and fair structure of the Offer and the
Proposed Merger. As applied here, the Poison Pill serves only one true purpose:
entrenchment of the Director Defendants for their own personal gain and at the
expense of their duty to act in the best interests of Pacific Scientific
shareholders. A failure by Pacific Scientific and the Director Defendants to
redeem the Rights or to amend the Poison Pill would be a breach of the Director
Defendants' fiduciary duties because such failure will effectively hinder or
prevent the shareholders of Pacific Scientific from exercising their fundamental
rights under California law to determine the future of the company they own.
2. Article 5 of Pacific Scientific's Articles Of Incorporation
-----------------------------------------------------------
34. Article 5 of the Pacific Scientific's Articles of Incorporation
imposes substantial restrictions on business combinations involving a party who
becomes the beneficial owner of 5% or more of the voting power of Pacific
Scientific (the "Acquiror"). Article 5 purports to prohibit a business
combination between Pacific Scientific and an Acquiror unless: (i) the
transaction is approved by at least two-thirds of all Pacific Scientific's
voting shareholders, as well as by a majority of shares held by shareholders
other than the Acquiror; (ii) the transaction is approved unanimously by the
Board of Directors or by a majority of the Board of Directors prior to the
acquisition by any person of beneficial ownership of 5% or more
12
<PAGE>
of Pacific Scientific Common Stock; or (iii) the Acquiror meets certain
so-called "fair price" and procedural requirements.
35. Given the premium price and fair structure of the Offer and the
Proposed Merger, failure on the part of Pacific Scientific and the Director
Defendants to approve the Offer and the Proposed Merger for purposes of Article
5 breaches their fiduciary duties. Such a failure effectively hinders or
prevents the shareholders of Pacific Scientific from exercising their
fundamental rights under California law to determine the future of the company
they own, and instead serves only to entrench the Director Defendants.
DECLARATORY RELIEF
------------------
36. Pacific Scientific's anti-takeover devices, its rejection of
Kollmorgen's previous attempts to negotiate a business combination, and its
unwillingness to redeem the Rights, to amend the Poison Pill, or to take the
necessary steps to approve the Offer and the Proposed Merger for purposes of
Article 5 demonstrate that there is a substantial controversy between the
parties. Moreover, Pacific Scientific's unreasonable anti-takeover devices and
other defensive measures will interfere with Kollmorgen's Offer and
Solicitation. The adverse legal interests of the parties are real and immediate.
37. The granting of the requested declaratory relief will serve the
public interest by affording relief from uncertainty and by avoiding delay as
well as conserving judicial resources by avoiding piecemeal litigation.
IRREPARABLE INJURY
------------------
38. Pacific Scientific's unwillingness to redeem the
13
<PAGE>
Rights or amend the Poison Pill, or to take the necessary steps to approve the
Offer and the Proposed Merger for the purposes of Article 5, will hinder and
potentially prevent Kollmorgen from proceeding with the Offer and the Proposed
Merger. Should that occur, Kollmorgen will have lost the unique opportunity to
acquire Pacific Scientific. The resulting injury to Kollmorgen will not be
compensable in money damages and plaintiffs have no adequate remedy at law.
COUNT ONE
---------
(Declaratory and Injunctive Relief: The Poison Pill)
----------------------------------------------------
39. Kollmorgen repeats and realleges each and every allegation set
forth in paragraphs 1 through 38 as if fully set forth herein.
40. The Director Defendants stand in a fiduciary relationship with
Pacific Scientific's shareholders, including Kollmorgen and Torque. As
fiduciaries, the Director Defendants owe the highest duties of care, loyalty and
good faith.
41. The Offer and the Proposed Merger are noncoercive,
nondiscriminatory, and the holders of Pacific Scientific shares not purchased in
the Offer will receive consideration of the same value in the Proposed Merger.
The Offer and the Proposed Merger pose no threat to Pacific Scientific's
corporate policy and effectiveness. The Offer and the Proposed Merger represent
a substantial premium over the market price of Pacific Scientific stock prior to
the public announcement of the Offer and the Proposed Merger.
42. Failure of the Pacific Scientific Board to redeem the Rights or to
amend the Poison Pill, or otherwise to make it
14
<PAGE>
inapplicable to the Offer and the Proposed Merger, is a severe and inappropriate
response to the Offer and the Proposed Merger. In addition, failure of the
Pacific Scientific Board to determine that the Offer and the Proposed Merger are
fair to and in the best interests of Pacific Scientific and its shareholders
constitutes a violation of the Director Defendants' fiduciary duties.
43. Kollmorgen seeks: (i) a declaration that the failure to redeem the
Rights or to otherwise amend the Poison Pill to make it inapplicable to the
Offer and the Proposed Merger is a breach of fiduciary duty; and (ii) an
injunction compelling Pacific Scientific and the Director Defendants to redeem
the Rights or otherwise to amend the Poison Pill to make it inapplicable to the
Offer and the Proposed Merger.
44. Kollmorgen has no adequate remedy at law.
COUNT TWO
---------
(Declaratory and Injunctive Relief: Article 5)
45. Kollmorgen repeats and realleges each and every allegation set
forth in paragraphs 1 through 44 as if fully set forth herein.
46. The Offer and the Proposed Merger are noncoercive,
nondiscriminatory, and the holders of Pacific Scientific shares not purchased in
the Offer will receive consideration of the same value in the Proposed Merger.
The Offer and the Proposed Merger pose no threat to Pacific Scientific's
corporate policy and effectiveness. The Offer and the Proposed Merger represent
a substantial premium over the market price of Pacific Scientific
15
<PAGE>
stock prior to the public announcement of the Offer and the Proposed Merger.
47. Application of Article 5 to impede, delay, or prevent consummation
of the Offer and the Proposed Merger is not proportionate to any threat posed
by, or within the range of reasonable responses to, the Offer and the Proposed
Merger, and violates the Director Defendants' fiduciary duties.
48. Kollmorgen seeks: (i) a declaration that the application of Article
5 to impede, delay, or otherwise frustrate the Offer and the Proposed Merger is
a breach of fiduciary duty; and (ii) an injunction compelling Pacific Scientific
and the Director Defendants to approve the Offer and the Proposed Merger for
purposes of Article 5.
49. Kollmorgen has no adequate remedy at law.
COUNT THREE
-----------
(Injunctive Relief: No Defensive Measures)
------------------------------------------
50. Kollmorgen repeats and realleges each and every allegation set
forth in paragraphs 1 through 49 as if fully set forth herein.
51. The Offer and the Proposed Merger are noncoercive,
nondiscriminatory, and the holders of Pacific Scientific shares not purchased in
the Offer will receive consideration of the same value in the Proposed Merger.
The Offer and the Proposed Merger pose no threat to Pacific Scientific's
corporate policy and effectiveness. The Offer and the Proposed Merger represent
a substantial premium over the market price of Pacific Scientific stock prior to
the public announcement of the Offer and the Proposed Merger.
16
<PAGE>
52. The Offer and the Solicitation comply with all applicable laws,
obligations and agreements, including the securities laws and any contractual
and common law obligations that may be owed by Kollmorgen to Pacific Scientific.
53. Adoption of any defensive measure or amendment of any existing
defensive measure against the Offer, the Solicitation or the Proposed Merger
that would have the effect of impeding the Offer, the Solicitation or the
Proposed Merger or preventing a future Pacific Scientific Board from exercising
its powers and fiduciary duties, would be a violation of California law and of
the fiduciary duties of the current Board to Pacific Scientific shareholders.
54. Kollmorgen seeks an injunction prohibiting any such defensive
measure by Pacific Scientific and the Defendant Directors to thwart the Offer,
the Solicitation and the Proposed Merger.
55. Kollmorgen has no adequate remedy at law.
WHEREFORE, Kollmorgen respectfully requests that the Court enter an
order:
a. declaring that failure to (i) redeem the Rights or to otherwise
amend the Poison Pill to make it inapplicable to the Offer and the Proposed
Merger, or (ii) approve the Offer and the Proposed Merger pursuant to Article 5
constitutes a breach of the Director Defendants' fiduciary duties;
b. declaring that the Poison Pill is unenforceable as to the Offer and
the Proposed Merger under California law;
c. compelling Pacific Scientific and the Director Defendants to redeem
the Rights or to amend the Poison Pill to
17
<PAGE>
make it inapplicable to the Offer and the Proposed Merger, and enjoining Pacific
Scientific and the Director Defendants from taking any action to utilize the
Poison Pill to interfere with, impede or delay the consummation of the Offer,
the Solicitation or the Proposed Merger;
d. compelling Pacific Scientific and the Director Defendants to approve
the Offer and the Proposed Merger for the purposes of Article 5, and enjoining
Pacific Scientific and the Director Defendants from taking any action to enforce
or apply Article 5 so as to interfere with, impede or delay the consummation of
the Offer, the Solicitation or the Proposed Merger;
e. enjoining Pacific Scientific and the Director Defendants from
adopting or employing any defensive device or taking any steps to impede or
interfere with the Offer, the Solicitation or the Proposed Merger;
f. declaring that Pacific Scientific and the Director Defendants may
not commence, and enjoining them from commencing, other judicial proceedings so
as to delay or impede consummation of the Offer, the Solicitation or the
Proposed Merger;
g. granting damages for all incidental injuries suffered as a result of
defendants' unlawful conduct;
h. awarding Kollmorgen its costs and expenses in this action, including
reasonably attorneys' fees; and
i. granting such other and further relief as the Court deems just and
proper.
18
<PAGE>
Dated: December 15, 1997
/s/ Jaculin Aaron
-----------------
Jaculin Aaron
(State Bar No. 133983)
SHEARMAN & STERLING
777 South Figueroa
Street, 34th Floor
Los Angeles,
California 90017-
Tel: (213) 239-0300
Fax: (213) 239-0381
Attorneys for Plaintiffs
Kollmorgen Corporation and
Torque Corporation
Of counsel:
James P. Tallon (State Bar No. 154035)
SHEARMAN & STERLING
Citicorp Center
153 East 53rd Street
New York, New York 10022-4676
Tel: (212) 848-4000
Fax: (212) 848-5252
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVILITY AND PROFESSIONALISM GUIDELINES
Preamble
In its purest form, law is simply a societal mechanism for achieving justice. As
officers of the court, judges and lawyers have a duty to use the law for this
purpose, for the good of the people. Even though "justice" is a lofty goal, one
which is not always reached, when an individual becomes a member of the legal
profession, he or she is bound to strive towards this end.
... there is a growing sense that
lawyers regard their livelihood as a business,
rather than a profession.
Unfortunately, many do not perceive that achieving justice is the function
of law in society today. Among members of the public and lawyers themselves,
there is a growing sense that lawyers regard their livelihood as a business,
rather than a profession. Viewed in this manner, the lawyer may define his or
her ultimate goal as "winning" any given case, by whatever means possible, at
any cost, with little sense of whether justice is being served. This attitude
manifests itself in an array of obstinate discovery tactics, refusals to
accommodate the reasonable requests of opposing counsel re: dates, times, and
places; and other needless, time-consuming conflicts between and among
adversaries. This type of behavior tends to increase costs of litigation and
often leads to the denial of justice.
The Central District realizes that, while the majority of lawyers do not
behave in the above-described manner, in recent years there has been a
discernible erosion of civility and professionalism in our courts. This
disturbing trend may have severe consequences if we do not act to reverse its
course. Incivil behavior does not constitute effective advocacy; rather, it
serves to increase litigation costs and fails to advance the client's lawful
interests. Perhaps just as importantly, this type of behavior causes the public
to lose faith in the legal profession and its ability to benefit society. For
these reasons, we find that civility and professionalism among advocates,
between lawyer and client, and between bench and bar are essential to the
administration of justice.
The following guidelines are designed to encourage us, the members of the
bench and bar, to act towards each other, our clients, and the public with the
dignity and civility that our profession demands. In formulating these
guidelines, we have borrowed heavily from the efforts of others who have written
similar codes for this same purpose. The Los Angeles County Bar Association
Litigation Guidelines, guidelines issued by other county bar associations within
the Central District, the Standards for Professional Conduct within the Seventh
Federal Judicial Circuit, and the Texas Lawyer's Creed all provide excellent
models for professional behavior in the law.
We expect that judges and lawyers will voluntarily adhere to these
standards as part of a mutual commitment to the elevation of the level of
practice in our courts. These guidelines shall not be used as a basis for
litigation or for sanctions or penalties.
Nothing in these guidelines supersedes or modifies the existing Local Rules
of the Central District, nor do they alter existing standards of conduct wherein
lawyer negligence may be determined and/or examined.
I. Guidelines
A. Lawyers' Duties to Their Clients
1. We will practice our profession with a continuing awareness that our role
is to advance the legitimate interests of our clients. We will endeavor to
achieve our clients' lawful objectives in legal transactions and in
litigation as quickly and economically as possible.
2. We will be loyal and committed to our clients' lawful objectives, but we
will not permit that loyalty and commitment to interfere with our duty to
provide objective and independent advice.
3. We will advise our clients that civility and courtesy are expected and are
not a sign of weakness.
4. We will treat adverse parties and witnesses with fairness and due
consideration. A client has not right to demand that we act in an abusive
manner or indulge in any offensive conduct.
5. We will advise our clients that we will not pursue conduct that is intended
primarily to harass or drain the financial resources of the opposing party.
6. We will advise our clients that we reserve the right to determine whether
to grant accommodations to opposing counsel in all matters that do not
adversely affect our clients' lawful objectives. Clients have no right to
instruct us to refuse reasonable requests made by other counsel.
7. We will advise our clients regarding availability of mediation,
arbitration, and other alternative meth-
<PAGE>
ods of resolving and settling disputes.
8. We will advise our clients of the contents of this creed when undertaking
representation.
B. Lawyers' Duties to Other Counsel
1. Communications with Adversaries
a. We will adhere to all express promises and to agreements with other
counsel, whether oral or in writing, and will adhere in good faith to all
agreements implied by the circumstances or local customs.
b. When we reach and oral understanding on a proposed agreement or a
stipulation and decide to commit it to writing, the drafter will endeavor
in good faith to state the oral understanding accurately and completely.
The drafter will provide the other counsel with the opportunity to review
the writing. As drafts are exchanged between or among counsel, changes from
prior drafts will be identified in the draft or otherwise explicitly
brought to the attention of other counsel. We will not include in a draft
matters to which there has been no agreement without explicitly advising
other counsel in writing of the addition.
c. We will not write letters for the purpose of ascribing to opposing counsel
a position he or she has not taken, or to create "a record" of events that
have not occurred. Letters intended only to make a record should be used
sparingly and only when thought to be necessary under all of the
circumstances. Unless specifically permitted or invited by the court,
letters between counsel should not be sent to judges.
2. Scheduling Issues
a. We will not use any form of discovery or discovery scheduling as a means of
harassment.
b. We will consult other counsel regarding scheduling matters in a good faith
effort to avoid scheduling conflicts.
c. We will endeavor to accommodate previously scheduled dates for hearings,
depositions, meetings, conferences, vacations, seminars, or other functions
that produce good faith calendar conflicts on the part of other counsel,
where it is possible to do so without prejudicing the client's rights. If
we have been given an accommodation because of a calendar conflict, we will
notify those who have accommodated us as soon as the conflict has been
removed.
d. We will notify other counsel and, if appropriate, the court or other
persons, at the earliest possible time when hearings, depositions,
meetings, or conferences are to be canceled or postponed. Early notice
avoids unnecessary travel and expense of counsel and may enable the court
to use the previously reserved time for other matters.
e. Unless time is of the essence, as a matter of courtesy we will grant first
requests for reasonable extensions of time to respond to litigation
deadlines. After a first extension, any additional requests for time will
be considered by balancing the need for expedition against the deference
one should ordinarily give to an opponent's schedule of personal and
professional engagements, the reasonableness of the length of extension
requested, the opponent's willingness to grant reciprocal extensions, the
time actually needed for the task, and whether it is likely a court would
grant the extension if asked to do so.
f. We will not request an extension of time solely for the purpose of
unjustified delay or to obtain a tactical advantage.
g. We will not attach to extensions unfair and extraneous conditions. We may
impose conditions for the purpose of preserving rights that an extension
might jeopardize, or for seeking reciprocal scheduling concessions. We will
not, by granting extensions, seek to preclude an opponent's substantive
rights, such as his or her right to move against a complaint.
3. Service of Papers
a. We will not time the filing or service of motions or pleadings in any way
that unfairly limits another party's opportunity to respond.
b. We will not serve papers sufficiently close to a court appearance so as to
inhibit the ability of opposing counsel to prepare for that appearance or,
where permitted by law, to respond to the papers.
c. We will not serve papers in order to take advantage of an opponent's known
absence from the office or at a time or in a manner designed to
inconvenience an adversary, such as late on a Friday afternoon or the day
preceding a secular or religious holiday.
d. When it is likely that service by mail, even when allowed, will prejudice
the opposing party, we will effect service personally or by facsimile
transmission.
4. Depositions
a. We will take depositions only when actually needed to ascertain facts or
information or to perpetuate testimony. We will not take depositions
2
<PAGE>
for the purpose of harassment or to increase litigation expense.
b. We will not engage in any conduct during a deposition that would be
inappropriate in the presence of a judge.
c. During depositions we will ask only those questions we reasonably believe
are necessary for the prosecution or defense of an action. We will not
inquire into a deponent's personal affairs or questions a deponent's
integrity where such inquiry is irrelevant to the subject matter of the
deposition. We will refrain from repetitive or argumentative questions or
those asked solely for purposes of harassment.
d. When defending a deposition, we will limit objections to those that are
well founded and necessary to protect our client's interests. We recognize
that most objections are preserved and need be interposed only when the
form of a question is defective or privileged information is sought.
e. When a question is pending, we will not, through objections or otherwise,
coach the deponent or suggest answers.
f. We will not direct a deponent to refuse to answer questions unless they
seek privileged information or are manifestly irrelevant or calculated to
harass.
g. When we obtain documents pursuant to a deposition subpoena, we will make
copies of the documents available to opposing counsel at his or her
expense, even if the deposition is canceled or adjourned.
5. Document Demands
a. We will carefully craft document production requests so they are limited to
those documents we reasonably believe are necessary for the prosecution or
defense of an action. We will not design production requests to harass or
embarrass a party or witness or to impose an undue burden or expense in
responding.
b. We will respond to document requests in a timely and reasonable manner and
not strain to interpret the request in an artificially restrictive manner
to avoid disclosure of relevant and non-privileged documents.
c. We will withhold documents on the grounds of privilege only where it is
appropriate to do so.
d. We will not produce documents in a disorganized or unintelligible manner,
or in a way designed to hide or obscure the existence of particular
documents.
e. We will not delay document production to prevent opposing counsel from
inspecting documents prior to scheduled depositions or for any other
tactical reason.
6. Interrogatories
a. We will carefully craft interrogatories so that they are limited to those
matters we reasonably believe are necessary for the prosecution or defense
of an action, and we will not design them to harass or place an undue
burden or expense on a party.
b. We will respond to interrogatories in a timely and reasonable manner and
will not strain to interpret them in an artificially restrictive manner to
avoid disclosure of relevant and non-privileged information.
c. We will base our interrogatory objections on a good faith belief in their
merit and not for the purpose of withholding or delaying the disclosure of
relevant information. If an interrogatory is objectionable in part, we will
answer the unobjectionable part.
7. Settlement and Alternative Dispute Resolution
a. Except where there are strong and overriding issues of principle, we will
raise and explore the issue of settlement in every case as soon as enough
is known about the case to make settlement discussion meaningful.
b. We will not falsely hold out the possibility of settlement as a means for
adjourning discovery or delaying trial.
c. In every case, we will consider whether the client's interest could be
adequately served and the controversy more expeditiously and economically
disposed of by arbitration, mediation, or other forms of alternative
dispute resolution.
8. Written Submissions to a Court, Including Briefs, Memoranda, Affidavits,
Declarations, and Proposed Orders
a. Before filing a motion with the court, we will engage in more than a mere
pro forma discussion of its purpose in an effort to resolve the issue with
opposing counsel.
b. We will not force our adversary to make a motion and then not oppose it.
c. In submitting briefs or memoranda of points and authorities to the court,
we will not relay on facts that are not properly part of the record. We may
present historical, economic or sociological data, if such data appears in
or is derived from generally available sources.
3
<PAGE>
d. In civil actions, we will stipulate to relevant matters if they are
undisputed and if no good faith advocacy basis exists for not stipulating.
e. Unless directly and necessarily in issue, we will not disparage the
intelligence, morals, integrity, or personal behavior of our adversaries
before the court, either in written submissions or oral presentations.
f. We will not, absent good cause, attribute bad motives or improper conduct
to other counsel or bring the profession into disrepute by unfounded
accusations of impropriety.
g. We will not move for court sanctions against opposing counsel without first
conducting a reasonable investigation and unless fully justified by the
circumstances and necessary to protect our client's lawful interests.
h. We will not cause any default or dismissal to be entered without first
notifying opposing counsel, when we know his or her identity.
i. When a draft order is to be prepared by counsel to reflect a court ruling,
we will draft an order that accurately and completely reflects the court's
ruling. We will promptly prepare and submit a proposed order to other
counsel and attempt to reconcile any differences before the draft order is
presented to the court.
9. Ex Parte Communications With the Court
a. We will avoid ex parte communication on the substance of a pending case
with a judge (or his or her law clerk) before whom such case is pending.
b. Even where applicable laws or rules permit an ex parte application or
communication to the court, before making such an application or
communication we will make diligent efforts to notify the opposing party or
his or her attorney. We will make reasonable efforts to accommodate the
schedule of such attorneys, so that the opposing party may be represented
on the application.
c. Where the rules permit an ex parte application or communication to the
court in an emergency situation, we will make such an application or
communication only where there is a bona fide emergency such that the
lawyer's client will be seriously prejudiced by a failure to make the
application or communication on regular notice.
C. Lawyers' Duties to the Court
1. We will speak and write civilly and respectfully in all communications with
the court.
2. We will be punctual and prepared for all court appearances so that all
hearings, conferences, and trials may commence on time; if delayed, we will
notify the court and counsel, if possible.
3. We will be considerate of the time constraints and pressures on the court
and court staff inherent in their efforts to administer justice.
4. We will not engage in any conduct that brings disorder or disruption to the
courtroom. We will advise our clients and witnesses appearing in court of
the proper conduct expected and required there and, to the best of our
ability, prevent our clients and witnesses from creating disorder or
disruption.
5. We will not write letters to the court in connection with a pending action,
unless invited or permitted by the court.
6. Before dates for hearing or trials are set, or if that is not feasible,
immediately after such date has been set, we will attempt to verify the
availability of necessary participants and witnesses so we can promptly
notify the court of any likely problems.
7. We will act and speak civilly to court marshals, court clerks, court
reporters, secretaries, and law clerks with an awareness that they, too,
are an integral part of the judicial system.
D. Judges' Duties to Others
1. We will be courteous, respectful, and civil to the attorneys, parties, and
witnesses who appear before us. Furthermore, we will use our authority to
ensure that all of the attorneys, parties, and witnesses appearing in our
courtrooms conduct themselves in a civil manner.
2. We will do our best to ensure that court personnel act civilly toward
attorneys, parties and witnesses.
3. We will not employ abusive, demeaning, or humiliating language in opinions
or in written or oral communications with attorneys, parties, or witnesses.
4. We will be punctual in convening all hearings, meetings, and conferences.
5. We will make reasonable efforts to decide promptly all matters presented to
us for decision.
6. While endeavoring to resolve disputes efficiently, we will be aware of the
time constraints and pressures imposed on attorneys by the exigencies of
litigation practice.
7. Above all, we will remember that the court is the servant of the people,
and we will approach our duties in this fashion.
4
<PAGE>
NOTICE TO COUNSEL
-----------------
THE COURT HAS DIRECTED THAT THE FOLLOWING RULES BE SPECIFICALLY CALLED TO YOUR
ATTENTION.
I. Continuing Obligations to Report Related Cases (Local Rule 4)
II. Service of Papers and Process (Local Rule 5)
III. Notice of Right to Consent to disposition of a Civil Case by a
United States Magistrate Judge [28 U.S.C. ss. 636 (c) and General
Order 194-G].
I. CONTINUING OBLIGATION TO REPORT RELATED CASES
---------------------------------------------
Parties are under the continuing obligation to promptly advise the
Court whenever one or more civil actions or proceedings previously commenced and
one or more currently filed appear to be related.
Local Rule 4.3.3 provides: "It shall be the continuing duty of the
attorney in any case promptly to bring to the attention of the court, by the
filing of a Notice of Related Case(s) pursuant to Local Rule 4.3.1, all facts
which in the opinion of the attorney or party appear relevant to a determination
whether such action and one or more pending actions should, under the criteria
and procedures set forth in Local Rule 4.3, be heard by the same judge."
Local Rule 4.2.1. provides: "It is not permissible to dismiss and
thereafter refile an action for the purpose of obtaining a different judge."
Whenever an action is dismissed before judgment and thereafter the same or
essentially the same action is refiled, the latter action shall be assigned to
the judge to whom the first action was assigned. It shall be the continuing duty
of every attorney or party appearing in such a refiled action promptly to bring
the prior action to the attention of the Clerk in writing by so noting on the
civil cover sheet or by filing a separate notice of related case.
II. SERVICE OF PAPERS AND PROCESS
-----------------------------
Local Rule 5.4 provides: "Except as otherwise provided by order of
Court, or when required by the treaties or statutes of the United States,
process shall not be presented to a United States Marshal for Service." Service
of process must be accomplished in accordance with Rule 4 of the Federal Rules
of Civil Procedure or in any manner provided by State Law, when applicable.
Service upon the United States, an officer or agency thereof, shall be served
pursuant to the provisions of FRCP 4(i). Service should be promptly made;
unreasonable delay may result in dismissal of the action under Local Rule 12 and
Rule 4(m) of the Federal Rules of Civil Procedure. Proof of service or a waiver
of service of summons and complaint must be filed with the court.
- --------------------------------------------------------------------------------
CV-20 (11/96) NOTICE OF COUNSEL
<PAGE>
III. NOTICE OF RIGHT TO CONSENT TO DISPOSITION OF A CIVIL CASE BY A UNITED
----------------------------------------------------------------------
STATES MAGISTRATE JUDGE
- -----------------------
PURSUANT TO GENERAL ORDER 194-G, THIS NOTICE MUST BE SERVED WITH THE
SUMMONS OR WAIVER OR SERVICE OF SUMMONS AND COMPLIANT ON ALL DEFENDANTS.
In accordance with the provisions of 28 U.S.C. ss. 636(c), you are
hereby notified that the full-time United States Magistrate Judges of this
District Court, in addition to their other duties, may, upon the consent of all
parties to their civil case, conduct any and all proceedings in a civil case,
including a jury or non-jury trial, and order the entry of a final judgment.
Copies of appropriate consent forms for this purpose (Form number CV-11) are
available from the Clerk of Court.
Since Magistrate Judges do not handle felony criminal trials, civil
trial dates are not at risk of being preempted by a criminal trial, which
normally has priority. Further, in some cases the Magistrate Judge may be able
to assign an earlier trial date than a District Judge. There may be other
advantages and disadvantages which you will want to consider.
Your decision to consent or not to consent to the disposition of your
case by a United States Magistrate Judge is entirely voluntary and should be
communicated solely to the clerk by submitting a form CV-11 after it has been
signed by all the parties. Please note that the United States District Court
Judge must approve the consent if it is submitted after the pretrial conference.
With the exception noted below, the parties may stipulate to the
designation of a specific Magistrate Judge to conduct all further proceedings. A
space is provided on the consent form for use by parties if they desire to
stipulate to a specific Magistrate Judge; otherwise, a Magistrate Judge will be
selected at random.
NOTE: The parties may not stipulate to the designation of a specific Magistrate
Judge in a case which has already been assigned to a Magistrate Judge for a
report and recommendation. If the case has been so assigned, it shall remain
assigned to the same Magistrate Judge. (General Order 194-G, and Local Rule
6.6.04.01).
Any appeal from a judgment of the Magistrate Judge shall be taken to
the United States Court of Appeals in the same manner as an appeal from any
other judgment of the district court in accordance with 28 U.S.C. ss. 636(c)(3).
CLERK, UNITED STATE DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
- --------------------------------------------------------------------------------
CV-20 (11/96) NOTICE OF COUNSEL
<PAGE>
EXHIBIT 20
ORIGINAL
FILED
LIONEL Z. GLANCY, ESQ. #134180 ORANGE COUNTY SUPERIOR COURT
PETER A. BINKOW, ESQ. #173848 DEC 15 1997
LAW OFFICES OF LIONEL Z. GLANCY ALAN SLATER, Executive Officer/Clerk
1801 Avenue of the Stars /s/ A. Knox
Suite 308 BY A. KNOX
Los Angeles, California 90067 [Stamped]
(310) 201-9150
GOODKIND LABATON RUDOFF &
SUCHAROW LLP
100 Park Avenue
New York, New York 10017
(212) 907-0700
<TABLE>
<S> <C>
SUPERIOR COURT OF CALIFORNIA
FOR THE COUNTY OF ORANGE 788066
..................................................................x
WILLIAM STEINER, on behalf of :
himself and all others similarly :
situated, :
: Civil Action No.
Plaintiff, :
: CLASS ACTION
-against- :
: COMPLAINT FOR
PACIFIC SCIENTIFIC CO., LESTER :
HILL, WALTER F. BERAN, RALPH O. :
BRISCOE, RALPH D. KETCHUM, WILLIAM :
A. PRESTON, MILLARD H. PRYOR, JR. :
and THOMAS P. STAFFORD, :
: JUDGE WILLIAM F. McDONALD
Defendants. : DEPT. 20
:
..................................................................x
</TABLE>
Plaintiff alleges upon information and belief except as to
paragraph 1, which is alleged on knowledge, as follows:
THE PARTIES
1. Plaintiff is and at all times relevant hereto has been the
owner of shares of the common stock of Pacific Scientific Co. ("Pacific" or the
"Company").
<PAGE>
2. Pacific is a corporation organized and existing under the
laws of the State of California with offices in Newport Beach, California.
Pacific manufactures and produces electrical equipment, including electric
motors and electornic instruments and safety equipment, including fire detection
and suppression equipment. Pacific has approximately 12.5 million shares of
common stock issued and outstanding which trade on the New York Stock Exchange
and other principal exchanges.
3. (a) Defendant Lester Hill ("Hill") is and has been the
Chief Executive Officer, President and Chairman of Pacific.
(b) Defendants Walter F. Beran ("Beran"), Ralph O. Briscoe
("Briscoe"), Ralph D. Ketchum ("Ketchum"), William A. Preston ("Preston"),
Millard H. Pryor, Jr. ("Pryor"), and Thomas P. Stafford ("Stafford") are and
have been at all relevant times directors of Pacific.
4. The Individual Defendants set forth in paragraph 3 above
are officers and/or directors of Pacific and as such, are in a fiduciary
relationship with plaintiff and the other public stockholders of Pacific and owe
to plaintiff and other members of the class the highest obligations of good
faith, fair dealing and full disclosure.
CLASS ACTION ALLEGATIONS
------------------------
5. Plaintiff brings this case on his own behalf and as a class
action, pursuant to ss. 382 of the Code of Civil Procedure on behalf of all
public stockholders of Pacific, and their succesors in interest, who are or will
be threatened with injury arising from defendants' actions as more fully
- 2 -
<PAGE>
described herein (the "Class"). Excluded from the Class are defendants herein
and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants.
6. This action is properly maintainable as a class action.
7. The class is so numerous that joinder of all members is
impracticable. There are hundreds of stockholders of record located throughout
the United States.
8. There are questions of law and fact which are common to
the class and which predominate over questions affecting any individual class
member.
9. Defendants have acted and will continue to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive
or corresponding declaratory relief with respect to the Class as a whole.
10. A class action is superior to other methods for fair and
efficient adjudication of the claims herein asserted and no unusual difficulties
are likely to be encountered in the management of this class action. The
likelihood of individual class members prosecuting separate claims is remote.
11. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of other members of the class and
plaintiff has the same interests as the other members of the class. Accordingly,
plaintiff is an adequate representative of the
- 3 -
<PAGE>
class and will fairly and adequately protect the interests of the class.
12. Plaintiff does not anticipate any difficulty in the
management of this litigation as a class action.
CLAIM FOR RELIEF
13. Pacific operates in two business segments: electrical
equipment and safety equipment. The electrical equipment segment produces: (i)
electric motors and generators, (ii) electro-mechanical and electronic controls,
(iii) electronic instruments, and (iv) electronic ballast for fluorescent
lights. The safety equipment segment produces: (i) fire detection and
suppression equipment, (ii) personal safety restraints, (iii) mechanical and
electro-mechanical flight control components, and (iv) pyrotechnics.
14. On December 15, 1997, Kollmorgan Corporation
("Kollmorgan") announced a proposed business combination with Pacific wherein it
offered to acquire a majority of Pacific's common stock outstanding for $20.50
per share in cash. Under the proposal, following a successful tender offer for a
majority of Pacific's shares, Kollmorgan and Pacific would merge and each
remaining share of Pacific common stock would be exchanged for Kollmorgan common
stock having a value of $20.50 per share, subject to a collar. Following the
proposed business combination, Pacific's current shareholders would own
approximately 43% of the combined Kollmorgan/Pacific enterprise. The proposed
business combination of Kollmorgan
- 4 -
<PAGE>
and Pacific, as described herein, will hereinafter be referred to as the
"Kollmorgan Proposal."
15. The $20.50 per share price contemplated in the Kollmorgan
Proposal represents a 33% premium over Pacific's closing market price on Friday,
December 12, 1997 (the last trading day prior to the announcement of the
Kollmorgan Proposal), and a premium of approximately 37% over the average
closing price for Pacific's common stock for the preceding thirty trading days.
16. The reaction of the investment community to the Kollmorgan
Proposal has been extremely positive. Pacific's shares rose more than $6 to $22
on the day of the announcement of the Kollmorgan Proposal.
17. This action is brought as a class action on behalf of all
public stockholders of Pacific who are being deprived of the opportunity to
maximize the value of their Pacific securities. Defendants are required to
exercise their fiduciary duties and provide the best possible transaction for
Pacific stockholders through the implementation of appropriate bidding
mechanisms, and exploration of all available strategic alternatives designed to
ensure that the public stockholders' best interests are served and have not been
injured by defendants' own self-interest.
18. Pacific has had in place, since 1988, a "poison pill"
shareholders' rights plan. The rights plan is intended to deter and/or defeat
any offer for shares of the company's stock or business combination of which the
Company's Board of Directors disapproves. Under the provisions of the rights
- 5 -
<PAGE>
plan, if any person or group acquires 25% beneficial ownership or announces or
commences such tender offer, each right not owned by such person or related
parties entitle its holder to purchase, at the right's then current exercise
price, that number of units of series A preferred stock equal to the then
current exercise price divided by 50% of an average market price for the common
stock. The financial terms of the rights plan which could be activated by the
Board in response to the Kollmorgan Proposal, make it prohibitively expensive
for any bidder, including Kollmorgan to acquire shares in a tender offer or
other business combination not approved by Pacific's Board of Directors who have
the right to rescind the rights plan and thereby remove that financial
impediment from an approved bid.
19. In connection with initiating the Kollmorgan Proposal,
Gideon Argov, Chairman of the Board, and Chief Executive Officer of Kollmorgan
wrote a letter to Pacific's Chief Executive Officer, defendant Hill on December
15, 1997 (the "Argov Letter"). The Argov Letter disclosed that Kollmorgan had on
at least two prior occasions in August and as recently as December 9
communicated Kollmorgan's interest in a business combination with Pacific. The
Argov Letter states:
We at Kollmorgan were thus quite disappointed that in
August and again in December you refused to seriously
consider our proposal for this business combination.
In announcing the proposed combination Argov stated:
My colleagues and I have been disappointed that to date,
Pacific Scientific's management and Board of Directors have
declined to negotiate our proposal.
- 6 -
<PAGE>
20. Based upon Pacific's prior intransigence with respect to a
business combination with Kollmorgan, despite the substantial premiums to market
value embodied in the Kollmorgan Proposal, it is reasonable to infer that the
Company and the defendants are clearly resistant to the Kollmorgan Proposal
and/or the maximization of shareholder value through a business combination with
another entity or the sale of the Company.
21. Moreover, Pacific has an array of anti-takeover devices in
place designed to thwart "unfriendly" bids for the Company, including the
"poison pill" shareholder rights plan described above.
FIRST CLAIM FOR RELIEF
----------------------
22. At all times herein, defendants were and are obligated to
adequately consider, in a timely fashion and on an informed basis, any
reasonable proposal from any party, not to place their own self-interests and
personal considerations ahead of the interests of the stockholders, and to make
corporate decisions in good faith.
23. Defendants' fiduciary obligations require them to:
(a) arrange for the sale of Pacific to the highest bidder,
including obligating them to undertake an appropriate evaluation of any bona
fide offers, provide nonpublic information to such offerors to enable them to
make the highest possible bid for the Company and take such other appropriate
steps to solicit the highest possible bid for the Company; and
- 7 -
<PAGE>
(b) act independently, including appointing a disinterested
committee so that the interests of Pacific's public stockholders would be
protected.
24. By virtue of the acts and conduct alleged herein, the
Individual Defendants, who direct the actions of the Company, have breached
their fiduciary duties owed to plaintiff and other class members and are
carrying out a plan and scheme to entrench themselves in office and to protect
and advance their own parochial interests at the expense of Pacific. Defendants'
conduct constitutes a breach of their fiduciary obligation and has violated the
mandate of the Company's shareholders to maximize value. The Individual
Defendants have not exercised and are not exercising independent business
judgment and have acted and are acting to the detriment of the Class. The
defendants' prior adverse responses to a business combination with Kollmorgan
and/or others was made without adequate information as to what Kollmorgan would
be prepared to offer in a fully negotiated transaction, so that defendants can
maintain their positions and prerequisites in and control of the Company.
25. Moreover, Defendants have refused to take those steps
necessary to ensure that the Company's public shareholders will receive maximum
value for their shares of Pacific common stock. Defendants' failure to pursue
negotiations regarding a business combination with Kollmorgan or any other
company is clearly the result of a desire by the Individual Defendants to
protect their own substantial salaries, perquisites and positions with the
Company.
- 8 -
<PAGE>
26. As a result of the foregoing, the Individual Defendants
have breached and/or aided and abetted breaches of fiduciary duties owed to
Pacific and its stockholders. Unless corrected, this conduct will continue to be
wrongful, unfair, and harmful to Pacific's shareholders.
27. Unless enjoined by this Court, defendants will breach
their fiduciary duties owed to plaintiff and the other members of the Class and
may benefit themselves in their corporate offices, all to the irreparable harm
of the Class, as aforesaid.
28. Plaintiff and the other members of the Class have no
adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
1. declaring this to be a proper class action;
2. ordering the Individual Defendants to carry out their
fiduciary duties to plaintiff and the other members of the Class by taking all
steps necessary to maximize the price of Pacific, including arranging for the
sale of Pacific to the highest bidder, by:
a) cooperating fully with any person or entity
having a bona fide interest in proposing any transaction which would maximize
shareholder value, including, but not limited to, a buyout or takeover of the
Company;
b) undertake an appropriate evaluation of Pacific's
worth as a merger/acquisition candidate;
c) take all appropriate steps to enhance Pacific's
value and attractiveness as a merger/acquisition candidate;
- 9 -
<PAGE>
d) take all appropriate steps to effectively expose
Pacific to the marketplace in an effort to create an active auction for Pacific;
e) act independently so that the interests of
Pacific's public stockholders will be protected; and
f) adequately ensure that no conflicts of interest
exist betweeen the Individual Defendant's interests and their fiduciary
obligation to maximize stockholder value or, if such conflicts exist, to ensure
that all conflicts are resolved in the best interests of Pacific's public
stockholders;
3. ordering defendants, jointly and severally, to account to
plaintiff and the other members of the Class for all damages suffered and to be
suffered by them as a result of the acts and transactions alleged herein;
4. requiring defendants to utilize the poison pill in a manner
consistent with maximizing shareholder value;
5. awarding plaintiff the costs and disbursements of the
action, including a reasonable allowance for plaintiff's attorney's fees and
experts' fees; and
- 10 -
<PAGE>
6. granting such other and further relief as this Court may
deem to be just and proper.
Dated: December 15, 1997 LAW OFFICES OF LIONEL Z. GLANCY
By: /s/ Lionel Z. Glancy, Esq.
-----------------------------------------
Lionel Z. Glancy, Esq.
Peter A. Binkow, Esq.
1801 Avenue of the Stars
Suite 308
Los Angeles, CA 90067
(310) 201-9150
Attorney for Plaintiff
OF COUNSEL:
GOODKIND LABATON RUDOFF &
SUCHAROW LLP
100 Park Avenue
New York, New York 10017
(212) 907-0700
- 11 -
<PAGE>
EXHIBIT 22
- -------------------------------------------------------------------------------
PACIFIC SCIENTIFIC COMPANY
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Rights Agent
Rights Agreement
Dated as of December 21, 1997
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions.................................................................... 1
Section 2. Appointment of Rights Agent............................................................ 5
Section 3. Issue of Right Certificates............................................................ 5
Section 4. Form of Right Certificates............................................................. 8
Section 5. Countersignature and Registration...................................................... 8
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates............................. 9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.......................... 10
Section 8. Cancellation and Destruction of Right Certificates..................................... 12
Section 9. Availability of Preferred Shares....................................................... 13
Section 10. Preferred Shares Record Date........................................................... 14
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights..................... 14
Section 12. Certificate of Adjusted Purchase Price or Number of Shares............................. 25
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power................... 25
Section 14. Fractional Rights and Fractional Shares................................................ 27
Section 15. Rights of Action....................................................................... 29
Section 16. Agreement of Right Holders............................................................. 29
Section 17. Right Certificate Holder Not Deemed a Stockholder...................................... 30
Section 18. Concerning the Rights Agent............................................................ 31
Section 19. Merger or Consolidation or Change of Name of Rights Agent.............................. 31
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 20. Duties of Rights Agent................................................................. 32
Section 21. Change of Rights Agent................................................................. 35
Section 22. Issuance of New Right Certificates..................................................... 37
Section 23. Redemption............................................................................. 37
Section 24. Exchange............................................................................... 38
Section 25. Notice of Certain Events............................................................... 40
Section 26. Notices................................................................................ 41
Section 27. Supplements and Amendments............................................................. 42
Section 28. Successors............................................................................. 43
Section 29. Benefits of this Agreement............................................................. 43
Section 30. Severability........................................................................... 43
Section 31. Governing Law.......................................................................... 43
Section 32. Counterparts........................................................................... 44
Section 33. Descriptive Headings................................................................... 44
</TABLE>
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
-ii-
<PAGE>
Agreement, dated as of December 21, 1997, between Pacific
Scientific Company, a California corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., a New Jersey limited liability company (the
"Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding on the earlier
of (i) December 21, 1997, or (i) such date as permitted by the New York Stock
Exchange (the "Record Date"), each Right representing the right to purchase one
one-hundredth of a Preferred Share (as hereinafter defined), upon the terms and
subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 10% or more of the Common Shares
of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common
<PAGE>
Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 10% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 10% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an "Acquiring Person".
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person", as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such Person would no
longer be an "Acquiring Person," as defined pursuant to the foregoing provisions
of this paragraph (a), then such Person shall not be deemed to be an "Acquiring
Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
-2-
<PAGE>
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to
vote such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securi-
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<PAGE>
ties) for the purpose of acquiring, holding, voting (except to the
extent contemplated by the proviso to Section 1(c)(ii)(B)) or
disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New Jersey are authorized or
obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00
P.M., New Jersey time, on such date; provided, however, that if such date is not
a Business Day it shall mean 5:00 P.M., New Jersey time, on the next succeeding
Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $1.00 per share, of the
Company. "Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
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<PAGE>
(i) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(j) "Preferred Shares" shall mean shares of Series B Junior
Participating Preferred Stock, par value $1.00 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.
(k) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(m) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
business day (or such later date as may be determined by action of the Board of
Directors prior to or after such time as any Person becomes an Acquiring Person)
after the date of the commencement by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such
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<PAGE>
plan) of, or of the first public announcement of the intention of any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company or any entity holding
Common Shares for or pursuant to the terms of any such plan) to commence, a
tender or exchange offer the consummation of which would result in any Person
becoming the Beneficial Owner of Common Shares aggregating 10% or more of the
then outstanding Common Shares (including any such date which is after the date
of this Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the Rights will
be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right Certificates
will be transferable only in connection with the transfer of Common Shares. As
soon as practicable after the Distribution Date, the Company will prepare and
execute, the Rights Agent will countersign, and the Company will send or cause
to be sent (and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Distribution Date, at the address of such holder shown
on the records of the Company, a Right Certificate, in substantially the form of
Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record
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<PAGE>
holder of Common Shares as of the close of business on the Record Date, at the
address of such holder shown on the records of the Company. With respect to
certificates for Common Shares outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Pacific
Scientific Company and ChaseMellon Shareholder Services, L.L.C., dated
as of December 21, 1997 (the "Rights Agreement"), the terms of which
are hereby incorporated herein by reference and a copy of which is on
file at the principal executive offices of Pacific Scientific Company.
Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Pacific Scientific Company will mail to
the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced
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<PAGE>
by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby. In the event that the Company purchases or
acquires any Common Shares after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Shares shall be deemed cancelled
and retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 22 hereof, each of the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature,
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<PAGE>
shall have affixed thereto the Company's seal or a facsimile thereof, and shall
be attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become
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<PAGE>
void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant
to Section 24 hereof) may be transferred, split up, combined or exchanged for
another Right Certificate or Right Certificates, entitling the registered holder
to purchase a like number of one one-hundredths of a Preferred Share as the
Right Certificate or Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate or Right Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right Certificate
or Right Certificates to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. Thereupon the Rights Agent shall
countersign and deliver to the person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except
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<PAGE>
as otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office of the Rights Agent, together with payment of the
Purchase Price for each one one-hundredth of a Preferred Share as to which the
Rights are exercised, at or prior to the earliest of (i) the close of business
on December 21, 2007 (the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), or
(iii) the time at which such Rights are exchanged as provided in Section 24
hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $75, and shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Right Certificate in accordance with Section 9 hereof by certified
check, cashier's check or money order payable to the order of the Company, the
Rights Agent shall thereupon promptly (i) (A) requisition from any transfer
agent of the Preferred Shares certificates for the number of Preferred Shares to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such
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<PAGE>
receipts shall be deposited by the transfer agent with the depositary agent) and
the Company hereby directs the depositary agent to comply with such request,
(ii) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
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<PAGE>
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
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<PAGE>
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Shares transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the
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Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each holder of a Right shall thereafter have
a right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y) 50% of
the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall
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then be outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be
cancelled.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights. In the event
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by
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<PAGE>
such number or fraction is equal to the current per share market price of one
Common Share as of the date of issuance of such Preferred Shares or fraction
thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a con-
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<PAGE>
sideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the
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aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New Jersey Stock Exchange or,
if the Security is not listed or admitted to trading on the New Jersey Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Secu-
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rity is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors of the Company. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the Security
is not listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, how-
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ever, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one one-millionth of a Preferred Share or one
ten-thousandth of any other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall
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thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right
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Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
and shall be registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Com-
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pany, if any, issuable upon such exercise over and above the Preferred
Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the
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number of Common Shares outstanding immediately before such event and the
denominator of which is the number of Common Shares outstanding immediately
after such event, and (B) each Common Share outstanding immediately after such
event shall have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had issued with respect
to it. The adjustments provided for in this Section 11(n) shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of
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the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person other than the Company or one or more of its
wholly-owned Subsidiaries, then, and in each such case, proper provision shall
be made so that (i) each holder of a Right (except as otherwise provided herein)
shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such issuer shall have
executed and delivered to the Rights Agent a supplemental agreement so
providing. The Company shall not enter into any transaction of the kind referred
to in this
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Section 13 if at the time of such transaction there are any rights, warrants,
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights. The
provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New Jersey Stock Exchange or, if the Rights
are not listed or admitted to trading on the New Jersey Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
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or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
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(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
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(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
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Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor
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Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct. Anything to the contrary notwithstanding, in no event shall the
Rights Agent be liable for special, indirect, consequential or incidental loss
or damage of any kind whatsoever (including but not limited to lost profits),
even if the Rights Agent has been advised of the likelihood of such loss or
damage.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
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(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Secretary or the Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with
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its duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail,
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and to the holders of the Right Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be either (A) a corporation organized and doing business
under the laws of the United States or of the State of New Jersey (or of any
other state of the United States so long as such corporation is authorized to do
business as a banking institution in the State of New Jersey), in good standing,
having an office in the State of New Jersey, which is authorized under such laws
to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million, or (B) an affiliate of such a corporation. After appointment,
the successor Rights Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
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Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any Person becomes
an Acquiring Person, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights by the Board of Directors may
be made effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10
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days after such action of the Board of Directors ordering the redemption of the
Rights, the Company shall mail a notice of redemption to all the holders of the
then outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set forth in
this Section 23 or in Section 24 hereof, and other than in connection with the
purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.
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<PAGE>
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares
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<PAGE>
or fraction thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal to the current
per share market price of one Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (d), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company
shall propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other distribution to the holders
of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any consolidation
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to,
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<PAGE>
any other Person, (v) to effect the liquidation, dissolution or winding up of
the Company, or (vi) to declare or pay any dividend on the Common Shares payable
in Common Shares or to effect a subdivision, combination or consolidation of the
Common Shares (by reclassification or otherwise than by payment of dividends in
Common Shares), then, in each such case, the Company shall give to each holder
of a Right Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Com-
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<PAGE>
pany shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Pacific Scientific Company
One International Place
Boston, Massachusetts 02110
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
________________________________________
________________________________________
Attention: ____________________________
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from
time to time supplement or amend this Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions with respect
to the Rights which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Company and
the
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<PAGE>
Rights Agent; provided, however, that from and after such time as any Person
becomes an Acquiring Person, this Agreement shall not be amended in any manner
which would adversely affect the interests of the holders of Rights.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
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<PAGE>
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
PACIFIC SCIENTIFIC COMPANY
ATTEST:
By /s/ Lester Hill
____________________________
By ____________________________ Title: Chairman and Chief
Title: Executive Officer
ATTEST: CHASEMELLON SHAREHOLDER
SERVICES L.L.C.
By ____________________________ By /s/ Michael Dzieciolowski
____________________________
Title Title: Relationship Manager
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<PAGE>
Exhibit A
FORM
OF
CERTIFICATE OF DETERMINATION OF
PREFERENCES
OF
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
OF
PACIFIC SCIENTIFIC COMPANY
(Pursuant to Section 401 of the
CALIFORNIA General Corporation Law)
---------------------------
The undersigned, Lester Hill and Winston Hickman, hereby
certify that (1) They are the duly elected and acting President and Secretary,
respectively, of Pacific Scientific Company, a corporation organized and
existing under the General Corporation Law of the State of California
(hereinafter called the "Corporation"), (2) Under authority given by the
Corporation's Articles of Incorporation, the Board of Directors has duly adopted
the following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Corporation
provide for a class of shares known as Preferred Stock, issuable from time to
time in one or more series; and
WHEREAS, the Board of directors of the Corporation is
authorized to determine or alter the rights, preferences, privileges, and
restrictions granted to or imposed on any wholly unissued series of Preferred
Stock, to fix the number of shares constituting any such series, and to
determine the designation thereof, or any of them; and
WHEREAS, the corporation has not issued any shares of such
Preferred Stock and the Board of Directors of the Corporation desires to
determine the rights, preferences, privileges, and restrictions relating to this
initial series of Preferred Stock, and the number of shares constituting and the
designation of said series:
RESOLVED, that the Board of Directors hereby determines the
designation of, number of shares constituting, and the rights, preferences,
privileges, and restrictions relating to said series of Preferred Stock as
follows:
A-1
<PAGE>
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series B Junior Participating Preferred Stock" (the
"Series B Preferred Stock") and the number of shares constituting the Series B
Preferred Stock shall be 500,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series B Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series B Preferred Stock with respect to dividends, the
holders of shares of Series B Preferred Stock, in preference to the
holders of Common Stock, par value $1.00 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series B Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series B Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series B Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series B Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend
A-2
<PAGE>
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1 per share on the Series B Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series B Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series B Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series B Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series B Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series B
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series B Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series B Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series B Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
A-3
<PAGE>
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series B Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series B Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series B Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except
dividends paid ratably on the Series B Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series B Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series B
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series B Preferred Stock, or any
shares of stock ranking on a parity with the Series B
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
A-4
<PAGE>
Section 5. Reacquired Shares. Any shares of Series B Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series B
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series B Preferred Stock, except distributions made ratably on the Series B
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series B Preferred Stock shall be
A-5
<PAGE>
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series B Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series B Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series B Preferred Stock, voting
together as a single class.
The undersigned Lester Hill and Winston Hickman, the President
and Secretary, respectively of Pacific Scientific Company, each declares under
penalty of perjury under the laws of the State of California that the matters
set out in the foregoing Certificate are true of his own knowledge.
Executed at Newport Beach, California, on December 22,
1997.
____________________________
Name:
Title:
____________________________
Name:
Title:
A-6
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER DECEMBER, 2007 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
PACIFIC SCIENTIFIC COMPANY
This certifies that Pacific Scientific Company, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of December 21, 1997 (the "Rights
Agreement"), between Pacific Scientific Company, a California corporation (the
"Company"), and ChaseMellon Shareholder Services L.L.C. (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., New Jersey time, on
December 21, 2007 at the principal office of the Rights Agent, or at the office
of its successor as Rights Agent, one one-hundredth of a fully paid
non-assessable share of Series B Junior Participating Preferred Stock, par value
$1.00 per share (the "Preferred Shares"), of the Company, at a purchase price of
$75 per one one-hundredth of a Preferred Share (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-hundredths of a Preferred Share which may
be purchased upon exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of December 21, 1997, based on
the Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of one one-hundredths of a
Preferred Share which may be purchased upon the exercise of the Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.
B-1
<PAGE>
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $1.00 per
share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
B-2
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of December 21, 1997.
PACIFIC SCIENTIFIC COMPANY
ATTEST:
By __________________________
By __________________________
Countersigned:
[Rights Agent]
By __________________________
Authorized Signature
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED __________________________________________
hereby sells, assigns and transfers unto ______________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ________________, 1997
_______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- -------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
_______________________________________
Signature
- -------------------------------------------------------------------------------
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: PACIFIC SCIENTIFIC COMPANY
The undersigned hereby irrevocably elects to exercise
____________________ Rights represented by this Right Certificate to purchase
the Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: _____________________, 1997
__________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- -------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
__________________________________
Signature
- -------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On December 21 1997, the Board of Directors of Pacific
Scientific Company (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, par value
$1.00 per share (the "Common Shares"), of the Company. The dividend is payable
on the earlier of (i) December 21, 1997, or (ii) such date as permitted by the
New York Stock Exchange (the "Record Date") to the stockholders of record on
that date. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series B Junior Participating Preferred
Stock, par value $1.00 per share (the "Preferred Shares"), of the Company at a
price of $75 per one one-hundredth of a Preferred Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 10% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 10% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution
Date (or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate. As
soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date.
The Rights will expire on December 21, 2007 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.
<PAGE>
The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 100 times the dividend declared per Common Share. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each Preferred Share will have 100 votes, voting together with the Common
Shares. Finally, in the event of any merger, consolidation or other transaction
in which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring Person,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right. In the event that any person or
group of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one
C-2
<PAGE>
Common Share, or one one-hundredth of a Preferred Share (or of a share of a
class or series of the Company's preferred stock having equivalent rights,
preferences and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Preferred Shares will be issued (other
than fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 10% or more of the
outstanding Common Shares, the Board of Directors of the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on such
basis with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 8-A dated December 22, 1997. A copy of the Rights Agreement is available
free of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
C-3
<PAGE>
EXHIBIT 24
CERTIFICATE OF DETERMINATION OF
PREFERENCES
OF
SERIES B JUNIOR PARTICIPATING PREFERRED
STOCK
OF
PACIFIC SCIENTIFIC COMPANY
(Pursuant to Section 401 of the
CALIFORNIA General Corporation Law)
------------
The undersigned, Lester Hill and Winston Hickman, hereby certify that
(1) They are the duly elected and acting President and Secretary, respectively,
of Pacific Scientific Company, a corporation organized and existing under the
General Corporation Law of the State of California (hereinafter called the
"Corporation"), (2) Under authority given by the Corporation's Articles of
Incorporation, the Board of Directors has duly adopted the following recitals
and resolutions:
WHEREAS, the Articles of Incorporation of the Corporation provide for
a class of shares known as Preferred Stock, issuable from time to time in one or
more series; and
WHEREAS, the Board of directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed on any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof, or any of them; and
WHEREAS, the corporation has not issued any shares of such Preferred
Stock and the Board of Directors of the Corporation desires to determine the
rights, preferences, privileges, and restrictions relating to this initial
series of Preferred Stock, and the number of shares constituting and the
designation of said series;
RESOLVED, that the Board of Directors hereby determines the
designation of, number of shares constituting, and the rights, preferences,
privileges, and restrictions relating to said series of Preferred Stock as
follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Junior Participating Preferred Stock" (the "Series B
Preferred Stock") and the number of shares constituting the Series B Preferred
Stock shall be 500,000. Such number of
<PAGE>
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series B
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series B Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series B Preferred Stock with respect to dividends, the holders of shares
of Series B Preferred Stock, in preference to the holders of Common Stock,
par value $1.00 per share (the "Common Stock"), of the Corporation, and of
any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series B Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series B Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series B Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series B Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
<PAGE>
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series B Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series B
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series B Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series B
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series B Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series B Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series B Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series B Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
<PAGE>
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series B Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except dividends paid ratably on the Series B
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series B Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series B Preferred Stock, or any shares of stock ranking
on a parity with the Series B Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective Series Bnd classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in
<PAGE>
the Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series B
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series B Preferred Stock, except distributions made ratably on the Series B
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Commmon Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
<PAGE>
Section 8. No Redemption. The shares of Series B Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series B Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series B Preferred Stock, voting
together as a single class.
The undersigned Lester Hill and Winston Hickman, the President and
Secretary, respectively of Pacific Scientific Company, each declares under
penalty of perjury under the laws of the State of California that the matters
set out in the foregoing Certificate are true of his own knowledge.
Executed at Newport Beach, California, on December 22, 1997.
/s/ Lester Hill
--------------------------------------
Name: Lester Hill
Title: Chairman and Chief Executive
Officer
/s/ Winston Hickman
--------------------------------------
Name: Winston Hickman
Title: Executive Vice President, Chief
Financial Officer and Secretary
