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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)
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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)
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 (the "Common Stock"), together with the
associated preferred stock purchase rights (the "Rights" and, together with the
Common Stock, the "Shares") issued pursuant to that certain Rights Agreement
dated as of December 21, 1997, as amended, between the Company and Chase Mellon
Shareholder Services, LLC, as Rights Agent (the "Rights Agreement").
ITEM 2. TENDER OFFER OF BIDDER
This statement relates to a tender offer by ACC Acquisition Corp.
("Purchaser"), a California corporation and an indirect wholly owned subsidiary
of Danaher Corporation, a Delaware corporation ("Parent"), as set forth in a
Tender Offer Statement on Schedule 14D-1, dated February 6, 1998 (the "Schedule
14D-1"), to purchase all outstanding Shares at a price of $30.25 per share, net
to the seller in cash, upon the terms and subject to the conditions set forth in
the Offer to Purchase, dated February 6, 1998 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of January 31, 1998 (the "Merger Agreement"), by and among DH Holdings Corp.,
a wholly owned subsidiary of Parent ("Holdings"), Purchaser and the Company. The
Offer is subject to certain conditions, including the condition that 90% of the
outstanding Shares are tendered prior to the expiration of the Offer. The Merger
Agreement provides that, if the Offer is consummated pursuant to its terms, the
Purchaser will be merged with and into the Company (the "Merger"), and the
Company will continue as the surviving corporation (the "Surviving
Corporation"). A copy of the Merger Agreement is filed as Exhibit 1 hereto and
incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
Purchaser, Parent and Holdings are located at 1250 24th Street, N.W., Suite
8000, Washington, D.C. 20037.
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, in Schedule I attached hereto 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 2 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.
The Merger Agreement. The summary of the Merger Agreement contained in the
Offer to Purchase, which has been filed with the Securities and Exchange
Commission (the "Commission") as an exhibit to the Schedule 14D-1, a copy of
which Schedule 14D-1 is enclosed with this Schedule 14D-9, is incorporated
herein by reference. Such summary should be read in its entirety for a more
complete description of the terms and provisions of the Merger Agreement. A copy
of the Merger Agreement has been filed as Exhibit 1 hereto and is incorporated
herein by reference. The following is a summary of certain portions of the
Merger Agreement which relate to arrangements among the Company, Purchaser,
Parent and the Company's executive officers and directors.
Board of Directors. Promptly upon the purchase by Purchaser of Shares
representing at least such number of Shares as shall satisfy the Minimum
Condition, and from time to time thereafter, Holdings shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Board of Directors (the "Board") as is equal to the number of directors
which is the product of (a) the total number of directors on the Board (giving
effect to the directors elected pursuant to this sentence) multiplied by (b) the
percentage that the aggregate number of Shares beneficially owned by Holdings or
its affiliates bears to the total number of Shares then outstanding on a fully
diluted basis. Notwithstanding the foregoing, the Company, Holdings and
Purchaser have agreed that, until the Effective Time, the Board shall have at
least two directors ("Independent Directors")
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ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
who are not officers, directors or designees of Purchaser or any of its
affiliates; provided, however, that, in such event, if the number of Independent
Directors shall be reduced below two, the remaining Independent Director shall
be entitled to designate a person to fill such a vacancy who shall not be an
officer, director or designee of Purchaser or any of its affiliates and who
shall be deemed to be an Independent Director for purposes of the Merger
Agreement. In the Merger Agreement, the Company has agreed, upon request of
Holdings, to take all actions necessary to cause Holdings' designees to be so
elected, including mailing to its shareholders the Information Statement
containing the information required by Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14f-1 promulgated
thereunder, and, if necessary, seeking the resignation of one or more existing
directors.
Options, Stock Plans. Pursuant to the Merger Agreement, immediately
following the Effective Time, (a) each outstanding employee or director stock
option (each, an "Option"), whether or not fully exercisable, to purchase Shares
granted under any stock option or similar plan or separate option agreement of
the Company (such plans and agreements, collectively, the "Stock Plans"), will
be entitled to receive in settlement of such Option, a cash payment from the
Company equal to the product of (i) the total number of Shares previously
subject to such Option and (ii) the excess of the Offer Price over the exercise
price per Common Share Subject to such Option, subject to any required
withholding of taxes.
Employee Benefits. Holdings has agreed to cause the Surviving Corporation
to honor the employment, severance and bonus arrangements to which the Company
is party. Holdings has also agreed that for a period of two years following
Effective Time, the Surviving Corporation will provide employees of the Company
and its subsidiaries compensation and employee benefit and welfare plans which
are not materially less favorable in the aggregate to such employee than those
generally in effect on the date of the Merger Agreement with respect to
similarly situated employees of the Company.
Indemnification; Directors' and Officers' Insurance. Pursuant to the
Merger Agreement, from and after the Effective Time, Holdings has agreed, and
will cause the Surviving Corporation to, indemnify the present and former
officers, directors, employees and agents of the Company and its subsidiaries
(the "Indemnified Parties") against all losses, claims, damages, expenses or
liabilities arising out of or related to actions or alleged actions or omissions
occurring at or prior to the Effective Time to the full extent permitted under
California law or, if greater, in the Company's Restated Articles of
Incorporation By-Laws and agreements (including indemnification agreements to
which directors or officers of the Company or its subsidiaries are parties)
between the Company or one of its subsidiaries and such employee, in effect on
the date of the Merger Agreement and identified to Purchaser by the Company (to
the extent consistent with applicable law), which will survive the Merger and
continue in full force and effect. If such Indemnified Party becomes involved in
any action or proceeding, without limitation, Holdings has agreed to advance
reasonable legal and other expenses as incurred by an Indemnified Party,
provided, however, Holdings will not, in connection with one action or separate
but substantially similar actions arising out of the same general allegations,
be liable for fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all Indemnified Parties, except
in certain circumstances. Holdings will be entitled to participate in the
defense of any such action or proceeding. In addition, pursuant to the Merger
Agreement, Holdings has agreed to maintain the current policies for officers and
directors liability insurance for not less than six years from the Effective
Time.
Confidentiality Agreement. The following is a summary of certain
provisions of the Confidentiality Agreement, dated January 9, 1998, by and
between BancAmerica Robertson Stephens ("BARS") on behalf of the Company and
Parent (the "Confidentiality Agreement"), filed as Exhibit 3 hereto and
incorporated herein by reference. Because Parent is the parent corporation of
Holdings, the provisions of the Confidentiality Agreement are also applicable to
Holdings and Purchaser. The summary is qualified in its entirety by reference to
the Confidentiality Agreement. Pursuant to the Confidentiality Agreement, Parent
has agreed, among other things, to keep confidential certain nonpublic
confidential or proprietary information of the Company furnished to Parent by or
on behalf of the Company ("Evaluation Material"), and to use the Evaluation
Material solely for the purpose of evaluating a possible transaction with the
Company. Parent has further agreed to maintain the confidentiality of any
discussions or negotiations with the Company and, upon request, to redeliver or
destroy all the Evaluation Material. Parent also agreed that for a period of
three years from the date of the Confidentiality Agreement, neither Parent nor
any of its affiliates shall, directly or indirectly, without the prior written
consent of
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ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
the Board, (i) acquire, agree to acquire or make any proposal to acquire,
ownership (including but not limited to beneficial ownership, as defined in Rule
13d-3 under the Exchange Act), or any of the assets or businesses of the Company
or any securities issued by the Company, or any rights or options to acquire
such ownership (including from a third party), or make any public announcement
(or request permission to make any such announcement) with respect to any of the
foregoing; (ii) seek or propose to influence or control the management or the
policies of the Company or to obtain representation on the Board, or solicit, or
participate in the solicitation of, any proxies or consents with respect to any
securities of the Company, or make any public announcement with respect to any
of the foregoing or request permission to do any of the foregoing; or (iii)
enter into any discussions, negotiations, arrangements or understandings with
any third party with respect to any of the foregoing. Until the earlier of (i)
the consummation of a transaction between the Company and Parent, or (ii) three
years from the date of the Confidentiality Agreement, Parent agreed not to
initiate or maintain contact (except for contact in the ordinary course of
business) with any officer, director, employee, supplier, distributor, broker or
customer of the Company for the purposes of obtaining information regarding the
Company's operations, assets, prospects or finances, except with the express
permission of the Company. The Confidentiality Agreement provided further that
without the Company's prior written consent, Parent will not, for a period of
three years from the date of the Confidentiality Agreement, without the
Company's written consent, directly or indirectly solicit for employment any
person who is currently employed in a management or supervisory position with
the Company or who receives annual compensation of $50,000 or more.
CERTAIN CONFLICTS
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,
including a special supplemental retirement plan. On June 18, 1997, the Board
authorized the Company to enter into certain employment agreements (the
'Additional Employment Agreement' 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 and
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
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ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
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.
The foregoing descriptions are qualified in their respective entireties by
reference to the Employment Agreements, copies of which are filed as Exhibits 4,
5 and 6 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 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. Either of the Offer or the Merger, if
consummated, would constitute a Change of Control for the foregoing purpose.
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ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
The foregoing descriptions are qualified in their respective entireties by
reference to the Stock Option Agreements, copies of which are filed as Exhibits
7, 8 and 9 to this Statement 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 deduction limit on
nonperformance-based compensation under Section 162(m) of the Code. Although the
Company believes that the benefits provided to Messrs. Hill, Schlotterbeck and
Hickman will not constitute excess parachute payments, the Company has agreed to
indemnify such individuals from any taxes, penalties and costs in the event it
is ultimately determined that such benefits constitute 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. The severance benefits
provided to Messrs. Hill, Schlotterbeck and Hickman in their respective
Employment Agreements do not add to their benefits under the Severance Plan. 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 Common Stock 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 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 outstanding shares of Common Stock 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
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ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
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.
Either of the Offer or the Merger, if consummated, would constitute a change of
control for the foregoing purpose.
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 filed as Exhibit 10 to this Statement 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 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 11
through 15 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 filed as Exhibit 16 to
this Statement and incorporated herein by reference.
Certain Stock Ownership Information. In addition to the information set
forth in Schedule I and 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.
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ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
As of the date of this Statement, Steven Breitzka, a Vice President of the
Company, beneficially owns 2,484 shares of Common Stock. 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 May 29, 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 on April 23, 1997 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 and Knoblock were granted
options to purchase 3,000, 1,000 and 2,000 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 11 through 15 to this
Statement and are incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors. The Board has unanimously
determined that the consideration to be paid for each share of Common Stock in
the Offer and the Merger is fair to the stockholders of the Company and that the
Offer and the Merger are otherwise in the best interests of the Company and its
stockholders, has approved and adopted the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and recommends that
all holders of Common Stock accept the Offer and tender their shares of Common
Stock pursuant to the Offer.
(b) Background; Reasons for the Recommendation. On December 9, 1997, the
Company received a written proposal from Kollmorgen Corporation ("Kollmorgen")
for a business combination between Kollmorgen and the Company in which
Kollmorgen proposed that the Company's 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 a meeting of the Board on December 12, 1997, the Board authorized Lester
Hill, Chairman and Chief Executive Officer of the Company, to inform Kollmorgen
that the Company would respond to Kollmorgen's proposal after having had the
chance to fully consider the matter. On December 15, 1997, Kollmorgen commenced
an unsolicited tender offer for a majority of the shares of Common Stock for
$20.50 in cash (the "Kollmorgen Tender Offer") and a second step merger (the
"Kollmorgen Merger") of the Company into a Kollmorgen subsidiary in which the
Company's stockholders would receive, for each share of Common Stock, Kollmorgen
stock with a value of $20.50, subject to certain conditions that could render
the value of such stock less than or greater than $20.50. Kollmorgen also filed
with the Commission on such date a Consent Solicitation Statement/Preliminary
Prospectus (the "Kollmorgen Solicitation") seeking consents from Company
stockholders to call a special meeting of the Company's stockholders for the
purpose of, among other things, removing all of the members of the Board and
replacing them with nominees selected by Kollmorgen. On December 15, 1997, the
Company engaged BARS as its investment banker.
On December 17 and 21, 1997, the Board met to consider the Kollmorgen
Tender 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 Kollmorgen Tender Offer and the Kollmorgen
Merger, strategic and other potential alternatives to the Kollmorgen Tender
Offer and the Kollmorgen Merger, and other matters, including information
presented by the Company's management, BARS and the Company's legal advisors. At
its December 21st meeting, the Board
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ITEM 4. THE SOLICITATION OR RECOMMENDATION--(CONTINUED)
unanimously (i) determined to redeem the preferred share purchase rights then
issued and outstanding under the Company's then-existing preferred share
purchase rights plan and simultaneously adopted a new Preferred Share Purchase
Rights Plan and declared a dividend distribution of new preferred share purchase
rights (the 'Rights') thereunder; (ii) declined to render the then-existing
rights or the Rights applicable to the Kollmorgen Tender Offer or the Kollmorgen
Merger; and (iii) declined to recommend the Kollmorgen Tender Offer or the
Kollmorgen Merger or to approve the Kollmorgen Merger. The Board also
unanimously recommended that shareholders decline to deliver consents to
Kollmorgen in connection with the Kollmorgen Solicitation. Thereafter, the
Company solicited revocations from its stockholders of consents given to
Kollmorgen pursuant to the Kollmorgen Solicitation.
During the period following commencement of the Kollmorgen Tender Offer,
the Board, together with the Company's management and its legal and financial
advisors, continued to evaluate the Company's strategic alternatives. A variety
of third parties contacted members of the Company's management and BARS to
express an interest in the possibility of pursuing a transaction with the
Company were the Board to entertain such a possibility. As part of the Board's
evaluation process, BARS was directed to contact, on a confidential basis, third
parties who might have an interest in pursuing a transaction with the Company.
Beginning on January 5, 1998, BARS, on behalf of the Company, arranged for more
than 40 parties, including (on January 9, 1998) Parent, to execute customary
confidentiality agreements. These agreements, which were substantially similar,
included covenants on the part of such third parties to maintain confidentiality
of information such parties received regarding the Company, as well as customary
'standstill' provisions pursuant to which the parties agreed not to acquire or
agree, offer, seek or propose to acquire ownership of any of the Company's
securities, assets or businesses, seek or propose to influence management or
control of the Company or enter into arrangements with third parties to do any
of the foregoing, unless requested to do so by the Board. Thereafter, BARS began
distributing confidential information regarding the Company to each of the
parties that had executed a confidentiality agreement. During this period,
management and members of the Board consulted frequently with one and other and
with the Company's legal and financial advisors concerning Kollmorgen's actions
and developments in the Board's evaluation process.
On January 8, 1998, Kollmorgen announced that it had received consents from
holders of in excess of 10% of the outstanding shares of Common Stock to call a
special meeting. On January 12, 1998, the Board met and called a special meeting
for February 13, 1998 for the purpose of considering and acting upon
Kollmorgen's proposals to, among other things, remove the existing Board from
office and replace it with Kollmorgen nominees. At its January 12 meeting, the
Board unanimously resolved to recommend that the Company's stockholders reject
Kollmorgen's proposals, and thereafter circulated proxy materials to the
Company's stockholders urging stockholders to vote against Kollmorgen's
proposals at the February 13 meeting.
During the period following BARS' distribution of confidential information
to third parties, BARS responded to questions and provided additional
information to various of the parties to which it previously had provided
information, in order to assist such parties in their review of the Company. The
Company, through BARS, also received oral preliminary indications of interest
from certain of these parties as to the price levels such parties would be
willing to consider in an acquisition transaction involving the Company. During
the week of January 11, 1998 and the beginning of the week of January 18, 1998,
some of the parties to whom BARS had been providing information, including
Parent, expressed a desire to perform more detailed due diligence on, and meet
with members of management of, the Company, with a view toward quickly reaching
an agreement to acquire the Company. During the week of January 18, 1998,
representatives of BARS and members of the Company's management met with
representatives of certain of the parties, including Parent, that had expressed
a serious interest in pursuing a transaction with the Company and provided such
parties with access to management and visits to Company facilities. On January
23, 1998, Gideon Argov, Chairman and Chief Executive Officer of Kollmorgen,
called Mr. Hill to request that representatives of Kollmorgen be permitted to
enter into discussions with the Company and to receive information from the
Company. Mr. Hill stated that it was not in the interest of the Company's
shareholders to agree to such a request unless and until Kollmorgen terminated
the Kollmorgen Tender Offer and the proposed Kollmorgen Merger and executed a
confidentiality agreement, with customary standstill provisions, on the same
basis as other parties had agreed to execute, so that Kollmorgen's participation
8
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION--(CONTINUED)
in the Company's exploration of strategic alternatives would be on an equal
footing with other parties. Mr. Argov stated that Kollmorgen would not agree to
such conditions.
Over the weekend of January 23 and during the week of January 25, 1998, the
Company's management and BARS continued to have discussions and due diligence
meetings with several parties. On January 28, 1998, the Company's counsel
delivered to attorneys to several parties a proposed form of merger agreement.
Beginning on January 30, 1998, the Company's legal advisors, with the assistance
of management and the Company's financial advisors, discussed and negotiated the
form of contract with such parties. Also on January 30, Kollmorgen increased the
cash and stock price of its unsolicited tender offer and merger to $23.75 per
share. Later in the day on January 30, BARS indicated to interested parties that
the Board was scheduled to meet on the next day to consider approving a merger
transaction and that such parties should make their best and final offer in
terms of price and contractual terms prior to such meeting.
On January 31, 1998, following continued discussions and negotiations, the
Board received the parties' final offers, each of which contemplated all-cash
tender offers followed by a cash merger. At the meeting of the Board, the Board
received the opinion of BARS, that as of such date, and based on the assumptions
made, matters considered and limits of review set forth therein, the
consideration to be received by the holders of the Company's Common Stock, other
than Holdings, Purchaser, any affiliates of Holdings or Purchaser and any holder
of Dissenting Shares (the "Holders"), in the Offer and the Merger is fair to the
Holders, from a financial point of view. After discussion and analysis, the
Board unanimously approved and adopted the Merger Agreement with Holdings,
which, at $30.25 per share, represented the highest cash price any bidder was
willing to offer. The Board also unanimously recommended that stockholders
accept the Offer and tender their shares pursuant thereto and vote in favor of
approval and adoption of the Merger Agreement and the Merger, to the extent
required by applicable law.
On February 2, 1998, Kollmorgen terminated the Kollmorgen Tender Offer.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders of Common Stock tender their shares pursuant
to the Offer, the Board considered a number of factors, including 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, including the information provided by BARS as to the
Company's strategic and other alternatives;
(ii) the terms of the Merger Agreement, including (x) the proposed
structure of the Offer and the Merger involving an immediate cash tender
offer followed by a merger for the same consideration and (y) the fact that
financing is not a condition to the Offer and the Merger, thereby enabling
stockholders to obtain cash for their shares quickly if the Minimum
Condition is met;
(iii) that the per share price contemplated by the Merger Agreement,
at $30.25, represented a significant premium to the price contemplated by
the Kollmorgen Tender Offer and to the trading prices of the Common Stock
prior to the announcement of the Kollmorgen Tender Offer, and represented
the highest cash price any potential acquiror was willing to offer;
(iv) that, unlike the unsolicited Kollmorgen transaction, which
contemplated mixed cash/stock consideration, the Merger provided certainty
of value through its all-cash structure;
(v) the process engaged in by the Company's management and financial
advisors, which included discussions with a significant number of potential
acquirors, as a result of which the Board had what it believed to be an
accurate sense of the values that could be achieved in a third party
transaction;
(vi) that were the Company not to pursue execution of the Merger
Agreement, Kollmorgen had publicly stated that if Kollmorgen succeeded in
removing the Board at the special meeting called for February 13, 1998 as a
result of the Kollmorgen Solicitation, Kollmorgen's nominees to the Board
would pursue the Kollmorgen transaction, which contemplated a price
inferior to that contemplated by the Merger Agreement;
9
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION--(CONTINUED)
(vii) the presentation of BARS at the January 31, 1998 Board meeting
and the opinion of BARS to the effect that, as of such date, and based on
the assumptions made, matters considered and limits of review set forth
therein, the consideration to be received by the holders of the Company's
Common Stock, other than Holdings, Purchaser, any affiliates of Holdings or
Purchaser and any holder of Dissenting Shares (the "Holders"), in the Offer
and the Merger is fair to the Holders, from a financial point of view (A
COPY OF THE BARS OPINION IS ATTACHED AS ANNEX I TO THIS SOLICITATION/
RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 AND FILED AS EXHIBIT 23 HERETO,
IS INCORPORATED HEREIN BY REFERENCE, AND STOCKHOLDERS ARE URGED TO READ
SUCH OPINION CAREFULLY IN ITS ENTIRETY);
(viii) that the Merger Agreement permits the Company to furnish
nonpublic information to, and to participate in negotiations with, any
third party that has submitted an unsolicited written acquisition proposal
to the Company, if the Board determines in good faith that taking such
action is necessary in the exercise of its fiduciary obligations under
applicable law; and
(ix) the termination provisions of the Merger Agreement, which under
certain circumstances could obligate the Company to pay termination fees to
Parent and reimburse Parent for its actual expenses incurred in connection
with the transaction, and the Board's belief that such fees and expense
reimbursement provisions would not deter a higher offer.
The foregoing discussion addresses the material information and factors
considered by the Board in its consideration of the Offer. 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 accept the Offer
was made after consideration of all of 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 initially retained BARS as its financial advisor with respect
to an unsolicited tender offer made by Kollmorgen and other matters arising in
connection therewith, including assisting the Company in exploring alternatives
in light of the unsolicited Kollmorgen Tender Offer. Pursuant to the engagement
letter between BARS and the Company dated December 15, 1997 (the "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 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
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<PAGE>
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED--(CONTINUED)
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 Exchange Act) 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.
If the transactions contemplated by the Merger Agreement are consummated,
BARS will receive aggregate fees of $6.8 million, of which $600,000 has been
paid to date, including $100,000 paid in connection with BARS' fairness opinion.
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.
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.
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 Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the knowledge of the Company, except as described in this Item 6, no
transactions in shares of Common Stock 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 then
existing rights and adopted the Rights Agreement and declared a dividend of new
Rights thereunder and, on January 31, 1998, the Company amended the Rights
Agreement pursuant to the Merger Agreement to provide, among other things, that
Parent and its Affiliates (as defined in the Rights Agreement), would not be
deemed an Acquiring Person (as defined below). See also Item 8 below, which sets
forth certain information as to the 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 presently intend to tender, pursuant to the Offer,
all shares of Common Stock which are held of record or are beneficially owned by
such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) None.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The following information is in addition to the information set forth in
Item 4.
Articles of Incorporation. Article Fifth of the Company's Restated
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 of
Common Stock. 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
of Common Stock 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 of Common Stock
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
of Common Stock immediately prior to the commencement of acquisition of
shares of Common Stock 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
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED--(CONTINUED)
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 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.
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 filed as Exhibit 18 to this Statement and is incorporated herein by
reference.
The Rights Agreement. On December 21, 1997, the Board entered into the
Rights Agreement and declared a dividend of a new Right for each outstanding
share of Common Stock. The dividend was payable on December 29, 1998 (the
"Record Date") to the stockholders of record on that date and the then existing
rights were redeemed and holders of Common Stock received a distribution of
$0.01 per share of Common Stock. The Rights Agreement was amended on January 31,
1997, to provide, among other things, that Parent and its Affiliates (as defined
in the Rights Agreement) would not be deemed an Acquiring Person (as defined in
the Rights Agreement) and that the Rights will expire on the earlier of December
19, 2007 and immediately prior to the Effective Time. 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, subject to adjustment. The description and terms of the Rights
are set forth in the Rights Agreement.
The foregoing summary of the Rights is qualified in its entirety by
reference to the Rights Agreement and subsequent amendments thereto and other
related documents, copies of which are filed as Exhibits 19 through 22 to this
Statement and are 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
13
<PAGE>
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED--(CONTINUED)
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 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 Offer or the Merger. If it is asserted
that one or more state takeover laws is or are applicable to the Offer or the
Merger, and a court having jurisdiction over such matter does not determine that
it is inapplicable as applied to either of them, Purchaser 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 of Common Stock Tendered pursuant to the Offer or from
consummating the Merger, or the consummation of either of them may be delayed.
Certain Litigation. 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 Kollmorgen Tender Offer
and the Kollmorgen Merger, 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 summary of litigation is qualified in its entirety by
reference to the text of the complaint, a copy of which is filed as Exhibit 20,
to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 dated
December 22, 1997, and is incorporated herein by reference.
14
<PAGE>
MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 1 -- Agreement and Plan of Merger, dated as of January 31, 1998, by and
among Parent, Purchaser and the Company (incorporated by reference
to Exhibit 1 to the Company's Form 8-K as filed on February 2,
1998).
Exhibit 2 -- Pages 2, 3 and 5 through 10 of Proxy Statement, dated March 14,
1997, relating to the Company's 1997 Annual Meeting of
Stockholders (incorporated by reference to the Company's Schedule
14D-9 as filed on December 22, 1997, and as subsequently amended)
(the "December 14D-9").
Exhibit 3 -- Confidentiality Agreement, dated January 9, 1998, by and between
BARS, on behalf of the Company, and Danaher Corporation (filed
herewith).
Exhibit 4 -- 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 5 -- 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 6 -- 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 7 -- 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 8 -- 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 9 -- 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 10 -- 1997 Pacific Scientific Company Change of Control Severance Plan
(incorporated by reference to the December 14D-9).
Exhibit 11 -- First Amendment to Pacific Scientific Company 1995 Stock Option
Plan (incorporated by reference to the December 14D-9).
Exhibit 12 -- First Amendment to Pacific Scientific Company 1992 Key Employee
Stock Option Plan (incorporated by reference to the December
14D-9).
Exhibit 13 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and David
Schlotterbeck (incorporated by reference to the December 14D-9).
Exhibit 14 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and Lester Hill
(incorporated by reference to the December 14D-9).
Exhibit 15 -- Amendment No. 1 to Nonstatutory Stock Option Agreement, dated as
of December 21, 1997, by and between the Company and Winston E.
Hickman (incorporated by reference to the December 14D-9).
Exhibit 16 -- Form of Indemnification Agreement by and between the Company and
each of the Company's directors and with Messrs. Schlotterbeck and
Hickman (incorporated by reference to the December 14D-9).
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Exhibit 17 -- Letter to Stockholders of the Company, from Lester Hill, dated
February 6, 1998 (filed herewith).
Exhibit 18 -- 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 19 -- 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 (incorporated by reference to the
December 14D-9).
Exhibit 20 -- Letter agreement, dated as of December 22, 1997, by and between
the Company and the Rights Agent (incorporated by reference to the
December 14D-9).
Exhibit 21 -- First Amendment to Rights Agreement, dated as of January 31, 1998,
by and between the Company and ChaseMellon Shareholder Services,
L.L.C. (incorporated by reference to the Company's Form 8-A/A
(Amendment No. 3) filed February 2, 1998).
Exhibit 22 -- Form of Certificate of Determination of Preference of the Series B
Junior Participating Preferred Stock (incorporated by reference to
the December 14D-9).
Exhibit 23 -- Opinion of BancAmerica Robertson Stephens, dated January 31, 1998
(included as Annex I of the Schedule 14D-9 mailed to stockholders
of the Company on February 6, 1998).
</TABLE>
16
<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: February 6, 1998
17
<PAGE>
SCHEDULE I
PACIFIC SCIENTIFIC COMPANY
620 Newport Center Drive,
Suite 700
Newport Beach, California 92660
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about February 6, 1998 as
a part of the Solicitation/Recommendation Statement on Schedule 14D-9 of Pacific
Scientific (the "Company") to the holders of record of shares of Common Stock,
par value $1.00 per share, of the Company (the "Common Stock") at the close of
business on or about February 6, 1998. You are receiving this Information
Statement in connection with the possible election of persons designated by the
Parent (as defined below) to a majority of the seats on the Board of Directors
of the Company.
On January 31, 1998, the Company, DH Holdings Corp. ("Holdings"), a
Delaware corporation and a direct wholly owned subsidiary of Danaher Corporation
("Parent"), and ACC Acquisition Corp. ("Purchaser"), a California corporation
and an indirect wholly owned subsidiary of Parent, entered into an Agreement and
Plan of Merger (the "Merger Agreement") in accordance with the terms and subject
to the conditions of which (i) Holdings will cause Purchaser to commence a
tender offer (the "Offer") for all outstanding Common Stock, together with the
associated preferred stock purchase rights (the "Rights" and, together with the
Common Stock, the "Shares"), at a price of $30.25 per Share net to the seller in
cash, and (ii) following consummation of the Offer and subject to certain
conditions, the Purchaser will be merged with and into the Company (the
"Merger"). As a result of the Offer and the Merger, the Company will become a
wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to promptly, at Holdings'
request, take all actions necessary to cause the Holdings' designees to be
elected to the Board of Directors of the Company (the "Board") under the
circumstances described therein. See "Board of Directors and Executive
Officers--Right to Designate Directors; The Parent Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated February 6, 1998
(the "Statement"), to which this Information Statement is attached.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
February 6, 1998. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on Friday, March 6, 1998, unless the Offer is extended.
The information contained in or incorporated by reference into this
Information Statement concerning Parent, Purchaser and the Parent Designees (as
hereinafter defined) has been furnished to the Company by Parent, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
I-1
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of February 5, 1998, there were
12,481,556 Shares outstanding. The Board currently consists of six members all
of whom have terms of office expiring in 1998. Under the Company's current
Bylaws, the number of directors is fixed from time to time by resolution of the
Board, provided that the number is not to be less than five nor more than eight.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the payment by Purchaser for Shares pursuant to the Offer
representing at least such number of Shares as shall satisfy the Minimum
Condition, and from time to time thereafter, Holdings shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board as is equal to the product of the total number of directors on the Board
(determined after giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Parent or its affiliates bears to the total number of
Shares then outstanding on a fully diluted basis, and the Company shall, upon
request of Parent, promptly take all actions necessary to cause Parent's
designees (the "Parent Designees") to be so elected, including, if necessary,
seeking the resignations of one or more existing directors; provided, however,
that prior to the Effective Time, the Board shall always have at least two
members who are neither officers, directors or designees of the Purchaser or any
of its affiliates ("Purchaser Insiders"). If the number of directors who are not
Purchaser Insiders is reduced below two prior to the Effective Time, the
remaining director who is not a Purchaser Insider shall be entitled to designate
an individual to fill such vacancy who is not a Purchaser Insider and who shall
be a director not deemed to be a Purchaser Insider for all purposes of the
Merger Agreement.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than March 6, 1998, and that, upon assuming office,
the Parent Designees will thereafter constitute at least a majority of the Board
of Directors.
THE PARENT DESIGNEES
Purchaser has informed the Company that it will choose the Parent Designees
from the directors and executive officers listed in Schedule I to the Offer to
Purchase, a copy of which is being mailed to the Company's stockholders together
with the Statement. Purchaser has informed the Company that each of the
directors and executive officers listed in Schedule I to the Offer to Purchase
has consented to act as a director, if so designated. The information on such
Schedule I is incorporated herein by reference.
None of the Parent Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the best knowledge of
Purchaser, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by Purchaser that, to
the best of Purchaser's knowledge, none of the Purchaser Designees has been
involved in any transactions with the Company or any of its directors, executive
officers or affiliates which are required to be disclosed pursuant to the rules
and regulations of the Commission, except as may be disclosed herein or in the
Statement.
DIRECTORS OF THE COMPANY
Certain information regarding each of the current directors including their
principal occupation, age and period of service as a director of the Company are
set forth below.
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 1998, as
Chairman. Mr. Beran also serves as a director of Arco Chemical Company,
Fleetwood Enterprises Inc., Vencor Inc., and Eureka Mutual Funds.
I-2
<PAGE>
Ralph O. Briscoe; age 70; Retired 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.
Lester Hill; age 54; Chairman of the Board 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. In July 1997, Mr.
Schlotterbeck became President and Chief Operating Officer of the Company. 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 the
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.
Ralph D. Ketchum; age 71; President, RDK Capital, Inc. Mr. Ketchum was
elected a director of the Company in 1994. He also serves on the boards of
Oglebay Norton Company, Thomas Industries, Lithium Technologies Corporation, and
Metropolitan Savings Bank. He is also the General Partner of RDK Capital, L.P.,
and as such is the majority owner and CEO of Heintz Corporation (a manufacturer
of aircraft engine components) which filed for voluntary reorganization under
Chapter 11 of the United States Bankruptcy Code, in the federal bankruptcy court
of the Eastern District of Pennsylvania, on August 4, 1993. Mr. Ketchum was a
long-time employee of General Electric Company, rising to the position of Senior
Vice President and Group Executive at the time of his retirement. Mr. Ketchum
was with GE from 1946 to 1987, except for a three-year period (1969-1972) when
he served as Vice President of Control Data Corporation.
William A. Preston; age 61; Chairman and majority owner of APM, Inc. Mr.
Preston was elected a director of the Company in 1979. He has been Chairman and
majority owner of APM, Inc., a specialty plastics manufacturer, since 1969. Mr.
Preston is also a director of University National Bank & Trust Company.
Millard H. Pryor, Jr.; age 64; Managing Director, Pryor & Clark
Company Mr. Pryor became a director of the Company in 1992. He is a Managing
Director of Pryor & Clark Company (a real estate and investment holding
company), which he had served as an executive since 1970. He has been a director
of Corcap, Inc. since 1988 and served as an executive officer with that company
from 1988 to 1992. Mr. Pryor is also a director of The Hartford Funds, Infodata
Systems Inc. and Compudyn Corporation. Additionally, Mr. Pryor was the Chief
Executive Officer of Lydall Inc. (a manufacturer of materials from specialty
fibers) from 1972 through 1988.
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The Company has standing Executive, Audit, Compensation and Personnel and
Nominating and Corporate Governance Committees. During the Company's 1997 fiscal
year, the Board of Directors held 11 meetings and each director attended at
least 75% of all Board meetings and meetings of Committees on which he served.
Executive Committee
The Executive Committee, which during the 1997 fiscal year consisted of
Messrs. Briscoe, Hill and Preston (Chairman), has all the powers and authority
of the Board in the management of the business and the affairs of the Company,
except those powers which by law cannot be delegated by the Board of Directors.
Although the Executive Committee has broad powers, in practice it meets only
when it would be inconvenient to call a meeting of the Board. The Executive
Committee did not meet during the Company's 1997 fiscal year.
Audit Committee
The Audit Committee, consisting of Messrs. Beran (Chairman), Briscoe,
Ketchum, Preston and Pryor, met three times during the 1997 fiscal year. The
Audit Committee makes recommendations concerning the engagement of the Company's
independent auditors, consults with the independent auditors concerning the
audit plan and reviews the comments and recommendations resulting from the
auditors' report and management letter. The Audit Committee also reviews the
Company's program of internal audit and consults with the Company's internal
auditor on questions of interest.
I-3
<PAGE>
Compensation and Personnel Committee
The Compensation and Personnel Committee, consisting of Messrs. Ketchum
(Chairman), Beran and Preston, met four times during the 1997 fiscal year. The
Compensation and Personnel Committee makes recommendations to the Board on the
annual salary rates of all elected officers of the Company, makes
recommendations to the Board on incentive compensation, stock options and
compensation matters and administers the incentive compensation, stock option
and other compensation plans of the Company.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, consisting of Messrs.
Briscoe (Chairman), Preston and Pryor, 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 shareholders and to
establish corporate governance policies. The Nominating and Corporate Governance
Committee did not meet during the 1997 fiscal year.
Directors' Compensation
Each director who is not an employee of the Company receives a $17,500
annual retainer and $900 for each Board and committee meeting attended.
As of July 1, 1997, the Company discontinued participation in the Company's
Directors' Retirement Plan (the 'Retirement Plan') and froze the benefits
payable to the current non-employee directors. As a replacement for the
Retirement Plan, each of the Company's non-employee directors are to receive an
annual grant of a fully exercisable ten-year option to purchase 3,000 shares of
the Company's Common Stock. The option exercise price is to be equal to the
closing price of the Common Stock on the date of grant. The initial grant was
made to the non-employee directors on May 29, 1997 and subsequent grants will be
made on the date of the Company's annual meeting of shareholders.
Those non-employee directors who were members of the Board on May 29, 1997
are still eligible to receive an annual benefit under the Retirement Plan of up
to $16,000, provided that they have served on the Board for a period of five
years. Under the Retirement Plan, annual benefits commence on the latter of (i)
when the eligible director reaches age 65 or (ii) when the director is no longer
serving as a director of the Company. Non-employee 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 Retirement 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 benefit 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 the Retirement Plan are a
direct obligation of the Company and are reflected as a financial statement
liability determined in accordance with accepted actuarial assumptions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
executive officers and any persons holding more than ten percent of the
outstanding shares of Common Stock are required to report their ownership of
such shares and any changes in that ownership to the SEC and the NYSE. These
persons also are required by SEC regulations to furnish the Company with copies
of these reports. Specific due dates for these reports have been established and
the Company is required to report any failure to file by these dates during the
1997 fiscal year. Based solely on a review of the reports furnished to the
Company or written representations from the Company's directors and executive
officers, the Company believes that all of these filing requirements were
satisfied by the Company's directors, executive officers and ten percent holders
during the 1997 Fiscal Year.
I-4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 31, 1998 regarding
the beneficial ownership of the Company's Common Stock by each person known to
the Company to beneficially own more than five percent (5%) of the Common Stock
and by the Company's directors, the named executive officers and by all
directors and executive officers as a group, together with the percentage of the
outstanding Common Shares which such ownership represents. Unless otherwise
indicated, the beneficial ownership consists of sole voting and investment power
with respect to the shares indicated, except to the extent that authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) CLASS
- ------------------------------------- -------------------------- ----------
<S> <C> <C>
Walter F. Beran...................... 6,000 *
Ralph O. Briscoe..................... 20,000 *
Lester Hill.......................... 100,000 *
Ralph D. Ketchum..................... 11,500 *
William A. Preston................... 13,000 *
Millard H. Pryor, Jr................. 7,000 *
David L. Schlotterbeck............... -- *
Richard V. Plat...................... 264,778 2.1%
William R. Fejes..................... 10,000 *
Richard G. Knoblock.................. 18,300 *
Edgar S. Brower(3)................... 116,000 *
Mellon Bank Corporation(4) .......... 648,994 5.2%
One Mellon Bank Center
Pittsburgh, PA 15258
All Directors and Current Executive 472,712 3.7%
Officers as a Group (13 persons)...
</TABLE>
- ------------------
* 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 individuals and
entities listed.
(2) Includes certain shares which the following have the right to acquire within
60 days of January 31, 1998 through the exercise of stock options to
purchase shares of Common Stock: Messrs. Beran, Briscoe, Ketchum, Preston
and Pryor, 3,000 shares each; Mr. Hill, 100,000 shares; Mr. Plat, 105,500
shares; Mr. Fejes, 10,000 shares; Mr. Knoblock, 18,300 shares; Mr. Brower,
15,000 shares and all directors and current executive officers as a group,
268,450 shares. In the event of a change of control (as defined in the
relevant plan and related documents) of the Company, outstanding options
granted to employees shall vest and become immediately exercisable, subject
to certain limitations.
(3) Mr. Brower resigned as a director and the Company's Chief Executive Officer
on February 19, 1997.
(4) Based on information contained in a Schedule 13G filed with the SEC on
January 27, 1998. Represents shares owned by Mellon Bank Corporation and its
direct and indirect subsidiaries in their various fiduciary capacities.
I-5
<PAGE>
EXECUTIVE COMPENSATION
The following table discloses compensation received for the three fiscal
years ended December 26, 1997 by the Chief Executive Officer at such time, the
Company's former Chief Executive Officer and the Company's next four most highly
paid executive officers (collectively, the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------
--------------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($)(2) COMPENSATION($)(3) OPTIONS(#) COMPENSATION($)(4)
- ----------------------------- ------- --------- ----------- ------------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Edgar S. Brower(5)........... 1997 $ 256,982 -- -- -- $ 3,750
Former Chairman of the 1996 403,198 -- -- 20,000 3,750
Board, Director, and 1995 376,640 $ 155,341 $6,000 20,000 90,620
Chief Executive Officer
Lester Hill ................. 1997 291,150 290,000 -- 250,000 60,773
Chairman of the Board and
Chief Executive Officer
David L. Schlotterbeck ...... 1997 125,000 245,000 -- 150,000 1,500
President and Chief
Operating Officer
Richard V. Plat.............. 1997 300,000 -- -- -- 3,750
Executive Vice 1996 298,355 -- -- 10,000 3,750
President, Former Chief 1995 284,904 100,924 -- 10,000 4,620
Financial Officer and
Secretary
Richard G. Knoblock.......... 1997 175,099 72,205 -- 10,000 3,750
Vice President and
President, Safety 1996 163,270 66,086 -- 5,000 3,750
Aviation Group 1995 147,117 64,150 -- 4,000 3,678
William T. Fejes............. 1997 200,000 -- -- 8,000 3,750
Senior Vice President 1996 190,270 33,550 -- 8,000 3,750
and President, Automation 1995 151,951 -- -- 5,000 3,449
Technology Group
</TABLE>
- ------------------
(1) Messrs. Hill and Schlotterbeck joined the Company in 1997 and, accordingly,
no information is disclosed with respect to prior years for these
individuals.
(2) The amounts shown in this column reflect payments under the Company's
Management Incentive Plan. Except for Messrs. Hill and Schlotterbeck as
described below, amounts disclosed in this column are for bonuses paid in a
given year which were based on the prior year's performance. The bonus
payments for Messrs. Hill and Schlotterbeck reflect bonuses paid at the end
of 1997 for 1997. To the extent such amounts exceed the bonuses which would
otherwise be payable to Messrs. Hill and Schlotterbeck in 1998, such excess
shall reduce future bonuses and/or severance payments otherwise payable to
these individuals.
(3) 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
(Footnotes continued on next page)
I-6
<PAGE>
(Footnotes continued from previous page)
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
$1,943,750 on the date that the restriction expired.
(4) The amounts disclosed in this column for fiscal 1997 for the Company's
contributions under Pacific Scientific's Savings Plan, a defined
contribution plan, for the following individuals include: Mr. Brower,
$3,750; Mr. Hill, $3,750; Mr. Schlotterbeck, $1,500; Mr. Plat, $3,750; Mr.
Knoblock, $3,750; and Mr. Fejes, $3,750. In addition, in fiscal 1997 the
Company credited Mr. Hill a total of $57,023 under his special supplemental
retirement plan.
(5) Mr. Brower resigned as a director and officer on February 19, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1997 to
the named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN FISCAL EXERCISE EXPIRATION -----------------------
NAME GRANTED(#)(1) YEAR 1997(2) PRICE($/SH) DATE 5% 10%
- ------------------------- ------------- ------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edgar S. Brower (4)...... -- -- -- -- -- --
Lester Hill.............. 250,000 32.0% $12.625 Feb. 2007 $1,984,949 $5,030,250
David L. Schlotterbeck... 150,000 19.2% 13.94 July 2007 1,315,019 3,332,516
Richard V. Plat.......... -- -- -- -- -- --
Richard G. Knoblock...... 8,000 1.3% 11.75 Apr. 2007 59,116 149,812
2,000 * 13.00 May 2007 16,351 41,437
William T. Fejes......... 5,000 * 11.75 Apr. 2007 36,948 93,632
3,000 * 13.00 May 2007 24,529 62,156
</TABLE>
- ------------------
* Represents less than 1%
(1) Except for Messrs. Hill and Schlotterbeck, the options listed were granted
pursuant to the Pacific Scientific Company 1995 Stock Option Plan. The
options granted under the 1995 Stock Option Plan generally become fully
exercisable after four years with normal vesting occurring at a rate of 25%
per year and the plan grants broad discretion to the Board of Directors to
change or modify the material terms of option grants. Messrs. Hill and
Schlotterbeck entered into nonstatutory stock option agreements with the
Company pursuant to which Mr. Hill and Mr. Schlotterbeck were granted
options to purchase 250,000 and 150,000 shares of Company Common Stock,
respectively. The options granted to Mr. Hill become fully exercisable after
four years with 20% vested as of the grant date and an additional 20%
vesting each year. The options granted to Mr. Schlotterbeck vest over four
years with normal vesting occurring at a rate of 25% per year. In the event
of a change of control (within the meaning of the 1997 Pacific Scientific
Company Change of Control Severance Plan) all outstanding options will
become immediately exercisable by the holder thereof, subject to certain
limitations under such plan.
(2) The Company granted options representing 780,955 shares to employees in
fiscal 1997.
(3) The dollar amounts in these columns are determined using assumed rates of
appreciation set by the Securities and 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.
I-7
<PAGE>
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 26, 1997. The Company currently does
not grant stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edgar S. Brower(3)....... 214,000 $1,628,525 15,000 -- $ 81,563 --
Lester Hill.............. -- -- 50,000 200,000 546,875 $ 2,187,500
David L. Schlotterbeck... -- -- -- 150,000 -- 1,443,375
Richard V. Plat.......... -- -- 103,000 21,000 1,451,594 137,094
Richard G. Knoblock...... -- -- 17,050 17,150 204,034 152,978
William T. Fejes......... 6,700 56,281 8,000 17,400 60,331 132,681
</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 26, 1997 and the
option exercise prices. The closing price of the Company's Common Stock on
December 26, 1997 on the New York Stock Exchange was $23.5625.
(3) Mr. Brower resigned as a director and officer on February 19, 1997.
RETIREMENT BENEFITS
To provide for retirement income for its employees, the Company has pension
plans designated 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 benefits.
PRE-1985 RETIREMENT PLAN
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
HIGHEST FIVE-YEAR 15 YEARS 20 YEARS 25 YEARS OF 30 YEARS OF 35 YEARS OF
AVERAGE COMPENSATION OF SERVICE OF SERVICE SERVICE(1) SERVICE(1) SERVICE(1)
- -------------------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$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
</TABLE>
I-8
<PAGE>
POST-1985 RETIREMENT PLAN
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
HIGHEST FIVE-YEAR 15 YEARS 20 YEARS 25 YEARS OF 30 YEARS OF 35 YEARS OF
AVERAGE COMPENSATION OF SERVICE OF SERVICE SERVICE(1) SERVICE(1) SERVICE(1)
- -------------------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$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
</TABLE>
- ------------------
(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, plus interest
accruing on such amounts at the rate of nine percent per year for 1997. This
plan is in addition to the Company's regular Employee Pension Plan and the
Pacific Scientific Company Pension Restoration Plan.
The officers named in the Summary Compensation Table have been credited
with the following years of service: Mr. Brower, 12 years; Mr. Hill, 0 years;
Mr. Schlotterbeck, 0 years; Mr. Plat, 20 years; Mr. Knoblock, 8 years; and Mr.
Fejes, 11 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 or 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 AGREEMENTS, SEVERANCE AGREEMENTS AND OTHER INFORMATION
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,
including a special supplemental retirement plan. On June 18,
I-9
<PAGE>
1997, the Board authorized the Company to enter into certain employment
agreements (the "Additional Employment Agreement" 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 and
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.
The foregoing descriptions are qualified in their respective entireties by
reference to the Employment Agreements, copies of which are attached as Exhibits
4, 5 and 6 to the 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
I-10
<PAGE>
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. Either of the Offer or the Merger, if
consummated, would constitute a Change of Control for the foregoing purposes.
The foregoing descriptions are qualified in their respective entireties by
reference to the Stock Option Agreements, copies of which are attached hereto as
Exhibits 7, 8 and 9 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 deduction limit on
nonperformance-based compensation under Section 162(m) of the Code. Although the
Company believes that the benefits provided to Messrs. Hill, Schlotterbeck and
Hickman will not constitute excess parachute payments, the Company has agreed to
indemnify such individuals from any taxes, penalties and costs in the event it
is ultimately determined that such benefits constitute 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. The severance benefits
provided to Messrs. Hill, Schlotterbeck and Hickman in their respective
Employment Agreements do not add to their benefits under the Severance Plan. 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
I-11
<PAGE>
beneficial owners, respectively, of the Common Stock 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 outstanding shares of
Common Stock 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 constitute 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.
Either of the Offer or the Merger, if consummated, would constitute a change of
control for the foregoing purposes.
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 the 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 the Statement as Exhibit 10 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 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 11
through 15 to the 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
I-12
<PAGE>
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 16 to
the Statement and incorporated herein by reference.
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.
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 broad 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 judgement 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
I-13
<PAGE>
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. Stafford, Chairman
William A. Preston
Ralph D. Ketchum
Dated: March 14, 1997
STOCK PRICE PERFORMANCE GRAPH
The information in the foregoing report of the Compensation Committee and
the following graph shall not be incorporated by reference (by any general
statement incorporating this proxy statement by reference or otherwise) into any
prior or future filing under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or the Securities Act of 1933, as amended, except to the
extent Pacific Scientific Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Note: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
I-14
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
OF PACIFIC SCIENTIFIC COMPANY, S&P 500 INDEX
AND S&P HIGH TECHNOLOGY COMPOSITE INDEX
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P
(FISCAL YEAR COVERED) PSC S&P 500 HIGH-TECH
--------------------- ----- ------- ---------
<S> <C> <C> <C>
1991 100.0 100.0 100.0
1992 172.4 107.7 104.1
1993 240.2 118.4 128.1
1994 441.8 119.9 149.3
1995 548.5 164.9 215.0
1996 243.0 202.8 305.1
</TABLE>
The cumulative total return calculation assumes $l00 invested on December
27, 1991 and dividend reinvestments. The graph above is calculated through the
fiscal year ended December 27, 1996.
CERTAIN LITIGATION
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 Kollmorgen Tender Offer and the Kollmorgen
Merger, 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 summary of litigation is qualified in its entirety by
reference to the text of the complaint, a copy of which is filed as Exhibit 20,
to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 dated
December 22, 1997, and is incorporated herein by reference.
I-15
<PAGE>
ANNEX I
BancAmerica
ROBERTSON STEPHENS
January 31, 1998
PERSONAL & CONFIDENTIAL
Board of Directors
Pacific Scientific Company
620 Newport Center Drive
Newport Beach, CA 92660-8007
Members of the Board:
You have asked our opinion with respect to the fairness to the Holders of
Pacific Scientific Company Common Stock (as defined below), from a financial
point of view and as of the date hereof, of the consideration to be received
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") among DH
Holdings Corporation ("Parent"), ACC Acquisition Corporation ('Purchaser') and
Pacific Scientific Company ("Pacific Scientific"). The Merger Agreement provides
(i) for Parent to make a cash tender offer (the "Offer") for all of the
outstanding shares of common stock of Pacific Scientific together with the
associated preferred stock purchase rights (such common stock, together with
such rights, the "Pacific Scientific Common Stock") at a price of $30.25 per
share, net to the seller in cash and (ii) for the merger of Pacific Scientific
and Purchaser pursuant to which Pacific Scientific will become a wholly-owned
subsidiary of Parent (the "Merger"). In the Merger, each outstanding share of
Pacific Scientific Common Stock (other than certain shares to be cancelled
pursuant to the Merger Agreement and shares held by shareholders who properly
exercise dissenters' rights ("Dissenting Shares")) will be converted into the
right to receive $30.25 in cash. The 'Holders of Pacific Scientific Common
Stock' shall include all holders of Pacific Scientific Common Stock except for
Parent, Purchaser, any affiliates of Parent or Purchaser and any holders of
Dissenting Shares. The terms and conditions of the Offer and the Merger are set
out more fully in the Merger Agreement.
For purposes of this opinion we have, among other things, (i) reviewed certain
financial information furnished to us by Pacific Scientific, including certain
internal financial analyses, forecasts and projections prepared by the
management of Pacific Scientific; (ii) reviewed certain publicly available
information relating to Pacific Scientific; (iii) held discussions with the
management of Pacific Scientific concerning the businesses, past and current
operations, financial condition and future prospects of Pacific Scientific; (iv)
reviewed the Merger Agreement; (v) reviewed the share price and trading history
of the Pacific Scientific Common Stock; (vi) reviewed the valuations of publicly
traded companies that we deemed comparable to Pacific Scientific; (vii) compared
the financial terms of the Offer and the Merger with other transactions that we
deemed relevant; and (viii) made such other studies and inquiries, and reviewed
such other data, as we deemed relevant.
In connection with rendering our opinion, we have assumed and relied upon,
without independent verification, the accuracy and completeness of all
information reviewed by us in connection with our engagement by Pacific
Scientific with respect to the Offer and the Merger and have relied upon the
assurances of the management of Pacific Scientific 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 any of
the properties, assets or liabilities (contingent or otherwise) of Pacific
Scientific, 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 Pacific Scientific which we have
555 CALIFORNIA STREET SAN FRANCISCO 94104 415-781-9700
INVESTMENT BANKERS MEMBER OF ALL MAJOR EXCHANGES
<PAGE>
reviewed, upon the advice of Pacific Scientific, 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 Pacific Scientific as to the future
financial performance of Pacific Scientific, and we have further assumed that
such forecasts and projections will be realized in the amounts and in the time
periods currently estimated by the management of Pacific Scientific. We have
assumed that the Offer and the Merger will be consummated upon the terms set
forth in the Merger Agreement 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. You should understand that subsequent developments
may affect the conclusion expressed in this opinion and that we disclaim any
undertaking or obligation to advise you or 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.
We may, from time to time, trade in the securities of Pacific Scientific 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 Pacific Scientific in connection with the Offer and the
Merger and will receive, and have already received, fees in connection with the
rendering of this opinion and rendering such services and Pacific Scientific has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion or such services.
Our opinion is rendered at the request of and for the use of the Board of
Directors of Pacific Scientific. Our opinion is not intended to be and does not
constitute a recommendation to any shareholder of Pacific Scientific as to
whether such shareholder should tender shares of Pacific Scientific Common Stock
pursuant to the Offer or how any shareholder should vote upon or take any other
action with respect to the Offer or the Merger. We do not express any opinion
regarding the future value of the shares of Pacific Scientific Common Stock, nor
do we express any opinion regarding the fairness of the Offer or the Merger to
Parent or Purchaser. Our opinion may be included in a proxy statement or
solicitation/recommendation statement of Pacific Scientific distributed in
connection with the Offer or the Merger, provided that this opinion is
reproduced in full and any description of, or reference to, this opinion therein
is in a form and substance acceptable to us and our legal counsel. Except as
provided in the previous sentence, this opinion shall not be reproduced,
summarized, described or referred to, or furnished to any party, without our
prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion, as
investment bankers, that, as of the date hereof, the consideration to be
received by Holders of Pacific Scientific Common Stock in the Offer and the
Merger is fair to such holders from a financial point of view.
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
/s/ Gidon Cohen
______________________________________
Authorized Signatory
<PAGE>
Exhibit 3
[BancAmerica ROBERTSON STEPHENS Letterhead]
January 7, 1998
STRICTLY CONFIDENTIAL
Mr. Pat Allender
Senior Vice President and Chief Financial Officer
Danaher Corporation
1250 24th Street Northwest
Suite 800
Washington, DC 20037
Dear Mr. Allender:
You have requested information from Pacific Scientific Company (including its
subsidiaries, the "Company") in connection with your consideration of a possible
transaction between the Company or its shareholders and you. As a condition to
your being furnished such information, you agree to treat any information
(whether prepared by the Company, its advisors or otherwise, and whether oral or
written) that is furnished to you or your representatives (which term shall
include your directors, officers, partners, employees, agents, advisors,
accountants, attorneys and potential financing sources) by or on behalf of the
Company (herein collectively referred to as the "Evaluation Material") in
accordance with the provisions of this letter and to take or abstain from taking
certain other actions herein set forth. The term "Evaluation Material" does not
include information that (i) is already lawfully in your possession, provided
that such information is not known by you to be subject to another
confidentiality agreement with or other obligation of secrecy to the Company or
another party, or (ii) becomes generally available to the public other than as a
result of a disclosure by you, your representatives or anyone acting on your or
their behalf or (iii) becomes available to you on a non-confidential basis from
a source other than the Company or its advisors, provided that such source is
not known by you to be bound by a confidentiality agreement with or other
obligation of secrecy to the Company or another party.
You hereby agree that the Evaluation material will be used solely for the
purpose of evaluating a possible transaction between the Company or its
shareholders and you, will not be used in any way detrimental to the Company,
and will be kept confidential by you and your representatives. You further agree
the Evaluation Material will not be provided, disclosed or otherwise made
directly or indirectly available to any person or entity other than those
individuals who need to know such information for the purpose of evaluating any
such possible transaction between the
<PAGE>
Danaher Corporation
January 7, 1998
Page 2
Company or its shareholders and you and who agree with the Company in writing
(such writing to be delivered to the Company prior to any disclosure) to keep
such information confidential and to be bound by this agreement to the same
extent as if they were parties hereto and subject to all of you obligations
hereunder. You will be responsible for any breach of this agreement by your
representatives and the Company shall be entitled to directly enforce such
agreements.
You hereby acknowledge that you are aware, and that you will advise your
representatives who are informed as to the matters which are the subject of this
letter, that the United States securities laws prohibit any person who has
received material, non-public information concerning the matters which are the
subject of this letter from purchasing or selling securities of such issuer or
from communicating such information to any other person under circumstances in
which it is reasonably foreseeable that such person is likely to purchase or
sell such securities.
Notwithstanding any provision of this letter agreement to the contrary, in the
event you or your representatives are requested or required in a judicial,
administrative or governmental proceeding, or required pursuant to any rule or
regulation promulgated by the Securities and Exchange Commission (the "Rules and
Regulations"), to disclose any Evaluation Material or the existence, content or
status of negotiations relating to the Transaction, you agree to provide the
Company with prompt notice of such circumstance and all related proceedings and
information so that the Company may seek an appropriate protective order, take
other action deemed advisable by the Company or waive your compliance with the
confidentiality provisions of this letter agreement. If, as a result of any such
request or requirement, you or your representatives are, in the written opinion
of your outside counsel ("Counsel"), compelled to disclose Evaluation Material
or the existence, content or status of negotiations relating to the Transaction
(i) to any tribunal or else stand liable for contempt or other censure or
penalty, or (ii) pursuant to the Rules and Regulations, you may disclose that
portion of the Evaluation Material to such tribunal or pursuant to the Rules and
Regulations which your Counsel advises in writing that you or your
representatives are legally compelled to disclose without liability hereunder,
provided that you comply with the notice provisions of this paragraph and apply
for confidential treatment under the Rules and Regulations.
You agree that you will not, and will cause your representatives not to,
disclose to any person either the fact that discussions or negotiations are
taking place concerning a possible transaction between the Company or its
shareholders and you or any of the terms, conditions or other facts with respect
to any such possible transaction, including the status thereof, except that
disclosure of such information may be made to the extent required by applicable
law if and to the extent, in the written opinion of your Counsel, you are
required to make such disclosure pursuant applicable law; provided that prior to
any such disclosure, you shall first give the Company a reasonable opportunity
to review the proposed disclosure and to comment thereon.
Until the earlier of (i) the consummation of a transaction between the Company
and you, or (ii) three years from the date of this letter, you agree not to
initiate or maintain contact (except for contact in the ordinary course of
business) with any officer, director, employee, supplier, distributor, broker or
customer of the Company for the purposes of obtaining information
<PAGE>
Danaher Corporation
January 7, 1998
Page 3
regarding the Company's operations, assets, prospects or finances, except with
the express permission of the Company. You also hereby agree that, for the
period ending three years from the date of this letter, you will not, with the
Company's written consent, directly or indirectly, solicit for employment any
person who is currently employed in a management or supervisory position with
the Company or who receives annual compensation of $50,000 or more.
You hereby acknowledge that the Evaluation Material is being furnished to you in
consideration of your agreement that for a period of three (3) years from the
date hereof you and your affiliates (as defined in Rule 12b-2 under the Exchange
Act) will not (and you and they will not assist, provide or arrange financing to
or for others or encourage other to), directly or indirectly, acting along or in
concert with others, unless specifically requested in writing in advance by the
Board of Directors of the Company:
(i) acquire or agree, offer, seek or propose to acquire (or
request permission to do so), ownership (including, but not
limited to, beneficial ownership as defined in Rule 13d-3
under the Exchange Act) of any of the assets or businesses of
the Company or any securities issued by the Company, or any
rights or options to acquire such ownership (including from a
third party), or make any public announcement (or request
permission to make any such announcement) with respect to any
of the foregoing, or
(ii) seek or propose to influence or control the management or the
policies of the Company or to obtain representation on the
Company's Board of Directors, or solicit, or participate in
the solicitation of, any proxies or consents with respect to
any securities of the Company, or make any public announcement
with respect to any of the foregoing or request permission to
do any of the foregoing, or
(iii) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the
foregoing.
If at any time during such period you are approached by any third party
concerning your or their participation in a transaction involving the assets or
businesses of the Company or securities issued by the Company, you will promptly
inform the Company of the nature of such contact and the parties thereto.
Although the Company has endeavored to include in the Evaluation Material
information which it believes to be relevant for the purpose of your
investigation, you understand that neither the Company nor any of its
representatives or advisors have made or make any representation or warranty as
to the accuracy or completeness of the Evaluation Material. You agree that
neither the Company nor its representatives or advisors shall have any liability
to you or any of your representatives resulting from the use or contents of the
Evaluation Material or from any action taken or any inaction occurring in
reliance on the Evaluation Material.
<PAGE>
Danaher Corporation
January 7, 1998
Page 4
At the request of the Company or in the event that you do not proceed with a
transaction which is the subject of this letter, you and your representatives
shall promptly redeliver to the Company all written Evaluation Material and any
other written material containing or reflecting any information in the
Evaluation Material (whether prepared by the Company, its advisors, agents or
otherwise) and will not retain any copies, extracts or other reproductions in
whole or in part of such written material. At the request of the Company or in
the event that you do not proceed with a transaction which is the subject of
this letter, all documents, memoranda, notes and other writings whatsoever
prepared by you or your representatives based on this information in the
Evaluation material shall be destroyed, and such destruction shall be certified
in writing to the Company by an authorized officer supervising such destruction.
The term "writing" shall include data in computer format.
It is further understood and agreed that no failure or delay by the Company in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
You agree that unless and until a definitive agreement between the Company and
you with respect to any transaction referred to in the first paragraph of this
letter has been executed and delivered, neither the Company nor you will be
under any legal obligation of any kind whatsoever with respect to such a
transaction by virtue of this or any written or oral expression with respect to
such a transaction by any of its directors, officers, employees, agents or any
other representatives or its advisors except for the matters specifically agreed
to in this letter. You further agree that the Company shall have no obligation
to authorize or pursue with you or any other party any transaction referred to
in the first paragraph of this letter and you understand that the Company has
not, as of the date hereof, authorized any such transaction. The agreements set
forth in this letter may be modified or waived only by a separate writing by the
Company and you expressly so modifying or waiving such agreements.
The parties hereto acknowledge that money damages are an inadequate remedy for
breach of this letter agreement because of the difficulty of ascertaining the
amount of damage that will be suffered by the Company in the event that this
agreement is breached. Therefore, you, on behalf of yourself and your
representatives, acknowledge and agree that in the event of any breach of this
Agreement by you or your representatives, and without prejudice to any rights
and remedies otherwise available to the Company, the Company shall be entitled
(i) to equitable relief by way of injunction and (ii) to compel specific
performance without the need of proof of actual damages. You further agree to
waive, and to cause your representatives to waive, any requirement for the
securing or posting of any bond in connection with such remedies. If any term,
provision, covenant or restriction of this letter agreement is held by a court
of competent jurisdiction 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.
<PAGE>
Danaher Corporation
January 7, 1998
Page 5
This letter shall be governed by, and construed in accordance with, the laws of
the State of California, without regard to principles of conflicts of law.
Sincerely,
BancAmerica ROBERTSON STEPHENS on behalf
of PACIFIC SCIENTIFIC COMPANY
By: /s/ Gidon Cohen
---------------------------------
Title: Managing Director
---------------------------------
Agreed and accepted this 9th day of January 1998.
Danaher Corporation
By: /s/ Pat Allender
---------------------------------
Title: SVP/CFO
---------------------------------
<PAGE>
Exhibit 17
FEBRUARY 6, 1998
PACIFIC
SCIENTIFIC [LOGO]
To Our Shareholders:
I am pleased to inform you that on January 31, 1998 Pacific Scientific
Company entered into an Agreement and Plan of Merger (the "Merger Agreement")
with a direct wholly owned subsidiary of Danaher Corporation, and ACC
Acquisition Corp., an indirect wholly owned subsidiary of Danaher Corporation
("Purchaser"). Pursuant to the Merger Agreement, Purchaser today commenced a
tender offer (the "Offer") to purchase all outstanding shares of Pacific
Scientific's Common Stock for $30.25 per share in cash. The Offer is subject to
certain conditions, including the condition that 90% of the outstanding shares
of common stock of Pacific Scientific are tendered prior to the expiration of
the Offer. The Merger Agreement provides that if the Offer is consummated
pursuant to its terms, the Offer will be followed by a merger (the "Merger") of
Purchaser with and into Pacific Scientific without a shareholder vote. If the
Offer is not consummated, the Merger will require the approval of holders of a
majority of the outstanding shares.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
OFFER AND THE MERGER AND DETERMINED THAT THE OFFER AND MERGER ARE FAIR TO, AND
IN THE BEST INTERESTS OF, PACIFIC SCIENTIFIC AND ITS SHAREHOLDERS. ACCORDINGLY,
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER
THEIR SHARES.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of BancAmerica
Robertson Stevens, Pacific Scientific's financial advisor, that the
consideration to be received by the shareholders of the Company pursuant to the
Offer and the Merger is fair to such shareholders from a financial point of
view.
Additional information with respect to the transaction is contained in the
enclosed Schedule 14D-9, including copies of the full text of the opinion of the
financial advisor and certain conditions and limitations thereon, and we urge
you to consider this information carefully.
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
