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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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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(AMENDMENT NO. N/A)
DEFIANCE, INC.
(NAME OF SUBJECT COMPANY)
DEFIANCE, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.05 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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244662-10-2
(CUSIP NUMBER OF CLASS OF SECURITIES)
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MICHAEL J. MEIER
CHIEF FINANCIAL OFFICER
DEFIANCE, INC.
1111 CHESTER AVENUE, SUITE 750
CLEVELAND, OH 44114
(216) 861-6300
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF
OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO
GLENN E. MORRICAL, ESQ.
ARTER & HADDEN LLP
925 EUCLID AVENUE
SUITE 1100, THE HUNTINGTON BUILDING
CLEVELAND, OH 44115
(216) 696-1100
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Defiance, Inc., a Delaware corporation
(the "Company"), and the address of its principal executive offices is 1111
Chester Avenue, Suite 750, Cleveland, OH 44114. The title of the equity
securities to which this Solicitation/Recommendation Statement on Schedule 14D-9
(this "Statement") relates is the Company's Common Stock, par value $0.05 per
share (the "Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer (the "Offer") made by DN
Acquisition Corporation, a Delaware corporation (the "Purchaser"), a wholly
owned subsidiary of New Hampshire Oak, Inc., a Delaware corporation ("Parent"),
and an indirect wholly owned subsidiary of The General Chemical Group Inc., a
Delaware corporation ("General Chemical Group"), disclosed in the Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated January 13, 1999, to
purchase all of the outstanding Shares at a price of $9.50 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms and
subject to the conditions set forth in the Offer to Purchase dated January 13,
1999 (the "Offer to Purchase"), and the related Letter of Transmittal. The
Schedule 14D-1, Offer to Purchase, Letter of Transmittal and related documents,
together with any amendments or supplements thereto, are sometimes collectively
referred to herein as the "Offer Documents". A copy of the Offer to Purchase is
filed as Exhibit 1 to this Statement.
According to the Schedule 14D-1, the principal executive offices of Parent,
the Purchaser, and General Chemical Group are located at Liberty Lane, Hampton,
NH 03842.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of January 7, 1999 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company. A copy of the Merger Agreement is filed as Exhibit 2
to this Statement.
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, which information is
incorporated herein by reference.
(b) Except as set forth in this Item 3(b) or in the Information Statement
attached to this Schedule 14D-9 as Annex A (the "Information Statement"), to the
knowledge of the Company, as of the date hereof, there are no material
contracts, agreements, arrangements or understandings and no actual or potential
conflicts of interest between the Company and its affiliates and (1) the
Company, its executive officers, directors or affiliates or (2) Parent or the
Purchaser or their respective executive officers, directors or affiliates. The
Information Statement is being furnished to the Company's stockholders pursuant
to Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14f-1 issued under the Exchange Act in connection with
the Purchaser's right (after consummation of the Offer) to designate persons to
be appointed to the Board of Directors of the Company other than at a meeting of
the stockholders of the Company. The Information Statement is hereby
incorporated by reference.
(b)(1) Certain Arrangements between the Company and Certain of its
Directors, Executive Officers and Affiliates.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of the Company's directors, executive
officers, and affiliates are described in the Information Statement under
"Director Compensation," "Executive Compensation and Other Information," and
"Compensation Committee Report on Executive Compensation." The Information
Statement is incorporated herein by reference.
STOCK OPTIONS; EQUITY-BASED PLANS
Pursuant to the Merger Agreement, all options to purchase Shares
outstanding immediately prior to the effective time of the Merger (the
"Effective Time"), including, without limitation, options outstanding pursuant
to the Company's 1998 Stock Option Plan, its 1989 Stock Option Plan, its 1985
Stock Option Plan or its 1994
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Stock Option Plan for Non-Employee Directors, will be canceled by the Company in
exchange for a payment in cash by the Purchaser (the "Option Consideration")
equal to the product of (i) the number of Shares previously subject to options
and (ii) the excess if any, of the Merger Consideration (as defined in the
Merger Agreement) over the exercise price for such Shares under such options.
The Company has agreed, pursuant to the Merger Agreement and subject to the
payment of the Option Consideration, effective as of the Effective Time, to
cause to be terminated each stock option or other equity-based plan maintained
with respect to any Shares (or rights in respect thereof).
CONFIRMATION OF CHANGE OF CONTROL ARRANGEMENTS
The Company has change of control agreements or change of control policies
(collectively, "Change of Control Agreements") applicable to Jerry A. Cooper,
Michael J. Meier, Clifford Schumacher, Benjamin Scherschel, Fred Burke, and
Michael Madden (each, an "Executive" and collectively, the "Executives"). A copy
of the employment agreement with Jerry A. Cooper, dated February 28, 1992, as
modified July 2, 1996, is filed as Exhibit 9 to this Statement. The Company's
Change of Control Policy applicable to the other Executives, dated July 24, 1998
is filed as Exhibit 10 to this Statement. In connection with the Merger
Agreement, and in accordance with the terms of these agreements, the Purchaser
and the Company have agreed (i) to confirm in all respects the obligations of
the Company pursuant to the Change of Control Agreements and (ii) to continue
salary, bonus and benefits provided to each of the Executives at no less than
current levels prior to a termination due to a change in control. The Change of
Control letter agreements dated January 7, 1999 among the Purchaser, the Company
and each of the Executives are filed as Exhibits 11 through 16 to this
Statement.
INDEMNIFICATION ARRANGEMENTS
The Company is a Delaware corporation. The General Corporation Law of the
State of Delaware (the "DGCL") generally provides that a corporation may
indemnify an officer or director who was, or is a party or is threatened to be
made a party to any threatened, pending or completed action by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Certificate of Incorporation of the Company provides that no director
of the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. Furthermore, if the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company will be eliminated or limited to the
fullest extent authorized by the DGCL as so amended.
The Company maintains a directors' and officers' liability insurance policy
to insure directors and officers against losses resulting from wrongful acts
committed by them in their capacities as officers and directors of the Company,
including liabilities arising under the Securities Act.
The Merger Agreement provides that all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time currently existing in favor of the current or former directors,
officers, employees or agents of the Company and its subsidiaries or any person
who is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture or other
enterprise, as provided in their respective certificates of incorporation,
by-laws, (or comparable organizational documents) and indemnification agreements
will survive the Merger and continue in full force and effect in accordance with
their terms. The Merger Agreement also obligates the Parent to cause to be
maintained for a period of not less than six years from the Effective Time the
Company's current directors' and officers' insurance and indemnification policy
to the extent that it provides coverage for events occurring prior to the
Effective Time ("D&O Insurance") for all persons who were directors and officers
of the Company on the date of
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the Merger Agreement, so long as the annual premium therefor is not in excess of
250% of the last annual premium paid prior to the date of the Merger Agreement
(the "Maximum Premium"); provided, however, that if the annual premium therefor
would exceed the Maximum Premium, Parent shall purchase as much coverage as is
available for the Maximum Premium; provided, further, that Parent may, in lieu
of maintaining such existing D&O Insurance, cause coverage to be provided under
any policy maintained for the benefit of Parent or any of its subsidiaries or
any policy specifically obtained for that purpose, so long as the terms thereof
are no less advantageous to the covered person than the existing D&O Insurance
for a period of not less than six years from the Effective Time. If the existing
D&O Insurance expires, is terminated or canceled during such six year period,
Parent will obtain as much D&O Insurance as can be obtained for the remainder of
such period for an annualized premium equal to the Maximum Premium, on terms and
conditions no less advantageous to the covered person than the existing D&O
Insurance.
(b)(2) Certain Arrangements between and among Parent, the Purchaser and
Certain Directors, Executive Officers and Affiliates of the Company.
On January 7, 1999, the Company, Parent and the Purchaser entered into the
Merger Agreement. Concurrently therewith, Parent, the Purchaser and each of
Jerry A. Cooper, Thomas H. Roulston II, Michael J. Meier, Scott D. Roulston,
John D. Ong, George H. Lewis III, James E. Heighway, Richard W. Lock, Clifford
Schumacher, James L. Treece, Carl A. Rispoli, Fred Burke, Roger E. Drummer,
Michael B. Madden, Michael P. Pavlica, David M. Piacenti, Benjamin A.
Scherschel, Janice F. Schneikart, and Phillip C. Tomczak entered into a
Stockholders Agreement (described below). The following summaries of agreements
are qualified in their entirety by reference to the full text of these
agreements.
THE MERGER AGREEMENT
THE OFFER. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to the prior satisfaction or
waiver of the conditions of the Offer, the Purchaser will purchase all Shares
validly tendered pursuant to the Offer. The Merger Agreement provides that the
Purchaser may, in its sole discretion waive, in whole or in part, at any time or
from time to time, any condition of the Offer, provided that the Purchaser has
agreed that it will not, without the prior written consent of the Company, (a)
reduce the number of Shares subject to the Offer, (b) reduce the price per Share
to be paid in the Offer, (c) add to, or amend, the conditions to the Offer set
forth in the Merger Agreement, (d) modify the form of consideration payable in
the Offer, (e) decrease, increase or waive the Minimum Condition (which is
defined as that number of Shares which would represent in excess of 50% of all
outstanding Shares determined on a fully diluted basis (such basis assumes all
Shares underlying vested and unvested stock options are issued and
outstanding)), or (f) amend any term of the Offer in any manner materially
adverse to the holders of Shares. The Purchaser has reserved the right (but is
not obligated), subject to the terms of the Merger Agreement and the applicable
rules and regulations of the Securities and Exchange Commission (the
"Commission"), to extend the period of time during which the Offer is open, and
thereby delay acceptance of the Shares for payment, and to amend the Offer.
Purchaser, subject only to the conditions set forth in the next paragraph, shall
accept for payment and pay for the Shares which have been validly tendered and
not withdrawn pursuant to the Offer as soon as it is permitted to do so under
applicable law. The Purchaser has the right to terminate the Offer if, on or
before July 6, 1999 and without fault of the Purchaser, the conditions to the
Offer have not been met.
Notwithstanding any other provision of the Offer, the Purchaser shall not
be required to accept for payment, or to pay for any Shares tendered pursuant to
the Offer, and may amend or terminate the Offer or postpone the acceptance for
payment, the purchase of, and/or payment for, Shares tendered if at any time on
or after the date of the Merger Agreement and at or before the time of payment
for any such Shares (whether or not any Shares shall theretofore have been
accepted for payment or paid pursuant to the Offer) any of the following
conditions exists: (a) there shall have been any action or proceeding brought by
any governmental authority before any federal or state court, or any order or
preliminary or permanent injunction entered in any action or proceeding before
any federal or state court or governmental, administrative or regulatory
authority or agency, located or having jurisdiction within the United States or
any country or economic region in which either the Company or Parent, directly
or indirectly, has material assets or operations, or any other action taken,
proposed or threatened, or statute, rule, regulation, legislation,
interpretation, judgment or order proposed, sought, enacted, entered,
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promulgated, amended or issued that is applicable to Purchaser, the Company or
any subsidiary or affiliate of Purchaser or the Company or the Offer or the
Merger, by any legislative body, court, government or governmental,
administrative or regulatory authority or agency located or having jurisdiction
within the United States or any country or economic region in which either the
Company or Parent, directly or indirectly, has material assets or operations,
which could reasonably be expected to have the effect of: (i) making illegal, or
otherwise restraining or prohibiting or making materially more costly, the
making of the Offer, the acceptance for payment of, payment for, or ownership,
directly or indirectly, of some of or all the Shares by Parent or Purchaser, the
consummation of any of the transactions contemplated by the Merger Agreement or
materially delaying the Merger; (ii) prohibiting or materially limiting the
ownership or operation by the Company or any of its subsidiaries, or by Parent,
Purchaser or any of Parent's subsidiaries of all or any material portion of the
business or assets of the Company and its subsidiaries taken as a whole or
Parent or any of its subsidiaries, or compelling Purchaser, Parent or any of
Parent's subsidiaries to dispose of or hold separate all or any material portion
of the business or assets of the Company and any of its subsidiaries taken as a
whole or Parent or any of its subsidiaries, in each case as a result of the
transactions contemplated by the Offer or the Merger Agreement; (iii) imposing
or confirming material limitations on the ability of Purchaser, Parent or any of
Parent's subsidiaries effectively to acquire or hold or to exercise full rights
of ownership of Shares including, without limitation, the right to vote any
Shares acquired or owned by Parent or Purchaser or any of Parent's subsidiaries
on all matters properly presented to the shareholders of the Company, including,
without limitation, the adoption and approval of the Merger Agreement and the
Merger or the right to vote any shares of capital stock of any subsidiary
directly or indirectly owned by the Company; (iv) requiring divestiture by
Parent or Purchaser, directly or indirectly, of any Shares; or (v) which could
reasonably be expected to materially adversely affect the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole or the value of the Shares or of the Offer to Purchaser or Parent; (b)
there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or in
the over-the-counter market in the United States, (ii) a decline of at least 25%
in either the Dow Jones Average of Industrial Stocks or the Standard & Poor's
500 index from that existing at the close of business on the date hereof, (iii)
any material adverse change or any condition, event or development involving a
prospective material adverse change in United States or other material
international currency exchange rates or a suspension of, or limitation on, the
markets therefor, (iv) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, (v) any limitation
(whether or not mandatory) by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, on, or any other event that
materially adversely affects, the extension of credit by banks or other lending
institutions, (vi) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the United
States which would reasonably be expected to have a Material Adverse Effect on
the Company or materially adversely affect (or materially delay) the
consummation of the Offer or (vii) in the case of any of the foregoing existing
at the time of the execution of the Merger Agreement, a material acceleration or
worsening thereof which acceleration or worsening is reasonably expected to have
a Material Adverse Effect on the Company or to materially adversely affect the
consummation of the Offer; (c) (i) it shall have been publicly disclosed or
Purchaser shall have otherwise learned that beneficial ownership (determined for
the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the outstanding Shares has been acquired by any
corporation (including the Company or any of its subsidiaries or affiliates),
partnership, person or other entity or group (as defined in Section 13(d)(3) of
the Exchange Act), other than Parent or any of its affiliates, or (ii) (A) the
Board of Directors of the Company or any committee thereof shall have withdrawn
or modified in a manner adverse to Parent or Purchaser the approval or
recommendation of the Offer, the Merger or the Merger Agreement and, within ten
business days of taking and disclosing to its stockholders the aforementioned
position, shall not have publicly reconfirmed its recommendation of the Offer,
the Merger or the Merger Agreement, or approved or recommended any takeover
proposal or any other acquisition of Shares other than the Offer and the Merger,
(B) any corporation, partnership, person or other entity or group shall have
entered into a definitive agreement or an agreement in principle with the
Company with respect to a tender offer or exchange offer for any Shares or a
merger, consolidation or other business combination with or involving the
Company or any of its subsidiaries or (C) the Board of Directors of the Company
or any committee thereof shall have resolved to do any of the foregoing; (d) any
of the representations and warranties of the Company set forth in the Merger
Agreement that are qualified as to materiality shall not be true and correct or
any such representations and warranties that are not so qualified
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shall not be true and correct in any material respect, in each case as if such
representations and warranties were made at the time of such determination,
except with respect to representations and warranties made as of an earlier
time; (e) the Company shall have failed to perform any material obligation or to
comply with any material agreement or material covenant of the Company to be
performed or complied with by it under the Merger Agreement; (f) the Merger
Agreement shall have been terminated in accordance with its terms or the Offer
shall have been terminated with the consent of the Company; or (g) any waiting
periods under the HSR Act applicable to the purchase of Shares pursuant to the
Offer shall not have expired or been terminated or any material approval,
permit, authorization, consent or waiting period of any domestic, foreign or
supranational governmental, administrative or regulatory agency (federal, state,
local, provincial or otherwise) located or having jurisdiction within the United
States or any country or economic region in which either the Company or Parent,
directly or indirectly, has material assets or operations, shall not have been
obtained and such failure to obtain could reasonably be expected to have a
Material Adverse Effect on the Company or the value of the Shares or the Offer
to the Purchaser; which, in the good faith sole judgment of Purchaser makes it
inadvisable to proceed with the Offer or with such acceptance for payment of or
payment for Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
THE MERGER. The Merger Agreement provides that following the satisfaction
or waiver of the conditions described below under "Conditions to the Merger",
and as promptly as practicable following consummation of the Offer, the
Purchaser will be merged with and into the Company, and each then issued and
outstanding Share (other than Shares owned by Parent, the Purchaser or any other
direct or indirect subsidiary of Parent or held in the treasury of the Company,
or by stockholders, if any, who are entitled to and who properly exercise
appraisal rights under Delaware law) will be converted into the right to receive
an amount in cash equal to the price per Share paid pursuant to the Offer.
The Company shall be the surviving entity in the Merger and the name of the
surviving company shall be "Defiance, Inc." The Certificate of Incorporation and
Bylaws of the Company shall be amended by virtue of the Merger. See the Offer to
Purchase for information on such amendments.
The Merger Agreement also provides that the directors of the Purchaser at
the Effective Time will be the directors of the surviving corporation, and the
officers as set forth in the Merger Agreement will be the officers of the
surviving corporation, until their respective successors are duly elected or
appointed and qualified. See the Offer to Purchase for information on such
directors and officers.
The Merger Agreement provides that promptly upon the purchase by the
Purchaser of at least a majority of the outstanding Shares on a fully diluted
basis pursuant to the Offer and from time to time thereafter, the Company shall
use its best efforts to allow the Purchaser to designate up to the minimum
number of directors of the Company necessary in order for the result (expressed
as a fraction) derived by dividing the number of directors so designated by the
total number of directors to be at least equal to the result (expressed as a
fraction) derived by dividing the Shares then held by the Purchaser by the total
number of Shares then outstanding, provided, however, that until the
consummation of the Merger, the Board of Directors of the Company will have at
least two Independent Directors. Upon request by the Purchaser, the Company has
agreed to use its best efforts promptly to effect any such election, including
mailing to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, which Information Statement is attached as Annex A hereto. The term
"Independent Director" means a director of the Company who is neither designated
by the Purchaser nor otherwise affiliated with Parent or the Purchaser nor an
employee of the Company or any of its subsidiaries.
Following the election or appointment of the Purchaser's designees to the
Board and prior to the Effective Time, any amendment to the Merger Agreement or
the Certificate of Incorporation or By-laws of the Company,
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any termination of the Merger Agreement by the Company, and any extension of
time for performance, or waiver of rights, under the Merger Agreement will
require the concurrence of a majority of Independent Directors.
COMPANY STOCK OPTIONS. Pursuant to the Merger Agreement, immediately prior
to the Effective Time, each then outstanding option to purchase Shares
(collectively, the "Options"), whether or not then exercisable, shall be
canceled by the Company in exchange for a right to receive payment from the
Purchaser of an amount in cash (less applicable withholding taxes) equal to the
product of (i) the number of Shares previously subject to the Options and (ii)
the excess, if any, of the price per Share paid pursuant to the Offer over the
exercise price per Share of the Share previously subject to the Option, which
such amount the surviving company shall instruct the paying agent to pay as soon
as practicable after the Effective Time, and in any event, no more than fifteen
days after the Effective Time.
STOCKHOLDERS' MEETING. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger, as soon as
practicable following the purchase of the Shares pursuant to the Offer, duly
call, give notice of, convene and hold a meeting of its stockholders (the
"Meeting") for the purpose of adopting and approving the Merger Agreement and
the transactions contemplated thereby. The Merger Agreement provides that the
Company shall, if required by law, prepare and file with the Commission a proxy
statement in connection with obtaining stockholder approval of the Merger. The
proxy statement shall include the recommendation of the Board that stockholders
of the Company vote in favor of the approval and adoption of the Merger
Agreement and the transactions contemplated thereby (except to the extent that
the Board of Directors of the Company has modified or withdrawn its
recommendation of the Merger and terminated the Merger Agreement as provided in
the Merger Agreement).
APPRAISAL RIGHTS. Holders of Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares at
the Effective Time will have certain rights pursuant to the provisions of
Section 262 of the DGCL ("Section 262") to dissent and demand appraisal of their
Shares. Under Section 262, dissenting stockholders who comply with the
applicable statutory procedures will be entitled to receive a judicial
determination of the fair value of their Shares (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) and to
receive payment of such fair value in cash, together with a fair rate of
interest, if any. Any such judicial determination of the fair value of Shares
could be based upon factors other than, or in addition to, the price per Share
to be paid in the Merger or the market value of the Shares. The value so
determined could be more or less than the price per Share to be paid in the
Merger. If any holder of Shares who demands appraisal under Section 262 fails to
perfect, or effectively withdraws or loses the right to appraisal, as provided
in the DGCL, the Shares of such stockholder will be converted into the Merger
Consideration in accordance with the Merger Agreement. A stockholder may
withdraw his demand for appraisal and accept the Merger without the consent of
the Company within 60 days after the Effective Time.
The foregoing summary of Section 262 does not purport to be complete and is
qualified in its entirety by reference to Section 262. FAILURE TO FOLLOW THE
STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE
LOSS OF SUCH RIGHTS.
CONDITIONS TO THE MERGER. The Merger Agreement provides that the
obligations of Parent, the Purchaser and the Company to consummate the Merger
are subject to the satisfaction of certain conditions, including the following:
(a) the Purchaser shall have purchased all Shares duly tendered and not
withdrawn pursuant to the terms of the Offer and subject to the terms thereof;
provided that the obligation of the Parent and the Purchaser to effect the
Merger shall not be conditioned on the fulfillment of such condition if the
failure of the Purchaser to purchase the Shares pursuant to the Offer shall have
constituted a breach of the Offer or of the Merger Agreement; (b) the
consummation of the Merger shall not be precluded by any order, decree or
injunction of a court of competent jurisdiction (each party having agreed to use
its best efforts to have any such order reversed or injunction lifted), and
there shall not have been any action taken or any law enacted, promulgated or
deemed applicable to the Merger by any court, governmental agency or regulatory
or administrative authority, foreign or domestic (each, a "Governmental Entity")
that makes consummation of the Merger illegal; (c) if required by the
Certificate of Incorporation and By-Laws of the Company and the DGCL, the Merger
Agreement shall have been approved and adopted by the affirmative vote of the
holders of the requisite number of Shares in accordance with the Certificate of
Incorporation and By-Laws of the Company and the DGCL; and (d) any applicable
waiting
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period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended
(the "HSR Act"), shall have expired or been terminated. The Merger Agreement
also provides that the obligations of Parent and the Purchaser (but not the
Company) to consummate the Merger are subject to the following additional
conditions: (a) the Company shall not have received notice from the holder or
holders of more than 3% of the outstanding Shares, determined on a fully diluted
basis, that such holder or holders have exercised or intend to exercise its or
their appraisal rights under Section 262 of the DGCL, (b) there shall not be
pending or threatened by any Governmental Entity any suit, action or proceeding
(and there shall not be pending by any other person any suit, action proceeding
which has a reasonable likelihood of success), in each case (i) challenging the
acquisition by Parent or the Purchaser of any shares of capital stock of the
Company or the Surviving Corporation, seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by the
Merger Agreement or the Stockholders Agreement or seeking to obtain from the
Company, Parent or the Purchaser any damages that are material taken as a whole
or Parent and its subsidiaries taken as a whole, as applicable, (ii) seeking to
prohibit or limit the ownership or operation by the Company, Parent or any of
their respective subsidiaries of any material portion of the business or assets
of the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as applicable, or to compel the Company, Parent
or any of their respective subsidiaries to dispose of or hold separate any
material portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or Parent and its subsidiaries, taken as a whole, as
applicable, as a result of the Merger or any of the other transactions
contemplated by the Merger Agreement or the Stockholders Agreement, (iii)
seeking to impose limitations on the ability of Parent to acquire or hold, or
exercise full rights of ownership of, any shares of capital stock of the Company
or the Surviving Corporation, including the right to vote the Shares, or common
stock of the Surviving Corporation, on all matters properly presented to the
stockholders of the Company or the Surviving Corporation, respectively, (iv)
seeking to prohibit Parent and its subsidiaries from effectively controlling in
any material respect the business or operations of the Company and its
subsidiaries, taken as a whole, or (v) which otherwise could reasonably be
expected to have a Material Adverse Effect on the Company or Parent, and (c)
there shall not be any statute, rule, regulation, judgment or order enacted,
entered, enforced or promulgated that is reasonably likely to result, directly
or indirectly, in any of the consequences referred to in clauses (ii) through
(iv) above.
As used herein, "Material Adverse Effect" means, with respect to any person
or entity, a material adverse effect on the business, assets, liabilities,
operations or condition (financial or otherwise) of such person or entity and
its subsidiaries, taken as a whole.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto including,
without limitation, representations by the Company as to corporate power and
authority to execute, deliver and consummate the Merger Agreement, undisclosed
liabilities, certain changes or events concerning its businesses, compliance
with applicable laws, taxes, employee benefit plans, litigation, environmental
liabilities and contracts. None of the representations and warranties in the
Merger Agreement will survive the Effective Time, or in the case of the Company,
will survive the acceptance for payment of, and payment for, any Shares by the
Purchaser pursuant to the Offer.
GOING PRIVATE TRANSACTIONS. The Merger will have to comply with any
applicable Federal law operative at the time of its consummation. Rule 13e-3
under the Exchange Act is applicable to certain "going private" transactions.
The Company does not believe that Rule 13e-3 will be applicable to the Merger
unless the Merger is consummated more than one year after the termination of the
Offer. If applicable, Rule 13e-3 would require, among other things, that certain
financial information concerning the Company and certain information relating to
the fairness of the Merger and the consideration offered to minority
stockholders be filed with the Commission and disclosed to minority stockholders
prior to consummation of the Merger.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
at any time prior to the Effective Time, whether prior to or after approval of
the terms of the Merger Agreement by the stockholders of the Company:
(1) by the mutual written consent of Parent, the Purchaser and the Company;
(2) by either the Parent or the Company if, on or before April 7, 1999 and
without fault of such terminating party, the Purchaser shall not have purchased
in the Offer such number of Shares which represents in excess of
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50% of the outstanding Shares on a fully diluted basis, or the Merger shall not
have been consummated on or before July 6, 1999, provided, however, that the
right to terminate the Merger Agreement is not available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of, or resulted in, the failure of the Offer or the Merger to have occurred on
or before the aforesaid date;
(3) by either the Parent or the Company if the Offer shall expire or
terminate in accordance with its terms without any Shares having been purchased
thereunder and, in the case of termination by the Parent, the Purchaser shall
not have been required by the terms of the Offer or the Merger Agreement to
purchase any Shares pursuant to the Offer;
(4) by the Company if the Purchaser shall not timely commence the Offer as
provided in the Merger Agreement;
(5) if approval by the Company's stockholders is required by law, by either
the Purchaser or the Company if, upon a vote of the Company's stockholders, such
stockholder approval shall not have been obtained;
(6) unilaterally by the Purchaser or the Company: (i) if the other fails to
perform any material covenant or agreement in any material respect in the Merger
Agreement, and does not cure the failure in all material respects within 30
business days after the terminating party delivers written notice of the alleged
failure; or (ii) if any condition to the obligations of that party is not
satisfied (other than by reason of a breach by that party of its obligations
hereunder), and it reasonably appears that the condition cannot be satisfied
prior to July 6, 1999;
(7) by either the Purchaser or the Company if either is prohibited by an
order or injunction (other than an order or injunction on a temporary or
preliminary basis) of a court of competent jurisdiction or other Governmental
Entity from consummating the Offer or the Merger and all means of appeal and all
appeals from such order or injunction have been finally exhausted;
(8) by the Purchaser if the Board of Directors of the Company shall have
withdrawn or modified, or resolved to withdraw or modify, in any manner which is
adverse to Parent or the Purchaser, its recommendation or approval of the Offer,
the Merger or the Merger Agreement; provided, however, that such a termination
shall not become effective if, as a result of the Company's receipt of a
proposal for an Acquisition Transaction (as defined under "Takeover Proposals")
from a third party, the Company, in accordance with the Merger Agreement,
withdraws or modifies, or resolves to withdraw or modify, in any manner which is
adverse to Parent or the Purchaser, its recommendation or approval of the Offer,
the Merger or the Merger Agreement and if within ten business days of taking and
disclosing to its stockholders the aforementioned position the Company publicly
reconfirms its recommendation of the transactions contemplated by the Merger
Agreement; or
(9) by the Company if (i) the Board of Directors of the Company shall have
determined in good faith, based on the advice of outside counsel, that it is
necessary, in order to comply with its fiduciary duties to the Company's
stockholders under applicable law, to terminate the Merger Agreement to enter
into an agreement with respect to or to consummate a transaction constituting a
Superior Proposal (as defined under "Takeover Proposals"), (ii) the Company
shall have given notice to the Purchaser advising the Purchaser that the Company
has received a Superior Proposal from a third party, specifying the material
terms and conditions (including the identity of the third party) and that the
Company intends to terminate the Merger Agreement, (iii) either (A) the
Purchaser shall not have revised its proposal for an Acquisition Transaction
within two business days from the time on which such notice is deemed to have
been given to Parent or (B) if the Purchaser within such period shall have
revised its proposal for an Acquisition Transaction, the Board of Directors of
the Company, after receiving advice from the Company's financial advisor, shall
have determined in its good faith reasonable judgment that the third party's
proposal for an Acquisition Transaction is superior to Parent's revised proposal
for an Acquisition Transaction and (iv) the Company, at the time of such
termination, pays the Expenses and the Termination Fee (each as defined under
"Fees and Expenses" below).
TAKEOVER PROPOSALS. The Merger Agreement provides that the Company shall
not, shall not permit any of its subsidiaries to, and shall not authorize or
permit any officer, director or employee or any investment banker, attorney,
accountant or other advisor or representative of the Company or any of its
subsidiaries to, directly or indirectly, except as otherwise described in this
Section on "Takeover Proposals": (i) initiate, solicit, negotiate, encourage, or
provide confidential information to facilitate any proposal or offer to acquire
all or any substantial
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part of the business and properties of the Company and its subsidiaries, taken
as a whole, or beneficial ownership (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the capital stock of the
Company, whether by merger, purchase of assets, tender offer or otherwise,
whether for cash, securities or any other consideration or combination thereof
(such transactions being referred to herein as "Acquisition Transactions"); (ii)
enter into any agreement with respect to any Acquisition Transaction or give any
approval of the type referred to in the next paragraph below with respect to any
Acquisition Transaction; or (iii) participate in any discussions regarding, or
take any other action to facilitate any inquiries or the making of any proposal
that constitutes or may reasonably be expected to lead to any Acquisition
Transaction. Notwithstanding the immediately preceding sentence, the Company and
its subsidiaries may, prior to the approval of the Merger Agreement by the
Company's stockholders, in response to any unsolicited proposal for an
Acquisition Transaction, furnish information concerning its business, properties
or assets to the corporation, partnership, person or other entity or group (a
"Potential Acquiror") making such proposal for an Acquisition Transaction and
participate in negotiations with the Potential Acquiror if (x) the Company's
Board of Directors after consultation with one or more of its independent
financial advisors, is of the reasonable belief that such Potential Acquiror has
the financial wherewithal to consummate such an Acquisition Transaction, (y) the
Company's Board of Directors reasonably determines, after receiving advice from
the Company's financial advisor, that such Potential Acquiror has submitted a
proposal for an Acquisition Transaction that involves consideration to the
Company's stockholders and other terms that taken as a whole are superior to the
Merger, and (z) based upon advice of counsel to such effect, the Company's Board
of Directors determines in good faith that it is necessary to so furnish
information and negotiate with such Potential Acquiror in order to comply with
its fiduciary duty to stockholders of the Company. As used herein, the term
"Superior Proposal" means a bona fide proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the Shares then outstanding or all or substantially all the assets of the
Company, provided: (i) such proposed transaction satisfies the tests set forth
in clauses (x), (y) and (z) above and (ii) the Board of Directors determines, in
its good faith reasonable judgment, that such proposed transaction is reasonably
likely to be consummated without undue delay. The Merger Agreement provides that
in the event the Company shall determine to provide any information as described
above, or shall receive any offer of the type referred to in this subsection or
shall receive or become aware of any other proposal to acquire a substantial
part of the business and properties of the Company and its subsidiaries, taken
as a whole, or to acquire a substantial amount of capital stock of the Company,
it shall promptly inform Parent orally as to the fact that information is to be
provided and shall furnish to Parent the identity of the recipient of such
information and/or the proponent of such offer or proposal and a description of
the material terms thereof. The Company is also obligated to keep Parent fully
informed of the status and material details of any such proposed Acquisition
Transaction or other transaction (including any material amendments or material
proposed amendments of any such proposed Acquisition Transaction or other
transaction).
The Merger Agreement also provides that neither the Board of Directors of
the Company nor any committee thereof (x) shall withdraw or modify or propose to
withdraw or modify, in any manner adverse to Parent, the approval or
recommendation of such Board of Directors or such committee of the Merger
Agreement, the Offer or the Merger or (y) approve or recommend, or propose to
approve or recommend, any proposal for an Acquisition Transaction except, in
each case, in connection with a Superior Proposal.
The Merger Agreement also provides that nothing therein shall prohibit the
Company from at any time taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act; provided,
however, that neither the Company nor its Board of Directors shall, except as
provided above, propose to approve or recommend acceptance of an Acquisition
Transaction.
FEES AND EXPENSES. The Merger Agreement provides that the Company will pay,
or cause to be paid, in same day funds to Parent the sum of (x) Parent's
Expenses (as defined below) and (y) $1,750,000 (the "Termination Fee") upon
demand if the Company terminates the Merger Agreement in accordance with the
provision described in paragraph (9) under "Termination of Merger Agreement." In
addition, the Company will pay or cause to be paid in same day funds to Parent,
the sum of Parent's Expenses and the Termination Fee upon demand if: (i) the
Purchaser terminates the Merger Agreement in accordance with the provisions
described in paragraphs (6) or (8) under "Termination of Merger Agreement" at
any time after a proposal for an Acquisition Transaction has been made, or (ii)
the Company or the Purchaser terminates the Merger Agreement in accordance
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with the provisions described in paragraphs (2), (3) or (5) under "Termination
of Merger Agreement" at any time after a proposal for an Acquisition Transaction
has been made, and, within twelve months after any termination referred to in
the immediately preceding clauses (i) or (ii) of this sentence, the person that
made the proposal for an Acquisition Transaction (or an affiliate thereof)
completes a merger, consolidation or other business combination with the Company
or a subsidiary of the Company, or the purchase from the Company or from a
subsidiary of the Company of 30% or more (in voting power) of the voting
securities of the Company or of 30% or more (in market value) of the assets of
the Company and its subsidiaries, on a consolidated basis; provided that the
Company will not have any such obligations if the Purchaser terminates the
Merger Agreement in accordance with the provision described in paragraph (6)(ii)
under "Termination of Merger Agreement" as a result of the failure of a
condition to be satisfied unless the reason for the failure of such condition to
be satisfied is reasonably related to the making of such proposal for an
Acquisition Transaction by the person that ultimately consummated a transaction
with the Company. "Expenses" shall mean reasonable and reasonably documented
out-of-pocket fees and expenses incurred or paid by or on behalf of Parent in
connection with the Offer and the Merger or the consummation of any of the
transactions contemplated by the Merger Agreement (including, without
limitation, the fees and expenses of counsel, commercial banks, investment
banking firms, accountants, experts and consultants to Parent and any of its
affiliates), provided that all such Expenses for this purpose shall not exceed
$1,000,000 in the aggregate.
CONDUCT OF BUSINESS BY THE COMPANY. The Merger Agreement provides that,
except as otherwise expressly contemplated by the Merger Agreement (including as
set forth on the disclosure schedule thereto) or to the extent that Purchaser
shall otherwise consent in writing, during the period from the date of the
Merger Agreement to the Effective Time the Company shall not and shall cause its
subsidiaries not to: (a) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent; (b) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock; (c) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; (d) grant, issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities except upon exercise of any Option; (e) amend its
certificate of incorporation, by-laws or other comparable organizational
documents; (f) acquire or agree to acquire (x) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, limited liability company, partnership, joint
venture, association or other business organization or division thereof or (y)
any assets or services of any kind other than (A) pursuant to written purchase
orders issued in the ordinary course of business and in customary amounts
consistent with past practices or (B) acquisitions of assets or services in
customary amounts consistent with past practices that, individually, do not
exceed $25,000; (g) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or assets,
other than in the ordinary course of business consistent with past practice,
that are material to the Company and its subsidiaries taken as a whole; (h)
incur any indebtedness, except for borrowings for working capital purposes not
in excess of recent past practices and current lending arrangements; (i) make or
agree to make any new capital expenditure or capital expenditures which in the
aggregate, are in excess of $100,000, (j) pay (or commit to pay) any bonus or
other incentive compensation to any officer, director, partner or other employee
or grant (or commit to grant) to any officer, director, partner or employee any
other increase in compensation, except, in the case of employees who are not
executive officers or directors, normal salary increases consistent with recent
practice; (k) (x) enter into, adopt or amend (or commit to enter into, adopt or
amend) any employment, retention, change in control, collective bargaining,
deferred compensation, severance, retirement, bonus, profit-sharing, stock
option or other equity, pension or welfare plan or agreement maintained for the
benefit of any officer, director, partner or employee, except as required by
law, or (y) except as required by agreements set forth on the disclosure
schedule to the Merger Agreement, grant or pay (or commit to grant or pay) any
severance or termination compensation or benefits to any officer, director,
partner or employee, (l) make any tax election inconsistent with past practices
or settle or compromise any material income tax liability; (m) except in the
ordinary course of business or except as would not reasonably be expected to
have a Material Adverse Effect on the Company, modify, amend or
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terminate any material contract or agreement to which the Company or any
subsidiary is a party or waive, release or assign any material rights or claims
thereunder; (n) make any material change to its accounting methods, principles
or practices, except as may be required by generally accepted accounting
principles; or (o) authorize, or commit or agree to take, any of the foregoing
actions.
In addition to the foregoing, the Company has agreed that, except as
expressly contemplated or permitted by the Merger Agreement, it will not take
any action, or permit any of its subsidiaries to take any action, that would, or
that could reasonably be expected to, result in: (a) any of the representations
and warranties of the Company set forth in the Merger Agreement that are
qualified as to materiality becoming untrue; (b) any of such representations and
warranties that are not so qualified becoming untrue in any material respect; or
(c) any of the conditions to the Merger not being satisfied.
REASONABLE BEST EFFORTS. The Merger Agreement provides that, except as
otherwise contemplated therein, Parent, the Purchaser and the Company shall use
their reasonable best efforts to take promptly, or cause to be taken, all
actions and to do promptly, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by the
Merger Agreement, including using their reasonable best efforts: (i) to obtain
all necessary waivers, consents and approvals; and (ii) to effect all necessary
registrations and filings, subject to approval by the Company's stockholders. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the obligations of the parties under the Merger
Agreement, the proper officers and/or directors of Parent, the Purchaser and the
Company, as the case may be, shall take the necessary action.
Specifically, Parent, Purchaser and the Company have agreed to use their
reasonable best efforts to make promptly any required submissions under the HSR
Act (and certain other applicable statutes) with respect to the Offer, the
Merger and the transactions contemplated by the Merger Agreement. The Company
has agreed to use its reasonable best efforts to obtain all consents, approvals,
permits or authorizations as are required to be obtained from other parties to
loan agreements or other contracts material to the Company's business in
connection with the consummation of the Merger, including, without limitation,
those filings and consents identified in the disclosure schedule to the Merger
Agreement.
THE CONFIDENTIALITY AGREEMENT
On April 23, 1998 General Chemical Group and the Company entered into a
confidentiality agreement, a copy of which is attached to this Statement as
Exhibit 21, pursuant to which, among other things, both agreed to treat as
confidential certain information provided by or on behalf of the other. In
addition, each agreed for a period of two years not to solicit to employ any of
the current officers or employees of the other who is still employed thereby
without obtaining the prior written consent of other.
THE STOCKHOLDERS AGREEMENT
In connection with execution of the Merger Agreement, Parent and the
Purchaser have entered into a Stockholders Agreement, dated as of January 7,
1999 (the "Stockholders Agreement"), with each of Jerry A. Cooper, Thomas H.
Roulston II, Michael J. Meier, Scott D. Roulston, John D. Ong, George H. Lewis
III, James E. Heighway, Richard W. Lock, Clifford Schumacher, James L. Treece,
Carl A. Rispoli, each an executive officer and/or director of the Company, and
with eight other employees of the Company (collectively, the "Selling
Stockholders"). A copy of the Stockholders Agreement is filed as Exhibit 17 and
is incorporated herein by reference.
Pursuant to the terms and conditions of the Stockholders Agreement, each
Selling Stockholder has agreed to tender his Shares in the Offer. In the
Stockholders Agreement, each Selling Stockholder has further agreed that, until
the Termination Date (as defined below), such Selling Stockholder has granted to
Purchaser an irrevocable proxy to, and will vote his Shares: (i) in favor of the
Merger, the execution and delivery by the Company of the Merger Agreement and
the approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement and the Stockholders Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement, the Offer or the
Stockholders Agreement;
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and (iii) except as specifically requested in writing by Parent in advance,
against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement): (A) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or its subsidiaries; (B) a sale, lease or transfer of a
material amount of assets of the Company or its subsidiaries or a
reorganization, recapitalization, dissolution, liquidation or winding up of the
Company or any of its subsidiaries; (C) any change in the Board of Directors of
the Company; (D) any change in the present capitalization of the Company or any
amendment of the Company's Certificate of Incorporation; (E) any other material
change in the Company's corporate structure or business; and (F) any other
action which is intended or could reasonably be expected to impede, interfere
with, delay, postpone, discourage or materially adversely affect the Merger, the
transactions contemplated by the Merger Agreement or the Stockholders Agreement
or the contemplated economic benefits of any of the foregoing.
In addition, subject to any obligations that he may have as a director or
officer of the Company and further subject to such restrictions as exist under
the Merger Agreement, each Selling Stockholder has agreed that he shall not,
directly or indirectly (including through advisors, agents or other
intermediaries), initiate, solicit, negotiate, encourage or provide confidential
information to facilitate any proposal or offer by any person that constitutes
or could reasonably be expected to lead to an Acquisition Transaction (as
defined in the Merger Agreement). If any Selling Stockholder receives any such
inquiry or proposal, then such Selling Stockholder shall promptly inform Parent
of the terms and conditions, if any, of such inquiry or proposal and the
identity of the person making it. The Selling Stockholders have also agreed to
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
Each Selling Stockholder has agreed not to transfer or otherwise dispose of
his Shares other than through the Offer or Merger, or otherwise grant any
proxies with respect to, or otherwise encumber his Shares.
Under the Stockholders Agreement, each Selling Stockholder has also granted
the Purchaser an irrevocable option to purchase all of such Selling
Stockholder's Shares, including all Shares subject to all Options owned by such
Selling Stockholder, in each case at the Offer Price per Share. In the case of
all Shares underlying all such Stock Options (the "Option Shares"), such option
may be exercised by the Purchaser at any time and from time to time following
the earlier to occur of its purchase of any Shares pursuant to the Offer and any
time when the Merger Agreement is terminated in accordance with its terms. Among
other things, this option may facilitate the Purchaser's ability to acquire 50%
of the outstanding Shares. In the case of all other Shares held by the Selling
Stockholders, such option may be exercisable by the Purchaser at any time, and
from time to time, following any time the Merger Agreement has been terminated
in accordance with its terms. Among other things, such option may enable the
Purchaser to acquire, and then sell, all of such Shares subject to such option
to any person who has made and consummates a Superior Proposal.
The Stockholders Agreement will terminate upon the "Termination Date,"
which means the earlier of (a) the Effective Time, (b) if (i) the Company
terminates the Merger Agreement pursuant to paragraph 9 above under "Termination
of the Merger Agreement," (ii) the Purchaser terminates the Merger Agreement
pursuant to paragraphs 6 or 8 above under "Termination of the Merger Agreement"
at any time after a proposal for an Acquisition Transaction has been made, or
(iii) the Company or the Purchaser terminates the Merger Agreement pursuant to
paragraphs 2, 3 or 5 above under "Termination of the Merger Agreement" at any
time after a proposal for an Acquisition Transaction has been made, twelve
months after any such termination, provided however, that if the Purchaser has
exercised the option pursuant to the Stockholders Agreement described above
prior to such date but has not closed the purchase of the Shares and/or Option
Shares subject to such option prior to such date, the Stockholders Agreement
shall terminate immediately after the date of such closing, and (c) if the
Merger Agreement is terminated under any circumstances not mentioned in clause
(b) of this paragraph, the date the Merger Agreement is terminated.
The foregoing descriptions are qualified in their respective entireties by
reference to the texts of the relevant agreements, plans, amendments and other
documents, copies of which are filed as Exhibits 4 through 17 to this Statement
and are incorporated herein by reference.
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ITEM 4. THE SOLICITATION AND RECOMMENDATION.
(A) RECOMMENDATION.
At a meeting held on January 7, 1999, the Board of Directors of the Company
unanimously approved the Offer and the Merger, determining that each of the
Offer and the Merger (including the offer price of $9.50 per Share in cash) is
advisable and is fair to and in the best interests of stockholders of the
Company. At such meeting, the Board also unanimously adopted a resolution to
recommend to the stockholders of the Company that they accept the Offer. In
addition, the Board unanimously approved the form of Merger Agreement and
Stockholders Agreement. Copies of a press release and a letter from the Board to
the Company's stockholders concerning the Offer, the Merger Agreement and the
Board's recommendations are filed as Exhibits 20 and 19, respectively, to this
Statement and are incorporated herein by reference.
As set forth in the Merger Agreement, the Purchaser will purchase Shares
tendered prior to the close of the Offer if the conditions to the Offer have
been satisfied (or waived).
STOCKHOLDERS CONSIDERING NOT TENDERING THEIR SHARES IN ORDER TO WAIT FOR
THE MERGER SHOULD NOTE THAT IF THE MINIMUM CONDITION IS NOT SATISFIED OR ANY OF
THE OTHER CONDITIONS TO THE OFFER ARE NOT SATISFIED, THE PURCHASER IS NOT
OBLIGATED TO PURCHASE ANY SHARES, AND CAN TERMINATE THE OFFER AND THE MERGER
AGREEMENT AND NOT PROCEED WITH THE MERGER.
Under Delaware law, the approval of the Board and the affirmative vote of
the holders of a majority of the outstanding Shares is sufficient to approve the
Merger. Accordingly, if the conditions to the Offer are satisfied, the Purchaser
will have sufficient voting power to cause the approval of the Merger without
the affirmative vote of any other stockholder. Under Delaware law, if Purchaser
acquires, pursuant to the Offer or otherwise, at least 90% of the then
outstanding Shares, Purchaser will be able to approve and adopt the Merger
Agreement and the Merger, without a vote of the Company's stockholders. Parent,
Purchaser and the Company have agreed to use their reasonable best efforts to
take promptly, or cause to be taken, all actions and to do promptly, or cause to
be done, all things necessary, proper or advisable to consummate and make
effective the Offer, the Merger and the other transactions contemplated by the
Merger Agreement, including effecting the Merger as promptly as practicable
following consummation of the Offer. If Purchaser does not acquire at least 90%
of the then outstanding Shares pursuant to the Offer or otherwise and a vote of
the Company's stockholders is required under Delaware Law, a longer period of
time will be required to effect the Merger and stockholders of the Company who
dissent from the Merger in accordance with Delaware Law will be entitled to
demand appraisal of the fair value of their Shares and payment of such fair
value in cash. See "Appraisal Rights."
The Offer is scheduled to expire at 12:00 midnight, New York City time, on
Thursday, February 11, 1999, unless the Purchaser extends the period of time for
which the Offer is open. A copy of the press release issued jointly by the
Company and General Chemical Group on January 8, 1999 announcing the Merger and
the Offer is filed as Exhibit 20 to this Schedule 14D-9 and is incorporated
herein by reference in its entirety.
(B) BACKGROUND AND REASONS FOR THE RECOMMENDATION.
BACKGROUND OF THE OFFER
On July 25, 1997, management presented its operating plan for the fiscal
year ended June 30, 1998 ("Fiscal 1998") to the Board of Directors. Management
and the Board agreed it was essential to grow the Company to increase
shareholder value.
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Further discussion took place among Board members at a regularly scheduled
Board meeting on September 23, 1997 regarding the long-term direction of the
Company. The Board instructed management to continue to pursue new business for
the existing business units along with joint ventures, joint operating and
marketing agreements, and acquisitions synergistic with the Company's business
units.
Shortly thereafter, management contacted several merger and acquisition
advisory firms (none of which was placed on retainer) to identify potential
acquisitions. As a result of such activities, in late October 1997 the Company
submitted letters of interest to purchase two companies. One was a manufacturer
of precision components and the other was a manufacturer of suspension
components. During this period, management also explored the possible purchase
of an automotive testing company and two other manufacturing companies.
On December 5, 1997 a representative of a different company, a potential
strategic buyer, hereinafter referred to as "Party A," contacted Thomas H.
Roulston II, Chairman of the Company, expressing an interest to acquire the
Company, either for cash or Party A stock. Party A and the Company signed a
confidentiality agreement on December 9, 1997. The Company provided information
to Party A and continued to answer questions through January 21, 1998, with one
meeting at Party A's offices on January 6, 1998 involving Jerry A. Cooper (Chief
Executive Officer of the Company), Michael J. Meier (Chief Financial Officer of
the Company), Stephen E. Nash (then President of Defiance Precision Products,
Inc. ("DPP"), a subsidiary of the Company), Michael Madden (President of
Defiance Testing and Engineering Services, Inc. ("Testing"), a subsidiary of the
Company), and Michael Pavlica (Controller of the Defiance Tooling Systems
division, which is composed of Hy-Form Products, Inc. ("Hy-Form"), a subsidiary
of the Company, and Binderline Draftline, Inc. ("Binderline"), a subsidiary of
the Company) to answer Party A's questions. Party A made no further contact with
the Company after the January 21, 1998 meeting. Management of the Company called
Party A on May 13, 1998 and left a message to return the materials previously
provided per the confidentiality agreement executed by the parties if Party A no
longer required them. Party A returned all materials to the Company on May 15,
1998.
The largest subsidiary of the Company is DPP, which accounts for
approximately one-half of the Company's sales. DPP manufactures cam follower
rollers and cam follower roller axles, which are integral parts of gasoline and
diesel engines. DPP supplies its cam follower rollers and axles for traditional
"push rod" engine designs. In recent years, however, overhead cam engine designs
have gained growing acceptance and use in automobiles, and it is anticipated
that the number of traditional push rod engine designs in the future will
decline significantly. Both the traditional and overhead cam engines utilize cam
follower rollers and axles, but the latter employs them as part of a
sub-assembly known as a "rocker arm assembly," which includes a cam follower
roller, axle and rocker arm. There is no "rocker arm assembly" in a traditional
engine design. DPP does not manufacture rocker arms and therefore cannot
independently supply the "rocker arm assembly" for the overhead cam engine.
Because the overhead cam engine has been growing in popularity, and in an effort
to preserve its market share, management has attempted over the last two years
to acquire or associate, at least for marketing purposes, with a rocker arm
manufacturer.
In this pursuit, in late February 1998, Mr. Cooper contacted Steven
Shulman, a Managing Director of Latona Associates, Inc. ("Latona"), which acts
as financial advisor to General Chemical Group. Toledo Technologies, Inc.
("Toledo"), a subsidiary of General Chemical Group, manufactures stamped engine
components which include rocker arms, but does not manufacture cam follower
rollers or roller axles. Toledo currently purchases only nominal quantities of
cam follower rollers and roller axles from the Company. Mr. Cooper indicated
that the Company was interested in a joint venture/joint marketing arrangement
or the purchase of Toledo. At DPP's planning meetings on March 4 and 7, 1998 and
April 7, 1998, DPP's staff confirmed that with Toledo's rocker arms, DPP could
supply the "rocker arm assembly" for overhead cam engines. In early March 1998,
Mr. Shulman called Mr. Cooper to arrange a meeting for Mr. Cooper with a
representative of Toledo, to explore ways to implement a sub-assembly marketing
strategy. On March 26, 1998, Mr. Cooper met with the representative of Toledo to
specifically discuss joint marketing opportunities to Ford and Chrysler in the
U.S. as well as overseas markets. Later that day, in Dearborn, Michigan, Mr.
Cooper met with representatives of Latona to discuss possible commercial
relationships or a business combination involving DPP and General Chemical
Group. These representatives said they understood the logic of a closer
association, and agreed to carefully consider available options.
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<PAGE> 16
On April 22, Mr. Cooper and Mr. Roulston toured Toledo's manufacturing
facilities with representatives of Latona and General Chemical Group. The group
discussed the marketing advantages of a closer association between DPP and
General Chemical Group. Again Mr. Cooper and Mr. Roulston proposed that the
parties consider various ways of strengthening the relationship between DPP and
General Chemical Group. The parties discussed such proposals but no decision was
made.
On May 7, 1998, Messrs. Meier, Cooper and Dan Nichols, of Matthew Warren,
Inc., an automotive marketing consulting firm to the Company, met with
representatives of General Chemical Group in Cleveland to discuss how DPP and
General Chemical Group could pursue the overhead cam market together. On May 8,
1998, these representatives toured DPP's facilities in Defiance, Ohio with Mr.
Cooper.
On June 29, 1998, representatives of General Chemical Group met with Mr.
Roulston at his Cleveland office to discuss DPP and General Chemical Group
joining forces in some manner. During the meeting, these representatives
indicated that General Chemical Group was not interested in a joint marketing
arrangement or a sale of Toledo, but they asked Mr. Roulston if the Company was
interested in selling DPP. Mr. Roulston stated the Company was reluctant to sell
DPP and commented that such a transaction would generate significant taxable
gain to the Company. The representatives then asked if the Board of Directors of
the Company would consider selling the entire Company. Mr. Roulston indicated he
believed a serious and credible offer would be given appropriate consideration
by the Company's Board.
On July 6, 1998, Latona requested certain due diligence information from
the Company, and the Company provided the requested information on July 9, 1998.
On July 17, 1998 on a conference call between Messrs. Meier and Cooper and
representatives of General Chemical Group, Messrs. Meier and Cooper answered
numerous questions about individual subsidiaries' sales, earnings and capital
expenditure projections. Later that day, Mr. Meier faxed to General Chemical
Group more information in response to Latona's questions.
There was no substantive contact between the Company and any of General
Chemical Group, Parent or Latona personnel from the July 17, 1998 conference
call until September 17, 1998. On September 17, 1998, however, a representative
of Latona called Mr. Cooper and indicated that General Chemical Group, through
its subsidiary, Parent, remained interested in purchasing the entire Company.
The representative asked Mr. Cooper to inform Mr. Roulston of his call, which he
did.
On September 24, 1998, a representative of General Chemical Group called
Mr. Cooper. Mr. Cooper told the representative that he had informed Mr. Roulston
of the representative's September 17, 1998 call and recommended that he contact
Mr. Roulston directly.
At a regularly scheduled meeting of the Company's Board of Directors on
September 25, 1998, Mr. Roulston informed the Board of the discussions with
General Chemical Group since June 29, 1998. After a lengthy discussion, Mr.
Roulston was authorized by the Company's Board to explore a potential
transaction with General Chemical Group. Mr. Roulston's authority was set forth
in a formal Board resolution.
On October 5, 1998, when Mr. Roulston met with representatives of General
Chemical Group in New York City, he again expressed the Company's desire to
purchase Toledo. The General Chemical Group representatives again indicated that
General Chemical Group would not sell Toledo. The representatives inquired again
about General Chemical Group purchasing the Company. The representatives
indicated at that time that General Chemical Group's best price would be in the
range of $10 a share, subject to completion of due diligence review of the
Company. Mr. Roulston attempted to negotiate a higher price, but a price in the
range of $10 a share was General Chemical Group's best verbal value indication.
Later that day and the next morning, October 6, 1998, the Directors were briefed
on the state of the negotiations, and it was informally agreed that a potential
cash offer in the range of $10 a share was worth pursuing further.
On October 21, 1998, legal counsel to General Chemical Group and Parent
sent a draft of the Merger Agreement and the Stockholders Agreement to legal
counsel for the Company. Also on October 21, 1998, representatives of General
Chemical Group sent Mr. Roulston an outline of proposed due diligence procedures
and issues and a request that due diligence review take place at Company
facilities on October 29 and 30, 1998.
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<PAGE> 17
On October 24 and 26, 1998, legal counsel to the Company met with
management of the Company to discuss issues related to the draft Merger
Agreement and Stockholders Agreement. On October 27, 1998, legal counsel to the
Company sent comments on the draft Merger Agreement and Stockholders Agreement
to legal counsel for General Chemical Group and Parent.
On October 28, 1998, the Company retained McDonald Investments Inc.
("McDonald") to undertake a study which would enable McDonald to render an
opinion to the Board of Directors as to the fairness, from a financial point of
view, of the proposed merger consideration to the stockholders of the Company.
On October 29 and 30, 1998, representatives of Latona and General Chemical
Group met with Company management and legal counsel to conduct due diligence in
Cleveland at Company's headquarters. They also visited DPP Plants 1 and 2
located in Defiance, Ohio and interviewed the President and Controller of DPP.
On November 3, 1998, legal counsel to General Chemical Group and Parent
sent a revised draft of the Merger Agreement and the Stockholders Agreement to
legal counsel to the Company.
On November 4 and November 5, 1998, representatives of General Chemical
Group toured each of the plants of Testing, Hy-Form, and Binderline and
interviewed the President and Controller of each subsidiary.
On November 17, 1998, representatives of General Chemical Group toured DPP
plant 3 in Upper Sandusky, Ohio.
On November 20, 1998, the Company's Board met to consider pursuing a sale
of the Company to General Chemical Group. Representatives of McDonald attended
that meeting at the invitation of the Directors and were asked to provide an
overview of the various valuation analyses that would be used in connection with
the delivery of a fairness opinion and to provide a preliminary indication of
whether the consideration contemplated by the parties would be within the range
of fairness. At that time, the Company and General Chemical Group had discussed
a preliminary, pre-due diligence purchase price of approximately $10.00 per
share. McDonald advised the Board that its preliminary analysis suggested that a
price approximating $10.00 per share would be within the range of fairness.
McDonald further advised the Board that, subject to satisfactory completion of
its due diligence and valuation procedures and review of definitive
documentation, it believed that, as of that date, it would be able to render an
opinion that the consideration to be received in connection with the transaction
was fair, from a financial point of view, to the shareholders of the Company.
Counsel for the Company reviewed with the Board the proposed form of the
transaction as a tender offer to be followed by a merger, and various terms of
the Merger Agreement, including the absence of a financing contingency, the
proposed terms of the Stockholders Agreement, the terms of a proposed
termination fee of approximately 3.0% of the acquisition consideration and
reimbursement of certain of Parent's expenses in the event of termination, the
treatment of certain employee benefit plans including the cashing out of
outstanding stock options, the conditions of termination of the merger and of
the tender offer and the circumstances under which the Board could entertain an
alternative proposal. Counsel also explained to the Board that General Chemical
Group had not yet completed its due diligence review of the Company, which could
affect the final price offered by General Chemical Group.
The Board then considered the proposal in light of its strategic
alternatives and its specific inability to independently produce the "rocker arm
assembly" for the growing overhead cam engine market. The Board also considered
the few other possible strategic alliances or transactions which would permit
DPP to respond to this potential market shift. The Board of the Company
considered its many unsuccessful efforts to grow the business, beginning in 1994
when the Company retained the investment banking firm of Carleton, McCreary,
Holmes & Co. to assist the Company in its search for strategic acquisitions. As
part of this engagement, as many as 40 candidates were identified and many of
these were contacted to ascertain their interest in a potential transaction with
the Company. No acquisitions were completed as a result of these efforts and of
the Company's more recent efforts described above. The Board focused on the
limited market for the Company as an acquisition candidate, and efforts which it
had undertaken to find a suitable business combination. The Board discussed
whether, in light of the prior indication of interest of Party A, the Company
should delay completing a transaction with General Chemical Group. Following
further discussion, and particularly given the apparent lack of interest from
Party A and the concern that General Chemical Group could withdraw its interest
if the Company were to delay its
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<PAGE> 18
discussions with General Chemical Group, the Board determined to proceed with a
possible transaction with General Chemical Group, subject to the resolution of
certain issues, including price. The Board directed counsel to continue
discussions with legal counsel to General Chemical Group and Parent to resolve
open issues.
Over the next few weeks, counsel for the parties continued negotiations on
the merger agreement and related documents, and General Chemical Group continued
its due diligence review of the Company. On December 24, 1998, Mr. Schulman
called Mr. Roulston and stated that General Chemical Group had determined to
make a cash offer of $9.25 per Share. After extensive negotiations with Mr.
Schulman and consultation with the Company's advisors, Mr. Roulston
counteroffered that he believed the Company's Board would accept $9.75 per
Share. On December 28, 1998, Mr. Schulman responded with $9.50 per Share as a
firm cash offer. Mr. Roulston then contacted the Board members and scheduled a
Board meeting.
On January 7, 1999, the Board of the Company met to review the latest
drafts of the agreements and to consider the $9.50 cash offer from General
Chemical Group. Legal counsel to the Company assisted in said review and
presented an update on the status of all open issues.
At the same meeting, representatives of McDonald reviewed with the Board of
Directors the various valuation methodologies used in its analysis of the
financial terms of the Offer and Merger and responded to various questions from
the Directors concerning these matters. At the conclusion of McDonald's
presentation and related Board discussions, at the request of the Board of
Directors, McDonald rendered its opinion that, as of the date thereof, the
consideration of $9.50 per share to be received by the Company's shareholders in
the Offer and the Merger was fair, from a financial point of view, to such
holders.
Following further discussions, the Board unanimously determined that the
Offer and Merger on the terms presented at the meeting were advisable and fair
to and in the best interests of the Company and its stockholders. The Board also
approved the Merger Agreement and the Stockholders Agreement in substantially
the form presented to the Board of Directors. The Board determined to recommend
acceptance of the Offer and approval and adoption of the final Merger Agreement
by the stockholders of the Company (to the extent that such approval and
adoption may be required by applicable law) and the Board authorized management
to execute and deliver the agreements, subject to management and counsel's
affirmation that all outstanding issues had been resolved.
On January 7, 1999, after the close of business and the conclusion of the
meeting of the Board of Directors, the parties resolved all outstanding issues,
and the parties executed and delivered the Merger Agreement, the Stockholders
Agreement and the other related agreements. On January 8, 1999, before the
opening of the markets, the parties publicly announced that they had entered
into the Merger Agreement.
In deciding to accept Parent's proposal, approve the Merger Agreement and
recommend acceptance of the Offer and approval of the Merger Agreement to the
stockholders of the Company, the Board considered a number of factors,
including, without limitation, the following:
(i) Historical information concerning the Company's business,
prospects, financial performance and condition, operations, technology,
management and competitive position; the prospects of going forward as an
independent company; various factors affecting the Company's strategic
plans, the Company's position in its industry and industry conditions
generally;
(ii) The possible alternatives to the Offer and the Merger (including
the possibility of continuing to operate the Company as an independent
entity), the range of possible benefits to the Company's stockholders of
such alternatives and the timing and the likelihood of actually
accomplishing any of such alternatives;
(iii) The fact that the Company's businesses are highly specialized
and operate in narrow market niches with no synergies among the three
businesses; and, as a result, there are very few potential acquirers for
which there is a close strategic fit for each separate operating subsidiary
and even fewer potential acquirers for the Company as a whole;
(iv) The unfavorable tax impact to the Company of selling off separate
business units;
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<PAGE> 19
(v) The uncertainty of negotiating an equally or more favorable
transaction within a reasonable time frame with a third party if Parent's
proposal would be rejected;
(vi) The terms of the Merger Agreement, including the form of the
transaction, the lack of a financing contingency, the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, including the fact that, pursuant to the Merger
Agreement, the Company is not prohibited from responding to any unsolicited
proposal for an Acquisition Transaction (as defined in the Merger
Agreement) involving superior terms to acquire the Company, and that after
certain conditions have been satisfied, the Company may terminate the
Merger Agreement and accept such superior proposal subject to the Company's
obligation to pay a termination fee and expenses in the amount and in the
manner described in the Merger Agreement;
(vii) The desirability of cash consideration as opposed to the
Company's shareholders receiving stock with all the related investment
considerations;
(viii) The taxable nature of the transaction;
(ix) The inability of the Company to consummate strategic acquisitions
or joint marketing ventures after significant and sustained efforts;
(x) The availability of appraisal rights in the Merger under
applicable law; and
(xi) The opinion of McDonald presented on January 7, 1999 to the
effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the $9.50 per Share cash consideration to be
received by holders of Shares in the Offer and the Merger was fair, from a
financial point of view, to such holders. The full text of McDonald's
written opinion dated January 7, 1999, which sets forth the assumptions
made, matters considered and limitations on the review undertaken by
McDonald, is attached hereto as Annex B and is incorporated herein by
reference. McDonald's opinion is directed only to the fairness, from a
financial point of view, of the cash consideration to be received in the
Offer and the Merger by holders of Shares and is not intended to
constitute, and does not constitute, a recommendation as to whether any
stockholder should tender Shares pursuant to the Offer. HOLDERS OF SHARES
ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY.
The Board did not assign relative weights to the above factors. Rather, the
Board viewed its position and recommendations as being based on the totality of
the information presented to and considered by it during the process followed by
the Board.
OPINION OF FINANCIAL ADVISOR
The Board of Directors of the Company retained McDonald to render an
opinion to the Board of Directors of the Company as to the fairness from a
financial point of view of the consideration to be received in the Offer and the
Merger by the stockholders of the Company. McDonald was retained by the Company
on the basis of, among other things, its experience and expertise and
familiarity with the automotive industry. As part of its investment banking
business, McDonald is customarily engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and estate
planning purposes. On January 7, 1999, McDonald delivered its oral opinion to
the Board of Directors of the Company, and McDonald later delivered its written
opinion to the Board of Directors of the Company, to the effect that, as of
January 7, 1999, and based upon the assumptions and other matters set forth
therein, the consideration to be received in the Offer and the Merger was fair,
from a financial point of view, to the stockholders of the Company (the
"McDonald Opinion"). No restrictions were imposed by the Company's Board of
Directors upon McDonald with respect to investigations made or procedures
followed by McDonald in rendering its opinion.
THE MCDONALD OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF THE COMPANY
AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE
COMPANY'S STOCKHOLDERS, OF THE CONSIDERATION TO BE RECEIVED IN THE OFFER AND THE
MERGER. THE MCDONALD OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO WHETHER SUCH STOCKHOLDER SHOULD TENDER HIS, HER OR ITS SHARES
PURSUANT TO THE OFFER OR TO
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VOTE SUCH SHARES IN FAVOR OF THE MERGER, NOR DOES IT ADDRESS THE COMPANY'S
UNDERLYING BUSINESS DECISION TO PURSUE THE MERGER.
The summary of the McDonald Opinion set forth below is qualified in its
entirety by reference to the full text of the McDonald Opinion, which is
attached hereto as Annex B. Stockholders of the Company are urged to, and
should, read the McDonald Opinion carefully in its entirety for assumptions made
and matters considered in and the limits of the review conducted by McDonald.
Although McDonald evaluated the financial terms of the Offer and the
Merger, McDonald did not recommend the specific consideration to be paid in
either the Offer or the Merger. The consideration to be received by the
Company's stockholders as a result of the Offer and the Merger was determined by
negotiations between the Company and General Chemical Group. McDonald did not
participate in those negotiations. In connection with rendering its opinion,
McDonald, among other things, (i) reviewed the Merger Agreement; (ii) reviewed
drafts of the Offer to Purchase and this Schedule 14D-9; (iii) reviewed the
Company's Annual Reports to Stockholders and Annual Reports on Form 10-K for the
fiscal years ended June 30, 1998, 1997, 1996, 1995 and 1994; (iv) reviewed
certain operating and financial information, including projections, relating to
the Company's business and prospects, provided to McDonald by management; (v)
visited each of the Company's facilities and met with certain members of the
Company's management to discuss its operations, historical financial statements
and future prospects; (vi) reviewed the historical prices and trading volume of
the Company's common stock; (vii) reviewed publicly available financial data and
stock market performance data of companies which it deemed generally comparable
to the Company; (viii) reviewed the terms of recent acquisitions of companies
which it deemed generally comparable to the Company; and (ix) conducted such
other studies, analyses, inquiries and investigations as it deemed appropriate.
In McDonald's review and analysis and in arriving at its opinion, McDonald
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it or publicly available and assumed and
relied upon the representations and warranties of the Company, Parent and the
Purchaser contained in the Merger Agreement. McDonald was not engaged to, and
did not independently attempt to, verify any of such information. McDonald also
relied upon the management of the Company as to the reasonableness and
achievability of the financial and operating projections (and the assumptions
and bases therefor) provided to it and, with the Company's consent, assumed that
such projections reflect the best currently available estimates and judgments of
the Company's management. McDonald was not engaged to assess the achievability
of such projections or the assumptions on which they were based and, as such,
expresses no view as to such projections or assumptions. In addition, McDonald
did not conduct an evaluation or appraisal of any of the assets, properties or
facilities of the Company nor was it furnished with any such evaluation or
appraisal. McDonald also assumed that the conditions to the transaction as set
forth in the Merger Agreement would be satisfied and that the sale of the
Company would be consummated on a timely basis in the manner contemplated by the
Merger Agreement.
McDonald was engaged by the Company solely for the purpose of rendering the
McDonald Opinion. In connection with the preparation of the McDonald Opinion,
McDonald was not authorized by the Company or the Board of Directors of the
Company to solicit, nor did it solicit, third party indications of interest for
the acquisition of all or any part of the Company. McDonald also did not
participate in negotiations between the Company and the Parent.
The following is a summary of certain financial analyses used by McDonald
in connection with providing its opinion to the Board of Directors of the
Company. McDonald derived implied prices for the Company's common stock based
upon what these analyses, considered in light of the judgment and experience of
McDonald, suggested about the Company's value. The McDonald Opinion is based on
McDonald's consideration of the collective results of all such analyses,
together with other factors referred to in its opinion letter. In concluding
that the consideration to be received in the Offer and the Merger is fair, from
a financial point of view, to the stockholders of the Company, McDonald compared
the consideration to be received in the Offer and the Merger to each range of
implied prices per share set forth below, which were derived from the analyses
performed from McDonald, and noted as generally supporting its opinion that the
price per share of the Company's common stock of $9.50 was consistent with the
ranges of such implied share prices for the Company's common stock
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<PAGE> 21
derived from historical stock trading analysis, comparable public company
analysis, comparable merger transactions analysis, discounted cash flow
analysis, economic profit analysis, and leveraged buyout analysis.
Historical Stock Trading Analysis. McDonald reviewed the closing per-share
market price of the Company's Common Stock over the ten-year period ended
January 7, 1999. McDonald calculated the high and low daily closing prices and
the average closing price over the ten-year period from January 6, 1989 to
January 7, 1999; over the five-year period from January 6, 1994 to January 7,
1999; over the three-year period from January 5, 1996 to January 7, 1999; over
the one-year period from January 6, 1998 to January 7, 1999; over the six-month
period from July 6, 1998 to January 7, 1999; over the three-month period from
October 6, 1998 to January 7, 1999; and over the one-month period from December
4, 1998 to January 7, 1999. Over the ten-year period, the high closing price was
$10.00, the low closing price was $0.38, and the average closing price was
$4.90. Over the five-year period, the high closing price was $10.00, the low
closing price was $5.13, and the average closing price was $7.04. Over the
three-year period, the high closing price was $9.25, the low closing price was
$5.13, and the average closing price was $7.02. Over the one-year period, the
high closing price was $9.25, the low closing price was $6.25, and the average
closing price was $7.66. Over the six-month period, the high closing price was
$8.44, the low closing price was $6.25, and the average closing price was $6.99.
Over the three-month period, the high closing price was $7.13, the low closing
price was $6.25, and the average closing price was $6.69. Over the one-month
period, the high closing price was $6.88, the low closing price was $6.25, and
the average closing price was $6.51. McDonald noted that, based upon these
ratios and implied share prices, the $9.50 per share consideration to be
received by the Company's stockholders in the Offer and the Merger was greater
than the range of average closing prices per share (from $4.90 to $7.66) during
the period under review, and was within 5% of the highest price at which the
Company's stock had traded during such period.
Comparable Public Company Analysis. McDonald reviewed and compared the
financial and market performance of the Company to the financial and market
performance of seven publicly-traded companies that McDonald believed were
comparable in certain respects to the Company (the "Comparable Companies").
These seven publicly-traded companies are U.S.-based manufacturers of metal
powertrain and structural components for the automotive and transportation
equipment industries, each with an equity market capitalization of less than
$500 million. The Comparable Companies included Amcast Industrial, Autocam
Corporation, Citation Corporation, Hilite Industries, Intermet Corp., Newcor,
Inc. and Simpson Industries. The Comparable Companies were chosen by McDonald as
companies that, based on publicly available data, possess general business,
operating and financial characteristics representative of companies in the
industry in which the Company operates, although McDonald recognizes that each
of the Comparable Companies is distinguishable from the Company in certain
respects. For each of the Comparable Companies, McDonald examined certain
publicly available financial data, including sales, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), earnings before interest and
taxes ("EBIT"), net operating profit after taxes ("NOPAT"), invested capital,
book value, earnings per share, and profit margins. McDonald examined balance
sheet items, published earnings forecasts and the trading performance of the
common stock of each of the Comparable Companies. McDonald calculated the ratio
of each Comparable Company's "Enterprise Value" (the total market value of the
common stock outstanding plus the principal amount of total debt, less cash and
investments) to that Company's sales, EBITDA, EBIT, NOPAT and invested capital
for the latest twelve month period. McDonald then applied the median of each of
such ratios to the Company's sales, EBITDA, EBIT, NOPAT and invested capital for
its latest twelve months ("LTM") to calculate implied prices per share for the
Company's Common Stock. The ratios of the Comparable Companies' Enterprise Value
to net sales for the latest twelve months ranged from 0.6x to 1.5x with a median
value of 0.7x. The ratios of the Comparable Companies' Enterprise Value to
EBITDA for the latest twelve months ranged from 4.3x to 9.2x with a median value
of 5.6x. The ratios of the Comparable Companies' Enterprise Value to EBIT for
the latest twelve months ranged from 6.4x to 16.7x with a median value of 9.7x.
The ratios of the Comparable Companies' Enterprise Value to NOPAT for the latest
twelve months ranged from 9.6x to 22.8x with a median value of 13.7x. The ratios
of the Comparable Companies' Enterprise Value to invested capital for the latest
twelve months ranged from 0.8x to 1.3x with a median value of 1.0x.
In addition, McDonald calculated the ratio of the stock prices of each of
the Comparable Companies to that company's book value and earnings per share for
the latest twelve months, projected earnings per share for calendar 1998, and
projected earnings per share for calendar 1999. McDonald then applied the median
of each of
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such ratios to the Company's book value, earnings per share for the latest
twelve months, projected earnings per share for calendar 1998 and projected
earnings per share for calendar 1999, to calculate implied prices per share for
the Company's Common Stock. The ratios of the Comparable Companies' stock prices
to book value for the latest twelve months ranged from 0.7x to 2.1x with a
median value of 1.3x. The ratios of the Comparable Companies' stock prices to
earnings per share for the latest twelve months ranged from 7.8x to 14.4x with a
median value of 9.9x. The ratios of the Comparable Companies' stock prices to
projected earnings per share for calendar 1998 ranged from 8.4x to 14.2x with a
median value of 11.7x. The ratios of the Comparable Companies' stock prices to
projected earnings per share for calendar 1999 ranged from 4.7x to 9.3x with a
median value of 8.4x.
Application of the median Comparable Companies multiples to the Company
resulted in an implied equity value of $7.53 per share based on LTM sales,
$11.05 per share based on LTM EBITDA, $9.89 per share based on LTM EBIT, $7.78
per share based on LTM NOPAT, $8.76 per share based on invested capital, $8.29
based on book value, and $7.26 per share based on LTM earnings per share. In
addition, application of the median Comparable Companies multiples to projected
earnings per share resulted in implied equity values of $8.63 per share based on
calendar 1998 projections, and $6.64 per share based on calendar 1999
projections. In its analysis, McDonald noted that the consideration of $9.50 per
share to be received by stockholders pursuant to the Offer and the Merger was
greater than the average implied valuation per share suggested by its Comparable
Companies analysis of $8.43 per share, and that such consideration was within
the range of $6.64 to $11.05 suggested by this analysis.
McDonald calculated NOPAT and invested capital for the Comparable Companies
and the Company on an LTM basis. McDonald calculated LTM Economic Profit
(defined as (i) NOPAT less (ii) beginning invested capital times the weighted
average cost of capital) and current operations value (defined as (i) LTM
Economic Profit divided by weighted average cost of capital plus (ii) LTM
invested capital) ("Current Operations Value") for the Comparable Companies and
the Company, and estimated the market's expectation of future growth in Economic
Profit ("Future Growth Value") inherent in stock prices as of January 7, 1999 by
subtracting Current Operations Value from Enterprise Value. McDonald then
analyzed Future Growth Value as a percentage of Enterprise Value ("Future Growth
Value Percentage") for the Comparable Companies, and compared it to the Future
Growth Value Percentage of the Company. The Future Growth Value Percentage for
the Comparable Companies ranged from (11.0)% to 44.7% with a median of 14.2%, as
compared to the Company's Future Growth Value Percentage of 26.9%. McDonald then
analyzed the Future Growth Value Percentage of the Company based on the
consideration of $9.50 to be received by the Company's stockholders in the Offer
and the Merger, which resulted in a Future Growth Value Percentage of 45.8%, and
determined that the Future Growth Value Percentage was also considerably higher
than the Comparable Company median of 14.2%.
McDonald calculated the total share price return, including dividends
("Total Return"), for each of the Comparable Companies over the five-year period
ended January 7, 1999. Over this period, the Total Return for the Comparable
Companies ranged from (15.0)% to 9.2%, with a median of 2.3%. For the three-year
period ending January 7, 1999, the Total Return of the Comparable Companies
ranged from (19.3)% to 8.9% with a median of 4.6%. For the one-year period
ending January 7, 1999, the Total Return for the Comparable Companies ranged
from (57.1)% to 33.9%, with a median of (19.5)%. McDonald noted that using the
consideration of $9.50 to be received by the Company's stockholders in the Offer
and the Merger provided a Total Return of 4.4% for the five-year period ending
January 7, 1999, which is above the median of 2.3% for the Comparable Companies,
and that the Company's Total Return of 14.7% and 21.6% for the three-and
one-year periods ending January 7, 1999 were also above the median values of the
Comparable Companies for such periods.
Comparable Transactions Analysis. McDonald reviewed certain financial data
and the purchase prices paid in 35 acquisition transactions completed since
October 1996 in the automotive and transportation equipment industry for which
relevant information was available and which involved consideration of less than
$500 million (the "Comparable Transactions"). For each of the companies involved
in the Comparable Transactions, McDonald examined certain publicly available
financial data, including LTM sales, LTM EBITDA, LTM EBIT and book value.
McDonald examined, to the degree available, balance sheet items, published
earnings forecasts and the trading performance of the common stock of each of
the companies involved in the Comparable Transactions. McDonald calculated the
ratio of the Enterprise Value of each of the Comparable Transactions to
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the target company's LTM sales, LTM EBITDA and LTM EBIT. McDonald calculated the
ratio of the Equity Value of each of the Comparable Transactions to the target
company's book value. McDonald then applied the mean of each of such ratios to
the Company's LTM sales, LTM EBITDA, LTM EBIT and book value in order to
calculate implied prices per share for the Company's common stock.
The ratios of the values of the Comparable Transactions to the target
companies' sales for the latest twelve months ranged from 0.2x to 1.5x with a
median value of 0.7x. The ratios of the values of the Comparable Transactions to
the target companies' LTM EBITDA ranged from 3.3x to 9.5x with a median value of
5.6x. The ratios of the values of the Comparable Transactions to the target
companies' LTM EBIT ranged from 3.7x to 13.5x with a median value of 7.4x. The
ratios of the values of the Comparable Transactions to the target companies'
book value ranged from 1.0x to 4.3x with a median value of 2.0x.
Application of the median Comparable Transactions multiples to the Company
resulted in an implied equity value of $7.82 per share based on LTM sales,
$11.12 per share based on LTM EBITDA, $6.89 per share based on LTM EBIT, and
$12.74 per share based on book value. In its analysis, McDonald noted that the
consideration to be received by stockholders pursuant to the Offer and the
Merger was slightly below the average implied valuation per share suggested by
its Comparable Transactions analysis ($9.64), and that such consideration was
within the range of $6.89 to $12.74 suggested by this analysis.
McDonald reviewed the purchase price paid per share and recent target
company closing stock prices in 93 acquisition transactions completed since
January 1997 for publicly-held, industrial companies which involved
consideration of less than $500 million (the "Public Transactions"). For each of
the companies involved in the Public Transactions, McDonald examined the closing
stock price one day prior to announcement date, one week prior to announcement
date, and four weeks prior to announcement date, in order to calculate the
premium paid over the closing stock price at those points in time. The Public
Transactions had a median premium of 15.2% over the closing price four weeks
prior to announcement, a median premium of 14.3% over the closing price one week
prior to announcement, and a median premium of 11.6% over the closing price one
day prior to announcement. McDonald noted that the consideration of $9.50 to be
received by the Company's stockholders in the Offer and the Merger represents a
premium of 46.2% over the closing price four weeks prior to announcement, a
premium of 43.4% over the closing price one week prior to announcement, and a
premium of 46.2% over the closing price one day prior to announcement.
Discounted Cash Flow Analysis. Discounted cash flow analysis is a
traditional valuation methodology used to derive a valuation of a corporate
entity by discounting to the present its future expected cash flows. McDonald
performed a discounted cash flow analysis of the Company based upon financial
projections for the years 1999 to 2003 which were provided by management.
The discounted cash flow analysis was conducted by estimating the Company's
weighted average cost of capital ("WACC") at 11.5%. Using this estimate of cost
of capital, McDonald calculated the present value of free cash flows for each of
the fiscal years ending June 30, 1999 through 2003 and the present value of the
terminal value of the Company (the calculated value of the Company at the end of
the projection period). McDonald calculated the terminal value in year 2003
based upon a perpetual growth rate of 2.1%. McDonald calculated the equity value
of the Company by subtracting the Company's total debt from the sum of cash, the
present values of free cash flows and the present value of the terminal value of
the Company. McDonald performed sensitivity analysis using a range of estimates
for the WACC from 10.5% to 12.5%, and assuming perpetual growth rates ranging
from 0.0% to 4.1%. Based on this analysis, McDonald calculated per-share equity
values of the Company ranging from $8.34 to $10.95 per share, with a midpoint
equity value of $9.52 per share using the estimate of the Company's WACC of
11.5% and perpetual growth rate of 2.1%. These values were calculated without
giving any effect to any expense savings or revenue enhancement opportunities
that may result from the Merger. McDonald compared the range of implied equity
values calculated using the discounted cash flow methodology to the
consideration to be received by the Company's stockholders in the Offer and the
Merger, and noted that the consideration to be received by the Company's
stockholders was within the range of implied equity values and approximates the
midpoint of such equity values.
In estimating the WACC, McDonald performed analyses consistent with the
Capital Asset Pricing Model. McDonald derived a five-year monthly S&P 500 equity
beta for each of the Comparable Companies and the
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Company from industry sources. The equity betas were unlevered according to the
debt to market value (defined as total debt divided by total debt plus the
market value of equity) for each Comparable Company. McDonald arrived at a
median unlevered beta ("Comparable Group Beta") for the group of Comparable
Companies including the Company. McDonald calculated the Company's cost of
equity using a market risk premium of 7.8%, representing the long-term average
return of equities over risk-free assets, plus a size premium of 3.3%,
representing a market discount based on market capitalization. McDonald
calculated the Company's cost of equity capital to be 14.3%. Based on the
Company's historical borrowing rates, the after-tax cost of debt capital was
estimated at 5.0%. The WACC was then calculated as an average of the cost of
equity capital (weighted at 70%) and the cost of debt capital (weighted at the
Company's target debt ratio of 30%). McDonald then calculated the Company's WACC
to be 11.5%.
Economic Profit Analysis. Economic profit analysis is a valuation
methodology used to derive a valuation of a corporate entity by discounting to
the present its future expected Economic Profit. The economic profit analysis
was conducted by estimating the Company's WACC at 11.5%, the midpoint of the
range of estimates of the Company's weighted average cost of capital developed
for the discounted cash flow analysis. Using this estimate of cost of capital,
McDonald calculated the present value of Economic Profit for each of the fiscal
years ending June 30, 1999 through 2003 and the present value of the terminal
value of the Company (the calculated value of the Company at the end of the
projection period). McDonald calculated the equity value of the Company by
subtracting the Company's total debt from the sum of cash, the present values of
Economic Profit, the present value of the terminal value of the Company, and the
Company's invested capital at June 30, 1998. Based on this analysis, McDonald
calculated a per-share equity value of $9.52 per share. These values were
calculated without giving any effect to any expense savings or revenue
enhancement opportunities that may result from the Merger. McDonald compared the
implied equity value calculated using the economic profit methodology to the
consideration to be received by the Company's stockholders in the Offer and the
Merger, and noted that the consideration to be received by the Company's
stockholders approximates the implied equity value derived from the economic
profit analysis.
Inherent in discounted cash flow and economic profit analyses are the use
of a number of assumptions, including those relating to the reasonableness and
achievability of management's projections, and the subjective determination of
an appropriate terminal value and discount rate to apply to the projected cash
flows of the entity under examination. Variations in any of these assumptions or
judgments could significantly alter the results of such analyses.
Leveraged Buyout Analysis. McDonald also performed a leveraged buyout
analysis of the Company as a means of establishing the value of the Company
assuming the sale of the Company to a typical financial buyer. A leveraged
buyout ("LBO") involves the acquisition or recapitalization of a company
financed primarily by incurring indebtedness that is serviced by the post-LBO
operating cash flow of the company. McDonald used the same projections provided
by management used in its discounted cash flow and economic profit analyses and
assumed, for purposes of the LBO analysis, a leveraged capital structure (67.2%
senior and subordinated debt and 32.8% equity). Management's projections
supported a purchase price under an LBO analysis of $9.50 per share, which is
equal to the consideration to be received in the Offer and the Merger. This
purchase price and capital structure resulted in a total debt to 1998 LTM EBITDA
multiple of 3.6x and a LTM EBITDA to fixed charges ratio of 1.9x. Based on
management's projections, the LBO equity holders would earn an internal rate of
return ranging from 36.9% (assuming 85% fully diluted ownership) to 39.4%
(assuming 93.0% fully diluted ownership).
The summary set forth above does not purport to be a complete description
of the analyses performed by McDonald in arriving at the McDonald Opinion. The
preparation of a fairness opinion is a complex process not necessarily
susceptible to partial or summary description. McDonald believes that its
analysis must be considered as a whole and that selecting portions of analyses
and of the factors considered by it, without considering all such factors and
analyses, could create a misleading view of the process underlying its analyses
set forth in the McDonald Opinion. In arriving at its opinion, McDonald
considered the results of all such analyses. The analyses were prepared solely
for the purpose of providing its opinion as to the fairness, from a financial
point of view, of the consideration to be received in the Offer and the Merger
by the stockholders of the
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Company and do not purport to be appraisals or necessarily to reflect the prices
at which businesses or securities may actually be sold. None of the Comparable
Companies is identical to the Company, and none of the Comparable Transactions
is identical to the Offer and the Merger. Accordingly, an analysis of comparable
publicly traded companies and comparable acquisition transactions is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Companies and the companies involved in the Comparable Transactions
and other factors that could affect the public trading value of the Comparable
Companies or the company to which they are being compared, or the value of the
Comparable Transactions or the transaction to which they are being compared.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. As described above, McDonald's opinion and
presentation to the Board of Directors of the Company was one of many factors
taken into consideration by the Board of Directors in making its determination
to approve the Offer and the Merger.
The term "fair from a financial point of view" is a standard phrase
contained in investment banking fairness opinions and refers to the fact that
McDonald's opinion is addressed solely to the financial attributes of the
consideration to be paid in connection with the Offer and the Merger.
McDonald is a full service securities firm and as such, in the ordinary
course of its business may from time to time effect transactions for its own
account or the account of customers, and hold long or short positions in the
securities of, or in options on the securities of, the Company, General Chemical
Group, or both. Carleton, McCreary, Holmes & Co., an investment banking firm
whose operations were combined with those of McDonald subsequent to McDonald &
Company Investments, Inc.'s merger with KeyCorp, has provided certain investment
banking services to the Company in the past, for which it received customary
compensation. See Item 5__ below for a description of the fees to be paid to
McDonald.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained McDonald to render a fairness opinion in
connection with the Offer and the Merger. Pursuant to the terms of McDonalds
engagement, the Company has agreed to pay McDonald for its services an aggregate
fee of $125,000, plus expenses not to exceed $5,000, $75,000 of which became
payable for the services rendered at the November 20, 1998 Company Board meeting
and the balance of which becomes payable upon consummation of the Merger. The
Company also has agreed to indemnify McDonald and certain related parties
against certain liabilities, including liabilities under the federal securities
laws, arising out of McDonald's engagement. In the ordinary course of its
business, McDonald and its affiliates may actively trade or hold the securities
of the Company and General Chemical Group for their own account or for the
accounts of customers and, accordingly, may at any time hold a long or a short
position in such securities.
Except as described herein, 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 security holders on its behalf
concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth in Items 3 and 4 herein no transactions in Shares
have been effected during the past 60 days by the Company or, to the best
knowledge of the Company, by any of its executive officers, directors,
affiliates, or subsidiaries.
(b) To the best knowledge of the Company, (i) all of the executive officers
and directors of the Company are party to the Stockholders Agreement, currently
own in the aggregate approximately 14% of the Shares outstanding on a fully
diluted basis and (together with eight other employees of the Company who
currently own in the aggregate approximately 2.2% of the outstanding Shares on a
fully diluted basis) are obligated to tender their Shares pursuant to the Offer
in accordance with the terms of the Stockholders Agreement and (ii) none of its
executive officers, directors or other affiliates presently intends otherwise to
sell any Shares which are owned beneficially or held of record thereby. The
foregoing does not include any Shares over which, or with respect to which, any
such executive officer, director or affiliate acts in a fiduciary or
representative capacity or as to which
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any such executive officer, director or affiliate is subject to instructions
from a third party with respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in Item 3(b) and Item 4(b), the Company has not
undertaken, and there is not underway any response to the Offer which relates to
or would result in (1) an extraordinary transaction such as a merger or
reorganization, involving the Company or any subsidiary of the Company; (2) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company; (3) a tender offer for or other acquisition of
securities by or of the Company; or (4) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3 and Item 4, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in clause (1), (2), (3) or (4) of Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(I) SECTION 203 OF THE DGCL
In general, Section 203 of the DGCL ("Section 203") prevents an "Interested
Stockholder" (defined generally as a person that is the "owner" of 15% or more
of a corporation's outstanding voting stock) from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers, as set
forth in the immediately following paragraph) with a Delaware corporation for
three years following the time such person became an Interested Stockholder
unless (i) before such person became an Interested Stockholder, the board of
directors of the corporation approved the transaction in which the Interested
Stockholder became an Interested Stockholder or approved the Business
Combination; (ii) upon consummation of the transaction which resulted in the
Interested Stockholder becoming an Interested Stockholder, the Interested
Stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers and employee stock ownership plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an Interested
Stockholder, the Business Combination is (x) approved by the board of directors
of the corporation and (y) authorized at a meeting of stockholders by an
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Stockholder.
Section 203 defines "Business Combination" generally as a merger or
consolidation with an Interested Stockholder or any affiliate or associate
thereof, and certain other transactions with an Interested Stockholder or any
affiliate or associate thereof, including, without limitation, (i) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of assets
(except proportionately as a stockholder of the corporation) having an aggregate
market value equal to 10% or more of the aggregate market value of either the
aggregate value of all of the assets of the corporation or the aggregate market
value of all of the outstanding stock of the corporation; (ii) any transaction
which results in the issuance or transfer by the corporation or by certain
subsidiaries thereof of any stock of the corporation to the Interested
Stockholder, subject to certain exceptions; (iii) any transaction involving the
corporation or any majority-owned subsidiary thereof which has the effect of
increasing the proportionate share of the stock of any class or series, or
securities convertible into the stock of any class or series, of the corporation
or any such subsidiary which is owned by the Interested Stockholder (except as a
result of immaterial changes due to fractional share adjustments or as a result
of any purchase or redemption of any shares of stock not caused, directly or
indirectly, by the Interested Stockholder); or (iv) any receipt by the
Interested Stockholder of the benefit (except proportionately as a stockholder
of such corporation) of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation.
In accordance with the requirements of Section 203, the Company's Board of
Directors has approved the Merger and the Merger Agreement for the purpose of
exempting Parent and the Purchaser from the provisions of Section 203, and the
terms of the Merger Agreement, the Stockholders Agreements and the transactions
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contemplated thereby for the purpose of exempting the Merger and the other
transactions contemplated thereby from Section 203. AS A RESULT, SECTION 203
WILL NOT APPLY TO CONSUMMATION OF THE OFFER AND THE MERGER.
The foregoing summary of Section 203 of the DGCL is qualified in its
entirety by reference to the full text of that section.
(II) ARTICLE VII OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
In general, Article VII of the Company's Certificate of Incorporation
("Article VII") provides that only such affirmative vote as is required by law
and any other provision of the Company's Certificate of Incorporation is needed
to allow the Company to enter into a Business Combination (defined generally as
any merger or consolidation with an Interested Stockholder (defined below) or an
affiliate of an Interested Stockholder; any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of any assets of the Company in excess of
$2,500,000 to or with an Interested Stockholder or an affiliate of an Interested
Stockholder; the issuance or transfer by the Company to any Interested
Stockholder or any affiliate of an Interested Stockholder of any equity
securities of the Corporation or any subsidiary where such equity securities
have an aggregate fair market value of $1,000,000 or more; any reclassification
of securities, or recapitalization of the Company which has the effect of
increasing the percentage of Shares owned by an Interested Stockholder or any
affiliate of an Interested Stockholder; or the adoption of any plan or proposal
for the liquidation or dissolution of the Company with an Interested Stockholder
if the following conditions have been satisfied: (i) the consideration to be
received by the holders of Shares shall be cash or in the same form as has been
paid by the Interested Stockholder; (ii) the consideration received by the
holders of Shares in any Business Combination shall at least be equal to the
greater of: (a) the Fair Market Value (as defined in Article VII) of the Shares
on the date of the public announcement of the proposal of a Business Combination
or on the date on which the Interested Stockholder became an Interested
Stockholder, whichever is higher, multiplied by the ratio of (1) the highest per
Share price paid by the Interested Stockholder for any Shares acquired by it
within the two-year period immediately prior to the date of the public
announcement of the proposal of a Business Combination to (2) the Fair Market
Value per Share on the first day in such two-year period on which the Interested
Stockholder acquired any Shares; or (b) the highest per Share price paid by such
Interested Stockholder in acquiring any of the Shares; (iii) after becoming an
Interested Stockholder and prior to the consummation of any Business
Combination, (a) such Interested Stockholder shall not have acquired any newly
issued Shares from the Company, and (b) such Interested Stockholder shall not
have received the benefit of any loans, advances, guarantees, pledges or 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 (iv) a proxy
statement responsive to the requirements of the Exchange Act shall be mailed to
the holders of Shares for the purpose of soliciting stockholder approval of the
Business Combination and shall contain at the front thereof in a prominent place
any recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors (defined generally as persons who
were members of the Board of Directors of the Company prior to the date as of
which an Interested Stockholder acquired in excess of 10% of the Shares or any
director elected or approved by such directors) may choose to state, and an
opinion of a reputable investment banking firm as to the fairness of the terms
of such Business Combination from the point of view of the holders of Shares
other than the Interested Stockholder. For the purposes of Article VII, an
"Interested Stockholder" is defined generally as any person who is the
beneficial owner of more than 20% of the voting shares of the Company.
If conditions (i) through (iv) set forth above have not been satisfied, a
Business Combination shall require the affirmative vote of the holders of 80% of
the Shares, including a majority in interest of the holders of Shares held by
persons other than an Interested Stockholder or any Affiliate or Associate of
any Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that some lesser
percentage may be specified by law or in any agreement with any national
securities exchange or otherwise.
Notwithstanding any of the requirements set forth above, the above
requirements shall not apply to any particular Business Combination and such
Business Combination shall require only such affirmative vote, if any, as is
required by law and any other provision of the Company's Certificate of
Incorporation if such Business Combination: (i) has been approved prior to its
consummation by a majority of the Continuing Directors; or (ii) constitutes a
merger or consolidation of the Company with, or any sale or lease to or by the
Company or any
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subsidiary of any assets by or to, any corporation of which a majority of the
outstanding shares of all classes of stock entitled to vote in elections of
directors is owned of record or beneficially by the Company or its subsidiaries,
provided that this clause (ii) shall not apply to any transaction to which any
Affiliate of any Interested Stockholder is a party.
The Company's Continuing Directors have approved the terms of the Merger
and Merger Agreement, the Stockholders Agreement, and the other transactions
contemplated thereby for the purpose of exempting the Merger and the other
transactions contemplated thereby from Article VII. As a result, the above
requirements will not apply to the consummation of the Offer and the Merger.
The foregoing summary of Article VII is qualified in its entirety by
reference to the full text of that article.
(III) THE OHIO TAKEOVER ACT.
Sections 1707.041, 1707.042, 1707.043, 1707.23 and 1707.26 of the Ohio
Revised Code (collectively, the "Ohio Takeover Act") regulate tender offers. The
Ohio Takeover Act applies to the purchase of or offer to purchase any equity
security of a subject company from a resident of Ohio if, after the purchase,
the offeror would directly or indirectly be the beneficial owner of more than
10% of any class of issued and outstanding equity securities of the company (a
"Control Bid"). A subject company includes an issuer, such as the Company, that
either has its principal place of business or principal executive offices
located in Ohio or owns or controls assets located in Ohio that have a fair
market value of at least one million dollars, and that either more than ten per
cent of its beneficial or record equity security holders are resident in Ohio,
more than ten per cent of its equity securities are owned beneficially or of
record by residents in Ohio, or more than one thousand of its beneficial or
record equity security holders are resident in Ohio. A subject company, however,
need not be incorporated in Ohio. Notwithstanding the definition of subject
company contained in the Ohio Takeover Act, the Ohio Division of Securities (the
"Ohio Division"), by rule or an adjudicatory proceeding, may make a
determination that an issuer does not constitute a subject company if
appropriate review of Control Bids involving the issuer is to be made by any
regulatory authority of another jurisdiction. The Ohio Division has not adopted
any rules under this provision.
The Ohio Takeover Act prohibits an offeror from making a Control Bid for
securities of a subject company pursuant to a tender offer until the offeror has
filed specified information with the Ohio Division. In addition, the offeror is
required to deliver a copy of such information to the subject company not later
than the offeror's filing with the Ohio Division and to send or deliver such
information and the material terms of this proposed offer to all offerees in
Ohio as soon as practicable after the offeror's filing with the Ohio Division.
Within five calendar days of such filing, the Ohio Division may by order
summarily suspend the continuation of the Control Bid if it determines that the
offeror has not provided all of the specified information or that the Control
Bid materials provided to offerees do not provide full disclosure of all
material information concerning the Control Bid. If the Ohio Division summarily
suspends a Control Bid, it must schedule and hold a hearing within ten calendar
days of the date on which the suspension is imposed and must make its
determination within three calendar days after the hearing has been completed
but no later than fourteen calendar days after the date on which the suspension
is imposed. The Ohio Division may maintain its suspension of the continuation of
the Control Bid if, based upon the hearing, it determines that all of the
information required to be provided by the Ohio Takeover Act has not been
provided by the offeror, that the Control Bid materials provided to offerees do
not provide full disclosure of all material information concerning the Control
Bid, or that the Control Bid is in material violation of any provision of the
Ohio securities laws. If, after the hearing, the Ohio Division maintains the
suspension, the offeror has the right to correct the disclosure and other
deficiencies identified by the Ohio Division and to reinstitute the Control Bid
by filing new or amended information pursuant to the Ohio Takeover Act.
The Company is a subject company pursuant to the Ohio Takeover Act and the
Offer constitutes a Control Bid for securities of the Company pursuant to a
tender offer. Parent has stated that it intends to file specified information
with the Ohio Division and otherwise comply with the Ohio Takeover Act.
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(IV) ANTITRUST.
Under the provisions of the HSR Act applicable to the Offer, the
acquisition of Shares under the Offer may be consummated following the
expiration of a 15-calendar day waiting period following the filing by General
Chemical Group, on January 8, 1999, of a Notification and Report Form with
respect to the Offer, unless General Chemical Group or the Company receive a
request for additional information or documentary material from the Antitrust
Division or the FTC or unless early termination of the waiting period is
granted. General Chemical Group and the Company expect to file Notification and
Report Forms with respect to the Offer soon. If, within the initial 15-day
waiting period, either the Antitrust Division or the FTC requests additional
information or material from General Chemical Group or the Company concerning
the Offer, the waiting period will be extended and would expire at 11:59 p.m.,
New York City time, on the tenth calendar day after the date of substantial
compliance by General Chemical Group or the Company with such request. Only one
extension of the waiting period pursuant to a request for additional information
is authorized by the HSR Act. Thereafter, such waiting period may be extended
only by court order or with the consent of General Chemical Group and the
Company. The waiting period under the HSR Act may be terminated prior to its
expiration by the FTC and the Antitrust Division. General Chemical Group will
request early termination of the waiting period, although there can be no
assurance that this request will be granted. In practice, complying with a
request for additional information or material can take a significant amount of
time. In addition, if the Antitrust Division or the FTC raises substantive
issues in connection with a proposed transaction, the parties frequently engage
in negotiations with the relevant governmental agency concerning possible means
of addressing those issues and may agree to delay consummation of the
transaction while such negotiations continue. Expiration or termination of the
applicable waiting period under the HSR Act is a condition to the Purchaser's
obligation to accept for payment and pay for Shares tendered pursuant to the
Offer.
The Merger would not require an additional filing under the HSR Act if the
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed acquisition
of the Company. At any time before or after the Purchaser's acquisition of
Shares pursuant to the Offer, the FTC or the Antitrust Division could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or the consummation of the Merger or seeking the divestiture of Shares
purchased by the Purchaser or the divestiture of substantial assets of the
Company or its subsidiaries or General Chemical Group or its subsidiaries.
Private parties and state attorneys general may also bring legal action under
federal or state antitrust laws under certain circumstances. There can be no
assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such a challenge is made, of the result thereof.
29
<PAGE> 30
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 Offer to Purchase dated January 13, 1999.
2 Agreement and Plan of Merger dated as of January 7, 1999 by
and among Parent, the Purchaser and the Company.
3 Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 thereunder.*
4 Defiance, Inc. 1985 Stock Option Plan, as amended June 11,
1987.
5 Defiance, Inc. 1989 Stock Option Plan, as amended January
20, 1993.
6 Defiance, Inc. 1998 Stock Option Plan (attached as Exhibit A
to the Company's Schedule 14A, filed on September 17, 1998,
file no. 000-14044), incorporated herein by reference.
7 Defiance, Inc. 1994 Stock Option Plan for Non-Employee
Directors (filed as Exhibit A to the Company's Proxy
Statement for the November 16, 1994 Annual Meeting of
Shareholders, file no. 000-14044), incorporated herein by
reference.
8 Intentionally omitted.
9 Employment Agreement dated February 28, 1992 between the
Company and Jerry A. Cooper, as amended July 11, 1996.
10 Defiance, Inc. Change of Control Policy (filed as Exhibit
10-bm to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998, file no. 000-14044),
incorporated herein by reference.
11 Letter agreement dated January 7, 1999 between the
Purchaser, the Company and Jerry A. Cooper.
12 Letter agreement dated January 7, 1999 between the
Purchaser, the Company and Michael J. Meier.
13 Letter agreement dated January 7, 1999 between the
Purchaser, the Company and Clifford Schumacher.
14 Letter agreement dated January 7, 1999 between the
Purchaser, the Company and Benjamin Scherschel.
15 Letter agreement dated January 7, 1999 between the
Purchaser, the Company and Fred Burke.
16 Letter agreement dated January 7, 1999 between the
Purchaser, the Company and Michael Madden.
17 Stockholders Agreement, dated as of January 7, 1999, by and
among Parent, the Purchaser, the directors and executive
officers, and certain other employees of the Company or its
subsidiaries.
18 Opinion of McDonald Investments Inc. dated January 7,
1999.**
19 Letter to Stockholders dated January 13, 1999.
20 Press Release issued by General Chemical Group and the
Company on January 8, 1999.
21 Confidentiality Agreement between Company and General
Chemical Group dated April 23, 1998.
</TABLE>
- ---------------
* Included as Annex A hereto.
** Included as Annex B hereto.
30
<PAGE> 31
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.
DEFIANCE, INC.
Date: January 13, 1999
By: /s/ Michael J. Meier
-----------------------------------
Name: Michael J. Meier
Title: Chief Financial Officer
31
<PAGE> 32
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 33
ANNEX A
DEFIANCE, INC.
1111 Chester Avenue, Suite 750
Cleveland, Ohio 44114
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 January 13, 1999, as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Defiance, Inc. (the "Company") to the holders of record of
shares of common stock, par value $0.05 per share (the "Shares"), of the
Company. Capitalized terms used in this Information Statement and not otherwise
defined herein shall have the meanings ascribed thereto in the Schedule 14D-9.
You are receiving this Information Statement in connection with the possible
election of persons designated by the Purchaser (as defined below) to a majority
of the seats on the board of directors of the Company (the "Board of Directors"
or the "Board").
On January 7, 1999, New Hampshire Oak, Inc., a Delaware corporation
("Parent"), its wholly-owned direct subsidiary, DN Acquisition Corporation, a
Delaware corporation (the "Purchaser"), and the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, and
subject to the terms and conditions of which, (i) Parent will cause the
Purchaser to commence a tender offer (the "Offer") for all of the issued and
outstanding Shares, at a price per Share of $9.50, net to the seller in cash and
without interest thereon, and (ii) the Purchaser will be merged with and into
the Company (the "Merger"). If the Offer and the Merger are completed, the
Company will become a wholly owned subsidiary of Parent, which is a wholly owned
subsidiary of The General Chemical Group Inc. ("General Chemical Group").
The Merger Agreement requires the Company to use its best efforts to allow
the Purchaser to designate directors to be elected to the Board of Directors
under the circumstances described therein. See "Board of Directors and Executive
Officers of the Company."
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder.
YOU ARE URGED TO READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT,
HOWEVER, REQUIRED TO TAKE ANY ACTION AT THIS TIME.
Pursuant to the Merger Agreement, the Purchaser commenced the offer on
January 13, 1999. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on Thursday, February 11, 1999, unless the Offer is extended, at
which time, if all conditions to the Offer have been satisfied or waived, the
Purchaser will purchase all of the Shares validly tendered pursuant to the Offer
and not properly withdrawn.
The information contained in this Information Statement (including any
information incorporated by reference) concerning Parent, the Purchaser and the
Purchaser Designees (as defined below) has been furnished to the Company by
Parent and the Purchaser, and the Company assumes no responsibility for the
accuracy or completeness of such information.
INFORMATION WITH RESPECT TO THE COMMON STOCK
The Shares are the only class of voting securities of the Company currently
outstanding. As of the close of business on January 7, 1999, there were
6,003,749 Shares outstanding, each of which is entitled to one vote on each
matter to be considered at a meeting of stockholders, and 440,814 Shares
issuable upon exercise of outstanding options, of which 221,905 are currently
exercisable and the remaining 218,909 would be exercisable upon a change of
control of the Company.
A-1
<PAGE> 34
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
GENERAL
Under the Company's Certificate of Incorporation, the Board of Directors is
divided into three classes as nearly equal in number as possible, with the term
of office of one class expiring each year. There are currently seven directors
of the Company. The terms of the current classes of directors expire in 1999
(two directors), 2000 (three directors) and 2001 (two directors) respectively,
in each case at the annual meeting of stockholders held in such year or when
their respective successors are elected and qualified or until their earlier
death, resignation or removal.
PURCHASER DESIGNEES TO THE COMPANY'S BOARD OF DIRECTORS
Pursuant to the Merger Agreement, and subject to compliance with Section
14(f) of the Exchange Act and Rule 14f-1 thereunder, promptly upon purchase by
the Purchaser of at least a majority of the outstanding Shares on a
fully-diluted basis pursuant to the Offer and from time to time thereafter, the
Company will use its best efforts to allow the Purchaser to designate up to the
minimum number of directors (the "Purchaser Designees") necessary in order for
the result (expressed as a fraction) derived by dividing the number of Purchaser
Designees by the total number of directors constituting the whole Board to be at
least equal to the result (expressed as a fraction) derived by dividing the
number of Shares then held by the Purchaser by the total number of Shares then
outstanding; provided, however, that until the Effective Time of the Merger, the
Board of Directors will have at least two (2) directors who are neither
designated by the Purchaser nor otherwise affiliated with Parent or the
Purchaser nor employees of the Company or any of its subsidiaries ("Independent
Directors"). The Company has agreed to use its best efforts promptly, at the
Company's election, either to increase the size of the Board or to secure the
resignations of such number of directors as is necessary to enable the Purchaser
Designees to be elected to the Board and to cause the Purchaser Designees to be
so elected.
Following the election or appointment of the Purchaser Designees, and prior
to the Effective Time of the Merger, any amendment of the Merger Agreement or of
the Certificate of Incorporation or By-laws of the Company, any termination of
the Merger Agreement by the Company, any extension by the Company of the time
for the performance of any of the obligations or other acts of Parent or the
Purchaser and any waiver of any of the Company's rights under the Merger
Agreement will require the concurrence of a majority of the Independent
Directors then in office.
The Company currently expects that the addition of Purchaser Designees to
the Board of Directors will be accomplished by the resignation of Thomas H.
Roulston II, Scott Roulston, John D. Ong, Jerry A. Cooper and George H. Lewis
III as directors. Richard W. Lock and James E. Heighway would remain as
directors prior to the Effective Time of the Merger.
Parent and the Purchaser have informed the Company that the Purchaser
Designees will be selected from among the persons set forth on the following
table, which sets forth the name, age, present principal occupation and
employment and five year employment history of each of the persons whom the
Purchaser has indicated may be designated as a Purchaser Designee pursuant to
the Merger Agreement. Purchaser has informed the Company that each person named
below has consented to act as a director of the Company, if so designated. The
mailing
A-2
<PAGE> 35
address for each person named below is c/o The General Chemical Group Inc.,
Liberty Lane, Hampton, NH 03842.
<TABLE>
<S> <C>
Paul M. Meister Mr. Meister has been Vice Chairman of the Board of General
Age 46 Chemical Group since 1998 and a director since 1996. Mr.
Meister has been Vice Chairman of the Board and Executive
Vice President of Fisher Scientific International Inc.
("Fisher") (medical equipment and supplies distributor)
since March 1998, Chief Financial Officer of Fisher since
prior to 1993 and Senior Vice President from prior to 1993
to 1998. Mr. Meister was Senior Vice President of Abex Inc.
(aerospace products and services) ("Abex") from prior to
1993 to 1995. Mr. Meister is also a director of Minerals
Technologies Inc. and M&F Worldwide Corp.
Richard R. Russell Mr. Russell has been President and Chief Executive Officer
Age 56 and a director of General Chemical Group since 1994. Mr.
Russell has been President and Chief Executive Officer and a
director of General Chemical Corporation ("GCC") since prior
to 1993.
Todd M. DuChene Mr. DuChene has been Vice President, General Counsel and
Age 35 Secretary of Fisher since 1996, Vice President of Latona
Associates, Inc. and Secretary of General Chemical Group
since 1998. Previously, he was Senior Vice President,
General Counsel and Secretary of Officemax, Inc. from 1995
to 1996 and Vice President, General Counsel and Assistant
Secretary from 1994 to 1995. Prior to joining Officemax,
Inc., Mr. DuChene was an associate with Baker & Hostetler
from prior to 1993.
Ralph M. Passino Mr. Passino has been Vice President and Chief Financial
Age 47 Officer of General Chemical Group since 1994. Mr. Passino
has been Chief Financial Officer and Vice President of
Administration of General Chemical Group since prior to 1993
and director since 1994.
Paul M. Montrone Mr. Montrone, Chairman of the Board since 1994, has been a
Age 57 director of General Chemical Group since prior to 1993 and
was President from prior to 1993 to 1994. Mr. Montrone has
been Chairman of the Board of Fisher since March 1998, Chief
Executive Officer and a director of Fisher since prior to
1993 and was President from prior to 1993 to 1998. Mr.
Montrone was Vice Chairman of Abex from prior to 1993 until
June 1995. Mr. Montrone is also a director of USA Waste
Management Inc.
</TABLE>
The Purchaser has informed the Company that none of the executive officers
or directors of Parent or the Purchaser (i) currently is a director of, or holds
any position with, the Company or any of its subsidiaries or (ii) has a familial
relationship with any director or executive officer of the Company or any of its
subsidiaries. The Company has been advised that, other than pursuant to the
Stockholders Agreement, to the best knowledge of General Chemical Group, Parent
and the Purchaser, none of General Chemical Group's, Parent's or the Purchaser's
directors or executive officers owns any equity securities (or rights to acquire
any equity securities) of the Company, and none has been involved in any
transactions with the Company or any of its directors, executive officers,
affiliates or associates that are required to be disclosed pursuant to the rules
and regulations of the Securities and Exchange Commission.
It is expected that the Purchaser Designees may assume office as promptly
as practicable following the purchase of a majority of the Shares pursuant to
the Offer and that they will constitute a majority of the Board of Directors.
A-3
<PAGE> 36
CURRENT DIRECTORS OF THE COMPANY
Set forth below is certain information regarding the directors of the
Company as of January 7, 1999.
<TABLE>
<S> <C>
Directors Whose Terms Expire in 1999
Thomas H. Roulston II Mr. Roulston has served as Chairman of the Board of the
Age 65 Company since 1990. Mr. Roulston has been the Chairman of
Director since 1990 the Board of Roulston & Company, Inc. since 1990, and served
as President of Roulston & Company, Inc. from 1963 until
1990. Roulston & Company, Inc. is a registered investment
adviser located in Cleveland, Ohio. He is also a director of
American Stone Industries, Inc.
Scott D. Roulston Mr. Roulston has been the President, Chief Executive Officer
Age 41 and a director of Roulston & Company, Inc. since 1990, and
Director since 1990 served as Senior Vice President of Roulston & Company, Inc.
from 1986 until 1990. Mr. Roulston is the son of Thomas H.
Roulston II, Chairman of the Board.
Directors Whose Terms Expire in 2000
James E. Heighway Mr. Heighway has been President and Chief Executive Officer
Age 52 of MJM Industries, Inc. since 1994. MJM Industries is a
Director since 1994 cable and electronic component assemblies firm, located in
Fairport, Ohio. From 1985 until 1994 he served as President
and Chief Executive Officer of Mueller Electric Company,
Inc., a manufacturer of electronic test and instrumentation
accessories located in Cleveland, Ohio.
George H. Lewis III Mr. Lewis has been President, Chief Executive Officer and
Age 61 Chairman of the Board of Akron Porcelain & Plastics Company
Director since 1994 of Akron, Ohio since 1975, and has been employed there since
1959. Akron Porcelain & Plastics is a custom molder and
assembler of ceramic and plastic components for the
automotive, appliance and electrical distribution
industries.
John D. Ong Mr. Ong retired as Chairman of the Board of the BF Goodrich
Age 65 Company in July 1997. He received his B.A. and M.A. degrees
Director since 1997 from Ohio State University and his LL.B. degree from Harvard
Law School. He joined the BF Goodrich Company in 1961 as
assistant counsel. He was elected Executive Vice President
and a Director in June 1973, Vice Chairman of the Board in
April 1974, President in April 1975 and became Chairman of
the Board and Chief Executive Officer in July 1979. He
relinquished the title of Chief Executive Officer in
December 1996 and retired as Chairman of the Board in July
1997. He is also a director of Ameritech Corporation, ASARCO
Incorporated, Cooper Industries, Inc., The Geon Company, the
Kroger Co., Marsh & McLennan Companies, Inc. and TRW Inc. In
addition, he is a senior member of the Conference Board and
a member of The Business Council. Mr. Ong is also a trustee
of the University of Chicago and the John S. and James L.
Knight Foundation, and chairman of The Musical Arts
Association (The Cleveland Orchestra).
</TABLE>
A-4
<PAGE> 37
<TABLE>
<S> <C>
Directors Whose Terms Expire in 2001
Jerry A. Cooper Mr. Cooper has served as President and Chief Executive
Age 60 Officer of the Company since 1992. From 1990 until joining
Director since 1992 the Company in 1992, Mr. Cooper was President and Chief
Executive Officer of Bettcher Manufacturing Corporation.
Bettcher is a metal forming company serving various
industries, located in Cleveland, Ohio. From 1977 until
1990, he was President and General Manager of Mather Seal
Company, located in Milan, Michigan. Mather Seal is a
manufacturer of Teflon(TM) seals and specialty products for
industry, and is a subsidiary of Federal-Mogul Corporation.
Richard W. Lock Mr. Lock has been the managing director of Magnus Associates
Age 67 since 1989. Magnus Associates is a management consulting
Director since 1989 firm located in Sylvania, Ohio Mr. Lock served as Vice
President and Treasurer of Owens-Illinois, Inc. from 1984
until 1988. Mr. Lock began his career with Owens-Illinois in
1962, and served in various capacities including Director of
Corporate Planning, Director of Corporate Systems, and
General Manager of an operating division.
</TABLE>
Information as to the directors' beneficial ownership of Shares is set
forth below, at "Equity Securities and Certain Holders Thereof."
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, established in 1990 and consisting entirely of
nonemployee directors, met three times in fiscal 1998. The committee reviews
external and internal audit plans and activities, reviews the Company's annual
financial statements and reviews the Company's system of internal and financial
controls. The committee also approves all significant fees for audit,
audit-related and nonaudit services provided by the independent auditors and
recommends the annual selection of independent auditors to the Board. Members of
the audit committee are Richard W. Lock (chairman), George H. Lewis III and
James E. Heighway.
The Compensation Committee, established in 1990 and consisting entirely of
nonemployee directors, met one time in fiscal 1998. The committee administers
the incentive, benefit and stock option plans of the Company and its
subsidiaries, approves changes in senior executive compensation and recommends
changes in the Company's incentive, benefit and stock option plans to the Board.
The committee also recommends the retainer and attendance fees for nonemployee
directors. Members of the compensation committee are Scott D. Roulston
(chairman), James E. Heighway and John D. Ong.
The Executive Committee, established in 1992 and consisting of a majority
of nonemployee directors, met three times in fiscal 1998. The committee acts
upon matters requiring Board action during the intervals between Board meetings
and includes all the functions of the Board of Directors other than the filling
of vacancies in the Board of Directors or in any of its committees. Members of
the executive committee are Thomas H. Roulston II (chairman), Jerry A. Cooper,
Richard W. Lock and Scott D. Roulston.
The Investment Committee, established in 1993 and consisting entirely of
nonemployee directors, met one time in fiscal 1998. The committee provides
guidance to the administrator and trustees of the defined benefit pension plan
of the Company's Defiance Precision Products, Inc. subsidiary, including setting
investment guidelines, defining investment mix, selecting fund managers and
monitoring fund managers' performance. Members of the investment committee are
James E. Heighway (chairman), Richard W. Lock and George H. Lewis III.
The Nominating Committee, established in 1990 and consisting entirely of
nonemployee directors, met one time in fiscal 1998. The committee recommends
candidates for Board and Board Committee membership. Members of the nominating
committee are Thomas H. Roulston II (chairman), George H. Lewis III and Scott D.
Roulston. The Nominating Committee of the Board of Directors considers nominees
recommended by stockholders for election at meetings of the stockholders.
Because the only new directors to be appointed
A-5
<PAGE> 38
pursuant to the Merger Agreement are those designated by the Purchaser, the
nominating committee is not considering other nominees at this time.
ATTENDANCE AT MEETINGS
The Board of Directors of the Company met five times during fiscal 1998.
During fiscal 1998 each director attended at least 75 percent of the meetings of
the Board of Directors and any Committee of the Board of Directors on which he
served.
DIRECTOR COMPENSATION
During fiscal 1998, no directors' fees were paid to directors who were
employees of the Company or any of its subsidiaries. Nonemployee directors,
other than the Chairman, received an annual fee of $12,000 and a meeting fee of
$1,000 for each Board meeting attended. The Chairman received an annual fee of
$18,000 and a meeting fee of $1,500 for each Board meeting attended. Nonemployee
directors also received a meeting fee of $800 for each committee meeting
attended, except the committee chairman, who received a meeting fee of $1,100
for each committee meeting attended. All directors were reimbursed for
reasonable out of pocket expenses incurred in connection with their services as
directors. Each nonemployee director also receives a nondiscretionary automatic
grant of nonqualified options to purchase 2,000 Shares pursuant to the 1994
Nonemployee Director Stock Option Plan upon becoming a director of the Company
and thereafter on July 1 of each year of continuing service, with an option
exercise price equal to the fair market value of the underlying Shares on the
date of grant.
CERTAIN RELATIONSHIPS
Mr. Scott D. Roulston is the son of Mr. Thomas H. Roulston II. Otherwise,
no director has any family relationship to any other director of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the compensation committee are all nonemployee directors who
have never been officers or employees of the Company or any of its subsidiaries.
Roulston & Company, Inc., of which Mr. Thomas H. Roulston II is Chairman of
the Board and Mr. Scott D. Roulston is President, managed an average of 65% of
the assets of the defined benefit pension plan of the Company's Defiance
Precision Products, Inc. subsidiary during fiscal 1998, for which it received
fees of approximately $41,000. Roulston & Company, Inc. has continued to provide
these services to date during the fiscal year ending June 30, 1999 ("fiscal
1999"), and it is anticipated that it will continue to do so during the balance
of fiscal 1999, subject to any change determined by Purchaser after completion
of the Offer.
CURRENT OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas H. Roulston II 65 Chairman of the Board and Director
Jerry A. Cooper 60 President, Chief Executive Officer and Director
Michael J. Meier 44 VP-Finance, Chief Financial Officer, Secretary and
Treasurer
James L. Treece 61 Chief Accounting Officer and Assistant Treasurer
Carl A. Rispoli 53 Corporate Controller and Assistant Secretary
Clifford Schumacher 46 VP-Marketing and Corporate Development
</TABLE>
Thomas H. Roulston II has served as Chairman of the Board since in 1990.
Mr. Roulston has been the chairman of the board of Roulston & Company, Inc. of
Cleveland, Ohio since 1990, and served as president of
A-6
<PAGE> 39
Roulston & Company, Inc. from 1963 until 1990. Roulston & Company, Inc. is a
registered investment advisor. He is also a director of American Stone
Industries, Inc.
Jerry A. Cooper joined the Company in 1992 as President and Chief Executive
Officer. From 1990 until joining the Company, Mr. Cooper was president and chief
executive officer of Bettcher Manufacturing Corporation. Bettcher is a metal
forming company serving various industries, located in Cleveland, Ohio. From
1977 to 1990 he was president and general manager of Mather Seal Company, a
subsidiary of Federal-Mogul Corporation. Mather Seal is a manufacturer of
Teflon(TM) seals and specialty products for industry, located in Milan,
Michigan.
Michael J. Meier joined the Company in 1988 as Corporate Controller, and in
1990 was named VP-Finance, Chief Financial Officer, Secretary, and Treasurer.
Prior to joining the Company, Mr. Meier held various positions in both public
accounting and private industry accounting and finance.
James L. Treece joined the Company in 1990 as Corporate Controller and in
1992 was named Chief Accounting Officer and Assistant Treasurer. Prior to
joining the Company, Mr. Treece was assistant treasurer of HCR Corporation, a
publicly-held health care company, from 1981 until 1989, and from 1977 until
1981 was controller of Wolfe Industries Construction Company, which became part
of HCR Corporation.
Carl A. Rispoli joined the Company in 1997 as Corporate Controller and
Assistant Secretary. Since 1996 Mr. Rispoli had been self-employed as a
management consultant. From 1984 to 1995 Mr. Rispoli held various financial and
operating positions with Brush Wellman, Inc., including divisional controller,
divisional director of materials and planning, plant director of operations and
director of corporate information systems. Brush Wellman is a supplier of
high-performance materials with a focus on beryllium-based materials.
Clifford Schumacher joined the Company in 1998 as VP-Marketing and
Corporate Development. Prior to joining the Company, Mr. Schumacher was
responsible for marketing and business development for ACMI, Inc., a
manufacturer of aluminum automotive components located in Southfield, Michigan.
Prior to joining ACMI in 1995 he worked for Alcan Aluminum for seven years,
which included two years as business development manager and three years as
business manager for subsidiaries of Alcan. Earlier in his career he was with
E.I. Du Pont de Nemours, Himont Plastics and Ford Motor Company.
No executive officer has any family relationship to any other executive
officer or director of the Company, except Thomas H. Roulston II, who is the
father of Scott D. Roulston, a director of the Company. Each executive officer
holds office until the first meeting of the Board of Directors of the Company
following the annual meeting of stockholders of the Company and his successor
has been elected and qualified, or until his earlier resignation or removal from
office.
A-7
<PAGE> 40
EQUITY SECURITIES AND CERTAIN HOLDERS THEREOF
BENEFICIAL OWNERSHIP OF FIVE PERCENT OR GREATER SHAREHOLDERS
The following table sets forth beneficial owners known to the Company of
five percent or more of the Company's outstanding Shares as of January 7, 1999.
All Shares shown in the table reflect sole voting and investment power unless
otherwise indicated.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED TOTAL SHARES
------------------- ------------------ ------------
<S> <C> <C>
David L. Babson and Company Incorporated (1) 677,400 11.3%
One Memorial Drive
Cambridge, MA 02142
Wellington Management Company, LLP (2) 633,000 10.5%
75 State Street
Boston, MA 02109
Jerry A. Cooper (3) 520,028 8.5%
1111 Chester Avenue, Suite 750
Cleveland, OH 44114
Dimensional Fund Advisors Inc. (4) 378,800 6.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
ROI Capital Management, Inc.(5) 337,900 5.6%
17 E. Sir Francis Drake Blvd., Suite 225
Larkspur, CA 94939
First Manhattan Co. (6) 337,510 5.60%
437 Madison Avenue
New York, NY 10022
</TABLE>
- ---------------
1. Based upon information available on Nasdaq Online as of January 6, 1999. The
Schedule 13G filed by David L. Babson and Company Incorporated ("Babson") as
of July 31, 1998 with the Securities and Exchange Commission in its capacity
as an Investment Adviser registered under Section 203 of the Investment
Advisers Act of 1940 indicated that Babson had sole voting and dispositive
power with respect to 671,100 Shares.
2. Based upon information available on Nasdaq Online as of January 6, 1999. The
Schedule 13G filed by Wellington Management Company LLP ("Wellington") as of
December 31, 1997 with the Securities and Exchange Commission in its capacity
as an Investment Adviser registered under Section 203 of the Investment
Advisers Act of 1940 indicated that Wellington had sole voting power with
respect to no Shares, shared voting power with respect to 388,000 Shares,
sole dispositive power with respect to no Shares and shared dispositive power
with respect to 633,000 Shares.
3. Mr. Cooper is a director and executive officer of the Company. Please refer
to the table regarding directors and executive officers for ownership detail.
4. Based upon information available on Nasdaq Online as of January 6, 1999. The
Schedule 13G filed by Dimensional Fund Advisors Inc. ("Dimensional") as of
December 31, 1997 with the Securities and Exchange Commission indicated that
Dimensional is a registered investment adviser, is deemed to have beneficial
ownership of 383,800 Shares of the Company as of December 31, 1997, all of
which Shares are held in portfolios of DFA Investment Dimensions Group, Inc.,
a registered open-end investment company, or in series of The DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and the DFA
Participating Group Trust, investment vehicles for qualified employee benefit
plans, all of which Dimensional Fund Advisors, Inc. serves as investment
manager. Dimensional disclaims beneficial ownership of all such Shares. The
schedule indicated that Dimensional had sole voting power with respect to
237,300 Shares, shared voting power with respect to no Shares, sole
dispositive power with respect to 383,800 Shares and shared dispositive power
with respect to no Shares. Persons who are officers of Dimensional also serve
as officers of
A-8
<PAGE> 41
DFA Investment Dimensions Group, Inc. (the "Fund") and the DFA Investment Trust
Company (the "Trust"), each an open-end management investment company registered
under the Investment Company Act of 1940. In their capacity as officers of the
Fund and the Trust, these persons have the power to vote 65,800 additional
Shares which are owned by the Fund and 80,700 Shares which are owned by the
Trust (both included in sole dispositive power above).
5. Based upon information available on Nasdaq Online as of January 6, 1999. The
Schedule 13G filed by ROI Capital Management, Inc. ("ROI") on June 19, 1998
with the Securities and Exchange Commission in its capacity as an Investment
Adviser registered under Section 203 of the Investment Advisers Act of 1940
indicated that ROI had sole voting and dispositive power with respect to all
337,900 Shares. Mark T. Boyer and Mitchell J. Soboleski, the sole
shareholders of ROI, are deemed to be the beneficial owners of the 337,900
Shares pursuant to their ownership interests in ROI.
6. Based upon information available on Nasdaq Online as of January 6, 1999. The
Shares held by First Manhattan Co. ("First Manhattan") are held in its
capacity as a Broker or Dealer registered under Section 15 of the Securities
Exchange Act of 1934 and an Investment Adviser registered under Section 203
of the Investment Advisers Act of 1940. The Schedule 13G filed by First
Manhattan as of December 31, 1997 with the Securities and Exchange Commission
indicated that First Manhattan had sole voting power with respect to 34,500
Shares, shared voting power with respect to 352,735 Shares, sole dispositive
power with respect to 34,500 Shares and shared dispositive power with respect
to 374,085 Shares. The schedule also indicated that 8,000 Shares were owned
by family members of general partners of First Manhattan and stated that
First Manhattan disclaimed dispositive power as to 4,000 of such Shares and
beneficial ownership as to 4,000 of such Shares.
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of Shares beneficially owned by
each director and executive officer of the Company as of January 7, 1999. All
Shares shown in the table reflect sole voting and investment power unless
otherwise indicated.
<TABLE>
<CAPTION>
ADDITIONAL SHARES TOTAL SHARES AS
DIRECTLY INDIRECTLY DEEMED PERCENT OF
BENEFICIAL OWNER HELD HELD BENEFICIALLY OWNED(1) TOTAL SHARES OUTSTANDING SHARES(2)
---------------- -------- ---------- --------------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Jerry A. Cooper (3) 422,446 14,900 82,682 520,028 8.5%
Thomas H. Roulston II (4) 117,613 53,273 6,000 176,886 2.9%
Michael J. Meier 5,210 27,077 32,287 0.5%
Scott D. Roulston 8,888 6,000 14,888 0.2%
John D. Ong 10,000 2,000 12,000 0.2%
George H. Lewis III 5,000 6,000 11,000 0.2%
James E. Heighway (5) 3,000 1,000 6,000 10,000 0.2%
Richard W. Lock 4,000 6,000 10,000 0.2%
James L. Treece 3,300 3,250 6,550 0.1%
Carl A. Rispoli 3,000 3,000 0.0%
Clifford Schumacher 0.0%
------- ------ ------- ------- -----
All directors and executive
officers as a group (11
persons) 582,457 69,173 145,009 796,639 13.0%
</TABLE>
- ---------------
1. Shares subject to options exercisable within 60 days following January 7,
1999.
2. Based on 6,003,749 Shares outstanding on January 7, 1999, adjusted for the
Shares subject to options exercisable within 60 days following January 7,
1999 held either by the named individuals or by the group as a whole.
3. Indirect holdings include 14,900 Shares held by Mr. Cooper's wife. Mr. Cooper
disclaims beneficial ownership in these Shares.
A-9
<PAGE> 42
4. Indirect holdings include 53,273 Shares held by Mr. Roulston's wife. Mr.
Roulston disclaims beneficial ownership in these Shares.
5. Indirect holdings include 1,000 Shares held by a trust for Mr. Heighway's
granddaughter of which Mr. Heighway is the trustee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and greater than ten percent stockholders to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"), and to furnish the Company with copies of all such
filings. Based solely on its review of copies of these reports furnished to the
Company and, where applicable, any written representation that no reports were
required, the Company believes during fiscal 1998 all Section 16(a) filing
requirements were met.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation during
each of the Company's last three fiscal years for the Company's Chief Executive
Officer and other executive officers whose annual salary and bonus exceeded
$100,000 during fiscal 1998 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-
TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS(#) ($)(3)
- --------------------------- ---- --------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper 1998 275,625 182,326 -- 34,760 79,111
President and CEO 1997 262,500 157,763 -- 0 74,374
1996 262,500 135,135 -- 37,048 89,408
Michael J. Meier 1998 153,000 37,409 -- 7,700 17,371
VP-Finance, CFO, 1997 129,000 35,909 -- 10,000 15,647
Secretary, Treasurer 1996 125,500 28,414 -- 9,000 7,768
</TABLE>
- ---------------
1. Based on service during the fiscal years indicated, though not paid until
after the fiscal year.
2. The value of perquisites and other personal benefits for each Named Executive
Officer in each year was less than reporting thresholds established by the
SEC.
3. Includes Company contributions to a 401(k) plan, life insurance premiums,
long-term disability insurance premiums, and Company contributions to the
Defiance, Inc. Supplemental Executive Retirement Plan ("SERP") and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan ("SSDCP")
as follows:
<TABLE>
<CAPTION>
401(k) LIFE LONG-TERM
PLAN INSURANCE DISABILITY SERP SSDCP TOTAL
------ --------- ---------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mr. Cooper:
1998 4,538 5,584 6,148 50,432 12,409 79,111
1997 7,000 5,010 6,148 47,716 8,500 74,374
1996 7,388 4,170 6,148 60,000 11,702 89,408
Mr. Meier:
1998 6,454 334 10,075 508 17,371
1997 4,830 284 9,265 1,268 15,647
1996 6,284 273 1,211 7,768
</TABLE>
A-10
<PAGE> 43
The SERP was adopted during fiscal 1995 to provide retirement benefits on a
nonqualified basis for certain key executives. This is an unfunded plan, the
obligations of which are to be paid out of the general funds of the Company.
Under this plan, the Company sets aside a percentage of each participant's
salary and bonus earned for the fiscal year (nine to twelve percent for the CEO
and six to eight percent for all other participants, based upon the
participant's age) in an account in the name of the participant the following
fiscal year. This plan was adopted retroactive to April 1, 1992 for the CEO (his
date of hire) and effective July 1, 1995 for all other participants. Partial
vesting begins after five years of service, with full vesting after ten years of
service or at retirement. Interest is accrued annually at the percentage change
in the Consumer Price Index. The SERP provides that in the event a participant
experiences a termination due to a change of control of the Company, the Company
shall, at such time, pay the such participant a lump sum consisting of the value
of the participant's accounts under the SERP as if he were fully vested.
Under the SSDCP, also adopted during fiscal 1995, an amount equal to the
difference between the amount that would have been allocated to a participant's
401(k) account as Company contributions, in the absence of legislation limiting
such allocations, and the amount actually allocated is added to the
participant's account. Partial vesting begins after two years of service, with
full vesting after six years of service or retirement. Interest is accrued
annually at the Company's long-term borrowing rate. The SSDCP provides that in
the event of a change of control, the Company shall pay to each participant a
lump sum consisting of the value of the participant's accounts under the SSDCP
as if the participant fully vested, and the amount shall be paid at the time of
termination following the change of control.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted under the 1989 Stock Option Plan during fiscal 1998 to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
NUMBER OPTIONS VALUE AT ASSUMED
OF GRANTED EXERCISE ANNUAL RATES OF STOCK
SECURITIES TO OR BASE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE OPTION TERM (2)
OPTIONS IN FISCAL ($/SHARE) EXPIRATION ----------------------
NAME GRANTED YEAR (1) DATE 5% ($) 10% ($)
---- ---------- ---------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper 34,760 25.92% $8.00 7/1/2007 174,883 443,188
Michael J. Meier 7,700 5.74% $8.00 7/1/2007 38,740 98,175
</TABLE>
- ---------------
1. Exercise prices are equal to the fair market value of the Shares on the date
of grant. These options become exercisable as follows: one-fourth one year
after the date of grant, an additional one-fourth two years after the date of
grant, an additional one-fourth three years after the date of grant and the
remaining one-fourth four years after the date of grant.
2. The potential realizable value of each grant of options assuming that the
market price of the Shares from the date of grant to the end of the option
term (ten years) appreciates at an annualized rate of 5% and 10%. These
assumed rates have been suggested by the SEC and are not intended to forecast
actual future stock prices. No gain to the optionee is possible without an
increase in stock price, which will also benefit all stockholders.
A-11
<PAGE> 44
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table summarizes options which were granted under the 1989
Stock Option Plan which were exercised during fiscal 1998 and presents the value
of unexercised options held by each of the Named Executive Officers at fiscal
year end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED
ACQUIRED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($) (1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper 45,796 97,317 61,773 46,749(2) 123,466 41,898
Michael J. Meier 7,633 18,128 18,819 17,367(3) 38,055 24,017
</TABLE>
- ---------------
1. The value of unexercised options represents the difference between the
closing price of the Shares on June 30, 1998 of $8.50 per Share and the
exercise price of the option, multiplied by the number of underlying Shares.
2. 20,949 option shares are exercisable commencing July 1, 1998.
3. 4,925 option shares are exercisable commencing July 1, 1998.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The Company did not have any long-term incentive plans in effect during
fiscal 1998 other than the 1989 Stock Option Plan.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an agreement with Mr. Cooper to enter into a
post-termination obligation to consult and not to compete with the Company for
one year if employment is terminated for reasons other than voluntary
resignation or cause (each as defined in the agreement). This agreement also
provides for continuation of base salary, incentive compensation and benefits
for two years in the event employment is terminated as the result of a change of
control of the Company, after any consulting and non-compete agreements have
been satisfied. In addition, the Company has a Change of Control Policy (the
"Change of Control Policy") applicable to Mr. Meier and to Messrs. Clifford
Schumacher, Benjamin Scherschel, Fred Burke and Michael Madden (each of whom,
Mr. Meier and Mr. Schumacher excepted, is President of one of the Company's
subsidiaries) that provides for the continuation of base salary, incentive
compensation and benefits for a period of two years in the event employment is
terminated as a result of change of control of the Company.
For purposes of the above, a change of control will be considered to have
occurred if, as the result of a tender offer, exchange offer, merger,
consolidation, sale of assets, contested election or any combination of the
foregoing or other similar extraordinary transactions, the persons, who are
directors one year prior to the first of any such events to occur, shall cease
to constitute a majority of the Board of Directors of the Company or any parent
or successor to the Company. For purposes of the agreements with Mr. Cooper and
the Change of Control Policy (collectively, the "Change of Control Agreements"),
termination due to change of control will be considered to have occurred upon
termination of the individual's employment with the Company and upon certain
other specified events. Copies of the Change of Control Agreements are filed as
Exhibit 9 and Exhibit 10 to the Schedule 14D-9 attached hereto. The Company
anticipates that the Offer will result in a change of control as defined in the
Change of Control Agreements. In connection with the Merger Agreement, and in
accordance with the terms of the Change of Control Agreements, the Company and
the Purchaser have agreed (i) to confirm in all respects the obligations of the
Company pursuant to the Change of Control Agreements and (ii) to continue
salary, bonus and benefits provided to each of the executives covered by the
Change of Control Agreements at no less than current levels prior to a
termination due to a change of control (see "Confirmation of Change of Control
Arrangements" in the Schedule 14D-9 attached hereto).
A-12
<PAGE> 45
FIVE-YEAR STOCK PERFORMANCE GRAPH
The following graph compares the five-year cumulative total return of the
Shares to that of two published indices: one a major market index and the other
an industry index. The Company has chosen the Nasdaq U.S. Stock Market Index
("Nasdaq") as the major market index and the Dow Jones Other Automobile Parts
Index ("Auto parts") as the industry index. It is assumed that the value of the
investment in Defiance, Inc. Shares and each index was $100 on June 30, 1993 and
that all dividends were reinvested.
<TABLE>
<CAPTION>
Nasdaq Auto parts Defiance, Inc.
<S> <C> <C> <C>
6/30/93 $100 $100 $100
6/30/94 101 101 102
6/30/95 135 114 103
6/30/96 173 133 100
6/30/97 210 161 131
6/30/98 278 196 145
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report was prepared for inclusion in the proxy statement for
the annual meeting of the stockholders of the Company held October 23, 1998 and
does not reflect any consequences of the Merger Agreement.
GENERAL
The Compensation Committee (the "Committee") consists entirely of
nonemployee directors who have never been employed by the Company or any of its
subsidiaries. The Committee formulates overall Company compensation philosophy
and related policies, administers and recommends appropriate modifications
regarding annual and long-term executive incentive plans and benefits provided
to officers and other senior executives and approves annual compensation changes
and awards to this group.
In its development of compensation policies, plan changes and the
determination of all awards to Company officers, the Committee takes into
account a number of internal and external factors and criteria as well as a
variety of independent data and information sources, including published
executive compensation studies, an executive compensation study performed
specifically for the Committee by a consulting firm which is updated annually,
the Company's strategic financial goals and an overall executive compensation
plan initially developed in 1992 and revised in 1997. The Committee's objective
is to provide the Company's executive team with a competitive yet highly
motivational, performance-oriented total compensation plan that fosters
executive identification with ownership objectives and is consistent with and
maximizes the financial interests of the Company's stockholders.
A-13
<PAGE> 46
The Committee does not believe that the limitation on the tax deductibility
of executive compensation in excess of one million dollars under Code Section
162(m) will affect the Company during fiscal 1999 because taxable compensation
for any of the named executives is not anticipated to exceed one million
dollars. Most of the options granted to date during fiscal 1999 will qualify as
incentive stock options and, as such, would not result in any deduction by the
Company upon exercise even in the absence of Section 162(m). Moreover, the
Defiance, Inc. 1998 Stock Option Plan (the "1998 Plan"), which was approved by
the stockholders of the Company at the 1998 Annual Meeting on October 23, 1998,
is intended to satisfy the requirements of Section 162(m)(4)(C) and thereby
qualify for an exception from the application of Section 162(m) to the
non-qualified options granted under the 1998 Plan.
BASE SALARIES
The Committee's approach to the determination of officer base salaries is
that they be generally competitive with prevailing market medians paid by
companies of similar size and industry for each respective position,
commensurate with the incumbent's level of experience and performance within the
scope of his/her responsibilities. Existing levels of incumbent base
compensation as well as inflation-based salary structure increases also receive
consideration regarding any adjustment decisions.
Further, base salary levels and ranges (which have been established for
each officer position and include a minimum, midpoint, and maximum salary) are
considered relative to the total market compensation determined for each officer
position. Total compensation should strike an optimal balance between base
salary, or the "fixed" element of direct compensation, and incentive, or "at
risk" (contingent) compensation, with significant emphasis placed upon at risk
incentive compensation within the total direct compensation package of Company
officers.
ANNUAL INCENTIVES (BONUS)
The Company's Annual Incentive (Bonus) Plan identifies a percentage of base
salary as a "Target" annual incentive amount for each officer. This amount is
based upon current executive compensation survey data and can be earned by the
achievement of predetermined corporate and, as appropriate for less senior
officers, departmental objectives. In addition to a Target percentage of base
salary that can be earned based upon the achievement of predetermined annual
objectives, "Threshold" and "Maximum" performance levels directly and
respectively correlate with minimum and maximum annual incentive amounts for
each officer position. Substantial upside incentive income potential is awarded
for achievement in excess of Target and substantial downside incentive income
reduction is required for achievements that fail to reach Target levels.
The failure of an officer or other executive to attain the Threshold level
of achievement results in no bonus payment and the Maximum bonus percentage for
each position protects the Company from the prospect of paying windfall
incentive amounts for the achievement of performance levels that are
unexpectedly high or aberrant in nature.
After Tax Return on Average Equity ("ROE") represented the sole objective
for determining the Chief Executive Officer's ("CEO") annual bonus through
fiscal 1997. In fiscal 1998, ROE was the basis for 80% of the CEO's bonus, with
the attainment of specific goals representing the remaining 20%. Effective
commencing in fiscal 1999, ROE will again be the sole objective for determining
the CEO's annual bonus. In fiscal 1998 and for fiscal 1999, "Threshold" ROE is
11.0%, "Target" ROE is 16.0% and "Maximum" ROE is 19.5%. The rationale behind
using ROE for the incentive plan of the CEO is that this officer, by the nature
of his position, is in the most advantageous position to affect the Company's
ability to achieve this key measure of overall corporate performance and,
thereby, enhance stockholder value. Performance criteria with respect to other
officers and key executives include corporate ROE along with achievement of
certain pre-agreed upon subsidiary or department financial and task-oriented
goals, weighted differently in each individual circumstance.
LONG-TERM INCENTIVES
During fiscal 1998, the Company's Long-Term Incentive Plan was the
Defiance, Inc. 1989 Stock Option Plan (the "1989 Plan"), under which the
Committee granted stock options to executive officers and other key employees.
For options granted during fiscal 1998, the Committee determined the number of
option shares
A-14
<PAGE> 47
granted to the corporate CEO, corporate CFO and subsidiary presidents by
multiplying the officer's established midpoint annual base salary by a
predetermined percentage for each position (67% for the CEO and ranging from 29%
to 40% for the other officers), and dividing this product by an assigned option
value computed using the Black-Scholes method. Options granted under the 1989
Plan for fiscal 1998 vest over a four-year period.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary, annual incentive and long-term incentive awards of Mr.
Jerry A. Cooper, the CEO, are adjusted and granted according to the provisions
outlined above. During fiscal 1998 the Company exceeded Threshold ROE.
Mr. Cooper's base salary was increased 3.3% effective July 1, 1998 and is
now annualized at $285,000, which is below the fiscal 1999 midpoint for his
position. Based upon exceeding Threshold ROE and meeting specific pre-agreed
upon goals, he was awarded an Annual Incentive (Bonus) of $182,326 and was
granted options to purchase 35,000 Shares at $7.00 per Share (the closing price
of the Shares as of the date of grant). The Annual Incentive award and stock
option grants were both made in fiscal 1999 and the stock options vest over a
four-year period.
Respectfully submitted,
Scott D. Roulston, Chairman
James E. Heighway
John D. Ong
September 18, 1998
A-15
<PAGE> 48
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 49
ANNEX B
McDonald Investments
Logo
MCDONALD INVESTMENTS
INC.,
A KEYCORP COMPANY
800 Superior Avenue
Cleveland, Ohio
44114-2603
Tel: 216 443-2300
January 7, 1999
PERSONAL AND CONFIDENTIAL
Board of Directors
Defiance, Inc.
1111 Chester Avenue, Suite 750
Cleveland, Ohio 44114
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, of the consideration to be received by the holders of the issued and
outstanding shares of Common Stock, $.05 par value per share (the "Common
Stock") of Defiance, Inc. (the "Company") pursuant to the Agreement and Plan of
Merger dated as of January 7, 1999 (the "Agreement") by and among New Hampshire
Oak, Inc. ("Parent"), DN Acquisition Corporation ("Purchaser") and the Company.
You have advised us that, under the terms of the Merger Agreement, Parent
will cause Purchaser to commence a tender offer (the "Offer") to purchase for
cash all of the issued and outstanding shares of Common Stock at a purchase
price of not less than $9.50 per share (the "Offer Consideration"). As promptly
as practicable following the consummation of the Offer, the Purchaser will be
merged with and into the Company (the "Merger"), the Company will become a
wholly-owned subsidiary of Parent and all issued and outstanding shares of the
Company's Common Stock (other than shares owned by Parent or Purchaser and
shares as to which dissenters rights of appraisal have been perfected) will be
converted into the right to receive not less than $9.50 per share in cash (the
"Merger Consideration" and, collectively with the Offer Consideration, the
"Consideration").
McDonald Investments Inc., as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
In connection with rendering this opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement, including the exhibits and
schedules thereto; (ii) drafts of the Offer to Purchase and the Schedule 14D-9;
(iii) certain publicly available information concerning the Company, including
the Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for each of the fiscal years in the five year period ended June 30, 1998
and the Quarterly Report on Form 10-Q of the Company for the quarter ended
September 30, 1998; (iv) certain operating and financial information, including
projections, concerning the business and operations of the Company furnished to
us by the Company for purposes of our analysis; (v) certain publicly available
information concerning the trading of, and the trading market for, the Company
Common Stock; (vi) certain publicly available information with respect to
certain other companies that we believe to be comparable to the Company and the
trading markets for certain of such other companies' securities; and (vii)
certain publicly available information concerning the nature and terms of
certain other transactions that we consider relevant to our inquiry. We also
have visited each of the Company's facilities and met with certain officers and
employees of the Company to discuss its operations, historical financial
statements and future prospects, as well as other matters we believe relevant to
our inquiry.
B-1
<PAGE> 50
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have assumed and relied upon
the representations and warranties of the Company, Parent and Purchaser
contained in the Agreement. We have not been engaged to, and have not
independently attempted to, verify any of such information. We have also relied
upon the management of the Company as to the reasonableness and achievability of
the financial and operating projections (and the assumptions and bases therefor)
provided to us and, with your consent, we have assumed that such projections
reflect the best currently available estimates and judgments of the Company's
management. We have not been engaged to assess the achievability of such
projections or the assumptions on which they were based and express no view as
to such projections or assumptions. In addition, we have not conducted an
appraisal of any of the assets, properties or facilities of the Company nor have
we been furnished with any such evaluation or appraisal. We have also assumed
that the conditions to the Offer and the Merger as set forth in the Agreement
would be satisfied and that the Merger would be consummated on a timely basis in
the manner contemplated by the Agreement.
We have been engaged by the Company solely for the purpose of rendering the
opinion expressed herein. In connection with the preparation of this opinion, we
were not authorized by the Board of Directors of the Company to solicit, nor did
we solicit, third party indications of interest for the acquisition of all or
any part of the Company. We also did not participate in any discussions or
negotiations among the Company, Parent or Purchaser.
It should be noted that this opinion is based on economic and market
conditions and other circumstances existing on, and information made available
as of, the date hereof and does not address any matters subsequent to such date.
In addition, our opinion is, in any event, limited to the fairness, as of the
date hereof, from a financial point of view, of the consideration to be received
by the holders of the Company Common Stock pursuant to the Offer and the Merger
and does not address the Company's underlying business decision to effect the
Merger or any other terms of the Offer or the Merger.
We will receive from the Company a fee for our services in rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Merger, as well as the Company's agreement to indemnify us under certain
circumstances.
In the ordinary course of our business, we may actively trade securities of
the Company for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this opinion is directed to the Board of Directors
and may not be disclosed, summarized, excerpted from or otherwise publicly
referred to without our prior written consent. Our opinion does not constitute a
recommendation to any stockholder of the Company as to whether such stockholder
should tender shares of Common Stock pursuant to the Offer or as to how such
stockholder should vote at any stockholders' meeting held in connection with the
Merger.
Based upon and subject to the foregoing and such other matters as we
consider relevant, it is our opinion that as of the date hereof, the
Consideration to be received by the holders of Common Stock in the Offer and the
Merger is fair, from a financial point of view, to the holders of such Common
Stock.
Very truly yours,
/s/ McDonald Investments Inc.
B-2
<PAGE> 1
Exhibit 1
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
DEFIANCE, INC.
at
$9.50 NET PER SHARE
by
DN ACQUISITION CORPORATION
an indirect wholly-owned subsidiary of
THE GENERAL CHEMICAL GROUP INC.
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON THURSDAY, FEBRUARY 11, 1999, UNLESS THE OFFER IS EXTENDED.
------------------------
THE BOARD OF DIRECTORS OF DEFIANCE, INC. (THE "COMPANY") HAS UNANIMOUSLY
APPROVED THE MAKING OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) AND
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE ADVISABLE AND ARE FAIR
TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND
TENDER THEIR SHARES (AS DEFINED HEREIN).
------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT
NUMBER OF SHARES THAT WOULD REPRESENT IN EXCESS OF 50% OF ALL OUTSTANDING SHARES
ON A FULLY DILUTED BASIS (SUCH BASIS ASSUMES ALL SHARES UNDERLYING VESTED AND
UNVESTED STOCK OPTIONS ARE ISSUED AND OUTSTANDING) ON THE DATE OF PURCHASE AND
(2) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976, AS AMENDED, AND THE REGULATIONS THEREUNDER APPLICABLE TO THE PURCHASE OF
SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares of common stock of the Company, par value $0.05 per share (the "Shares"),
should either (1) complete and sign the Letter of Transmittal or a facsimile
copy thereof in accordance with the instructions in the Letter of Transmittal,
have such stockholder's signature thereon guaranteed if required by Instruction
1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or
such facsimile), or, in the case of a book-entry transfer effected pursuant to
the procedure set forth in Section 2 hereof, an Agent's Message (as defined
herein), and any other required documents to the Depositary (as defined herein)
and either deliver the certificates for such Shares to the Depositary along with
the Letter of Transmittal (or facsimile) or deliver such Shares pursuant to the
procedure for book-entry transfer set forth in Section 2 hereof prior to the
expiration of the Offer or (2) request such stockholder's broker, dealer, bank,
trust company or other nominee to effect the transaction for such stockholder. A
stockholder having Shares registered in the name of a broker, dealer, bank,
trust company or other nominee must contact such broker, dealer, bank, trust
company or other nominee if such stockholder desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates for such
Shares are not immediately available or who cannot comply in a timely manner
with the procedure for book-entry transfer, or who cannot deliver all required
documents to the Depositary prior to the expiration of the Offer, may tender
such Shares by following the procedure for guaranteed delivery set forth in
Section 2 hereof.
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent at its address and telephone
numbers set forth on the back cover of this Offer to Purchase.
------------------------
January 13, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
INTRODUCTION............................................................. 1
THE TENDER OFFER......................................................... 3
1. Terms of the Offer ......................................... 3
2. Procedure for Tendering Shares ............................. 4
3. Withdrawal Rights .......................................... 7
4. Acceptance for Payment and Payment ......................... 7
5. Certain Federal Income Tax Consequences .................... 8
6. Price Range of the Shares .................................. 9
7. Purpose of the Offer; Plans for the Company; Effect of the
Offer on the Market for the Shares; Stock Quotation;
Exchange Act Registration; Margin Regulations .............. 10
8. Certain Information Concerning the Company ................. 11
9. Certain Information Concerning the Purchaser, Parent and
General Chemical Group ..................................... 14
10. Source and Amount of Funds ................................. 14
11. Contacts and Transactions with the Company; Background of
the Offer .................................................. 15
12. The Merger Agreement; The Stockholders Agreement ........... 17
13. Dividends and Distributions ................................ 24
14. Certain Conditions of the Offer ............................ 24
15. Certain Legal Matters ...................................... 26
16. Fees and Expenses .......................................... 29
17. Miscellaneous .............................................. 29
Schedule I -- Directors and Executive Officers of General Chemical Group,
Parent and the Purchaser............................................... S-1
</TABLE>
i
<PAGE> 3
TO THE HOLDERS OF COMMON STOCK OF DEFIANCE, INC.:
INTRODUCTION
DN Acquisition Corporation, a Delaware corporation (the "Purchaser"), which
is a wholly-owned direct subsidiary of New Hampshire Oak, Inc., a Delaware
corporation ("Parent"), which is a wholly-owned direct subsidiary of The General
Chemical Group Inc., a Delaware corporation ("General Chemical Group"), hereby
offers to purchase all outstanding shares of common stock, par value $0.05 per
share (the shares of common stock of the Company being hereinafter referred to
as the "Shares"), of the Company, at a price of $9.50 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the related
Letter of Transmittal (which, together with any amendments or supplements hereto
or thereto, collectively constitute the "Offer"). The Offer is being made
pursuant to the Agreement and Plan of Merger, dated as of January 7, 1999 (the
"Merger Agreement"), among Parent, the Purchaser and the Company.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The
Purchaser will pay all fees and expenses of American Stock Transfer & Trust
Company, which is acting as the Depositary (the "Depositary"), and Georgeson &
Company Inc., which is acting as Information Agent (the "Information Agent"),
incurred in connection with the Offer. See Section 16 hereof.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING
OF THE OFFER AND THE MERGER (AS DEFINED BELOW) AND DETERMINED THAT THE TERMS OF
THE OFFER AND THE MERGER ARE ADVISABLE AND ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES. THE
FACTORS CONSIDERED BY THE BOARD OF DIRECTORS OF THE COMPANY IN ARRIVING AT ITS
DECISION TO APPROVE THE MAKING OF THE OFFER AND THE MERGER AND TO RECOMMEND THAT
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES ARE
DESCRIBED IN THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE
14D-9 (THE "SCHEDULE 14D-9"), WHICH IS BEING MAILED TO STOCKHOLDERS OF THE
COMPANY HEREWITH.
MCDONALD INVESTMENTS INC., THE COMPANY'S FINANCIAL ADVISOR, HAS DELIVERED
TO THE BOARD OF DIRECTORS OF THE COMPANY A WRITTEN OPINION TO THE EFFECT THAT,
AS OF THE DATE OF SUCH OPINION, AND BASED UPON AND SUBJECT TO CERTAIN MATTERS
STATED THEREIN, THE $9.50 PER SHARE CASH CONSIDERATION TO BE RECEIVED BY THE
HOLDERS OF SHARES OF THE COMPANY IN CONNECTION WITH THE OFFER AND THE MERGER IS
FAIR TO THE STOCKHOLDERS OF THE COMPANY FROM A FINANCIAL POINT OF VIEW. SUCH
OPINION IS SET FORTH IN FULL AS AN EXHIBIT TO THE SCHEDULE 14D-9.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION
1) AT LEAST THAT NUMBER OF SHARES THAT WOULD REPRESENT IN EXCESS OF 50% OF ALL
OUTSTANDING SHARES DETERMINED ON A FULLY DILUTED BASIS (SUCH BASIS ASSUMES ALL
SHARES UNDERLYING VESTED AND UNVESTED STOCK OPTIONS ARE ISSUED AND OUTSTANDING)
ON THE DATE OF PURCHASE (THE "MINIMUM CONDITION") AND (II) ANY WAITING PERIOD
UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND
THE REGULATIONS THEREUNDER (THE "HSR ACT") APPLICABLE TO THE PURCHASE OF SHARES
PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED (THE "HSR CONDITION").
THE PURCHASER RESERVES THE RIGHT (SUBJECT TO THE APPLICABLE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION")), WHICH
IT PRESENTLY HAS NO INTENTION OF EXERCISING (AND WHICH IT MAY NOT EXERCISE
WITHOUT THE COMPANY'S WRITTEN CONSENT), TO DECREASE, INCREASE OR WAIVE THE
MINIMUM CONDITION AND TO ELECT TO PURCHASE, PURSUANT TO THE OFFER, LESS THAN THE
MINIMUM NUMBER OF SHARES WHICH WOULD OTHERWISE BE REQUIRED TO SATISFY THE
MINIMUM CONDITION. SEE SECTIONS 1 AND 14 HEREOF. THE CONDITIONS SET FORTH IN
SECTION 14 HEREOF ARE REFERRED TO AS THE "OFFER CONDITIONS".
The Company has informed the Purchaser that, as of January 7, 1999, there
were 6,003,749 Shares issued and outstanding and 440,814 Shares reserved for
issuance upon the exercise of outstanding options to purchase Shares ("Stock
Options"). Accordingly, based on the foregoing assumptions, the Minimum
Condition will be satisfied if at least 3,222,282 Shares, or approximately 54%
of the outstanding Shares as of January 7, 1999 are
<PAGE> 4
validly tendered and not withdrawn prior to the Expiration Date. As described
below, there are 1,045,587 Shares which are subject to the Stockholders
Agreement and, subject to certain conditions, will be tendered to the Purchaser.
If the Minimum Condition is satisfied and the Purchaser accepts for payment
Shares tendered pursuant to the Offer, the Purchaser will be able to elect a
majority of the members of the Company's Board of Directors and to effect the
Merger without the affirmative vote of any other stockholder of the Company.
THE MERGER
Pursuant to the Merger Agreement, following the consummation of the Offer
and the satisfaction or waiver of certain conditions, the Purchaser will be
merged with and into the Company (the "Merger"), with the Company surviving the
Merger (as such, the "Surviving Corporation") as a wholly-owned subsidiary of
Parent. In the Merger, each outstanding Share (other than Shares owned by
Parent, the Purchaser or any other subsidiary of Parent or held in the treasury
of the Company or by stockholders, if any, who are entitled to and who properly
exercise appraisal rights under Delaware law) will be converted into the right
to receive from the Surviving Corporation the Offer Price in cash, without
interest (the "Merger Consideration"). The Merger is subject to a number of
conditions, including approval by stockholders of the Company, if such approval
is required by applicable law. See Section 12 hereof.
THE STOCKHOLDERS AGREEMENT
In connection with the execution of the Merger Agreement, the Purchaser and
Parent entered into a Stockholders Agreement, dated as of January 7, 1999 (the
"Stockholders Agreement"), with each of Jerry A. Cooper, Thomas H. Roulston II,
Scott D. Roulston, Michael J. Meier, John D. Ong, George H. Lewis III, James E.
Heighway, Richard W. Lock, Clifford Schumacher, James L. Treece, Carl A.
Rispoli, Fred Burke, Roger Drummer, Michael Madden, Michael Pavlica, David
Piacenti, Benjamin Scherschel, Janice Schneikart and Phillip Tomczak
(collectively, the "Selling Stockholders"), pursuant to which such Selling
Stockholders have agreed to tender their Shares in the Offer and have granted to
the Purchaser an irrevocable option, exercisable upon the occurrence of certain
trigger events, to purchase the Shares owned beneficially and of record by the
Selling Stockholders (including Shares underlying Stock Options (such underlying
Shares, the "Option Shares")) at a price per Share equal to the Offer Price, in
cash. Pursuant to the Stockholders Agreement, the Selling Stockholders have also
agreed that, among other things, until the applicable termination date set forth
in the Stockholders Agreement, such Selling Stockholders will not transfer the
Shares subject to the Stockholders Agreement and will vote such Shares in favor
of the Merger and against certain competing transactions. An aggregate of
1,046,587 Shares are subject to the Stockholders Agreement (including 348,116
Option Shares), representing 16.2% of the Shares that, as of January 7, 1999,
were issued and outstanding on a fully diluted basis (such basis assumes all
Shares underlying vested and unvested stock options are issued and outstanding)
according to the Company.
INTENTION OF COMPANY OFFICERS AND DIRECTORS TO TENDER
All of the Company's executive officers and directors have agreed pursuant
to the Stockholders Agreement to tender all Shares owned by them in the Offer.
The Merger Agreement and the Stockholders Agreement are more fully
described in Section 12 hereof.
Certain Federal income tax consequences of the sale of Shares pursuant to
the Offer and the conversion of Shares pursuant to the Merger are described in
Section 5 hereof.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
2
<PAGE> 5
THE TENDER OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment and pay for all Shares validly tendered prior to the
Expiration Date and not theretofore withdrawn in accordance with Section 3
hereof. The term "Expiration Date" means 12:00 midnight, New York City time, on
Thursday, February 11, 1999, unless and until the Purchaser shall have extended
the period of time during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Purchaser, will expire.
In addition, the Purchaser has agreed in the Merger Agreement that it will
not, without the written consent of the Company, reduce the price per Share or
the number of Shares sought to be purchased or modify the form of consideration
to be received by holders of the Shares in the Offer, decrease, increase or
waive the Minimum Condition, impose additional conditions to the Offer or amend
any term of the Offer in a manner materially adverse to the holders of the
Shares.
Subject to the terms of the Merger Agreement and the applicable rules and
regulations of the Commission, the Purchaser reserves the right (but shall not
be obligated), at any time and from time to time, and regardless of whether or
not any of the events or facts set forth in Section 14 hereof shall have
occurred, (a) to extend the period of time during which the Offer is open, and
thereby delay acceptance for payment of and the payment for any Shares, by
giving oral or written notice of such extension to the Depositary and (b) to
amend the Offer in any other respect by giving oral or written notice of such
amendment to the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE
PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS
RIGHT TO EXTEND THE OFFER.
If by 12:00 midnight, New York City time, on Thursday, February 11, 1999
(or any date or time then set as the Expiration Date), any or all of the Offer
Conditions have not been satisfied or waived, the Purchaser reserves the right
(but shall not be obligated), subject to the terms and conditions contained in
the Merger Agreement and to the applicable rules and regulations of the
Commission, (a) to terminate the Offer and not accept for payment or pay for any
Shares and return all tendered Shares to tendering stockholders, (b) to waive
all the unsatisfied conditions and accept for payment and pay for all Shares
validly tendered prior to the Expiration Date and not theretofore withdrawn, (c)
to extend the Offer and, subject to the right of stockholders to withdraw Shares
until the Expiration Date, retain the Shares that have been tendered during the
period or periods for which the Offer is extended or (d) to amend the Offer.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. Any extension, waiver, amendment or termination will be
followed as promptly as practicable by a public announcement of such event. In
the case of an extension, Rule 14e-l(d) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), requires that the announcement be issued
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change) and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser is delayed in its
acceptance for payment of or payment (whether before or after its acceptance for
payment of Shares) for Shares or it is unable to pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser,
and such Shares may not be withdrawn except to the extent tendering stockholders
are entitled to withdrawal rights as described in Section 3 hereof. However, the
ability of the Purchaser to delay the payment for Shares that the Purchaser has
accepted for payment is limited by Rule 14e-l(c) under the Exchange Act, which
requires that a bidder pay the consideration offered or return the
3
<PAGE> 6
securities deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including a waiver of the Minimum Condition), the Purchaser will disseminate
additional tender offer materials and extend the Offer to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer, other than a change in price
or a change in the percentage of securities sought, will depend upon the facts
and circumstances then existing, including the relative materiality of the
changed terms or information. With respect to a change in price or a change in
the percentage of securities sought, a minimum period of 10 business days is
generally required to allow for adequate dissemination to stockholders.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Condition, the HSR Condition and the other Offer Conditions. Subject to the
terms and conditions contained in the Merger Agreement, the Purchaser reserves
the right (but shall not be obligated) to waive any or all such conditions.
However, if the Purchaser waives or amends the Minimum Condition during the last
five business days during which the Offer is open, the Purchaser will be
required to extend the Expiration Date so that the Offer will remain open for at
least five business days after the announcement of such waiver or amendment is
first published, sent or given to holders of Shares and may also be required to
extend the Offer if other conditions are waived, depending upon the materiality
of the waiver.
The Company has provided the Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed by the Purchaser to record holders of
Shares and will be furnished to brokers, dealers, banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder lists, or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
2. PROCEDURE FOR TENDERING SHARES
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, either (a) a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, together with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message (as defined below),
and any other required documents, must be received by the Depositary at its
address set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either certificates for tendered Shares must be received by
the Depositary at its address or such Shares must be delivered pursuant to the
procedures for book-entry transfer set forth below (and a Book-Entry
Confirmation (as defined below) received by the Depositary), in each case prior
to the Expiration Date, or (b) the tendering stockholder must comply with the
guaranteed delivery procedures set forth below.
The Depositary will establish accounts with respect to the Shares at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Offer within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Shares by causing the
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. However, although delivery of Shares may be effected through
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's
Message, and any other required documents, must, in any case, be transmitted to,
and received by, the Depositary at its address set forth on the back cover of
this Offer to Purchase prior to the Expiration Date, or the tendering
stockholder must comply with the guaranteed delivery procedures described below.
The confirmation of a book-entry transfer of Shares into the Depositary's
account at the Book-Entry Transfer Facility as described above is referred to
herein as a "Book-Entry Confirmation". DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY
TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
4
<PAGE> 7
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (a) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant in
the Book-Entry Transfer Facility's system whose name appears on a security
position listing as the owner of the Shares) of Shares tendered therewith and
such registered holder has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on the
Letter of Transmittal or (b) if such Shares are tendered for the account of a
financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (such
participant, an "Eligible Institution"). In all other cases, all signatures on
the Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instructions 1 and 5 to the Letter of Transmittal. If the certificates for
Shares are registered in the name of a person other than the signer of the
Letter of Transmittal, or if payment is to be made or certificates for Shares
not tendered or not accepted for payment are to be returned to a person other
than the registered holder of the certificates surrendered, the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holders or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of
Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser, is received
by the Depositary, as provided below, on or prior to the Expiration Date;
and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to all such Shares),
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or, in
the case of a book-entry transfer, an Agent's Message, and any other
documents required by the Letter of Transmittal are received by the
Depositary within three Nasdaq Stock Market trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (b) either (i) a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or, (ii) in the case of a book-entry
transfer, an Agent's Message, and (c) any other documents required by the Letter
of Transmittal. Accordingly, tendering
5
<PAGE> 8
stockholders may be paid at different times depending upon when certificates for
Shares or Book-Entry Confirmations with respect to Shares are actually received
by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE
PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF
THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering stockholder and
the Purchaser upon the terms and subject to the conditions of the Offer.
Appointment. By executing a Letter of Transmittal as set forth above, the
tendering stockholder will irrevocably appoint designees of the Purchaser as
such stockholder's attorneys-in-fact and proxies in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full extent
of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser and with respect to any
and all other Shares or other securities or rights issued or issuable in respect
of such Shares on or after January 7, 1999. All such proxies will be considered
coupled with an interest in the tendered Shares. Such appointment will be
effective when, and only to the extent that, the Purchaser accepts for payment
Shares tendered by such stockholder as provided herein. Upon such appointment,
all prior powers of attorney, proxies and consents given by such stockholder
with respect to such Shares or other securities or rights will, without further
action, be revoked and no subsequent powers of attorney, proxies, consents or
revocations may be given (and, if given, will not be deemed effective). The
designees of the Purchaser will thereby be empowered to exercise all voting and
other rights with respect to such Shares and other securities or rights in
respect of any annual, special or adjourned meeting of the Company's
stockholders, actions by written consent in lieu of any such meeting or
otherwise, as they in their sole discretion deem proper. The Purchaser reserves
the right to require that, in order for Shares to be deemed validly tendered,
immediately upon the Purchaser's acceptance for payment of such Shares, the
Purchaser must be able to exercise full voting, consent and other rights with
respect to such Shares and other securities or rights, including voting at any
meeting of stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by the Purchaser in its sole discretion, which determination
will be final and binding. The Purchaser reserves the absolute right to reject
any or all tenders determined by it not to be in proper form or the acceptance
for payment of or payment for which may, in the opinion of the Purchaser's
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any defect or irregularity in the tender of any Shares of any particular
stockholder whether or not similar defects or irregularities are waived in the
case of other stockholders. No tender of Shares will be deemed to have been
validly made until all defects or irregularities relating thereto have been
cured or waived. None of the Purchaser, Parent, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in tenders or incur any liability for failure to give
any such notification. The Purchaser's interpretation of the terms and
conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Backup Withholding. In order to avoid "backup withholding" of Federal
income tax on payments of cash pursuant to the Offer, a stockholder surrendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such stockholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide such stockholder's correct TIN or fails to provide
the certifications described above, the Internal Revenue Service (the "IRS") may
impose a penalty on such stockholder and any payment of cash to such stockholder
pursuant to the Offer may be subject to backup withholding of 31%. All
stockholders surrendering Shares pursuant to the Offer should complete and sign
the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to the Purchaser and the Depositary). Certain stockholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Noncorporate foreign
stockholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
6
<PAGE> 9
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment and paid for by the Purchaser pursuant
to the Offer, may also be withdrawn at any time after March 14, 1999.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover of this Offer to Purchase and must
specify the name of the person having tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder of the
Shares to be withdrawn, if different from the name of the person who tendered
the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been delivered pursuant to the procedure
for book-entry transfer as set forth in Section 2 hereof, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility and otherwise comply with the Book-Entry Transfer
Facility's procedures. Withdrawals of tenders of Shares may not be rescinded,
and any Shares properly withdrawn will thereafter be deemed not validly tendered
for purposes of the Offer. However, withdrawn Shares may be retendered by again
following one of the procedures described in Section 2 hereof at any time prior
to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, which determination will be final and binding. None of the
Purchaser, Parent, General Chemical Group, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for all Shares
validly tendered prior to the Expiration Date and not properly withdrawn in
accordance with Section 3 hereof promptly after the Expiration Date. All
determinations concerning the satisfaction of such terms and conditions will be
within the Purchaser's discretion, which determinations will be final and
binding. See Sections 1 and 14 hereof. The Purchaser expressly reserves the
right to delay acceptance for payment of or payment for Shares in order to
comply in whole or in part with any applicable law, including, without
limitation, the HSR Act. Any such delays will be effected in compliance with
Rule 14e-l(c) under the Exchange Act (relating to a bidder's obligation to pay
for or return tendered securities promptly after the termination or withdrawal
of such bidder's offer).
General Chemical Group filed its Notification and Report Form under the HSR
Act with respect to the Offer on January 8, 1999. The Company expects to file
soon its Notification and Report Form. The waiting period under the HSR Act with
respect to the Offer will expire at 11:59 p.m., New York City time, on the 15th
day after the date General Chemical Group's form is filed unless early
termination of the waiting period is granted. However, the Antitrust Division of
the Department of Justice (the "Antitrust Division") or the Federal Trade
Commission (the "FTC") may extend the waiting period by requesting additional
information or documentary material from General Chemical Group or the Company.
If such a request is made, such waiting period will expire at 11:59 p.m., New
York City time, on the 10th day after substantial compliance by General Chemical
Group or the Company with such request. Thereafter, the waiting period may only
be extended by court order. The waiting period under the HSR Act may be
terminated prior to its expiration by the FTC and the Antitrust Division.
General Chemical Group will request early termination of the waiting period,
although there can be no assurance that this request will be granted. Pursuant
to the Merger Agreement, the Purchaser may, but need not, extend the Offer until
the applicable waiting period under the HSR Act shall have expired or been
terminated. See
7
<PAGE> 10
Section 15 hereof for additional information concerning the HSR Act and the
applicability of the antitrust laws to the Offer.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (a) certificates for
(or a timely Book-Entry Confirmation with respect to) such Shares, (b) either
(i) a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or, (ii) in the case of a
book-entry transfer, an Agent's Message, and (c) any other documents required by
the Letter of Transmittal. The per Share consideration paid to any stockholder
pursuant to the Offer will be the highest per Share consideration paid to any
other stockholder pursuant to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares properly tendered to the Purchaser
and not withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares. Payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE
PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-l(c) under the Exchange Act,
which requires that a tender offeror pay the consideration offered or return the
tendered securities promptly after termination or withdrawal of a tender offer,
and the terms of the Merger Agreement), the Depositary may, nevertheless, on
behalf of the Purchaser, retain tendered Shares, and such Shares may not be
withdrawn except to the extent tendering stockholders are entitled to exercise,
and duly exercise, withdrawal rights as described in Section 3.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, certificates for any such Shares will be returned, without expense to
the tendering stockholder (or, in the case of Shares delivered by book-entry
transfer of such Shares into the Depositary's account at the Book-Entry Transfer
Facility pursuant to the procedure set forth in Section 2, such Shares will be
credited to the account maintained at the Book-Entry Transfer Facility), as
promptly as practicable after the expiration or termination of the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to General Chemical Group, or to one or more direct or
indirect wholly-owned subsidiaries of General Chemical Group, the right to
purchase Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve the Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash in exchange for Shares pursuant to the Offer or the
Merger (and the receipt of cash by a stockholder that exercises appraisal rights
in connection with the Merger under Delaware law) will be a taxable transaction
for Federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be a taxable transaction under applicable
state, local or foreign income or other tax laws. Generally, for Federal income
tax purposes, a tendering stockholder will recognize gain or loss equal to the
difference between the amount of cash received by the stockholder pursuant to
the Offer or the Merger (other than amounts received pursuant to a stockholder's
exercise of appraisal rights that are denominated as interest, which amounts
would be taxable as ordinary income) and the aggregate tax basis in the Shares
tendered by the stockholder and purchased pursuant to the Offer or converted in
the Merger, as the case may be.
If Shares are held by a stockholder as capital assets, gain or loss
recognized by the stockholder will be capital gain or loss. Such capital gain or
loss will be long-term if such stockholder's holding period for the Shares
exceeds twelve months and short-term in all other cases.
8
<PAGE> 11
A stockholder that tenders Shares may be subject to 31% backup withholding
unless the stockholder provides its TIN and certifies that such number is
correct or properly certifies that it is awaiting a TIN, or unless an exemption
applies. Exemptions are available for stockholders that are corporations and for
certain foreign individuals and entities. A stockholder that does not furnish a
required TIN may be subject to a penalty imposed by the IRS. See "Backup
Withholding" under Section 2 hereof.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can be credited
against the Federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder upon filing an income tax return.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES
RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS
COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX
TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES,
TAX-EXEMPT ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO OTHER
HOLDERS OF SHARES IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL
OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE OFFER AND THE MERGER.
6. PRICE RANGE OF THE SHARES
The Shares are traded on the Nasdaq National Market under the symbol
"DEFI". The following table sets forth, for each of the periods indicated, the
high and low sales prices per Share as reported by the Nasdaq National Market
and the Dow Jones News Retrieval Service.
DEFIANCE, INC.
<TABLE>
<CAPTION>
SALES PRICES
--------------
FISCAL YEAR ENDING IN JUNE HIGH LOW
-------------------------- ----- -----
<S> <C> <C>
1997
First Quarter (July 1, 1996 -- September 30, 1996)....... $6.88 $5.38
Second Quarter (October 1, 1996 -- December 31, 1996).... 6.88 6.25
Third Quarter (January 1, 1997 -- March 31, 1997)........ 8.00 6.38
Fourth Quarter (April 1, 1997 -- June 30, 1997).......... 8.13 6.13
1998
First Quarter (July 1, 1997 -- September 30, 1997)....... 8.75 6.63
Second Quarter (October 1, 1997 -- December 31, 1997).... 8.75 7.13
Third Quarter (January 1, 1998 -- March 31, 1998)........ 10.25 7.88
Fourth Quarter (April 1, 1998 -- June 30, 1998).......... 9.00 8.13
1999
First Quarter (July 1, 1998 -- September 30, 1998)....... 8.44 6.69
Second Quarter (October 1, 1998 through December 31,
1998).................................................. 7.13 6.25
Third Quarter (January 1, 1999 -- January 7, 1999)....... 6.50 6.25
</TABLE>
On January 7, 1999, the last full trading day before the public
announcement of the execution of the Merger Agreement, the last reported sales
price of the Shares on the Nasdaq National Market was $6.50 per Share. On
January 12, 1999, the last full trading day before commencement of the Offer,
the last reported sales price of the Shares on the Nasdaq National Market was
$9 7/32 per Share. Stockholders are urged to obtain current market quotations
for the Shares.
9
<PAGE> 12
7. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; EFFECT OF THE OFFER ON THE
MARKET FOR THE SHARES; STOCK QUOTATION; EXCHANGE ACT REGISTRATION; MARGIN
REGULATIONS
Purpose. The purpose of the Offer is to enable General Chemical Group to
acquire control of, and the entire equity interest in, the Company. The Offer,
as the first step in the acquisition of the Company, is intended to facilitate
the acquisition of all the Shares and to provide the stockholders of the Company
with cash consideration of $9.50 per Share for all of their Shares at the
earliest possible time. The purpose of the Merger is to acquire all Shares not
tendered and purchased pursuant to the Offer.
Plans for the Company. The Merger Agreement provides that promptly upon the
purchase by the Purchaser of more than 50% of the outstanding Shares on a
fully-diluted basis pursuant to the Offer and from time to time thereafter, the
Company shall use its best efforts to allow the Purchaser to designate up to the
minimum number of directors of the Company necessary in order for the result
(expressed as a fraction) derived by dividing the number of directors so
designated by the total number of directors to be at least equal to the result
(expressed as a fraction) derived by dividing the shares then held by the
Purchaser by the total number of Shares then outstanding, provided, however,
that until the consummation of the Merger, the Board of Directors of the Company
will have at least two (2) Independent Directors. The term "Independent
Director" means a director who is neither designated by the Purchaser nor
otherwise affiliated with the Parent or the Purchaser and is not an employee of
the Company or any of its subsidiaries. The Purchaser has designated Paul M.
Meister, Richard R. Russell, Todd M. DuChene, Ralph M. Passino and Paul M.
Montrone to fill such vacancies.
After the Offer has been consummated, subject to the conditions set forth
in the Merger Agreement, it is anticipated that the Merger Agreement will be
submitted to the stockholders of the Company for approval. In the Merger
Agreement, Parent and the Purchaser have agreed to vote or cause to be voted all
Shares owned by them in favor of approval and adoption of the Merger Agreement.
If after consummation of the Offer the Purchaser holds 90% or more of the
outstanding Shares, the Purchaser intends to effect a "short-form merger" under
the Delaware General Corporation Law (the "DGCL") without a meeting of, or
action by, the stockholders of the Company.
The Purchaser and General Chemical Group currently have no plans or
proposals that would relate to, or result in, any extraordinary corporate
transaction involving the Company, such as a merger, reorganization or
liquidation involving the Company or any of its subsidiaries (except the merger
of the Purchaser into the Company, as described in Section 12 below) or a sale
or transfer of a material amount of assets of the Company or any of its
subsidiaries to any unaffiliated third party. The Purchaser and General Chemical
Group currently have no plans or proposals to consolidate, establish, terminate,
convert or amend employee benefit plans; close any plant or facility of the
Company or of any of its subsidiaries or affiliates; change or reduce the work
force of the Company or any of its subsidiaries or affiliates; or make any other
change in its business, corporate structure, capitalization or dividend policy,
management personnel or policies of employment. General Chemical Group is
currently considering how best to integrate the business of the Company with the
current operations of General Chemical Group and its subsidiaries in order to
improve operating efficiencies, including through the consolidation of
management, but General Chemical Group has no current plans or proposals in this
regard.
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public.
Stock Quotation. Depending upon the aggregate market value and per Share
price of any Shares not purchased pursuant to the Offer, the Shares may no
longer meet the standards of the National Association of Securities Dealers,
Inc. (the "NASD") for continued designation for the Nasdaq National Market. The
maintenance of such designation requires that an issuer substantially meet one
of two maintenance standards. The issuer must have either (i)(a) at least
750,000 shares publicly held, (b) at least 400 shareholders of round lots, (c) a
market value of publicly held shares of at least $5 million, (d) a minimum bid
price per share of $1, (e) at least two registered and active market makers for
its shares and (f) net tangible assets of at least $4 million or (ii)(a) at
least 1.1 million publicly held shares, (b) at least 400 shareholders of round
lots, (c) a market value of
10
<PAGE> 13
publicly held shares of at least $15 million, (d)(1) a market capitalization of
at least $50 million or (2) total assets and total revenue of at least $50
million each (for the most recently completed fiscal year or two of the last
three most recently completed fiscal years), (e) a minimum bid price per share
of $5 and (f) at least four registered and active market makers for its shares.
Shares held directly or indirectly by directors, officers or beneficial owners
of more than 10% of the Shares outstanding are not considered as being publicly
held for this purpose.
If, as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the requirements of the NASD for continued
inclusion in the Nasdaq National Market or in any other tier of the Nasdaq Stock
Market, and the Shares are no longer included in Nasdaq National Market or in
any other tier of the Nasdaq Stock Market, the market for the Shares could be
adversely affected.
In the event the Shares no longer meet the requirements of the NASD for
continued inclusion in any tier of the Nasdaq Stock Market, it is possible that
Shares would continue to trade in the over-the-counter market and that price
quotations would be reported by other sources. The extent of the public market
for the Shares and the availability of such quotations would, however, depend
upon the number of holders of Shares remaining at such time, the interest in
maintaining a market in Shares on the part of securities firms, the possible
termination of registration of the Shares under the Exchange Act, as described
below, and other factors.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application of the Company to the Commission if the Shares are
neither listed on a national securities exchange nor held by 300 or more holders
of record. Termination of registration of the Shares under the Exchange Act
would substantially reduce the information required to be furnished by the
Company to its stockholders and to the Commission and would make certain
provisions of the Exchange Act no longer applicable to the Company, such as the
short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the
requirement of furnishing a proxy statement pursuant to Section 14(a) of the
Exchange Act in connection with stockholders' meetings and the related
requirement of furnishing an annual report to stockholders and the requirements
of Rule 13e-3 under the Exchange Act with respect to "going private"
transactions. Furthermore, the ability of "affiliates" of the Company and
persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 or 144A promulgated under the Securities Act of
1933 may be impaired or eliminated. The Purchaser intends to seek to cause the
Company to apply for termination of registration of the Shares under the
Exchange Act as soon after the completion of the Offer as the requirements for
such termination are met.
If registration of the Shares is not terminated prior to the Merger, then
the Shares will be delisted from all stock exchanges and the Nasdaq Stock Market
and the registration of the Shares under the Exchange Act will be terminated
following the consummation of the Merger.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. Depending upon factors
similar to those described above regarding listing and market quotations, it is
possible that, following the Offer, the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and therefore could no longer be used as collateral for loans made
by brokers.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal offices at 1111
Chester Ave., Suite 750, Cleveland, Ohio 44114-3516. The Company was
incorporated as a holding company on August 19, 1985 and, through its
subsidiaries, manufactures specialty anti-friction bearings and metal prototype
dies and parts and provides testing and tooling development services to the U.S.
motor vehicle industry. The Company's operating subsidiaries specialize in
highly engineered products and services.
Set forth below is certain selected consolidated financial information with
respect to the Company and its subsidiaries excerpted from the information
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 (the "Company 1998 10-K"), and the Company's Quarterly Report on
Form 10-Q for the three-month period ended September 30, 1998 (the "Company 1998
10-Q"). More
11
<PAGE> 14
comprehensive financial information is included in the Company 1998 10-K and the
Company 1998 10-Q, and the following summary is qualified in its entirety by
reference to the Company 1998 10-K, the Company 1998 10-Q and such other
documents and all the financial information (including any related notes)
contained therein. The Company 1998 10-K, the Company 1998 10-Q and such other
documents should be available for inspection and copies thereof should be
obtainable in the manner set forth below under "Available Information".
DEFIANCE, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------ ------------------------------
1998 1997 1998 1997 1996
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME:
Net sales............................. $21,980 $20,601 $89,251 $92,123 $103,975
Cost of goods sold.................... 18,422 16,977 70,719 72,719 84,502
------- ------- ------- ------- --------
Gross profit............................ 3,558 3,624 18,532 19,404 19,473
Selling and administrative expenses... 2,982 2,888 10,569 10,699 11,296
Other charges......................... -- -- -- 632 2,600
------- ------- ------- ------- --------
Operating earnings...................... 576 736 7,963 8,073 5,577
Interest expenses -- net.............. 232 323 1,160 1,673 1,680
------- ------- ------- ------- --------
Earnings before income tax provision.... 344 413 6,803 6,400 3,897
Income tax provision.................. 123 151 2,287 2,065 2,299
------- ------- ------- ------- --------
Net earnings............................ $ 221 $ 262 $ 4,516 $ 4,335 $ 1,598
------- ------- ------- ------- --------
Basic and diluted net earnings per
common share....................... $ 0.04 $ 0.04 $ 0.73 $ 0.67 $ 0.24
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------- ------------------
1998 1998 1997
------------- ------- -------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS:
ASSETS
Current Assets:
Cash.................................................. $ 323 $ 2,916 $ 188
Accounts receivable, less allowance for doubtful
accounts............................................ 19,568 16,679 21,492
Inventories........................................... 3,630 3,801 3,055
Deferred income taxes................................. 600 590 565
Prepaid expenses and other current assets............. 3,023 3,311 3,674
------- ------- -------
Total current assets............................. 27,144 27,297 28,974
------- ------- -------
Property, Plant and Equipment -- net..................... 34,461 70,261 69,278
Cost in Excess of Net Assets of Acquired Companies....... 4,557 4,619 4,871
Other Assets............................................. 1,322 1,304 2,152
------- ------- -------
Total assets..................................... $67,484 $67,942 $73,819
======= ======= =======
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------- ------------------
1998 1998 1997
------------- ------- -------
<S> <C> <C> <C>
LIABILITIES
Current Liabilities:
Current maturities of long term obligations........... $ 2,963 $ 3,353 $ 4,829
Accounts payable...................................... 3,955 4,967 5,881
Accrued payroll and employee benefits................. 3,414 3,707 3,833
Accrued expenses...................................... 1,982 2,648 2,650
------- ------- -------
Total current liabilities........................ 12,314 14,675 17,193
Long Term Obligations.................................... 12,982 9,955 14,968
Deferred Income Taxes.................................... 3,252 3,209 3,267
Contingencies............................................ -- -- --
Stockholders' Equity..................................... 38,936 40,103 38,391
------- ------- -------
Total liabilities and stockholders' equity....... $67,484 $67,942 $73,819
======= ======= =======
</TABLE>
Certain Company Projections. During the course of discussions between
Parent and the Company, the Company provided Parent with certain non-public
business and financial information about the Company. The Company did not
prepare the projections and forecasts in anticipation of the Offer, any prior
tender offer or other public disclosure. This information was prepared in early
July of 1998 and included forecasts for the fiscal years ending June 30, 1999,
2000 and 2001. Such projections include forecasts of total sales of $94.8
million, $100.4 million and $109.3 million, gross profit of $21.8 million, $25.3
million and $27.8 million, earnings before interest and taxes of $8.8 million,
$11.8 million and $13.2 million, and net income of $5.1 million, $7.0 million
and $7.9 million for fiscal 1999, 2000 and 2001, respectively. The Company does
not as a matter of course make public any projections as to future performance
or earnings, and the projections set forth above are included in this Offer to
Purchase only because the information was provided to Parent. The projections
were not prepared with a view to public disclosure or compliance with the
published guidelines of the Commission or the guidelines established by the
American Institute of Certified Public Accountants regarding projections or
forecasts. The Company's internal operating projections are, in general,
prepared solely for internal use and capital budgeting and other management
decisions and are subjective in many respects and thus susceptible to various
interpretations and periodic revision based on actual experience and business
developments. The projections were based on a number of assumptions that are
beyond the control of the Company, the Purchaser, Parent or General Chemical
Group or their respective financial advisors, including economic forecasting
(both general and specific to the Company's business), which is inherently
uncertain and subjective and were predicated on the assumption that the Company
would continue as an independent, "stand alone" enterprise during the entire
period covered by the projections. None of the Company, the Purchaser, Parent or
General Chemical Group or their respective financial advisors assumes any
responsibility for the accuracy of any of the projections. The inclusion of the
foregoing projections should not be regarded as an indication that the Company,
the Purchaser, Parent or General Chemical Group or any other person who received
such information considers it an accurate prediction of future events. None of
the Company, the Purchaser, Parent or General Chemical Group intends to update,
revise or correct such projections if they become inaccurate (even in the short
term).
Available Information. The Company is subject to the informational
requirements of the Exchange Act and, in accordance therewith, is required to
file reports relating to its business, financial condition and other matters.
Information as of particular dates concerning the Company's directors and
officers, their remuneration, stock options and other matters, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company is disclosed in the Company's proxy statement
dated September 18, 1998, and filed with the Commission. Such information should
be available for inspection at the public reference facilities of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of such information should be
obtainable from the Public Reference Section of the Commission upon payment of
prescribed fees. Such material should also be available for inspection at the
offices of Nasdaq Operations, 1735
13
<PAGE> 16
K Street, N.W., Washington, D.C. 20006. The Commission also maintains a
worldwide web site at http://www.sec.gov which contains reports, proxy and
information statements and other information about companies, including the
Company, that file electronically.
Except as otherwise stated in this Offer to Purchase, the information
concerning the Company contained herein has been taken from or based upon
publicly available documents on file with the Commission and other publicly
available information. Although the Purchaser, Parent and General Chemical Group
do not have any knowledge that any such information is untrue, none of the
Purchaser, Parent or General Chemical Group takes any responsibility for the
accuracy or completeness of such information or for any failure by the Company
to disclose events that may have occurred and may affect the significance or
accuracy of any such information.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER, PARENT AND
GENERAL CHEMICAL GROUP
The Purchaser, a Delaware corporation, which is a wholly-owned direct
subsidiary of Parent, was organized to acquire the Company and has not conducted
any unrelated activities since its organization. The principal office of the
Purchaser is located at the principal office of General Chemical Group. All
outstanding shares of capital stock of the Purchaser are owned by Parent. Parent
is a wholly-owned direct subsidiary of General Chemical Group. The principal
office of Parent is located at the principal office of General Chemical Group.
All outstanding shares of capital stock of Parent are owned by General Chemical
Group.
General Chemical Group is a Delaware corporation with its principal
executive office located at Liberty Lane, Hampton, NH 03842. General Chemical
Group is a publicly traded company registered with the Commission and listed on
the New York Stock Exchange under the symbol "GCG". General Chemical Group is a
diversified manufacturing company predominantly engaged in the production of
inorganic chemicals. General Chemical Group also manufactures precision and
highly engineered stamped and machined metal products, principally automotive
engine parts.
Financial information with respect to General Chemical Group and its
subsidiaries is included in General Chemical Group's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and in General Chemical Group's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998,
which are incorporated herein by reference, and other documents filed by General
Chemical Group with the Commission. Such reports and other documents should be
available for inspection and copies thereof should be obtainable in the manner
set forth below under "Available Information."
Available Information. General Chemical Group is subject to the
informational requirements of the Exchange Act and, in accordance therewith, is
required to file reports relating to its business, financial condition and other
matters. Information as of particular dates concerning General Chemical Group's
directors and officers, their remuneration, stock options and other matters, the
principal holders of General Chemical Group's securities and any material
interest of such persons in transactions with General Chemical Group is
disclosed in General Chemical Group's proxy statement dated March 30, 1998, and
filed with the Commission. Such information may be inspected at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, NY 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
information should be obtainable from the Public Reference Section of the
Commission upon payment of the prescribed fees. Such material should also be
available for inspection at the library of the New York Stock Exchange, 20 Broad
Street, New York, NY 10005. The Commission also maintains a worldwide web site
at http://www.sec.gov which contains reports, proxy and information statements
and other information about companies, including General Chemical Group, that
file electronically.
10. SOURCE AND AMOUNT OF FUNDS
The Purchaser estimates that the total amount of funds required to purchase
the Shares that are outstanding on a fully diluted basis (such basis assumes all
Shares underlying vested and unvested stock options are issued and outstanding)
pursuant to the Offer and to consummate the Merger under the Merger Agreement
and to pay fees and expenses related to the Offer and the Merger will be
approximately $60 million. The Purchaser plans to
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obtain all funds needed for the Offer and the Merger from Parent. Parent intends
to obtain these funds from General Chemical Group. General Chemical Group
intends to obtain these funds by borrowing from an existing $300 million
revolving credit facility (the "Revolving Facility") created under a credit
agreement by and among General Chemical Group, Bank of America National Trust
and Savings Association, The Bank of Nova Scotia, The Chase Manhattan Bank and
the several lenders from time to time parties thereto (as defined therein) dated
as of June 15, 1998 (the "Credit Agreement"), a copy of which has been filed
with the Commission as an Exhibit to the 14D-1 and is incorporated herein by
reference. General Chemical Group does not consider that there are any
conditions or restrictions that would limit it from obtaining these funds under
the Credit Agreement. The Revolving Facility bears interest at a rate equal to a
spread over a reference rate chosen by General Chemical Group from various
options and matures on June 15, 2004. The Revolving Facility is secured by a
first priority security interest in all of the capital stock of General Chemical
Group's domestic subsidiaries and 65 percent of the capital stock of General
Chemical Group's foreign subsidiaries. Such borrowings may be repaid by General
Chemical Group from time to time, in whole or in part, from internally generated
funds or from the proceeds of other borrowings. The Offer is not conditioned
upon obtaining financing.
11. CONTACTS AND TRANSACTIONS WITH THE COMPANY; BACKGROUND OF THE OFFER
During March, 1998, Paul M. Meister, Director of General Chemical Group and
Managing Director of Latona Associates Inc. ("Latona"), General Chemical Group's
financial adviser, and certain other representatives of Latona met with Thomas
H. Roulston, Chairman of the Company, and Jerry A. Cooper, President and CEO of
the Company, in Michigan. During this meeting the parties acknowledged their
mutual interest in pursuing discussions regarding possible strategic
opportunities between General Chemical Group and the Company.
On April 23, 1998, the Company and General Chemical Group executed a mutual
confidentiality agreement. Upon execution of the confidentiality agreement, the
Company provided Latona with limited information concerning the Company,
including internal financial statements reflecting actual results through March
1998 and full fiscal year estimated results through June 1998.
During April and May 1998, representatives of Latona and a consultant to
General Chemical Group met with representatives of the Company and visited the
Company's corporate headquarters and several of the Company's operating
facilities. Following these visits, the parties agreed to continue their
discussions regarding potential strategic opportunities between General Chemical
Group and the Company and the Company agreed to provide Latona with limited
information concerning the Company.
On June 29, 1998, representatives of Latona met with representatives of the
Company in Cleveland. The Company outlined its strategy with respect to its
various businesses and indicated that the Company would consider the possibility
of a business combination transaction involving the Company and General Chemical
Group if the terms of such transaction were acceptable to the Company's Board of
Directors. No formal proposals regarding any business combination transaction
were made, but the parties agreed that the Company would provide Latona with
certain additional information so that Latona and General Chemical Group could
examine the potential benefits of any such transaction.
On July 9, 1998, the Company provided Latona with certain additional
information concerning the Company, including projected results for the fiscal
years ending June 30, 1999, 2000 and 2001. On July 17, 1998, representatives of
General Chemical Group and Latona reviewed the information provided on July 9,
1998 with representatives of the Company, via telephone.
Representatives of Latona and General Chemical Group and representatives of
the Company had several additional telephone conversations during July 1998 and
August 1998, but no substantive discussions between representatives of Latona
and General Chemical Group and representatives of the Company were held between
July 17, 1998 and September 17, 1998. On that date, a representative of Latona
called Mr. Cooper indicating that General Chemical Group remained interested in
purchasing the Company.
On October 5, 1998, representatives of Latona met with Mr. Roulston in New
York and expressed General Chemical Group's willingness to consider further a
possible business combination transaction involving General Chemical Group and
the Company at a price in the range of $10 per share, subject to, among other
things,
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satisfactory completion of General Chemical Group's due diligence investigation
and entering into a mutually satisfactory merger agreement.
On October 15, 1998 and October 23, 1998, the Company provided Latona with
certain additional information concerning the Company, including internal
financial statements reflecting actual results by subsidiary for the months
ended June 30, July 31, August 31 and September 30, 1998 as well as corporate-
and subsidiary-level plan books. Between October 29, 1998 and November 30, 1998,
representatives of General Chemical Group and Latona conducted their due
diligence review of the Company at the Company's corporate headquarters and all
of the Company's operating facilities.
On October 21, 1998, General Chemical Group's counsel delivered a first
draft of the proposed Merger Agreement and Stockholders Agreement to the
Company's counsel. During the following months, General Chemical Group and the
Company and their respective counsel proceeded with extensive negotiations of
the terms of the Merger Agreement. In addition, General Chemical Group and the
Company and their respective counsel negotiated the terms of the Stockholders
Agreement.
In November and December 1998, representatives of Latona and General
Chemical Group and representatives of the Company, including each party's
respective counsel, held numerous discussions concerning General Chemical
Group's ongoing review of the information provided by the Company.
On December 2, 1998, the Board of Directors of General Chemical Group held
a meeting at which they reviewed a possible business combination transaction
involving General Chemical Group and the Company and reviewed drafts of the
Merger Agreement and the Stockholders Agreement. General Chemical Group's Board
of Directors authorized General Chemical Group and Latona to continue
negotiations with the Company concerning such transaction and to proceed with
such a transaction at a price not to exceed $10.00 per Share subject to
finalizing due diligence and documentation.
In late December, Mr. Roulston and representatives of Latona discussed the
price at which General Chemical Group would be willing to make an all cash
tender offer for all of the outstanding Shares of the Company, subject to
execution of the Merger Agreement. On December 28, 1998, as a result of further
negotiations, the parties ultimately agreed to a price of $9.50 per Share. Over
the next 10 days, the parties continued to negotiate the terms of the
transaction agreements. On Thursday, January 7, 1999, the Company's Board of
Directors approved the terms of the Merger Agreement, the Stockholders Agreement
and the transactions contemplated by such agreements and the parties executed
the transaction agreements. General Chemical Group and the Company publicly
announced the transaction on Friday, January 8, 1999.
On January 13, 1999, General Chemical Group, Parent and the Purchaser
commenced the Offer.
The Purchaser and the Company have signed a letter with each of Messrs
Cooper, Meier, Schumacher, Scherschel, Burke and Madden (together, the "Change
of Control Letters") (i) to confirm amounts that may be due to such employees
pursuant to, in the case of Mr. Cooper, an existing agreement with the Company
and, in the case of the other employees, the Company's Change of Control Policy
dated July 24, 1998 upon such employee's termination of employment with the
Company due to a change of control of the Company and (ii) to continue salary,
bonus and benefits provided to each of these executives at no less than current
levels prior to a termination due to a change of control. This summary is
qualified in its entirety by reference to the Change of Control Letters, copies
of which have been filed with the Commission as Exhibits to the Schedule 14D-1
relating to the Offer and which are incorporated herein by reference.
Other arrangements. Except as described in this Offer to Purchase
(including Schedule I hereto), none of the Purchaser, Parent or General Chemical
Group nor, to the best knowledge of the Purchaser, Parent and General Chemical
Group, any of the persons listed in Schedule I hereto, nor any associate or
majority-owned subsidiary of the Purchaser, Parent, General Chemical Group or
any of the persons so listed, beneficially owns any equity security of the
Company, and none of the Purchaser, Parent or General Chemical Group, nor, to
the best knowledge of the Purchaser, Parent and General Chemical Group, any of
the other persons referred to above, or any of the respective directors,
executive officers or subsidiaries of any of the foregoing, has effected any
transaction in any equity security of the Company during the past 60 days.
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Except as described in this Offer to Purchase, as of the date hereof (a)
there have not been any contacts, transactions or negotiations between the
Purchaser, Parent and General Chemical Group, any of General Chemical Group's
subsidiaries or, to the best knowledge of the Purchaser, Parent and General
Chemical Group, any of the persons listed in Schedule I hereto, on the one hand,
and the Company or any of its directors, officers or affiliates, on the other
hand, that are required to be disclosed pursuant to the rules and regulations of
the Commission and (b) none of the Purchaser, Parent or General Chemical Group
nor, to the best knowledge of the Purchaser, Parent and General Chemical Group,
any of the persons listed in Schedule I hereto has any contract, arrangement,
understanding or relationship with any person with respect to any securities of
the Company.
12. THE MERGER AGREEMENT; THE STOCKHOLDERS AGREEMENT
The following is a summary of certain provisions of the Merger Agreement
and the Stockholders Agreement, copies of which have been filed with the
Commission as Exhibits to the Schedule 14D-1 relating to the Offer and are
incorporated herein by reference. Such summaries are qualified in their entirety
by reference to the text of such agreements.
THE MERGER AGREEMENT
The Merger Agreement provides that following the satisfaction or waiver of
the conditions described below under "Conditions to the Merger", the Purchaser
will be merged with and into the Company, and each then outstanding Share (other
than Shares owned by the Company, Parent, the Purchaser, any other subsidiary of
Parent or by stockholders, if any, who are entitled to and who properly exercise
appraisal rights under Delaware law) will be converted into the right to receive
an amount in cash equal to the price per Share paid pursuant to the Offer.
Vote Required To Approve Merger. The DGCL requires, among other things,
that the adoption of any plan of merger or consolidation of the Company must be
approved by the Board of Directors and generally by the holders of the Company's
outstanding voting securities. The Board of Directors of the Company has
approved the making of the Offer and the Merger; consequently, the only
additional action of the Company that may be necessary to effect the Merger is
approval by the Company's stockholders if the "short-form" merger procedure
described below is not available. Under the DGCL, the affirmative vote of
holders of a majority of the voting power of the then outstanding Shares
(including any Shares owned by the Purchaser) is generally required to approve
the Merger. If the Purchaser acquires, through the Offer, the Stockholders
Agreement or otherwise, a majority of the voting power of the outstanding Shares
(which would be the case if the Minimum Condition were satisfied and the
Purchaser were to accept for payment Shares tendered pursuant to the Offer), it
would have sufficient voting power to effect the Merger without the vote of any
other stockholder of the Company.
Under the DGCL, if a corporation owns 90% or more of each outstanding class
of capital stock of another corporation, it can effect a "short-form" merger
with such corporation without prior notice to, or any other action by, any other
stockholder of such corporation. As a result, assuming no Stock Options are
exercised following January 7, 1999, if the Purchaser were to acquire ownership
of 5,403,375 Shares (or, if all Stock Options were vested and exercised,
5,800,107 shares) pursuant to the Offer, the Purchaser would own more than 90%
of the only class of capital stock of the Company then outstanding and would be
able to effect the Merger pursuant to the "short-form" merger provisions of the
DGCL. See Section 15.
Conditions to the Merger. The Merger Agreement provides that the
obligations of Parent, the Purchaser and the Company to consummate the Merger
are subject to the satisfaction of certain conditions, including the following:
(a) the Purchaser shall have purchased all Shares duly tendered and not
withdrawn pursuant to the terms of the Offer and subject to the terms thereof;
provided that the obligation of the Parent and the Purchaser to effect the
Merger shall not be conditioned on the fulfillment of such condition if the
failure of the Purchaser to purchase the Shares pursuant to the Offer shall have
constituted a breach of the Offer or of the Merger Agreement; (b) the
consummation of the Merger shall not be precluded by any order, decree or
injunction of a court of competent jurisdiction (each party having agreed to use
its best efforts to have any such order reversed or injunction lifted), and
there shall not have been any action taken or any law enacted, promulgated or
deemed applicable to the Merger by any court, governmental agency or regulatory
or administrative authority, foreign or
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domestic (each, a "Governmental Entity") that makes consummation of the Merger
illegal; (c) if required by the Certificate of Incorporation and By-Laws of the
Company and the DGCL, the Merger Agreement shall have been approved and adopted
by the affirmative vote of the holders of the requisite number of Shares in
accordance with the Certificate of Incorporation and By-Laws of the Company and
the DGCL; and (d) any applicable waiting period under the HSR Act shall have
expired or been terminated. The Merger Agreement also provides that the
obligations of Parent and the Purchaser to consummate the Merger are subject to
the satisfaction, at or before the effective time of the Merger, of the
following additional conditions: (a) the Company shall not have received notice
from the holder or holders of more than 3% of the outstanding Shares, determined
on a fully diluted basis, that such holder or holders have exercised or intend
to exercise its or their appraisal rights under Section 262 of the DGCL; (b)
there shall not be pending or threatened by any Governmental Entity any suit,
action or proceeding (and there shall not be pending by any other person any
suit, action or proceeding which has a reasonable likelihood of success), in
each case (i) challenging the acquisition by Parent or the Purchaser of any
shares of capital stock of the Company or the Surviving Corporation, seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement or the Stockholders Agreement
or seeking to obtain from the Company, Parent or the Purchaser any damages that
are material taken as a whole or Parent and its subsidiaries taken as a whole,
as applicable, (ii) seeking to prohibit or limit the ownership or operation by
the Company, Parent or any of their respective subsidiaries of any material
portion of the business or assets of the Company and its subsidiaries, taken as
a whole, or Parent and its subsidiaries, taken as a whole, as applicable, or to
compel the Company, Parent or any of their respective subsidiaries to dispose of
or hold separate any material portion of the business or assets of the Company
and its subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as
a whole, as applicable, as a result of the Merger or any of the other
transactions contemplated by the Merger Agreement or the Stockholders Agreement,
(iii) seeking to impose limitations on the ability of Parent to acquire or hold,
or exercise full rights of ownership of, any shares of capital stock of the
Company or the Surviving Corporation, including the right to vote the Shares, or
common stock of the Surviving Corporation, on all matters properly presented to
the stockholders of the Company or the Surviving Corporation, (iv) seeking to
prohibit Parent and its subsidiaries from effectively controlling in any
material respect the business or operations of the Company and its subsidiaries,
taken as a whole, or (v) which otherwise could reasonably be expected to have a
Material Adverse Effect on the Company or Parent; and (c) there shall not be any
statute, rule, regulation, judgment or order enacted, entered, enforced or
promulgated that is reasonably likely to result, directly or indirectly, in any
of the consequences referred to in clauses (ii) through (iv) of subparagraph (b)
above.
As used herein,"Material Adverse Effect" means, with respect to any person
or entity, a material adverse effect on the business, assets, liabilities,
operations or condition (financial or otherwise) of such person or entity and
its subsidiaries, taken as a whole.
Termination of the Merger Agreement. The Merger Agreement may be terminated
and the Merger abandoned at any time prior to the effective time of the Merger,
whether prior to or after approval of the terms of the Merger Agreement by the
stockholders of the Company:
(1) by the mutual written consent of Parent, the Purchaser and the
Company;
(2) by either the Parent or the Company if, on or before April 7,
1999, and without fault of such terminating party, the Purchaser shall not
have purchased in the Offer such number of Shares which represent in excess
of 50% of the outstanding Shares on a fully diluted basis, or the Merger
shall not have been consummated on or before July 6, 1999, provided,
however, that the right to terminate the Merger Agreement is not available
to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the Offer
or the Merger to have occurred on or before the aforesaid date;
(3) by either the Parent or the Company if the Offer shall expire or
terminate in accordance with its terms without any Shares having been
purchased thereunder and, in the case of termination by the Parent, the
Purchaser shall not have been required by the terms of the Offer or the
Merger Agreement to purchase any Shares pursuant to the Offer;
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(4) by the Company if the Purchaser shall not timely commence the
Offer as provided in the Merger Agreement;
(5) if approval by the Company's stockholders is required by law, by
either the Purchaser or the Company if, upon a duly held vote of the
Company's stockholders, such stockholder approval shall not have been
obtained;
(6) unilaterally by the Purchaser or the Company (i) if the other
fails to perform any material covenant in any material respect in the
Merger Agreement, and does not cure the failure in all material respects
within 30 business days after the terminating party delivers written notice
of the alleged failure or (ii) if any condition to the obligations of that
party is not satisfied (other than by reason of a breach by that party of
its obligations hereunder), and it reasonably appears that the condition
cannot be satisfied prior to July 6, 1999;
(7) by either the Purchaser or the Company if either is prohibited by
an order or injunction (other than an order or injunction on a temporary or
preliminary basis) of a court of competent jurisdiction or other
Governmental Entity from consummating the Offer or the Merger and all means
of appeal and all appeals from such order or injunction have been finally
exhausted;
(8) by the Purchaser if the Board of Directors of the Company shall
have withdrawn or modified, or resolved to withdraw or modify, in any
manner which is adverse to Parent or the Purchaser, its recommendation or
approval of the Offer, the Merger or the Merger Agreement; provided,
however, that such a termination shall not become effective if, as a result
of the Company's receipt of a proposal for an Acquisition Transaction (as
defined under "Takeover Proposals") from a third party, the Company, in
accordance with the Merger Agreement, withdraws or modifies, or resolves to
withdraw or modify, in any manner which is adverse to Parent or the
Purchaser, its recommendation or approval of the Offer, the Merger or the
Merger Agreement and if within ten (10) business days of taking and
disclosing to its stockholders the aforementioned position the Company
publicly reconfirms its recommendation of the transactions contemplated by
the Merger Agreement; or
(9) by the Company if (i) the Board of Directors of the Company shall
have determined in good faith, based on the advice of outside counsel, that
it is necessary, in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, to terminate the Merger
Agreement to enter into an agreement with respect to or to consummate a
transaction constituting a Superior Proposal (as defined under "Takeover
Proposals"), (ii) the Company shall have given notice to the Purchaser
advising the Purchaser that the Company has received a Superior Proposal
from a third party, specifying the material terms and conditions (including
the identity of the third party) and that the Company intends to terminate
the Merger Agreement, (iii) either (A) the Purchaser shall not have revised
its proposal for an Acquisition Transaction within two (2) business days
from the time on which such notice is deemed to have been given to Parent,
or (B) if the Purchaser within such period shall have revised its proposal
for an Acquisition Transaction, the Board of Directors of the Company,
after receiving advice from the Company's financial advisor, shall have
determined in its good faith reasonable judgment that the third party's
proposal for an Acquisition Transaction is superior to Parent's revised
proposal for an Acquisition Transaction and (iv) the Company, at the time
of such termination, pays the Expenses and the Termination Fee (each as
defined under "Fees and Expenses" below).
Takeover Proposals. The Merger Agreement provides that the Company shall
not, shall not permit any of its subsidiaries to, and shall not authorize or
permit any officer, director or employee or any investment banker, attorney,
accountant or other advisor or representative of the Company or any of its
subsidiaries to, directly or indirectly, except as otherwise described in this
or the next paragraph (i) initiate, solicit, negotiate, encourage, or provide
confidential information to facilitate any proposal or offer to acquire all or
any substantial part of the business and properties of the Company and its
subsidiaries, taken as a whole, or beneficial ownership (as determined pursuant
to Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the capital
stock of the Company, whether by merger, purchase of assets, tender offer or
otherwise, whether for cash, securities or any other consideration or
combination thereof (such transactions being referred to herein as "Acquisition
Transactions"), (ii) enter into any agreement with respect to any Acquisition
Transaction or give any approval of
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the type referred to in the next paragraph below with respect to any Acquisition
Transaction or (iii) participate in any discussions regarding, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to any Acquisition
Transaction. Notwithstanding the immediately preceding sentence, the Company and
its subsidiaries may, prior to the approval of the Merger Agreement by the
Company's stockholders, in response to any unsolicited proposal for an
Acquisition Transaction, furnish information concerning its business, properties
or assets to the corporation, partnership, person or other entity or group (a
"Potential Acquiror") making such proposal for an Acquisition Transaction and
participate in negotiations with the Potential Acquiror if (x) the Company's
Board of Directors after consultation with one or more of its independent
financial advisors, is of the reasonable belief that such Potential Acquiror has
the financial wherewithal to consummate such an Acquisition Transaction, (y) the
Company's Board of Directors reasonably determines, after receiving advice from
the Company's financial advisor, that such Potential Acquiror has submitted a
proposal for an Acquisition Transaction that involves consideration to the
Company's stockholders and other terms that taken as a whole are superior to the
Merger and (z) based upon advice of counsel to such effect, the Company's Board
of Directors determines in good faith that it is necessary to so furnish
information and negotiate in order to comply with its fiduciary duty to
stockholders of the Company. The Merger Agreement provides that in the event the
Company shall determine to provide any information as described above, or shall
receive any offer of the type referred to in this section or shall receive or
become aware of any other proposal to acquire a substantial part of the business
and properties of the Company and its subsidiaries, taken as a whole, or to
acquire a substantial amount of capital stock of the Company, it shall promptly
inform Parent orally as to the fact that information is to be provided and shall
furnish to Parent the identity of the recipient of such information and/or the
proponent of such offer or proposal and a description of the material terms
thereof. The Company is also obligated to keep Parent fully informed of the
status and material details of any proposed Acquisition Transaction or other
transaction (including any material amendments or material proposed amendments
of any such proposed Acquisition Transaction or other transaction).
The Merger Agreement also provides that neither the Board of Directors of
the Company nor any committee thereof (x) shall withdraw or modify or propose to
withdraw or modify, in any manner adverse to Parent, the approval or
recommendation of such Board of Directors or such committee of the Merger
Agreement, the Offer or the Merger or (y) approve or recommend, or propose to
approve or recommend, any proposal for an Acquisition Transaction except, in
each case, in connection with a Superior Proposal. As used herein, the term
"Superior Proposal" means a bona fide proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the Shares then outstanding or all or substantially all the assets of the
Company, provided (i) such proposed transaction satisfies the tests set forth in
clauses (x), (y) and (z) of the second sentence of the immediately preceding
paragraph and (ii) the Board of Directors determines, in its good faith
reasonable judgment, that such proposed transaction is reasonably likely to be
consummated without undue delay.
The Merger Agreement also provides that nothing contained in the preceding
two paragraphs shall prohibit the Company from at any time taking and disclosing
to its stockholders a position contemplated by Rule 14e-2(a) promulgated under
the Exchange Act, provided that neither the Company nor its Board of Directors
shall, except as permitted by the preceding two paragraphs, approve or recommend
acceptance of a proposal for an Acquisition Transaction.
Fees and Expenses. The Merger Agreement provides that the Company will pay,
or cause to be paid, in same day funds to Parent the sum of (x) Parent's
Expenses (as defined below) and (y) $1,750,000 (the "Termination Fee") upon
demand if (i) the Company terminates the Merger Agreement in accordance with the
provision described in paragraph (9) under "Termination of Merger Agreement",
(ii) the Purchaser terminates the Merger Agreement in accordance with the
provisions described in paragraphs (6) or (8) under "Termination of Merger
Agreement" at any time after a proposal for an Acquisition Transaction has been
made or, (iii) the Company or the Purchaser terminates the Merger Agreement in
accordance with the provisions described in paragraphs (2), (3) or (5) under
"Termination of Merger Agreement" at any time after a proposal for an
Acquisition Transaction has been made, and, within twelve (12) months after any
termination referred to in the immediately preceding clauses (ii) or (iii) of
this sentence, any person that made a proposal for an Acquisition Transaction
(or an affiliate thereof) completes a merger, consolidation or other business
combination with the
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Company or a subsidiary of the Company, or the purchase from the Company or from
a subsidiary of the Company of 30% or more (in voting power) of the voting
securities of the Company or of 30% or more (in market value) of the assets of
the Company and its subsidiaries, on a consolidated basis; provided that the
Company will not have any such obligations if the Purchaser terminates the
Merger Agreement in accordance with the provision described in paragraph (6)(ii)
under "Termination of Merger Agreement" as a result of the failure of a
condition to be satisfied unless the reason for the failure of such condition to
be satisfied is reasonably related to the making of such proposal for an
Acquisition Transaction by the person that ultimately consummated a transaction
with the Company. "Expenses" shall mean reasonable and reasonably documented
out-of-pocket fees and expenses incurred or paid by or on behalf of Parent in
connection with the Offer and the Merger or the consummation of any of the
transactions contemplated by the Merger Agreement (including, without
limitation, fees and expenses of counsel, commercial banks, investment banking
firms, accountants, experts and consultants to Parent and any of its
affiliates), provided that all such Expenses for this purpose shall not exceed
$1,000,000 in the aggregate.
Conduct of Business by the Company. The Merger Agreement provides that,
except as otherwise expressly contemplated by the Merger Agreement (including
exceptions on the disclosure schedule thereto) or to the extent that the
Purchaser shall otherwise consent in writing, during the period from the date of
the Merger Agreement to the effective time of the Merger the Company shall not
and shall cause its subsidiaries not to: (a) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by a direct or indirect
wholly-owned subsidiary of the Company to its parent; (b) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock; (c) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities; (d) grant, issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities except upon exercise of any
Stock Option; (e) amend its certificate of incorporation, by-laws or other
comparable organizational documents; (f) acquire or agree to acquire (x) by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, limited
liability company, partnership, joint venture, association or other business
organization or division thereof or (y) any assets or services of any kind other
than (i) pursuant to written purchase orders issued in the ordinary course of
business and in customary amounts consistent with past practices or (ii)
acquisitions of assets or services in the ordinary course of business and in
customary amounts consistent with past practices that, individually, do not
exceed $25,000; (g) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or assets,
other than in the ordinary course of business consistent with past practice,
that are material to the Company and its subsidiaries taken as a whole; (h)
incur any indebtedness, except for borrowings for working capital purposes not
in excess of recent past practice and current lending arrangements; (i) make or
agree to make any new capital expenditure or capital expenditures which in the
aggregate are in excess of $100,000; (j) pay (or commit to pay) any bonus or
other incentive compensation to any officer, director, partner or other employee
or grant (or commit to grant) to any officer, director, partner or employee any
other increase in compensation, except, in the case of employees who are not
executive officers or directors, normal salary increases consistent with recent
practice; (k) (x) enter into, adopt or amend (or commit to enter into, adopt or
amend) any employment, retention, change in control, collective bargaining,
deferred compensation, severance, retirement, bonus, profit-sharing, stock
option or other equity, pension or welfare plan or agreement maintained for the
benefit of any officer, director, partner or employee, except as required by
law, or (y) except as required by agreements set forth on the disclosure
schedule to the Merger Agreement, grant or pay (or commit to grant or pay) any
severance or termination compensation or benefits to any officer, director,
partner or employee; (l) make any tax election inconsistent with past practices
or settle or compromise any material income tax liability; (m) except in the
ordinary course of business or except as would not reasonably be expected to
have a Material Adverse Effect on the Company, modify, amend or terminate any
material contract or agreement to which the Company or any subsidiary is a party
or waive, release or assign any material rights or claims thereunder; (n) make
any material change to its accounting methods, principles or practices, except
as may be required by
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generally accepted accounting principles; or (o) authorize, or commit or agree
to take, any of the foregoing actions.
In addition to the foregoing, the Company has agreed that, except as
expressly contemplated or permitted by the Merger Agreement, it will not take
any action, or permit any of its subsidiaries to take any action, that would, or
that could reasonably be expected to, result in (a) any of the representations
and warranties of the Company set forth in the Merger Agreement that are
qualified as to materiality becoming untrue, (b) any of such representations and
warranties that are not so qualified becoming untrue in any material respect or
(c) any of the conditions to the Merger not being satisfied.
Board of Directors. The Merger Agreement provides that promptly upon the
purchase by the Purchaser of more than 50% of the outstanding Shares on a
fully-diluted basis pursuant to the Offer and from time to time thereafter, the
Company shall use its best efforts to allow the Purchaser to designate up to the
minimum number of directors of the Company necessary in order for the result
(expressed as a fraction) derived by dividing the number of directors so
designated by the total number of directors to be at least equal to the result
(expressed as a fraction) derived by dividing the Shares then held by the
Purchaser by the total number of Shares then outstanding, provided, however,
that until the consummation of the Merger, the Board of Directors of the Company
will have at least two (2) Independent Directors. Subject to applicable law, the
Company has agreed to promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, in order to
fulfill its obligations under the Merger Agreement. The term "Independent
Director" means a director who is neither designated by the Purchaser nor
otherwise affiliated with the Parent or the Purchaser and is not an employee of
the Company or any of its subsidiaries.
Stock Options. Pursuant to the Merger Agreement, immediately prior to the
effective time of the Merger, each then outstanding Stock Option, shall be
canceled by the Company in exchange for a payment in cash by the Purchaser (the
"Option Consideration") equal to the product of (i) the number of Shares
previously subject to the Stock Option and (ii) the excess, if any, of the Offer
Price over the exercise price for each Share under such Stock Option. As of the
effective time of the Merger, each holder of a Stock Option will be entitled to
receive only an amount equal to the Option Consideration. All Stock Option
amounts payable shall be subject to any required withholding of taxes and shall
be paid without interest. Pursuant to the Merger Agreement, the Company shall
thereafter cause each stock option or other equity based plan maintained with
respect to any Shares (or rights in respect thereof) to be terminated. The
Merger Agreement provides that the Company shall use its best efforts to cause
each holder of an Option, whether or not then exercisable, to execute an
agreement consenting to the cancellation immediately prior to the Effective Time
of such holder's Options in exchange for such holder's right to receive the
Option Consideration.
Indemnification and Insurance. In the Merger Agreement, Parent and the
Purchaser have agreed that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the effective time of
the Merger now existing in favor of the current or former directors, officers
employees or agents of the Company and its subsidiaries or any Person who is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, as provided in their respective certificates of incorporation,
by-laws (or comparable organizational documents) and indemnification agreements
shall survive the Merger and shall continue in full force and effect in
accordance with their terms. Pursuant to the Merger Agreement, Parent will cause
to be maintained for a period of not less than six (6) years from the effective
time of the Merger the Company's current directors' and officers' insurance and
indemnification policy to the extent that it provides coverage for events
occurring prior to such effective time ("D&O Insurance") for all persons who are
directors and officers of the Company on the date of the Merger Agreement, so
long as the annual premium therefor would not be in excess of 250% of the last
annual premium paid prior to the date of the Merger Agreement (the "Maximum
Premium"); provided, however, that if the annual premium therefor would exceed
the Maximum Premium, Parent shall purchase as much coverage as is available for
the Maximum Premium; provided further, that Parent may, in lieu of maintaining
such existing D&O Insurance as provided above, cause coverage to be provided
under any policy maintained for the benefit of Parent or any of its subsidiaries
or any policy specifically obtained for this purpose, so long as the terms
thereof are no less advantageous to the intended beneficiaries thereof than the
existing D&O Insurance for a period of not less
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<PAGE> 25
than six (6) years from the effective time of the Merger. If the existing D&O
Insurance expires, is terminated or canceled during such six (6) year period,
Parent has agreed to obtain as much D&O Insurance as can be obtained for the
remainder of such period for an annualized premium equal to the Maximum Premium,
on terms and conditions no less advantageous to the covered persons than the
existing D&O Insurance.
Reasonable Best Efforts. The Merger Agreement provides that, except as
otherwise contemplated therein, Parent, the Purchaser and the Company each shall
use their reasonable best efforts to take promptly, or cause to be taken, all
actions and to do promptly, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by the
Merger Agreement, including using their reasonable best efforts (i) to obtain
all necessary waivers, consents and approvals, and (ii) to effect all necessary
registrations and filings, subject, however, to the approval of the Company's
stockholders. In case at any time after the effective time of the Merger any
further action is necessary or desirable to carry out the obligations of the
parties under the Merger Agreement, the proper officers and/or directors of
Parent, the Purchaser and the Company, as the case may be, shall take the
necessary action.
Specifically, Parent, Purchaser and the Company have agreed to use their
reasonable best efforts to make promptly any required submissions under the HSR
Act with respect to the Offer, the Merger and the transactions contemplated by
the Merger Agreement. The Company has agreed to use its reasonable best efforts
to obtain all consents, approvals, permits or authorizations as are required to
be obtained from other parties to loan agreements or other contracts material to
the Company's business in connection with the consummation of the Merger.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties.
THE STOCKHOLDERS AGREEMENT
Pursuant to the terms and conditions of the Stockholders Agreement, each
Selling Stockholder has agreed to tender his Shares in the Offer.
In the Stockholders Agreement, each Selling Stockholder has further agreed
that, until the Termination Date (as defined below), such Selling Stockholder
will vote his Shares (i) in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the approval of the terms thereof and
each of the other actions contemplated by the Merger Agreement and the
Stockholders Agreement and any actions required in furtherance thereof; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement, the Offer or the Stockholders Agreement; and (iii)
except as specifically requested in writing by Parent in advance, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company or its
subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its subsidiaries or a reorganization, recapitalization,
dissolution, liquidation or winding up of the Company or any of its
subsidiaries; (C) any change in the Board of Directors of the Company; (D) any
change in the present capitalization of the Company or any amendment of the
Company's Certificate of Incorporation; (E) any other material change in the
Company's corporate structure or business; and (F) any other action which is
intended or could reasonably be expected to impede, interfere with, delay,
postpone, discourage or materially adversely affect the Merger, the transactions
contemplated by the Merger Agreement or the Stockholders Agreement or the
contemplated economic benefits of any of the foregoing.
In addition, subject to his obligations as a director or officer of the
Company, to the extent permitted by the Merger Agreement, each Selling
Stockholder has agreed that he shall not, directly or indirectly (including
through advisors, agents or other intermediaries), initiate, solicit, negotiate,
encourage or provide confidential information to facilitate any proposal or
offer by any Person that constitutes or could reasonably be expected to lead to
an Acquisition Transaction. If such Selling Stockholder receives any such
inquiry or proposal, then such Selling Stockholder shall promptly inform Parent
of the terms and conditions, if any, of such inquiry or proposal and the
identity of the person making it. The Selling Stockholders have also agreed to
immediately cease and
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cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
Under the Stockholders Agreement, each Selling Stockholder has also granted
the Purchaser an irrevocable option to purchase such Selling Stockholder's
Shares, including all Shares subject to all Stock Options owned by such Selling
Stockholder, in each case at the Offer Price per Share. In the case of all
Shares underlying all such Stock Options (the "Option Shares"), such option may
be exercised by the Purchaser at any time and from time to time following the
earlier to occur of its purchase of any Shares pursuant to the Offer and any
time when the Merger Agreement is terminated in accordance with its terms. In
the case of all other Shares held by the Selling Stockholders, such option may
be exercisable by the Purchaser at any time, and from time to time, following
any time the Merger Agreement is terminated in accordance with its terms. Among
other things, this option may facilitate the Purchaser's ability to acquire 50%
of the outstanding Shares and may enable the Purchaser to sell all of such
Shares subject to such option to any person who has made and consummates a
Superior Proposal.
The Stockholders Agreement shall terminate upon the earlier of (a) the
effective time of the Merger, (b) if (i) the Company terminates the Merger
Agreement pursuant to paragraph 9 above under "Termination of the Merger
Agreement, (ii) the Purchaser terminates the Merger Agreement pursuant to
paragraphs 6 or 8 above under "Termination of the Merger Agreement" at any time
after a proposal for an Acquisition Transaction has been made or (iii) the
Company or the Purchaser terminates the Merger Agreement pursuant to paragraphs
2, 3 or 5 above under "Termination of the Merger Agreement" at any time after a
proposal for an Acquisition Transaction has been made, twelve (12) months after
any such termination, provided, however, that if the Purchaser has exercised the
option pursuant to Stockholders Agreement described above prior to such date but
has not closed the purchase of the Shares and/or Option Shares subject to such
option prior to such date, the Stockholders Agreement shall terminate
immediately after the date of such closing, and (c) if the Merger Agreement is
terminated under any circumstances not mentioned in clause (b) of this
paragraph, the date the Merger Agreement is terminated.
13. DIVIDENDS AND DISTRIBUTIONS
Pursuant to the terms of the Merger Agreement, prior to the effective time
of the merger, unless otherwise approved in writing by the Purchaser, the
Company may not (a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly-owned subsidiary of
the Company to its parent, (ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (iii) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities or (b) grant, issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities, except upon exercise of any Option. Nothing herein shall
constitute a waiver by the Purchaser or Parent of any of its rights under the
Merger Agreement or a limitation of remedies available to the Purchaser or
Parent for any breach of the Merger Agreement, including termination thereof.
14. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or the Merger Agreement, the
Purchaser shall not be required to accept for payment, or, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to the Purchaser's obligation to pay for or
return tendered shares after the termination or withdrawal of the Offer), to pay
for any Shares tendered pursuant to the Offer, and (subject to the terms of the
Merger Agreement) may amend or terminate the Offer or postpone the acceptance
for payment, the purchase of, and/or (subject to any such applicable rules and
regulations of the Commission) payment for, Shares tendered, (i) unless there
are validly tendered and not properly withdrawn prior to the expiration of the
Offer at least that number of Shares which represents in excess of 50% of all
outstanding Shares on a fully-diluted basis (such basis assumes all Shares
underlying vested and unvested stock options are issued and outstanding), or
(ii) if at any time on or after the date of the Merger Agreement and at or
before the time of payment for any such Shares
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<PAGE> 27
(whether or not any Shares shall theretofore have been accepted for payment or
paid pursuant to the Offer) any of the following conditions exists:
(a) there shall have been any action or proceeding brought by any
governmental authority before any federal or state court, or any order or
preliminary or permanent injunction entered in any action or proceeding
before any federal or state court or governmental, administrative or
regulatory authority or agency, located or having jurisdiction within the
United States or any country or economic region in which either the Company
or Parent, directly or indirectly, has material assets or operations, or
any other action taken, proposed or threatened, or statute, rule,
regulation, legislation, interpretation, judgment or order proposed,
sought, enacted, entered, promulgated, amended or issued that is applicable
to Purchaser, the Company or any subsidiary or affiliate of Purchaser or
the Company or the Offer or the Merger, by any legislative body, court,
government or governmental, administrative or regulatory authority or
agency located or having jurisdiction within the United States or any
country or economic region in which either the Company or Parent, directly
or indirectly, has material assets or operations, which could reasonably be
expected to have the effect of: (i) making illegal, or otherwise
restraining or prohibiting or making materially more costly, the making of
the Offer, the acceptance for payment of, payment for, or ownership,
directly or indirectly, of some of or all the Shares by Parent or
Purchaser, the consummation of any of the transactions contemplated by the
Merger Agreement or materially delaying the Merger; (ii) prohibiting or
materially limiting the ownership or operation by the Company or any of its
subsidiaries, or by Parent, Purchaser or any of Parent's subsidiaries of
all or any material portion of the business or assets of the Company and
its subsidiaries taken as a whole or Parent or any of its subsidiaries, or
compelling Purchaser, Parent or any of Parent's subsidiaries to dispose of
or hold separate all or any material portion of the business or assets of
the Company and any of its subsidiaries taken as a whole or Parent or any
of its subsidiaries, in each case as a result of the transactions
contemplated by the Offer or the Merger Agreement; (iii) imposing or
confirming material limitations on the ability of Purchaser, Parent or any
of Parent's subsidiaries effectively to acquire or hold or to exercise full
rights of ownership of Shares including, without limitation, the right to
vote any Shares acquired or owned by Parent or Purchaser or any of Parent's
subsidiaries on all matters properly presented to the stockholders of the
Company, including, without limitation, the adoption and approval of the
Merger Agreement and the Merger or the right to vote any shares of capital
stock of any subsidiary directly or indirectly owned by the Company; (iv)
requiring divestiture by Parent or Purchaser, directly or indirectly, of
any Shares; or (v) which could reasonably be expected to materially
adversely affect the business, financial condition or results of operations
of the Company and its subsidiaries taken as a whole or the value of the
Shares or of the Offer to Purchaser or Parent;
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) a
decline of at least 25% in either the Dow Jones Average of Industrial
Stocks or the Standard & Poor's 500 index from that existing at the close
of business on the date hereof, (iii) any material adverse change or any
condition, event or development involving a prospective material adverse
change in United States or other material international currency exchange
rates or a suspension of, or limitation on, the markets therefor, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (v) any limitation (whether or not
mandatory) by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign on, or any other event that
materially adversely affects, the extension of credit by banks or other
lending institutions, (vi) a commencement of a war or armed hostilities or
other national or international calamity directly or indirectly involving
the United States which would reasonably be expected to have a Material
Adverse Effect on the Company or materially adversely affect (or materially
delay) the consummation of the Offer or (vii) in the case of any of the
foregoing existing at the time of the execution of the Merger Agreement, a
material acceleration or worsening thereof which acceleration or worsening
is reasonably expected to have a Material Adverse Effect on the Company or
to materially adversely affect the consummation of the Offer;
(c) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of the outstanding Shares has been acquired by any
corporation (including
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<PAGE> 28
the Company or any of its subsidiaries or affiliates), partnership, person
or other entity or group (as defined in Section 13(d)(3) of the Exchange
Act), other than Parent or any of its affiliates, or (ii) (A) the Board of
Directors of the Company or any committee thereof shall have withdrawn or
modified in a manner adverse to Parent or Purchaser the approval or
recommendation of the Offer, the Merger or the Merger Agreement, or
approved or recommended any takeover proposal or any other acquisition of
Shares other than the Offer and the Merger, (B) any such corporation,
partnership, person or other entity or group shall have entered into a
definitive agreement or an agreement in principle with the Company with
respect to a tender offer or exchange offer for any Shares or a merger,
consolidation or other business combination with or involving the Company
or any of its subsidiaries or (C) the Board of Directors of the Company or
any committee thereof shall have resolved to do any of the foregoing;
(d) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality shall not be
true and correct or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case as if such representations and warranties were made at the time of
such determination, except with respect to representations and warranties
made as of an earlier time;
(e) the Company shall have failed to perform any material obligation
or to comply with any material agreement or material covenant of the
Company to be performed or complied with by it under the Merger Agreement;
(f) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company; or
(g) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer shall not have expired or been terminated
or any material approval, permit, authorization, consent or waiting period
of any domestic, foreign or supranational governmental, administrative or
regulatory agency (federal, state, local, provincial or otherwise) located
or having jurisdiction within the United States or any country or economic
region in which either the Company or Parent, directly or indirectly, has
material assets or operations, shall not have been obtained and such
failure to obtain could reasonably be expected to have a Material Adverse
Effect on the Company or the value of the Shares or the Offer to the
Purchaser;
which, in the good faith sole judgment of Purchaser makes it inadvisable to
proceed with the Offer or with such acceptance for payment of or payment for
Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
15. CERTAIN LEGAL MATTERS
Except as described in this Section 15, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company and discussions of representatives
of Parent with representatives of the Company, none of the Purchaser, Parent or
General Chemical Group is aware of any license or regulatory permit that appears
to be material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by the Purchaser's acquisition of Shares
(and the indirect acquisition of the stock of the Company's subsidiaries) as
contemplated herein or of any approval or other action by any Governmental
Entity that would be required or desirable for the acquisition or ownership of
Shares by the Purchaser as contemplated herein. Should any such approval or
other action be required or desirable, the Purchaser and Parent currently
contemplate that such approval or other action will be sought, except as
described below under "Other State Takeover Laws". While, except as otherwise
expressly described in this Section 15, the Purchaser does not presently intend
to delay the acceptance for payment of or payment for
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<PAGE> 29
Shares tendered pursuant to the Offer pending the outcome of any such matter,
there can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
failure to obtain any such approval or other action might not result in
consequences adverse to the Company's business or that certain parts of the
Company's business might not have to be disposed of if such approvals were not
obtained or such other actions were not taken or in order to obtain any such
approval or other action. If certain types of adverse action are taken with
respect to the matters discussed below, the Purchaser could decline to accept
for payment or pay for any Shares tendered. See Section 14 hereof.
Ohio Control Bid Statute. Sections 1707.041, 1707.42, 1707.23 and 1707.26
of the Ohio Revised Code (collectively, the "Ohio Control Bid Statute") regulate
tender offers. The Ohio Control Bid Statute applies to the purchase of or offer
to purchase an equity security of a subject company from a resident of Ohio if,
after the purchase, the offeror would directly or indirectly be the beneficial
owner of more than ten percent (10%) of any class of issued and outstanding
equity securities of the Company (a "control bid"). A subject company includes
an issuer, such as the Company, that (i) either has its principal place of
business or principal executive offices located in Ohio or owns or controls
assets located in Ohio that have a fair market value of at least one million
dollars, and (ii) has more than 10% of its beneficial or record equity security
holders resident in Ohio, or has more than 10% of its equity securities owned,
beneficially or of record, by residents of Ohio, or has more than one thousand
beneficial or record equity security holders who reside in Ohio. A subject
company, however, need not be incorporated in Ohio.
The Ohio Control Bid Statute prohibits an offeror from making a control bid
for securities of a subject company pursuant to a tender offer until the offeror
has filed specified information with the Ohio Division of Securities (the "Ohio
Division"). In addition, the offeror is required to deliver a copy of such
information to the subject company not later than the offeror's filing with the
Ohio Division and to send or deliver such information and the material terms of
the proposed offer to all offerees in Ohio as soon as practicable after the
offeror's filing with the Ohio Division.
Within five calendar days of such filing, the Ohio Division may by order
summarily suspend the continuation of the control bid if it determines that the
offeror has not provided all of the specified information or that the control
bid materials provided to offerees do not provide full disclosure of all
material information concerning the control bid. If the Ohio Division summarily
suspends a control bid, it must schedule and hold a hearing within ten calendar
days of the date on which the suspension is imposed and must make its
determination within three calendar days after the hearing has been completed
but no later than fourteen calendar days after the date on which the suspension
is imposed. The Ohio Division may maintain its suspension of the continuation of
the control bid if, based upon the hearing, it determines that all of the
information required to be provided by the Ohio Control Bid Statute has not been
provided by the offeror, that the control bid materials provided to offerees do
not provide full disclosure of all material information concerning the control
bid, or that the control bid is in material violation of any provision of the
Ohio securities laws. If, after the hearing, the Ohio Division maintains the
suspension, the offeror has the right to correct the disclosure and other
deficiencies identified by the Ohio Division and to reinstitute the control bid
by filing new or amended information pursuant to the Ohio Control Bid Statute.
Parent and the Purchaser have submitted documents required by the Ohio
Control Bid Statute, including a copy of the Schedule 14D-1 relating to the
Offer, to the Ohio Division.
Section 203 of the DGCL. Section 203 of the DGCL, in general, prohibits a
Delaware corporation such as the Company from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers, as set
forth below) with an "Interested Stockholder" (defined generally as a person
that is the beneficial owner of 15% or more of a corporation's outstanding
voting stock) for a period of three years following the date that such person
became an Interested Stockholder unless, among other things, prior to the date
such person became an Interested Stockholder, the board of directors of the
corporation approved either the Business Combination or the transaction that
resulted in the stockholder becoming an Interested Stockholder. The Company's
Board of Directors has approved the Merger Agreement, the Stockholders Agreement
and the Purchaser's acquisition of Shares pursuant to the Offer and the
Stockholders Agreement. Therefore, Section 203 of the DGCL is inapplicable to
the Merger.
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Other State Takeover Laws. A number of states throughout the United States
have enacted takeover statutes that purport, in varying degrees, to be
applicable to attempts to acquire securities of corporations that are
incorporated or have assets, stockholders, executive offices or places of
business in such states. In Edgar v. MITE Corp., the Supreme Court of the United
States held that the Illinois Business Takeover Act, which involved state
securities laws that made the takeover of certain corporations more difficult,
imposed a substantial burden on interstate commerce and therefore was
unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the
Supreme Court of the United States held that a state may, as a matter of
corporate law and, in particular, those laws concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of a
target corporation without prior approval of the remaining stockholders,
provided that such laws were applicable only under certain conditions.
Subsequently, a number of Federal courts ruled that various state takeover
statutes were unconstitutional insofar as they apply to corporations
incorporated outside the state of enactment.
Based on information supplied by the Company, the Purchaser does not
believe that any other state takeover statutes purport to apply to the Offer or
the Merger. Except as discussed above, neither the Purchaser nor Parent has
currently complied with any state takeover statute or regulation. The Purchaser
reserves the right to challenge the applicability or validity of any state law
purportedly applicable to the Offer or the Merger and nothing in this Offer to
Purchase or any action taken in connection with the Offer or the Merger is
intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Offer or the Merger and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer or the
Merger, the Purchaser might be required to file certain information with, or to
receive approvals from, the relevant state authorities, and the Purchaser might
be unable to accept for payment or pay for Shares tendered pursuant to the
Offer, or be delayed in consummating the Offer or the Merger. In such case, the
Purchaser may not be obligated to accept payment or pay for any Shares tendered
pursuant to the Offer. See Section 14 hereof.
Antitrust. Under the provisions of the HSR Act applicable to the Offer, the
acquisition of Shares under the Offer may be consummated following the
expiration of a 15-calendar day waiting period following the filing by General
Chemical Group of a Notification and Report Form with respect to the Offer,
unless General Chemical Group or the Company receives a request for additional
information or documentary material from the Antitrust Division or the FTC or
unless early termination of the waiting period is granted. General Chemical
Group filed its Notification and Report Form with respect to the Offer on
January 8, 1999. The Company expects to file its Notification and Report Form
soon. If, within the initial 15-day waiting period, either the Antitrust
Division or the FTC requests additional information or material from General
Chemical Group or the Company concerning the Offer, the waiting period will be
extended and would expire at 11:59 p.m., New York City time, on the tenth
calendar day after the date of substantial compliance by General Chemical Group
or the Company with such request. Only one extension of the waiting period
pursuant to a request for additional information is authorized by the HSR Act.
Thereafter, such waiting period may be extended only by court order or with the
consent of General Chemical Group and the Company. The waiting period under the
HSR Act may be terminated prior to its expiration by the FTC and the Antitrust
Division. General Chemical Group will request early termination of the waiting
period, although there can be no assurance that this request will be granted. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the Antitrust Division or the
FTC raises substantive issues in connection with a proposed transaction, the
parties frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. Expiration or
termination of the applicable waiting period under the HSR Act is a condition to
the Purchaser's obligation to accept for payment and pay for Shares tendered
pursuant to the Offer.
The Merger would not require an additional filing under the HSR Act if the
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed acquisition
of the Company. At any time before or after the Purchaser's acquisition of
Shares pursuant to the Offer, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of
28
<PAGE> 31
Shares pursuant to the Offer or the consummation of the Merger or seeking the
divestiture of Shares acquired by the Purchaser or the divestiture of
substantial assets of the Company or its subsidiaries or General Chemical Group
or its subsidiaries. Private parties may also bring legal action under the
antitrust laws under certain circumstances. There can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, of the result thereof.
APPRAISAL RIGHTS
Holders of Shares do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, holders of Shares at the effective time
of the Merger will have certain rights pursuant to the provisions of Section 262
of the DGCL ("Section 262") to dissent and demand appraisal of their Shares.
Under Section 262, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) and to receive payment of such fair
value in cash, together with a fair rate of interest, if any. Any such judicial
determination of the fair value of Shares could be based upon factors other
than, or in addition to, the price per Share to be paid in the Merger or the
market value of the Shares. The value so determined could be more or less than
the price per Share to be paid in the Merger.
The foregoing summary of Section 262 does not purport to be complete and is
qualified in its entirety by reference to Section 262. FAILURE TO FOLLOW THE
STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE
LOSS OF SUCH RIGHTS.
GOING PRIVATE TRANSACTIONS
The Commission has adopted Rule 13e-3 under the Exchange Act, which is
applicable to certain "going private" transactions. The Purchaser does not
believe that Rule 13e-3 will be applicable to the Merger unless the Merger is
consummated more than one year after the termination of the Offer. If
applicable, Rule 13e-3 requires, among other things, that certain financial
information concerning the fairness of the Merger and the consideration offered
to minority stockholders in such transaction be filed with the Commission and
disclosed to stockholders prior to the consummation of the Merger.
16. FEES AND EXPENSES
The Purchaser and Parent have retained Georgeson & Company Inc., Inc. to
act as the Information Agent and American Stock Transfer & Trust Company to
serve as the Depositary in connection with the Offer. The Information Agent and
the Depositary each will receive reasonable and customary compensation for their
services, be reimbursed for certain reasonable out-of-pocket expenses and be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities and expenses under the Federal securities laws.
Neither the Purchaser nor Parent will pay any fees or commissions to any
broker or dealer or other person (other than the customary compensation payable
to the Information Agent) in connection with the solicitation of tenders of
Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will
be reimbursed by the Purchaser upon request for customary mailing and handling
expenses incurred by them in forwarding material to their customers.
17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. None of the Purchaser, Parent or General Chemical Group is aware
of any jurisdiction in which the making of the Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. To the extent the
Purchaser, Parent or General Chemical Group becomes aware of any state law that
would limit the class of offerees in the Offer, the Purchaser will amend the
Offer and, depending on the timing of such amendment, if any, will extend the
Offer to provide adequate dissemination of such information to holders of Shares
prior to the expiration of the Offer. In any jurisdiction the securities, blue
sky or other laws of which
29
<PAGE> 32
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER, PARENT OR GENERAL CHEMICAL GROUP NOT
CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser, Parent and General Chemical Group have filed with the
Commission the Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act,
together with exhibits, furnishing certain additional information with respect
to the Offer, and may file amendments thereto. In addition, the Company has
filed the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, together
with exhibits, setting forth its recommendation with respect to the Offer and
the reasons for such recommendation and furnishing certain additional related
information. Such Schedules and any amendments thereto, including exhibits,
should be available for inspection and copies should be obtainable in the manner
set forth in Sections 8 and 9 (except that such material will not be available
at the regional offices of the Commission).
DN ACQUISITION CORPORATION
January 13, 1999
30
<PAGE> 33
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF GENERAL CHEMICAL GROUP,
PARENT AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF GENERAL CHEMICAL GROUP. The
following table sets forth the name and current principal occupation or
employment of the directors and executive officers of General Chemical Group.
Unless otherwise indicated, all occupations, offices or positions of employment
listed opposite an individual's name were held by such individual during the
last five years. The business address of each such director and executive
officer is c/o General Chemical Group, Liberty Lane, Hampton, NH 03842. All such
directors and executive officers listed below are citizens of the United States.
Directors are indicated by an asterisk.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME EMPLOYMENT HISTORY
---- ------------------
<S> <C>
Philip E. Beekman* Mr. Beekman has been a director of General Chemical Group
since 1996. He has been President of Owl Hollow
Enterprises (consulting and investment) since prior to
1993 and was Chairman of the Board and Chief Executive
Officer of Hook-SupeRx, Inc. (retail) from prior to 1993
to 1994. Mr. Beekman is also a director of BT Office
Products International, Inc., Linens 'n Things Inc.,
Consolidated Cigar Corp. and Kendle International Inc.
Gerald J. Lewis* Judge Lewis has been a director of General Chemical Group
since 1996. He has been Chairman of Lawsuit Resolution
Services since 1997 and was of counsel of the law firm of
Latham & Watkins from prior to 1993 to 1997.
Paul M. Meister* Mr. Meister has been Vice Chairman of the Board of General
Chemical Group since 1998 and a director since 1996. Mr.
Meister has been Vice Chairman of the Board and Executive
Vice President of Fisher Scientific International Inc.
("Fisher") (medical equipment and supplies distributor)
since March 1998, Chief Financial Officer of Fisher since
prior to 1993 and Senior Vice President from prior to 1993
to 1998. Mr. Meister was Senior Vice President of Abex
Inc. (aerospace products and services) ("Abex") from prior
to 1993 to 1995. Mr. Meister is also a director of
Minerals Technologies Inc. and M&F Worldwide Corp.
Paul M. Montrone* Mr. Montrone, Chairman of the Board since 1994, has been a
director of General Chemical Group since prior to 1993 and
was President from prior to 1993 to 1994. Mr. Montrone has
been Chairman of the Board of Fisher since March 1998,
Chief Executive Officer and a director of Fisher since
prior to 1993 and was President from prior to 1993 to
1998. Mr. Montrone was Vice Chairman of Abex from prior to
1993 until June 1995. Mr. Montrone is also a director of
USA Waste Management Inc.
Richard R. Russell* Mr. Russell has been President and Chief Executive Officer
and a director of General Chemical Group since 1994. Mr.
Russell has been President and Chief Executive Officer and
a director of General Chemical Corporation ("GCC") since
prior to 1993.
</TABLE>
S-1
<PAGE> 34
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME EMPLOYMENT HISTORY
---- ------------------
<S> <C>
Scott M. Sperling* Mr. Sperling has been a Managing Director of Thomas H. Lee
Company (private equity investment firm) since September
1994. He is also Vice President and Trustee of THL Equity
Trust III, the general partner of Equity Advisors III
Limited Partnership, which is the general partner of
Thomas H. Lee Equity Fund III, L.P. Mr. Sperling was
Managing Partner of Aeneas Group, a private capital
affiliate of Harvard Management Company from prior to 1993
to September 1994. Mr. Sperling is also a director of The
Learning Company, Livent, Inc., Fisher, PriCellular, Inc.,
Safelite Glass Corp. and several private corporations.
Ira Stepanian* Mr. Stepanian was Chairman and Chief Executive Officer of
Bank of Boston Corporation and its principal subsidiary,
The First National Bank of Boston from prior to 1993 until
1995.
John W. Gildea* Mr. Gildea has been Managing Director of Gildea Management
Company (investment management firm) since prior to 1993.
Mr. Gildea is also a director of FAC Realty Trust, Inc.,
American Service Group, Inc. and Barry's Jewelers, Inc.
Ralph M. Passino Mr. Passino has been Vice President and Chief Financial
Officer of General Chemical Group since 1994. Mr. Passino
has been Chief Financial Officer and Vice President of
Administration of General Chemical Group since prior to
1993 and director since 1994.
DeLyle W. Bloomquist Mr. Bloomquist has been Vice President and General
Manager -- Industrial Chemicals of GCC since 1996, and was
Director of Corporate Distribution of GCC from 1995 to
1996. He served as Controller -- Industrial Chemicals of
GCC from prior to 1993 to 1995.
Bodo B. Klink Mr. Klink has been Vice President -- Business Development of
GCC since 1996, and was Vice President of Marketing from
prior to 1993 to 1996.
James N. Tanis Mr. Tanis has been Vice President and General
Manager -- Derivative Products and Services of GCC since
prior to 1994.
James A. Wilkinson Mr. Wilkinson has been Vice President of Manufacturing of
GCC since prior to 1993.
</TABLE>
S-2
<PAGE> 35
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. The following table
sets forth the name and current principal occupation or employment of the
directors and executive officers of the Purchaser. The business address of each
such director and executive officer is c/o General Chemical Group, Liberty Lane,
Hampton, NH 03842. All such directors and executive officers listed below are
citizens of the United States. Directors are indicated by an asterisk.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME EMPLOYMENT HISTORY
---- ----------------------------
<S> <C>
Richard R. Russell* See page S-1.
Todd M. DuChene* Mr. DuChene has been Vice President, General Counsel and
Secretary of Fisher since 1996, Vice President of Latona
Associates, Inc. and Secretary of General Chemical Group
since 1998. Previously, he was Senior Vice President,
General Counsel and Secretary of Officemax, Inc. from 1995
to 1996 and Vice President, General Counsel and Assistant
Secretary from 1994 to 1995. Prior to joining Officemax,
Inc., Mr. DuChene was an associate with Baker and
Hostetler from prior to 1993.
Paul M. Meister* See page S-1.
Michael R. Herman Mr. Herman has been Vice President and General Counsel of
GCC since 1997, was Associate General Counsel from 1995 to
1997 and Deputy General Counsel from prior to 1993 to
1995.
</TABLE>
3. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name and current principal occupation or employment of the directors
and executive officers of Parent. Unless otherwise indicated, all occupations,
offices or positions of employment listed opposite an individual's name were
held by such individual during the last five years. The business address of each
such director and executive officer is c/o General Chemical Group, Liberty Lane,
Hampton, NH 03842. All such directors and executive officers listed below are
citizens of the United States. Directors are indicated by an asterisk.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME EMPLOYMENT HISTORY
---- ------------------
<S> <C>
Richard R. Russell* See page S-1.
Ralph M. Passino* See page S-2.
Michael R. Herman See above.
</TABLE>
S-3
<PAGE> 36
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, bank, trust company or other
nominee to the Depositary at its address set forth below.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
<TABLE>
<S> <C>
By Mail, Hand or Overnight Delivery: By Facsimile Transmission:
40 Wall Street (718) 234-5001
46th Floor
New York, New York 10005 Confirm by Telephone:
(718) 921-8200
</TABLE>
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent at its telephone numbers and
location listed below. You may also contact your broker, dealer, bank, trust
company or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect (212) 440-9800
All Others Call Toll Free (800) 223-2064
<PAGE> 1
Exhibit 2
Execution Copy
--------------
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
DEFIANCE, INC.
DN ACQUISITION CORPORATION
NEW HAMPSHIRE OAK, INC.
Dated as of January 7, 1999
================================================================================
Agreement and Plan of Merger
<PAGE> 2
TABLE OF CONTENTS
Page
1. THE OFFER..................................................................1
1.1 The Offer...........................................................1
1.2 Company Action......................................................2
1.3 Board of Directors..................................................3
2. THE MERGER.................................................................4
2.1 Merger...........................................................4
2.2 Effect of Merger.................................................4
2.3 Conversion of Shares; Merger Consideration.......................4
2.4 Stock Options....................................................5
2.5 Consummation of the Merger.......................................5
2.6 Dissenters' Rights...............................................5
2.7 Payment for Shares and Options...................................6
2.8 Closing of the Company's Transfer Books..........................7
3. REPRESENTATIONS AND WARRANTIES.............................................8
3.1 Representations and Warranties of Parent
and the Purchaser.............................................8
3.2 Representations and Warranties of the Company...................10
4. COVENANTS.................................................................20
4.1 Acquisition Transactions........................................20
4.2 Interim Operations..............................................22
4.3 Access and Information..........................................24
4.4 Certain Filings, Consents and Arrangements......................25
4.5 Reasonable Best Efforts.........................................25
4.6 Public Statements...............................................25
4.7 Stockholder Approval............................................26
4.8 Stockholder Litigation..........................................27
4.9 Indemnification, Exculpation and Insurance......................27
4.10 Borrowings under the Loan Agreement.............................28
5. CONDITIONS................................................................28
5.1 Conditions to the Obligations of Parent, the Purchaser
and the Company..............................................28
5.2 Conditions to the Obligations of Parent
and the Purchaser............................................29
6. MISCELLANEOUS.............................................................30
6.1 Termination.....................................................30
Agreement and Plan of Merger
<PAGE> 3
6.2 Non-Survival of Representations and Warranties..................32
6.3 Amendment and Waiver............................................32
6.4 Entire Agreement................................................32
6.5 Definition......................................................32
6.6 Applicable Law..................................................33
6.7 Headings........................................................33
6.8 Notices.........................................................33
6.9 Counterparts....................................................34
6.10 Severability....................................................34
6.11 Parties in Interest; Assignment.................................34
6.12 Fees and Expenses...............................................35
6.13 Specific Performance............................................36
Agreement and Plan of Merger
ii
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER dated as of January 7, 1999 by and among
New Hampshire Oak, Inc., a Delaware corporation ("Parent"), DN Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (the
"Purchaser"), and Defiance, Inc., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Parent, the
Purchaser and the Company each has determined that it is fair to, and in the
best interests of, their respective stockholders for Parent to acquire the
Company pursuant to a merger (the "Merger") in which the Purchaser shall be
merged with and into the Company pursuant to this Agreement;
WHEREAS, as a condition of the willingness of the Parent to enter
into this Agreement, the Persons (as defined in Section 6.5) set forth on
Exhibit A, as the holders of shares of the Company's Common Stock, par value
$.05 per share (the "Common Stock"), have entered into the Stockholders
Agreement, dated as of the date hereof (the "Stockholders Agreement"), with the
Parent, which provides, among other things, that, subject to the terms and
conditions thereof, each Person will tender such Person's shares of Common Stock
in the Offer (as defined below) and vote such shares of Common Stock in favor of
the Merger and the approval and adoption of this Agreement;
WHEREAS, in furtherance thereof, the Parent proposes that the
Purchaser make an offer to purchase for cash all of the issued and outstanding
shares of Common Stock of the Company at a price of $9.50 per share net to the
seller; and
WHEREAS, the Boards of Directors of the Parent, the Purchaser and the
Company have approved the Merger following the expiration of such offer, upon
the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. THE OFFER
---------
1.1 THE OFFER. (a) As promptly as practicable, but in no event later
than five (5) business days after the public announcement of the execution of
this Agreement, the Purchaser shall, and the Parent shall cause the Purchaser
to, commence a tender offer (the "Offer") to purchase for cash all of the issued
and outstanding shares of Common Stock (the shares of Common Stock hereinafter
referred to as the "Shares") at a price of not less
Agreement and Plan of Merger
<PAGE> 5
than $9.50 per Share net to the seller in cash. The obligations of the Purchaser
and the Parent to consummate the Offer and to accept for payment and purchase
the Shares tendered shall be subject only to the conditions set forth in Annex A
hereto. The Purchaser shall not without the Company's prior written consent
reduce the price per Share or the number of Shares sought to be purchased or
modify the form of consideration to be received by holders of the Shares in the
Offer, decrease, increase or waive the condition (the "Minimum Condition") set
forth in clause (i) of the first sentence of Annex A hereto, impose additional
conditions to the Offer or amend any term of the Offer in a manner materially
adverse to the holders of the Shares. Subject only to the conditions of the
Offer set forth in Annex A, the Purchaser shall, and the Parent shall cause the
Purchaser to, pay for all of the Shares validly tendered and not withdrawn
pursuant to the Offer as soon as legally permissible.
(b) As soon as practicable on the date the Offer is commenced, the
Parent and the Purchaser will file with the Securities and Exchange Commission
(the "Commission") a Tender Offer Statement on Schedule 14D-1 (together with all
supplements or amendments thereto, and including all exhibits, the "Offer
Documents"). The Parent and the Purchaser shall give the Company and its counsel
a reasonable opportunity to review the Offer Documents prior to the filing of
the Offer Documents with the Commission or to the dissemination of the Offer
Documents to the stockholders of the Company. The Parent and the Purchaser will
furnish the Company and its counsel in writing with any comments that the
Parent, the Purchaser or their counsel may receive from the Commission or its
staff with respect to the Offer Documents, promptly after receipt of such
comments.
1.2 COMPANY ACTION. (a) In connection with the Offer, the Company
shall cause its transfer agent to furnish the Purchaser with mailing labels,
security position listings and any available listings or computer files
containing the names and addresses of record holders of the Shares as of a
recent date, and shall furnish to the Purchaser such information and assistance
as the Parent or the Purchaser may reasonably request in communicating the
Offer to the Company's stockholders. Except for such steps as are necessary to
disseminate the Offer Documents, Parent and the Purchaser shall hold in
confidence the information contained in such labels, listings and filings, will
use such information only in connection with the Offer and, if this Agreement is
terminated, will, upon the request of the Company deliver or cause to be
delivered to the Company all copies of such information then in its possession
or in the possession of its agents or representatives.
(b) The Company hereby consents to the Offer and represents that the
Board of Directors of the Company (at a meeting duly called and held at which a
quorum was present) as part of its approval of this Agreement has unanimously
(i) approved the Offer, the Merger, the Stockholders Agreement, the amendment to
the Certificate of
2
Agreement and Plan of Merger
<PAGE> 6
Incorporation of the Company contemplated by Section 2.2 of this Agreement and
the transactions contemplated by this Agreement, (ii) determined that each of
the Offer and the Merger is advisable and is fair to and in the best interests
of the stockholders of the Company and (iii) resolved to recommend acceptance of
the Offer and approval and adoption of this Agreement by the stockholders of
the Company (to the extent such approval and adoption is required by applicable
law). Promptly after the commencement of the Offer, the Company shall file a
Tender Offer Solicitation/Recommendation Statement on Schedule 14D-9 (together
with any amendments or supplements thereto, and including all exhibits, the
"Schedule 14D-9") with respect to the Offer, which shall contain the
recommendations of the Board of Directors in favor of the Offer, the Merger and
the Agreement, except to the extent that the Board of Directors of the Company
shall have withdrawn or modified its approval of the Offer, the Merger and this
Agreement in accordance with Section 4.1(b).
1.3 BOARD OF DIRECTORS. (a) Promptly upon the purchase by the
Purchaser of more than 50% of the outstanding Shares on a fully-diluted basis
pursuant to the Offer and from time to time thereafter, the Company shall use
its best efforts to allow the Purchaser to designate up to the minimum number of
directors necessary in order for the result (expressed as a fraction) derived by
dividing the number of directors so designated by the total number of directors
to be at least equal to the result (expressed as a fraction) derived by dividing
the Shares then held by the Purchaser by the total number of Shares then
outstanding; PROVIDED, HOWEVER, that until the Effective Time (as defined in
Section 2.5 hereof) the Board of Directors will have at least two (2)
Independent Directors (as defined in Section 1.3(c) hereof). Upon request by the
Purchaser, the Company shall use its best efforts promptly, at the Company's
election, either to increase the size of the Board or to secure the resignation
of such number of directors as is necessary to enable the Purchaser's designees
to be elected to the Board, and to cause the Purchaser's designees to be so
elected.
(b) The Company's obligations with respect to the election of the
Purchaser's designees to the Board of Directors of the Company shall be subject
to Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14f-1 promulgated thereunder. The Company shall
promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in
order to fulfill its obligations under this Section 1.3 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1. The Parent and the
Purchaser will supply to the Company in writing and shall be solely responsible
for any information with respect to any of them and their nominees, officers,
directors and affiliates required by Section 14(f) and Rule 14f-1.
3
Agreement and Plan of Merger
<PAGE> 7
(c) Following the election or appointment of the Purchaser's
designees pursuant to this Section 1.3 and prior to the Effective Time, any
amendment to this Agreement or of the Certificate of Incorporation or By-Laws of
the Company, any termination of this Agreement by the Company, any extension by
the Company of the time for the performance of any of the obligations or other
acts of the Parent or the Purchaser and any waiver of any of the Company's
rights under this Agreement will require the concurrence of a majority of the
directors of the Company then in office who are neither designated by the
Purchaser nor otherwise affiliated with the Parent or the Purchaser nor
employees of the Company or any of its subsidiaries (the "Independent
Directors").
2. THE MERGER
----------
2.1 MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with the applicable provisions of the Delaware
General Corporation Law ("DGCL"), as promptly as practicable following the
consummation of the Offer, the Purchaser shall be merged with and into the
Company. The Company shall be the surviving corporation in the Merger (sometimes
referred to as the "Surviving Corporation") and shall continue its existence
under the laws of the State of Delaware. At the Effective Time (as defined in
Section 2.5), the separate existence of the Purchaser shall cease. The name of
the Surviving Corporation shall be "Defiance, Inc."
2.2 EFFECT OF MERGER. The Certificate of Incorporation and Bylaws of
the Company shall be amended by virtue of the Merger to read in their entirety
as set forth in Exhibits B and C, respectively. The directors of the Purchaser
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, and the officers set forth on Schedule 2.2 hereto shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified. The Merger shall have the effects set
forth in Section 259 of the DGCL.
2.3 CONVERSION OF SHARES; Merger Consideration. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
thereof: (a) each Share issued and outstanding immediately prior to the
Effective Time (other than Shares to be canceled pursuant to clause (b) below
and any Dissenting Shares (as defined in Section 2.6)) shall be converted into
the right to receive in cash an amount per Share equal to the Merger
Consideration (as defined below), subject to any required withholding of taxes
and without interest; (b) each Share owned by Parent, the Purchaser or any other
direct or indirect subsidiary of Parent, or held in the treasury of the Company,
immediately prior to the Effective Time, shall be canceled and extinguished, and
no payment will be made with respect to those Shares; and (c) all shares of
common stock of the Purchaser, par value $.01 per share, then issued and
outstanding shall be converted into an equal
4
Agreement and Plan of Merger
<PAGE> 8
number of shares of common stock of the Surviving Corporation. "Merger
Consideration" means $9.50 per Share or, if a greater price shall have been paid
in the Offer, such greater price.
2.4 STOCK OPTIONS. Immediately prior to the Effective Time, each then
outstanding option to purchase Shares (collectively, the "Options"), whether or
not then exercisable, shall be canceled by the Company in exchange for a right
to receive a payment in cash in accordance with Section 2.7(b) (the "Option
Consideration") equal to the product of (i) the number of Shares previously
subject to the Option and (ii) the excess, if any, of the Merger Consideration
over the exercise price for each Share under such Option. As of the Effective
Time, each holder of an Option will be entitled to receive only an amount equal
to the Option Consideration. All amounts payable under this Section 2.4 shall be
subject to any required withholding of taxes and shall be paid without interest.
Effective as of the Effective Time and subject to payment of the Option
Consideration, the Company shall cause each stock option or other equity based
plan maintained with respect to any Shares (or rights in respect thereof) to be
terminated. The Company shall use its best efforts to cause each holder of an
Option, whether or not then exercisable, to execute an agreement consenting to
the cancellation immediately prior to the Effective Time of such holder's
Options in exchange for such holder's right to receive the Option Consideration.
2.5 CONSUMMATION OF THE MERGER. Upon the terms and subject to the
conditions of this Agreement, the Company shall execute in the manner required
by the DGCL, and deliver to the Secretary of State of the State of Delaware, a
duly executed certificate of merger as required by the DGCL, and the parties
shall take all such other and further actions as may be required by law to make
the Merger effective. Prior to the filing referred to in this Section 2.5, a
closing will be held at the offices of Debevoise & Plimpton, 875 Third Avenue,
New York, New York, on the third business day following the satisfaction of the
condition set forth in Section 5.1(c) hereof (or, in the event the Purchaser
shall acquire at least 90% of the outstanding Shares in the Offer, on the tenth
business day following the completion of the Offer) (or such other time as the
Purchaser and the Company may agree, immediately after the conditions set forth
in Article V have been satisfied or waived) for the purpose of confirming all of
the foregoing. The time the Merger becomes effective in accordance with
applicable law is referred to as the "Effective Time".
2.6 DISSENTERS' RIGHTS. Notwithstanding any provision of this
Agreement to the contrary, any shares of capital stock of the Company
outstanding immediately prior to the Effective Time held by a holder who has
demanded and perfected the right, if any, for appraisal of those shares in
accordance with the provisions of Section 262 of the DGCL and as of the
Effective Time has not withdrawn or lost such right to such appraisal
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Agreement and Plan of Merger
<PAGE> 9
("Dissenting Shares") shall not be converted into or represent a right to
receive the consideration set forth in Section 2.3, but the holder shall only be
entitled to such rights as are granted by the DGCL. If a holder of shares of
capital stock of the Company who demands appraisal of those shares under the
DGCL shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the Effective Time or the
occurrence of such event, whichever last occurs, those shares shall be converted
into and represent only the right to receive the consideration as provided in
Section 2.3, without interest, upon the surrender of the certificate or
certificates representing those shares. The Company shall give the Parent (i)
prompt notice of any written demands for appraisal of any shares of capital
stock of the Company, attempted withdrawals of such demands, and any other
instruments served pursuant to the DGCL received by the Company relating to
stockholders' rights of appraisal and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisals of
capital stock of the Company, offer to settle or settle any such demands or
approve any withdrawal of any such demands.
2.7 PAYMENT FOR SHARES AND OPTIONS. (a) SHARES. Prior to the
Effective Time, the Purchaser shall designate American Stock Transfer & Trust
Company to act as Paying Agent with respect to the Merger (the "Paying Agent").
Each holder (other than Parent, the Purchaser or any subsidiary of Parent) of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding Shares will be entitled to receive, upon
surrender to the Paying Agent of the Certificates for cancellation, cash in an
amount equal to the product of the number of Shares previously represented by
the Certificates multiplied by the Merger Consideration, subject to any required
withholding of taxes. At or prior to the Effective Time, the Purchaser shall
make available to the Paying Agent sufficient funds to make all payments
pursuant to the preceding sentence. No interest shall accrue or be paid on the
cash payable upon the surrender of the Certificates. If payment is to be made to
a person other than the person in whose name the Certificates surrendered are
registered, it shall be a condition of payment that the Certificates so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting the payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the Certificates surrendered or establish to the satisfaction of the
Surviving Corporation that the tax has been paid or is not applicable. Following
the Effective Time, until surrendered to the Paying Agent in accordance with the
provisions of this Section 2.7(a), each Certificate shall represent for all
purposes only the right to receive upon surrender thereof the Merger
Consideration multiplied by the number of Shares evidenced by the Certificate,
without any interest, subject to any required withholding taxes. Any funds
delivered or made available to the Paying Agent pursuant to this Section 2.7(a)
and not exchanged for
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Agreement and Plan of Merger
<PAGE> 10
Certificates within six (6) months after the Effective Time will be returned by
the Paying Agent to the Surviving Corporation, which thereafter will act as
Paying Agent, subject to the rights of holders of unsurrendered Certificates
under this Section 2.7(a), and any former stockholders of the Company who have
not previously exchanged their Certificates will thereafter be entitled to look
only to the Surviving Corporation for payment of their claim for the
consideration set forth in Section 2.3, without any interest, but will have no
greater rights against the Surviving Corporation than may be accorded to general
creditors thereof under applicable law. Notwithstanding the foregoing, neither
the Paying Agent nor any party hereto shall be liable to a holder of Shares for
any cash or interest delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws. If any Certificates shall not have
been surrendered prior to three (3) years after the Effective Time (or
immediately prior to such earlier date on which any payment in respect hereof
would otherwise escheat to or become the property of any governmental unit or
agency), the payment in respect of such Certificates shall, to the extent
permitted by applicable laws, become the property of the Surviving Corporation,
free and clear of all claims of interest of any person previously entitled
thereto. As soon as practicable after the Effective Time (but not later than
five (5) business days after the Effective Time), the Surviving Corporation will
cause the Paying Agent to mail to each record holder of Certificates a form of
letter of transmittal (which will specify that delivery will be effected, and
risk of loss and title to the Certificates will pass, only upon proper delivery
of the Certificates to the Paying Agent) and instructions for use in effecting
the surrender of the Certificates for payment.
(b) OPTIONS. Each holder of an Option, whether or not then
exercisable, will be entitled to receive cash in an amount equal to the Option
Consideration in respect of such Options (determined in accordance with Section
2.4 hereof), subject to any required withholding taxes and without interest. As
soon as practicable after the Effective Time, and in any event no more than
fifteen (15) calendar days following the Effective Time, the Surviving
Corporation shall instruct the Paying Agent to pay, and the Paying Agent shall
so pay, all amounts due as Option Consideration to holders of Options as
required by this Agreement.
2.8 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
Shares converted into the right to receive the Merger Consideration pursuant to
the terms hereof, Dissenting Shares or Shares to be canceled pursuant to Section
2.3 hereof shall thereafter be made. If, after the Effective Time, Certificates
for such Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for cash or merely canceled, as the case may be, pursuant
to and in accordance with Sections 2.3, 2.6 and 2.7 hereof, subject to
applicable law in the case of Dissenting Shares.
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Agreement and Plan of Merger
<PAGE> 11
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER. The
Parent and the Purchaser represent and warrant to the Company that:
(a) CORPORATE ORGANIZATION. Each of the Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power to
carry on its business as it is now being conducted. Parent owns all of the
issued and outstanding capital stock of the Purchaser and all such stock
has been validly issued and is fully paid and nonassessable and is owned
by the Parent free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"). Each of Parent and the Purchaser is qualified to
do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect on Parent. "Material Adverse Effect" means, with respect to any
person or entity, a material adverse effect on the business, assets,
liabilities, operations or condition (financial or otherwise) of such
person or entity and its subsidiaries, taken as a whole. True, accurate
and complete copies of the Parent's and the Purchaser's Certificates of
Incorporation and Bylaws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been made available to
the Company.
(b) AUTHORITY. Each of Parent and the Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement and to
carry out their respective obligations pursuant hereto. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
or other action on the part of each of Parent and the Purchaser. This
Agreement has been duly executed by Parent and the Purchaser and, assuming
due authorization, execution and delivery by the Company, constitutes a
valid and binding obligation of each of them, enforceable against each of
them in accordance with its terms. No other corporate actions or
proceedings on the part of Parent or the Purchaser are necessary to
authorize this Agreement, the consummation, by either of them, of the
transactions contemplated hereby or the discharge, by either of them, of
their respective obligations pursuant hereto.
(c) CONSENTS; NO VIOLATION. None of the execution and delivery of
this Agreement by Parent or the Purchaser, the consummation by each of
them of the transactions contemplated by this Agreement or the discharge,
by either of them, of
8
Agreement and Plan of Merger
<PAGE> 12
its respective obligations hereunder will (i) conflict with, or result in
any breach or violation of, any provision of the Parent's or the
Purchaser's Certificate of Incorporation or By-laws; (ii) constitute, with
or without notice, the passage of time or both, a breach, violation or
default, create a lien, or give rise to any right of termination,
modification, cancellation, prepayment, acceleration or loss of any
material benefit, under any law, order, judgment, writ, injunction,
decree, statute, rule or regulation, governmental permit or license
(collectively "Laws"), or any mortgage, indenture, lease, license,
agreement or other instrument of Parent, the Purchaser or any of their
respective subsidiaries, or to which Parent, the Purchaser or any of their
respective subsidiaries or any of their respective properties is subject,
except for breaches, violations, defaults, liens, or rights of
termination, modification, cancellation, prepayment or acceleration which
would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect on Parent or materially adversely affect
the ability of Parent or the Purchaser to consummate the transactions
contemplated hereby; or (iii) require any consent, approval or
authorization of, notification to, or filing with, any court, governmental
agency or regulatory or administrative authority, foreign or domestic
(each, a "Governmental Entity") or any other third party, on the part of
Parent or the Purchaser, other than (w) the filing of a certificate of
merger with respect to the Merger in accordance with the DGCL, (x) any
applicable filings under federal or state securities, "Blue Sky" or state
anti-takeover laws (including, without limitation, any filings required
under Section 1707.041 of the Ohio Revised Code), (y) filings required
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (z) consents, approvals, authorizations,
notifications or filings the failure of which to be obtained or made would
not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on Parent or materially adversely affect the
ability of Parent or the Purchaser to consummate the transactions
contemplated hereby.
(d) OFFER DOCUMENTS; SCHEDULE 14D-9. None of the Offer Documents
will, on the date filed with the Commission or on the date first
published, sent or given to the Company's stockholders, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that the foregoing shall not apply to the extent that
any such untrue statement of a material fact or omission to state a
material fact was made by the Parent or the Purchaser in reliance upon and
in conformity with written information furnished to the Parent or the
Purchaser by the Company specifically for use in the Offer Documents. The
Offer Documents will comply in all material respects, both as to form and
otherwise, with the requirements of the Exchange Act and the rules and
regulations thereunder. None of the information supplied or to be
9
Agreement and Plan of Merger
<PAGE> 13
supplied in writing by the Parent or the Purchaser specifically for
inclusion in the Schedule 14D-9 will, at the time the Schedule 14D-9 is
filed with the Commission contain any untrue statement of a material fact,
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) FINANCING. Parent and the Purchaser, collectively, at the
expiration of the Offer and the Effective Time will have sufficient funds
available to pay the aggregate Merger Consideration and Option
Consideration contemplated by this Agreement and to pay all of its fees
and expenses related to the transactions contemplated hereby.
(f) BENEFICIAL OWNERSHIP. None of Parent, the Purchaser, or any of
their affiliates "beneficially own" (as such term is defined in the
Stockholders Agreement) any equity securities of the Company other than
equity securities of the Company beneficially owned by Parent or the
Purchaser as a result of the Stockholders Agreement.
(g) CHANGE OF CONTROL. Parent and the Purchaser are familiar with and
have reviewed both the Company's Change of Control Policy set forth on the
Disclosure Schedule and the agreements set forth on the Disclosure
Schedule which the Company has made with employees regarding change of
control.
3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and the Purchaser that:
(a) CORPORATE ORGANIZATION. Each of the Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated
and has the requisite corporate power to own, lease and operate its
properties and assets and to carry on its businesses as they are now being
conducted. The Company has delivered to Parent copies of the Certificates
of Incorporation and By-laws, as amended to this date, of the Company and
each of its subsidiaries, which Certificates and By-laws are in full force
and effect.
(b) CAPITALIZATION. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock, and 2,000,000 shares of
Preferred Stock, par value $.05 per share (the "Preferred Shares"). As of
the date hereof, (i) 6,003,749 Shares are issued and outstanding (other
than Shares held in the treasury of the Company as treasury stock), all of
which are validly issued, fully paid and nonassessable and not subject to
preemptive rights except as described on the Disclosure Schedule delivered
by the Company to Parent on or prior to the date hereof (the "Disclosure
Schedule"); (ii) 1,021,800 Shares are held in the treasury of the Company
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Agreement and Plan of Merger
<PAGE> 14
as treasury stock; (iii) there are outstanding Options to purchase an
aggregate of 440,814 Shares; (iv) there are no outstanding Preferred
Shares; and (v) there are no Shares or Preferred Shares owned by any
subsidiary of the Company. There are no stock appreciation rights
outstanding. The Disclosure Schedule sets forth a list, complete and
correct as of the date hereof, of the holders of all Options and the
number of Shares issuable upon the exercise of each such Option and the
exercise prices thereof. There are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters
on which stockholders of the Company may vote. Except as set forth in this
Section 3.2(b), no shares of capital stock or other voting securities are
issued, reserved for issuance or outstanding, nor are there any
outstanding subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of any character relating to
the issued or unissued capital stock or other securities of the Company or
any of its subsidiaries obligating the Company or any of its subsidiaries
to issue, deliver, sell or purchase, or cause to be issued, delivered,
sold or purchased, any securities of the Company or any of its
subsidiaries. Except as set forth on the Disclosure Schedule, there are no
voting trusts or other agreements or understandings to which the Company
or any of its subsidiaries is a party with respect to the voting of
capital stock of the Company or any of its subsidiaries.
(c) SUBSIDIARIES. The Disclosure Schedule sets forth a list, true and
complete as of the date hereof, of all of the subsidiaries of the Company.
All of the outstanding shares of capital stock of each subsidiary of the
Company have been validly issued and are fully paid and nonassessable and
are owned by the Company or by a subsidiary of the Company, free and clear
of any Liens. Except for the capital stock of its subsidiaries or as set
forth on the Disclosure Schedule, as of the date hereof, the Company does
not own, directly or indirectly, any capital stock or other ownership
interest in any corporation, limited liability company, partnership, joint
venture or other entity.
(d) AUTHORITY. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to carry out its
obligations pursuant hereto. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the
Company, subject only, to the extent required by law, to approval by the
stockholders of the Company as provided in Section 4.7. This Agreement has
been duly executed and delivered by, and, assuming due authorization,
execution and delivery by Parent and the Purchaser, constitutes a valid
and binding obligation of, the Company. Except as set forth on the
Disclosure Schedule and for the approval by the stockholders of the
Company as provided in Section 4.7, no other
11
Agreement and Plan of Merger
<PAGE> 15
corporate actions or proceedings on the part of the Company or its
stockholders are necessary to authorize this Agreement, the Offer, the
Merger or the consummation of the transactions contemplated hereby or its
discharge of its obligations pursuant hereto.
(e) CONSENTS; NO VIOLATION. None of the execution and delivery of
this Agreement by the Company, the consummation of the transactions
contemplated hereby or the discharge of its obligations hereunder will,
except as set forth on the Disclosure Schedule, (i) conflict with, or
result in a breach or a violation of, any provision of the Certificate of
Incorporation or By-laws of the Company or any of its subsidiaries; (ii)
constitute, with or without notice, the passage of time or both, a breach,
violation or default, create a Lien, or give rise to any right of
termination, modification, cancellation, prepayment, acceleration or loss
of any material benefit, under any Laws or any mortgage, indenture, lease,
license, agreement or other instrument of the Company or any of its
subsidiaries, or to which the Company or any of its subsidiaries or any of
their respective properties is subject, except for breaches, violations,
defaults, liens, or rights of termination, modification, cancellation,
prepayment or acceleration which would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on
the Company or materially adversely affect the ability of the Company to
consummate the transactions contemplated hereby; or (iii) require any
consent, approval or authorization of, notification to, or filing with,
any Governmental Entity or from any other third party, on the part of the
Company or any of its subsidiaries other than (v) required consents
identified on the Disclosure Schedule, (w) the filing of a certificate of
merger with respect to the Merger in accordance with the DGCL, (x) filings
required under the HSR Act, (y) any applicable filings under federal and
state securities laws or state anti-takeover laws, and (z) consents,
approvals, authorizations, notifications or filings the failure of which
to be obtained or made would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect on the Company or
materially adversely effect the ability of the Company to consummate the
transactions contemplated hereby.
(f) SEC REPORTS; COMPANY ASSETS AND LIABILITIES. The Company has
filed all forms, reports, statements and schedules with the Commission
required to be filed pursuant to the Exchange Act, or other federal
securities laws, and the rules and regulations promulgated thereunder,
since July 1, 1996 (the "SEC Reports"). As of their respective filing
dates, the SEC Reports complied in all material respects with all
applicable requirements of the Exchange Act and such other federal
securities laws, and the rules and regulations promulgated thereunder, and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the
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Agreement and Plan of Merger
<PAGE> 16
circumstances under which they were made, not misleading. The audited and
unaudited consolidated financial statements of the Company included (or
incorporated by reference) in the SEC Reports comply as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto,
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as stated in the
financial statements, including the related notes, and except that the
quarterly financial statements do not contain all of the footnote
disclosures required by generally accepted accounting principles) and
fairly present, in all material respects, the financial position of the
Company and its consolidated subsidiaries as of the respective dates
thereof and the results of their operations, stockholders' equity and cash
flows for the periods then ended, subject, in the case of the unaudited
financial statements, to normal year-end adjustments and any other
adjustments described therein. Except for liabilities and obligations
incurred in the ordinary course of business consistent with past practices
since the date of the most recent consolidated balance sheet included in
the SEC Reports, neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) other than those reflected in
the SEC Reports and those incurred in connection with the transactions
contemplated hereby.
(g) NO MATERIAL ADVERSE CHANGE. Except as and to the extent disclosed
in the SEC Reports or as set forth in the Disclosure Schedule, since June
30, 1998, there has not been (i) any material adverse change in the
business, operations or condition (financial or other) of the Company and
its subsidiaries taken as a whole, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, (iii) any
split, combination or reclassification of any of the Company's capital
stock or any issuance or the authorization of the issuance of any
securities in respect of or in substitution for shares of its capital
stock, (iv) any granting by the Company (x) to any executive officer or
other key employee of the Company of any increase in compensation, except
for normal increases in the ordinary course of business consistent with
past practice or as required under employment agreements in effect as of
the date of the most recent SEC Reports or set forth in the Disclosure
Schedule or (y) to any such executive officer of any increase in severance
or termination pay, except as was required under any employment, severance
or termination agreements in effect as of the date of the most recent SEC
Reports or set forth in the Disclosure Schedule, (v) any damage,
destruction or loss, whether or not covered by insurance, that could
reasonably be expected to have a Material Adverse Effect or (vi) except as
may have been required by a change in generally accepted accounting
principles or as disclosed in the SEC Reports, any change in accounting
methods, principles or
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Agreement and Plan of Merger
<PAGE> 17
practices by the Company or any of its subsidiaries materially affecting
its assets, liabilities or business.
(h) OFFER DOCUMENTS; SCHEDULE 14D-9. None of the information supplied
in writing by the Company specifically for inclusion in the Offer
Documents will, at the respective times the Offer Documents or any
amendments or supplements thereto are filed with the Commission, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Schedule 14D-9 on the date filed with the Commission will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing shall not
apply to the extent that any such untrue statement of a material fact or
omission to state a material fact was made by the Company in reliance upon
and in conformity with written information furnished to the Company by the
Parent or the Purchaser specifically for use in the Schedule 14D-9. The
Schedule 14D-9 will comply in all material respects, both as to form and
otherwise, with the requirements of the Exchange Act and the rules and
regulations thereunder.
(i) LITIGATION. Except as disclosed in the SEC Reports or on the
Disclosure Schedule, there is no suit, action or proceeding pending or, to
the knowledge of the Company, threatened against or affecting the Company
or any of its subsidiaries that individually or in the aggregate would
reasonably be expected (i) to have a Material Adverse Effect on the
Company, (ii) as of the date hereof, to impair the ability of the Company
to perform its obligations under this Agreement in any material respect or
(iii) as of the date hereof, to delay in any material respect or prevent
the consummation of any of the transactions contemplated by this
Agreement, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against the Company or
any of its subsidiaries having, or which would reasonably be expected to
have a Material Adverse Effect on the Company.
(j) FEES. Except as set forth on the Disclosure Schedule, neither the
Company nor any of its subsidiaries has paid or become obligated to pay
any fee or commission to any broker, finder or intermediary or other
similar Person in connection with the transactions contemplated hereby or
in connection with any other offer to acquire the Company's shares or
assets.
(k) CERTIFICATE AND BY-LAWS. Neither the Certificate of Incorporation
nor the By-laws of the Company contains any provision that would require a
vote of the
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Agreement and Plan of Merger
<PAGE> 18
Company's stockholders in excess of a majority of the outstanding shares
of Company Common Stock in order to approve the Merger in accordance with
the terms of this Agreement.
(l) STATE TAKEOVER STATUTES. The Board of Directors of the Company
has approved the terms of this Agreement and the Stockholders Agreement
and the consummation of the Merger and the other transactions contemplated
by this Agreement and the Stockholders Agreement, and such approval is
sufficient to render inapplicable to the Merger and the other transactions
contemplated by this Agreement and the Stockholders Agreement the
provisions of Section 203 of the DGCL. Except as set forth on the
Disclosure Schedule, to the Company's knowledge, no state takeover statute
or similar statute or regulation applies or purports to apply to the
Merger, this Agreement or any of the transactions contemplated by this
Agreement, and no provision of the Certificate of Incorporation, By-laws
or other governing instruments of the Company or any of its subsidiaries
would, directly or indirectly, restrict or impair the ability of Parent to
vote, or otherwise to exercise the rights of a stockholder with respect
to, shares of the capital stock of Company and its subsidiaries that may
be acquired or controlled by Parent.
(m) EMPLOYEE BENEFIT PLANS: EMPLOYEE AGREEMENTS. The Disclosure
Schedule sets forth a true and complete list of each employee benefit plan
within the meaning set forth in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and each bonus,
incentive, deferred compensation, severance, termination, retention,
change of control, stock option or other equity-based performance or other
compensation plan, program, arrangement, policy or understanding, whether
written or unwritten, that is or has been maintained or established by the
Company or any other Person that, together with the Company, is treated as
a single employer under Section 414 of the Internal Revenue Code of 1986,
as amended (the "Code") (each a "Commonly Controlled Entity"), or to which
the Company or any Commonly Controlled Entity contributes or is obligated
or required to contribute or with regard to which the Company or any of
its Commonly Controlled Entities has knowledge of any event, transaction
or condition that would reasonably be expected to result in any material
liability at the Effective Time (collectively, the "Plans"). Each
employment agreement to which the Company or any of its subsidiaries is a
party, and each employee benefit plan adopted by the Company or any of its
subsidiaries, which in either case becomes effective or grants rights to
any person upon a "change of control" of the Company is set forth in the
Disclosure Schedule. True and complete copies of each such Plan and the
most recent annual report on Form 5500 for each such Plan have been
delivered to the Purchaser.
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Agreement and Plan of Merger
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Each Plan intended to be qualified under Section 401(a) of the Code
and the trust forming a part thereof has received a favorable
determination letter from the Internal Revenue Service (the "IRS") as to
its qualification under the Code and to the effect that each such trust is
exempt from taxation under Section 501(a) of the Code and the Company
knows of no event that has occurred since the date of such determination
that would reasonably be expected to adversely affect such qualification
or tax-exempt status.
Except as set forth in the Disclosure Schedule, no material liability
has been or, to the knowledge of the Company, is expected to be incurred
by the Company or any Commonly Controlled Entity (either directly or
indirectly, including as a result of an indemnification obligation or any
joint and several liability obligations) as the result of a violation of
Title I of ERISA or an "accumulated funding deficiency" as defined in
Section 412 of the Code or Section 302 of ERISA or under or pursuant to
Title IV of ERISA or the penalty or excise tax provisions of Chapter 43 of
Subtitle D of the Code relating to employee benefit plans, and the Company
knows of no event, transaction or condition that has occurred or exists
with respect to the Company's employee benefit plans that would reasonably
be expected to result in any such material liability to the Purchaser, the
Surviving Corporation or any Commonly Controlled Entity or any employee
benefit plan of the Surviving Corporation or any Commonly Controlled
Entity.
Except as otherwise set forth in the Disclosure Schedules, no benefit
that is payable, or which may become payable as a result of the
transactions contemplated hereunder, to any employee pursuant to any Plan
shall constitute an "excess parachute payment" (as defined in Section
280G(b)(1) of the Code) which is subject to the imposition of an excise
tax under Section 4999 of the Code or which would not be deductible by
reason of Section 280G of the Code.
(n) COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in the SEC
Reports, the Company and each of its subsidiaries has in effect all
Federal, state and local governmental approvals, authorizations,
certificates, filings, franchises, licenses, notices, permits and rights
("Permits") necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and there has
occurred no default under any such Permit, except for the lack of Permits
and for defaults under Permits which lack of, or default under,
individually or in the aggregate would not have a Material Adverse Effect
on the Company. Except as disclosed in the SEC Reports, the Company and
its subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity,
except for possible noncompliance which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company.
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Agreement and Plan of Merger
<PAGE> 20
(o) CONTRACTS; DEBT INSTRUMENTS. (i) Neither the Company nor any of
its subsidiaries is in violation of or in default under (nor does there
exist any condition which upon the passage of time, the giving of notice
or both would cause such a violation of or default under) any loan or
credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or any other contract, agreement,
arrangement or understanding to which it is a party or by which it or any
of its properties or assets is bound, except for violations or defaults
that individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect on the Company.
(ii) The Company has made available to Parent (x) true and correct
copies of all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
indebtedness of the Company or any of its subsidiaries in an aggregate
principal amount in excess of $100,000 is outstanding or may be incurred
and (y) accurate information regarding the respective principal amounts
currently outstanding thereunder. For purposes of this Agreement,
"indebtedness" shall mean, with respect to any Person, without
duplication, (A) all obligations of such Person for borrowed money, or
with respect to deposits or advances of any kind to such Person, (B) all
obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (C) all obligations of such Person under conditional
sale or other title retention agreements relating to property purchased
by such Person, (D) all obligations of such Person (excluding obligations
of such Person pursuant to written purchase orders in the ordinary course
of business and in customary amounts consistent with past practices), (E)
all capitalized lease obligations of such Person, (F) all obligations of
others secured by any Lien on property or assets owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed,
(G) all obligations of such Person under interest rate or currency hedging
transactions (valued at the termination value thereof), (H) all letters of
credit issued for the account of such Person and (I) all guarantees and
arrangements having the economic effect of a guarantee of such Person of
any indebtedness of any other Person.
(p) TAXES AND TAX RETURNS. Except as set forth in the SEC Reports or
on the Disclosure Schedule: (i) all material tax returns, declarations,
reports, estimates, information returns and statements required to be
filed with respect to Taxes (as defined herein) under Federal, state,
local or foreign laws ("Returns") by or with respect to the Company or any
subsidiary of the Company have been timely filed (taking into account any
extensions of time for filing such Returns); (ii) at the time filed, such
Returns were (and, as to Returns not filed as of the date hereof, will be)
true, correct and complete in all material respects; (iii) each of the
Company and each subsidiary of the Company has timely paid or made
provision in accordance with
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Agreement and Plan of Merger
<PAGE> 21
generally accepted accounting principles (or there has been paid or
provision has been made on its behalf) for all material Taxes for all
periods or portions thereof through the date hereof; (iv) there are no
material liens for Taxes upon the assets of the Company or any subsidiary
of the Company which are not provided for in the most recent financial
statements included in the SEC Reports, except liens for Taxes not yet
due; (v) there are no material outstanding deficiencies for any Taxes
proposed, asserted or assessed against the Company or any subsidiary of
the Company which are not provided for in the most recent financial
statements included in the SEC Reports; (vi) there are no material
Federal, state, local or foreign audits or other administrative
proceedings or judicial proceedings presently pending with regard to any
Taxes or Returns required to be filed by or with respect to the Company or
any of its subsidiaries; (vii) the Company has filed a consolidated Return
for Federal income tax purposes on behalf of itself and all of its
domestic subsidiaries as the common parent corporation of an "affiliated
group" (within the meaning of Section 1504(a) of the Code) of which such
subsidiaries are "includible corporations" in such affiliated group within
the meaning of Section 1504(b) of the Code; (viii) the Internal Revenue
Service has completed examinations of the Federal income tax returns filed
by or with respect to the Company (or the statute of limitations for the
assessment of Federal income taxes for such period has expired) for all
periods through and including the Company's taxable year ended June 30,
1994; (ix) none of the Company or any of its subsidiaries has been a
member of an "affiliated group" (as defined above), or any similar
affiliated, combined or consolidated group for state, local or foreign tax
purposes (other than a group the common parent of which is the Company),
or has any liability for the Taxes of any person (other than the Company
or its current subsidiaries) under Treasury Regulation Section 1.1502-6 or
any similar provision of state, local or foreign law or as a transferee,
successor, by contract or otherwise; (x) except as set forth in the
Disclosure Schedule, neither the Company nor any of its subsidiaries is a
party to any material tax sharing, tax indemnity or other agreement or
arrangement with respect to Taxes with any entity not included in the
Company's most recent financial statements included in the SEC Reports;
(xi) neither the Company nor any of its subsidiaries has agreed or is
required to make any adjustment under Section 481 of the Code; (xii) the
Company has not been (and will not be) a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code
during the five (5) year period ending at the Effective Time and (xiii)
none of the Company or any of its subsidiaries has filed a consent under
Section 341(f) of the Code. For purposes of this Agreement, "Taxes" means
all income, gross income, gross receipts, premium, sales, use, transfer,
franchise, profits, withholding, payroll, employment, excise, severance,
property and windfall profits taxes, and all other taxes, assessments or
similar charges of any kind whatsoever thereon or applicable thereto,
together with any interest and any penalties, additions to tax or
additional amounts, in each case imposed by any taxing authority (domestic
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Agreement and Plan of Merger
<PAGE> 22
or foreign) upon the Company or any subsidiary of the Company, including,
without limitation, all amounts imposed as a result of being a member of
any affiliated or combined group.
(q) LABOR MATTERS. Except as set forth on the Disclosure Schedule,
neither the Company nor any of its subsidiaries is the subject of any
suit, action or proceeding which is pending or, to the knowledge of the
Company, threatened, asserting that the Company or any of its subsidiaries
has committed an unfair labor practice (within the meaning of the National
Labor Relations Act or applicable state statutes) or seeking to compel the
Company or any of its subsidiaries to bargain with any labor organization
as to wages and conditions of employment, in any such case, that would
reasonably be expected to have a Material Adverse Effect on the Company.
Except as set forth on the Disclosure Schedule, no strike or other labor
dispute involving the Company or any of its subsidiaries is pending or, to
the knowledge of the Company, threatened, and, to the knowledge of the
Company, there is no activity involving any employees of the company or
any of its subsidiaries seeking to certify a collective bargaining unit or
engaging in any other organizational activity, except for any such dispute
or activity which would not reasonably be expected to have a Material
Adverse Effect on the Company.
(r) ENVIRONMENTAL MATTERS. (i) Except as set forth on the Disclosure
Schedule or in the SEC Reports, the Company's and each of its
subsidiaries' operation and use of its respective assets, including its
owned and leased real property, are in compliance in all respects with all
applicable Laws relating to the protection of human health or the
environment ("Environmental Laws"), except to the extent that any such
noncompliance would not have a Material Adverse Effect on the Company. The
Company and each of its subsidiaries has obtained all environmental,
health and safety permits necessary for the operation of its respective
business as presently conducted, and all such permits are in full force
and effect and the Company and each of its subsidiaries is in compliance
in all respects with the terms and conditions of each such permit, except,
in each case, to the extent that any failure to obtain a permit or any
such noncompliance would not have a Material Adverse Effect on the
Company. Except as set forth on the Disclosure Schedule, neither the
Company nor any of its subsidiaries has received any notice of, nor is
there, any administrative or judicial investigation, proceeding or action
with respect to any material violation, alleged or proven, of
Environmental Laws by the Company or any its subsidiaries or otherwise
involving their respective owned or leased real property.
(ii) Except as set forth on the Disclosure Schedule, neither the
Company nor any of its subsidiaries has taken or failed to take any action
that has resulted in or will result in any liability or obligation of the
Company relating to (x) the environmental
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Agreement and Plan of Merger
<PAGE> 23
conditions on, under, or about the assets of the Company or any of its
subsidiaries or any of their respective owned or leased real property, or
any properties owned, leased, operated or used by the Company or any of
its subsidiaries or any predecessor of the Company or any of its
subsidiaries at the present time or in the past, including, without
limitation, the air, soil and groundwater conditions at such properties or
(y) the past or present use, management, handling, transport, treatment,
generation, storage, disposal or release of any Hazardous Substances (as
defined below), except in the case of clauses (x) and (y) above, to the
extent such liability or obligation would not have a Material Adverse
Effect on the Company.
(iii) As used herein, the term "Hazardous Substance" means
asbestos-containing material and any and all hazardous or toxic
substances, materials or wastes as defined or listed under the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the
Comprehensive Environmental Response, Compensation and Liability Act or
any comparable state statute or any regulation promulgated under any of
such federal or state statutes.
(s) OPINION OF THE COMPANY'S FINANCIAL ADVISOR. The Board of
Directors of the Company has received a written opinion from McDonald
Investments, Inc. to the effect that, as of the date of this Agreement,
the consideration to be received in the Offer and the Merger by the
holders of Shares (other than Parent and its affiliates) is fair from a
financial point of view to such holders of Shares.
4. COVENANTS
---------
4.1 ACQUISITION TRANSACTIONS. (a) After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, unless Parent shall
otherwise agree in writing, the Company shall not, shall not permit any of its
subsidiaries to, and shall not authorize or permit any officer, director or
employee or any investment banker, attorney, accountant or other advisor or
representative of the Company or any of its subsidiaries to, directly or
indirectly, except as otherwise expressly permitted in this Section 4.1(a) or
in Section 4.1(b), (i) initiate, solicit, negotiate, encourage, or provide
confidential information to facilitate any proposal or offer to acquire all or
any substantial part of the business and properties of the Company and its
subsidiaries, taken as a whole, or beneficial ownership (as determined pursuant
to Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the capital
stock of the Company, whether by merger, purchase of assets, tender offer or
otherwise, whether for cash, securities or any other consideration or
combination thereof (such transactions being referred to herein as "Acquisition
Transactions"), (ii) enter into any agreement with respect to any Acquisition
Transaction or give any approval of the type referred to in Section 4.1(b) with
respect to
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Agreement and Plan of Merger
<PAGE> 24
any Acquisition Transaction or (iii) participate in any discussions regarding,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
Acquisition Transaction. Notwithstanding the immediately preceding sentence, the
Company and its subsidiaries may, prior to the Company Stockholder Approval (as
defined in Section 4.7), in response to any unsolicited proposal for an
Acquisition Transaction, furnish information concerning its business, properties
or assets to the corporation, partnership, person or other entity or group (a
"Potential Acquiror") making such proposal for an Acquisition Transaction and
participate in negotiations with the Potential Acquiror if (x) the Company's
Board of Directors, after consultation with one or more of its independent
financial advisors, is of the reasonable belief that such Potential Acquiror has
the financial wherewithal to consummate such an Acquisition Transaction, (y) the
Company's Board of Directors reasonably determines, after receiving advice from
the Company's financial advisor, that such Potential Acquiror has submitted a
proposal for an Acquisition Transaction that involves consideration to the
Company's stockholders and other terms that taken as a whole are superior to the
Merger and (z) based upon advice of counsel to such effect, the Company's Board
of Directors determines in good faith that it is necessary to so furnish
information and negotiate in order to comply with its fiduciary duty to
stockholders of the Company. In the event the Company shall determine to provide
any information as described above or shall receive any offer of the type
referred to in this Section 4.1 or shall receive or become aware of any other
proposal to acquire a substantial part of the business and properties of the
Company and its subsidiaries, taken as a whole, or to acquire a substantial
amount of capital stock of the Company, it shall promptly inform Parent orally
as to the fact that information is to be provided and shall furnish to Parent
the identity of the recipient of such information and/or the proponent of any
such offer or proposal and a description of the material terms thereof. The
Company will keep Parent fully informed of the status and material details of
any proposed Acquisition Transaction or other transaction (including any
material amendments or material proposed amendments of any such proposed
Acquisition Transaction or other transaction).
(b) Neither the Board of Directors of the Company nor any committee
thereof (x) shall withdraw or modify or propose to withdraw or modify, in any
manner adverse to Parent, the approval or recommendation of such Board of
Directors or such committee of this Agreement, the Offer or the Merger or (y)
approve or recommend, or propose to approve or recommend, any proposal for an
Acquisition Transaction except, in each case, in connection with a Superior
Proposal. As used herein, the term "Superior Proposal" means a bona fide
proposal to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, more than 50% of the Shares then outstanding or all or
substantially all of the assets of the Company, PROVIDED (i) such proposed
transaction satisfies the tests set forth in clauses (x), (y) and (z) of the
second sentence of Section 4.1(a) and (ii) the Board of Directors determines, in
its good faith reasonable judgment,
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Agreement and Plan of Merger
<PAGE> 25
that such proposed transaction is reasonably likely to be consummated without
undue delay.
(c) Nothing contained in this Section 4.1 shall prohibit the Company
from at any time taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act, provided that
neither the Company nor its Board of Directors shall, except at permitted by
this Section 4.1, approve or recommend acceptance of a proposal for an
Acquisition Transaction.
4.2 INTERIM OPERATIONS. (a) During the period from the date of this
Agreement to the Effective Time, except as contemplated by this Agreement, as
set forth on the Disclosure Schedule, as expressly permitted by Section 4.1 or
as otherwise approved in writing by the Purchaser, the Company shall not and
shall cause its subsidiaries not to:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other
than dividends and distributions by a direct or indirect wholly owned
subsidiary of the Company to its parent, (y) split, combine or
reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (z) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or
any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other
securities;
(ii) grant, issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities, except upon exercise of any Option;
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, limited liability
company, partnership, joint venture, association or other business
organization or division thereof or (y) any assets or services of any
kind other than (A) pursuant to written purchase orders issued in the
ordinary course of business and in customary amounts consistent with
past practices or (B) acquisitions of assets or services in the
ordinary course of business and in customary amounts consistent with
past practices that, individually, do not exceed $25,000;
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Agreement and Plan of Merger
<PAGE> 26
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets, other than in the ordinary course of business consistent with
past practice, that are material to the Company and its subsidiaries
taken as a whole;
(vi) incur any indebtedness, except for borrowings for working
capital purposes not in excess of recent past practice and current
lending arrangements;
(vii) make or agree to make any new capital expenditure or
capital expenditures which in the aggregate are in excess of
$100,000;
(viii) pay (or commit to pay) any bonus or other incentive
compensation to any officer, director, partner or other employee or
grant (or commit to grant) to any officer, director, partner or
employee any other increase in compensation, except, in the case of
employees who are not executive officers or directors, normal salary
increases consistent with recent practice;
(ix) (i) enter into, adopt or amend (or commit to enter into,
adopt or amend) any employment, retention, change in control,
collective bargaining, deferred compensation, severance, retirement,
bonus, profit-sharing, stock option or other equity, pension or
welfare plan or agreement maintained for the benefit of any officer,
director, partner or employee, except as required by law, or (ii)
except as required by agreements set forth on the Disclosure
Schedule, grant or pay (or commit to grant or pay) any severance or
termination compensation or benefits to any officer, director,
partner or employee;
(x) make any tax election inconsistent with past practices or
settle or compromise any material income tax liability;
(xi) except in the ordinary course of business or except as
would not reasonably be expected to have a Material Adverse Effect on
the Company, modify, amend or terminate any material contract or
agreement to which the Company or any subsidiary is a party or waive,
release or assign any material rights or claims thereunder;
(xii) make any material change to its accounting methods,
principles or practices, except as may be required by generally
accepted accounting principles; or
(xiii) authorize, or commit or agree to take, any of the
foregoing actions.
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Agreement and Plan of Merger
<PAGE> 27
(b) OTHER ACTIONS. Except as expressly permitted by Section 4.1, the
Company shall not, and shall not permit any of its subsidiaries to, take
any action that would, or that could reasonably be expected to, result in
(i) any of the representations and warranties of the Company set forth in
this Agreement that are qualified as to materiality becoming untrue, (ii)
any of such representations and warranties that are not so qualified
becoming untrue in any material respect or (iii) any of the conditions to
the Merger set forth in Article 5 not being satisfied.
(c) ADVICE OF CHANGES. The Company shall promptly advise Parent and
Parent shall promptly advise the Company orally and in writing of (i) any
representation or warranty made by it (or, in the case of Parent, made by
it or the Purchaser) contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it (or, in the
case of Parent, a failure by it or the Purchaser) to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement or (iii) any change
or event having, or which, insofar as can reasonably be foreseen, would
have, a Material Adverse Effect on such party or on the truth of their
respective representations and warranties or the ability of the conditions
set forth in Article VI to be satisfied, provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
4.3 ACCESS AND INFORMATION. Throughout the period prior to the
Effective Time, so long as this Agreement remains in effect, the Company shall
afford to Parent, the Purchaser and their representatives such access, during
normal business hours, to the Company's and its subsidiaries' books, records
(including, without limitation, tax returns and work papers of the Company's
independent auditors), plant and personnel, and to such other information, as
Parent shall reasonably request. Parent and the Purchaser will treat, and will
cause their respective accountants, counsel and other representatives to treat,
as strictly confidential all non-public documents and non-public information
concerning the Company furnished to Parent or the Purchaser in connection with
the transactions contemplated by this Agreement, subject to the requirements of
law and the provisions of this Agreement. If the transactions contemplated by
this Agreement are not consummated, such confidence shall be maintained except
to the extent such information can be shown to have been (i) in the public
domain through no fault of Parent or the Purchaser or (ii) later lawfully
acquired by Parent or the Purchaser from other sources without any breach of
duty to the Company by Parent, the Purchaser or, to the knowledge of Parent or
the Purchaser, any third party. If requested by the Company, Parent and the
Purchaser will destroy all copies of written information furnished by the
Company to Parent or the Purchaser or its agents, representatives or advisors.
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Agreement and Plan of Merger
<PAGE> 28
4.4 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Parent, the Purchaser
and the Company shall use their reasonable best efforts to make promptly any
required submissions under the HSR Act, the Exchange Act and Section 1707.041 of
the Ohio Revised Code with respect to the Offer, the Merger and the transactions
contemplated by this Agreement. The Company shall use its reasonable best
efforts to obtain all consents, approvals, permits or authorizations as are
required to be obtained from other parties to loan agreements or other contracts
material to the Company's business in connection with the consummation of the
Merger, including, without limitation, those filings and consents identified on
Schedule 4.4 to the Disclosure Schedule.
4.5 REASONABLE BEST EFFORTS. (a) Subject to the terms and conditions
provided in this Agreement, each of the parties agrees to use its reasonable
best efforts to take promptly, or cause to be taken, all actions and to do
promptly, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable best efforts (i) to obtain all necessary waivers,
consents and approvals, and (ii) to effect all necessary registrations and
filings, subject, however, to Company Stockholder Approval (as defined in
Section 4.6 hereof). In case at any time after the Effective Time any further
action is necessary or desirable to carry out the obligations of the parties
under this Agreement, the proper officers and/or directors of Parent, the
Purchaser and the Company, as the case may be, shall take the necessary action.
(b) In connection with and without limiting the foregoing, the
Company and its Board of Directors shall (i) take all action necessary to ensure
that no state takeover statute or similar statute or regulation, in each case as
the same is in effect on the date hereof, is or becomes applicable to the Offer,
the Merger, this Agreement, the Stockholders Agreement or any of the other
transactions contemplated by this Agreement or the Stockholders Agreement and
(ii) if any such state takeover statute or similar statute or regulation becomes
applicable to the Offer, the Merger, this Agreement, the Stockholders Agreement
or any other transaction contemplated by this Agreement or the Stockholders
Agreement take all action necessary to ensure that the Merger and the other
transactions contemplated by this Agreement and the Stockholders Agreement may
be consummated as promptly as practicable on the terms contemplated by this
Agreement and the Stockholders Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and the other transactions contemplated
by this Agreement and the Stockholders Agreement.
4.6 PUBLIC STATEMENTS. So long as this Agreement remains in effect,
Parent and the Purchaser, on the one hand, and the Company, on the other hand,
will consult with each other before issuing, and provide each other the
opportunity to review, comment upon and consent in writing prior to the issuance
of, any press release or other public
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Agreement and Plan of Merger
<PAGE> 29
statements with respect to the transactions contemplated by this Agreement,
including the Offer and the Merger, and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange.
4.7 STOCKHOLDER APPROVAL. (a) If required by applicable law in order
to consummate the Merger, as soon as practicable following the purchase of the
Shares pursuant to the Offer, the Company shall duly call, give notice of,
convene and hold a meeting of its stockholders (the "Company Stockholders
Meeting") for the purpose of adopting and approving this Agreement and the
transactions contemplated hereby (the "Company Stockholder Approval"). Without
limiting the generality of the foregoing, the Company agrees that its
obligations pursuant to the first sentence of this Section 4.7(a) shall not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any proposed Acquisition Transaction. The
Company will, through its Board of Directors, recommend to its stockholders the
approval and adoption of this Agreement and the transactions contemplated
hereby, except to the extent that the Board of Directors of the Company shall
have withdrawn or modified its approval or recommendation of this Agreement or
the Merger and terminated this Agreement in accordance with Section 4.1(b). At
such meeting, the Parent and the Purchaser will each vote, or cause to be voted,
all Shares acquired in the Offer or otherwise beneficially owned by it or any of
its subsidiaries on the record date for such meeting, in favor of the approval
and adoption of this Agreement and the transactions contemplated hereby.
(b) The Company shall, if required by law, prepare and file a proxy
statement (the "Proxy Statement") with the Commission in connection with
obtaining the Company Stockholder Approval. Parent and the Purchaser shall
cooperate with the Company in the preparation of the Proxy Statement including,
without limitation, promptly providing information requested by the Company or
required by the Commission to be included in the Proxy Statement and responding
promptly to any inquiries from the Company made in connection with comments on
the Proxy Statement received from the Commission. The Company will use its
reasonable best efforts to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after the Commission completes
its review of the Proxy Statement.
(c) The Company agrees that none of the information included or
incorporated by reference in the Proxy Statement or otherwise supplied by the
Company to its stockholders, including any amendments to any of the foregoing,
will be false or misleading with respect to any material fact or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading; PROVIDED, that the foregoing shall not
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Agreement and Plan of Merger
<PAGE> 30
apply to information supplied by or on behalf of Parent or the Purchaser
specifically for inclusion or incorporation by reference in any such document.
Parent agrees that none of the information supplied by or on behalf of Parent or
the Purchaser specifically for inclusion or incorporation by reference in any
such document will be false or misleading with respect to any material fact or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements in such information, in light of the
circumstances under which they are made, not misleading.
(d) Notwithstanding the foregoing, in the event that the Purchaser
shall acquire at least 90 percent of the outstanding Shares, the parties hereto
agree, at the request of the Parent or the Purchaser, to take all necessary and
appropriate action to cause the Merger to become effective, as soon as
practicable after the expiration of the Offer, without a meeting of stockholders
of the Company in accordance with Section 253 of the DGCL.
4.8 STOCKHOLDER LITIGATION. The Company shall give the Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement; PROVIDED, HOWEVER, that the Parent shall have
the right to prevent the Company from entering into any such settlement without
the Parent's consent if the Parent agrees to indemnify each director of the
Company for the amount of his or her individual liability (whether as a director
or in any other capacity), if any, arising from the underlying claim, net of any
insurance proceeds received by such director, that is in excess of the amount
that such director would have been liable for under such settlement (whether as
a director or in another capacity).
4.9 INDEMNIFICATION, EXCULPATION AND INSURANCE. Parent and the
Purchaser agree that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
now existing in favor of the current or former directors, officers, employees or
agents of the Company and its subsidiaries or any Person who is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, as
provided in their respective certificates of incorporation, by-laws (or
comparable organizational documents) and indemnification agreements shall
survive the Merger and shall continue in full force and effect in accordance
with their terms. Parent will cause to be maintained for a period of not less
than six (6) years from the Effective Time the Company's current directors' and
officers' insurance and indemnification policy to the extent that it provides
coverage for events occurring prior to the Effective Time ("D&O Insurance") for
all persons who are directors and officers of the Company on the date of this
Agreement, so long as the annual premium therefor would not be in excess of 250%
of the last annual premium paid prior to the date of this Agreement (the
"Maximum Premium"); PROVIDED, HOWEVER, that if the annual premium therefor would
exceed the
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Agreement and Plan of Merger
<PAGE> 31
Maximum Premium, Parent shall purchase as much coverage as is available for the
Maximum Premium; PROVIDED, further, that Parent may, in lieu of maintaining such
existing D&O Insurance as provided above, cause coverage to be provided under
any policy maintained for the benefit of Parent or any of its subsidiaries or
any policy specifically obtained for this purpose, so long as the terms thereof
are no less advantageous to the intended beneficiaries thereof than the existing
D&O Insurance for a period of not less than six (6) years from the Effective
Time. If the existing D&O Insurance expires, is terminated or canceled during
such six (6) year period, Parent will obtain as much D&O Insurance as can be
obtained for the remainder of such period for an annualized premium equal to the
Maximum Premium, on terms and conditions no less advantageous to the covered
persons than the existing D&O Insurance.
4.10 BORROWINGS UNDER THE LOAN AGREEMENT. The Company shall manage
its obligations under its loan agreement with Comerica Bank to insure that
neither the Company, the Parent nor the Purchaser shall incur any breakage or
similar prepayment costs in the event the Company prepays its outstanding
indebtedness thereunder in the event of a change of control of the Company.
Except as set forth on the Disclosure Schedule, neither the Company, the Parent
nor the Purchaser shall incur any breakage or similar prepayment costs in the
event the Company prepays any outstanding indebtedness for borrowed money in the
event of a change of control of the Company.
5. CONDITIONS
----------
5.1 CONDITIONS TO THE OBLIGATIONS OF PARENT, THE PURCHASER AND THE
COMPANY. The obligations of Parent, the Purchaser and the Company to consummate
the Merger are subject to the satisfaction, at or before the Effective Time, of
each of the following conditions:
(a) The Purchaser shall have purchased all Shares duly tendered and
not withdrawn pursuant to the terms of the Offer and subject to the terms
thereof; PROVIDED that the obligation of the Parent and the Purchaser to
effect the Merger shall not be conditioned on the fulfillment of the
condition set forth in this Section 5.1 (a) if the failure of the
Purchaser to purchase the Shares pursuant to the Offer shall have
constituted a breach of the Offer or of this Agreement.
(b) The consummation of the Merger shall not be precluded by any
order, decree or injunction of a court of competent jurisdiction (each
party agreeing to use its best efforts to have any such order reversed or
injunction lifted), and there shall not have been any action taken or any
Law enacted, promulgated or deemed
28
Agreement and Plan of Merger
<PAGE> 32
applicable to the Merger by any Governmental Entity that makes
consummation of the Merger illegal.
(c) If required by the Certificate of Incorporation and By-Laws of
the Company and the DGCL, this Agreement shall have been approved and
adopted by the affirmative vote of the holders of the requisite number of
shares of Common Stock in accordance with the Certificate of Incorporation
and By-Laws of the Company and the DGCL.
(d) Any applicable waiting period under the HSR Act shall have
expired or been terminated.
5.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND THE PURCHASER. The
obligations of Parent and the Purchaser to consummate the Merger are subject to
the satisfaction, at or before the Effective Time, of the following conditions:
(a) The Company shall not have received notice from the holder or
holders of more than 3% of the outstanding Shares, determined on a fully
diluted basis, that such holder or holders have exercised or intend to
exercise its or their appraisal rights under Section 262 of the DGCL.
(b) There shall not be pending or threatened by any Governmental
Entity any suit, action or proceeding (and there shall not be pending by
any other person any suit, action proceeding which has a reasonable
likelihood of success), in each case (i) challenging the acquisition by
Parent or the Purchaser of any shares of capital stock of the Company or
the Surviving Corporation, seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated
by this Agreement or the Stockholders Agreement or seeking to obtain from
the Company, Parent or the Purchaser any damages that are material taken
as a whole or Parent and its subsidiaries taken as a whole, as applicable,
(ii) seeking to prohibit or limit the ownership or operation by the
Company, Parent or any of their respective subsidiaries of any material
portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or Parent and its subsidiaries, taken as a whole, as
applicable, or to compel the Company, Parent or any of their respective
subsidiaries to dispose of or hold separate any material portion of the
business or assets of the Company and its subsidiaries, taken as a whole,
or Parent and its subsidiaries, taken as a whole, as applicable, as a
result of the Merger or any of the other transactions contemplated by this
Agreement or the Stockholders Agreement, (iii) seeking to impose
limitations on the ability of Parent to acquire or hold, or exercise full
rights of ownership of, any shares of capital stock of the Company or the
Surviving Corporation, including the right to vote the Shares, or common
stock of the Surviving Corporation, on all
29
Agreement and Plan of Merger
<PAGE> 33
matters properly presented to the stockholders of the Company or the
Surviving Corporation, respectively, (iv) seeking to prohibit Parent and
its subsidiaries from effectively controlling in any material respect the
business or operations of the Company and its subsidiaries, taken as a
whole, or (v) which otherwise could reasonably be expected to have a
Material Adverse Effect on the Company or Parent. In addition, there shall
not be any statute, rule, regulation, judgment or order enacted, entered,
enforced or promulgated that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (ii) through
(iv) above.
6. MISCELLANEOUS
-------------
6.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether prior to or after approval by the stockholders of the Company:
(a) by the mutual written consent of Parent, the Purchaser and the
Company;
(b) by either the Parent or the Company if, on or before April 7,
1999 and without fault of such terminating party, the Purchaser shall not
have purchased in the Offer such number of the Shares which represent in
excess of 50% of the outstanding Shares on a fully diluted basis, or the
Merger shall not have been consummated on or before July 6, 1999,
PROVIDED, HOWEVER, that the right to terminate this Agreement shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Offer
or the Merger to have occurred on or before the aforesaid date;
(c) by either the Parent or the Company if the Offer shall expire or
terminate in accordance with its terms without any Shares having been
purchased thereunder and, in the case of termination by Parent, the
Purchaser shall not have been required by the terms of the Offer or this
Agreement to purchase any Shares pursuant to the Offer;
(d) by the Company if the Purchaser shall not timely commence the
Offer as provided in Section 1.1(a);
(e) if a Company Stockholder Approval is required by law, by either
the Purchaser or the Company if, upon a vote at a duly held Company
Stockholders Meeting or any adjournment thereof at which such Company
Stockholder Approval shall have been voted upon, such Company Stockholder
Approval shall not have been obtained;
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Agreement and Plan of Merger
<PAGE> 34
(f) unilaterally by the Purchaser or the Company (i) if the other
fails to perform any material covenant or agreement in any material
respect in this Agreement, and does not cure the failure in all material
respects within 30 business days after the terminating party delivers
written notice of the alleged failure or (ii) if any condition to the
obligations of that party is not satisfied (other than by reason of a
breach by that party of its obligations hereunder), and it reasonably
appears that the condition cannot be satisfied prior to July 6, 1999;
(g) by either the Purchaser or the Company if either is prohibited by
an order or injunction (other than an order or injunction on a temporary
or preliminary basis) of a court of competent jurisdiction or other
Governmental Entity from consummating the Offer or the Merger and all
means of appeal and all appeals from such order or injunction have been
finally exhausted;
(h) by the Purchaser if the Board of Directors of the Company shall
have withdrawn or modified, or resolved to withdraw or modify, in any
manner which is adverse to Parent or the Purchaser, its recommendation or
approval of the Offer, the Merger or this Agreement; PROVIDED, HOWEVER,
that a termination pursuant to this Section shall not become effective if,
as a result of the Company's receipt of a proposal for an Acquisition
Transaction from a third party, the Company, in accordance with Section
4.1(b), withdraws or modifies, or resolves to withdraw or modify, in any
manner which is adverse to Parent or the Purchaser, its recommendation or
approval of the Offer, the Merger or this Agreement and if within ten (10)
business days of taking and disclosing to its stockholders the
aforementioned position the Company publicly reconfirms its recommendation
of the transactions contemplated hereby; or
(i) by the Company if (i) the Board of Directors of the Company shall
have determined in good faith, based on the advice of outside counsel,
that it is necessary, in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, to terminate this Agreement
to enter into an agreement with respect to or to consummate a transaction
constituting a Superior Proposal, (ii) the Company shall have given notice
to the Purchaser advising the Purchaser that the Company has received a
Superior Proposal from a third party, specifying the material terms and
conditions (including the identity of the third party), and that the
Company intends to terminate this Agreement in accordance with this
Section 6.1(i), (iii) either (A) the Purchaser shall not have revised its
proposal for an Acquisition Transaction within two (2) business days from
the time on which such notice is deemed to have been given to Parent or
(B) if the Purchaser within such period shall have revised its proposal
for an Acquisition Transaction, the Board of Directors of the Company,
after receiving advice from the Company's financial advisor, shall have
determined in
31
Agreement and Plan of Merger
<PAGE> 35
its good faith reasonable judgment that the third party's proposal for an
Acquisition Transaction is superior to Parent's revised proposal for an
Acquisition Transaction, and (iv) the Company, at the time of such
termination, pays the Expenses and the Termination Fee in accordance with
Section 6.12.
In the event of a termination of this Agreement and an abandonment of the
Merger, no party hereto (or any of its directors, officers, representatives or
agents) shall have any further liability or further obligation to any other
party to this Agreement, except with respect to the provisions of this Article 6
and the other provisions that survive the Merger pursuant to Section 6.2 and
except that nothing herein will relieve any party from liability for any willful
breach of its representations, warranties, covenants and agreements set forth in
this Agreement.
6.2 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as
otherwise provided in this Section 6.2, none of the representations or
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time or, in the case of the Company, shall
survive the acceptance for payment of, and payment for, any Shares by the
Purchaser pursuant to the Offer.
6.3 AMENDMENT AND WAIVER. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained herein; PROVIDED, HOWEVER, that no such
waiver may materially adversely affect the rights of the stockholders of the
Company. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
6.4 ENTIRE AGREEMENT. This Agreement and the Stockholders Agreement
dated as of the date hereof among Parent and certain stockholders of the Company
contain the entire agreement among Parent, the Purchaser and the Company with
respect to the Merger and the other transactions contemplated hereby and
thereby, and such agreements supersede all prior agreements among the parties
with respect to these matters.
6.5 DEFINITION. As used herein, the term "Person" means any
individual, corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity.
32
Agreement and Plan of Merger
<PAGE> 36
6.6 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF.
6.7 HEADINGS. The descriptive headings contained in this Agreement
are for convenience and reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
6.8 NOTICES. Each party shall promptly give written notice to the
other party upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event which would cause or constitute
a breach of any of its representations, warranties or covenants contained or
referenced in this Agreement and will use its best efforts to prevent or
promptly remedy the same. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by facsimile, telex or
other standard form of telecommunications, by courier service, or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to the Company:
Defiance, Inc.
1111 Chester Avenue
Suite 750
Cleveland, Ohio 44114
Fax: (216) 861-6006
Attn: Michael J. Meier
With a copy to:
Arter & Hadden LLP
1100 Huntington Buildings
925 Euclid Avenue
Cleveland, Ohio 44115
Fax: (216) 696-2645
Attn: Robert Tomaro, Esq.
33
Agreement and Plan of Merger
<PAGE> 37
If to Parent or the Purchaser, to it:
c/o The General Chemical Group Inc.
Liberty Lane
Hampton, NH 03842
Fax: (603) 929-2703
Attention: Secretary
With a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attn: Ralph Arditi, Esq.
or to such other address or facsimile number as any party may have furnished to
the other parties in writing in accordance with this Section 6.8.
6.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
6.10 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
6.11 PARTIES IN INTEREST; ASSIGNMENT. This Agreement is binding upon
and is solely for the benefit of the parties hereto and their respective
successors, legal representatives and assigns, except that Section 4.9 is
intended to be for the benefit of the parties referred to therein, and may be
enforced by such parties. The Purchaser shall have the right (a) to assign to
Parent or any direct or indirect wholly-owned subsidiary of Parent any and all
rights and obligations of the Purchaser under this Agreement, including, without
limitation, the right to substitute in its place such a subsidiary as one of the
constituent corporations in the Merger (such subsidiary assuming all of the
obligations of the Purchaser in connection with the Merger) and may require
subsidiaries of the Company to merge with subsidiaries of the Purchaser (or its
assignees) in connection with
34
Agreement and Plan of Merger
<PAGE> 38
the Merger and (b) to restructure the transaction to provide for the merger of
the Company with and into the Purchaser or such other entity as provided above;
PROVIDED, HOWEVER, that the Company shall not be deemed to have breached any of
its representations and warranties herein by reason of the Purchaser exercising
its rights hereunder, and by exercising such rights Parent will be deemed to
have waived the receipt of any additional consents of third parties required by
virtue thereof; and PROVIDED FURTHER that no such assignment shall affect any
obligation of Parent or Purchaser hereunder and that it shall remain primarily
liable as to its assigned obligations. If the Purchaser exercises its right to
so restructure the transaction, the Company shall promptly enter into
appropriate agreements to reflect such restructuring.
6.12 FEES AND EXPENSES. (a) Except as provided below in this Section
6.12, all fees and expenses incurred in connection with the Offer, the Merger,
this Agreement, the Stockholders Agreement and the transactions contemplated by
this Agreement and the Stockholders Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to
Parent the sum of (x) Parent's Expenses (as defined below) and (y) $1,750,000
(the "Termination Fee") upon demand if the Company terminates this Agreement
pursuant to Section 6.1(i). In addition, the Company shall pay or cause to be
paid, in same day funds to Parent the sum of Parent's Expenses and the
Termination Fee if (i) the Purchaser terminates this Agreement pursuant to
Section 6.1(f) or 6.1(h) at any time after a proposal for an Acquisition
Transaction has been made or (ii) the Company or the Purchaser terminates this
Agreement pursuant to Section 6.1(b), 6.1(c) or 6.1(e) at any time after a
proposal for an Acquisition Transaction has been made and, within twelve (12)
months after any termination referred to in the immediately preceding clauses
(i) or (ii) of this sentence, any Person that made a proposal for an Acquisition
Transaction (or an affiliate thereof) completes a merger, consolidation or other
business combination with the Company or a subsidiary of the Company, or the
purchase from the Company or from a subsidiary of the Company of 30% or more (in
voting power) of the voting securities of the Company or of 30% or more (in
market value) of the assets of the Company and its subsidiaries, on a
consolidated basis; PROVIDED that the Company will not have any obligations
under this Section 6.12(b) if the Purchaser terminates this Agreement pursuant
to Section 6.1(f)(ii) as a result of the failure of a condition to be satisfied
unless the reason for the failure of such condition to be satisfied is
reasonably related to the making of such proposal for an Acquisition Transaction
by the Person that ultimately consummated a transaction with the Company.
"Expenses" shall mean reasonable and reasonably documented out-of-pocket fees
and expenses incurred or paid by or on behalf of Parent in connection with the
Offer and Merger or the
35
Agreement and Plan of Merger
<PAGE> 39
consummation of any of the transactions contemplated by this Agreement
(including, without limitation, fees and expenses of counsel, commercial banks,
investment banking firms, accountants, experts and consultants to Parent and any
of its affiliates), PROVIDED that all such Expenses for this purpose shall not
exceed $1,000,000 in the aggregate.
6.13 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
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Agreement and Plan of Merger
<PAGE> 40
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date set forth above.
DEFIANCE, INC.
By: /s/ Jerry A. Cooper
----------------------------------------------
Name: Jerry A. Cooper
Title: President and Chief Executive Officer
NEW HAMPSHIRE OAK, INC.
By: /s/ Michael R. Herman
----------------------------------------------
Name: Michael R. Herman
Title: Vice President
DN ACQUISITION CORPORATION
By: /s/ Michael R. Herman
----------------------------------------------
Name: Michael R. Herman
Title: Vice President
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Agreement and Plan of Merger
<PAGE> 41
ANNEX A
-------
CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other provision
of the Offer, the Purchaser shall not be required to accept for payment, or,
subject to any applicable rules and regulations of the Commission, including
Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to
pay for or return tendered shares after the termination or withdrawal of the
Offer), to pay for any Shares tendered pursuant to the Offer, and (subject to
the terms of the Agreement) may amend or terminate the Offer or postpone the
acceptance for payment, the purchase of, and/or (subject to any such applicable
rules and regulations of the Commission) payment for, Shares tendered, (i)
unless there are validly tendered and not properly withdrawn prior to the
expiration of the Offer that number of Shares which represents in excess of 50%
of the outstanding Shares on a fully-diluted basis (such basis assumes all
shares underlying vested and unvested stock options are issued and outstanding),
or (ii) if at any time on or after the date of the Agreement and at or before
the time of payment for any such Shares (whether or not any Shares shall
theretofore have been accepted for payment or paid pursuant to the Offer) any of
the following conditions exists:
(a) there shall have been any action or proceeding brought by any
governmental authority before any federal or state court, or any order or
preliminary or permanent injunction entered in any action or proceeding
before any federal or state court or governmental, administrative or
regulatory authority or agency, located or having jurisdiction within the
United States or any country or economic region in which either the
Company or Parent, directly or indirectly, has material assets or
operations, or any other action taken, proposed or threatened, or statute,
rule, regulation, legislation, interpretation, judgment or order proposed,
sought, enacted, entered, promulgated, amended or issued that is
applicable to Purchaser, the Company or any subsidiary or affiliate of
Purchaser or the Company or the Offer or the Merger, by any legislative
body, court, government or governmental, administrative or regulatory
authority or agency located or having jurisdiction within the United
States or any country or economic region in which either the Company or
Parent, directly or indirectly, has material assets or operations, which
could reasonably be expected to have the effect of: (i) making illegal, or
otherwise restraining or prohibiting or making materially more costly, the
making of the Offer, the acceptance for payment of, payment for, or
ownership, directly or indirectly, of some of or all the Shares by Parent
or Purchaser, the consummation of any of the transactions contemplated by
the Agreement or materially delaying the Merger; (ii) prohibiting or
materially limiting the ownership or operation by the Company or any of
its subsidiaries, or by Parent, Purchaser or any of Parent's subsidiaries
of all or any material portion of the business or assets of the Company
and its subsidiaries taken as a whole or Parent or any of its
subsidiaries, or compelling Purchaser, Parent or any of Parent's
subsidiaries to dispose
Agreement and Plan of Merger
<PAGE> 42
of or hold separate all or any material portion of the business or assets
of the Company and any of its subsidiaries taken as a whole or Parent or
any of its subsidiaries, in each case as a result of the transactions
contemplated by the Offer or the Agreement; (iii) imposing or confirming
material limitations on the ability of Purchaser, Parent or any of
Parent's subsidiaries effectively to acquire or hold or to exercise full
rights of ownership of Shares including, without limitation, the right to
vote any Shares acquired or owned by Parent or Purchaser or any of
Parent's subsidiaries on all matters properly presented to the
shareholders of the Company, including, without limitation, the adoption
and approval of the Agreement and the Merger or the right to vote any
shares of capital stock of any subsidiary directly or indirectly owned by
the Company; (iv) requiring divestiture by Parent or Purchaser, directly
or indirectly, of any Shares; or (v) which could reasonably be expected to
materially adversely affect the business, financial condition or results
of operations of the Company and its subsidiaries taken as a whole or the
value of the Shares or of the Offer to Purchaser or Parent;
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) a
decline of at least 25% in either the Dow Jones Average of Industrial
Stocks or the Standard & Poor's 500 index from that existing at the close
of business on the date hereof, (iii) any material adverse change or any
condition, event or development involving a prospective material adverse
change in United States or other material international currency exchange
rates or a suspension of, or limitation on, the markets therefor, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (v) any limitation (whether or not
mandatory) by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, on, or any other event that
materially adversely affects, the extension of credit by banks or other
lending institutions, (vi) a commencement of a war or armed hostilities or
other national or international calamity directly or indirectly involving
the United States which would reasonably be expected to have a Material
Adverse Effect on the Company or materially adversely affect (or
materially delay) the consummation of the Offer or (vii) in the case of
any of the foregoing existing at the time of the execution of the
Agreement, a material acceleration or worsening thereof which acceleration
or worsening is reasonably expected to have a Material Adverse Effect on
the Company or to materially adversely affect the consummation of the
Offer;
(c) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes
of this paragraph as set forth in Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the
Agreement and Plan of Merger
<PAGE> 43
outstanding Shares has been acquired by any corporation (including the
Company or any of its subsidiaries or affiliates), partnership, person or
other entity or group (as defined in Section 13(d)(3) of the Exchange
Act), other than Parent or any of its affiliates, or (ii) (A) the Board of
Directors of the Company or any committee thereof shall have withdrawn or
modified in a manner adverse to Parent or Purchaser the approval or
recommendation of the Offer, the Merger or the Agreement and, within ten
business days of taking and disclosing to its stockholders the
aforementioned position, shall not have publicly reconfirmed its
recommendation of the Offer, the Merger or the Agreement, or approved or
recommended any takeover proposal or any other acquisition of Shares other
than the Offer and the Merger, (B) any corporation, partnership, person or
other entity or group shall have entered into a definitive agreement or an
agreement in principle with the Company with respect to a tender offer or
exchange offer for any Shares or a merger, consolidation or other business
combination with or involving the Company or any of its subsidiaries or
(C) the Board of Directors of the Company or any committee thereof shall
have resolved to do any of the foregoing;
(d) any of the representations and warranties of the Company set
forth in the Agreement that are qualified as to materiality shall not be
true and correct or any such representations and warranties that are not
so qualified shall not be true and correct in any material respect, in
each case as if such representations and warranties were made at the time
of such determination, except with respect to representations and
warranties made as of an earlier time;
(e) the Company shall have failed to perform any material obligation
or to comply with any material agreement or material covenant of the
Company to be performed or complied with by it under the Agreement;
(f) the Agreement shall have been terminated in accordance with its
terms or the Offer shall have been terminated with the consent of the
Company; or
(g) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer shall not have expired or been terminated
or any material approval, permit, authorization, consent or waiting period
of any domestic, foreign or supranational governmental, administrative or
regulatory agency (federal, state, local, provincial or otherwise) located
or having jurisdiction within the United States or any country or economic
region in which either the Company or Parent, directly or indirectly, has
material assets or operations, shall not have been obtained and such
failure to obtain could reasonably be expected to have a Material Adverse
Effect on the Company or the value of the Shares or the Offer to the
Purchaser;
Agreement and Plan of Merger
<PAGE> 44
which, in the good faith sole judgment of Purchaser makes it inadvisable to
proceed with the Offer or with such acceptance for payment of or payment for
Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Purchaser and
may be asserted by Purchaser regardless of the circumstances giving rise to any
such condition or may be waived by Purchaser in whole or in part at any time and
from time to time in its sole discretion (subject to the terms of the
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
Agreement and Plan of Merger
<PAGE> 45
Exhibit A
Jerry A. Cooper
Thomas H. Roulston II
Michael J. Meier
Scott D. Roulston
John D. Ong
George H. Lewis III
James E. Heighway
Richard W. Lock
Clifford Schumacher
James L. Treece
Carl A. Rispoli
Fred Burke
Roger E. Drummer
Michael B. Madden
Michael P. Pavlica
David M. Piacenti
Benjamin A. Scherschel
Janice F. Schneikart
Phillip C. Tomczak
Agreement and Plan of Merger
<PAGE> 1
EXHIBIT 4
DEFIANCE PRECISION PRODUCTS, INC.
1985 STOCK OPTION PLAN
EFFECTIVE AUGUST 27, 1985
SECTION 1. PURPOSE.
The purpose of this plan (the "Plan") is to authorize the
grant to eligible employees of options ("Options") to purchase shares of Common
Stock, par value $.05 per share (the "Common Stock"), of Defiance Precision
Products, Inc., a Delaware corporation (the "Company"), and thus benefit the
Company by giving such persons a greater personal interest in the success of the
enterprise.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Company's Board of
Directors or by a committee consisting of three members of the Company's Board
of Directors appointed from time to time by the Board of Directors of the
Company. For purposes of the Plan, the term "Committee" shall mean the Company's
Board of Directors or the three member committee appointed by the Company's
Board of Directors to administer the Plan. No employee eligible to receive
Options hereunder shall be a member of the Committee. The Company shall effect
the grant of Options under the Plan pursuant to determinations made by the
Committee, all in accordance with the provisions of the Plan, as to (a) the
eligible employees to whom Options may be granted, (b) the number
<PAGE> 2
of shares to be covered by each Option and the price to be paid upon the
exercise of such Option, and (c) whether a particular Option will be designed to
be (i) an incentive stock option within the meaning of section 422A(b) of the
Internal Revenue Code of 1954, as amended (the "Internal Revenue Code"), and the
Income Tax Regulations thereunder, as the same or any successor statute or
regulations may at the time be in effect (an Option so designated being herein
referred to as an "Incentive Stock Option"), or (ii) an Option that is not an
Incentive Stock Option (a "Non-Qualified Stock Option"). The Committee may, from
time to time, adopt such rules and regulations for carrying out the Plan as it
may deem proper and in the best interests of the Company.
Options granted under the Plan shall be evidenced by written
instruments, executed by the Company, containing such provisions as the
Committee may select which are not inconsistent with the terms of the Plan. The
interpretation and construction by the Committee of any provision of this Plan
and of the Options granted hereunder shall be final and conclusive on all
persons having any interest thereunder.
The Committee may permit the voluntary surrender of all or a portion of
any Option granted under the Plan to be conditioned upon the granting to the
employee of a new Option for the same or different number of shares as the
Option surrendered, or may require surrender of all or a portion of any Option
granted under
2
<PAGE> 3
the Plan as a condition precedent to the grant of a new Option to such employee.
Such new Option shall be exercisable at the price, during the period, and in
accordance with any other terms or conditions specified by the Committee at the
time the new Option is granted, all determined in accordance with the provisions
of the Plan without regard to the price, period of exercise, or any other terms
or conditions of the Option surrendered, except as provided in the second
paragraph of Section 6 below.
SECTION 3. SHARES SUBJECT TO PLAN.
Subject to adjustment under the provisions of Section 9
hereof, the maximum number of shares of the Company's Common Stock which may be
issued and sold under the Plan is 100,000 shares. Such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company. Shares issued pursuant to the Plan shall be subject to all applicable
provisions of the Certificate of Incorporation and By-Laws of the Company in
existence at the time of issuance of such shares and at all times thereafter. If
Options granted under the Plan shall terminate or cease to be exercisable by
reason of expiration, surrender for cancellation or otherwise without having
been wholly exercised, new Options may be granted under the Plan covering the
number of shares to which such termination or cessation relates. At no time may
the sum of the maximum number of shares issuable under outstanding Options
granted under the
3
<PAGE> 4
Plan and the number of shares previously issued under Options granted under the
Plan exceed the maximum number of shares that may be issued and sold under the
Plan, as above stated.
SECTION 4. ELIGIBILITY AND ANNUAL LIMITATION.
Options shall be granted only to persons who are, at the time
of the grant, officers or other key employees of the Company or a Subsidiary
(but not including those officers or key employees who are also directors of the
Company or a Subsidiary) of the Company or a Subsidiary. The term "Subsidiary"
as used in the Plan shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in the next succeeding
corporation in such chain. The term "Subsidiary" as used in the Plan shall also
include any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company owns stock possessing 50% or more of the combined voting power of all
classes of stock in the next succeeding corporation in such chain.
The aggregate fair market value (determined as of the time of
grant) of the stock for which any employee may be granted in any calendar year
Incentive Stock Options under the Plan (or incentive stock options, within the
meaning of section 422A(b) of
4
<PAGE> 5
the Internal Revenue Code, under any other stock option plans of the Company or
any Subsidiary) shall not exceed $100,000 plus any unused limit carryover to
such year. Such unused limit carryover shall be determined pursuant to section
422A(c)(4) of the Internal Revenue Code in accordance with the following rules:
(i) if, in any calendar year after 1980, $100,000 exceeds the
aggregate fair market value (determined as of the time the Option is
granted) of the stock for which an employee was granted during the year
Incentive Stock Options under the Plan (and any other incentive stock
options, within the meaning of section 422A(b) of the Internal Revenue
Code, under any other stock option plans of the Company or any
Subsidiary), one-half of such excess shall be an unused limit carryover
to each of the three succeeding calendar years;
(ii) the amount of any such carryover which may be taken into
account in any succeeding calendar year shall be the original amount of
such carryover reduced by the amount thereof which was used in prior
calendar years; and
(iii) for purposes hereof, the amounts of options granted in any
calendar year shall be treated as first using up the $100,000 annual
limitation described above and then as using up unused limit carryovers
in order of the years in which the carryovers arose.
5
<PAGE> 6
The limitation of the preceding paragraph shall not apply to the grant of
Options designated Non-Qualified Stock Options under the Plan.
SECTION 5. PRICE OF OPTIONS.
The purchase price under each Option will be determined by the Committee.
The purchase price per share under any Option granted under the Plan shall not
be less than 100% of the fair market value per share of the Company's Common
Stock at the time of the grant of such Option, as determined by the Committee
and in no event shall be less than the par value of the Company's Common Stock.
The fair market value per share of the Company's Common Stock at the time of the
grant of any Incentive Stock Option shall be determined by the Committee in
accordance with the provisions of the Internal Revenue Code and the Income Tax
Regulations thereunder from time to time in effect with respect to "incentive
stock options". In no event may the purchase price of any shares issued pursuant
to Options granted under the Plan be less than the par value of such shares.
SECTION 6. OPTION PERIOD AND RIGHT TO EXERCISE OPTION.
Subject to Section 8 below, the option period under each Option will be
determined by the Committee at the time the Option is granted; PROVIDED,
HOWEVER, that (i) no Incentive Stock Option shall continue for a period of more
than 10 years from the date such Incentive Stock Option is granted and (ii) no
Non-
6
<PAGE> 7
Qualified Stock Option shall continue for a period of more than 10 years and
one day from the date such Non-Qualified Stock Option is granted. Unless
otherwise determined by the Committee and provided in the option instrument, no
Option granted under the Plan may be exercised during the first year of the term
of the Option. Furthermore, no Option may be exercised unless, at the time of
such exercise, the optionee is in the employ of the Company or a Subsidiary and
has been continuously employed by one or more of such corporations since the
date of grant of such optionee's Option, except that if the Option so provides,
(i) the Option shall be exercisable, as and to the extent
exercisable at the time of the termination of such optionee's employment,
within, but only within, the period of three months after the date the
optionee ceases to be an employee of any of the foregoing;
(ii) if the optionee dies while in the employ of any of the
foregoing or within three months after the optionee ceases to be such an
employee, the Option shall be exercisable by the person to whom it is
transferred by will or the laws of descent and distribution, as and to
the extent it was exercisable by the optionee on the date of death of the
optionee, within, but only within, the period of one year following the
date of death of the optionee; and
(iii) if the optionee becomes disabled (within the meaning of
section 105(d)(4) of the Internal Revenue Code)
7
<PAGE> 8
while in the employ of any of the foregoing and such optionee's
employment terminates by reason of such disability, the Option shall be
exercisable by such optionee, as and to the extent exercisable by such
optionee at the time of the termination of such optionee's employment,
within, but only within, the period of one year after the termination of
such optionee's employment;
PROVIDED, HOWEVER, that in no event may any Option be exercised after the date
the Option expires. For all purposes of the Plan, and any Option granted under
the Plan, "employment" shall be defined in accordance with the provisions of
section 1.421-7(h) of the Income Tax Regulations (or any successor regulations).
Each Incentive Stock Option granted under the Plan shall provide that
such Incentive Stock Option shall not be exercisable while there is outstanding
(within the meaning of section 422A(c)(7) of the Internal Revenue Code) any
"incentive stock option", as defined in section 422A(b) of the Internal Revenue
Code, which was granted, before the granting of such option, to such individual
to purchase stock in the Company or in a corporation which (at the time of the
granting of such option) is a Subsidiary or is a predecessor of any of the
foregoing.
Options shall be exercised by written notice to the Company, in a form
satisfactory to it. The option price shall be paid in cash or, if the Option so
permits, in shares of the
8
<PAGE> 9
Company's Common Stock or a combination of cash and shares of the Company's
Common Stock.
Two or more Options may be granted under the Plan to the same person, any
of which Options may be an Incentive Stock Option and any of which Options may
be a Non-Qualified Stock Option. Such Options, which may relate to different
numbers of shares and may contain different terms (including different purchase
prices), may be granted simultaneously and/or from time to time during the
duration of the Plan; PROVIDED, HOWEVER, that in no event may any Incentive
Stock Option provide that the number of shares that the optionee may purchase
under such Incentive Stock Option shall be reduced in relation to the number of
shares that the optionee has purchased under any other Option nor may any
Non-Qualified Stock Option provide that the number of shares that the optionee
may purchase under such Non-Qualified Stock Option shall be reduced in relation
to the number of shares that the optionee has purchased under any Incentive
Stock Option.
SECTION 7. NON-TRANSFERABILITY.
No Option granted under the Plan shall be transferable by the person to
whom it is granted otherwise than by will or the laws of descent and
distribution, and each Option shall be exercisable, during the lifetime of the
person to whom it is granted, only by such person.
SECTION 8. SPECIAL PROVISIONS APPLICABLE TO OPTIONS GRANTED TO TEN
PERCENT STOCKHOLDERS.
9
<PAGE> 10
In the event that any Incentive Stock Option is granted under the Plan to any
individual who, at the time such Option is granted, owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or of any Subsidiary, the purchase price per share under such
Incentive Stock Option shall be at least 110% of the fair market value per share
of the Company's Common Stock at the time such Incentive Stock Option is granted
(determined as provided in Section 5) and such Incentive Stock Option shall not
be exercisable after the expiration of five years from the date it is granted.
SECTION 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger or consolidation, or the sale,
conveyance, lease or other transfer by the Company of all or substantially all
of its property, or any other change in the corporate structure or shares of the
Company, pursuant to any of which events the then outstanding shares of the
Company's Common Stock are split up or combined, or are changed into, become
exchangeable at the holder's election for, or entitle the holder thereof to,
other shares of stock, or in the case of any other transaction described in
section 425(a) of the Internal Revenue Code, the Committee may change the number
and kind of shares available under the Plan (including
10
<PAGE> 11
substitution of shares of another corporation) and option price in any manner as
it shall deem equitable; PROVIDED, HOWEVER, that in no event may any change be
made under this Section 9 which would constitute a "modification" within the
meaning of section 425(h)(3) of the Internal Revenue, Code. The Options granted
under the Plan shall contain such provisions as are consistent with the
foregoing with respect to adjustments to be made in the number and kind of
shares covered by such Options and in the option price per share in the event of
any such change.
SECTION 10. SUBSTITUTED OPTIONS.
Options may be granted under the Plan from time to time in substitution
for stock options and/or stock appreciation rights held by employees of other
corporations who are or are about to become associated with the Company (or a
Subsidiary) as the result of a merger or consolidation of the employing
corporation with the Company (or a Subsidiary), or the acquisition by the
Company (or a Subsidiary) of the assets of the employing corporation, or the
acquisition by the Company (or a Subsidiary) of stock of the employing
corporation as the result of which it becomes a Subsidiary, or such stock
options may be assumed by the Company. The terms and conditions of, the
substitute Options so granted may vary from the terms and conditions set forth
in Section 5 to such extent as the Board of Directors may deem appropriate to
conform, in whole or in part,
11
<PAGE> 12
to the provisions of the stock incentives in substitution for which they are
granted.
SECTION 11. INSTALLMENT PAYMENTS, LOANS AND GUARANTEE OF LOANS.
The Committee may, in its discretion, assist any optionee (including an
optionee who is an officer of the Company) in the acquisition of shares pursuant
to the exercise or surrender of one or more Options under the Plan by (a)
authorizing the extension of a loan from the Company to such optionee, (b)
permitting the optionee to pay the option price in installments over a period of
years, or (c) authorizing a guarantee by the Company of a third party loan to
the optionee, PROVIDED that the instrument evidencing the Option permits, or is
amended to permit, such an extension of credit. Any such extension of credit
shall be upon such terms, with or without security, as the Committee shall
specify, provided that the maximum principal amount of such credit shall be the
purchase price, if any, paid for the shares acquired plus the maximum Federal,
state and local income and employment tax which the optionee might incur in
connection with such acquisition.
SECTION 12. EFFECTIVE DATE, DURATION AND TERMINATION OF THE PLAN.
The Plan shall become effective upon adoption by the Board of Directors
and approval by the Company's stockholders. Options may be granted under the
Plan at any time on or prior to
12
<PAGE> 13
July 30, 1995, on which date the Plan will expire except as to Options then
outstanding hereunder, which Options shall remain in effect until they have been
exercised or have expired. The Plan may be abandoned or terminated at any time
by the Board of Directors, except with respect to Options then outstanding under
the Plan.
SECTION 13. AMENDMENT OR MODIFICATION OF THE PLAN.
The Board of Directors may, from time to time, discontinue, alter, amend
or modify the Plan for the purpose of meeting any changes in legal requirements
or for any other purpose that the Board may deem advisable; PROVIDED, HOWEVER,
that no such amendment or modification, except as permitted by the provisions of
Section 9 above, shall (a) change the maximum number of shares to be issued
under Options granted under the Plan, (b) change the class of employees eligible
to receive Options, (c) reduce the minimum purchase price, or (d) materially
increase the benefits accruing to an optionee under the Plan within the meaning
of Section 240.16b-3 of the Regulations issued under the Securities Exchange Act
of 1934, as amended, unless such amendment or modification shall be approved by
a majority in interest of the Company's stockholders.
13
<PAGE> 1
Exhibit 5
DEFIANCE, INC.
1989 Amended Stock Option Plan
Effective February 1, 1990
SECTION 1. PURPOSE.
The purpose of this plan (the "Plan") is to authorize the grant to
eligible employees of options ("Options") to purchase shares of Common Stock,
par value $.05 per share (the "Common Stock"), of Defiance, Inc., a Delaware
corporation (the "Company"), and thus benefit the Company by giving such persons
a greater personal interest in the success of the enterprise.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by either the Company's Board of Directors
or a committee consisting of three directors, a majority of which are not
employees of the Company, who are appointed from time to time by the Board of
Directors (the "Outside Directors Committee"). No employee eligible to receive
Options hereunder shall be a member of the Outside Directors Committee. The
Company shall effect the grant of Options under the Plan pursuant to
determinations made by the Outside Directors Committee, all in accordance with
the provisions of the Plan, as to (a) the eligible employees to whom Options may
be granted, (b) the number of shares to be covered by each Option and the price
to be paid upon the exercise of such Option, and (c) whether a particular Option
will be designated to be (i) an incentive stock option within the meaning of
Section 422A(b) of the Internal Revenue Code of 1954, as amended (the "Internal
Revenue Code"), and the Income Tax Regulations thereunder, as the same or any
successor statute or regulations may at the time be in effect (an Option so
designated being herein referred to as an "Incentive Stock Option"), or (ii) an
Option that is not an Incentive Stock Option (a "Non-Qualified Stock Option").
The Outside Directors Committee may, from time to time, adopt such rules and
regulations for carrying out the Plan as it may deem proper and in the best
interests of the Company.
Options granted under the Plan shall be evidenced by written instruments,
executed by the Company, containing such provisions as the Outside Directors
Committee may select which are not inconsistent with the terms of the Plan. The
interpretation and construction by the Outside Directors Committee of any
provision of this Plan and of the Options granted hereunder shall be final and
conclusive on all persons having any interest thereunder.
The Outside Directors Committee may permit the voluntary surrender of all
or a portion of any Option granted under the Plan to be conditioned upon the
granting to the employee of a new Option for the same or a different number of
shares as the Option surrendered, or may require surrender of all or a portion
of any Option granted under the Plan as a condition precedent to the grant of a
new Option to such employee. Such new Option shall be
1
<PAGE> 2
exercisable at the price, during the period, and in accordance with any other
terms or conditions specified by the Outside Directors Committee at the time the
new Option is granted, all determined in accordance with the provisions of the
Plan without regard to the price, period of exercise, or any other terms or
conditions of the Option surrendered.
SECTION 3. SHARES SUBJECT TO PLAN.
Subject to adjustment under the provisions of Section 9 hereof, the
maximum number of shares of the Company's Common Stock which may be issued and
sold under the Plan is 800,000 shares. Such shares may be either authorized and
unissued shares or shares issued and thereafter acquired by the Company. Shares
issued pursuant to the Plan shall be subject to all applicable provisions of the
Certificate of Incorporation and By-Laws of the Company in existence at the time
of issuance of such shares and at all times thereafter. If Options granted under
the Plan shall terminate or cease to be exercisable by reason of expiration,
surrender for cancellation or otherwise without having been wholly exercised,
new Options may be granted under the Plan covering the number of shares to which
such termination or cessation relates. At no time may the sum of the maximum
number of shares issuable under outstanding Options granted under the Plan and
the number of shares previously issued under Options granted under the Plan
exceed the maximum number of shares that may be issued and sold under the Plan,
as above stated.
SECTION 4. ELIGIBILITY AND ANNUAL LIMITATION.
Options shall be granted only to persons who are, at the time of grant,
officers or other key employees of the Company or any Subsidiary. Directors who
are also officers or key employees of the Company are eligible to receive
Options under the Plan. The term "Subsidiary" as used in the Plan shall mean any
corporation in an unbroken chain of corporations beginning with the Company if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in the next succeeding corporation in such chain. The term
"Subsidiary" as used in the Plan shall also include any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company if
each of the corporations other than the Company owns stock possessing 50% or
more of the combined voting power of all classes of stock in the next succeeding
corporation in such chain.
The aggregate fair market value (determined as of the time of grant) of
the stock with respect to which Incentive Stock Options under the Plan (or
incentive stock options, within the meaning of Section 422A(b) of the Internal
Revenue Code, under any other stock option plans of the Company or any
Subsidiary) are exercisable for the first time by any employee during any
calendar year shall not exceed $100,000. The limitations of the preceding
sentence shall not apply to the grant of Options designated Non-Qualified Stock
Options under the Plan.
2
<PAGE> 3
SECTION 5. PRICE OF OPTIONS.
The purchase price under each Option will be determined by the Outside
Directors Committee. The purchase price per share under any Option granted under
the Plan shall not be less than 100% of the fair market value per share of the
Company's Common Stock at the time of the grant of such Option, as determined by
the Outside Directors Committee and in no event shall be less than the par value
of the Company's Common Stock. The fair market value per share of the Company's
Common Stock at the time of the grant of any Incentive Stock Option shall be
determined by the Outside Directors Committee in accordance with the provisions
of the Internal Revenue Code and the Income Tax Regulations thereunder from time
to time in effect with respect to "incentive stock options". In no event may the
purchase price of any shares issued pursuant to Options granted under the Plan
be less than the par value of such shares.
SECTION 6. OPTION PERIOD AND RIGHT TO EXERCISE OPTION.
Subject to Section 8 below, the option period under each Option will be
determined by the Outside Directors Committee at the time the Option is granted;
provided, however, that no Incentive Stock Option or Non-Qualified Stock Option
shall continue for a period of more than 10 years from the date such Incentive
Stock Option or Non-Qualified Stock Option is granted. Unless otherwise
determined by the Outside Directors Committee and provided in the option
instrument, no Option granted under the Plan may be exercised during the first
year of the term of the Option. Furthermore, no Option may be exercised unless,
at the time of such exercise, the optionee is in the employ of the Company or a
Subsidiary and has been continuously employed by one or more of such
corporations since the date of grant of such optionee's Option, except that if
the Option so provides,
(i) the Option shall be exercisable, as and to the extent
exercisable at the time of the termination of such optionee's employment,
within, but only within, the period of three months after the date the
optionee ceases to be an employee of any of the foregoing;
(ii) if the optionee dies while in the employ of any of the
foregoing or within three months after the optionee ceases to be such an
employee, the Option shall be exercisable by the person to whom it is
transferred by will or the laws of descent and distribution, as and to
the extent it was exercisable by the optionee on the date of death of the
optionee, within, but only within, the period of one year following the
date of death of the optionee; and
(iii) if the optionee becomes disabled (within she meaning of
Section 105(d)(4) of the Internal Revenue Code) while in the employ of
any of the foregoing and such optionee's employment terminates by reason
of such disability, the Option shall be exercisable by such optionee, as
and to the extent exercisable by such optionee at the time of the
termination of such optionee's employment, within, but only within, the
period of one year after the termination of such optionee's employment;
PROVIDED, HOWEVER, that in no event may any Option be exercised after the
date the Option expires. For all purposes
3
<PAGE> 4
of the Plan, and any Option granted under the Plan, "employment" shall be
defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations).
Options shall be exercised by written notice to the Company, in a form
satisfactory to it. The option price shall be paid in cash or, if the Option so
permits, in shares of the Company's Common Stock or a combination of cash and
shares of the Company's Common Stock.
Two or more Options may be granted under the Plan to the same person, any
of which Options may be an Incentive Stock Option and any of which Options may
be a Non-Qualified Stock Option. Such Options, which may relate to different
numbers of shares and may contain different terms (including different purchase
prices), may be granted simultaneously and/or from time to time during the
duration of the Plan; PROVIDED, HOWEVER, that in no event may any Incentive
Stock Option provide that the number of shares that the optionee may purchase
under such Incentive Stock Option shall be reduced in relation to the number of
shares that the optionee has purchased under any other Option nor may any
Non-Qualified Stock Option provide that the number of shares that the optionee
may purchase under such Non-Qualified Stock Option shall be reduced in relation
to the number of shares that the optionee has purchased under any Incentive
Stock Option.
SECTION 7. NON-TRANSFERABILITY.
No Option granted under the Plan shall be transferable by the person to
whom it is granted otherwise than by will or the laws of descent and
distribution, and each Option shall be exercisable, during the lifetime of the
person to whom it is granted, only by such person.
SECTION 8. SPECIAL PROVISIONS APPLICABLE TO OPTIONS GRANTED TO TEN
PERCENT STOCKHOLDER.
In the event that any Incentive Stock Option is granted under the Plan to
any individual who, at the time such Option is granted, owns stock possessing
more than ten percent of the total combined voting power of all classes of stock
of the Company or of any Subsidiary, the purchase price per share under such
Incentive Stock Options shall be at least 110% of the fair market value per
share of the Company's Common Stock at the time such Incentive Stock Option is
granted (determined as provided in Section 5) and such Incentive Stock Option
shall not be exercisable after the expiration of five years from the date it is
granted.
SECTION 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger or consolidation, or the sale,
conveyance, lease or other transfer by the Company of all or substantially all
of its property, or any other change in the corporate structure or shares of the
Company, pursuant to any of which events the then outstanding shares
4
<PAGE> 5
of the Company's Common Stock are split up or combined, or are changed into,
become exchangeable at the holder's election for, or entitle the holder thereof
to, other shares of stock, or in the case of any other transaction described in
Section 425(a) of the Internal Revenue Code, the Outside Directors Committee may
change the number and kind of shares available under the Plan (including
substitution of shares of another corporation) and option price in any manner as
it shall deem equitable; PROVIDED, HOWEVER, that in no event may any change be
made under this Section 9 which would constitute a "modification" within the
meaning of Section 425(h)(3) of the Internal Revenue Code. The Options granted
under the Plan shall contain such provisions as are consistent with the
foregoing with respect to adjustments to be made in the number and kind of
shares covered by such Options and in the option price per share in the event of
any such change.
SECTION 10. SUBSTITUTED OPTIONS.
Options may be granted under the Plan from time to time in substitution
for stock options and/or stock appreciation rights held by employees of other
corporations who are or are about to become associated with the Company (or a
Subsidiary) as the result of a merger or consolidation of the employing
corporation with the Company (or a Subsidiary), or the acquisition by the
Company (or a Subsidiary) of the assets of the employing corporation, or the
acquisition by the Company (or a Subsidiary) of stock of the employing
corporation as the result of which it become a Subsidiary, or such stock options
may be assumed by the Company. The terms and conditions of the substitute
Options so granted may vary from the terms and conditions set forth in Section 5
to such extent as the Board of Directors may deem appropriate to conform, in
whole or in part, to the provisions of the stock incentives in substitution for
which they are granted.
SECTION 11. INSTALLMENT PAYMENTS, LOANS AND GUARANTEE OF LOANS.
The Outside Directors Committee may, in its discretion, assist any
optionee (including an optionee who is an officer of the Company) in the
acquisition of shares pursuant to the exercise or surrender of one or more
Options under the Plan by (a) authorizing the extension of a loan from the
Company to such optionee, (b) permitting the optionee to pay the option price in
installments over a period of years, or (c) authorizing a guarantee by the
Company of a third party loan to the optionee, PROVIDED that the instrument
evidencing the Option permits, or is amended to permit, such an extension of
credit. Any such extension of credit shall be upon such terms, with or without
security, as the Outside Directors Committee shall specify, provided that the
maximum principal amount of such credit shall be the purchase price, if any,
paid for the shares acquired plus the maximum Federal, state and local income
and employment tax which the optionee might incur in connection with such
acquisition.
5
<PAGE> 6
SECTION 12. EFFECTIVE DATE, DURATION AND TERMINATION OF THE PLAN.
The Plan became effective upon adoption by the Board of Directors and
approval by the Company's stockholders at the Company's Annual Meeting of
Stockholders held on February 1, 1990. Options may be granted under the Plan at
any time on or prior to October 26, 1999, on which date the Plan will expire
except as to Options then outstanding hereunder, which Options shall remain in
effect until they have been exercised or have expired. The Plan may be abandoned
or terminated at any time by the Board of Directors except with respect to
Options then outstanding under the Plan.
SECTION 13. AMENDMENT OR MODIFICATION OF THE PLAN.
The Board of Directors may, from time to time, discontinue, alter, amend
or modify the Plan for the purpose of meeting any changes in legal requirements
or for any other purpose that the Board may deem advisable. No such amendment or
modification, except as permitted by the provisions of Section 9 above, shall
(a) change the maximum number of shares to be issued under Options granted under
the Plan, (b) change the class of employees eligible to receive Options, (c)
reduce the minimum purchase price, or (d) materially increase the benefits
accruing to an optionee under the Plan within the meaning of Section 240.16b-3
of the Regulations issued under the Securities Exchange Act of 1934, as amended
("Section 16"), unless such amendment or modification shall be approved by a
majority in interest of the Company's stockholders. Approval by the Company's
stockholders will not be necessary in order to amend the Plan to conform to any
amendments to Section 16 which may be adopted.
6
<PAGE> 1
Exhibit 9
February 28, 1992
Mr. Jerry A. Cooper
2349 Belvoir Boulevard
Beachwood, Ohio 44122
Dear Jerry:
As Chairman of the Board of Directors of Defiance, Inc. (Defiance), I am pleased
to offer you a position with Defiance as Executive Vice President and Chief
Operating Officer. It is Defiance's intent that you will serve in this capacity
for a brief transitional period after which you will assume the position of
President and Chief Executive Officer.
Based upon the fulfillment of your existing contractual commitment, it is
Defiance's understanding that you will join the Company at the earliest possible
date, but not later than June 1, 1992. You will, however, be considered an
officer of Defiance commencing upon the date of your acceptance of this offer.
Commencing upon your employment, your base salary will be at the rate of
$200,000 per annum, payable monthly. Your base salary will be reviewed upon your
appointment as President and Chief Executive Officer and annually thereafter.
However, in no event will your base salary be reduced below the annual rate of
$200,000.
Upon your acceptance of this offer, you will be granted 300,000 stock options
under Defiance, Inc.'s 1989 Stock Option Plan (the Plan). These options will
consist of a combination of Non-qualified Stock Options and Incentive Stock
Options. The latter will be utilized to the maximum extent statutorily
permissible.
You will become vested in the options, based upon the following schedule:
# OF OPTIONS TIMING OF VESTING
- - - - - - - - - - - - - - -
100,000 At time of grant
100,000 1 year after grant date
100,000 2 years after grant date
Vesting will, however, be accelerated upon your death or becoming disabled, as
described in Section 6 of the Plan. In addition, vesting will be accelerated
upon a change in control as defined herein, or upon your termination by Defiance
for other than "cause", as defined herein.
<PAGE> 2
Mr. Jerry A. Cooper
Page Two
As one of your initial projects, it will be your responsibility to develop a
formalized Executive Compensation and Benefits Program (Program) for submission
to Defiance's Board Compensation Committee for their review and approval. This
Program will include an annual incentive/bonus plan, deferred compensation
arrangement, supplemental life and disability benefits and ongoing stock option
grant guidelines. You will be a participant in the Program, which Defiance
intends to implement as of the fiscal year commencing July 1, 1992.
In addition to your participation in the compensation arrangements summarized in
this letter, as well as the benefits outlined in Defiance's employee handbook,
you will be provided with severance benefits. The following summarizes the
severance benefits, if any, which you would receive under various forms of
termination:
FORM OF TERMINATION SEVERANCE BENEFIT
- - - - - - - - - - - - - - - - - - - -
For Cause All compensation and benefit payments, except
any to which you have a vested right, will
cease as of the date of termination.
Voluntary Resignation Upon the conclusion of the required 90 day
notice period, all compensation and benefit
payments will cease, except those in which
you have a vested right. If the voluntary
resignation is the result of Defiance's
failure to promote you to the position of
President and Chief Executive Officer within
six months from your employment date, then
you will be entitled to the severance
benefits outlined under "Termination by
Defiance for other than cause or COC".
Termination Due to a Your base salary, bonus and benefits will be
Change of Control (COC) continued for a period of three years from
such termination. In addition, your medical
benefits will be continued until your
attainment of age 60.
Termination by Defiance During the required 90 day notice period,
for Other Than Cause and for 12 months thereafter, you will
or COC continue to receive your base salary,
benefits, pro rata bonus and accrued vacation
days.
<PAGE> 3
Mr. Jerry A. Cooper
Page Three
"Termination for cause" shall be defined as "gross misconduct or the commission
of illegalities other than misdemeanors, such as minor traffic violations".
A "change of control" shall be deemed to have taken place if as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets or contested
election or any combination of the foregoing transactions, the persons who were
directors as of the date of this letter shall cease to constitute a majority of
the Board of Directors of the Company or any parent of or successor to the
Company. Termination due to a change in control would occur if your employment
is terminated, your responsibilities are materially reduced or you are required
to relocate within two years after a COC.
Jerry, as we have discussed, the other members of Defiance's Board of Directors
and I are excited about the prospects of your Joining the Company. We are
confident you will do an excellent Job of increasing the shareholder's value. In
this regard, we believe we have structured a compensation package which will
reward you for such success.
Sincerely,
/s/ Thomas H. Roulston
Thomas H. Roulston
Chairman of the Board
Defiance, Inc.
THR/tap
ACCEPTED: /s/ Jerry A. Cooper
JERRY A. COOPER
DATE: March 2, 1992
IN ORDER TO DOCUMENT YOUR ACCEPTANCE OF OUR OFFER OF EMPLOYMENT, PLEASE SIGN AND
RETURN THE ENCLOSED "ACCEPTANCE COPY" OF THIS LETTER.
<PAGE> 4
July 2, 1996
Mr. Jerry A. Cooper
2349 Belvoir Boulevard
Beachwood, Ohio 44122
Dear Jerry:
This letter responds to recent inquiries regarding the Compensation
Committee's discretion with respect to whether retirement under Section 5.1 of
the Defiance, Inc. Limited Supplemental Executive Retirement Plan (the "Plan")
has occurred and is intended to clarify the criteria required by the Committee.
This letter also addresses your current severance package and the discussions we
have had related thereto.
It is the policy of the Compensation Committee to deem the CEO to be
retired if, upon termination without cause, the executive has attained age
fifty-five (55), completed five (5) years of service, and entered into an
agreement not to compete with the Company. The non-competition agreement must be
for a period of at least one (1) year. Furthermore, an executive who is
considered to have retired under this criteria is encouraged to enter into a
post-termination consulting agreement with the Company.
You have expressed a concern that your current severance package may have
unfavorable tax consequences. The Compensation Committee, on the other hand, has
expressed an interest in retaining your valued services, and has requested that,
in the event of your involuntary termination without cause, you make yourself
available to consult, as needed, with your successor. Given the recognized value
of your services, and recognizing your expressed concerns, the following
modifications to the severance benefits described in your letter of employment,
dated February 28, 1992 are offered:
1. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter
into a post-termination obligation to consult to the Company. As a
consultant, you may be called upon to assist your successor in a
transitional role, and act as an advisor to your successor or the
Board of Directors, as requested. Your duties in this capacity
will be satisfied once the twelve (12) month period expires.
2. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter
into a post-termination obligation not to compete with the
Company. Competition means the rendering of professional services
with respect to products which are identical and/or similar to
products of the Company ("Products"), other than in your capacity
as the Company's consultant, to any person or organization that
purchased Products or Product services from the Company, or that
provided similar Products or Product services in the same
geographical area as the Company, during the period of your
employment with the Company.
<PAGE> 5
Mr. Jerry A. Cooper Page 2
July 2, 1996
3. No severance shall be provided in the event of your termination by
Defiance for Other Than Cause. Additionally, in the event of your
Termination Due to a Change of Control, your base salary, at the
highest rate during the twelve (12) months preceding your
termination date, plus the average monthly amount of the bonuses
awarded during the three (3) years preceding termination, and
benefits shall be provided for a period of two (2) years, and this
period shall commence once the post-termination obligation to
consult has been satisfied.
4. As compensation for your services during the post-termination
obligation to consult, and the post-termination obligation not to
compete, you will receive all current benefits and be paid in
monthly installments throughout the twelve (12) months following
your termination. The amount of each installment will equal the
monthly amount of base compensation at the highest rate during the
twelve (12) months preceding your termination date, plus the
average monthly amount of the bonuses awarded during the three (3)
years preceding termination.
5. The Company acknowledges and guarantees its obligations to pay to
you all consideration incident to your aforementioned
post-termination obligations to consult, not to compete, as well
as the Change of Control, unless and until those payments are
actually received by you from third parties. A precondition of the
Company's obligation is the executive's fulfillment of the
aforementioned obligations.
Jerry, I hope that this letter resolves the questions you had regarding
your benefits under the Plan and the concerns you raised with regards to your
severance package. If you would like to accept the arrangements outlined above,
please sign and return the enclosed "acceptance copy" of this letter.
Very truly yours,
/s/ Scott D. Roulston
--------------------------------
Chairman Compensation Committee
ACCEPTED: /s/ Jerry A. Cooper
Jerry A. Cooper
DATE: July 11, 1996
<PAGE> 1
EXHIBIT 11
DN ACQUISITION CORPORATION
January 7, 1999
Mr. Jerry A. Cooper
2349 Belvoir Boulevard
Beachwood, Ohio 44122
Dear Mr. Cooper:
We refer to the Agreement and Plan of Merger, of even date (the
"MERGER AGREEMENT"), among New Hampshire Oak, Inc., DN Acquisition Corporation
(the "PURCHASER") and Defiance, Inc., (the "COMPANY") and to the letter
agreements dated February 28, 1992 and July 2, 1996 between you and the Chairman
of the Board and the Chairman of the Company's Compensation Committee,
respectively, attached hereto and incorporated herein as ATTACHMENTS A AND B
(collectively the "POLICY"). Under applicable law, all rights, duties, assets,
obligations and liabilities of both the Purchaser and the Company will be vested
in the Company following the consummation of the tender offer and the merger as
contemplated by the Merger Agreement. Following the consummation of the tender
offer and/or the merger as contemplated by the Merger Agreement you may be
entitled to receive certain benefits pursuant to the Policy. In order to clarify
these and certain other rights and obligations, we have set forth such rights
and obligations in this letter. All obligations imposed on you and the Company
under the Policy, including without limitation your obligation to consult and
not to compete, shall remain in effect. By signing this letter, you are agreeing
to the terms set forth herein. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement.
1. COMPENSATION PRIOR TO TERMINATION DUE TO CHANGE OF CONTROL. You,
the Purchaser and the Company agree that the consummation of the tender offer
and/or merger contemplated in the Merger Agreement constitute a change of
control as defined in the Policy. At all times thereafter but prior to a
Termination Due to Change of Control, as defined in the Policy or the Defiance,
Inc. Change of Control Policy, dated July 24, 1998 ("Company Policy"), Purchaser
agrees to cause the Company to continue and the Company agrees to continue your
salary, bonuses and all current benefits (as defined below) at no less than
current levels. If a Termination Due to Change of Control takes place at any
time other than the Company fiscal year end, the Purchaser agrees that it will
cause the Company to pay you and the Company agrees to pay you a pro-rata share
of your Company annual incentive bonus, which shall equal or exceed $158,408,
based upon the number of months and days completed in the current Company fiscal
year.
2. CURRENT COMPENSATION AND BENEFITS. You hereby represent to the
Purchaser that SCHEDULE A accurately states as of January 1, 1999: (i) your base
salary at the highest rate paid during the twelve months preceding January 1,
1999, (ii) the average monthly amount of the bonuses awarded during the three
years preceding January 1, 1999 and (iii) the other benefits
<PAGE> 2
provided to you by the Company on January 1, 1999 (such other benefits, the
"CURRENT BENEFITS").
3. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL. Upon your
Termination Due to Change of Control under the Policy or the Company Policy, the
Purchaser agrees to cause the Company to pay you and the Company agrees to pay
you your base salary at its highest rate during the twelve (12) months preceding
your termination date in monthly installments, plus the average monthly amount
of the bonuses awarded to you during the three (3) years preceding termination
and all Current Benefits for a period of two (2) years, which shall commence
once your twelve (12) month post termination obligation to consult (set forth at
SECTION 4 below) has been satisfied. A precondition of the Purchaser's and the
Company's obligations hereunder is the fulfillment of your obligations in the
Policy.
4. TERMINATION OF EMPLOYMENT FOR OTHER THAN VOLUNTARY RESIGNATION OR
CAUSE. If your employment with the Company is terminated other than for cause
under the Policy or your voluntary resignation, you agree to enter into a
post-termination obligation to consult to the Company and a post-termination
obligation not to compete with the Company each as described in the Policy for a
period of twelve months from the date of your termination of employment with the
Company. Purchaser and Company agree that during this twelve (12) month period
you will receive all Current Benefits and be paid in monthly installments an
amount equal to the monthly amount of base compensation at the highest rate paid
to you during the twelve (12) month period preceding your termination plus the
average monthly amount of the bonuses awarded to you during the three (3) years
preceding your termination of employment. Purchaser and Company also agree that
your consulting services to be provided to the Company shall not require you to
expend more that 20 hours per month. In addition, such consulting services will
be provided by you from whatever location you are then located. If you incur any
travel or other reasonable expense, the Company will reimburse you for such
expenses.
5. UNAUTHORIZED DISCLOSURE. During and after your employment with the
Company or any of its affiliates, (i) you agree to keep confidential and to not
disclose to any person (other than an employee or director of the Company or any
of its affiliates, or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by you of your duties) or use to
compete with the Company or any of its affiliates any confidential or
proprietary information, knowledge or data that is not theretofore publicly
known and in the public domain obtained by you while in the employ of the
Company or any of its affiliates with respect to the Company or any of its
affiliates or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts (including the terms and
provisions of this Agreement), suppliers, business prospects, business methods,
techniques, research, trade secrets or know-how of the Company or any of its
affiliates (collectively, "PROPRIETARY INFORMATION"), and (ii) you shall use
best efforts to keep confidential any such Proprietary Information and to
refrain from making any such disclosure, in each case except as may be required
by law or as may be required in connection with any judicial or administrative
proceedings or inquiry.
6. NON-SOLICITATION OF EMPLOYEES. During the period commencing at the
time the Purchaser accepts the Shares tendered pursuant to the Offer and ending
on the date that is two years after the termination of your employment, you
shall not, directly or indirectly, for your own
<PAGE> 3
account or the account of any other Person with which you shall become
associated in any capacity or in which you shall have any ownership interest,
(i) solicit for employment, offer to employ or employ any Person who, at any
time during the preceding twelve (12) months, is or was employed by the Company
or any of its affiliates, regardless of whether such employment is direct or
through an entity with which such Person is employed or associated, or otherwise
intentionally interfere with the relationship of the Company or any of its
affiliates with any Person who or which is at the time employed by or otherwise
engaged to perform services for the Company or any such affiliate or (ii) induce
any employee of the Company or any of its affiliates to engage in any activity
which you are prohibited from engaging in under this Agreement or to terminate
his or her employment with the Company or such affiliate.
7. RIGHT TO DOCUMENTS; RETURN OF DOCUMENTS. You agree that all
records, files, memoranda, reports, fee lists, customer lists, drawings, plans,
sketches, documents and data of any nature relating to the business of the
Company, including any document containing or pertaining to any Proprietary
Information, shall remain the sole property of the Company and/or its affiliates
(as the case may be). In the event of the termination of your employment for any
reason, you will deliver promptly to the Company all materials, records, files,
notes, plans, memoranda, drawings, designs, papers, customer lists, sketches,
documents and data of any nature pertaining to your work with the Company and
its affiliates, and you will not retain any documents or data of any description
or any reproduction thereof, or any documents containing or pertaining to any
Proprietary Information. You shall certify to the Company that any such data in
machine readable form has been removed from any computer personally owned by you
and all back up copies made by you have been destroyed.
8. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. You acknowledge and
agree that your covenants and obligations with respect to non-disclosure,
non-solicitation, confidentiality and the property of the Company and its
affiliates relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company and its affiliates irreparable injury for which adequate remedies are
not available at law. Therefore, you expressly agree that the Company and its
affiliates (which shall be express third-party beneficiaries of such covenants
and obligations) shall be entitled to an injunction (whether temporary or
permanent), restraining order or such other equitable relief (including the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any violation of the
covenants and obligations contained in SECTIONS 5, 6 AND 7 hereof. These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company or any such affiliate may have at law or in equity.
9. NEGOTIATION AND ARBITRATION. The parties shall attempt in good faith
to resolve any controversy, and any alleged breach or default, arising out of or
relating to this Agreement, promptly by confidential negotiations between
persons who have complete authority to settle the matter in dispute as follows
(the "Negotiations"). All Negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. A party
shall give the other party certified mail return receipt requested written
notice of any dispute ("Dispute Notice"). Within ten (10) days after delivery of
the Dispute Notice, the receiving party shall submit to the other a written
response ("Response"). The Dispute Notice and the Response shall include: (a) a
statement of each party's position and a summary of arguments supporting
<PAGE> 4
that position, and (b) the name of the person(s) who will represent that party
and the name of any other person who will accompany the representative(s).
Within twenty (20) days after delivery of the Response, the representatives of
both parties shall meet at a mutually acceptable time and place, and thereafter
as often as they reasonably deem necessary, attempt to resolve the dispute. The
parties agree to honor relevant reasonable requests for information within a
period of not more than fifteen (15) days. If the dispute, except as provided
below, has not been resolved by the negotiation procedure as provided herein
within sixty (60) days of the delivery date of the Dispute Notice, then the
dispute shall be settled by arbitration in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration hearing shall be held in Cuyahoga County, Ohio. A sole neutral
arbitrator will preside if the amount in controversy is less than One Hundred
Thousand and 00/100 Dollars ($100,000.00) or by three independent and impartial
arbitrators if the amount in controversy exceeds One Hundred Thousand and 00/100
Dollars ($100,000.00). The arbitrator or arbitrators will be agreed upon between
the parties within three (3) weeks of the date upon which the arbitration is
initiated. If the parties cannot agree upon an arbitrator or arbitrators within
that time period, then, within three (3) weeks, the CPR Institute for Dispute
Resolution will be asked by the sender of the Dispute Notice to select an
arbitrator or arbitrators, and the arbitration will then take place within sixty
(60) days of the appointment of the arbitrator or arbitrators. The parties agree
to fully exchange all applicable documents and exhibits three (3) weeks prior to
the arbitration hearing and to limit discovery to two (2) depositions per party,
unless a deposition is necessary to perpetuate testimony of unavailable
witnesses, in which case there will be no limitation. Should either party fail
to participate in the Negotiations, the other party may initiate arbitration
before the expiration of the sixty (60) day period noted above. All judgments of
the arbitrator or arbitrators shall be final and binding and may be entered by
any court having jurisdiction thereof. Each party hereby waives any right to
punitive, exemplary or treble damages. The party which prevails in the
arbitration or any action, suit or other proceedings to enforce the covenants of
this Agreement or to obtain money damages for the breach thereof or any document
executed in conjunction with this Agreement shall be entitled to reimbursement
from the other party for all expenses, including, without limitation, reasonable
attorneys fees and disbursements actually and reasonably incurred in connection
with the Negotiation and the arbitration.
10. TERMINATION. In the event your employment by the Company has not
been subject to a Termination Due to a Change of Control prior to the third
anniversary of the date on which the Purchaser acquires more than 50% of the
issued and outstanding Shares on a fully diluted basis, this Agreement shall
terminate and shall have no further effect.
11. MISCELLANEOUS. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AND THE PARTIES AGREE TO THE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN CUYAHOGA COUNTY, OHIO. This
Agreement shall survive the period of your employment with the Company or any of
its affiliates. This Agreement shall inure to the benefit of, and the
obligations and duties created hereby shall be binding upon, the successors and
assigns of the parties hereto, PROVIDED, however, that this Agreement may not be
assigned by you. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof, and the provisions hereof may not be
amended or modified except by a writing signed by the parties hereto. In the
event any of SECTIONS 5, 6 OR 7 is not enforceable in accordance with its terms,
you and the Purchaser agree that such Section shall be reformed to make such
Section
<PAGE> 5
enforceable in a manner which provides the Purchaser the maximum rights
permitted at law. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument. Notwithstanding anything
contained herein, this Agreement shall become effective only upon consummation
of the tender offer and/or the merger as contemplated by the Merger Agreement.
<PAGE> 6
Please acknowledge your agreement with the terms of this letter and
confirm the arrangements herein by signing and returning the enclosed copy by
facsimile and by messenger.
Very truly yours,
DN ACQUISITION CORPORATION
By: /s/ Richard R. Russell
Name: Richard R. Russell
Title: President
ACCEPTED AND AGREED:
ACCEPTED AND AGREED: DEFIANCE, INC.
/s/ Jerry A. Cooper By: /s/ Michael J. Meier
Jerry A. Cooper Name: Michael J. Meier
Title: Vice President / Chief Financial Officer
<PAGE> 7
Attachment A
February 28, 1992
Mr. Jerry A. Cooper
2349 Belvoir Boulevard
Beachwood, Ohio 44122
Dear Jerry:
As Chairman of the Board of Directors of Defiance, Inc. (Defiance), I am pleased
to offer you a position with Defiance as Executive Vice President and Chief
Operating Officer. It is Defiance's intent that you will serve in this capacity
for a brief transitional period after which you will assume the position of
President and Chief Executive Officer.
Based upon the fulfillment of your existing contractual commitment, it is
Defiance's understanding that you will join the Company at the earliest possible
date, but not later than June 1, 1992. You will, however, be considered an
officer of Defiance commencing upon the date of your acceptance of this offer.
Commencing upon your employment, your base salary will be at the rate of
$200,000 per annum, payable monthly. Your base salary will be reviewed upon your
appointment as President and Chief Executive Officer and annually thereafter.
However, in no event will your base salary be reduced below the annual rate of
$200,000.
Upon your acceptance of this offer, you will be granted 300,000 stock options
under Defiance, Inc.'s 1989 Stock Option Plan (the Plan). These options will
consist of a combination of Non-qualified Stock Options and Incentive Stock
Options. The latter will be utilized to the maximum extent statutorily
permissible.
You will become vested in the options, based upon the following schedule:
# OF OPTIONS TIMING OF VESTING
- - - - - - - - - - - - - - -
100,000 At time of grant
100,000 1 year after grant date
100,000 2 years after grant date
Vesting will, however, be accelerated upon your death or becoming disabled, as
described in Section 6 of the Plan. In addition, vesting will be accelerated
upon a change in control as defined herein, or upon your termination by Defiance
for other than "cause", as defined herein.
<PAGE> 8
Mr. Jerry A. Cooper
Page Two
As one of your initial projects, it will be your responsibility to develop a
formalized Executive Compensation and Benefits Program (Program) for submission
to Defiance's Board Compensation Committee for their review and approval. This
Program will include an annual incentive/bonus plan, deferred compensation
arrangement, supplemental life and disability benefits and ongoing stock option
grant guidelines. You will be a participant in the Program, which Defiance
intends to implement as of the fiscal year commencing July 1, 1992.
In addition to your participation in the compensation arrangements summarized in
this letter, as well as the benefits outlined in Defiance's employee handbook,
you will be provided with severance benefits. The following summarizes the
severance benefits, if any, which you would receive under various forms of
termination:
FORM OF TERMINATION SEVERANCE BENEFIT
- - - - - - - - - - - - - - - - - - - -
For Cause All compensation and benefit payments, except
any to which you have a vested right, will
cease as of the date of termination.
Voluntary Resignation Upon the conclusion of the required 90 day
notice period, all compensation and benefit
payments will cease, except those in which
you have a vested right. If the voluntary
resignation is the result of Defiance's
failure to promote you to the position of
President and Chief Executive Officer within
six months from your employment date, then
you will be entitled to the severance
benefits outlined under "Termination by
Defiance for other than cause or COC".
Termination Due to a Your base salary, bonus and benefits will be
Change of Control (COC) continued for a period of three years from
such termination. In addition, your medical
benefits will be continued until your
attainment of age 60.
Termination by Defiance During the required 90 day notice period,
for Other Than Cause and for 12 months thereafter, you will
or COC continue to receive your base salary,
benefits, pro rata bonus and accrued vacation
days.
<PAGE> 9
Mr. Jerry A. Cooper
Page Three
"Termination for cause" shall be defined as "gross misconduct or the commission
of illegalities other than misdemeanors, such as minor traffic violations".
A "change of control" shall be deemed to have taken place if as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets or contested
election or any combination of the foregoing transactions, the persons who were
directors as of the date of this letter shall cease to constitute a majority of
the Board of Directors of the Company or any parent of or successor to the
Company. Termination due to a change in control would occur if your employment
is terminated, your responsibilities are materially reduced or you are required
to relocate within two years after a COC.
Jerry, as we have discussed, the other members of Defiance's Board of Directors
and I are excited about the prospects of your Joining the Company. We are
confident you will do an excellent Job of increasing the shareholder's value. In
this regard, we believe we have structured a compensation package which will
reward you for such success.
Sincerely,
/s/ Thomas H. Roulston
Thomas H. Roulston
Chairman of the Board
Defiance, Inc.
THR/tap
ACCEPTED: /s/ Jerry A. Cooper
JERRY A. COOPER
DATE: March 2, 1992
---------------------
IN ORDER TO DOCUMENT YOUR ACCEPTANCE OF OUR OFFER OF EMPLOYMENT, PLEASE SIGN AND
RETURN THE ENCLOSED "ACCEPTANCE COPY" OF THIS LETTER.
<PAGE> 10
Attachment B
July 2, 1996
Mr. Jerry A. Cooper
2349 Belvoir Boulevard
Beachwood, Ohio 44122
Dear Jerry:
This letter responds to recent inquiries regarding the Compensation
Committee's discretion with respect to whether retirement under Section 5.1 of
the Defiance, Inc. Limited Supplemental Executive Retirement Plan (the "Plan")
has occurred and is intended to clarify the criteria required by the Committee.
This letter also addresses your current severance package and the discussions we
have had related thereto.
It is the policy of the Compensation Committee to deem the CEO to be
retired if, upon termination without cause, the executive has attained age
fifty-five (55), completed five (5) years of service, and entered into an
agreement not to compete with the Company. The non-competition agreement must be
for a period of at least one (1) year. Furthermore, an executive who is
considered to have retired under this criteria is encouraged to enter into a
post-termination consulting agreement with the Company.
You have expressed a concern that your current severance package may have
unfavorable tax consequences. The Compensation Committee, on the other hand, has
expressed an interest in retaining your valued services, and has requested that,
in the event of your involuntary termination without cause, you make yourself
available to consult, as needed, with your successor. Given the recognized value
of your services, and recognizing your expressed concerns, the following
modifications to the severance benefits described in your letter of employment,
dated February 28, 1992 are offered:
1. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter
into a post-termination obligation to consult to the Company. As a
consultant, you may be called upon to assist your successor in a
transitional role, and act as an advisor to your successor or the
Board of Directors, as requested. Your duties in this capacity
will be satisfied once the twelve (12) month period expires.
2. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter
into a post-termination obligation not to compete with the
Company. Competition means the rendering of professional services
with respect to products which are identical and/or similar to
products of the Company ("Products"), other than in your capacity
as the Company's consultant, to any person or organization that
purchased Products or Product services from the Company, or that
provided similar Products or Product services in the same
geographical area as the Company, during the period of your
employment with the Company.
<PAGE> 11
Mr. Jerry A. Cooper Page 2
July 2, 1996
3. No severance shall be provided in the event of your termination by
Defiance for Other Than Cause. Additionally, in the event of your
Termination Due to a Change of Control, your base salary, at the
highest rate during the twelve (12) months preceding your
termination date, plus the average monthly amount of the bonuses
awarded during the three (3) years preceding termination, and
benefits shall be provided for a period of two (2) years, and this
period shall commence once the post-termination obligation to
consult has been satisfied.
4. As compensation for your services during the post-termination
obligation to consult, and the post-termination obligation not to
compete, you will receive all current benefits and be paid in
monthly installments throughout the twelve (12) months following
your termination. The amount of each installment will equal the
monthly amount of base compensation at the highest rate during the
twelve (12) months preceding your termination date, plus the
average monthly amount of the bonuses awarded during the three (3)
years preceding termination.
5. The Company acknowledges and guarantees its obligations to pay to
you all consideration incident to your aforementioned
post-termination obligations to consult, not to compete, as well
as the Change of Control, unless and until those payments are
actually received by you from third parties. A precondition of the
Company's obligation is the executive's fulfillment of the
aforementioned obligations.
Jerry, I hope that this letter resolves the questions you had regarding
your benefits under the Plan and the concerns you raised with regards to your
severance package. If you would like to accept the arrangements outlined above,
please sign and return the enclosed "acceptance copy" of this letter.
Very truly yours,
/s/ Scott D. Roulston
--------------------------------
Chairman Compensation Committee
ACCEPTED: /s/ Jerry A. Cooper
Jerry A. Cooper
DATE: July 11, 1996
<PAGE> 1
EXHIBIT 12
DN ACQUISITION CORPORATION
January 7, 1999
Michael J. Meier
2841 Falmouth Road
Shaker Heights, OH 44122
Dear Mr. Meier:
We refer to the Agreement and Plan of Merger, of even date (the
"MERGER AGREEMENT"), among New Hampshire Oak, Inc., DN Acquisition Corporation
(the "PURCHASER") and Defiance, Inc. (the "COMPANY") and to the Defiance Inc.
Change of Control Policy dated July 24, 1998 attached hereto and incorporated
herein as ATTACHMENT A (the "POLICY"). Under applicable law, all rights, duties,
assets, obligations and liabilities of both the Purchaser and the Company will
be vested in the Company following the consummation of the tender offer and the
merger as contemplated by the Merger Agreement. Following the consummation of
the tender offer and/or the merger as contemplated by the Merger Agreement, you
may be entitled to receive certain benefits pursuant to the Policy. In order to
clarify these and certain other rights and obligations, we have set forth such
rights and obligations in this letter. By signing this letter, you are agreeing
to the terms set forth herein. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement.
1. COMPENSATION PRIOR TO TERMINATION DUE TO CHANGE OF CONTROL. You,
the Purchaser and the Company agree that the consummation of the tender offer
and/or merger contemplated in the Merger Agreement constitute a change of
control as defined in the Policy. At all times thereafter but prior to a
Termination Due to Change of Control, as defined in the Policy, Purchaser agrees
that it will cause the Company to continue, and the Company agrees to continue,
your salary, bonuses and all Current Benefits (as defined below) at no less than
current levels. If a Termination Due to Change of Control takes place at any
time other than the Company fiscal year end, the Purchaser agrees that it will
cause the Company to pay you, and the Company agrees to pay you, a pro-rata
share of your Company annual incentive bonus, which shall equal or exceed the
amount of $36,659.04, based upon the number of months and days completed in the
current Company fiscal year.
2. CURRENT COMPENSATION AND BENEFITS. You hereby represent to the
Purchaser that SCHEDULE A accurately states: (i) your base salary as of January
1, 1999, (ii) the average
<PAGE> 2
incentive bonus paid to you for the two years preceding January 1, 1999 and
(iii) all benefits provided to you by the Company on January 1, 1999 ( such
other benefits, the "Current Benefits").
3. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL. Upon your
Termination Due to Change of Control under the Policy, the Purchaser agrees to
cause the Company to pay you and the Company agrees to pay you for a period of
two (2) years in monthly payments: (i) your base salary immediately before your
termination date; (ii) the average monthly amount of the incentive bonuses
awarded to you during the two (2) years preceding termination; and (iii) all
Current Benefits.
4. UNAUTHORIZED DISCLOSURE. During and after your employment with the
Company or any of its affiliates, (i) you agree to keep confidential and to not
disclose to any person (other than an employee or director of the Company or any
of its affiliates, or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by you of your duties) or use to
compete with the Company or any of its affiliates any confidential or
proprietary information, knowledge or data that is not theretofore publicly
known and in the public domain obtained by you while in the employ of the
Company or any of its affiliates with respect to the Company or any of its
affiliates or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts (including the terms and
provisions of this Agreement), suppliers, business prospects, business methods,
techniques, research, trade secrets or know-how of the Company or any of its
affiliates (collectively, "PROPRIETARY INFORMATION"), and (ii) you shall use
best efforts to keep confidential any such Proprietary Information and to
refrain from making any such disclosure, in each case except as may be required
by law or as may be required in connection with any judicial or administrative
proceedings or inquiry.
5. NON-SOLICITATION OF EMPLOYEES. During the period commencing at the
time the Purchaser accepts the Shares tendered pursuant to the Offer and ending
on the date that is two years after the termination of your employment, you
shall not, directly or indirectly, for your own account or the account of any
other Person with which you shall become associated in any capacity or in which
you shall have any ownership interest, (i) solicit for employment, offer to
employ or employ any Person who, at any time during the preceding twelve (12)
months, is or was employed by the Company or any of its affiliates, regardless
of whether such employment is direct or through an entity with which such Person
is employed or associated, or otherwise intentionally interfere with the
relationship of the Company or any of its affiliates with any Person who or
which is at the time employed by or otherwise engaged to perform services for
the Company or any such affiliate, or (ii) induce any employee of the Company or
any of its affiliates to engage in any activity which you are prohibited from
engaging in under this Agreement or to terminate his or her employment with the
Company or such affiliate.
6. RIGHT TO DOCUMENTS; RETURN OF DOCUMENTS. You agree that all
records, files, memoranda, reports, fee lists, customer lists, drawings, plans,
sketches, documents and data of any nature relating to the business of the
Company, including any document containing or pertaining to any Proprietary
Information, shall remain the sole property of the Company and/or
<PAGE> 3
its affiliates (as the case may be). In the event of the termination of your
employment for any reason, you will deliver promptly to the Company all
materials, records, files, notes, plans, memoranda, drawings, designs, papers,
customer lists, sketches, documents and data of any nature pertaining to your
work with the Company and its affiliates, and you will not retain any documents
or data of any description or any reproduction thereof, or any documents
containing or pertaining to any Proprietary Information. You shall certify to
the Company that any such data in machine readable form has been removed from
any computer personally owned by you and all back up copies made by you have
been destroyed.
7. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. You acknowledge and
agree that your covenants and obligations with respect to non-disclosure,
non-solicitation, confidentiality and the property of the Company and its
affiliates relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company and its affiliates irreparable injury for which adequate remedies are
not available at law. Therefore, you expressly agree that the Company and its
affiliates (which shall be express third-party beneficiaries of such covenants
and obligations) shall be entitled to an injunction (whether temporary or
permanent), restraining order or such other equitable relief (including the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any violation of the
covenants and obligations contained in SECTIONS 4, 5, AND 6 hereof. These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company or any such affiliate may have at law or in equity.
8. TERMINATION. In the event your employment by the Company has not
been subject to a Termination Due to a Change of Control prior to the second
anniversary of the date on which the Purchaser acquires more than 50% of the
issued and outstanding Shares on a fully diluted basis, this Agreement shall
terminate and shall have no further effect.
9. NEGOTIATION AND ARBITRATION. The parties shall attempt in good faith
to resolve any controversy, and any alleged breach or default, arising out of or
relating to this Agreement, promptly by confidential negotiations between
persons who have complete authority to settle the matter in dispute as follows
(the "Negotiations"). All Negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. A party
shall give the other party certified mail return receipt requested written
notice of any dispute ("Dispute Notice"). Within ten (10) days after delivery of
the Dispute Notice, the receiving party shall submit to the other a written
response ("Response"). The Dispute Notice and the Response shall include: (a) a
statement of each party's position and a summary of arguments supporting that
position, and (b) the name of the person(s) who will represent that party and
the name of any other person who will accompany the representative(s). Within
twenty (20) days after delivery of the Response, the representatives of both
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, attempt to resolve the dispute. The
parties agree to honor relevant reasonable requests for information within a
period of not more than fifteen (15) days. If the dispute, except as provided
below, has not been resolved by the negotiation procedure as provided herein
within sixty (60) days of the delivery date of the Dispute Notice, then the
dispute shall be settled by arbitration in accordance with the then current
<PAGE> 4
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration hearing shall be held in Cuyahoga County, Ohio. A sole neutral
arbitrator will preside if the amount in controversy is less than One Hundred
Thousand and 00/100 Dollars ($100,000.00) or by three independent and impartial
arbitrators if the amount in controversy exceeds One Hundred Thousand and 00/100
Dollars ($100,000.00). The arbitrator or arbitrators will be agreed upon between
the parties within three (3) weeks of the date upon which the arbitration is
initiated. If the parties cannot agree upon an arbitrator or arbitrators within
that time period, then, within three (3) weeks, the CPR Institute for Dispute
Resolution will be asked by the sender of the Dispute Notice to select an
arbitrator or arbitrators, and the arbitration will then take place within sixty
(60) days of the appointment of the arbitrator or arbitrators. The parties agree
to fully exchange all applicable documents and exhibits three (3) weeks prior to
the arbitration hearing and to limit discovery to two (2) depositions per party,
unless a deposition is necessary to perpetuate testimony of unavailable
witnesses, in which case there will be no limitation. Should either party fail
to participate in the Negotiations, the other party may initiate arbitration
before the expiration of the sixty (60) day period noted above. All judgments of
the arbitrator or arbitrators shall be final and binding and may be entered by
any court having jurisdiction thereof. Each party hereby waives any right to
punitive, exemplary or treble damages. The party which prevails in the
arbitration or any action, suit or other proceedings to enforce the covenants of
this Agreement or to obtain money damages for the breach thereof shall be
entitled to reimbursement from the other party for all expenses, including,
without limitation, reasonable attorneys fees and disbursements actually and
reasonably incurred.
10. MISCELLANEOUS. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AND THE PARTIES AGREE TO THE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN CUYAHOGA COUNTY, OHIO. This
Agreement shall survive the period of your employment with the Company or any of
its affiliates. This Agreement shall inure to the benefit of, and the
obligations and duties created hereby shall be binding upon, the successors and
assigns of the parties hereto, PROVIDED, however, that this Agreement may not be
assigned by you. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof, and the provisions hereof may not be
amended or modified except by a writing signed by the parties hereto. In the
event any of SECTIONS 4, 5 OR 6 is not enforceable in accordance with its terms,
you and the Purchaser agree that such Section shall be reformed to make such
Section enforceable in a manner which provides the Purchaser the maximum rights
permitted at law. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument. Notwithstanding anything
contained herein, this Agreement shall become effective only upon consummation
of the tender offer and/or the merger as contemplated by the Merger Agreement.
<PAGE> 5
Please acknowledge your agreement with the terms of this letter and
confirm the arrangements herein by signing and returning the enclosed copy by
facsimile and by messenger.
Very truly yours,
DN ACQUISITION CORPORATION
By: /s/ Richard R. Russell
Name: Richard R. Russell
Title: President
ACCEPTED AND AGREED:
ACCEPTED AND AGREED: DEFIANCE, INC.
/s/ Michael J. Meier By: /s/ Jerry A. Cooper
Michael J. Meier Name: Jerry A. Cooper
Title: President / Chief Executive Officer
<PAGE> 6
ATTACHMENT A
DEFIANCE, INC.
CHANGE OF CONTROL POLICY
This policy is set forth by the Board of Directors to ensure certain key
executives of Defiance, Inc. (the "Company") are afforded a continuing income to
facilitate the change in their lives resulting from termination from the Company
due to a Change of Control. This policy obligates the Company accordingly to
these executives subject to changes in applicable law and further actions of the
Board of Directors. The Board of Directors reserves the right, at its
discretion, to alter, amend or even terminate this policy, however, any such
change in the policy shall only take effect two (2) years after the date upon
which the Board of Directors institutes said change of the policy.
If an executive is terminated due to a Change of Control, the executive's base
salary (immediately before said termination), incentive bonuses (which bonuses
shall be the average of the incentive bonuses paid to the executive for the two
years preceding said termination), all insurance, medical benefits and company
car or car allowance (provided to the executive immediately prior to said
termination), will be continued for a period of two years from date of
termination, and all stock options outstanding will be immediately vested as
well as all contributions to the Defiance, Inc. Retirement Savings Plan (401(k)
Plan), the Defiance, Inc. Supplemental Executive Retirement Plan (SERP) and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan (make-whole
SERP).
A "Change of Control" shall be deemed to have taken place if, as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets, contested
election, or any combination of the foregoing or other similar extraordinary
transactions, the persons, who are directors one year prior to the first of any
such events to occur, shall cease to constitute a majority of the board of
directors of the Company or any parent or successor to the Company.
Termination due to a Change in Control is deemed to occur if, within two years
after the Change of Control, without the executive's written approval: (1) the
executive's employment is terminated; (2) the executive experiences any
reduction in aggregate direct remuneration, position, responsibility or duties
from those enjoyed by the executive immediately prior to the Change of Control;
(3) the executive experiences any reduction in the aggregate of employee
benefits, prerequisites, or fringe benefits from those enjoyed by the executive
immediately prior to the Change of Control; (4) the Company requires that the
executive's principal place of work is more than twenty-five (25) miles from
the executive's principal place of work immediately prior to the Change of
Control or the executive is required to travel in connection with the
executive's employment to a greater degree than was customary during the year
prior to the Change of Control; or (5) there is a liquidation, dissolution,
consolidation or merger of the Company, or transfer or all or a significant
portion of its assets unless the successor(s) assume all the duties and
obligations to the executive set forth in this policy.
This policy updates and supersedes the Change of Control policy adopted by the
Board of Directors on September 22, 1994.
The key executives to whom this policy applies as of July 24, 1998 are as
follows:
Michael Meier - VP Finance and Chief Financial Officer, Defiance, Inc.
Cliff Schumacher - VP Marketing and Corporate Development, Defiance, Inc.
Benjamin Scherschel - President, Defiance Precision Products, Inc.
Fred Burke - President, Hy-Form Products, Inc. and Binderline
Draftline, Inc.
Michael Madden - President, Defiance Testing & Engineering Services, Inc.
<PAGE> 1
EXHIBIT 13
DN ACQUISITION CORPORATION
January 7, 1999
Clifford Schumacher
1390 Oak Hollow
Milford, MI 48380
Dear Mr. Schumacher:
We refer to the Agreement and Plan of Merger, of even date (the
"MERGER AGREEMENT"), among New Hampshire Oak, Inc., DN Acquisition Corporation
(the "PURCHASER") and Defiance, Inc. (the "COMPANY") and to the Defiance Inc.
Change of Control Policy dated July 24, 1998 attached hereto and incorporated
herein as ATTACHMENT A (the "POLICY"). Under applicable law, all rights, duties,
assets, obligations and liabilities of both the Purchaser and the Company will
be vested in the Company following the consummation of the tender offer and the
merger as contemplated by the Merger Agreement. Following the consummation of
the tender offer and/or the merger as contemplated by the Merger Agreement, you
may be entitled to receive certain benefits pursuant to the Policy. In order to
clarify these and certain other rights and obligations, we have set forth such
rights and obligations in this letter. By signing this letter, you are agreeing
to the terms set forth herein. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement.
1. COMPENSATION PRIOR TO TERMINATION DUE TO CHANGE OF CONTROL. You,
the Purchaser and the Company agree that the consummation of the tender offer
and/or merger contemplated in the Merger Agreement constitute a change of
control as defined in the Policy. At all times thereafter but prior to a
Termination Due to Change of Control, as defined in the Policy, Purchaser agrees
that it will cause the Company to continue, and the Company agrees to continue,
your salary, bonuses and all Current Benefits (as defined below) at no less than
current levels. If a Termination Due to Change of Control takes place at any
time other than the Company fiscal year end, the Purchaser agrees that it will
cause the Company to pay you, and the Company agrees to pay you, a pro-rata
share of your Company annual incentive bonus, which shall equal or exceed the
amount of $24,000.00, based upon the number of months and days completed in the
current Company fiscal year.
2. CURRENT COMPENSATION AND BENEFITS. You hereby represent to the
Purchaser that SCHEDULE A accurately states: (i) your base salary as of January
1, 1999, (ii) the average incentive bonus paid to you for the two years
preceding January 1, 1999 and (iii) all benefits provided to you by the Company
on January 1, 1999 ( such other benefits, the "Current Benefits").
<PAGE> 2
3. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL. Upon your
Termination Due to Change of Control under the Policy, the Purchaser agrees to
cause the Company to pay you and the Company agrees to pay you for a period of
two (2) years in monthly payments: (i) your base salary immediately before your
termination date; (ii) the average monthly amount of the incentive bonuses
awarded to you during the two (2) years preceding termination; and (iii) all
Current Benefits.
4. UNAUTHORIZED DISCLOSURE. During and after your employment with the
Company or any of its affiliates, (i) you agree to keep confidential and to not
disclose to any person (other than an employee or director of the Company or any
of its affiliates, or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by you of your duties) or use to
compete with the Company or any of its affiliates any confidential or
proprietary information, knowledge or data that is not theretofore publicly
known and in the public domain obtained by you while in the employ of the
Company or any of its affiliates with respect to the Company or any of its
affiliates or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts (including the terms and
provisions of this Agreement), suppliers, business prospects, business methods,
techniques, research, trade secrets or know-how of the Company or any of its
affiliates (collectively, "PROPRIETARY INFORMATION"), and (ii) you shall use
best efforts to keep confidential any such Proprietary Information and to
refrain from making any such disclosure, in each case except as may be required
by law or as may be required in connection with any judicial or administrative
proceedings or inquiry.
5. NON-SOLICITATION OF EMPLOYEES. During the period commencing at the
time the Purchaser accepts the Shares tendered pursuant to the Offer and ending
on the date that is two years after the termination of your employment, you
shall not, directly or indirectly, for your own account or the account of any
other Person with which you shall become associated in any capacity or in which
you shall have any ownership interest, (i) solicit for employment, offer to
employ or employ any Person who, at any time during the preceding twelve (12)
months, is or was employed by the Company or any of its affiliates, regardless
of whether such employment is direct or through an entity with which such Person
is employed or associated, or otherwise intentionally interfere with the
relationship of the Company or any of its affiliates with any Person who or
which is at the time employed by or otherwise engaged to perform services for
the Company or any such affiliate, or (ii) induce any employee of the Company or
any of its affiliates to engage in any activity which you are prohibited from
engaging in under this Agreement or to terminate his or her employment with the
Company or such affiliate.
6. RIGHT TO DOCUMENTS; RETURN OF DOCUMENTS. You agree that all
records, files, memoranda, reports, fee lists, customer lists, drawings, plans,
sketches, documents and data of any nature relating to the business of the
Company, including any document containing or pertaining to any Proprietary
Information, shall remain the sole property of the Company and/or
<PAGE> 3
its affiliates (as the case may be). In the event of the termination of your
employment for any reason, you will deliver promptly to the Company all
materials, records, files, notes, plans, memoranda, drawings, designs, papers,
customer lists, sketches, documents and data of any nature pertaining to your
work with the Company and its affiliates, and you will not retain any documents
or data of any description or any reproduction thereof, or any documents
containing or pertaining to any Proprietary Information. You shall certify to
the Company that any such data in machine readable form has been removed from
any computer personally owned by you and all back up copies made by you have
been destroyed.
7. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. You acknowledge and
agree that your covenants and obligations with respect to non-disclosure,
non-solicitation, confidentiality and the property of the Company and its
affiliates relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company and its affiliates irreparable injury for which adequate remedies are
not available at law. Therefore, you expressly agree that the Company and its
affiliates (which shall be express third-party beneficiaries of such covenants
and obligations) shall be entitled to an injunction (whether temporary or
permanent), restraining order or such other equitable relief (including the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any violation of the
covenants and obligations contained in SECTIONS 4, 5, AND 6 hereof. These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company or any such affiliate may have at law or in equity.
8. TERMINATION. In the event your employment by the Company has not
been subject to a Termination Due to a Change of Control prior to the second
anniversary of the date on which the Purchaser acquires more than 50% of the
issued and outstanding Shares on a fully diluted basis, this Agreement shall
terminate and shall have no further effect.
9. NEGOTIATION AND ARBITRATION. The parties shall attempt in good faith
to resolve any controversy, and any alleged breach or default, arising out of or
relating to this Agreement, promptly by confidential negotiations between
persons who have complete authority to settle the matter in dispute as follows
(the "Negotiations"). All Negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. A party
shall give the other party certified mail return receipt requested written
notice of any dispute ("Dispute Notice"). Within ten (10) days after delivery of
the Dispute Notice, the receiving party shall submit to the other a written
response ("Response"). The Dispute Notice and the Response shall include: (a) a
statement of each party's position and a summary of arguments supporting that
position, and (b) the name of the person(s) who will represent that party and
the name of any other person who will accompany the representative(s). Within
twenty (20) days after delivery of the Response, the representatives of both
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, attempt to resolve the dispute. The
parties agree to honor relevant reasonable requests for information within a
period of not
<PAGE> 4
more than fifteen (15) days. If the dispute, except as provided below, has not
been resolved by the negotiation procedure as provided herein within sixty (60)
days of the delivery date of the Dispute Notice, then the dispute shall be
settled by arbitration in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association. The arbitration
hearing shall be held in Cuyahoga County, Ohio. A sole neutral arbitrator will
preside if the amount in controversy is less than One Hundred Thousand and
00/100 Dollars ($100,000.00) or by three independent and impartial arbitrators
if the amount in controversy exceeds One Hundred Thousand and 00/100 Dollars
($100,000.00). The arbitrator or arbitrators will be agreed upon between the
parties within three (3) weeks of the date upon which the arbitration is
initiated. If the parties cannot agree upon an arbitrator or arbitrators within
that time period, then, within three (3) weeks, the CPR Institute for Dispute
Resolution will be asked by the sender of the Dispute Notice to select an
arbitrator or arbitrators, and the arbitration will then take place within sixty
(60) days of the appointment of the arbitrator or arbitrators. The parties agree
to fully exchange all applicable documents and exhibits three (3) weeks prior to
the arbitration hearing and to limit discovery to two (2) depositions per party,
unless a deposition is necessary to perpetuate testimony of unavailable
witnesses, in which case there will be no limitation. Should either party fail
to participate in the Negotiations, the other party may initiate arbitration
before the expiration of the sixty (60) day period noted above. All judgments of
the arbitrator or arbitrators shall be final and binding and may be entered by
any court having jurisdiction thereof. Each party hereby waives any right to
punitive, exemplary or treble damages. The party which prevails in the
arbitration or any action, suit or other proceedings to enforce the covenants of
this Agreement or to obtain money damages for the breach thereof shall be
entitled to reimbursement from the other party for all expenses, including,
without limitation, reasonable attorneys fees and disbursements actually and
reasonably incurred.
10. MISCELLANEOUS. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AND THE PARTIES AGREE TO THE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN CUYAHOGA COUNTY, OHIO. This
Agreement shall survive the period of your employment with the Company or any of
its affiliates. This Agreement shall inure to the benefit of, and the
obligations and duties created hereby shall be binding upon, the successors and
assigns of the parties hereto, PROVIDED, however, that this Agreement may not be
assigned by you. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof, and the provisions hereof may not be
amended or modified except by a writing signed by the parties hereto. In the
event any of SECTIONS 4, 5 OR 6 is not enforceable in accordance with its terms,
you and the Purchaser agree that such Section shall be reformed to make such
Section enforceable in a manner which provides the Purchaser the maximum rights
permitted at law. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument. Notwithstanding anything
contained herein, this Agreement shall become effective only upon consummation
of the tender offer and/or the merger as contemplated by the Merger Agreement.
<PAGE> 5
Please acknowledge your agreement with the terms of this letter and
confirm the arrangements herein by signing and returning the enclosed copy by
facsimile and by messenger.
Very truly yours,
DN ACQUISITION CORPORATION
By: /s/ Richard R. Russell
Name: Richard R. Russell
Title: President
ACCEPTED AND AGREED:
ACCEPTED AND AGREED: DEFIANCE, INC.
/s/ Clifford Schumacher By: /s/ Jerry A. Cooper
Clifford Schumacher Name: Jerry A. Cooper
Title: President / Chief Executive Officer
<PAGE> 6
ATTACHMENT A
DEFIANCE, INC.
CHANGE OF CONTROL POLICY
This policy is set forth by the Board of Directors to ensure certain key
executives of Defiance, Inc. (the "Company") are afforded a continuing income to
facilitate the change in their lives resulting from termination from the Company
due to a Change of Control. This policy obligates the Company accordingly to
these executives subject to changes in applicable law and further actions of the
Board of Directors. The Board of Directors reserves the right, at its
discretion, to alter, amend or even terminate this policy, however, any such
change in the policy shall only take effect two (2) years after the date upon
which the Board of Directors institutes said change of the policy.
If an executive is terminated due to a Change of Control, the executive's base
salary (immediately before said termination), incentive bonuses (which bonuses
shall be the average of the incentive bonuses paid to the executive for the two
years preceding said termination), all insurance, medical benefits and company
car or car allowance (provided to the executive immediately prior to said
termination), will be continued for a period of two years from date of
termination, and all stock options outstanding will be immediately vested as
well as all contributions to the Defiance, Inc. Retirement Savings Plan (401(k)
Plan), the Defiance, Inc. Supplemental Executive Retirement Plan (SERP) and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan (make-whole
SERP).
A "Change of Control" shall be deemed to have taken place if, as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets, contested
election, or any combination of the foregoing or other similar extraordinary
transactions, the persons, who are directors one year prior to the first of any
such events to occur, shall cease to constitute a majority of the board of
directors of the Company or any parent or successor to the Company.
Termination due to a Change in Control is deemed to occur if, within two years
after the Change of Control, without the executive's written approval: (1) the
executive's employment is terminated; (2) the executive experiences any
reduction in aggregate direct remuneration, position, responsibility or duties
from those enjoyed by the executive immediately prior to the Change of Control;
(3) the executive experiences any reduction in the aggregate of employee
benefits, prerequisites, or fringe benefits from those enjoyed by the executive
immediately prior to the Change of Control; (4) the Company requires that the
executive's principal place of work is more than twenty-five (25) miles from the
executive's principal place of work immediately prior to the Change of Control
or the executive is required to travel in connection with the executive's
employment to a greater degree than was customary during the year prior to the
Change of Control; or (5) there is a liquidation, dissolution, consolidation or
merger of the Company, or transfer or all or a significant portion of its assets
unless the successor(s) assume all the duties and obligations to the executive
set forth in this policy.
This policy updates and supersedes the Change of Control policy adopted by the
Board of Directors on September 22, 1994.
The key executives to whom this policy applies as of July 24, 1998 are as
follows:
Michael Meier - VP Finance and Chief Financial Officer, Defiance, Inc.
Cliff Schumacher - VP Marketing and Corporate Development, Defiance, Inc.
Benjamin Scherschel - President, Defiance Precision Products, Inc.
Fred Burke - President, Hy-Form Products, Inc. and Binderline
Draftline, Inc.
Michael Madden - President, Defiance Testing & Engineering Services, Inc.
<PAGE> 1
EXHIBIT 14
DN ACQUISITION CORPORATION
January 7, 1999
Benjamin A. Scherschel
1246 Hilton Head Court
Defiance, OH 43512
Dear Mr. Scherschel:
We refer to the Agreement and Plan of Merger, of even date (the
"MERGER AGREEMENT"), among New Hampshire Oak, Inc., DN Acquisition Corporation
(the "PURCHASER") and Defiance, Inc. (the "COMPANY") and to the Defiance Inc.
Change of Control Policy dated July 24, 1998 attached hereto and incorporated
herein as ATTACHMENT A (the "POLICY"). Under applicable law, all rights, duties,
assets, obligations and liabilities of both the Purchaser and the Company will
be vested in the Company following the consummation of the tender offer and the
merger as contemplated by the Merger Agreement. Following the consummation of
the tender offer and/or the merger as contemplated by the Merger Agreement, you
may be entitled to receive certain benefits pursuant to the Policy. In order to
clarify these and certain other rights and obligations, we have set forth such
rights and obligations in this letter. By signing this letter, you are agreeing
to the terms set forth herein. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement.
1. COMPENSATION PRIOR TO TERMINATION DUE TO CHANGE OF CONTROL. You,
the Purchaser and the Company agree that the consummation of the tender offer
and/or merger contemplated in the Merger Agreement constitute a change of
control as defined in the Policy. At all times thereafter but prior to a
Termination Due to Change of Control, as defined in the Policy, Purchaser agrees
that it will cause the Company to continue, and the Company agrees to continue,
your salary, bonuses and all Current Benefits (as defined below) at no less than
current levels. If a Termination Due to Change of Control takes place at any
time other than the Company fiscal year end, the Purchaser agrees that it will
cause the Company to pay you, and the Company agrees to pay you, a pro-rata
share of your Company annual incentive bonus, which shall equal or exceed the
amount of $36,000.00, based upon the number of months and days completed in the
current Company fiscal year.
2. CURRENT COMPENSATION AND BENEFITS. You hereby represent to the
Purchaser that SCHEDULE A accurately states: (i) your base salary as of January
1, 1999, (ii) the average incentive bonus paid to you for the two years
preceding January 1, 1999 and (iii) all benefits provided to you by the Company
on January 1, 1999 ( such other benefits, the "Current Benefits").
<PAGE> 2
3. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL. Upon your
Termination Due to Change of Control under the Policy, the Purchaser agrees to
cause the Company to pay you and the Company agrees to pay you for a period of
two (2) years in monthly payments: (i) your base salary immediately before your
termination date; (ii) the average monthly amount of the incentive bonuses
awarded to you during the two (2) years preceding termination; and (iii) all
Current Benefits.
4. UNAUTHORIZED DISCLOSURE. During and after your employment with the
Company or any of its affiliates, (i) you agree to keep confidential and to not
disclose to any person (other than an employee or director of the Company or any
of its affiliates, or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by you of your duties) or use to
compete with the Company or any of its affiliates any confidential or
proprietary information, knowledge or data that is not theretofore publicly
known and in the public domain obtained by you while in the employ of the
Company or any of its affiliates with respect to the Company or any of its
affiliates or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts (including the terms and
provisions of this Agreement), suppliers, business prospects, business methods,
techniques, research, trade secrets or know-how of the Company or any of its
affiliates (collectively, "PROPRIETARY INFORMATION"), and (ii) you shall use
best efforts to keep confidential any such Proprietary Information and to
refrain from making any such disclosure, in each case except as may be required
by law or as may be required in connection with any judicial or administrative
proceedings or inquiry.
5. NON-SOLICITATION OF EMPLOYEES. During the period commencing at the
time the Purchaser accepts the Shares tendered pursuant to the Offer and ending
on the date that is two years after the termination of your employment, you
shall not, directly or indirectly, for your own account or the account of any
other Person with which you shall become associated in any capacity or in which
you shall have any ownership interest, (i) solicit for employment, offer to
employ or employ any Person who, at any time during the preceding twelve (12)
months, is or was employed by the Company or any of its affiliates, regardless
of whether such employment is direct or through an entity with which such Person
is employed or associated, or otherwise intentionally interfere with the
relationship of the Company or any of its affiliates with any Person who or
which is at the time employed by or otherwise engaged to perform services for
the Company or any such affiliate, or (ii) induce any employee of the Company or
any of its affiliates to engage in any activity which you are prohibited from
engaging in under this Agreement or to terminate his or her employment with the
Company or such affiliate.
6. RIGHT TO DOCUMENTS; RETURN OF DOCUMENTS. You agree that all
records, files, memoranda, reports, fee lists, customer lists, drawings, plans,
sketches, documents and data of any nature relating to the business of the
Company, including any document containing or pertaining to any Proprietary
Information, shall remain the sole property of the Company and/or its affiliates
(as the case may be). In the event of the termination of your employment for any
reason, you will deliver promptly to the Company all materials, records, files,
notes, plans, memoranda, drawings, designs, papers, customer lists, sketches,
documents and data of any
<PAGE> 3
nature pertaining to your work with the Company and its affiliates, and you will
not retain any documents or data of any description or any reproduction thereof,
or any documents containing or pertaining to any Proprietary Information. You
shall certify to the Company that any such data in machine readable form has
been removed from any computer personally owned by you and all back up copies
made by you have been destroyed.
7. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. You acknowledge and
agree that your covenants and obligations with respect to non-disclosure,
non-solicitation, confidentiality and the property of the Company and its
affiliates relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company and its affiliates irreparable injury for which adequate remedies are
not available at law. Therefore, you expressly agree that the Company and its
affiliates (which shall be express third-party beneficiaries of such covenants
and obligations) shall be entitled to an injunction (whether temporary or
permanent), restraining order or such other equitable relief (including the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any violation of the
covenants and obligations contained in SECTIONS 4, 5, AND 6 hereof. These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company or any such affiliate may have at law or in equity.
8. TERMINATION. In the event your employment by the Company has not
been subject to a Termination Due to a Change of Control prior to the second
anniversary of the date on which the Purchaser acquires more than 50% of the
issued and outstanding Shares on a fully diluted basis, this Agreement shall
terminate and shall have no further effect.
9. NEGOTIATION AND ARBITRATION. The parties shall attempt in good faith
to resolve any controversy, and any alleged breach or default, arising out of or
relating to this Agreement, promptly by confidential negotiations between
persons who have complete authority to settle the matter in dispute as follows
(the "Negotiations"). All Negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. A party
shall give the other party certified mail return receipt requested written
notice of any dispute ("Dispute Notice"). Within ten (10) days after delivery of
the Dispute Notice, the receiving party shall submit to the other a written
response ("Response"). The Dispute Notice and the Response shall include: (a) a
statement of each party's position and a summary of arguments supporting that
position, and (b) the name of the person(s) who will represent that party and
the name of any other person who will accompany the representative(s). Within
twenty (20) days after delivery of the Response, the representatives of both
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, attempt to resolve the dispute. The
parties agree to honor relevant reasonable requests for information within a
period of not more than fifteen (15) days. If the dispute, except as provided
below, has not been resolved by the negotiation procedure as provided herein
within sixty (60) days of the delivery date of the Dispute Notice, then the
dispute shall be settled by arbitration in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration hearing shall be held in Cuyahoga County, Ohio. A sole neutral
arbitrator will preside if the amount in controversy is less than One Hundred
Thousand and 00/100 Dollars ($100,000.00) or by three
<PAGE> 4
independent and impartial arbitrators if the amount in controversy exceeds One
Hundred Thousand and 00/100 Dollars ($100,000.00). The arbitrator or arbitrators
will be agreed upon between the parties within three (3) weeks of the date upon
which the arbitration is initiated. If the parties cannot agree upon an
arbitrator or arbitrators within that time period, then, within three (3) weeks,
the CPR Institute for Dispute Resolution will be asked by the sender of the
Dispute Notice to select an arbitrator or arbitrators, and the arbitration will
then take place within sixty (60) days of the appointment of the arbitrator or
arbitrators. The parties agree to fully exchange all applicable documents and
exhibits three (3) weeks prior to the arbitration hearing and to limit discovery
to two (2) depositions per party, unless a deposition is necessary to perpetuate
testimony of unavailable witnesses, in which case there will be no limitation.
Should either party fail to participate in the Negotiations, the other party may
initiate arbitration before the expiration of the sixty (60) day period noted
above. All judgments of the arbitrator or arbitrators shall be final and binding
and may be entered by any court having jurisdiction thereof. Each party hereby
waives any right to punitive, exemplary or treble damages. The party which
prevails in the arbitration or any action, suit or other proceedings to enforce
the covenants of this Agreement or to obtain money damages for the breach
thereof shall be entitled to reimbursement from the other party for all
expenses, including, without limitation, reasonable attorneys fees and
disbursements actually and reasonably incurred.
10. MISCELLANEOUS. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AND THE PARTIES AGREE TO THE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN CUYAHOGA COUNTY, OHIO. This
Agreement shall survive the period of your employment with the Company or any of
its affiliates. This Agreement shall inure to the benefit of, and the
obligations and duties created hereby shall be binding upon, the successors and
assigns of the parties hereto, PROVIDED, however, that this Agreement may not be
assigned by you. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof, and the provisions hereof may not be
amended or modified except by a writing signed by the parties hereto. In the
event any of SECTIONS 4, 5 OR 6 is not enforceable in accordance with its terms,
you and the Purchaser agree that such Section shall be reformed to make such
Section enforceable in a manner which provides the Purchaser the maximum rights
permitted at law. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument. Notwithstanding anything
contained herein, this Agreement shall become effective only upon consummation
of the tender offer and/or the merger as contemplated by the Merger Agreement.
<PAGE> 5
Please acknowledge your agreement with the terms of this letter and
confirm the arrangements herein by signing and returning the enclosed copy by
facsimile and by messenger.
Very truly yours,
DN ACQUISITION CORPORATION
By: /s/ Richard R. Russell
Name: Richard R. Russell
Title: President
ACCEPTED AND AGREED:
ACCEPTED AND AGREED: DEFIANCE, INC.
/s/ Benjamin A. Scherschel By: /s/ Jerry A. Cooper
Benjamin A. Scherschel Name: Jerry A. Cooper
Title: President / Chief Executive Officer
<PAGE> 6
ATTACHMENT A
DEFIANCE, INC.
CHANGE OF CONTROL POLICY
This policy is set forth by the Board of Directors to ensure certain key
executives of Defiance, Inc. (the "Company") are afforded a continuing income to
facilitate the change in their lives resulting from termination from the Company
due to a Change of Control. This policy obligates the Company accordingly to
these executives subject to changes in applicable law and further actions of the
Board of Directors. The Board of Directors reserves the right, at its
discretion, to alter, amend or even terminate this policy, however, any such
change in the policy shall only take effect two (2) years after the date upon
which the Board of Directors institutes said change of the policy.
If an executive is terminated due to a Change of Control, the executive's base
salary (immediately before said termination), incentive bonuses (which bonuses
shall be the average of the incentive bonuses paid to the executive for the two
years preceding said termination), all insurance, medical benefits and company
car or car allowance (provided to the executive immediately prior to said
termination), will be continued for a period of two years from date of
termination, and all stock options outstanding will be immediately vested as
well as all contributions to the Defiance, Inc. Retirement Savings Plan (401(k)
Plan), the Defiance, Inc. Supplemental Executive Retirement Plan (SERP) and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan (make-whole
SERP).
A "Change of Control" shall be deemed to have taken place if, as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets, contested
election, or any combination of the foregoing or other similar extraordinary
transactions, the persons, who are directors one year prior to the first of any
such events to occur, shall cease to constitute a majority of the board of
directors of the Company or any parent or successor to the Company.
Termination due to a Change in Control is deemed to occur if, within two years
after the Change of Control, without the executive's written approval: (1) the
executive's employment is terminated; (2) the executive experiences any
reduction in aggregate direct remuneration, position, responsibility or duties
from those enjoyed by the executive immediately prior to the Change of Control;
(3) the executive experiences any reduction in the aggregate of employee
benefits, prerequisites, or fringe benefits from those enjoyed by the executive
immediately prior to the Change of Control; (4) the Company requires that the
executive's principal place of work is more than twenty-five (25) miles from the
executive's principal place of work immediately prior to the Change of Control
or the executive is required to travel in connection with the executive's
employment to a greater degree than was customary during the year prior to the
Change of Control; or (5) there is a liquidation, dissolution, consolidation or
merger of the Company, or transfer or all or a significant portion of its assets
unless the successor(s) assume all the duties and obligations to the executive
set forth in this policy.
This policy updates and supersedes the Change of Control policy adopted by the
Board of Directors on September 22, 1994.
The key executives to whom this policy applies as of July 24, 1998 are as
follows:
Michael Meier - VP Finance and Chief Financial Officer, Defiance, Inc.
Cliff Schumacher - VP Marketing and Corporate Development, Defiance, Inc.
Benjamin Scherschel - President, Defiance Precision Products, Inc.
Fred Burke - President, Hy-Form Products, Inc. and Binderline
Draftline, Inc.
Michael Madden - President, Defiance Testing & Engineering Services, Inc.
<PAGE> 1
EXHIBIT 15
DN ACQUISITION CORPORATION
January 7, 1999
Fred Burke
9777 Mortenview Drive
Taylor, MI 48180
Dear Mr. Burke:
We refer to the Agreement and Plan of Merger, of even date (the
"MERGER AGREEMENT"), among New Hampshire Oak, Inc., DN Acquisition Corporation
(the "PURCHASER") and Defiance, Inc. (the "COMPANY") and to the Defiance Inc.
Change of Control Policy dated July 24, 1998 attached hereto and incorporated
herein as ATTACHMENT A (the "POLICY"). Under applicable law, all rights, duties,
assets, obligations and liabilities of both the Purchaser and the Company will
be vested in the Company following the consummation of the tender offer and the
merger as contemplated by the Merger Agreement. Following the consummation of
the tender offer and/or the merger as contemplated by the Merger Agreement, you
may be entitled to receive certain benefits pursuant to the Policy. In order to
clarify these and certain other rights and obligations, we have set forth such
rights and obligations in this letter. By signing this letter, you are agreeing
to the terms set forth herein. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement.
1. COMPENSATION PRIOR TO TERMINATION DUE TO CHANGE OF CONTROL. You,
the Purchaser and the Company agree that the consummation of the tender offer
and/or merger contemplated in the Merger Agreement constitute a change of
control as defined in the Policy. At all times thereafter but prior to a
Termination Due to Change of Control, as defined in the Policy, Purchaser agrees
that it will cause the Company to continue, and the Company agrees to continue,
your salary, bonuses and all Current Benefits (as defined below) at no less than
current levels. If a Termination Due to Change of Control takes place at any
time other than the Company fiscal year end, the Purchaser agrees that it will
cause the Company to pay you, and the Company agrees to pay you, a pro-rata
share of your Company annual incentive bonus, which shall equal or exceed
$10,500, based upon the number of months and days completed in the current
Company fiscal year.
2. CURRENT COMPENSATION AND BENEFITS. You hereby represent to the
Purchaser that SCHEDULE A accurately states: (i) your base salary as of January
1, 1999, (ii) the average incentive bonus paid to you for the two years
preceding January 1, 1999 and (iii) all benefits provided to you by the Company
on January 1, 1999 ( such other benefits, the "Current Benefits").
<PAGE> 2
3. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL. Upon your
Termination Due to Change of Control under the Policy, the Purchaser agrees to
cause the Company to pay you and the Company agrees to pay you for a period of
two (2) years in monthly payments: (i) your base salary immediately before your
termination date; (ii) the average monthly amount of the incentive bonuses
awarded to you during the two (2) years preceding termination; and (iii) all
Current Benefits.
4. UNAUTHORIZED DISCLOSURE. During and after your employment with the
Company or any of its affiliates, (i) you agree to keep confidential and to not
disclose to any person (other than an employee or director of the Company or any
of its affiliates, or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by you of your duties) or use to
compete with the Company or any of its affiliates any confidential or
proprietary information, knowledge or data that is not theretofore publicly
known and in the public domain obtained by you while in the employ of the
Company or any of its affiliates with respect to the Company or any of its
affiliates or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts (including the terms and
provisions of this Agreement), suppliers, business prospects, business methods,
techniques, research, trade secrets or know-how of the Company or any of its
affiliates (collectively, "PROPRIETARY INFORMATION"), and (ii) you shall use
best efforts to keep confidential any such Proprietary Information and to
refrain from making any such disclosure, in each case except as may be required
by law or as may be required in connection with any judicial or administrative
proceedings or inquiry.
5. NON-SOLICITATION OF EMPLOYEES. During the period commencing at the
time the Purchaser accepts the Shares tendered pursuant to the Offer and ending
on the date that is two years after the termination of your employment, you
shall not, directly or indirectly, for your own account or the account of any
other Person with which you shall become associated in any capacity or in which
you shall have any ownership interest, (i) solicit for employment, offer to
employ or employ any Person who, at any time during the preceding twelve (12)
months, is or was employed by the Company or any of its affiliates, regardless
of whether such employment is direct or through an entity with which such Person
is employed or associated, or otherwise intentionally interfere with the
relationship of the Company or any of its affiliates with any Person who or
which is at the time employed by or otherwise engaged to perform services for
the Company or any such affiliate, or (ii) induce any employee of the Company or
any of its affiliates to engage in any activity which you are prohibited from
engaging in under this Agreement or to terminate his or her employment with the
Company or such affiliate.
6. RIGHT TO DOCUMENTS; RETURN OF DOCUMENTS. You agree that all
records, files, memoranda, reports, fee lists, customer lists, drawings, plans,
sketches, documents and data of any nature relating to the business of the
Company, including any document containing or pertaining to any Proprietary
Information, shall remain the sole property of the Company and/or
<PAGE> 3
its affiliates (as the case may be). In the event of the termination of your
employment for any reason, you will deliver promptly to the Company all
materials, records, files, notes, plans, memoranda, drawings, designs, papers,
customer lists, sketches, documents and data of any nature pertaining to your
work with the Company and its affiliates, and you will not retain any documents
or data of any description or any reproduction thereof, or any documents
containing or pertaining to any Proprietary Information. You shall certify to
the Company that any such data in machine readable form has been removed from
any computer personally owned by you and all back up copies made by you have
been destroyed.
7. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. You acknowledge and
agree that your covenants and obligations with respect to non-disclosure,
non-solicitation, confidentiality and the property of the Company and its
affiliates relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company and its affiliates irreparable injury for which adequate remedies are
not available at law. Therefore, you expressly agree that the Company and its
affiliates (which shall be express third-party beneficiaries of such covenants
and obligations) shall be entitled to an injunction (whether temporary or
permanent), restraining order or such other equitable relief (including the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any violation of the
covenants and obligations contained in SECTIONS 4, 5, AND 6 hereof. These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company or any such affiliate may have at law or in equity.
8. TERMINATION. In the event your employment by the Company has not
been subject to a Termination Due to a Change of Control prior to the second
anniversary of the date on which the Purchaser acquires more than 50% of the
issued and outstanding Shares on a fully diluted basis, this Agreement shall
terminate and shall have no further effect.
9. NEGOTIATION AND ARBITRATION. The parties shall attempt in good faith
to resolve any controversy, and any alleged breach or default, arising out of or
relating to this Agreement, promptly by confidential negotiations between
persons who have complete authority to settle the matter in dispute as follows
(the "Negotiations"). All Negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. A party
shall give the other party certified mail return receipt requested written
notice of any dispute ("Dispute Notice"). Within ten (10) days after delivery of
the Dispute Notice, the receiving party shall submit to the other a written
response ("Response"). The Dispute Notice and the Response shall include: (a) a
statement of each party's position and a summary of arguments supporting that
position, and (b) the name of the person(s) who will represent that party and
the name of any other person who will accompany the representative(s). Within
twenty (20) days after delivery of the Response, the representatives of both
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, attempt to resolve the dispute. The
parties agree to honor relevant reasonable requests for information within a
period of not
<PAGE> 4
more than fifteen (15) days. If the dispute, except as provided below, has not
been resolved by the negotiation procedure as provided herein within sixty (60)
days of the delivery date of the Dispute Notice, then the dispute shall be
settled by arbitration in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association. The arbitration
hearing shall be held in Cuyahoga County, Ohio. A sole neutral arbitrator will
preside if the amount in controversy is less than One Hundred Thousand and
00/100 Dollars ($100,000.00) or by three independent and impartial arbitrators
if the amount in controversy exceeds One Hundred Thousand and 00/100 Dollars
($100,000.00). The arbitrator or arbitrators will be agreed upon between the
parties within three (3) weeks of the date upon which the arbitration is
initiated. If the parties cannot agree upon an arbitrator or arbitrators within
that time period, then, within three (3) weeks, the CPR Institute for Dispute
Resolution will be asked by the sender of the Dispute Notice to select an
arbitrator or arbitrators, and the arbitration will then take place within sixty
(60) days of the appointment of the arbitrator or arbitrators. The parties agree
to fully exchange all applicable documents and exhibits three (3) weeks prior to
the arbitration hearing and to limit discovery to two (2) depositions per party,
unless a deposition is necessary to perpetuate testimony of unavailable
witnesses, in which case there will be no limitation. Should either party fail
to participate in the Negotiations, the other party may initiate arbitration
before the expiration of the sixty (60) day period noted above. All judgments of
the arbitrator or arbitrators shall be final and binding and may be entered by
any court having jurisdiction thereof. Each party hereby waives any right to
punitive, exemplary or treble damages. The party which prevails in the
arbitration or any action, suit or other proceedings to enforce the covenants of
this Agreement or to obtain money damages for the breach thereof shall be
entitled to reimbursement from the other party for all expenses, including,
without limitation, reasonable attorneys fees and disbursements actually and
reasonably incurred.
10. MISCELLANEOUS. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AND THE PARTIES AGREE TO THE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN CUYAHOGA COUNTY, OHIO. This
Agreement shall survive the period of your employment with the Company or any of
its affiliates. This Agreement shall inure to the benefit of, and the
obligations and duties created hereby shall be binding upon, the successors and
assigns of the parties hereto, PROVIDED, however, that this Agreement may not be
assigned by you. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof, and the provisions hereof may not be
amended or modified except by a writing signed by the parties hereto. In the
event any of SECTIONS 4, 5 OR 6 is not enforceable in accordance with its terms,
you and the Purchaser agree that such Section shall be reformed to make such
Section enforceable in a manner which provides the Purchaser the maximum rights
permitted at law. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument. Notwithstanding anything
contained herein, this Agreement shall become effective only upon consummation
of the tender offer and/or the merger as contemplated by the Merger Agreement.
<PAGE> 5
Please acknowledge your agreement with the terms of this letter and
confirm the arrangements herein by signing and returning the enclosed copy by
facsimile and by messenger.
Very truly yours,
DN ACQUISITION CORPORATION
By: /s/ Richard R. Russell
Name: Richard R. Russell
Title: President
ACCEPTED AND AGREED:
ACCEPTED AND AGREED: DEFIANCE, INC.
/s/ Fred Burke By: /s/ Jerry A. Cooper
Fred Burke Name: Jerry A. Cooper
Title: President / Chief Executive Officer
<PAGE> 6
ATTACHMENT A
DEFIANCE, INC.
CHANGE OF CONTROL POLICY
This policy is set forth by the Board of Directors to ensure certain key
executives of Defiance, Inc. (the "Company") are afforded a continuing income to
facilitate the change in their lives resulting from termination from the Company
due to a Change of Control. This policy obligates the Company accordingly to
these executives subject to changes in applicable law and further actions of the
Board of Directors. The Board of Directors reserves the right, at its
discretion, to alter, amend or even terminate this policy, however, any such
change in the policy shall only take effect two (2) years after the date upon
which the Board of Directors institutes said change of the policy.
If an executive is terminated due to a Change of Control, the executive's base
salary (immediately before said termination), incentive bonuses (which bonuses
shall be the average of the incentive bonuses paid to the executive for the two
years preceding said termination), all insurance, medical benefits and company
car or car allowance (provided to the executive immediately prior to said
termination), will be continued for a period of two years from date of
termination, and all stock options outstanding will be immediately vested as
well as all contributions to the Defiance, Inc. Retirement Savings Plan (401(k)
Plan), the Defiance, Inc. Supplemental Executive Retirement Plan (SERP) and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan (make-whole
SERP).
A "Change of Control" shall be deemed to have taken place if, as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets, contested
election, or any combination of the foregoing or other similar extraordinary
transactions, the persons, who are directors one year prior to the first of any
such events to occur, shall cease to constitute a majority of the board of
directors of the Company or any parent or successor to the Company.
Termination due to a Change in Control is deemed to occur if, within two years
after the Change of Control, without the executive's written approval: (1) the
executive's employment is terminated; (2) the executive experiences any
reduction in aggregate direct remuneration, position, responsibility or duties
from those enjoyed by the executive immediately prior to the Change of Control;
(3) the executive experiences any reduction in the aggregate of employee
benefits, prerequisites, or fringe benefits from those enjoyed by the executive
immediately prior to the Change of Control; (4) the Company requires that the
executive's principal place of work is more than twenty-five (25) miles from
the executive's principal place of work immediately prior to the Change of
Control or the executive is required to travel in connection with the
executive's employment to a greater degree than was customary during the year
prior to the Change of Control; or (5) there is a liquidation, dissolution,
consolidation or merger of the Company, or transfer or all or a significant
portion of its assets unless the successor(s) assume all the duties and
obligations to the executive set forth in this policy.
This policy updates and supersedes the Change of Control policy adopted by the
Board of Directors on September 22, 1994.
The key executives to whom this policy applies as of July 24, 1998 are as
follows:
Michael Meier - VP Finance and Chief Financial Officer, Defiance, Inc.
Cliff Schumacher - VP Marketing and Corporate Development, Defiance, Inc.
Benjamin Scherschel - President, Defiance Precision Products, Inc.
Fred Burke - President, Hy-Form Products, Inc. and Binderline
Draftline, Inc.
Michael Madden - President, Defiance Testing & Engineering Services, Inc.
<PAGE> 1
EXHIBIT 16
DN ACQUISITION CORPORATION
January 7, 1999
Michael B. Madden
21420 Parklane
Farmington Hills, MI 48335
Dear Mr. Madden:
We refer to the Agreement and Plan of Merger, of even date (the
"MERGER AGREEMENT"), among New Hampshire Oak, Inc., DN Acquisition Corporation
(the "PURCHASER") and Defiance, Inc. (the "COMPANY") and to the Defiance Inc.
Change of Control Policy dated July 24, 1998 attached hereto and incorporated
herein as ATTACHMENT A (the "POLICY"). Under applicable law, all rights, duties,
assets, obligations and liabilities of both the Purchaser and the Company will
be vested in the Company following the consummation of the tender offer and the
merger as contemplated by the Merger Agreement. Following the consummation of
the tender offer and/or the merger as contemplated by the Merger Agreement, you
may be entitled to receive certain benefits pursuant to the Policy. In order to
clarify these and certain other rights and obligations, we have set forth such
rights and obligations in this letter. By signing this letter, you are agreeing
to the terms set forth herein. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement.
1. COMPENSATION PRIOR TO TERMINATION DUE TO CHANGE OF CONTROL. You,
the Purchaser and the Company agree that the consummation of the tender offer
and/or merger contemplated in the Merger Agreement constitute a change of
control as defined in the Policy. At all times thereafter but prior to a
Termination Due to Change of Control, as defined in the Policy, Purchaser agrees
that it will cause the Company to continue, and the Company agrees to continue,
your salary, bonuses and all Current Benefits (as defined below) at no less than
current levels. If a Termination Due to Change of Control takes place at any
time other than the Company fiscal year end, the Purchaser agrees that it will
cause the Company to pay you, and the Company agrees to pay you, a pro-rata
share of your Company annual incentive bonus, which shall equal or exceed the
amount of $14,705.04, based upon the number of months and days completed in the
current Company fiscal year.
2. CURRENT COMPENSATION AND BENEFITS. You hereby represent to the
Purchaser that SCHEDULE A accurately states: (i) your base salary as of January
1, 1999, (ii) the average incentive bonus paid to you for the two years
preceding January 1, 1999 and (iii) all benefits provided to you by the Company
on January 1, 1999 ( such other benefits, the "Current Benefits").
<PAGE> 2
3. PAYMENTS UPON TERMINATION DUE TO CHANGE OF CONTROL. Upon your
Termination Due to Change of Control under the Policy, the Purchaser agrees to
cause the Company to pay you and the Company agrees to pay you for a period of
two (2) years in monthly payments: (i) your base salary immediately before your
termination date; (ii) the average monthly amount of the incentive bonuses
awarded to you during the two (2) years preceding termination; and (iii) all
Current Benefits.
4. UNAUTHORIZED DISCLOSURE. During and after your employment with the
Company or any of its affiliates, (i) you agree to keep confidential and to not
disclose to any person (other than an employee or director of the Company or any
of its affiliates, or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by you of your duties) or use to
compete with the Company or any of its affiliates any confidential or
proprietary information, knowledge or data that is not theretofore publicly
known and in the public domain obtained by you while in the employ of the
Company or any of its affiliates with respect to the Company or any of its
affiliates or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts (including the terms and
provisions of this Agreement), suppliers, business prospects, business methods,
techniques, research, trade secrets or know-how of the Company or any of its
affiliates (collectively, "PROPRIETARY INFORMATION"), and (ii) you shall use
best efforts to keep confidential any such Proprietary Information and to
refrain from making any such disclosure, in each case except as may be required
by law or as may be required in connection with any judicial or administrative
proceedings or inquiry.
5. NON-SOLICITATION OF EMPLOYEES. During the period commencing at the
time the Purchaser accepts the Shares tendered pursuant to the Offer and ending
on the date that is two years after the termination of your employment, you
shall not, directly or indirectly, for your own account or the account of any
other Person with which you shall become associated in any capacity or in which
you shall have any ownership interest, (i) solicit for employment, offer to
employ or employ any Person who, at any time during the preceding twelve (12)
months, is or was employed by the Company or any of its affiliates, regardless
of whether such employment is direct or through an entity with which such Person
is employed or associated, or otherwise intentionally interfere with the
relationship of the Company or any of its affiliates with any Person who or
which is at the time employed by or otherwise engaged to perform services for
the Company or any such affiliate, or (ii) induce any employee of the Company or
any of its affiliates to engage in any activity which you are prohibited from
engaging in under this Agreement or to terminate his or her employment with the
Company or such affiliate.
6. RIGHT TO DOCUMENTS; RETURN OF DOCUMENTS. You agree that all
records, files, memoranda, reports, fee lists, customer lists, drawings, plans,
sketches, documents and data of any nature relating to the business of the
Company, including any document containing or pertaining to any Proprietary
Information, shall remain the sole property of the Company and/or its affiliates
(as the case may be). In the event of the termination of your employment for any
reason, you will deliver promptly to the Company all materials, records, files,
notes, plans, memoranda, drawings, designs, papers, customer lists, sketches,
documents and data of any nature pertaining to your work with the Company and
its affiliates, and you will not retain any
<PAGE> 3
documents or data of any description or any reproduction thereof, or any
documents containing or pertaining to any Proprietary Information. You shall
certify to the Company that any such data in machine readable form has been
removed from any computer personally owned by you and all back up copies made by
you have been destroyed.
7. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. You acknowledge and
agree that your covenants and obligations with respect to non-disclosure,
non-solicitation, confidentiality and the property of the Company and its
affiliates relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company and its affiliates irreparable injury for which adequate remedies are
not available at law. Therefore, you expressly agree that the Company and its
affiliates (which shall be express third-party beneficiaries of such covenants
and obligations) shall be entitled to an injunction (whether temporary or
permanent), restraining order or such other equitable relief (including the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any violation of the
covenants and obligations contained in SECTIONS 4, 5, AND 6 hereof. These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company or any such affiliate may have at law or in equity.
8. TERMINATION. In the event your employment by the Company has not
been subject to a Termination Due to a Change of Control prior to the second
anniversary of the date on which the Purchaser acquires more than 50% of the
issued and outstanding Shares on a fully diluted basis, this Agreement shall
terminate and shall have no further effect.
9. NEGOTIATION AND ARBITRATION. The parties shall attempt in good faith
to resolve any controversy, and any alleged breach or default, arising out of or
relating to this Agreement, promptly by confidential negotiations between
persons who have complete authority to settle the matter in dispute as follows
(the "Negotiations"). All Negotiations shall be treated as compromise and
settlement negotiations for purposes of the relevant rules of evidence. A party
shall give the other party certified mail return receipt requested written
notice of any dispute ("Dispute Notice"). Within ten (10) days after delivery of
the Dispute Notice, the receiving party shall submit to the other a written
response ("Response"). The Dispute Notice and the Response shall include: (a) a
statement of each party's position and a summary of arguments supporting that
position, and (b) the name of the person(s) who will represent that party and
the name of any other person who will accompany the representative(s). Within
twenty (20) days after delivery of the Response, the representatives of both
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, attempt to resolve the dispute. The
parties agree to honor relevant reasonable requests for information within a
period of not more than fifteen (15) days. If the dispute, except as provided
below, has not been resolved by the negotiation procedure as provided herein
within sixty (60) days of the delivery date of the Dispute Notice, then the
dispute shall be settled by arbitration in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration hearing shall be held in Cuyahoga County, Ohio. A sole neutral
arbitrator will preside if the amount in controversy is less than One Hundred
Thousand and 00/100 Dollars ($100,000.00) or by three independent and impartial
arbitrators if the amount in controversy exceeds One Hundred Thousand and 00/100
Dollars ($100,000.00). The arbitrator or arbitrators will be agreed upon
<PAGE> 4
between the parties within three (3) weeks of the date upon which the
arbitration is initiated. If the parties cannot agree upon an arbitrator or
arbitrators within that time period, then, within three (3) weeks, the CPR
Institute for Dispute Resolution will be asked by the sender of the Dispute
Notice to select an arbitrator or arbitrators, and the arbitration will then
take place within sixty (60) days of the appointment of the arbitrator or
arbitrators. The parties agree to fully exchange all applicable documents and
exhibits three (3) weeks prior to the arbitration hearing and to limit discovery
to two (2) depositions per party, unless a deposition is necessary to perpetuate
testimony of unavailable witnesses, in which case there will be no limitation.
Should either party fail to participate in the Negotiations, the other party may
initiate arbitration before the expiration of the sixty (60) day period noted
above. All judgments of the arbitrator or arbitrators shall be final and binding
and may be entered by any court having jurisdiction thereof. Each party hereby
waives any right to punitive, exemplary or treble damages. The party which
prevails in the arbitration or any action, suit or other proceedings to enforce
the covenants of this Agreement or to obtain money damages for the breach
thereof shall be entitled to reimbursement from the other party for all
expenses, including, without limitation, reasonable attorneys fees and
disbursements actually and reasonably incurred.
10. MISCELLANEOUS. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AND THE PARTIES AGREE TO THE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN CUYAHOGA COUNTY, OHIO. This
Agreement shall survive the period of your employment with the Company or any of
its affiliates. This Agreement shall inure to the benefit of, and the
obligations and duties created hereby shall be binding upon, the successors and
assigns of the parties hereto, PROVIDED, however, that this Agreement may not be
assigned by you. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof, and the provisions hereof may not be
amended or modified except by a writing signed by the parties hereto. In the
event any of SECTIONS 4, 5 OR 6 is not enforceable in accordance with its terms,
you and the Purchaser agree that such Section shall be reformed to make such
Section enforceable in a manner which provides the Purchaser the maximum rights
permitted at law. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument. Notwithstanding anything
contained herein, this Agreement shall become effective only upon consummation
of the tender offer and/or the merger as contemplated by the Merger Agreement.
<PAGE> 5
Please acknowledge your agreement with the terms of this letter and
confirm the arrangements herein by signing and returning the enclosed copy by
facsimile and by messenger.
Very truly yours,
DN ACQUISITION CORPORATION
By: /s/ Richard R. Russell
------------------------------------------
Name: Richard R. Russell
Title: President
ACCEPTED AND AGREED:
ACCEPTED AND AGREED: DEFIANCE, INC.
/s/ Michael B. Madden By: /s/ Jerry A. Cooper
- --------------------- ------------------------------------------
Michael B. Madden Name: Jerry A. Cooper
Title: President / Chief Executive Officer
<PAGE> 6
ATTACHMENT A
DEFIANCE, INC.
CHANGE OF CONTROL POLICY
This policy is set forth by the Board of Directors to ensure certain key
executives of Defiance, Inc. (the "Company") are afforded a continuing income to
facilitate the change in their lives resulting from termination from the Company
due to a Change of Control. This policy obligates the Company accordingly to
these executives subject to changes in applicable law and further actions of the
Board of Directors. The Board of Directors reserves the right, at its
discretion, to alter, amend or even terminate this policy, however, any such
change in the policy shall only take effect two (2) years after the date upon
which the Board of Directors institutes said change of the policy.
If an executive is terminated due to a Change of Control, the executive's base
salary (immediately before said termination), incentive bonuses (which bonuses
shall be the average of the incentive bonuses paid to the executive for the two
years preceding said termination), all insurance, medical benefits and company
car or car allowance (provided to the executive immediately prior to said
termination), will be continued for a period of two years from date of
termination, and all stock options outstanding will be immediately vested as
well as all contributions to the Defiance, Inc. Retirement Savings Plan (401(k)
Plan), the Defiance, Inc. Supplemental Executive Retirement Plan (SERP) and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan (make-whole
SERP).
A "Change of Control" shall be deemed to have taken place if, as the result of a
tender offer, exchange offer, merger, consolidation, sale of assets, contested
election, or any combination of the foregoing or other similar extraordinary
transactions, the persons, who are directors one year prior to the first of any
such events to occur, shall cease to constitute a majority of the board of
directors of the Company or any parent or successor to the Company.
Termination due to a Change in Control is deemed to occur if, within two years
after the Change of Control, without the executive's written approval: (1) the
executive's employment is terminated; (2) the executive experiences any
reduction in aggregate direct remuneration, position, responsibility or duties
from those enjoyed by the executive immediately prior to the Change of Control;
(3) the executive experiences any reduction in the aggregate of employee
benefits, prerequisites, or fringe benefits from those enjoyed by the executive
immediately prior to the Change of Control; (4) the Company requires that the
executive's principal place of work is more than twenty-five (25) miles from
the executive's principal place of work immediately prior to the Change of
Control or the executive is required to travel in connection with the
executive's employment to a greater degree than was customary during the year
prior to the Change of Control; or (5) there is a liquidation, dissolution,
consolidation or merger of the Company, or transfer or all or a significant
portion of its assets unless the successor(s) assume all the duties and
obligations to the executive set forth in this policy.
This policy updates and supersedes the Change of Control policy adopted by the
Board of Directors on September 22, 1994.
The key executives to whom this policy applies as of July 24, 1998 are as
follows:
Michael Meier - VP Finance and Chief Financial Officer, Defiance, Inc.
Cliff Schumacher - VP Marketing and Corporate Development, Defiance, Inc.
Benjamin Scherschel - President, Defiance Precision Products, Inc.
Fred Burke - President, Hy-Form Products, Inc. and Binderline
Draftline, Inc.
Michael Madden - President, Defiance Testing & Engineering Services, Inc.
<PAGE> 1
Exhibit 17
Execution Copy
--------------
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of January 7, 1999 (this
"Agreement") among New Hampshire Oak, Inc., a Delaware corporation ("Parent"),
DN Acquisition Corporation, a Delaware corporation ("Purchaser") and the
parties listed on Schedule A attached hereto (each a "Stockholder" and,
collectively, the "Stockholders").
WHEREAS, concurrently herewith Parent, Purchaser, and Defiance,
Inc., a Delaware corporation (the "Company"), are entering into an Agreement
and Plan of Merger of even date herewith (as such agreement may be amended from
time to time, the "Merger Agreement"; capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed to them in the
Merger Agreement) pursuant to which Purchaser will be merged with and into the
Company (the "Merger");
WHEREAS, in furtherance thereof, Parent proposes that Purchaser make
an offer (the "Offer") to purchase for cash all of the issued and outstanding
shares of common stock of the Company at a price of $9.50 per share net to the
seller; and
WHEREAS, Parent has required, as a condition to its entering into
the Merger Agreement and commencing the Offer, that each Stockholder enter
into, and each such Stockholder has agreed to enter into, this Agreement.
NOW, THEREFORE, to satisfy this condition and in consideration of
Parent's entering into the Merger Agreement and causing the Offer to be
commenced, respectively, and in consideration of the premises and the
representations, warranties and covenants contained herein, the parties agree
as follows:
1. REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER. Each Stock-
holder hereby severally as to itself represents and warrants to Parent as
follows:
(a) OWNERSHIP OF SHARES AND STOCK OPTIONS. (i) Such
Stockholder is the record holder and beneficial owner of the number
of shares of the common stock of the Company, par value $.05 per
share (the "Common Stock"), set forth opposite such Stockholder's
name on Schedule A hereto (the "Existing Shares", and together with
any shares of Common Stock acquired by such Stockholder after the
date hereof and prior to the termination hereof, whether upon
exercise of options or warrants, conversion of convertible
securities, purchase, exchange or otherwise, the "Shares").
Stockholders Agreement
<PAGE> 2
(ii) On the date hereof, the Existing Shares set forth
opposite such Stockholder's name on Schedule A constitute all of the
shares of Common Stock beneficially owned by such Stockholder.
(iii) Such Stockholder (A) has, with respect to all of
such Stockholder's Existing Shares, and (B) will have at all times
during the term hereof, with respect to all such Stockholder's
Shares, except as set forth on Schedule A, (1) sole power of
disposition; (2) sole voting power; and (3) sole power to demand
dissenter's or appraisal rights, with no restrictions on such
rights, subject to applicable federal securities laws and the terms
of this Agreement.
(iv) Such Stockholder owns validly issued and
outstanding options (the "Stock Options") to acquire the number of
shares of Common Stock set forth opposite such Stockholder's name on
Schedule A hereto (all such shares underlying such Stockholder's
Stock Options being referred to herein collectively as the "Option
Shares"). Except as set forth on Schedule A, all such Stock Options
are fully vested and freely exercisable by such Stockholder to
acquire any and all such Option Shares at any time at his option.
(b) POWER; BINDING AGREEMENT. Such Stockholder has all
requisite legal capacity, power and authority to enter into and
perform all of such Stockholder's obligations under this
Agreement. The execution, delivery and performance of this
Agreement by such Stockholder will not violate any other agreement
to which such Stockholder is a party or by which such Stockholder
is bound including, without limitation, any voting agreement,
stockholders agreement, voting trust or other agreement. This
Agreement has been duly and validly authorized, executed and
delivered by such Stockholder and constitutes a valid and binding
agreement of such Stockholder, enforceable against such Stockholder
in accordance with its terms. There is no beneficiary of or holder
of a voting trust certificate whose consent is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. If such Stockholder is married
and such Stockholder's Shares constitute community property or
otherwise require spousal or other approval for this Agreement to
be legal, valid and binding, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable
against such person in accordance with its terms.
(c) NO CONFLICTS. Except for filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") and other filings disclosure on the Disclosure
Schedule, if applicable, (i) no filing with, and no permit,
authorization, consent or approval of, any state or federal public
body or authority is necessary for the execution of this Agreement
by such Stockholder
2
Stockholders Agreement
<PAGE> 3
and the consummation by such Stockholder of the transactions
contemplated hereby and (ii) neither the execution and delivery of
this Agreement by such Stock holder nor the consummation by such
Stockholder of the transactions contemplated hereby nor compliance
by such Stockholder with any of the provisions hereof shall (A)
conflict with or result in any breach of the applicable organization
documents applicable to such Stockholder, (B) result in a violation
or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of
termination, cancellation, modification, prepayment or acceleration)
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any
kind to which such Stockholder is a party or by which such
Stockholder or any of such Stock holder's properties or assets may
be bound or (C) violate any order, writ, injunction, decree,
judgment, statute, rule, regulation or governmental permit or
license applicable to such Stockholder or any of such Stockholder's
properties or assets.
(d) Such Stockholder's Shares and the certificates
representing such Shares are now and at all times during the term
hereof will be held by such Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or
agreements, understandings, arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising
hereunder.
(e) No broker, investment banker, financial adviser or
other Person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or
on behalf of such Stockholder.
(f) Such Stockholder understands and acknowledges that
Parent is entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement.
2. AGREEMENT TO TENDER. Each Stockholder hereby irrevocably
agrees to duly tender all of the Shares of such Stockholder pursuant to the
terms of the Offer and not to withdraw such Shares prior to the expiration of
the Offer.
3. AGREEMENT TO VOTE; PROXY.
(a) VOTING. Each Stockholder hereby severally as to itself
agrees that, during the time this Agreement is in effect, at any meeting of the
stockholders of the Company, however called, or in connection with any written
consent of the stockholders of the Company, such Stockholder shall vote (or
cause to be voted) the Shares of such
3
Stockholders Agreement
<PAGE> 4
Stockholder (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement and this Agreement and
any actions required in furtherance hereof and thereof; (ii) against any action
or agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement, the Offer or this Agreement; and (iii) except as specifically
requested in writing by Parent in advance, against the following actions (other
than the Merger and the transactions contemplated by the Merger Agreement): (A)
any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or its subsidiaries; (B) a
sale, lease or transfer of a material amount of assets of the Company or its
subsidiaries or a reorganization, recapitalization, dissolution, liquidation or
winding up of the Company or any of its subsidiaries; (C) any change in the
board of directors of the Company; (D) any change in the present capitalization
of the Company or any amendment of the Company's Certificate of Incorporation;
(E) any other material change in the Company's corporate structure or business;
and (F) any other action which is intended or could reasonably be expected to
impede, interfere with, delay, postpone, discourage or materially adversely
affect the Merger, the transactions contemplated by the Merger Agreement or this
Agreement or the contemplated economic benefits of any of the foregoing. Such
Stockholder shall not enter into any agreement or understanding with any Person
prior to the Termination Date (as defined in Section 9 hereof) to vote in any
manner inconsistent with clause (i), (ii) or (iii) of the preceding sentence.
(b) PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS
PURCHASER, PAUL M. MEISTER AND TODD M. DUCHENE IN THEIR RESPECTIVE CAPACITIES
AS OFFICERS OF PURCHASER, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY
SUCH OFFICE OF PURCHASER, AND ANY OTHER DESIGNEE OF PURCHASER, EACH OF THEM
INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION DATE)
PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SHARES
AS INDICATED IN SECTION 3(a) ABOVE. EACH STOCKHOLDER INTENDS THIS PROXY TO BE
IRREVOCABLE (UNTIL THE TERMINATION DATE) AND COUPLED WITH AN INTEREST AND WILL
TAKE SUCH FURTHER ACTION AND EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE
NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH RESPECT TO SUCH STOCKHOLDER'S
SHARES.
4. CERTAIN COVENANTS OF STOCKHOLDERS. Except in accordance with the
terms of this Agreement, each Stockholder hereby severally as to itself
covenants and agrees as follows:
4
Stockholders Agreement
<PAGE> 5
(a) NO SOLICITATION. Subject to the last sentence of this Section
4(a), such Stockholder shall not, directly or indirectly (including through
advisors, agents or other intermediaries), initiate, solicit, negotiate,
encourage or provide confidential information to facilitate any proposal or
offer by any Person that constitutes or could reasonably be expected to lead to
an Acquisition Transaction. If such Stockholder receives any such inquiry or
proposal, then such Stockholder shall promptly inform Parent of the terms and
conditions, if any, of such inquiry or proposal and the identity of the Person
making it. Subject to the last sentence of this Section 4(a), such Stockholder
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Nothing in this Section 4(a) shall restrict or limit
the ability of any Stockholder who is an officer or director of the Company to
take or perform in such capacity any of the actions or do any of the things
that the Company is permitted to take or perform under Section 4.1(a) or 4.1(b)
of the Merger Agreement.
(b) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE;
RESTRICTION ON WITHDRAWAL. Such Stockholder shall not, directly or indirectly:
(i) except pursuant to the terms of the Merger Agreement, the Offer and this
Agreement, offer for sale, sell, transfer, tender, pledge, hypothecate,
encumber, assign or otherwise dispose of (each such action, a "Disposition"),
enforce or permit the execution of the provisions of any agreement with the
Company whereby the Company may be obligated to repurchase, or enter into any
other contract, option or other arrangement or understanding with respect to,
or otherwise consent to a Disposition of any or all of such Stockholder's
Shares, Stock Options or Option Shares or any interest therein; (ii) except as
contemplated hereby, grant any proxies or powers of attorney, deposit any
Shares, Stock Options or Option Shares into a voting trust or enter into a
voting agreement with respect to any Shares, Stock Options or Option Shares; or
(iii) take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing such Stockholder's
obligations under this Agreement.
(c) WAIVER OF APPRAISAL AND DISSENTER'S RIGHTS. Such Stockholder
hereby waives any rights of appraisal or rights to dissent from the Merger that
such Stockholder may have.
5. Option. (a) Each Stockholder, severally as to itself and not
jointly, hereby grants to Purchaser an irrevocable option (the "Option") to
purchase (i) such Stockholder's Shares and (ii) all Option Shares underlying
all of such Stockholder's Stock Options, in each case on the terms and subject
to the conditions set forth herein.
(b) The Option may be exercised by Purchaser, as a whole with
respect to all Shares and not in part, at any time and from time to time from
and after any time
5
Stockholders Agreement
<PAGE> 6
when the Merger Agreement is terminated in accordance with its terms, subject to
the conditions set forth in Section 5(f). In addition, the Option may be
exercised by Purchaser, as a whole with respect to all Option Shares and not in
part, at any time and from time to time following the earlier to occur of (i)
Purchaser's purchase of any Shares pursuant to the Offer and (ii) any time when
the Merger Agreement is terminated in accordance with its terms, in each case
subject to the conditions set forth in Section 5(f).
(c) If Purchaser wishes to exercise the Option, Purchaser shall send
a written notice (the "Option Notice") to each Stockholder of its intention to
exercise the Option, specifying the place, and, if then known, the time and the
date (the "Closing Date") of the closing (the "Closing") of the purchase.
(d) At the Closing, each Stockholder shall deliver to Purchaser (or
its designee) certificates evidencing all of such Stockholder's Shares and
Option Shares, as the case may be, required to be delivered pursuant to the
Option Notice by delivery of the Shares and the Option Shares, as the case may
be, duly endorsed to Purchaser or accompanied by stock powers duly executed in
favor of Purchaser, with all necessary stock transfer stamps affixed; it being
understood and agreed that to the extent any Stockholder is required to
exercise his Stock Options in order to deliver the Option Shares to Purchaser,
such Stockholder will exercise such Stock Options in accordance with their
terms.
(e) At the Closing, Purchaser shall pay, and Parent shall cause
Purchaser to pay, to each Stockholder, by wire transfer in immediately
available funds to an account specified by such Stockholder in writing no more
than two days prior to the Closing, an amount equal to the product of the
Merger Consideration and the number of Shares and Option Shares purchased from
such Stockholder pursuant to the exercise of the Option.
(f) The Closing shall be subject to the satisfaction of each of the
following conditions:
(i) no court, arbitrator or governmental body, agency
or official shall have issued any order, decree or ruling and there
shall not be any statute, rule or regulation, restraining,
enjoining or prohibiting the consummation of the purchase and sale
of the Shares or the Option Shares, as the case may be, pursuant to
the exercise of the Option;
(ii) any waiting period applicable to the consummation
of the purchase and sale of the Shares or the Option Shares, as the
case may be, pursuant to the exercise of the Option under the HSR
Act shall have expired or been terminated; and
6
Stockholders Agreement
<PAGE> 7
(iii) all actions by or in respect of, and any filing
with, any governmental body, agency, official, or authority required
to permit the consummation of the purchase and sale of the Shares
pursuant to the exercise of the Option shall have been obtained or
made and shall be in full force and effect.
6. FURTHER ASSURANCES.
(a) From time to time, at any party's request and
without further consideration, each other party shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
(b) By its execution of this Agreement, (a) each
Stockholder acknowledges that it has been afforded the opportunity to consult
with its legal counsel and financial advisors with respect to its investment
decision to execute this Agreement and (b) each Stockholder acknowledges that
it has been afforded the opportunity to discuss the Merger Agreement with
representatives of Parent. Each Stockholder further acknowledges that it has
otherwise investigated this matter to its full satisfaction and will not seek
rescission or revocation of this Agreement or seek to withdraw or revoke any
vote, irrevocable proxy or irrevocable instruction delivered by it or on its
behalf in connection therewith.
7. OBLIGATIONS ATTACH TO SHARES. Each Stockholder
agrees that this Agreement and the obligations hereunder shall attach to such
Stockholder's Shares and shall be binding upon any Person to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise.
8. STOP TRANSFER. Each Stockholder agrees with, and
covenants to, Parent that such Stockholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Shares, unless
such transfer is made in compliance with the Offer or this Agreement. Each
Stockholder agrees, with respect to any Shares in certificated form, that such
Stockholder will submit to the Company, within ten business days after the date
hereof, the certificates representing such Shares in order for the Company to
inscribe upon such certificates the following legend: "The shares of Common
Stock, par value $.05 per share, of Defiance, Inc. (the "Company") represented
by this certificate are subject to a Stockholders Agreement dated as of January
7, 1999, and may not be sold or otherwise transferred, except in accordance
therewith. Copies of such Agreement may be obtained at the principal executive
offices of the Company." Each Stockholder agrees that within ten business days
after the date hereof, such Stockholder will no longer hold any Shares, whether
certificated or uncertificated, in "street name" or in the name of any nominee.
7
Stockholders Agreement
<PAGE> 8
9. TERMINATION. This Agreement shall terminate upon
the earlier of (a) the Effective Time, (b) if (i) the Company terminates the
Merger Agreement pursuant to Section 6.1(i) thereof, (ii) the Purchaser
terminates the Merger Agreement pursuant to Section 6.1(f) or 6.1(h) thereof at
any time after a proposal for an Acquisition Transaction has been made or
(iii) the Company or the Purchaser terminates the Merger Agreement pursuant to
Section 6.1(b), 6.1(c) or 6.1(e) thereof at any time after a proposal for an
Acquisition Transaction has been made, twelve (12) months after any such
termination, provided, however, that if the Purchaser has exercised the Option
pursuant to Section 5(c) hereof prior to such date but the Closing has not
occurred prior to such date, this Agreement shall terminate immediately after
the Closing, and (c) if the Merger Agreement is terminated under any
circumstances not mentioned in clause (b) of this Section 9, the date the
Merger Agreement is terminated. The date of termination of this Agreement is
referred to herein as the "Termination Date".
10. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (i)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof and (ii) shall not be assigned by operation of law or otherwise without
the prior written consent of (A) in the case of an assignment by a Stockholder,
Parent and (B) in the case of an assignment by Parent or Purchaser, the
Company, provided that Parent may in its sole discretion assign its rights and
obligations hereunder to any of its direct or indirect wholly-owned
subsidiaries.
(b) AMENDMENTS. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed the parties hereto; PROVIDED, HOWEVER, that Schedule
A may be supplemented by Parent without the agreement of any other party, by
adding the name and other relevant information concerning any stockholder of
the Company who agrees to be bound by the terms of this Agreement, and
thereafter such added stockholder shall be treated as a "Stockholder" for all
purposes of this Agreement.
(c) NOTICES. All notices and other communications
under this Agreement shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, facsimile,
telex or other standard form of telecommunications, by courier service, or by
registered or certified mail, postage prepaid, return receipt requested,
addressed
8
Stockholders Agreement
<PAGE> 9
If to Parent or Purchaser, to it:
c/o The General Chemical Group Inc.
Liberty Lane
Hampton, NH 03842
Facsimile No.: (603) 929-2703
Attention: Secretary
With a copy to:
Debevoise & Plimpton
875 Third Avenue
New York New York 10022
Facsimile No.: (212) 909-6836
Attention: Ralph Arditi, Esq.
If to a Stockholder, to such Stockholder's address or
facsimile number set forth in Schedule A hereto,
or to such other address or facsimile number as the Person to whom notice is
given shall have previously furnished to the others in writing in the manner set
forth above.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
(e) ENFORCEMENT. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement.
(f) COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same Agreement.
(g) DESCRIPTIVE HEADINGS. The descriptive headings
used herein are inserted for convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of this Agreement.
9
Stockholders Agreement
<PAGE> 10
(h) SEVERABILITY. Whenever possible, each
provision or portion of any provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law but if any
provision or portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be re formed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
(i) DEFINITIONS; CONSTRUCTION. For purposes of
this Agreement:
(i) "beneficially own" or "beneficial ownership" with
respect to any securities shall mean having "beneficial ownership"
of such securities (as determined pursuant to Rule 13d-3 under the
Exchange Act), including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities
beneficially owned by a Person shall include securities
beneficially owned by all other Persons with whom such Person would
constitute a "group" as described in Section 13(d)(3) of the
Exchange Act.
(ii) In the event of a stock dividend or distribution,
or any change in the Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the
Shares as well as all such stock dividends and distributions and any
shares into which or for which any or all of the Shares may be
changed or exchanged.
10
Stockholders Agreement
<PAGE> 11
IN WITNESS WHEREOF, Parent, Purchaser and each
Stockholder have caused this Agreement to be duly executed as of the day and
year first above written.
NEW HAMPSHIRE OAK, INC.
BY: /s/ Michael R. Herman
--------------------------------------
Name: Michael R. Herman
Title: Vice President
DN ACQUISITION CORPORATION
BY: /s/ Michael R. Herman
--------------------------------------
Name: Michael R. Herman
Title: Vice President
/s/ Jerry A. Cooper
--------------------------------------
Jerry A. Cooper
/s/ Thomas H. Roulston, II
--------------------------------------
Thomas H. Roulston, II
/s/ Michael J. Meier
--------------------------------------
Michael J. Meier
/s/ Scott D. Roulston
--------------------------------------
Scott D. Roulston
/s/ John D. Ong
--------------------------------------
John D. Ong
/s/ George H. Lewis III
--------------------------------------
George H. Lewis III
/s/ James E. Heighway
--------------------------------------
James E. Heighway
/s/ Richard W. Lock
--------------------------------------
Richard W. Lock
Stockholders Agreement
<PAGE> 12
/s/ Clifford Schumacher
--------------------------------------
Clifford Schumacher
/s/ James L. Treece
--------------------------------------
James L. Treece
/s/ Carl A. Rispoli
--------------------------------------
Carl A. Rispoli
/s/ Fred Burke
--------------------------------------
Fred Burke
/s/ Roger Drummer
--------------------------------------
Roger Drummer
/s/ Michael Madden
--------------------------------------
Michael Madden
/s/ Michael Pavlica
--------------------------------------
Michael Pavlica
/s/ David Piacenti
--------------------------------------
David Piacenti
/s/ Benjamin Scherschel
--------------------------------------
Benjamin Scherschel
/s/ Janice Schneikart
--------------------------------------
Janice Schneikart
/s/ Phillip Tomczak
--------------------------------------
Phillip Tomczak
Stockholders Agreement
<PAGE> 13
Schedule A
<TABLE>
<CAPTION>
Shares Underlying
Existing Shares Stock-Options Total
------------------------------------- ------------------------------- -------------------
Owned Owned
Directly Indirectly Vested Unvested
---------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Jerry A. Cooper 422,446 14,900 82,682 60,800 580,828
Thomas H. Roulston II 117,613 53,273 6,000 2,000 178,886
Michael J. Meier 5,210 -- 23,744 22,242 51,396
Scott D. Roulston 8,888 -- 6,000 2,000 16,888
John D. Ong 10,000 -- 2,000 2,000 14,000
George H. Lewis III 5,000 -- 6,000 2,000 13,000
James E. Heighway 3,000 1,000 6,000 2,000 12,000
Richard W. Lock 4,000 -- 6,000 2,000 12,000
Clifford Schumacher -- -- -- 10,000 10,000
James L. Treece 3,300 -- 3,250 1,750 8,300
Carl A. Rispoli 3,000 -- -- 2,000 5,000
Fred Burke -- -- 2,750 8,250 11,000
Roger E. Drummer 25,000 5,000 5,500 2,000 37,500
Michael B. Madden 15,341 -- 26,230 20,583 62,154
Michael P. Pavlica -- -- 6,250 4,750 11,000
David M. Piacenti -- -- -- 2,000 2,000
Benjamin A. Scherschel -- 1,000 -- 15,000 16,000
Janice F. Schneikart 300 -- 250 1,750 2,300
Phillip C. Tomczak -- -- 418 1,917 2,335
------------------------------------------------------------------------------------------
623,098 75,173 183,074 165,042 1,046,587
</TABLE>
Stockholders Agreement
<PAGE> 1
Exhibit 19
1111 Chester Avenue, Suite 750
Cleveland, Ohio 44114-3516
(216) 861-6300
(216) 861-6006 (FAX)
[DEFIANCE LOGO]
January 13, 1999
To Our Stockholders:
The Board of Directors of Defiance, Inc. (the "Company") is pleased to
inform you that, on January 7, 1999, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with New Hampshire Oak, Inc. ("Parent")
and its wholly owned subsidiary, DN Acquisition Corporation (the "Purchaser").
Parent is owned by The General Chemical Group Inc. Pursuant to the Merger
Agreement, the Purchaser has commenced a cash tender offer (the "Offer") to
purchase all of the outstanding shares of the Company's Common Stock, par value
$0.05 per share (the "Shares"), at a price per Share of $9.50, net to the seller
in cash, without interest thereon, subject to the terms and conditions in the
Offer to Purchase dated January 13, 1999 (the "Offer to Purchase"). The Offer
currently is scheduled to expire at 12:00 midnight, New York City time, on
Thursday, February 11, 1999.
Following the successful completion of the Offer, and upon satisfaction of
certain conditions contained in the Merger Agreement, including approval by
stockholder vote, if required, the Purchaser will be merged into the Company
(the "Merger") and all Shares not purchased in the Offer (except any Shares as
to which the holder has properly exercised his or her dissenter's rights of
appraisal) will be converted into the right to receive $9.50 per Share in cash.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
OFFER AND THE MERGER AND HAS DETERMINED THAT THE OFFER AND THE MERGER ARE
ADVISABLE AND ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S
STOCKHOLDERS. CONSEQUENTLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES.
The recommendation of the Board of Directors is described in more detail in
the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "14D-9
Statement") filed by the Company with the Securities and Exchange Commission, a
copy of which is enclosed with this letter. In arriving at its recommendation,
the Board of Directors gave careful consideration to a number of factors
described in the 14D-9 Statement, including the opinion of McDonald Investments
Inc., relating to the fairness, from a financial point of view, of the
consideration to be received by the Company's stockholders in the Offer and the
Merger. A copy of this fairness opinion is attached as Annex B to the 14D-9
Statement. The 14D-9 Statement summarizes the various factors taken into account
by the Board and contains important information relating to the Board's
decision. Therefore, we urge you to read the 14D-9 Statement carefully in its
entirety.
In connection with the Merger Agreement and the Offer, all of the Company's
directors, officers and certain employees of the Company and its subsidiaries
have agreed to tender all of the Shares held by them pursuant to the Offer. Such
Shares represent approximately 16.2% of the outstanding Shares on a fully
diluted basis (such basis assumes all Shares underlying vested and unvested
stock options are issued and outstanding).
Also accompanying this letter is a copy of the Offer to Purchase and
related materials, including a Letter of Transmittal for use in tendering your
Shares. These documents set forth the terms and conditions of the Offer and
provide instructions as to how to tender your Shares.
WE URGE YOU TO READ EACH OF THE ENCLOSED DOCUMENTS CAREFULLY AND CONSIDER
ALL OF THE INFORMATION SET FORTH THEREIN IN MAKING A DECISION WITH RESPECT TO
TENDERING YOUR SHARES PURSUANT TO THE OFFER AND IN EFFECTING YOUR TENDER, SHOULD
YOU ELECT TO DO SO.
The Company's Board of Directors and management thank you for the support
you have given the Company.
On behalf of the Board of Directors
/s/ Thomas H. Roulston II
THOMAS H. ROULSTON II
Chairman of the Board of Directors
<PAGE> 1
EXHIBIT 20
Contacts: Norman Ritter
The General Chemical Group
603/929-2322
www.genchem.com
Stanley Ulchaker
Edward Howard & Co.
216/781-2400
www.defiance-inc.com
FOR IMMEDIATE RELEASE
GENERAL CHEMICAL TO ACQUIRE PRECISION-BEARINGS MAKER DEFIANCE IN A CASH TENDER
- ------------------------------------------------------------------------------
OFFER
- -----
HAMPTON, N.H., and CLEVELAND, OHIO, January 8, 1999 -- The General
Chemical Group Inc. (NYSE: GCG) and Defiance, Inc. (NASDAQ: DEFI) today agreed
that General Chemical will acquire, in a cash tender offer, all of the 6 million
shares of Defiance common stock outstanding, a transaction valued at
approximately $57 million, or $9.50 per share.
"The purchase of Defiance, a leading manufacturer of precision bearings
for motor-vehicle engines, reflects our strategy of pursuing value-enhancing
acquisitions that contribute to earnings and cash-flow growth," Richard R.
Russell, president and chief executive officer of General Chemical, said. "The
transaction is expected to be immediately accretive to General Chemical's
earnings.
"Our Toledo Technologies subsidiary is the world's leading designer and
producer of stamped and machined valve-train components used in today's
high-growth overhead-cam engines," Mr. Russell continued. "The combination of
these products and Defiance's precision bearings will create a larger, more
integrated supplier of engine systems and assemblies. Building on this strength,
we will continue to expand our portfolio of precision engine components and
systems to serve our global customers. We are also enthusiastic about the
<PAGE> 2
(more)
- 2 -
opportunities that Defiance's tooling and testing services offer in broadening
our base in the automotive industry."
"Our partnership with General Chemical Group will be good for all of
Defiance's customers and employees," said Jerry A. Cooper, Defiance's president
and chief executive officer. "We have realized increased value for our
shareholders. At the same time, this combination will be good for all of
Defiance's operations, and should position Defiance to move forward with plans
to enhance our business."
General Chemical also produces fluid-handling equipment for the
transportation industry and inorganic chemicals for a wide variety of customers
and markets. Defiance also provides testing and tooling-development services to
the automotive industry, in addition to manufacturing anti-friction bearings and
metal prototype dies and parts.
The Board of Directors of Cleveland-based Defiance unanimously approved
the transaction and received from McDonald Investments Inc. a written opinion
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the $9.50-per-share cash consideration was fair, from a
financial point of view, to Defiance stockholders.
The tender offer is subject to, among other things, the tender of at
least 50% of all of the shares outstanding on a fully diluted basis, and the
termination or expiration of the waiting period under the Hart-Scott-Rodino Act.
In the event of termination of the merger agreement, under certain circumstances
General Chemical would be entitled to a termination fee of $1.75 million and the
reimbursement of certain expenses.
# # #
Note: Due to the tender offer announcement by General Chemical Group, Defiance
has adopted a self-imposed quiet period and will provide no further comment on
these matters beyond what is contained in this press release.
Note: This press release contains forward-looking statements within the meaning
of the Private Litigation Reform Act of 1995. Actual results may differ
materially from anticipated results due to certain risks and uncertainties,
including but not limited to general economic conditions in the markets in which
Defiance operates, fluctuations in the production of vehicles for which Defiance
is a supplier, fluctuations in the level of new model development activity at
Defiance's significant customers, labor disputes involving Defiance or its
significant customers, and other risks detailed from time to time in Defiance's
Securities and Exchange Commission filings.
<PAGE> 1
EXHIBIT 21
DEFIANCE, INC.
CONFIDENTIAL
- ------------
April 22, 1998
Mr. Paul M. Meister
Liberty Lane
Hampton, NH 03842
Dear Mr. Meister:
In connection with the consideration of a possible transaction between The
General Chemical Group Inc. ("GCG") and Defiance, Inc., (the "Company"), the
Company is prepared to make available to your directors, officers or employees
(collectively, "Representatives"), and GCG is prepared to make available to the
Company and its Representatives, certain confidential information concerning its
respective business, operations and assets. Such information, together with all
notes, analyses, compilations, studies, interpretations or other documents
prepared by GCG, the Company or their respective Representatives which contain,
reflect or are based upon such information, in whole or in part, shall be
referred to as "Evaluation Material". The term "Evaluation Material" does not
include information which: (i) is or becomes generally available to the public
other than as a result of a disclosure by a party or its Representatives, (ii)
was within the possession of a party prior to its being furnished by or on
behalf of the other party pursuant hereto, or (iii) becomes available to a party
on a non-confidential basis from a source other than the other party or any of
its Representatives; provided that with respect to clauses (ii) and (iii) above,
the source of such information was not bound by a confidentiality agreement with
or other contractual, legal or fiduciary obligation of confidentiality to such
other party with respect to such information.
Each party agrees that it and its Representatives shall use the Evaluation
Material solely for the purpose of evaluating a possible transaction and not for
the purpose of competing with the other or renegotiating the pricing or terms of
any current business between them.
Each party agrees that the Evaluation Material concerning the other will be kept
confidential and that neither party nor their respective Representatives will
disclose any of the Evaluation Material concerning the other in any manner
whatsoever without the prior written consent of the other. In any event, each
party shall be responsible for any breach of this letter agreement by any of its
Representatives and each party agrees, at its sole expense, to take all
reasonable measures to restrain its Representatives from prohibited or
unauthorized disclosure or use of the Evaluation Material. If any party wishes
to introduce another party to the transaction, it will do so only upon receiving
prior written consent from the other party hereto, and in such case each party
warrants that each additional party will execute a letter agreement identical to
this one.
<PAGE> 2
In addition, each party agrees that, without the prior written consent of the
other, neither it nor its Representatives will disclose to any person the fact
that the Evaluation Material has been made available to it, that discussions or
negotiations are taking place concerning possible transactions or any of the
terms, conditions or other facts with respect thereto (including the status
thereof), unless such disclosure is required by law and then only with as much
prior written notice to the other as is practical under the circumstances and
only to the extent required by law. Each party agrees not to contact any
employees or agents of the other, other than the Chairman of the Board, the
Chief Executive Officer or the Chief Financial Officer of the Company or the
representatives of Latona Associates Inc., as the case may be regarding a
possible transaction or the Evaluation Material without the prior written
consent of the other. The term "person" as used in this letter agreement shall
be broadly interpreted to include the media and any corporation, partnership,
group, individual or other entity.
Each party agrees to provide the other with prompt written notice of any request
pursuant to or in connection with any legal proceedings in order that the
parties affected may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of this letter agreement. If legally
compelled to disclose Evaluation Material to any tribunal, regulatory authority
or agency, a party or its Representative may disclose to such tribunal,
regulatory authority or agency only that portion of the Evaluation Material
which is legally required to be disclosed, provided that such party exercise its
best efforts to preserve the confidentiality of the Evaluation Material.
At any time upon the request of the other party for any reason, each party will
and will cause its Representatives to promptly deliver to the other party all
documents (and all copies thereof) furnished to it or its Representatives by or
on behalf of the other party pursuant hereto. In the event of such a request,
all other Evaluation Material prepared by a party or its Representatives shall
be destroyed and no copy thereof shall be retained and, shall certify in writing
that such action has been taken.
Although each party will endeavor to include in the Evaluation Material
information which it believes to be relevant for the purpose of the transaction,
each party acknowledges that neither party nor their respective Representatives
make any representation or warranty as to the accuracy or completeness of the
Evaluation Material. Each party agrees that neither party nor their respective
Representatives shall have any liability relating to or resulting from the use
of the Evaluation Material.
In consideration of the Evaluation Material being furnished to it, each party
hereby agrees that, for a period of two years from the date hereof, neither
party will solicit to employ any of the current officers or employees of the
other so long as they are employed thereby without obtaining the prior written
consent of such other party.
Each party agrees that unless and until a definitive agreement regarding a
transaction has been executed, neither party will be under any legal obligation
of any kind whatsoever with respect to such a transaction by virtue of this
letter agreement except for the matters specifically agreed to
2
<PAGE> 3
herein. Each party acknowledges and agrees that the other, in its sole
discretion, reserves the right to reject any and all proposals made with regard
to a transaction, and to terminate discussions and negotiations at any time.
It is understood and agreed that money damages would not be a sufficient remedy
for any breach of this letter agreement and that each party shall be entitled to
equitable relief, including injunction and specific performance, as a remedy for
any such breach. Such remedies shall not be deemed to be the exclusive remedies
for a breach of this letter agreement, but shall be in addition to all other
remedies available at law or equity.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of Ohio.
Please confirm your agreement with the foregoing by signing and returning one
copy of this letter to the undersigned, whereupon this letter agreement shall
become a binding agreement between you and the Company.
Very truly yours,
DEFIANCE, INC.
/s/ Jerry A. Cooper
Jerry A. Cooper
President and CEO
xc: Steve Shulman
Accepted and agreed this 23rd day of April, 1998.
THE GENERAL CHEMICAL GROUP, INC.
By: /s/ Paul M. Meister
Print name: Paul M. Meister
Title: Director
