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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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EMCON
(Name of Subject Company)
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EMCON
(Name of Person(s) Filing Statement)
Common Stock, no par value per share
(Title of Classes of Securities)
290843 10 1
(CUSIP Number of Class of Securities)
Eugene M. Herson
President and Chief Executive Officer
EMCON
400 South El Camino Real, Suite 1200
San Mateo, California 94402
(650) 375-1522
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of person(s) filing statement)
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COPY TO:
Paul A. Blumenstein, Esq.
Gerald S. Walters, Esq.
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
(650) 328-6561
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 ("Schedule 14D-
9" or "Statement") relates to an offer by The IT Group, Inc., a Delaware
corporation ("Parent"), through its wholly owned subsidiary Seismic
Acquisition Corporation, a California corporation ("Purchaser"), to purchase
all of the Shares (as defined below) of EMCON, a California corporation (the
"Company").
Item 1. Security and Subject Company.
The name of the subject company is EMCON. The address of the principal
executive office of the Company is 400 South El Camino Real, Suite 1200, San
Mateo, California 94402. The title of the class of equity securities to which
this Schedule 14D-9 relates is the common stock, no par value per share (the
"Company Common Stock"), of the Company. Unless the context otherwise
requires, as used herein, the term "Shares" shall mean shares of Company
Common Stock.
Item 2. Tender Offer of the Bidder.
This Statement relates to the cash tender offer (the "Offer") described in
the Tender Offer Statement on Schedule 14D-1, dated May 17, 1999 (as amended
or supplemented, the "Schedule 14D-1"), filed by Parent and Purchaser with the
Securities and Exchange Commission (the "SEC"), relating to an offer to
purchase all of the issued and outstanding Shares at $6.75 per Share (such
amount, or any greater amount per Share paid pursuant to the Offer,
hereinafter referred to as the "Offer Price"), net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in
Purchaser's Offer to Purchase, dated May 17, 1999 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which, together with the Offer to
Purchase or any amendments or supplements thereto, constitute the "Offer
Documents").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 10, 1999 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company, which provides, among other things, for the commencement of
the Offer by Purchaser and further provides that, following the purchase of
Shares pursuant to the Offer, Purchaser will be merged with and into the
Company (the "Merger"), with the Company continuing as the surviving
corporation (the "Surviving Corporation"). At the election of Parent, to the
extent that such action would not cause a failure of a condition to the Offer
or the Merger, the Merger may be structured so that the Company will be merged
with and into Purchaser with the result that Purchaser will become the
Surviving Corporation. The consummation of the Merger is subject to the
satisfaction or, if permissible, waiver of certain conditions, including, if
required, approval of the adoption of the Merger Agreement by the requisite
vote of the shareholders of the Company. If the Minimum Condition (as defined
below) is satisfied, Purchaser would have acquired sufficient Shares in the
Offer to assure such shareholder approval. If Purchaser acquires at least 90%
of the Shares in the Offer, under the California General Corporation Law (the
"CGCL") it will be able to consummate the Merger without a vote of the
Company's shareholders.
At the effective time of the Merger (the "Effective Time"), if Purchaser
holds at least 90% of the Shares then outstanding, each Share issued and
outstanding prior to the Effective Time, other than Shares held by Parent,
Purchaser, the Company or any of their wholly owned subsidiaries
(collectively, "Excluded Shares") and any Shares with respect to which the
holder properly exercises such holder's appraisal rights in accordance with
the CGCL ("Dissenting Shares"), shall automatically be canceled and
extinguished and shall be converted into the right to receive the Offer Price
(the "Cash Merger Consideration"), in cash without interest thereon, subject
to appropriate and proportionate adjustments in the event of any
reclassification, recapitalization, stock split, stock dividend or similar
transactions with respect to the Shares. If Purchaser does not hold at least
90% of the Shares then outstanding at the Effective Time, each Share issued
and outstanding immediately prior to the Effective Time, other than Excluded
Shares and any Dissenting Shares, shall automatically be canceled and
extinguished and shall be converted into the right to receive a fraction of a
fully paid and nonassessable share of common stock, par value $0.01 per share,
of Parent (the "Parent Common Stock") equal to the Conversion Number (the
"Stock Merger Consideration" and, together with the Cash Merger Consideration,
the "Merger
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Consideration"). The Conversion Number shall be equal to a fraction (rounded
to the nearest third decimal point), (a) the numerator of which shall be equal
to the Cash Merger Consideration and (b) the denominator of which shall be
equal to the average of the closing sales price of a share of Parent Common
Stock as reported on the New York Stock Exchange for each of the ten (10)
consecutive trading days ending on, and including, the second trading day
immediately preceding the date on which a final vote of the shareholders of
the Company on the adoption and approval of the Merger shall have been held
(the "Parent Average Stock Price"); provided, however, if the Parent Average
Stock Price is equal to or less than $12.50, then the Conversion Number will
be 0.540. Accordingly, the value of the Stock Merger Consideration may be less
than the Offer Price received by holders of Shares that are purchased pursuant
to the Offer if the market price of shares of Parent Common Stock is less than
$12.50 at the Effective Time.
Each Excluded Share will be canceled and extinguished and cease to exist
without any conversion thereof, and no payment will be made with respect
thereto. Each holder (other than holders of Excluded Shares) of a certificate
representing any Shares will, after the Effective Time, cease to have any
rights with respect to such Shares, except either to receive the Merger
Consideration upon surrender of such certificate, or to exercise such holder's
appraisal rights as provided in the Merger Agreement and the CGCL.
The Offer is conditioned upon, among other things, there being validly
tendered prior to the Expiration Date and not withdrawn at least a number of
Shares equal to eighty percent (80%) of the Shares outstanding on a fully
diluted basis (including for purposes of such calculation all Shares issuable
upon exercise of all stock options which are vested or scheduled to vest on or
before July 9, 1999 with an exercise price less than the Offer Price, and
conversion of all convertible securities or other rights to purchase or
acquire Shares with a conversion price less than the Offer Price
(collectively, "Derivative Securities"); provided, however, that such
calculation shall not include (a) Shares issuable pursuant to Derivative
Securities that by their terms will terminate or be canceled upon consummation
of the Offer or (b) Shares issuable pursuant to Derivative Securities as to
which the Company has obtained a written consent from the holder that such
Derivative Securities will not be converted prior to the Effective Time or (c)
Shares issuable pursuant to Derivative Securities as to which the Company
takes appropriate action to provide that such Derivative Securities shall
automatically convert into the right to receive an amount in cash equal to the
product of (i) the excess, if any, of the Cash Merger Consideration over the
per Share exercise or conversion price of such Derivative Securities and (ii)
the number of Shares subject to such Derivative Securities which are
exercisable immediately prior to the consummation of the Offer) (the "Minimum
Condition"). The Offer is also subject to certain other conditions. The Merger
Agreement is summarized in Item 3 of this Schedule 14D-9.
The Offer Documents indicate that the principal executive offices of Parent
and Purchaser are located at 2790 Mosside Boulevard, Monroeville, Pennsylvania
15146-2792.
Item 3. Identity and Background.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) Except as set forth below, to the Company's knowledge, as of the date
hereof, there are no material contracts, agreements, arrangements or
understandings and actual or potential conflicts of interest between the
Company or its affiliates and (i) its executive officers, directors or
affiliates, or (ii) Parent, Purchaser or their respective executive officers,
directors or affiliates.
(1) Certain Contracts, Agreements, Arrangements or Understandings between the
Company and its Executive Officers, Directors and Affiliates.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its executive officers, directors or
affiliates are described in the Information Statement of the Company attached
to this Schedule 14D-9 as Annex A (the "Information Statement"). The
Information Statement is being furnished to the Company's shareholders
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 Parent's right
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(upon the acquisition by Purchaser of Shares pursuant to the Offer) to
designate persons to be appointed to the Board of Directors of the Company
(the "Company Board") without a meeting of the shareholders of the Company.
The Information Statement is incorporated herein by reference. Shareholders
should be aware that certain members of the Company's management and Company
Board, and other employees of the Company, have interests in the Merger in
addition to the interests of the shareholders of the Company in general, as
described further below and in the Information Statement.
Agreements Relating to Outstanding Convertible Securities
The Company is a party to the Rescission and Reformation Agreement and the
New Note Agreement each dated effective November 1, 1996 by and among the
Company, Organic Waste Technologies, Inc. ("OWT") and certain of the former
shareholders and option holders of OWT, pursuant to which OWT issued
convertible promissory notes and unfunded contractual obligations to pay, in
the aggregate, $1,716,887 (the "OWT Debt"). Under the original terms of the
OWT Debt, upon consummation of the Offer, the OWT Debt would have become
convertible into an aggregate of 264,136 Shares at a conversion price of $6.50
per Share. Each holder of the OWT Debt has agreed to cancel such holder's
conversion right in exchange for either (i) the right to have such holder's
portion of the OWT Debt cashed out upon consummation of the Offer or (ii) an
increase in the interest rate applicable to the OWT Debt from 8% to 10% per
annum. Any portion of the OWT Debt that is cashed out upon consummation of the
Offer will be canceled in exchange for a cash payment equal to $6.75
multiplied by the number of Shares that would have been issuable upon
conversion of such portion of the OWT Debt. Mark H. Shipps, Vice President of
the Company, holds OWT Debt in the amount of $1,022,047.
Indemnification
The Articles of Incorporation of the Company (the "Company's Articles")
provide that the liability of a director of the Company for monetary damages
shall be eliminated to the fullest extent permissible under California law.
The By-Laws of the Company (the "By-Laws") provide that the Company may
indemnify its agents, including its directors and officers and persons serving
in such capacities in other business enterprises at the Company's request,
against expenses actually and reasonably incurred in connection with the
defense or settlement of any threatened, pending or completed action brought
against such person by reason of the fact that such person is or was an agent
of the Company, if such person acted in good faith, in a manner such person
believed would be in the best interests of the Company and with such care,
including reasonable inquiry, as an ordinarily prudent person in a like
position would use under similar circumstances. The By-Laws allow the Company
to advance expenses incurred in connection with defending such a proceeding
upon receipt of an undertaking by or on behalf of the agent to repay such
amount unless it shall ultimately be determined that the agent is entitled to
indemnification. The rights conferred in the By-Laws are not exclusive, and
the Company is authorized to enter into indemnification agreements with its
directors, officers, employees and agents. In addition, the By-Laws permit the
Company to maintain director and officer liability insurance.
(2) Certain Contracts, Agreements, Arrangements or Understandings between the
Company and Parent, Purchaser or the Executive Officers, Directors and
Affiliates of Parent or Purchaser.
The Merger Agreement
The following summary of certain provisions of the Merger Agreement is
presented only as a summary and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is filed as an exhibit to this Schedule
14D-9.
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The Offer. The Merger Agreement provides for the making of the Offer.
Pursuant to the Offer, each tendering shareholder shall receive the Offer
Price for each Share tendered in the Offer. Purchaser's obligation to accept
for payment or pay for Shares is subject to the satisfaction of the conditions
that are described below under "Certain Conditions of the Offer," including
the Minimum Condition. Any determination concerning the satisfaction of the
terms and conditions of the Offer will be made by Purchaser in its good faith
judgment and such determination will be final and binding on all tendering
shareholders. Purchaser expressly reserves the right to waive any conditions
of the Offer (except as otherwise provided in the Merger Agreement), to
increase the Offer Price, to extend the duration of the Offer or to make any
other changes in the terms and conditions of the Offer; provided, however,
that without the Company's prior written consent, no change may be made that
decreases the Offer Price, changes the form of consideration to be paid in the
Offer, reduces the maximum number of Shares to be purchased in the Offer,
imposes any conditions to the Offer in addition to the conditions set forth
herein under the caption "Certain Conditions of the Offer" or amends any other
material terms of the Offer in a manner adverse to the Company's shareholders.
Parent and Purchaser have agreed that if all of the conditions set forth
herein under the caption "Certain Conditions of the Offer" are not satisfied
by the time of any scheduled termination of the Offer then, provided that all
such conditions are reasonably capable of being satisfied, Purchaser shall
extend the Offer until such conditions are satisfied or waived; provided
further, that Purchaser shall not be required to extend the Offer beyond July
9, 1999; provided further, however, that Purchaser may (a) extend the Offer
for any period required by any rule, regulation, interpretation or position of
the SEC or (b) extend the Offer for any reason on one or more occasions for an
aggregate of not more than twenty (20) business days beyond the initial
Expiration Date if more than the number of Shares sufficient to satisfy the
Minimum Condition but less than 90% of the Shares issued and outstanding have
been tendered.
Board Representation. Pursuant to the Merger Agreement and subject to
compliance with applicable law, promptly upon delivery to ChaseMellon
Shareholder Services, L.L.C. (the "Depositary") of the Notice of Acceptance,
Parent shall be entitled to designate such number of directors, rounded up to
the next whole number, on the Company Board as is equal to the product of the
total number of directors on the Company Board (determined after giving effect
to the directors elected pursuant to this sentence) multiplied by the
percentage that the aggregate number of Shares beneficially owned by Parent or
its affiliates bears to the total number of Shares then outstanding; provided,
however, that if Purchaser shall have acquired at least 90% of the outstanding
Shares in the Offer, Parent shall be entitled to designate all of the members
of the Company Board. If Purchaser shall not have acquired 90% of the
outstanding Shares prior to the Effective Time, the Company Board shall at all
times have at least two members who were members of the Company Board on the
date the Merger Agreement was executed and are neither officers of the Company
or any of its subsidiaries, or officers, or directors of Purchaser or any of
its affiliates (the "Independent Directors"). If the number of Independent
Directors is reduced below two prior to the Effective Time, the remaining
Independent Director shall be entitled to designate a person to fill such
vacancy who shall not be an officer or affiliate of the Company or any of its
subsidiaries or an officer, director or affiliate of Parent or any of its
subsidiaries, and such person shall be deemed an Independent Director for all
purposes of the Merger Agreement. If no Independent Directors then remain, the
other directors of the Company shall designate two persons to fill such
vacancies who shall not be officers or affiliates of the Company or any of its
subsidiaries, or officers, directors or affiliates of Parent or any of its
subsidiaries, and such persons shall be deemed to be Independent Directors for
all purposes of the Merger Agreement. Following the election or appointment of
Parent's designees, pursuant to the Merger Agreement and prior to the
Effective Time, any amendment or termination of the Merger Agreement by the
Company, any extension by the Company of the time for the performance of any
of the obligations or other acts of Parent or Purchaser or any waiver of any
of the Company's rights hereunder shall require the concurrence of a majority
of the Independent Directors (or in the case where there is only one
Independent Director, the concurrence of such Independent Director). The
Company's obligations to appoint the designees of Parent to the Board shall be
subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder.
The Merger. As soon as practicable after the satisfaction or waiver of the
conditions to the Merger, Purchaser will be merged with and into the Company,
the separate corporate existence of Purchaser will cease and the Company will
continue as the Surviving Corporation. At the election of Parent, to the
extent that such
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action would not cause a failure of a condition to the Offer or the Merger,
the Merger may be structured so that the Company will be merged with and into
Purchaser with the result that Purchaser will become the Surviving
Corporation. The Effective Time will occur at the date and time the Merger
becomes effective in accordance with the CGCL. The Surviving Corporation shall
continue its corporate existence under the laws of the State of California. The
Company's Articles shall be amended and restated to contain the substantive
provisions of the Articles of Incorporation of Purchaser, as in effect
immediately prior to the Effective Time, and, as so amended and restated, shall
be the Articles of Incorporation of the Surviving Corporation until thereafter
duly amended in accordance with the provisions thereof and applicable law. The
Bylaws of Purchaser in effect at the Effective Time shall be the Bylaws of the
Surviving Corporation until thereafter duly amended in accordance with the
provisions thereof and applicable law. The directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or removal in
accordance with the Articles and Bylaws of the Surviving Corporation. The
officers of Purchaser immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal in accordance with the Articles and Bylaws of the
Surviving Corporation.
Consideration to be Paid in the Merger. At the Effective Time, if the
Purchaser holds at least 90% of the Shares then outstanding, each Share issued
and outstanding prior to the Effective Time (other than Excluded Shares and
any Dissenting Shares) shall automatically be canceled and extinguished and
shall be converted into the right to receive the Cash Merger Consideration,
without interest thereon, subject to appropriate and proportionate adjustments
in the event of any reclassification, recapitalization, stock split, stock
dividend or similar transaction with respect to the Shares. At the Effective
Time, if Purchaser does not hold at least 90% of the Shares then outstanding,
each Share issued and outstanding immediately prior to the Effective Time
(other than Excluded Shares and any Dissenting Shares) shall automatically be
canceled and extinguished and shall be converted into the right to receive the
Stock Merger Consideration.
Employee/Director Stock Options. Pursuant to the Merger Agreement, Parent
will not assume any option to purchase shares of the Company Common Stock (an
"Option") outstanding under any option plans of the Company, including the
1986 Incentive Stock Option Plan, the 1988 Stock Option Plan or the 1998 Stock
Option Plan (collectively, the "Company Stock Plans"). Pursuant to the terms
of such Company Stock Plans, all outstanding Options under such plans will
become fully vested and immediately exercisable immediately prior to a change
of control. The parties to the Merger Agreement shall take all appropriate
action to provide that, at or following the consummation of the Offer, each
holder of an outstanding Option shall be entitled to receive an amount in cash
equal to the product of (a) the excess, if any, of the Cash Merger
Consideration over the per share exercise price of each such Option and (b)
the number of Shares subject to such Option that are exercisable immediately
prior to the Effective Time.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties of the Company with respect to corporate
existence and power, subsidiaries, capitalization, corporate authorization
relative to the Merger Agreement, governmental consents and approvals, SEC
filings, financial statements, absence of undisclosed liabilities, absence of
certain changes or events, taxes, real properties, intellectual property,
litigation, environmental matters, employee benefit plans, compliance with
laws, labor matters, insurance, customers' revenues, financial projections,
government contracts and certain other matters. The Merger Agreement also
includes representations and warranties of Parent and Purchaser with respect
to corporate existence and power, corporate authorization relative to the
Merger Agreement, governmental consents and approvals, available funds, the
valid issuance of Parent Common Stock, if required, and certain other matters.
No representations or warranties made by the Company, Parent or Purchaser will
survive beyond the Effective Time, and no covenants or agreements made in the
Merger Agreement will survive beyond the Effective Time, except for those
covenants or agreements which by their terms contemplate performance after the
Effective Time. Certain representations and warranties of the Company, Parent
and Purchaser set forth in the Merger Agreement will not be breached unless
the matter
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constituting the breach would have a material adverse effect on the business,
assets (including intangible assets), liabilities, financial condition,
operations or results of operations of the respective entity and its
subsidiaries taken as a whole (a "Material Adverse Effect"); provided, however,
that an adverse change in or effect on the revenues or gross margins of the
Company, Parent or Purchaser (or the direct consequences thereof) following the
date of the Merger Agreement to the extent attributable to a delay of, reduction
in or cancellation or change in a material contract that is directly and
primarily attributable to the transactions contemplated by the Merger Agreement
shall not be deemed to constitute a Material Adverse Effect. Additionally,
certain of the representations and warranties of the Company, Parent and
Purchaser set forth in the Merger Agreement will not be breached unless the
matter constituting the breach would have a material adverse effect on the
ability of such entities to consummate the Offer or the Merger.
Conduct of Business. During the period from the date of the Merger Agreement
and continuing until the earlier of the termination of the Merger Agreement or
the Effective Time, the Company has agreed as to itself and its subsidiaries
(except to the extent that Parent shall otherwise consent in writing, which
consent shall not be unreasonably withheld) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due, subject to good
faith disputes over such debts or taxes, to pay or perform its other
obligations when due, and to use all reasonable efforts consistent with past
practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and key
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees and others having business dealings with
it. Without limiting the generality of the foregoing, the Company shall not
(and shall not permit any of its subsidiaries to), without the prior written
consent of Parent, which consent shall not be unreasonably withheld:
(a) accelerate, amend or change the period of exercisability of Options
or restricted stock granted under any employee stock plan of the Company or
authorize cash payments in exchange for any Options granted under any of
such plans except as required by the terms of such plans or any related
agreements in effect as of the date of the Merger Agreement, except as
expressly contemplated by the Merger Agreement;
(b) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company's intellectual property other
than in the ordinary course of business consistent with past practices;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock
(other than distributions declared with respect to the capital stock of any
subsidiary in the ordinary course of business consistent with past
practice), or 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 purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock;
(d) issue, deliver or sell, subject to any lien or authorize or propose
any of the foregoing with respect to any shares of its capital stock or
securities convertible into shares of its capital stock, or any bonds,
debentures, notes or other obligations the holders of which have the right
to vote (or are convertible into or exercisable for securities having the
right to vote) with the shareholders of the Company on any matter, or
subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue any such shares or
other convertible securities other than (i) the issuance of rights to
purchase shares of the Company Common Stock as and to the extent required
under the Company Stock Plans as in effect as of the date of the Merger
Agreement, (ii) the issuance of the Company Common Stock upon the exercise
of Options outstanding on the date of the Merger Agreement in accordance
with their present terms or pursuant to the Company's Employee Stock
Purchase Plan or the Company's Restricted Stock Plan in accordance with
their present terms and (iii) the granting, in the ordinary course of
business consistent with past practice, pursuant to Company Stock Plans in
effect on the date of the Merger Agreement, of Options to purchase up to a
number of shares of the Company Common Stock as shall be agreed to by the
Company and Parent, and the issuance of the Company Common Stock upon
exercise thereof;
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(e) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division;
(f) adopt a plan of complete or partial liquidation or dissolution,
merger or otherwise restructure or recapitalize or consolidate with any
person other than Purchaser or another wholly owned subsidiary of Parent;
(g) sell, lease, license or otherwise dispose of any of its properties or
assets, except for transactions entered into in the ordinary course of
business;
(h) take any action to: (i) increase or agree to increase the
compensation payable or to become payable to its officers or employees,
except for increases in salary or wages of employees in accordance with
agreements entered into before the date of the Merger Agreement and
previously provided to Parent; (ii) grant any additional severance or
termination pay to, or enter into any employment or severance agreements
with, officers; (iii) grant any severance or termination pay to, or enter
into any employment or severance agreement, with any employee, except in
accordance with agreements entered into before the date of the Merger
Agreement and previously provided to Parent; (iv) enter into any collective
bargaining agreement; or (v) establish, adopt, enter into or amend in any
material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(i) amend or propose to amend the Company's Articles or By-Laws, except
as contemplated by the Merger Agreement;
(j) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligation of any
other person except in the ordinary course of business consistent with past
practices and except for obligations of the Company or its subsidiaries
incurred in the ordinary course of business and in an amount not to exceed
$250,000;
(k) make any loans to any other person (other than subsidiaries of the
Company or customary loans or advances to employees in connection with
business-related travel in the ordinary course of business consistent with
past practices);
(l) make, authorize or commit to make any capital expenditures except for
capital expenditures in the ordinary course of business and consistent with
past practice or in amounts less than $150,000 individually and $750,000 in
the aggregate;
(m) make any acquisition of, or investment in, assets or stock of any
other person, by any means;
(n) except as may be required as a result of change in law or to
generally accepted accounting principles consistently applied, change any
of the accounting principles or practices used by it or revalue in any
respect any of its material assets, including writing down the value of
inventory or writing-off notes or accounts receivable, other than in the
ordinary course of business consistent with past practices;
(o) settle or compromise any material claims or litigation or terminate
or materially amend or modify any of its agreements, contracts or
commitments (that have not expired or been terminated) filed as an exhibit
to any forms, reports and documents required to be filed by the Company
with the SEC or waive, release or assign any material rights or claims;
(p) make, revoke or amend any tax election;
(q) enter into or amend any agreement or settlement with any tax
authority; or
(r) take, or agree in writing or otherwise to take, any of the actions
described in the foregoing clauses (a) through (q) or any action that is
reasonably likely to make any of the Company's representations or
warranties contained in the Merger Agreement untrue or incorrect in any
material respect on the date made (to the extent so limited) or as of the
Effective Time.
Indemnification. Pursuant to the Merger Agreement, Parent agrees that all
rights to indemnification now existing in favor of any of the current or
former directors and officers of the Company (the "Indemnified
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Parties") as provided in the Company's Articles or By-Laws, in each case as of
the date of the Merger Agreement, and all indemnification agreements between
the Company and the Indemnified Parties shall survive the Merger and shall
continue in full force and effect from and after consummation of the Offer in
accordance with their terms, as such terms exist on the date of the Merger
Agreement. After the Effective Time, Parent agrees to cause the Surviving
Corporation to honor all rights to indemnification referred to in the
preceding sentence. Additionally, Parent agrees to cause the Company and, from
and after the Effective Time, the Surviving Corporation to purchase a six-year
extended reporting period endorsement under the current policy of directors'
and officers' liability insurance maintained by the Company; provided that (a)
the Surviving Corporation may substitute therefor other policies no less
advantageous (other than to a de minimus extent) to the beneficiaries of the
current policies, (b) such substitution shall not result in any gaps or lapses
in coverage with respect to matters occurring prior to the Effective Time and
(c) the Surviving Corporation shall not be required to pay an annual premium
in excess of 150% of the last annual premium paid (the "Maximum Premium") by
the Company prior to the date of the Merger Agreement (which the Company
represents to be $58,000 for the twelve month period ending January 1, 2000).
If the Surviving Corporation is unable to obtain the insurance required by
this paragraph for the Maximum Premium, it shall obtain as much comparable
insurance as possible for an annual premium equal to the Maximum Premium.
Conditions to the Merger. Pursuant to the Merger Agreement, if Purchaser
shall have purchased Shares pursuant to the Offer, the respective obligations
of Parent, 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 Merger Agreement and the Merger shall have been duly approved and
adopted by the shareholders of the Company, if required by applicable law;
(b) Purchaser shall have delivered the Notice of Acceptance for the
Shares to the Depositary pursuant to the Offer in accordance with the terms
of the Merger Agreement;
(c) the consummation of the Merger shall not be restrained, enjoined or
prohibited by any order, judgment, decree, injunction or ruling of a
governmental entity of competent jurisdiction and there shall not have been
any statute, rule or regulation enacted, promulgated or issued by any
governmental entity that prevents the consummation of the Merger or has the
effect of making the purchase of Shares illegal, and no governmental entity
shall have instituted any proceeding seeking any such order and such
proceeding remains unresolved; and
(d) the waiting period applicable to the consummation of the Merger
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended
("HSR Act") shall have expired or been terminated and, other than filing
the Certificate of Merger or the Certificate of Ownership in the State of
California, all filings with any governmental entity required to be made
prior to the Effective Time by the Company or Parent or any of their
respective subsidiaries and all government consents required to be obtained
prior to the Effective Time by the Company or Parent or any of their
respective subsidiaries in connection with the execution and delivery of
the Merger Agreement and the consummation of the transactions contemplated
thereby by the Company, Parent and Purchaser shall have been made or
obtained (as the case may be), except where the failure to so make or
obtain will not result in either a Material Adverse Effect on the Company
or have, or be reasonably likely to have, a material adverse effect on the
ability of the parties hereto to consummate the transactions contemplated
by the Merger Agreement.
Acquisition Proposals. Pursuant to the Merger Agreement, from and after the
date of the Merger Agreement until the earlier of the Effective Time or
termination of the Merger Agreement, (a) the Company and its subsidiaries have
agreed that they will not, and they will direct their respective
Representatives (as defined herein) not to, directly or indirectly, (i)
solicit, initiate or encourage the submission of any Alternative Proposal (as
defined herein) or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect
to, or take any other action to facilitate the making of any proposal that
constitutes or may reasonably be expected to lead to, an Alternative Proposal,
and (b) neither the Company Board nor any committee thereof will (i) withdraw
or modify, or propose publicly to withdraw or modify, in a manner
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adverse to Parent or Purchaser, their approval or recommendation to the
Company's shareholders of the Offer, the Merger Agreement or the Merger or
(ii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (an "Acquisition
Agreement") with respect to any Alternative Proposal. In addition, the Company
and its subsidiaries will immediately cease, and will instruct and cause their
respective Representatives to immediately cease, any and all existing
activities, discussions or negotiations with any parties with respect to any
Alternative Proposal and the Company and its subsidiaries will not, and they
will direct their Representatives not to, directly or indirectly, make or
authorize any public statement, recommendation or solicitation in support of
any Alternative Proposal. Any violation of the restrictions set forth in
(a)(i) and (ii) of this paragraph by any Representative of the Company or any
of its subsidiaries will be deemed to be a material breach of the Merger
Agreement by the Company.
Notwithstanding the foregoing paragraph, if, at any time prior to the
consummation of the Offer, the Company Board reasonably determines in good
faith, after taking into account the advice of its outside legal counsel, that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's shareholders under applicable law, (a) the Company and its
Representatives may, in response to a Superior Proposal (as defined herein)
that was unsolicited or that did not otherwise result from a breach of the
restrictions set forth in the preceding paragraph, and subject to compliance
with certain other terms set forth in the Merger Agreement, furnish non-public
information with respect to the Company pursuant to a non-disclosure agreement
with terms at least as restrictive as such terms in the Confidentiality
Agreement (as defined herein) and participate in discussions and negotiations
regarding such Superior Proposal, and (b) the Board may, after terminating the
Merger Agreement, withdraw or modify its approval or recommendation of the
Offer, the Merger Agreement or the Merger, approve or recommend a Superior
Proposal or enter into an Acquisition Agreement with respect to a Superior
Proposal; provided that the Company shall have given Parent written notice (a
"Notice of Superior Proposal") at least two (2) business days prior to
entering into any such Acquisition Agreement and at least two (2) business
days prior to public disclosure by the Board of such withdrawal, modification,
approval or recommendation, advising Parent that the Board has received a
Superior Proposal, specifying the material terms and conditions of the
Superior Proposal (including the proposed financing) and identifying the
person making such Superior Proposal. Any amendment to the price or material
terms of a Superior Proposal shall require an additional Notice of Superior
Proposal and an additional two (2) business day period thereafter, to the
extent permitted under applicable law, prior to public disclosure by the Board
of its recommendation with respect thereto.
As used in this Schedule 14D-9, (a) "Representative" means the officers,
directors or employees or any investment banker, attorney, accountant or other
advisor or representative retained by the Company or its subsidiaries, (b)
"Alternative Proposal" means any inquiry, proposal or offer, whether written
or oral, from any person or Group (as defined under Section 13(d) of the
Exchange Act) relating to any direct or indirect acquisition or purchase of
any product line or other material portion of the assets of the Company and
its subsidiaries taken as a whole (other than the purchase of the Company's
products or used equipment in the ordinary course of business), or more than a
20% interest in the total outstanding voting securities of the Company or any
of its subsidiaries, or any tender offer or exchange offer that if consummated
could result in any person or Group beneficially owning 10% or more of the
total outstanding voting securities of the Company or any of its subsidiaries,
or any merger, consolidation, business combination, sale of substantially all
the assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement, and (c) a "Superior Proposal" means a
bona fide offer, whether written or oral, made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash
and/or securities, more than 50% of the total outstanding voting securities of
the Company or all or substantially all of the assets of the Company, which
offer is otherwise on terms which the Board determines in its good faith
judgment (after consultation with a financial advisor of nationally recognized
reputation) to be reasonably capable of being completed (taking into account
all material legal, financial, regulatory and other aspects of the proposal)
and more favorable to the Company's shareholders from a financial point of
view than the Offer and the Merger, and for which financing,
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to the extent required, is then committed or which, in the good faith judgment
of the Board, is capable of being obtained by such third party.
In addition to the obligations of the Company set forth above in this
section on "Acquisition Proposals", the Company as promptly as practicable,
and in any event within 24 hours, will advise Parent orally and in writing of
(a) any request for non-public information that the Company reasonably
believes may lead to an Alternative Proposal, or of any Alternative Proposal,
(b) the material terms and conditions of such information request or
Alternative Proposal and (c) the identity of the person making any such
information request or Alternative Proposal. The Company will keep Parent
informed in all material respects of the status and details (including
material amendments) of any such request or Alternative Proposal.
Nothing contained in the Merger Agreement shall prohibit the Company from
(a) taking and disclosing to its shareholders a position contemplated by Rules
14d-9 and 14e-2(a) under the Exchange Act or (b) making any disclosure to the
Company's shareholders if, in the good faith judgment of the Company Board,
after taking into account the advice of its outside legal counsel, failure to
so disclose would be inconsistent with applicable laws; provided that neither
the Company nor the Company Board nor any committee thereof shall, except in
accordance with the provisions of the Merger Agreement, withdraw or modify, or
publicly propose to withdraw or modify, its position with respect to the
Offer, the Merger Agreement or the Merger or approve or recommend, or propose
to approve or recommend, an Alternative Proposal.
Termination of the Merger Agreement. The Merger Agreement may be terminated
and the Merger contemplated thereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the Company's shareholders
(with any termination by Parent also being an effective termination by
Purchaser):
(a) by mutual written consent duly authorized by the Company Board and
the Parent Board, subject to the concurrence of the Independent Directors
to the extent required;
(b) by either Parent or the Company if:
(i) the Offer is terminated, withdrawn or expires pursuant to its
terms without any Shares having been purchased thereunder; provided,
however, that neither Parent nor the Company may terminate the Merger
Agreement pursuant to this paragraph (b)(i) if such party is in
material breach of the Merger Agreement or, in the case of Parent, if
Parent or Purchaser is in material violation of the terms of the Offer;
(ii) a governmental entity shall have issued an order, decree or
ruling or taken any other action, in any case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Offer
or the Merger, which order, decree, ruling or other action is final and
nonappealable; provided that the party seeking to terminate the Merger
Agreement shall have used its reasonable efforts to remove or lift such
order, decree or ruling; or
(iii) prior to the purchase of Shares pursuant to the Offer, the
Company Board has recommended, or the Company has entered into an
Acquisition Agreement with respect to, a Superior Proposal after fully
complying with the applicable procedures set forth in the Merger
Agreement; provided, however, that termination by the Company pursuant
to this paragraph (b)(iii) shall be conditioned upon concurrent payment
by the Company to Parent in immediately available funds of $500,000 as
reimbursement for all of Parent's costs and expenses in connection with
the Merger Agreement, the Offer and the Merger (the "Transaction
Expenses") and $1,750,000 as a termination fee (the "Termination Fee");
(c) by Parent prior to the purchase of Shares pursuant to the Offer if:
(i) the Company shall have failed to include in the Schedule 14D-9
the recommendation of the Board that the shareholders of the Company
accept the Offer;
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(ii) the Company Board or any committee thereof shall have (A)
withdrawn or modified (including, but not limited to, by amendment of
this Schedule 14D-9) in a manner adverse to Parent or Purchaser its
approval or recommendation of the Offer, the Merger Agreement or the
Merger, (B) approved or recommended, taken no position with respect to,
or failed to recommend against any Alternative Proposal, or (C)
resolved to do any of the foregoing;
(iii) the Company or any of its subsidiaries or any of their
respective Representatives participates in any discussions or
negotiations with or provide any non-public information to any third
party in breach of the terms of the Merger Agreement summarized under
"Acquisition Proposals" in this Section 13; or
(iv) the Company is in material breach of any of its covenants or
obligations under the Merger Agreement; provided that if such breach is
curable through the exercise of the Company's commercially reasonable
efforts, Parent may not terminate the Merger Agreement under this
paragraph (c)(iv) unless such breach is not cured on or prior to the
earlier of (A) twenty (20) days after written notice of such breach is
given by Parent to the Company or (B) two (2) business days before the
date on which the Offer expires;
(d) by the Company prior to the purchase of Shares pursuant to the Offer
if:
(i) the Offer shall not have been commenced in accordance with the
Merger Agreement, or Parent or Purchaser shall have failed to purchase
validly tendered Shares in violation of the terms of the Offer within
ten (10) business days after the expiration of the Offer; provided,
however, that the Company shall not be entitled to terminate this
Agreement pursuant to this paragraph (d)(i) if it is in material breach
of the Merger Agreement; or
(ii) Parent or Purchaser is in material breach of any of its
covenants or obligations under the Merger Agreement; provided that if
such breach is curable through exercise of Parent's or Purchaser's
commercially reasonable efforts, the Company may not terminate the
Merger Agreement under this paragraph (d)(ii) unless such breach is not
cured within the earlier of (A) twenty (20) days after written notice
of such breach is given by the Company to Parent or (B) two (2)
business days before the date on which the Offer expires.
If the Merger Agreement is terminated for any of the above reasons, the
Merger Agreement shall be of no further force or effect, except as otherwise
set forth in the Merger Agreement. Additionally, any termination of the Merger
Agreement shall not (a) relieve any party from liability for any willful
breach of the Merger Agreement or (b) affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive the termination of the Merger Agreement. Furthermore, in the event the
Merger Agreement is terminated pursuant to paragraph (b)(iii) or paragraphs
(c)(i), (ii) or (iii) set forth above in this section on "Termination of the
Merger Agreement," the Company irrevocably waives any otherwise applicable
standstill or other agreement or restrictions in favor of the Company
(contractual or otherwise) on the ability and right of Parent, Purchaser or
any of their affiliates to acquire Shares.
If the Merger Agreement is terminated by Parent pursuant to paragraph
(b)(iii) or paragraphs (c)(i), (ii), (iii) and (iv) set forth above in this
section on "Termination of the Merger Agreement," the Company shall reimburse
Parent in an amount of $500,000 as reimbursement for Transaction Expenses. If
the Merger Agreement is terminated by the Company pursuant to paragraph
(d)(ii) above, Parent shall reimburse the Company in an amount of $500,000 as
reimbursement for Transaction Expenses. Additionally, in the event the Merger
Agreement is terminated pursuant to paragraphs (b)(iii) or (c)(ii) set forth
above, the Company shall pay Parent the Termination Fee in immediately
available funds. Furthermore, in the event that the Merger Agreement is
terminated pursuant to paragraphs (c)(i), (iii) or (iv) set forth above and,
within 12 months following such termination, any person other than Parent or
any affiliate of Parent effects an acquisition relating to an Alternative
Proposal, or enters into an agreement relating to an Alternative Proposal with
the Company or commences a tender offer for a transaction relating to an
Alternative Proposal and the transactions contemplated thereby are
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subsequently consummated at any time, the Company shall pay Parent the
Termination Fee at or prior to the consummation of such transaction in
immediately available funds.
Amendment. The Merger Agreement can only be amended by a written agreement
executed by the Company, Parent and Purchaser.
Extension and Waiver. At any time prior to the Effective Time, the Company,
Parent or Purchaser may, to the extent legally allowed and subject to the
terms and conditions of the Merger Agreement, (a) extend the time for the
performance of any of the obligations or other acts of the other parties to
the Merger Agreement, (b) waive any inaccuracies in the representations and
warranties made to such party contained therein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained therein. Any agreement on
the part of the Company, Parent or Purchaser to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party. Delay in exercising any right under the Merger Agreement shall
not constitute a waiver of such right.
Expenses. Except as otherwise set forth in the Merger Agreement, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the negotiation, execution and delivery of the Merger Agreement, the
Merger and the other transactions contemplated by the Merger Agreement,
including the Offer, shall be paid by the party incurring such expense;
provided, however, that if Parent is required to file a registration statement
on Form S-4 (the "Registration Statement") to register shares of Parent Common
Stock issued in the Merger, then any expenses incurred in connection with the
filing fee for the Registration Statement and the printing and mailing of the
final prospectus shall be borne by Parent.
Certain Conditions of the Offer. Notwithstanding any other provisions of the
Offer or the Merger Agreement, and subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Parent's obligation to pay for or return tendered Shares promptly
after the termination or withdrawal of the Offer), Purchaser shall not be
required to accept for payment or pay for any tendered Shares, shall delay the
acceptance for payment of any tendered Shares, and (subject to the terms of
the Merger Agreement) shall extend the Offer by one or more extensions, if (i)
the Minimum Condition is not satisfied prior to the Expiration Date; (ii) any
applicable waiting period under the HSR Act shall not have expired or been
terminated prior to the Expiration Date, or (iii) at any time after the date
of the Merger Agreement, and prior to the Expiration Date, any of the
following conditions exist:
(a) any statute, rule, regulation, legislation, ruling, judgment, order
or injunction enacted, enforced, promulgated, amended, issued or deemed
applicable to the Offer or the Merger, by any governmental entity of
competent jurisdiction that (i) makes illegal or otherwise prohibits
consummation of the Offer or the Merger, (ii) prohibits or materially
limits the ownership or operation by Parent or Purchaser of all or any
substantial portion of the business or assets of the Company (or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as
a whole), or compels Parent or Purchaser to dispose of, divest or hold
separately all or any substantial portion of the business or assets of
Parent, Purchaser or the Company or its subsidiaries, individually or taken
as a whole, or imposes any material limitation on the ability of Parent or
Purchaser to conduct its business or own such assets, (iii) imposes any
material limitation on the ability of Parent or Purchaser effectively to
acquire, hold or exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or
owned by Purchaser or Parent on the adoption of the Merger Agreement and
all other matters properly presented to the Company's shareholders, (iv)
requires divestiture by Parent or Purchaser of any Shares or (v) results in
a Material Adverse Effect on the Company;
(b) there shall be instituted and pending any action or proceeding by any
governmental entity that would reasonably be expected to result in any of
the consequences referred to in clauses (i) through (v) of the preceding
paragraph (a);
(c) the Merger Agreement shall have been terminated in accordance with
its terms;
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(d) any of the representations and warranties of the Company set forth in
the Merger Agreement, when read without any exception or qualification as
to materiality or Material Adverse Effect, shall not be true and correct,
as if such representations and warranties were made immediately prior to
the consummation of the Offer (except as to any such representation or
warranty which speaks as of a specific date, which must be untrue or
incorrect as of such specific date), except where the failure or failures
to be so true and correct, individually or in the aggregate, do not and
would not reasonably be expected to have a Material Adverse Effect on the
Company;
(e) the Company shall have failed to perform or to comply with any of its
obligations, covenants or agreements under the Merger Agreement in any
material respect;
(f) there shall have occurred any events or changes which have had or
which are likely to have a Material Adverse Effect on the Company, or
(g) the Board shall have withdrawn, or modified or changed in a manner
adverse to Parent (including by amendment of the Schedule 14D-9), its
recommendation of the Offer, the Merger Agreement or the Merger, or
recommended another proposal or offer for the acquisition of the Company,
or the Board shall have resolved to do any of the foregoing.
The foregoing conditions are for the benefit of Parent and Purchaser and may
be asserted by Parent or Purchaser regardless of the circumstances giving rise
to any such conditions (except for any action or inaction in material breach
of the Merger Agreement by Parent or Purchaser) and, except for the Minimum
Condition, may be waived by Parent or Purchaser, in whole or in part, at any
time and from time to time in their sole discretion, in each case, subject to
the terms of the Merger Agreement. The failure by Parent or Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
The Confidentiality Agreement
Raymond James & Associates, Inc. ("Raymond James"), on behalf of the
Company, and Parent entered into the Mutual Nondisclosure and Confidentiality
Agreement on February 10, 1999 (the "Confidentiality Agreement"). Pursuant to
the Confidentiality Agreement, the Company and Parent agreed to make available
to each other certain non-public information concerning their respective
business, financial condition, operations, assets, properties, liabilities and
prospects in order to facilitate discussions relating to a possible
transaction involving the two companies. In accordance with the terms of the
Confidentiality Agreement, the party receiving such non-public information in
verbal, visual, written, electronic or other form has agreed to (a) use such
information solely for the purpose of evaluating and considering any potential
transaction, (b) keep such information strictly confidential and (c) provide
such information only to its representatives to whom disclosure of such
information is reasonably deemed to be required to facilitate the evaluation
or consideration of any potential transaction. However, the Company's and
Parent's obligations under the Confidentiality Agreement will not extend to
information which the party receiving such information can demonstrate (a) was
rightfully in the possession of the receiving party prior to disclosure by the
furnishing party, (b) was or is independently developed by the receiving party
without use of any information supplied by the furnishing party, (c) became
available to the public other than as a result of disclosure by the receiving
party or any of its representatives, or (d) became available to the receiving
party or any of its representatives on a non-confidential basis from a source
other than the furnishing party or any of its respective representatives and
such source is not, to the knowledge of the receiving party, under any
obligation to the furnishing party or any of its representatives to keep such
information confidential. For a period of two years subsequent to any
termination of discussions regarding a potential transaction, Parent has
agreed that it will not directly or indirectly solicit for hire any employee
of the Company or any person who was an employee of the Company within six
months of the date of such solicitation with whom it has first had contact or
who first became known to it in connection with its consideration of a
potential transaction; provided, however, that the foregoing sentence will not
prevent Parent from employing any employee or former employee of the Company
who contacts Parent, directly or indirectly, at his or her own initiative
without any direct or indirect solicitation by or encouragement from Parent.
The foregoing summary of
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certain provisions of the Confidentiality Agreement is qualified in its
entirety by reference to the full text thereof, a copy of which has been filed
with the SEC as an exhibit to this Schedule 14D-9.
Item 4. The Solicitation or Recommendation.
(a) Recommendation of the Company Board.
THE COMPANY BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE
IN THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT SHAREHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES HEREUNDER.
(b) Background of the Offer; Opinion of Financial Advisor; Factors Considered
by the Company Board.
Background of the Offer
On January 29, 1997, the Company's Executive Committee met and determined
that the Company should evaluate and consider strategic alternatives,
including a business combination, joint venture or strategic partnership with
a larger company having the critical mass needed to execute the Company's
business plan more effectively. At the conclusion of this meeting, the Company
engaged Raymond James to provide assistance in exploring strategic
alternatives that may be available to the Company and to advise the Company
with respect to opportunities involving a business combination, joint venture
or strategic partnership with a larger company.
On February 22, 1997, a meeting of the Company Board was held during which
representatives from Raymond James presented their assessment of the Company's
current market and competitive position and the benefits that could be
achieved through a strategic business combination. During the period from
February 1997 to April 1997, Raymond James conducted extensive interviews with
senior management, engaged in customary due diligence procedures, analyzed
valuation parameters and reviewed potential candidates for a possible business
combination, joint venture or strategic partnership.
During 1997, Parent was actively exploring possible business combinations
with companies in the solid waste industry, with a view to becoming the
leading global provider of fully integrated solid waste services. In April
1997, Parent informally contacted the Company regarding Parent's possible
interest in a transaction with the Company. Representatives of Parent met with
certain executive officers of the Company to explore further the possibility
of a transaction between Parent and the Company.
From May 1997 to October 1998, Raymond James engaged in preliminary
discussions with several potential strategic partners, including Parent.
During this period, the Company Board periodically met with Raymond James to
review the various strategic alternatives.
On November 12, 1998, a meeting of the Company Board was held to review the
status of the Company's search for potential strategic business combinations.
At this meeting, members of senior management presented their analysis of the
alternatives currently available to the Company. At the conclusion of this
meeting, the Company Board decided to continue its relationship with Raymond
James and directed senior management to focus its efforts on a discrete group
of potential buyers that might be interested in purchasing the Company. The
Company Board also appointed Douglas P. Crane, Chairman of the Company Board,
and Dr. Franklin J. Agardy, a director of the Company, to a Special Committee
to assist senior management in its review and negotiation of the terms of the
proposed sale of the Company.
From December 1998 to February 1999, Raymond James contacted 16 potential
purchasers. A total of 11 potential buyers, including Parent, executed
confidentiality agreements with the Company and received certain
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confidential information about the Company. Potential purchasers were
instructed to submit initial indications of interest to Raymond James by
February 26, 1999. Three parties, including Parent, submitted preliminary
indications of interest. The Company invited all three parties to participate
in due diligence and management presentations at the offices of Gray Cary Ware
& Freidenrich LLP ("Gray Cary"), the Company's legal counsel, in Palo Alto,
California. Two of the three interested parties, including Parent, conducted
this due diligence.
In the letter submitted to Raymond James by Parent on February 26, 1999 (the
"February Letter"), Parent estimated the enterprise value to acquire 100% of
the Company to be in a range of $55 million to $70 million and requested that
the Company consider accepting a combination of cash and Parent Common Stock
as consideration in an acquisition.
Parent's representatives visited the Company's headquarters on March 9 and
10, 1999, to enable Parent to become better acquainted with the Company's
operations, business and personnel. During the visit, representatives of the
Parent met with certain executive officers of the Company and representatives
of Raymond James, attended a management presentation given by the Company and
conducted limited due diligence with respect to the Company's operations,
business and personnel.
On March 25, 1999, the Company Board received an offer to enter into a
merger transaction from a company who had not participated in the due
diligence process (the "Unsolicited Bidder").
On March 26, 1999, Parent and the other interested party that participated
in due diligence and management presentations submitted best and final offers
to Raymond James.
On March 26, 1999, Parent submitted to Raymond James a preliminary, non-
binding indication of value, and best and final offer with the intent of being
invited to conduct further due diligence and negotiate a definitive purchase
agreement on an exclusive basis (the "March Letter"). As set forth in the
March Letter, Parent's estimate of the enterprise value to acquire 100% of the
Company was a range of $65 to $70 million. In the March Letter, Parent
continued to propose that, in addition to cash, the Company accept 50% to 75%
of the purchase price in the form of Parent Common Stock.
On March 30, 1999, at a special meeting of the Company Board, senior
management of the Company and representatives from Raymond James and Gray Cary
reviewed and evaluated the terms of the March Letter in comparison with the
terms of business combinations proposed by the other interested parties, and
representatives of Raymond James reviewed the methodology used in their
financial analyses of the various transactions. Representatives of Raymond
James described the terms and conditions of each of the bids, the background
of the bidders and the status of the due diligence performed by each of the
bidders. The Company Board discussed each of the bids in detail, focusing on
the terms and conditions of the bids and the likelihood of completing a
transaction on the terms and conditions outlined. The Company Board decided
that, in light of these factors, it was in the Company's best interest to
focus its efforts on the bids from Parent and the other interested party and
not to pursue the bid from the Unsolicited Bidder at that time.
On April 7 and 8, 1999, Parent and the other interested party conducted
additional due diligence.
On April 10, 1999, the other interested party submitted a revised best and
final offer to acquire 100% of the equity of the Company for $58 million.
On April 12, 1999, the Company Board, senior management of the Company and
representatives of Parent and Raymond James met in New York to attend a
presentation by Parent's executive officers and discuss strategic issues
associated with the proposed merger.
On April 16, 1999, Parent submitted to Raymond James a revised version of
the March Letter (the "April Letter"). In the April Letter, Parent estimated
the value to acquire 100% of the equity of the Company, on a fully diluted
basis, to be $62 million, assuming that the total debt reflected on the
Company's December 31, 1998 balance sheet would not materially increase prior
to the consummation of the Merger. The $62 million
16
<PAGE>
offer contained in the April Letter represented an enterprise value of
approximately $70 million, including assumed liabilities. The terms of the
April Letter provided that $2 million of the $62 million offer was contingent
on the Company achieving certain financial milestones for the six months ended
June 30, 1999 (the "Contingent Payment").
On April 17, 1999, Raymond James informed the other interested party that
the Company Board had decided not to pursue that party's offer.
From April 19 to April 23, 1999, Parent conducted due diligence sessions at
the Company's corporate headquarters and at other regional offices of the
Company and its subsidiaries. Participants in these sessions included
representatives of Parent's management, financial, legal and accounting
advisors. Parent and its representatives continued to conduct off-site due
diligence through May 10, 1999.
On April 20, 1999, Gray Cary distributed a proposed first draft of the
merger agreement to Parent and its legal counsel, Gibson, Dunn & Crutcher LLP
("GD&C"), and each of Gray Cary and GD&C began negotiating the form of a
definitive merger agreement.
From April 20 to May 10, 1999, representatives of the Company, Raymond James
and Gray Cary held discussions with representatives of Parent and GD&C to
negotiate various aspects of the acquisition proposal.
At a scheduled telephonic meeting of Parent's Board of Directors (the
"Parent Board") held on May 4, 1999, a full discussion of the proposed
transaction took place. Following the discussions, the Parent Board approved,
among other things, the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, provided that the final terms of
the Merger Agreement were subsequently reviewed and approved by the Executive
Committee of the Parent Board. Parent informed the Company that it had agreed
to pay approximately $62 million in cash, or $6.75 net per Share, without
interest, for all of the issued and outstanding Shares of the Company, on a
fully diluted basis. The Contingent Payment proposal was eliminated from the
offer.
On May 6, 1999, at a special meeting of the Company Board, members of senior
management and Gray Cary reported on the revised terms of the Merger
Agreement. Representatives of Raymond James reviewed their financial analysis
with respect to the proposed Merger and delivered an oral opinion
(subsequently confirmed in writing) that the terms of the Offer and the Merger
were fair from a financial point of view to the shareholders of the Company
(the "Fairness Opinion"). Following this presentation, the Company Board asked
the representatives from Raymond James and Gray Cary various questions about
the terms of the transaction and the remaining open issues, and the Company
Board and representatives of Gray Cary discussed the Company Board's fiduciary
duties to the Company's shareholders. At the conclusion of this discussion,
the Company Board (a) unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger and
(b) authorized its senior management to complete the negotiation of the
definitive Merger Agreement and to execute and deliver the Merger Agreement in
substantially the form presented to the Company Board, subject to the receipt
of Raymond James' written opinion as to the fairness of the Offer and the
Merger to the Company's shareholders.
On May 10, 1999, Parent advised the Company that it had received the
necessary consent from its lender to enter into the Merger Agreement and to
consummate the Offer.
On May 10, 1999, Gray Cary and GD&C finalized their negotiations of the
Merger Agreement. The Executive Committee of the Parent Board reviewed the
final terms of the Merger Agreement and approved the final terms of the Merger
Agreement by unanimous written consent in lieu of a meeting. Senior management
of the Company reviewed the final terms of the Merger Agreement and notified
representatives of Parent that such terms were acceptable.
The Merger Agreement was executed on the evening of May 10, 1999, and a
joint press release was issued by the parties announcing the execution of the
Merger Agreement on the morning of May 11, 1999.
17
<PAGE>
On May 17, 1999, Purchaser commenced the Offer.
Opinion of Financial Advisor
The Company retained Raymond James to render an opinion to the Company Board
as to the fairness, from a financial point of view, to the Company's
shareholders, of the financial terms and conditions of the Offer and the
Merger, taken as a whole (collectively, the "Transaction"). No limitations
were imposed on Raymond James by the Company Board or Company management with
respect to the investigations made or procedures followed by Raymond James in
preparing and rendering its opinion, and the Company and its management
cooperated fully with Raymond James in connection therewith. Raymond James
rendered its written Fairness Opinion that as of May 7, 1999, the Transaction
was fair, from a financial point of view, to the holders of Company Common
Stock. Raymond James reaffirmed its opinion as of the date of the Offer.
The full text of the Fairness Opinion, dated May 10, 1999, which sets forth
assumptions made, matters considered and limits on the scope of review
undertaken, is attached as Annex B to this Schedule 14D-9 and is incorporated
by reference herein. The Company's shareholders are urged to read the Fairness
Opinion in its entirety. Raymond James' Fairness Opinion, which is addressed
to the Company Board, is directed only to the fairness of the Transaction to
the Company's shareholders from a financial point of view and does not
constitute a recommendation to any Company shareholder as to whether such
shareholder should tender his or her Shares and does not address any other
aspect of the proposed Offer and Merger or any related transaction. The Offer
Price and other terms of the Offer were determined pursuant to negotiations
between the Company and Purchaser and not pursuant to recommendations of
Raymond James. Raymond James merely evaluated the Transaction from a financial
point of view. Raymond James consents to the inclusion of this summary of its
opinion in, and attachment of its opinion to, this Schedule 14D-9. The summary
of the Fairness Opinion set forth in this Schedule 14D-9 is qualified in its
entirety by reference to the full text of such opinion.
In connection with Raymond James' review of the proposed Transaction and the
preparation of its opinion, Raymond James has, among other things:
(1) reviewed the Company's annual report to shareholders on Form 10-K for
the fiscal year ended December 31, 1998, its quarterly reports on Form 10-Q
for the quarters ended June 30, 1998 and September 30, 1998 and other
publicly available financial information of the Company and Parent;
(2) reviewed certain non-public information prepared by the management of
the Company, including financial statements, financial projections and
other financial and operating data concerning the Company;
(3) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(4) reviewed a draft of the Merger Agreement and the financial terms and
conditions therein;
(5) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business Raymond James
believes to be generally comparable to those of the Company; and
(6) compared the financial terms of the Transaction with the financial
terms of certain other transactions which Raymond James believes to be
generally comparable to the Transaction.
In conducting its investigation and analyses and in arriving at its opinion,
Raymond James took into account such accepted financial and investment banking
procedures and considerations as it deemed relevant, including a review of (i)
historical and projected revenues, operating earnings, net income and
capitalization of the Company and certain other publicly held companies in
businesses it believed to be comparable to the Company; (ii) the current and
projected financial position and results of operations of the Company; and
(iii) the general condition of the securities markets.
As described in its opinion, Raymond James assumed and relied upon the
accuracy and completeness of all information supplied or otherwise made
available to Raymond James by the Company or any other party and
18
<PAGE>
did not attempt to verify independently any such information. In addition,
Raymond James did not make or receive any independent evaluation or appraisal
of any of the assets or liabilities (contingent or otherwise) of the Company,
nor has Raymond James been furnished with any such evaluation or appraisal.
Raymond James assumed that the financial forecasts, estimates, projections,
and other information with respect to the Company examined by Raymond James
had been reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of the management of the Company,
and Raymond James relied upon each party to advise it promptly if any such
information previously provided to or discussed with Raymond James had become
inaccurate or had been required to be updated during the period of its review.
In addition, Raymond James has assumed the Transaction will be consummated
substantially in accordance with the terms set forth in the Merger Agreement.
The Fairness Opinion was based on economic, market, and other conditions as
in effect on, and the information available to it as of, the date of its
opinion, and Raymond James has undertaken no obligation to reevaluate its
opinion. Raymond James did not express any opinion as to the price range or
range of prices at which the Parent Common Stock might trade subsequent to the
Transaction.
Fairness Opinion Analyses
The following is a summary of the analyses performed by Raymond James in
connection with the preparation of the Fairness Opinion:
Presentation by Raymond James. The following summarizes the material
financial analyses presented telephonically by Raymond James to the Company
Board at its meeting on May 6, 1999 (and subsequently confirmed in writing as
of May 7, 1999), which were considered by Raymond James in rendering the
Fairness Opinion described below. This summary is not a complete description
of the analyses underlying the Fairness Opinion or of information presented at
meetings between Raymond James and representatives of the Company held in
advance of the Company Board's consideration of the Transaction.
Precedent Transaction Analysis. Raymond James presented to the Company Board
a summary of a precedent transaction analysis which compared four key
financial ratios for ten selected precedent environmental engineering and
consulting company combinations announced during the six year period prior to
May 6, 1999 to the same four key financial ratios projected for the proposed
Transaction. The precedent combination transactions consisted of: Dames &
Moore Group combining with URS Corporation; ICF Kaiser's Environmental
Facilities Management group combining with Parent; Sverdrup Corp. combining
with Jacobs Engineering Group, Inc.; Fluor Daniel GTI combining with Parent;
ATC Group Services Inc. combing with Weiss, Peck & Greer, LLC; OHM Corp.
combining with Parent; Woodward-Clyde combining with URS Corp.; Fluid
Management combining with Envirogen; Wehran Envirotech Inc. combining with
EMCON Associates; Geraghty & Miller Inc. combining with Heidemji Holdings NV.
Raymond James examined the following four key financial ratios for these ten
selected precedent environmental engineering and consulting company
combinations: target company enterprise value to target company gross sales;
target company enterprise value to target company earnings before interest,
taxes, depreciation and amortization ("EBITDA"); target company enterprise
value to target company earnings before interest and taxes ("EBIT"); and
target company equity value to target company net income. Gross sales, EBITDA,
EBIT and net income were calculated by utilizing the financial statistics for
the trailing twelve month period reported prior to the consummation of the
precedent company combinations.
Comparable Companies Analysis. Raymond James also presented to the Company
Board a summary financial comparison of the Company to nine public engineering
and consulting companies Raymond James deemed to be reasonably comparable to
the Company. The comparable companies consisted of: Foster Wheeler Corp.;
Harding Lawson Associates; Jacobs Engineering Group; Sevenson Environmental
Services; Stone & Webster, Inc.; Tetra Tech, Inc.; ThermoRetec Corp.; TRC
Companies, Inc.; and Roy F. Weston.
19
<PAGE>
Raymond James then compared the following five key financial ratios for
these comparable companies to the same corresponding ratios for the Company
under the proposed Transaction: enterprise value to gross sales; enterprise
value to EBITDA; enterprise value to EBIT; equity value to net income; and
equity value to 1999 projected net income. Gross sales, EBITDA, EBIT and net
income were calculated for the Company and the comparable companies by
utilizing the latest trailing twelve months financial statistics that have
been publicly reported.
Premium Analysis. Raymond James presented to the Company Board an analysis
of the premiums paid over the stock price of acquired companies in selected
merger transactions since the beginning of 1998, based on stock prices one
day, one week and four weeks prior to the announcement of the transaction.
This analysis demonstrated that, on average, the acquired company received a
31.3%, 40.4% and 45.9% premium over its stock price one day, one week and four
weeks prior to the announcement of the transaction, respectively. Raymond
James noted that the $6.75 per share cash consideration offered in the
Transaction represents a premium of 20%, 33% and 69% to the Company's closing
price one day, one week, and four weeks prior to the date (May 11, 1999) that
the Transaction was publicly announced.
EMCON Discounted Cash Flow Analysis. Raymond James presented to the Company
Board the results of a discounted cash flow analysis for fiscal years 1999 to
2001 to estimate the present value of the stand-alone unleveraged free cash
flows that the Company is expected to generate if the Company performs in
accordance with certain internal management forecasts. For purposes of this
analysis, unleveraged free cash flows were defined as unleveraged net income
plus depreciation plus amortization less capital expenditures less investment
in working capital. Raymond James performed its analyses based on financial
forecasts and assumptions provided to it by the Company. Raymond James used
the year 2001 as the terminal year for the analysis and calculated terminal
values for the Company by applying a range of multiples of EBITDA to the
projected fiscal year 2001 EBITDA for the Company. The unleveraged projected
free cash flows and terminal values were then discounted using a range of
discount rates.
Opinion of Raymond James. During the May 6, 1999 telephonic meeting of the
Company Board, Raymond James gave its oral opinion (subsequently confirmed in
writing on May 7, 1999) that, as of such date and based upon and subject to
various qualifications and assumptions described with respect to its Fairness
Opinion, the Transaction was fair from a financial point of view to the
Company's shareholders.
The summary set forth above does not purport to be a complete description of
the analyses of data underlying Raymond James' opinion or its presentation to
the Company Board. The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to a partial analysis or summary
description. Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering the
analyses taken as a whole, would create an incomplete view of the process
underlying the analyses set forth in its opinion. In addition, Raymond James
considered the results of all such analyses and did not assign relative
weights to any of the analyses, so the ranges of valuations resulting from any
particular analysis described above should not be taken to be Raymond James'
view of the actual value of the Company.
In performing its analyses, Raymond James made numerous assumptions with
respect to industry performance, general business, economic and regulatory
conditions and other matters, many of which are beyond the control of the
Company. The analyses performed by Raymond James are not necessarily
indicative of actual values, trading values or actual future results which
might be achieved, all of which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as part of
Raymond James' analysis of the fairness of the financial terms and conditions
of the Transaction to the Company's shareholders from a financial point of
view and were provided to the Company Board. The analyses do not purport to be
appraisals or to reflect the prices at which businesses or securities might be
sold. In addition, as described above, the opinion of Raymond James was one of
many factors taken into consideration by the Company Board in making its
determination to approve the Transaction. Consequently, the analyses described
above should not be viewed as determinative of the Company Board or the
Company management's opinion
20
<PAGE>
with respect to the value of the Company. The Company placed no limits of the
scope of the analysis performed, or opinion expressed, by Raymond James.
In connection with the Transaction, the Company contracted with Raymond
James to provide financial advisory and investment banking services, pursuant
to which the Company requested Raymond James to provide the fairness opinion
summarized herein. The Company Board retained Raymond James because of Raymond
James' qualifications, expertise, and reputation, as well as its prior
investment banking relationship with the Company. Raymond James is actively
involved in the investment banking business and regularly undertakes the
valuation of investment securities in connection with public offerings,
private placements, business combinations and similar transactions. Through
negotiation, the Company and Raymond James determined that the Company would
pay Raymond James a fee upon the consummation of the Transaction, which fee is
contingent upon the value of the Transaction. In the ordinary course of
business, Raymond James may trade in the securities of the Company for its own
account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
Factors Considered by the Company Board
In approving the Merger Agreement and the transactions contemplated thereby,
and recommending that all shareholders tender their Shares pursuant to the
Offer, the Company Board considered a number of factors, including, but not
limited to:
(1) the financial and other terms of the Offer and the Merger Agreement;
(2) the presentations of Raymond James and its Fairness Opinion to the
effect that, as of May 7, 1999 and based upon and subject to certain
matters stated therein, the Transaction was fair to the shareholders of the
Company, from a financial point of view. THE FULL TEXT OF RAYMOND JAMES'
WRITTEN FAIRNESS OPINION IS ATTACHED AS ANNEX B TO THIS SCHEDULE 14D-9.
SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY;
(3) the fact that the tender offer price of $6.75 per Share represents a
premium of approximately 32% over the closing price of the Company Common
Stock on the Nasdaq National Market System on May 5, 1999;
(4) the view of the Company Board, based in part upon the presentations
of Raymond James, regarding the likelihood of a superior offer arising, the
efforts of Raymond James over the last 28 months to locate other potential
merger candidates, and the fact that certain candidates which had been
identified over such period had held discussions with the Company that had
proven unsuccessful or were not as financially attractive as the Offer;
(5) the prospects for continued independent operation of the Company in
light of market and competitive conditions, including the potential for
increased competition from Parent or another company having significantly
greater financial resources than the Company that may seek to enter the
market for solid waste support services;
(6) the Company's long-term and short-term capital needs;
(7) the alternatives available to the Company in light of the
consideration proposed to be paid to shareholders pursuant to the Merger
Agreement, including continuing to maintain the Company as an independent
company and not engaging in an extraordinary transaction of any kind;
(8) the Company's existing competitive and market position;
(9) current industry and economic conditions;
(10) the provisions of the Merger Agreement, including the provisions
allowing the Company to respond to certain unsolicited inquiries concerning
an acquisition of the Company, and the provisions which
21
<PAGE>
permit the Company to terminate the Merger Agreement and pay a termination
fee to Parent under certain circumstances; and
(11) the fact that Parent's and Purchaser's obligations under the Offer
were not subject to any financing condition, and the fact that Parent's
financial condition and ability to cause Purchaser to meet its obligations
under the Merger Agreement appear to be sufficient.
The foregoing discussion is not intended to be an exhaustive review of the
information and factors considered, or the relative weight given to each
factor, by the Company Board. In view of the variety of factors considered in
connection with its evaluation of the Merger Agreement and the Offer, the
Company Board did not find it practicable to quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Company Board may have
given different weights to each factor.
Item 5. Persons Retained, Employed or to Be Compensated.
The Company retained Raymond James in connection with the Transaction.
Pursuant to a letter agreement, dated January 29, 1997, the Company originally
agreed to pay Raymond James a monthly consulting fee of $15,000 per month for
the first three months and $10,000 per month thereafter, with one half of such
monthly fees to be credited against any compensation otherwise payable by the
Company to Raymond James upon the closing of any extraordinary transaction. In
November 1998, Raymond James verbally agreed to defer its right to the monthly
consulting fees in exchange for the Company's agreement to continue the
engagement through the closing of an anticipated transaction. Upon the closing
of an extraordinary transaction, including the Merger, the Company has agreed
to pay Raymond James a fee, payable in cash, equal to the greater of $350,000
or 2 1/4% of the total consideration received by the Company and/or its
shareholders. In addition to the foregoing compensation, the Company has
agreed to indemnify Raymond James against certain liabilities and expenses
arising out of the engagement and the transactions in connection therewith,
including certain liabilities under the federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the shareholders of the Company on
its behalf with respect to the Offer or the Merger.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's
executive officers, directors and affiliates who own Shares presently intend
to tender such Shares to Purchaser pursuant to the Offer.
Item 7. Certain Negotiations and Transactions by Subject Company.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i)
an extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of
a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as set forth herein, there are no transactions, Company Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to
in Item 7(a) above.
22
<PAGE>
Item 8. Additional Information to Be Furnished.
Short Form Merger. Under the CGCL, if Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the Shares, Purchaser will be able to
effect the Merger after consummation of the Offer without a vote of the
Company's shareholders. However, if Purchaser does not acquire at least 90% of
the Shares pursuant to the Offer or otherwise and a vote of the Company's
shareholders is required under the CGCL, a significantly longer period of time
will be required to effect the Merger.
Item 9. Material to Be Filed as Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 Offer to Purchase, dated May 17, 1999(1)
2 Letter of Transmittal, dated May 17, 1999(1)
3 Summary Advertisement, dated May 17, 1999(1)
4 Agreement and Plan of Merger, dated May 10, 1999, by and among The IT
Group, Inc., Seismic Acquisition Corporation and EMCON(1)
5 EMCON's Information Statement pursuant to Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder(2)
6 Fairness Opinion of Raymond James & Associates, Inc., dated May 10,
1999(3)
7 Mutual Nondisclosure and Confidentiality Agreement, dated as of
February 10, 1999, between The IT Group, Inc. and Raymond James &
Associates, Inc.(1)
8 Joint Press Release, dated May 11, 1999, issued by The IT Group, Inc.
and EMCON(1)
9 Restated Articles of Incorporation of EMCON, dated June 4, 1991(4)
10 Restated By-Laws of EMCON, effective June 4, 1991(4)
11 Letter to Shareholders of EMCON, dated May 17, 1999
</TABLE>
- --------
(1) Incorporated by reference from Parent and Purchaser's Schedule 14D-1 filed
with the SEC on May 17, 1999.
(2) Attached hereto as Annex A.
(3) Attached hereto as Annex B.
(4) Incorporated by reference from an exhibit of EMCON's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1991.
23
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 17, 1999
/s/ Eugene M. Herson
By: _________________________________
Eugene M. Herson
President and Chief Executive
Officer
24
<PAGE>
ANNEX A
EMCON
400 South El Camino Real, Suite 1200
San Mateo, California 94402
----------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about May 17, 1999, as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") to holders of shares (the "Shares") of common stock, no par value per
share (the "Company Common Stock"), of EMCON, a California corporation (the
"Company"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Schedule 14D-9. You are receiving
this Information Statement in connection with the possible election of persons
designated by Seismic Acquisition Corporation, a California corporation
("Purchaser"), a wholly owned subsidiary of The IT Group, Inc., a Delaware
corporation ("Parent"), to at least a majority of the seats on the board of
directors of the Company (the "Company Board"). Such designation is to be made
pursuant to an Agreement and Plan of Merger, dated May 10, 1999 (the "Merger
Agreement"), by and among Parent, Purchaser and the Company.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (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.
Pursuant to the Merger Agreement, on May 17, 1999 Purchaser commenced a cash
tender offer to acquire all of the issued and outstanding Shares (the "Offer")
at $6.75 per Share (such amount, or any greater amount per Share paid pursuant
to the Offer, hereinafter referred to as the "Offer Price"). The Offer is
scheduled to expire at 12:00 Midnight, New York City time, on Monday, June 14,
1999, unless the Offer is extended. Following the successful completion of the
Offer, upon approval by a shareholder vote, if required, and subject to
certain other conditions, Purchaser will be merged with and into the Company
(the "Merger").
The information contained in this Information Statement concerning Purchaser
has been furnished to the Company by Purchaser, and the Company assumes no
responsibility for the accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
General
The Company Common Stock is the only class of securities outstanding having
the right to vote for the election of the Company's directors. Each Share
entitles its record holder to one vote. As of May 10, 1999, there were
8,340,669 Shares issued and outstanding.
The Company's Board of Directors
If Purchaser purchases Shares pursuant to the Offer, the Merger Agreement
provides that Parent will be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board as is equal to the
product of the total number of directors (determined after giving effect to
the directors elected pursuant to this sentence) multiplied by the percentage
that the aggregate number of Shares beneficially owned by Parent or its
affiliates bears to the total number of Shares then outstanding; provided,
however, if Parent acquired at least 90% of the outstanding Shares in the
Offer, Parent shall be entitled to designate all of the members of the Company
Board. The Company has further agreed, upon request of Parent, to promptly
take all actions necessary to cause Parent's designees to be so elected,
including, if necessary, increasing the size of the
A-1
<PAGE>
Company Board (to the extent permitted by the Company's Articles of
Incorporation and By-Laws) and/or seeking the resignations of one or more
existing directors, provided, however, that if Purchaser did not acquire at
least 90% of the outstanding Shares in the Offer prior to the effective time
of the Merger, the Company Board shall at all times have at least two members
who are members of the Company Board on the date of the Merger Agreement and
are neither officers of the Company or any of its subsidiaries, nor officers
or directors of Purchaser or any of its affiliates, or other independent
directors appointed to replace such persons.
Parent has informed the Company that it currently intends to choose the
Parent designees it has the right to designate to the Company Board pursuant
to the Merger Agreement from the executive officers and directors of Parent
and Purchaser listed in Schedule II of the Offer to Purchase, a copy of which
has been mailed to the Company's shareholders. The information with respect to
such officers and directors in Schedule II is hereby incorporated herein by
reference in its entirety. As of May 14, 1999, the ages of each such officer
and director are as follows: Mr. Anthony J. DeLuca--52; Mr. Daniel A.
D'Aniello--52; Mr. Philip B. Dolan--41; Mr. E. Martin Gibson--61; Mr. James C.
McGill--55; Mr. Richard W. Pogue--71; Mr. Robert F. Pugliese--66;
Mr. Charles W. Schmidt--71; Admiral James David Watkins--72; Mr. David L.
Backus--58; Mr. Richard R. Conte--52; Mr. James G. Kirk--60; Mr. James R.
Mahoney--60; Mr. Raymond J. Pompe--65; Mr. Harry J. Soose--47; Mr. Philip O.
Strawbridge--44; Mr. James M. Redwine--42.
Parent has advised the Company that to the best knowledge of Parent, none of
Parent's designees currently is a director of, or holds any position with, the
Company, and none of Parent's designees beneficially owns any securities (or
rights to acquire any securities) of the Company or has been involved in any
transactions with the Company or any of its directors, executive officers or
affiliates that are required to be disclosed pursuant to the rules of the
Securities and Exchange Commission (the "SEC"), except as may be disclosed in
the Offer to Purchase. None of Parent's designees has any family relationship
with any director or executive officer of the Company.
Parent has advised the Company that each of the persons listed above has
consented to act as a director, and that none of such persons has during the
last five years been convicted in a criminal proceeding (excluding traffic
violations and similar misdemeanors) or was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was, or is, subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal
or state securities laws or finding any violation of such laws or is involved
in any other legal proceeding which is required to be disclosed under Item
401(f) of Regulation S-K promulgated by the SEC.
It is expected that Parent's designees may assume office at any time
following the purchase by Parent of a majority of outstanding Shares pursuant
to the Offer, which purchase cannot be earlier than June 14, 1999, and that,
upon assuming office, Parent's designees will thereafter constitute at least a
majority of the Company Board.
A-2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Current Members of the Board
The names of the current directors, their ages as of April 30, 1999 and
certain other information about them are set forth below. Some of the current
directors may resign effective immediately following the purchase of Shares by
Purchaser pursuant to the Offer.
<TABLE>
<CAPTION>
Director
Name Age Since
---- --- --------
<S> <C> <C>
Douglas P. Crane(1)(2)(3)....................................... 70 1992
Eugene M. Herson(1)............................................. 57 1985
Richard A. Peluso............................................... 53 1996
Peter Vardy(1)(3)............................................... 68 1994
Donald R. Kerstetter(2)(3)...................................... 67 1995
Dr. Franklin J. Agardy(2)....................................... 66 1998
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Executive Officers
The executive officers of the Company as of April 30, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Positions with the Company
---- --- --------------------------
<S> <C> <C>
Eugene M. Herson........ 57 President, Chief Executive Officer and Director
R. Michael Momboisse.... 41 Chief Financial Officer, Vice President--Legal and Secretary
Richard A. Peluso....... 52 Vice President and Director
Vincent Franceschi...... 40 Vice President
Patrick Gillespie....... 42 Vice President
John Kinsella........... 43 Vice President
Gary McEntee............ 42 Vice President
Alan Ortiz.............. 44 Vice President
Mark H. Shipps.......... 51 Vice President
</TABLE>
Officers serve at the discretion of the Board. There are no family
relationships among directors or executive officers of the Company.
Douglas P. Crane has served as Chairman of the Board since July 1995 and as
a director of the Company since February 1992. Since February 1989, Mr. Crane
has served as Chairman of CJM Associates, Inc., a management consulting firm.
Mr. Crane currently serves as Chairman of the Board of Trustees of Cogswell
Polytechnical College and as Chairman of the Board of the Foundation for
Educational Achievement.
Eugene M. Herson has served as President and Chief Executive Officer of the
Company since October 1994 and as a director since March 1985. From November
1990 through October 1994, Mr. Herson served in a number of capacities with
the Company including Vice President--Special Operations from April 1993 to
October 1994, Chief Financial Officer from November 1990 through June 1993,
and President and Chief Administrative Officer from February 1991 through
March 1993.
A-3
<PAGE>
R. Michael Momboisse has served as Chief Financial Officer and Vice
President--Legal since July 1993, and Secretary since May 1996. Mr. Momboisse
joined the Company as General Counsel in April 1991 and held that position
until December 1997. Prior to joining the Company, Mr. Momboisse was an
attorney in the Corporate Department of the law firm of Ware & Freidenrich, a
Professional Corporation.
Richard A. Peluso has served as a Vice President of the Company since the
Company's acquisition of Wehran Envirotech, Inc. ("Wehran") in April 1994 and
as a director since May 1996. Mr. Peluso also serves as Vice President in
charge of the Company's operations and construction division. From June 1972
to April 1994, Mr. Peluso served as a Senior Vice President of Wehran.
Vincent Franceschi has served as the Area Operations Manager of the
Southwest Area of the Company's Professional Services Division ("PSD") since
April 1998 and a Vice President of the Company since May 1998. From January
1994 to December 1997, Mr. Franceschi served in a variety of roles for Vectra
Technologies, Inc., a nuclear waste technology and services company, including
President and Chief Operating Officer from April 1997 to December 1999 and
Vice President and General Manager from January 1994 to March 1997.
Patrick Gillespie has served as a Vice President of the Company since May
1998. Mr. Gillespie has served in a number of roles with the Company,
including Area Operations Manager of the North Area of the PSD since April
1994.
John Kinsella has served as the Area Operations Manager of the Northwest
Area of the PSD since April 1998 and a Vice President of the Company since May
1998. From January 1992 to April 1998, Mr. Kinsella served as a Vice President
of SCS Engineers, an environmental consulting firm.
Gary O. McEntee has served as Vice President in charge of business
development since February 1997. From April 1994 to February 1997, Mr. McEntee
served in a number of operating roles including manager of the Company's
Northeast and East Consulting areas. Prior to April 1994, Mr. McEntee served
as the Chief Operating Officer of Wehran.
Alan Ortiz has served as the Area Operations Manager of the South Area of
the PSD since September 1996 and as a Vice President of the Company since May
1998. From September 1995 to September 1996, Mr. Ortiz was a Senior Manager
with KPMG Peat Marwick Consulting. From October 1991 to August 1995, Mr. Ortiz
served as a Vice President of Golder Associates, a consulting engineering
firm.
Mark H. Shipps has served as a Vice President of the Company since May 1998.
Mr. Shipps has also served as the President of the Company's wholly owned
subsidiary, Organic Waste Technologies, Inc., since 1990.
Dr. Franklin J. Agardy has served as a director of the Company since May
1998. Dr. Agardy has served as President of Forensic Management Associates,
Inc., a forensic management consulting company specializing in environmental
matters since December 1988. From December 1988 to June 1990, Dr. Agardy also
served as Chairman and Chief Executive Officer of In-Process Technology, Inc.,
a manufacturer of specialized air pollution control devices. Dr. Agardy also
served as a member of the board of directors of Thermatrix, Inc., the
successor to In-Process Technology, Inc., until April, 1996. Dr. Agardy is
also a former Professor of Civil and Environmental Engineering at San Jose
State University, where he served from 1962 through September 1971.
Donald R. Kerstetter has served as a director of the Company since May 1994.
Mr. Kerstetter served as President of ET Environmental Corporation ("ET"), the
Company's 50/50 joint venture with Turner Construction Company ("Turner") from
May 1994 through December 1997. Mr. Kerstetter retired in 1996 from his
position as an Executive Vice President of Turner, where he was an employee
since 1956 and served as an officer since March 1976. Mr. Kerstetter currently
serves on the Board of Directors of ET.
Peter Vardy has served as a director since July 1994. Mr. Vardy has served
as Managing Director of Peter Vardy & Associates, an international
environmental consulting firm, since June 1990. From April 1973 through May
1990, Mr. Vardy served as a Vice President of Waste Management, Inc./WMX
Technologies, Inc., a waste
A-4
<PAGE>
management services company. Mr. Vardy currently serves on the Board of
Directors of Stericycle, Inc., a provider of regulated medical waste
management services.
Meetings of the Board and Committees
During 1998, the Company Board held four meetings. All directors attended at
least 75% of the aggregate number of meetings held by the Company Board and
meetings held by all committees on which each such director served during his
term of office. The Company Board has an Executive Committee, an Audit
Committee and a Compensation Committee, but does not have a Nominating
Committee.
The Executive Committee currently consists of Messrs. Crane, Herson and
Vardy. Mr. Crane serves as Chairman of the Committee. The functions of the
Executive Committee include implementing general instructions of the Company
Board, approving interim policy matters and approving capital expenditures.
The Executive Committee held six formal meetings during 1998.
The Audit Committee currently consists of Messrs. Agardy, Crane and
Kerstetter. Dr. Agardy serves as Chairman of the Audit Committee. The
functions of the Audit Committee include recommending the independent auditors
to the Company Board, reviewing and approving the planned scope of the annual
audit, proposed fee arrangements and the results of the annual audit;
reviewing the adequacy of accounting and financial controls; reviewing the
independence of the independent auditors; approving all assignments to be
performed by the independent auditors; reviewing transactions between the
Company and its officers and directors and instructing the independent
auditors, as deemed appropriate, to undertake special assignments. During
1998, the Audit Committee held one formal meeting.
The Compensation Committee currently consists of Messrs. Crane, Kerstetter
and Vardy. Mr. Crane serves as Chairman of the Compensation Committee. The
Compensation Committee reviews and recommends salaries, bonuses and other
compensation for corporate executive officers and other members of senior
management. During 1998, the Compensation Committee held four formal meetings.
A-5
<PAGE>
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation paid or accrued by the Company and its subsidiaries for the
fiscal years ended December 31, 1996, 1997 and 1998 to or on behalf of the
Company's Chief Executive Officer and each of the four other highly
compensated executive officers of the Company (hereinafter referred to as the
"named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation
----------------------- Shares
Name and Principal Salary Underlying All Other
Position Year ($) Bonus ($) Options Compensation ($)(1)
- ------------------ ---- -------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Eugene M. Herson....... 1998 $240,800 0 35,000 $70,345(2)
President and Chief
Executive 1997 $200,000 0 50,000 $10,345(3)
Officer 1996 $203,927 $20,000 0 $14,845(4)
R. Michael Momboisse... 1998 $205,400 0 30,000 $57,500(2)
Chief Financial
Officer, Vice 1997 $174,808 0 40,000 $ 7,500(3)
President--Legal and
Secretary 1996 $141,057 $18,000 0 $11,839(4)
Richard A. Peluso...... 1998 $180,400 0 30,000 $50,000(2)
Vice President 1997 $178,365 0 25,000 0
1996 $161,158 0 0 $ 4,500(4)
Mark H. Shipps(5)...... 1998 $161,212 $30,000 25,000 $50,000(2)
Vice President
Patrick Gillespie(5)... 1998 $145,400 $50,000 10,000 $40,000(2)
Vice President
</TABLE>
- --------
(1) The Company maintains a salary continuation plan ("Salary Continuation
Plan") pursuant to which the Company has entered into contracts with
Messrs. Herson, and Momboisse entitling them to receive payments over
various ten-year periods, 60% of which represent salary continuation
payments and 40% of which represent compensation for their agreement not
to compete with the Company. Salary continuation payments are financed
through premiums paid by the Company on life insurance policies, the cash
surrender values of which are used to fund the Company's obligations under
the Salary Continuation component ("Salary Continuation Premiums"). In
general 50% of the total benefits vest at the end of the fifth year of
participation in the Salary Continuation Plan and the remainder vests in
equal annual installments at the end of each of years six through ten.
Under the Salary Continuation Plan, Mr. Herson will receive payments
aggregating $3,000 per month from November 2000 to October 2010, plus an
additional $4,500 per month from November 2004 to October 2014. Mr.
Momboisse will receive payments aggregating $1,000 per month from January
2003 to December 2012, plus an additional $2,000 per month from November
2004 to October 2013, plus an additional $1,000 per month from November
2006 to October 2015 and $1,000 per month from July 2007 to June 2016.
Payments to a participant under the Salary Continuation Plan commence
earlier upon the death or permanent disability of the participant.
(2) Consists of (i) Salary Continuation Premiums on behalf of Messrs. Herson
and Momboisse of $10,345 and $7,500 respectively, and (ii) contribution by
the Company on behalf of Messrs. Herson, Momboisse, Peluso, Shipps and
Gillespie under the EMCON Deferred Compensation Plan (vesting over a four
year period) in the amounts of $60,000, $50,000, $50,000, $50,000 and
$40,000, respectively.
(3) Consists of Salary Continuation Premiums on behalf of Messrs. Herson and
Momboisse of $10,345, and $7,500 respectively.
A-6
<PAGE>
(4) Consists of (i) Salary Continuation Premiums on behalf of Messrs. Herson
and Momboisse of $10,395 and $7,500, respectively, and (ii) matching
contributions by the Company under the EMCON Shared Savings and Profit
Sharing Plan (the "401(k) Plan") in the amount of $4,500 on behalf of Mr.
Herson, $4,339 on behalf of Mr. Momboisse, and $4,500 on behalf of Mr.
Peluso.
(5) Messrs. Shipps and Gillespie became executive officers of the Company in
May 1998.
Stock Option Grants
The following table contains information concerning the grant of options to
purchase Company Common Stock to the named executive officers in 1998:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
# of Total at Assumed Annual Rates of
Options Stock Price Appreciation for
Granted to Exercise or Option Term (2)
Options Employees in Base Price Expiration -----------------------------
Name Granted (#)(1) Fiscal Year ($/SH) Date 5% ($) 10% ($)
---- -------------- ------------ ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Eugene M. Herson........ 35,000 6.9% $2.688 11/28/03 $ 25,900 $ 57,467
R. Michael Momboisse.... 30,000 5.9% $2.688 11/28/03 $ 22,200 $ 49,232
Richard A. Peluso....... 30,000 5.9% $2.688 11/28/03 $ 22,200 $ 49,232
Mark H. Shipps.......... 25,000 4.9% $2.688 11/28/03 $ 18,500 $ 41,026
Patrick Gillespie....... 10,000 2.0% $2.688 11/28/03 $ 7,400 $ 16,411
</TABLE>
- --------
(1) The options become exercisable in four equal annual installments
commencing on the first anniversary of the date of grant, so long as
employment with the Company or one of its subsidiaries continues. The
Company Board retains discretion to modify the terms, including the
exercise price, of outstanding options. In that regard, in the event of a
change of control of the Company, the Company Board, in its sole
discretion, may either accelerate the vesting of outstanding options or
provide for the assumption or substitution of such options by the
successor company. (See also "Employment Contracts and Termination of
Employment Arrangements.")
(2) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, based on the SEC rules. Actual gains, if any, on stock
option exercises are dependent on the future performance of the Company
Common Stock, overall market conditions and the option-holders' continued
employment through the vesting period. The amounts reflected in this table
may not necessarily be achieved. One share of Company Common Stock
purchased at the exercise price of $2.688 in 1998 would yield profits of
$0.74 per share at 5% appreciation over 5 years or $1.64 per share at 10%
appreciation over the same period.
A-7
<PAGE>
Stock Option Exercises and Year-End Holdings
The following table provides information with respect to the named executive
officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year:
YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at 12/31/98 at 12/31/98(2)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eugene M. Herson........ 175,000 85,000 0 $17,500
R. Michael Momboisse.... 75,750 66,250 0 $15,000
Richard A. Peluso....... 57,500 55,000 0 $15,000
Mark H. Shipps.......... 12,500 67,500 0 $12,500
Patrick Gillespie....... 10,000 70,000 0 $ 5,000
</TABLE>
- --------
(1) None of the named executive officers exercised options in fiscal 1998.
(2) Based on the closing sales price of the Company Common Stock on December
31, 1998 of $3.188.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Crane, Kerstetter and Vardy.
Mr. Kerstetter serves as a member of the Board of Directors of ET.
Employment Contracts and Termination of Employment Arrangements
The Company has entered into agreements with Eugene M. Herson and R. Michael
Momboisse providing for severance payments equal to 24 months of salary and
full vesting of any unvested benefits upon a separation from the Company
(other than as a result of a termination for cause) within 18 months after a
change of control event. For these purposes, a change of control event is
defined as a change of ownership of the Company where the shareholders of the
Company, before the event, hold less than 70% of the voting stock of the
Company after the event. The Offer will qualify as a change of control event.
Patrick Gillespie is employed as a Vice President of the Company under an
Employment Agreement expiring in January 2002. The Employment Agreement
provides for a minimum salary of $140,000 per year and annual bonuses of
$50,000 for the entire term of the contract. During the term of the agreement,
Mr. Gillespie can be removed only for cause. In the event he is terminated
other than for cause, he will be entitled to severance benefits equal to the
full compensation payable to him over the remaining term of the agreement.
The Company has adopted an internal policy pursuant to which executive
officers of the Company are entitled to receive up to 12 months of severance
and full vesting of any unvested benefits in the event their employment is
involuntarily terminated (including voluntary termination following a demotion
or to avoid a mandatory relocation) following a change of control of the
Company. For these purposes, a change of control is defined as a change of
ownership of the Company where the shareholders of the Company, before the
event, hold less than 70% of the voting stock of the Company after the event.
The Offer will qualify as a change of control event.
See also footnote 1 to the SUMMARY COMPENSATION TABLE for a discussion of
the Salary Continuation Plan and each named executive officer's participation
in such plan.
A-8
<PAGE>
401(k) Plans
The Company maintains the EMCON Shared Savings and Profit Sharing Plan (the
"Company Plan") which is intended to be a tax qualified plan under the
Internal Revenue Code. The Company Plan provides that each participant may
defer up to 20% of his or her pre-tax gross compensation (up to the statutory
limit). Further, the Company Plan provides that the Company may make
discretionary matching contributions. However, no matching contributions were
made in 1998. For the 1999 plan year, the Company is making matching
contributions of 50% of the participant's first 2% of deferrals. Thereafter,
the Company Plan allows for an additional match if certain year end profit
goals are met. Matching contributions vest over a period of 6 years with full
vesting after 6 years of service with the Company. All amounts deferred by
participants and earnings on such deferrals are fully vested at all times.
Organic Waste Technologies, Inc., a subsidiary of the Company, maintains the
Organic Waste Technologies, Inc. 401(k) Profit Sharing Plan (the "OWT Plan")
which is intended to be a tax qualified plan under the Internal Revenue Code.
The OWT Plan provides that each participant may defer up to 15% of his or her
pre-tax gross compensation (up to the statutory limit). Further, the OWT Plan
provides that Organic Waste Technologies, Inc. may make discretionary matching
contributions. However, no matching contributions were made in 1998. For the
1999 plan year, OWT is making matching contributions of 50% of the
participant's first 2% of deferrals. Thereafter, the OWT Plan allows for an
additional match if certain year end profit goals are met. Matching
contributions vest over a period of 5 years with full vesting after 5 years of
service with OWT. All amounts deferred by participants and earnings on such
deferrals are fully vested at all times.
Director Compensation
During the last fiscal year, the Company paid each non-employee director a
retainer of $1,000 per month. In addition, under the Company's 1998 Stock
Option Plan, each non-employee director is automatically granted, effective
upon completion of each annual shareholders' meeting, a nonstatutory stock
option to purchase 2,000 shares of Company Common Stock at an exercise price
equal to the fair market value of the Company Common Stock at the date of
grant, based on the closing price of the Company's shares on the Nasdaq
National Market. Such options become fully vested and exercisable on the first
day of January following the date of grant, subject to the optionee's
continued service as a director up to and as of that date, and remain
exercisable until ten years from the date of grant, subject to earlier
termination (i) two years after the individual ceases to be a director or (ii)
upon a transfer of control of the Company. No other directors of the Company
are compensated for their services as members of the Company Board. From time
to time, non-employee directors serve as consultants to the Company with
respect to special matters within their areas of expertise, for which they are
paid consulting fees. During 1998, Messrs. Crane and Vardy were paid
additional consulting fees of $7,000 and $8,000, respectively.
Employee/Director Stock Options
Pursuant to the Merger Agreement, Parent will not assume any option to
purchase shares of the Company Common Stock (an "Option") outstanding under
any option plans of the Company, including the 1986 Incentive Stock Option
Plan, the 1988 Stock Option Plan or the 1998 Stock Option Plan (collectively,
the "Company Stock Plans"). Pursuant to the terms of such Company Stock Plans,
all outstanding Options under such plans will become fully vested and
immediately exercisable immediately prior to a change of control. The Offer
will qualify as a change of control event. The parties to the Merger Agreement
have agreed to take all appropriate action to provide that, at or following
the consummation of the Offer, each holder of an outstanding Option shall be
entitled to receive, in exchange for the cancellation of their Options, an
amount in cash equal to the product of (a) the excess, if any, of the Offer
Price over the per share exercise price of each such Option and (b) the number
of Shares subject to such Option that are exercisable immediately prior to the
Effective Time.
A-9
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Company Common Stock and
other equity securities of the Company. Officers, directors, and greater than
ten-percent shareholders are required to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the last fiscal year ended December 31, 1998,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent beneficial owners were complied with by such
persons.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of April 30, 1999, regarding the
ownership of Company Common Stock by (i) all persons who, to the knowledge of
the Company, were the beneficial owners of 5% or more of the outstanding
shares of Company Common Stock, (ii) each director and director nominee of the
Company, (iii) each named executive officer, and (iv) all executive officers
and directors of the Company as a group:
<TABLE>
<CAPTION>
Name and Number of Shares
Address Beneficially Owned(1) Percent(1)
-------- --------------------- ----------
<S> <C> <C>
Franklin Resources, Inc.(2)................ 1,125,400 13.5%
901 Mariners Island Blvd., 6th Floor
San Mateo, CA 94404
Grace & White, Inc.(3)..................... 1,024,600 12.3%
515 Madison Avenue, Suite 1700
New York, NY 10022
T. Rowe Price Associates, Inc.(4).......... 715,000 8.6%
100 E. Pratt Street
Baltimore, MD 21202
Dimension Fund Advisors, Inc.(5)........... 540,300 6.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Eugene M. Herson(6)........................ 247,854 2.9%
Richard A. Peluso(6)....................... 146,485 1.7%
R. Michael Momboisse(6).................... 91,288 1.1%
Peter Vardy(6)............................. 25,000 *
Douglas P. Crane(6)........................ 19,000 *
Mark H. Shipps(6).......................... 17,500 *
Patrick Gillespie(6)....................... 16,751 *
Donald R. Kerstetter(6).................... 10,000 *
Franklin J. Agardy(6)...................... 2,000 *
All executive officers and directors as a
group (13 persons)(6)..................... 619,076 7.1%
</TABLE>
- --------
* Represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of Company
A-10
<PAGE>
Common Stock subject to options or warrants held by that person that are
currently exercisable, or will become exercisable within 60 days of April
30, 1999 (without regard to the effects of the Offer), are deemed
outstanding. Such shares, however, are not deemed outstanding for purposes
of computing the percentage ownership of any other person. Unless otherwise
indicated in the footnotes to this table, the persons and entities named in
the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) As reported in a Schedule 13G amendment filed jointly on September 10,
1997 by Franklin Resources, Inc. ("FRI"), Charles B. Johnson, Rupert H.
Johnson, Jr. and Franklin Advisory Services, Inc. Consists of shares held
in accounts that are managed by direct and indirect investment advisory
subsidiaries of FRI ("Advisory Subsidiaries") pursuant to contracts that
give such subsidiaries sole voting and investment power with respect to
such shares. Charles B. Johnson and Rupert H. Johnson, Jr. are principal
shareholders of FRI ("Principal Shareholders"). FRI, the Advisory
Subsidiaries and the Principal Shareholders disclaim any economic interest
or beneficial ownership of the shares.
(3) As reported in a Schedule 13G amendment filed on February 18, 1999 by
Grace & White, Inc. ("G&W"). Includes 28,000 shares as to which G&W has
sole voting power and 1,024,600 shares as to which G&W has sole
dispositive power.
(4) As reported in a Schedule 13G amendment filed jointly on February 12, 1999
by T. Rowe Price Associates, Inc. ("Price Associates") and T. Rowe Price
Small Cap Value Fund, Inc. ("Price Small Cap Value"). These securities are
owned by various individual and institutional investors including Price
Small Cap Value (which owns 715,000 shares) which Price Associates serves
as investment adviser with power to direct investments and/or sole power
to vote the securities. For purposes of the reporting requirements of the
Exchange Act, Price Associates is deemed to be a beneficial owner of such
securities; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities.
(5) As reported in a Schedule 13G amendment filed on February 11, 1999 by
Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional, an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, furnishes investment advice to four investment companies registered
under the Investment Company Act of 1940, and services as investment
manager to certain other investment vehicles, including commingled group
trusts. (These investment companies and investment vehicles are the
"Portfolios"). In its role as investment advisor and investment manager,
Dimensional possesses both voting and investment power over the Company's
shares owned by the Portfolios. All such securities are owned by the
portfolios, and Dimensional disclaims beneficial ownership of such
securities.
(6) Includes the following numbers of shares of the Company Common Stock
subject to outstanding options which are exercisable within 60 days of
April 30, 1999 (without regard to the effects of the Offer): Eugene M.
Herson, 187,500; Richard A. Peluso, 63,750; R. Michael Momboisse, 85,750;
Peter Vardy, 8,000; Mark H. Shipps, 17,500; Patrick Gillespie, 15,000;
Douglas P. Crane, 10,000; Donald R. Kerstetter, 8,000; Franklin J. Agardy,
2,000; and all executive officers and directors as a group 423,750.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as otherwise disclosed in the Schedule 14D-9 and this Information
Statement, the Company does not have any other relationships or transactions
with members of the Company Board or executive officers of the Company.
A-11
<PAGE>
[LETTERHEAD OF RAYMOND JAMES & ASSOCIATES, INC.]
ANNEX B
May 10, 1999
Board of Directors
EMCON
400 South El Camino Real
Suite 1200
San Mateo, CA 94402
Members of the Board:
Raymond James & Associates, Inc. ("Raymond James") understands that EMCON
("EMCON" or the "Company") is contemplating a transaction whereby The IT Group
("IT") or a subsidiary of IT will acquire all of the common stock of EMCON and
subsequently merge with and into EMCON pursuant to the terms of an Agreement
and Plan of Merger and the exhibits and schedules thereto between EMCON and IT
dated as of May 10, 1999 (the "Agreement") (such tender and merger referred to
herein as the "Transaction").
You have requested our opinion as to whether the Transaction is fair to the
shareholders of EMCON from a financial point of view.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have, among other things:
1. reviewed the annual report to stockholders on Form 10-K filed March
23, 1999, the quarterly reports to stockholders on Forms 10-Q filed October
31, 1998, and July 27, 1998, and other publicly available financial
information of EMCON and IT;
2. reviewed certain non-public information prepared by the management of
EMCON, including financial statements, financial projections, and other
financial and operating data concerning EMCON;
3. discussed the past and current operations and financial condition and
the prospects of EMCON with senior executives of the Company;
4. reviewed a draft of the Agreement and the financial terms and
conditions therein;
5. reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business Raymond James
believes to be generally comparable to those of the Company; and
6. compared the financial terms of the Transaction with the financial
terms of certain other transactions which we believe to be generally
comparable to the Transaction.
We have assumed and relied upon the accuracy and completeness of all
information supplied or otherwise made available to Raymond James by EMCON or
any other party and have not attempted to verify independently any such
information. In addition, we have not made or received any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of EMCON, nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts, estimates, projections,
and other information referred to above, we have assumed, at your direction,
that they have been reasonably prepared in good faith on bases reflecting the
best currently available estimates and judgments of the management of EMCON,
and we have relied upon each party to advise us promptly if any such
information previously provided to or discussed with us became inaccurate or
was required to be updated during the period of our review. In addition, we
have assumed the Transaction will be consummated substantially in accordance
with the terms set forth in the Agreement.
<PAGE>
Our opinion is necessarily based on the economic, market, financial and
other circumstances and conditions in effect on May 7, 1999, and any material
change in such circumstances or conditions would require reevaluation of this
opinion, which we are under no obligation to undertake.
We express no opinion as to the underlying business decision to effect the
Transaction, the structure or tax consequences of the Agreement, or the
availability or advisability of any alternatives to the Transaction. This
letter does not express any opinion as to the likely trading range for IT
Common Stock following the consummation of the Transaction, which may vary
depending on numerous factors that generally impact the price of securities or
on the financial condition of IT at that time. Our opinion is limited to the
fairness, from a financial point of view, of the Transaction to the
Shareholders. We express no opinion with respect to any other reasons, legal,
business, or otherwise, that may support the decision of the Board of
Directors to approve or consummate the Transaction.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of EMCON and certain other publicly
held companies in businesses we believe to be comparable to EMCON; (ii) the
current and projected financial position and results of operations of EMCON;
and (iii) the general condition of the securities markets.
Raymond James is actively involved in the investment banking business and
regularly undertakes the evaluation of investment securities in connection
with public offerings, private placements, business combinations and similar
transactions. Raymond James has acted as financial advisor to the Board of
Directors of EMCON in connection with the Transaction and will receive a fee
upon the consummation thereof, which fee is contingent upon the value of the
Transaction. In the ordinary course of business, Raymond James may trade in
the securities of EMCON for its own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that our advisory services and opinion expressed herein
were prepared for the use of the Board of Directors of EMCON only in
evaluating the proposed Transaction and do not constitute a recommendation to
any shareholder of EMCON regarding any action such shareholder should take.
Furthermore, this letter should not be construed as creating any fiduciary
duty on the part of Raymond James to any party. This opinion is not to be
quoted or referred to, in whole or in part, without the prior written consent
of Raymond James, which will not be unreasonably withheld.
In arriving at this opinion, Raymond James did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
Based upon and subject to the foregoing, it is our opinion that, as of May
7, 1999, the Transaction is fair, from a financial point of view, to the
Shareholders.
Respectfully submitted,
/s/ Raymond James & Associates, Inc.
RAYMOND JAMES & ASSOCIATES, INC.
<PAGE>
EXHIBIT 11
[LETTERHEAD OF EMCON]
May 17, 1999
To Our Shareholders:
On behalf of the Board of Directors (the "Board") of EMCON (the "Company"),
we are pleased to inform you that on May 10, 1999, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with The IT Group, Inc.,
a Delaware corporation ("Parent"), and its wholly owned subsidiary, Seismic
Acquisition Corporation, a California corporation ("Purchaser"). Pursuant to
the Merger Agreement, Purchaser today has commenced a tender offer (the
"Tender Offer") to purchase all of the issued and outstanding shares (the
"Shares") of the common stock, no par value per share, of the Company at a
price of $6.75 per Share, net to seller, in cash, without interest. The Tender
Offer is currently scheduled to expire at Midnight, New York City time, on
Monday, June 14, 1999.
Following the successful completion of the Tender Offer and upon approval by
shareholder vote, if required, Purchaser will be merged with and into the
Company (the "Merger"). If Purchaser holds at least 90% of the Shares issued
and outstanding at the effective time of the Merger (the "Effective Time"),
any remaining Shares prior to the Effective Time will be canceled and
converted into the right to receive $6.75 per Share, net to seller, in cash,
without interest (except for any Shares held by Parent, Purchaser, the Company
or any of their wholly owned subsidiaries or any Shares as to which you have
exercised dissenter's rights of appraisal).
If, however, Purchaser does not hold at least 90% of the Shares issued and
outstanding at the Effective Time, any remaining Shares prior to the Effective
Time (except for any Shares held by Parent, Purchaser, the Company or any of
their wholly owned subsidiaries or any Shares as to which you have exercised
dissenter's rights of appraisal) will be canceled and converted into the right
to receive that fraction of a fully paid and nonassessable share of common
stock, par value $0.01 per share, of Parent (the "Parent Common Stock") equal
to the Conversion Number. The Conversion Number is equal to a fraction
(rounded to the nearest third decimal point), (a) the numerator of which is
equal to $6.75, or any greater amount paid pursuant to the Tender Offer and
(b) the denominator of which is equal to the average of the closing sales
price of a share of Parent Common Stock as reported on the New York Stock
Exchange for each of the ten (10) consecutive trading days ending on, and
including, the second trading day immediately preceding the date on which the
Company's shareholders adopt and approve the Merger (the "Parent Average Stock
Price"). If the Parent Average Stock Price is equal to or less than $12.50,
then the Conversion Number will be 0.540.
THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE IN
THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT SHAREHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES HEREUNDER.
In arriving at its recommendation, the Board gave careful consideration to
the factors described in the attached Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") that is being filed today with the
Securities and Exchange Commission. Among other things, the Board considered
the opinion of its financial advisor, Raymond James & Associates, Inc.,
stating that the terms of the Offer and Merger are fair, from a financial
point of view, to the shareholders of the Company.
<PAGE>
In addition to the attached Schedule 14D-9, also enclosed is the Offer to
Purchase dated May 17, 1999, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer.
These documents state the terms and conditions of the Offer and the Merger and
provide instructions as to how to tender your Shares. We urge you to read
these documents carefully in making your decision with respect to tendering
your Shares pursuant to the Offer.
On behalf of the Board of Directors,
/s/ Douglas P. Crane
Douglas P. Crane
Chairman of the Board
/s/ Eugene M. Herson
Eugene M. Herson
President and Chief Executive
Officer
