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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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STEEL OF WEST VIRGINIA, INC.
(NAME OF SUBJECT COMPANY)
STEEL OF WEST VIRGINIA, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMPANY COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
858154107
(CUSIP NUMBER OF CLASS OF SECURITIES)
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TIMOTHY R. DUKE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
17TH STREET AND 2ND AVENUE
HUNTINGTON, WEST VIRGINIA 25703
(304) 696-8200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S)
FILING STATEMENT)
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WITH A COPY TO:
JAMES D. EPSTEIN, ESQ.
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
PHILADELPHIA, PA 19103
(215) 981-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Steel of West Virginia, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is 17th Street and 2nd Avenue, Huntington, West
Virginia 25703. The title of the class of equity securities to which this
statement relates is the Company Common Stock, par value $.01 per share (the
"Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF PURCHASER.
This statement relates to the tender offer by SWVA Acquisition, Inc., a
Virginia corporation (the "Purchaser") and a wholly-owned subsidiary of
Roanoke Electric Steel Corporation, a Virginia corporation (the "Parent"),
disclosed in a Tender Offer Statement on Schedule 14D-1, dated November 17,
1998 (the "Schedule 14D-l"), to purchase all of the issued and outstanding
Shares, and the associated rights to purchase Common Stock (the "Rights")
issued pursuant to the Rights Agreement, dated as of March 19, 1997, between
the Company and Continental Stock Transfer and Trust Company, as Rights Agent,
as amended on November 10, 1998 (the "Rights Agreement"), at a price of $10.75
per Share, net to the seller in cash (the "Offer Price"), upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated November
17, 1998, as may hereafter be amended or supplemented (the "Offer to
Purchase"), and the related Letter of Transmittal, as may hereafter be amended
or supplemented (which, together with the Offer to Purchase, constitute the
"Offer"). Unless the context otherwise requires, all references herein to
Shares shall be deemed to include the associated Rights. Capitalized terms
used herein without definition have the same meanings specified in the Offer
to Purchase.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 10, 1998 (the "Merger Agreement"), by and among the Parent, the
Purchaser and the Company. The Merger Agreement provides, among other things,
that as soon as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger"), with the Company surviving as a wholly-owned
subsidiary of the Parent (the "Surviving Corporation"). A copy of the Merger
Agreement is filed herewith as Exhibit 1 to this Schedule 14D-9 and is
incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of the
Parent and the Purchaser are c/o Roanoke Electric Steel Corporation, 102
Westside Boulevard, N.W., P.O. Box 13948, Roanoke, VA 24038.
ITEM 3. IDENTITY AND BACKGROUND.
(a) NAME AND ADDRESS OF THE COMPANY. The name and address of the Company,
which is the person filing this Statement, are set forth in Item 1 above.
(b) MATERIAL CONTRACTS, ETC.
The following is a summary of the Merger Agreement, the Stock Option
Agreement, the Stock Tender and Voting Agreements, and the Rights Amendment,
each of which is qualified in its entirety by reference to such agreement as
filed as exhibits to this Schedule 14D-9.
The Merger Agreement.
THE OFFER. The Merger Agreement provides, among other things, for the
commencement of the Offer as soon as reasonably practicable and, in any event,
within five business days from the date of public announcement of the
execution thereof. The obligation of the Purchaser to accept for payment
Shares tendered pursuant to the Offer is subject to (i) at the expiration of
the Offer, a number of Shares that constitutes more than 50% of the voting
power (determined on a fully-diluted basis) entitled to vote generally in the
election of directors or in a merger has been validly tendered in the Offer
and not properly withdrawn prior to the expiration of the Offer (the "Minimum
Condition"), and (ii) the satisfaction or waiver of the other Offer Conditions
(as
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described below). Under the Merger Agreement, the Purchaser expressly reserves
the right, in its sole discretion, to waive any of the Offer Conditions (other
than the Minimum Condition) and make any other changes in the terms or
conditions of the Offer. Notwithstanding the foregoing, under the terms of the
Merger Agreement, without the written consent of the Company, the Purchaser
cannot (a) decrease the price per Share to be paid in the Offer, change the
form of consideration payable in the Offer (other than by adding
consideration) or decrease the number of Shares sought in the Offer, (b)
change or amend the Offer Conditions (other than to waive any Offer Condition,
except that the Minimum Condition may not be waived without the consent of the
Company), (c) impose additional conditions to the Offer or (d) amend any other
term of the Offer in any manner adverse to the holders of Shares (other than
insignificant changes or amendments). The Purchaser has no obligation to pay
interest on the purchase price of tendered Shares, including in the event the
Purchaser exercises its right to extend the period of time during which the
Offer is open. The rights reserved by the Purchaser in this paragraph are in
addition to the Purchaser's rights to terminate the Offer described under "--
Termination Events."
The Merger Agreement provides that, subject to its terms and conditions,
including but not limited to the Offer Conditions, the Parent will accept for
payment and pay for Shares as soon as it is permitted to do so under
applicable law. If, on the initial Expiration Date, the Offer Conditions have
not been satisfied or waived, the Purchaser will have the right, in its sole
discretion, to extend the Offer for one or more periods not to exceed an
aggregate of 30 business days and, if all of the Offer Conditions have been
satisfied or waived and less than 90% of the outstanding Shares have been
tendered in the Offer and not withdrawn, then the Purchaser will have the
additional right, in its sole discretion, so long as the Purchaser and the
Parent each waive in writing the satisfaction of each of the Offer Conditions,
to extend the Offer for one or more periods not to exceed an aggregate of 20
business days. Notwithstanding the foregoing, however, the Purchaser may not
extend the Expiration Date beyond the Outside Date, without the consent of the
Company.
Notwithstanding any other provision of the Offer, the Purchaser will not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
tendered pursuant to the Offer, may postpone the acceptance for payment or
payment for any Shares tendered pursuant to the Offer, and may terminate the
Offer (whether or not the Purchaser has purchased or paid for any Shares) to
the extent permitted by the Merger Agreement unless the following conditions
(the "Offer Conditions") have been satisfied:
(a) the Minimum Condition;
(b) all of the representations and warranties of the Company set
forth in the Merger Agreement that are qualified by reference to a
Material Adverse Effect (as defined in the Merger Agreement) are true
and correct, and any such representations and warranties that are not
so qualified are true and correct in all respects except in any
respect that is not likely to have a Material Adverse Effect, in each
case as if such representations and warranties were made at the time
of such determination; or
(c) at any time on or after the date of the Merger Agreement, none
of the following events has occurred:
(1) the entry or issuance of any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding
before any court or governmental, administrative or regulatory
authority or agency, or any statute, rule or regulation enacted,
entered, enforced, promulgated, amended or issued that is
applicable to the Parent, the Purchaser, the Company, or any
subsidiary or affiliate of the Purchaser or the Company, or the
Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that
is likely to have the effect of: (i) making illegal or otherwise
directly or indirectly restraining or prohibiting the making of the
Offer in accordance with the terms of the Merger Agreement, the
acceptance for payment of, or payment for, some of or all the
Shares by the Purchaser or any of its affiliates or the
consummation of the Merger; (ii) prohibiting the ownership or
operation of the Company and its subsidiaries by the Parent or any
of the Parent's subsidiaries; (iii) imposing material limitations
on the ability of the Parent, the Purchaser
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or any of the Parent's affiliates effectively to acquire or hold or
to exercise in all material respects full rights of ownership of
the Shares, including without limitation the right to vote any
Shares acquired or owned by the Parent or the Purchaser or any of
its affiliates on all matters properly presented to the
stockholders of the Company, including, without limitation, the
adoption of the Merger Agreement or the right to vote any shares of
capital stock of any subsidiary directly or indirectly owned by the
Company; or (iv) requiring divestiture by the Parent or the
Purchaser or any of their affiliates of any Shares;
(2) (i) any general suspension of trading in, or limitation on
prices (other than suspensions or limitations triggered on the
Nasdaq National Market by price fluctuations on a trading day) for,
securities on any national securities exchange, (ii) a declaration
of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) a commencement of a war or
material armed hostilities or other material national calamity
directly involving the entire United States or materially adversely
affecting the consummation of the Offer or (v) in the case of any
of the foregoing existing at the time of commencement of the Offer,
a material acceleration or worsening thereof;
(3) (i) the Board of Directors of the Company (the "Board") or
any committee thereof has withdrawn or modified in a manner adverse
to the Parent or the Purchaser the approval or recommendation of
the Offer, the Merger or the Merger Agreement, or approved or
recommended any takeover proposal or any other acquisition of
Shares other than the Offer, (ii) any such person or group has
entered into a definitive agreement or an agreement in principle
with the Company with respect to a tender offer or exchange offer
for any Shares or a merger, consolidation or other business
combination with or involving the Company or any of its
subsidiaries, or (iii) the Board or any committee thereof has
resolved to do any of the foregoing;
(4) the Company fails to perform in any material respect any
material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be
performed or complied with by it under the Merger Agreement;
(5) the Merger Agreement has been terminated in accordance with
its terms or the Offer has been terminated with the consent of the
Company; or
(6) any waiting periods under the HSR Act applicable to the
purchase of Shares pursuant to the Offer or the Merger have not
expired or been terminated;
and, upon the failure of any of the conditions set forth in paragraphs (b) or
(c) above, the Purchaser determines, in its reasonable judgment, that it is
inadvisable for the Purchaser to proceed with the Offer or with the acceptance
for payment of or payment for Shares. The Offer Conditions (other than the
Minimum Condition) are for the sole benefit of the Purchaser and may be waived
by the Purchaser in whole or in part at any time and from time to time in its
sole discretion.
THE MERGER. The Merger Agreement provides, that upon the terms and
subject to the conditions thereof and in accordance with the DGCL and the
Virginia Stock Corporation Act, at the Effective Time of the Merger, the
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of the Purchaser will cease, and the Company
will continue as the Surviving Corporation. At the Parent's election, any
direct or indirect subsidiary of the Parent other than the Purchaser may be
merged with and into the Company instead of the Purchaser.
Pursuant to the Merger Agreement, each Share issued and outstanding
immediately prior to the Effective Time (unless otherwise provided for) will
be canceled, extinguished and converted into the right to receive the Merger
Consideration, which equals $10.75 in cash, or any higher price that may be
paid pursuant to the Offer, payable to the holder thereof, without interest,
upon surrender of the certificate formerly representing such Share in the
manner described in the Merger Agreement, less any required withholding taxes.
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The Merger Agreement provides that, immediately prior to the Effective Time,
each outstanding Employee Option, whether or not then exercisable, will be
canceled by the Company, and the holder thereof will be entitled to receive at
the Effective Time or as soon as practicable thereafter from the Company in
consideration for such cancellation an amount in cash equal to the product of
(a) the number of Shares previously subject to such Employee Option and (b)
the excess, if any, of the Merger Consideration over the exercise price per
Share of the Employee Option, less any withholding taxes.
The Merger Agreement provides that, unless otherwise stipulated, Shares that
are issued and outstanding immediately prior to the Effective Time and that
are held by stockholders who have not voted in favor of or consented to the
Merger and have delivered a written demand for appraisal of such Shares in the
time and manner provided in Section 262 of the DGCL and have not failed to
perfect or have not effectively withdrawn or lost their rights to appraisal
and payment under the DGCL will not be converted into the right to receive the
Merger Consideration, but instead will be entitled to receive the
consideration determined pursuant to Section 262 of the DGCL; provided,
however, that, if such holder fails to perfect or has effectively withdrawn or
lost the holder's right to appraisal and payment under the DGCL, such holder's
Shares will thereupon be deemed to have been converted, at the Effective Time,
into the right to receive the Merger Consideration as described above without
any interest thereon.
The Merger Agreement also provides that, at the Effective Time and without
any further action on the part of the Company and Purchaser, the Company's
Certificate of Incorporation, as amended and in effect immediately prior to
the Effective Time, will be the certificate of incorporation of the Surviving
Corporation. At the Effective Time and without any further action on the part
of the Company and the Purchaser, the Bylaws of the Company will become the
Bylaws of the Surviving Corporation. The Merger Agreement provides that the
directors of the Purchaser immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation, and the officers of the Surviving Corporation will be: Donald G.
Smith, Chairman of the Board; Timothy R. Duke, President; Mark G. Meikle, Vice
President and Treasurer; and W. Bruce Groff, Jr., Vice President of Human
Resources and Secretary; in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
STOCKHOLDERS' MEETING. The Merger Agreement provides that, if required,
the Company, acting through its Board, must, in accordance with and subject to
applicable law and its Certificate of Incorporation, as amended, and its
Bylaws, (i) duly call, give notice of, convene and hold a meeting of its
stockholders as soon as practicable following consummation of the Offer for
the purpose of adopting the Merger Agreement and the transactions contemplated
thereby (the "Stockholders' Meeting") and (ii) except if the Board by majority
vote determines in good faith, based upon the advice of outside counsel to the
Company that to do so would reasonably likely constitute a breach of fiduciary
duty under applicable law, (A) include in the proxy statement relating to the
Stockholders' Meeting (the "Proxy Statement"), the unanimous recommendation of
the Board that the stockholders of the Company vote in favor of the adoption
of the Merger Agreement and the transactions contemplated thereby and the
written opinion of Janney Montgomery Scott Inc. ("Janney"), the Company's
financial advisor, that the consideration to be received by the stockholders
of the Company pursuant to the Offer and the Merger is fair to the
stockholders of the Company from a financial point of view and (B) use its
reasonable best efforts to obtain the necessary adoption of the Merger
Agreement. At the Stockholders' Meeting, the Parent and the Purchaser will
cause all Shares then owned by them and their subsidiaries to be voted in
favor of adoption of the Merger Agreement and the transactions contemplated
thereby. The Merger Agreement provides that, if required by applicable law, as
soon as practicable following the Parent's request, the Company will prepare
and file a preliminary Proxy Statement with respect to the Stockholders'
Meeting with the Commission under the Exchange Act and the rules and
regulations promulgated thereunder, and will use its reasonable best efforts
to have such Proxy Statement approved by the Commission. The parties will
cooperate with one another in this endeavor. The Merger Agreement provides
that, notwithstanding the foregoing, in the event that the Purchaser acquires
at least 90% of the outstanding Shares, the Company agrees, at the request of
the Purchaser, subject to the respective provisions of the Merger Agreement,
to take all necessary and appropriate
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action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 253 of the DGCL.
DESIGNATION OF DIRECTORS. Promptly upon the purchase by the Purchaser of
Shares pursuant to the Offer, and from time to time thereafter, the Purchaser
may designate up to such number of directors, rounded up to the next whole
number, to the Board as will give the Purchaser representation on the Board
equal to the product of the total number of directors on such Board (giving
effect to the directors elected pursuant to this sentence and including any
vacancies or unfilled newly-created directorships) multiplied by the
percentage that the aggregate number of Shares beneficially owned by the
Purchaser or any affiliate of the Purchaser bears to the total number of
Shares then outstanding, and the Company will amend its Bylaws to provide for
each of the matters set forth in the Merger Agreement with respect to the
designation of directors and will, at such time, promptly take all action
necessary to cause the Purchaser's designees to be so elected, including
either increasing the size of the Board or securing the resignations of
incumbent directors or both. At such times, the Company will use its
reasonable best efforts to cause persons designated by the Purchaser to
constitute the same percentage as is on the Board of (i) each committee of the
Board, (ii) each board of directors of each subsidiary of the Company and
(iii) each committee of each such board of directors, in each case only to the
extent permitted by law. Until the Purchaser acquires a majority of the
outstanding Shares on a fully-diluted basis, the Company will use its
reasonable best efforts to ensure that all the members of the Board and such
other boards and committees as of the date of the Merger Agreement who are not
employees of the Company will remain members of the Board and such other
boards and committees.
The Company will promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder in order to fulfill its
obligations with respect to the designation of directors and will include in
the Schedule 14D-9 or a separate Rule 14f-1 information statement provided to
stockholders such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill its
obligations with respect to the designation of directors. The Parent or the
Purchaser will supply to the Company and be solely responsible for the
accuracy and completeness of any information with respect to either of them
and their nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1.
In addition to any vote of the Board required by law, the Certificate of
Incorporation, as amended, the Bylaws of the Company or by the Merger
Agreement, following the election or appointment of the Purchaser's designees
pursuant to the terms of the Merger Agreement and prior to the Effective Time,
the concurrence of a majority of the directors of the Company then in office
who are neither designated by the Purchaser nor are employees of the Company
(the "Disinterested Directors") will be required to authorize any amendment,
or waiver of any term or condition, of the Merger Agreement or the Certificate
of Incorporation, as amended, or Bylaws of the Company, any termination of the
Merger Agreement by the Company, any extension by the Company of the time for
the performance of any of the obligations or other acts of the Purchaser or
waiver or assertion of any of the Company's rights hereunder. The number of
Disinterested Directors will not be less than two; provided, however, that if
the number of Disinterested Directors is reduced below two for any reason, the
remaining Disinterested Director will be entitled to designate persons to fill
such vacancies who will be deemed to be Disinterested Directors for purposes
of the Merger Agreement, or if no Disinterested Directors then remain, the
other directors who were directors prior to the date hereof will designate two
persons who cannot be officers, stockholders or affiliates of the Company, the
Parent or the Purchaser, to fill such vacancies and such persons will be
deemed to be Disinterested Directors for purposes of the Merger Agreement.
ACCESS TO INFORMATION; CONFIDENTIALITY. Pursuant to the Merger Agreement,
from the date thereof to the Effective Time, upon reasonable prior notice, the
Company will, and will cause its subsidiaries, officers, directors, employees,
auditors and other agents to, afford the officers and employees and will use
its reasonable best efforts to cause its auditors and other agents of the
Parent, and financing sources who will agree to be bound by such provisions of
the Merger Agreement as though a party thereto, complete access, consistent
with applicable law, at all reasonable times to its officers, employees,
agents, properties, offices, plants and other
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facilities and to all books and records, and will furnish Parent and such
financing sources with all financial, operating and other data and information
as Parent, through its officers, employees or agents, or such financing
sources may from time to time reasonably request. The Merger Agreement further
provides that all information obtained by the Parent and the Purchaser
pursuant to the above paragraph will be kept confidential in accordance with
that certain letter agreement Confidentiality Agreement, dated July 20, 1998
(the "Parent Confidentiality Agreement"), between the Parent and Janney, as
agent for the Company, a copy of which is filed as Exhibit 9 to this Schedule
14D-9.
NO SOLICITATION OF TRANSACTIONS. The Company, its affiliates and their
respective officers, directors, employees, representatives and agents were
obligated to immediately cease any existing discussions or negotiations, if
any, with any parties conducted prior to the date of the Merger Agreement with
respect to any acquisition or exchange of all or any material portion of the
assets of, or any equity interest in, the Company or any of its subsidiaries
or any business combination with or involving the Company or any of its
subsidiaries. At any time prior to consummation of the Offer, the Company may,
directly or indirectly, furnish information and access, in each case only in
response to a request for such information or access to any person made after
the date hereof that was not solicited, initiated or knowingly encouraged by
the Company or any of its affiliates or any of its or their respective
officers, directors, employees, representatives or agents after the date
hereof, pursuant to appropriate confidentiality agreements containing terms
and conditions (including standstill provisions) that are no less favorable
than the terms and conditions contained in the Parent Confidentiality
Agreement. Additionally, the Company, its affiliates, officers, directors
employees or representatives, may participate in discussions and negotiate
with such person concerning any merger, sale of assets, sale of shares of
capital stock or similar transaction (including an exchange of stock or
assets) involving the Company or any subsidiary or division of the Company,
only if such person has submitted a proposal to the Board relating to any such
transaction and the Board by a majority vote determines in good faith, based
upon the advice of outside counsel to the Company, that failing to take such
action is reasonably likely to constitute a breach of the Board's fiduciary
duties under applicable law. The Board must provide a copy of any such written
proposal to the Parent immediately after receipt thereof (except such written
proposal must be provided to the Parent by 10:30 a.m. on the next business day
in cases where such written proposal is not received during normal business
hours) and must notify the Parent immediately if any proposal (oral or
written) is made (except the Parent must be notified by 10:30 a.m. on the next
business day in cases where such proposal is not received during normal
business hours) and will in such notice, indicate in reasonable detail the
identity of the offeror and the terms and conditions of any proposal and will
keep the Parent promptly advised of all developments which could reasonably be
expected to culminate in the Board withdrawing, modifying or amending its
recommendation of the Offer, the Merger and the other transactions
contemplated by the Merger Agreement.
Except as set forth herein, neither the Company or any of its affiliates,
nor any of its or their respective officers, directors, employees,
representatives or agents, may, directly or indirectly, solicit, initiate or
knowingly encourage discussions or negotiations with, any corporation,
partnership, person or other entity or group (other than the Parent and the
Purchaser, any affiliate or associate of the Parent and the Purchaser or any
designees of the Parent or the Purchaser) concerning any merger, sale of any
material portion or assets, sale of any shares of capital stock or similar
transactions (including an exchange of stock or assets) involving the Company
or any subsidiary or division of the Company. None of the foregoing, however,
will prevent the Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated
under the Exchange Act with regard to any tender offer. Furthermore, the Board
may not recommend that the stockholders of the Company tender their Shares in
connection with any such tender offer unless the Board by majority vote
determines in good faith, based upon the advice of outside counsel to the
Company, that failing to take such action is reasonably likely to constitute a
breach of the Board's fiduciary duties under applicable law. The Company
agreed not to release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is a party,
unless the Board determines, based upon the advice of outside counsel, that
the failure to make such release or waiver is reasonably likely to constitute
a breach of the Board's fiduciary duties under applicable law.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger
Agreement provides that the Certificate of Incorporation and Bylaws of the
Surviving Corporation must contain provisions
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no less favorable with respect to indemnification than are set forth in the
Certificate of Incorporation and Bylaws of the Company and these provisions
may not to be materially amended, repealed or otherwise modified for a period
of six years from the Effective Time in any manner that would adversely affect
the rights thereunder of individuals who, at or prior to the Effective Time,
were directors, officers or employees of the Company.
The Merger Agreement also provides that for six years after the Effective
Time, the Surviving Corporation will indemnify and hold harmless each present
and former director and officer of the Company (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, the
"Costs") (but only to the extent such Costs are not otherwise covered by
insurance and paid) incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative (a "Claim" or, collectively, "Claims") arising out of or
pertaining to matters existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under applicable law (and the Surviving Corporation
will also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification). Any of such Indemnified Parties
must promptly notify the Parent of any Claim.
For at least six years after the Effective Time, the Parent will or will
cause the Surviving Corporation to maintain the Company's existing directors'
and officers' liability insurance ("D & O Insurance") so long as the annual
premium for such insurance is not in excess of twice the premium on the date
of the Merger Agreement (the "Maximum Premium"); provided, however, that if
the existing D & O Insurance expires, or is terminated or canceled by the
insurance carrier during such period, the Surviving Corporation will use its
reasonable best efforts to obtain as much D & O Insurance and, to the extent
possible, covering substantially the same matters that were covered under the
D & O Insurance as in effect in the date thereof, as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis)
of the Maximum Premium. The Merger Agreement requires that any successor
corporation or assignee of the Surviving Corporation or the Parent assume
these insurance and indemnification obligations.
FURTHER ACTION; REASONABLE BEST EFFORTS. The Merger Agreement provides
that, upon the terms and subject to the conditions thereof, each of the
parties thereto will use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement as soon as practicable, including but not limited to (i) cooperation
in the preparation and filing of the Offer Documents (as defined therein), the
Schedule 14D-9, the Proxy Statement, any required filings under the HSR Act
and any amendments to any thereof, (ii) cooperation with respect to
consummating the financing of the Offer and the Merger and (iii) using its
reasonable best efforts to promptly make all required regulatory filings and
applications including, without limitation, responding promptly to requests
for further information and to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and its subsidiaries as
are necessary for the consummation of the transactions contemplated by the
Merger Agreement and to fulfill the Offer Conditions.
CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement,
the Company has agreed (and has agreed to cause its subsidiaries) to operate
their respective businesses in the ordinary course and in a manner consistent
with past practice. The Company and its subsidiaries will also use reasonable
best efforts to seek to preserve intact their current business organizations,
keep available the service of its current officers, employees and consultants,
and preserve its relationships with customers, suppliers and other persons
with which the Company has significant business relations. Pending
consummation of the Merger, the Company and its subsidiaries have also agreed
not to take any of the following actions without the Parent's consent:
(i) change the Company's governing documents; (ii) issue, deliver, sell,
pledge, dispose of or encumber, or authorize or commit to the issuance, sale,
pledge, disposition or encumbrance of any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of
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capital stock or any other ownership interest of the Company or any of its
subsidiaries or any material assets of the Company or any of its subsidiaries,
except for sales of inventory in the ordinary course of business and in a
manner consistent with past practice; (iii) declare or pay a dividend or other
distribution, either in cash, stock property or otherwise; (iv) reclassify,
combine, split, subdivide or redeem, purchase or otherwise acquire, directly
or indirectly, any of the Company's capital stock; (v)(A) acquire another
entity, (B) incur additional debt or assume, guarantee or endorse the
obligations of another person, (C) enter into any agreement other than in the
ordinary course of business consistent with past practice, or (D) authorize
capital expenditures that are not in the Company's budget on the date of the
Merger Agreement if the amount thereof would exceed specified dollar
thresholds; (vi) increase the compensation of, or grant any severance to,
directors, officers and employees (except to the extent required under
existing plans); (vii) change accounting practices; (viii) make any material
tax election or settle or compromise any material U.S. federal, state, local
or foreign tax liability; (ix) adopt a plan of complete or partial
dissolution; (x) pay or discharge any claims, liabilities or obligations; or
(xi) settle any pending litigation.
EMPLOYEE BENEFITS MATTERS. The Merger Agreement provides that, on and
after the Effective Time, the Parent will cause the Surviving Corporation and
its subsidiaries to promptly pay or provide when due all compensation and
benefits earned through or prior to the Effective Time as provided pursuant to
the terms of any compensation arrangements, employment agreements and employee
or director benefit plans, programs and policies in existence as of the date
thereof for all employees (and former employees) and directors (and former
directors) of the Company and its subsidiaries (including all compensation and
benefits earned through the Effective Time pursuant to the Company Plans
disclosed to the Parent). The Parent and the Company have agreed that the
Surviving Corporation and its subsidiaries will pay promptly or provide when
due all compensation and benefits required to be paid pursuant to the terms of
any individual agreement with any employee, former employee, director or
former director in effect as of the date thereof and disclosed to the Parent.
The Merger Agreement further provides that if employees of the Surviving
Corporation and its subsidiaries become eligible to participate in a medical,
dental or health plan of the Parent or its subsidiaries, the Parent shall
cause such plan to (i) waive any preexisting condition limitations for
conditions covered under the applicable medical, health or dental plans of the
Company and its subsidiaries and (ii) honor any deductible and out of pocket
expenses incurred by the employees and their beneficiaries under such plans
during the portion of the calendar year prior to such participation.
The Merger Agreement further provides that the Surviving Corporation will
perform all of the Company's obligations under and pursuant to the Company's
collective bargaining agreement with union employees. The Surviving
Corporation will also pay management bonuses of up to an aggregate of $600,000
for the fiscal year 1998, in accordance with past practices to the extent that
such bonuses have been accrued in the Company's unaudited interim financial
statements for the nine month period ended September 30, 1998. Under the terms
of the Merger Agreement, the Surviving Corporation is not required to continue
the employment of any person or, with respect to the union obligations, to
take any action or refrain from taking any action that the Company and its
subsidiaries, prior to the Effective Time, could have taken or refrained from
taking.
DISPOSITION OF LITIGATION. The Merger Agreement provides that the Company
agrees that it will not settle any litigation currently pending, or commenced
after the date thereof, against the Company or any of its directors by any
stockholder of the Company relating to the Offer or the Merger Agreement,
without the prior written consent of the Parent (which will not be
unreasonably withheld). The Merger Agreement further provides that, subject to
compliance with its fiduciary obligations under applicable law as advised by
legal counsel, the Company will not voluntarily cooperate with any third party
which has sought or may hereafter seek to restrain or prohibit or otherwise
oppose the Offer or the Merger and cooperate with the Parent and the Purchaser
to resist any such effort to restrain or prohibit or otherwise oppose the
Offer or the Merger.
ADVICE OF CHANGES. The Merger Agreement provides that the Company must
promptly advise the Parent, and the Parent must promptly advise the Company,
of the occurrence or non-occurrence of (i) any event the occurrence or non-
occurrence of which would be likely to cause any representation or warranty
contained in the Merger Agreement to be untrue or inaccurate in any material
respect and (ii) any failure of the Company, the Parent or the Purchaser, as
the case may be, to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
the Merger Agreement.
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NOMINATION OF TIMOTHY R. DUKE. Upon acceptance and payment for the
Shares in the Offer, Parent, acting through its Board of Directors, will cause
its Board of Directors to be expanded and shall appoint Mr. Duke to fill the
vacancy created by such expansion. Thereafter, the Parent shall cause Mr. Duke
to be nominated for such position at the next annual meeting of stockholders
of the Parent.
COMMITMENT LETTER. Under the Commitment Letter, the Parent has agreed
that until the Effective Time, unless the Company otherwise agrees in writing,
it shall operate its business, and cause each of its subsidiaries and
affiliates, including the Purchaser, to operate their respective businesses,
in a manner so as not to materially impact its ability to borrow the monies
contemplated to be loaned to it or them. By way of example, and not of
limitation, the Parent has agreed therein that neither it, nor any of its
subsidiaries or affiliates (including the Purchaser) will (i) enter into any
financing transaction (other than the sale of common equity for cash
consideration resulting in gross proceeds per share equal to the fair market
value of such common equity) or any merger, consolidation, or purchase or sale
of a substantial portion of the equity or assets, with or of any other person
or entity, or (ii) enter into any recapitalization, reorganization,
liquidation or dissolution, to the extent that any such action under clauses
(i) or (ii) above would materially and adversely impact the Parent's ability
to borrow funds pursuant to the Commitment Letter. From and after the date
hereof and continuing until completion of the Merger, or the earlier
termination of the Merger Agreement in accordance with its terms, the Parent
and the Purchaser have agreed to use the funds currently available under the
Revolving Credit Facility, solely to fund the purchase of Shares pursuant to
the Offer and the payment of the Merger Consideration. In the Merger
Agreement, the Parent and the Purchaser jointly and severally represented and
warranted to the Company that, as of November 10, 1998, (x) at least
$30,000,000 was available under the Revolving Credit Facility and (y) the
Parent had unrestricted cash on its balance sheet of at least $20,000,000,
which $20,000,000 was agreed to only be used to fund the purchase of Shares
pursuant to the Offer and the payment of the Merger Consideration.
REPRESENTATION AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations and warranties by the Company concerning the Company's
capitalization, required filings and consents, the Board's approval of the
Merger Agreement and the transactions contemplated thereby (including
approvals so as to render inapplicable thereto the limitation on business
combinations contained in Section 203 of the DGCL), Commission filings and
financial statements, absence of certain changes or events, compliance with
law, absence of litigation, employee benefit plans, environmental matters, tax
matters, real estate matters, contracts and the engagement of brokers in the
Offer, intellectual property, contracts, potential conflicts of interest and
Year 2000 compliance. Some of the representations are qualified to cover only
those matters that would have a Material Adverse Effect on the Company or its
subsidiaries taken as a whole. As used herein, the term "Material Adverse
Effect" means any change or effect that would be materially adverse to the
results of operations, financial condition or business of the Company and its
subsidiaries taken as a whole.
CONDITIONS OF THE MERGER. Under the Merger Agreement, the respective
obligations of the Parent, the Purchaser and the Company to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions: (i) if required by the DGCL, the Merger Agreement has
been approved by the requisite affirmative vote of the stockholders of the
Company in accordance with the Company's Certificate of Incorporation, as
amended, and the DGCL (which requisite vote the Company has represented to be
solely the affirmative vote of a majority of the outstanding Shares); (ii) no
statute, rule, regulation, executive order, decree, ruling, injunction or
other order (whether temporary, preliminary or permanent) has been enacted,
entered, promulgated or enforced by any United States, foreign, federal or
state court or governmental authority that prohibits, restrains, enjoins or
restricts the consummation of the Merger; provided, however, that each of the
parties has used reasonable best efforts to prevent entry of any such
restraints and to appeal promptly any such restraints that may be entered;
(iii) the Purchaser has purchased Shares pursuant to the Offer; and (iv) any
waiting period applicable to the Merger under the HSR Act has been terminated
or expired.
TERMINATION EVENTS. The Merger Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time (notwithstanding
approval thereof by the stockholders of the Company):
(a) by mutual written consent of the Parent, the Purchaser and the
Company;
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(b) by any of the Purchaser, the Parent or the Company if, by the
Outside Date, any of the Offer Conditions has not been satisfied or
(except with respect to the Minimum Condition) has not been waived by
the Purchaser;
(c) by the Company prior to the purchase of Shares pursuant to the
Offer, if (i) there has been a material breach of any representation,
warranty, covenant or agreement on the part of the Parent or the
Purchaser contained in the Merger Agreement that materially adversely
affects the Parent's or the Purchaser's ability to consummate (or
materially delays commencement or consummation of) the Offer and that
has not been cured prior to the earlier of (A) 10 business days
following notice of such breach by the Company to the Parent and the
Purchaser and (B) two business days prior to the Expiration Date or
(ii) the Purchaser has (x) terminated the Offer or (y) failed to pay
for Shares pursuant to the Offer;
(d) by the Company if, prior to the purchase of Shares pursuant to
the Offer, any person has made a bona fide offer to acquire the Company
(i) that the Board determines in its good faith judgment is more
favorable to the Company's stockholders than the Offer and the Merger
and (ii) as a result of which the Board determines in good faith, based
upon the advice of outside counsel, that the failure to terminate the
Merger Agreement is reasonably likely to constitute a breach of the
Board's fiduciary obligations under applicable law, provided, however,
that termination under this paragraph would not be effective until the
Company made payment of the Termination Fee (as defined below);
(e) by the Parent prior to the purchase of Shares pursuant to the
Offer, if (1) there has been a breach of any representation, warranty,
covenant or agreement on the part of the Company contained in the
Merger Agreement that is likely to have a Material Adverse Effect and
that has not been cured prior to the earlier of (A) 10 business days
following notice of such breach and (B) two business days prior to the
date on which the Offer expires; (2) the Board has (x) modified
(including by amendment of the Schedule 14D-9) in a manner adverse to
the Purchaser or withdrawn its approval or recommendation of the Offer,
the Merger Agreement or the Merger, (y) approved or recommended another
offer or transaction pursuant to, or otherwise knowingly and
intentionally breached in a material manner the provisions of, Section
6.5 of the Merger Agreement (relating to solicitation of other offers),
or (z) amended the Rights Agreement to facilitate an offer by any other
person to acquire the Company, or has resolved to effect any of the
foregoing; (3) there has been, solely as a result of the operation of
the Rights Agreement, a material breach of any representation,
warranty, covenant or agreement contained in Section 3.3 or 3.4 of the
Merger Agreement, which material breach has not been cured by the
earlier of (X) the Outside Date or (Y) 20 days after receipt by the
Company of notice of such breach from the Parent or the Purchaser; or
(4) there has been a material breach of any representation, warranty,
covenant or agreement contained in Section 3.5(c) or 5.2 (each relating
to the Rights Agreement) of the Merger Agreement; or
(f) by the Parent or the Company, upon the entry or issuance of any
order, preliminary or permanent injunction, decree, judgment or ruling
in any action or proceeding before any court or governmental,
administrative or regulatory authority or agency, or any statute, rule
or regulation enacted, entered, enforced, promulgated, amended or
issued that is applicable to the Parent, the Purchaser, the Company or
any subsidiary or affiliate of the Purchaser or the Company or the
Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that is
likely to have the effect of (i) making illegal or otherwise directly
or indirectly restraining or prohibiting the making of the Offer in
accordance with the terms of the Merger Agreement, the acceptance for
payment of, or payment for, some of or all the Shares by the Purchaser
or any of its affiliates or the consummation of the Merger; (ii)
prohibiting the ownership or operation of the Company and its
subsidiaries by the Parent or any of the Parent's subsidiaries; (iii)
imposing material limitations on the ability of the Parent, the
Purchaser or any of the Parent's affiliates effectively to acquire or
hold or to exercise in all material respects full rights of ownership
of the Shares, including without limitation the right to vote any
Shares acquired or owned by the Parent or the Purchaser or any of its
affiliates on all matters properly presented to the stockholders of the
Company, including, without limitation, the adoption of the Merger
Agreement or the right to vote any
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shares of capital stock of any subsidiary directly or indirectly owned
by the Company; or (iv) requiring divestiture by the Parent or the
Purchaser or any of their affiliates of any Shares.
EFFECT OF TERMINATION. In the event of the termination of the Merger
Agreement pursuant to the foregoing, the Merger Agreement will then become
void and there will be no liability on the part of any party thereto except as
to certain provisions thereof; provided, however, that the payment of the
Termination Fee pursuant to certain provisions thereof would be considered
with respect to the calculation of any damages resulting from any such willful
breach by the Company. This, however, will not relieve any party from
liability for fraud or breach of any covenant, agreement or any other term in
the Merger Agreement. If the Merger Agreement is terminated by the Company and
a Termination Fee is paid pursuant to Sections 8.3(a)(i)(B) or 8.3(a)(ii) of
the Merger Agreement, the Termination Fee will be deemed to be liquidated
damages rather than a penalty, and will constitute the total damages and sole
remedy of the Parent and the Purchaser upon any such termination.
TERMINATION FEE AND EXPENSES. If (i) the Company terminates the Merger
Agreement (A) pursuant to paragraph (d) under the heading "Termination" above
or (B) in a manner or for a reason not expressly permitted thereby or (ii) the
Parent terminates the Merger Agreement pursuant to paragraphs (e)(2), (e)(3)
or (e)(4) under the heading "Termination" above, then the Company will pay to
the Parent, within three business days following termination a fee, in cash,
of $5,000,000 (the "Termination Fee"). If, from and after July 20, 1998, and
prior to the purchase of Shares pursuant to the Offer, (i) any other person
has made a bona-fide offer to acquire at least 50% of the Shares or
substantially all of the assets of the Company, or otherwise to acquire the
Company (the "Third-Party Offer"), at a price per Share (or the equivalent
price per Share, in the case of an asset purchase) (x) that is higher on its
face than the price per Share to be paid in the Offer or (y) that the Company
determines, based upon the advice of Janney, is higher than the price per
Share to be paid in the Offer, (ii) the Offer remains outstanding until the
Outside Date but is not consummated solely as a result of the failure of the
Minimum Condition and (iii) the Third-Party Offer is consummated within 180
days of the termination of the Merger Agreement, then the Company must pay to
the Parent, within three business days following the consummation of the Third
Party Offer, the Termination Fee. The Company in no event will be obligated to
pay more than one such fee with respect to all such agreements and
occurrences. Each party will bear its own expenses in connection with the
Merger Agreement and the transactions contemplated thereby.
Stock Option Agreement
Pursuant to the Stock Option Agreement, the Purchaser has the irrevocable
right (the "Stock Option"), under certain circumstances, to acquire the Option
Shares at a price of $10.375 per Share (the "Exercise Price"). The Exercise
Price is payable in cash. The Stock Option Agreement could have the effect of
making an acquisition of the Company by a third party more costly because of
the need to acquire in any such transaction the Option Shares issued under the
Stock Option Agreement. The Stock Option may be exercised by the Purchaser, in
whole or in part, at any time or from time to time for 180 days following the
termination of the Merger Agreement, upon the occurrence of a Triggering
Event. Under the Stock Option Agreement, the term "Triggering Event" means any
occurrence of (A) the termination of the Merger Agreement under circumstances
causing a Termination Fee; (B)(i) a Third-Party Offer with a price per Share
(or the equivalent price per Share, in the case of an asset purchase) (x) that
is higher on its face than the price per Share to be paid in the Offer or (y)
that the Company determines, based upon the advice of Janney, is higher than
the price per Share to be paid in the Offer and (ii) the Offer remaining
outstanding until the Outside Date but not being consummated solely as a
result of the failure of the Minimum Condition and (iii) the Third-Party Offer
being consummated within 180 days of the termination of the Merger Agreement;
or (C) the purchase by the Purchaser of Shares pursuant to the Offer following
satisfaction of the Minimum Condition. As a condition to the exercise of the
Stock Option, the Company must promptly notify the Purchaser and the Parent in
writing of the occurrence of any Triggering Event. The Company's obligation to
issue Option Shares upon exercise of the Stock Option is subject to the
conditions that (a) all waiting periods under the HSR Act required for the
purchase of the Option Shares upon such exercise have expired or been waived
and (b) there has not been in effect any preliminary injunction or other order
issued prohibiting the exercise of the Stock Option pursuant to the Stock
Option Agreement.
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If, at any time during the period after the occurrence of a Triggering Event
and before termination of the Stock Option, any third party (a) acquires
beneficial ownership of more than 50% of the then outstanding Shares or (b)
enters into an agreement with the Company to acquire the Company, by merger,
consolidation or the purchase of all or substantially all of its assets or
other similar business combination, reorganization or recapitalization, then
the Purchaser may, in lieu of exercising the Stock Option, surrender the Stock
Option to the Company. Upon surrender of the Stock Option to the Company, the
Company will pay to the Purchaser upon the Purchaser's written demand, an
amount in cash for each of the Option Shares equal to the excess of (a) the
highest price per Share paid or to be paid by such third party pursuant to
such transaction (or such consideration paid to the Company, in the case of an
asset acquisition or similar transaction, divided by the number of Shares
outstanding on a fully-diluted basis (after taking into consideration the
exercise of all outstanding options, warrants, rights (other than the rights
issued pursuant to that Rights Agreement), convertible securities or
exchangeable securities issued by the Company), excluding Shares issuable
pursuant to the Stock Option Agreement) over (b) the Exercise Price.
In the event any additional Shares (other than the Option Shares) are either
(i) issued and become outstanding, or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding, the number of Option Shares will be
increased or decreased, as appropriate, so that, after such issuance, the
Option Shares represent 19.9% of the number of Shares then issued and
outstanding (not counting the Option Shares).
The Stock Option Agreement further provides that at any time and from time
to time after exercise of the Stock Option, if the Shares or any other
securities to be acquired upon exercise of the Stock Option are then listed on
the Nasdaq National Market (or any other national securities quotation system
or national securities exchange), then upon the request of the Purchaser, the
Company will promptly file an application to list the Shares or other
securities to be acquired upon exercise of the Stock Option on the Nasdaq
National Market (or any other national securities quotation system or national
securities exchange) and will use commercially reasonable efforts to obtain
approval of such listing as promptly as practicable. The Purchaser has agreed
to pay all fees and expenses in connection with such listing.
Stock Tender and Voting Agreements
Each of the Company's directors and certain of its officers have
contractually agreed with the Parent in certain Stock Tender and Voting
Agreements, each dated November 10, 1998 (each, a "Stock Tender Agreement"),
so long as the Merger Agreement is in effect, to tender their Shares in the
Offer and to vote their Shares in favor of the Merger and against any action
or agreement that would impede the Merger or the Offer.
The Rights Amendment
On March 19, 1997, pursuant to the Rights Agreement the Board declared a
distribution of one right (a "Right") for each outstanding share of Common
Stock to stockholders of record at the close of business on March 28, 1997 and
for each share of Common Stock issued (including Shares distributed from
treasury) by the Company thereafter and prior to the Distribution Date (as
defined in the Rights Agreement). Each Right entitles the registered holder,
subject to the terms of the Rights Agreement, to purchase from the Company
one-half of a share of Common Stock at a purchase price of $26.00 per share of
Common Stock, equivalent to $13.00 for each one-half of a share of Common
Stock, subject to adjustment. On November 2, 1998, a majority of the
Independent Directors (as defined in the Rights Agreement) voted to amend the
terms of the Rights to permit the Offer and the Merger, and to provide for the
termination of the Rights upon acceptance for payment of the Shares validly
tendered and not withdrawn in the Offer. The Rights Amendment is filed as
Exhibit 8 to this Schedule 14D-9.
Certain Arrangements with Directors and Executive Officers
The Company entered into Change of Control Severance Agreements with Timothy
R. Duke and Mark G. Meikle, dated July 9, 1997, and July 7, 1997,
respectively, that provide that, upon a "change of control (as defined
therein)," Mr. Duke or Mr. Meikle will be entitled to receive an amount equal
to the greater of 125% of his annual base salary for the year in which a
change of control of the Company occurs and 125% of his annual
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base salary for the year preceding the year in which such change of control of
the Company occurs, payable at Mr. Duke's or Mr. Meikle's option in a lump sum
or bi-monthly during the 12 months following such change of control. Mr. Duke
had maintained a similar agreement with the Company since July 1996. The
purchase of the Shares in the Offer will be deemed a change of control under
these agreements, requiring the payments set forth in the agreements to be
paid by the Surviving Corporation.
The following is a summary of an employment agreement, dated November 10,
1998 between the Company and Mr. Duke (the "Employment Agreement") which has
been filed as Exhibit 3 to this Schedule 14D-9 and is incorporated herein by
reference. This summary is qualified in its entirety by reference to the full
text of the Employment Agreement. The Employment Agreement becomes effective
upon the acceptance and payment for the Shares in the Offer and continuing for
three years thereafter (except that, if the Effective Time of the Merger does
not occur within 120 days of the Outside Date, the Company or the Parent may
declare the Employment Agreement null and void). The Employment Agreement
provides that, among other things, Mr. Duke will be employed as the President
and Chief Executive Officer of the Company, will be appointed to the Board of
Directors of the Parent and thereafter nominated for such position at the next
annual meeting of stockholders of the Parent, and will be nominated and
elected as a director of the Company for such terms as he shall serve as a
director of the Parent. Mr. Duke's annual base salary will remain at $225,000,
and he will be entitled to any incentive compensation that would be paid
pursuant to an incentive formula contained therein or, after September 30,
1998, which may be paid in the sole discretion of the Board of the Company.
Mr. Duke has agreed not to compete with the Company during the term of the
Employment Agreement. The Employment Agreement terminates upon the death or
disability of Mr. Duke or the expiration of the term of such agreement. The
Employment Agreement may also be terminated by the Company with Cause (as
defined therein), upon which in all cases no further payments (other than
accrued salary) will be payable to Mr. Duke, or by Mr. Duke with Good Reason
(which includes, among other things, demotion, relocation and change of
control (other than a management buy-out)), in which case Mr. Duke will be
paid his base salary for the remainder of the term of the Employment
Agreement. The Parent has guaranteed the performance of the covenants and
agreements in the Employment Agreement made by the Company.
Certain other contracts, agreements, arrangements and understandings between
the Company and certain of its directors and executive officers are described
in an "Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 Thereunder" (the "Information Statement")
dated the date hereof, which is attached hereto as Annex II and incorporated
herein by reference.
Except as described in this Item 3(b) or under the captions "Directors,"
"Executive Compensation," "Option Grants in Last Fiscal Year," "Aggregated
Fiscal Year-end Option Values" "Agreements Regarding Termination of
Employment," "Directors' Compensation," "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" in the Company's Proxy
Statement, dated April 10, 1998, which sections are filed as Exhibit 2 to this
Schedule 14D-9 and incorporated herein by reference, as of the date hereof,
there are no material contracts, agreements, arrangements or understandings,
or any actual or potential conflicts of interest between the Company or its
affiliates and (i) its executive officers, directors or affiliates or (ii) the
Parent, the Purchaser or their respective officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board has unanimously determined that each of the transactions
contemplated by the Merger Agreement, including the Offer and the Merger, are
fair to and in the best interests of the stockholders of the Company and
unanimously recommends that the Company's stockholders accept the Offer and
tender their Shares to the Purchaser pursuant to the Offer.
A letter to the Company's stockholders communicating the Board's
recommendation is filed herewith as Exhibit 4 and is incorporated herein by
reference.
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(b) BACKGROUND; REASONS FOR THE COMPANY BOARD'S RECOMMENDATION
Set forth below is a chronology of events and a description of contacts
between representatives of the Company and the Parent. The description of
certain meetings of the Parent's Board of Directors has been supplied by the
Parent.
Over the past few years, the Board has actively studied the current and
future state of the Company's business, strategic position, and long-term
prospects, including a review of its strategic alternatives to increase
shareholder value.
In early January, 1997, CPT Holdings, Inc. ("CPT") advised Robert L.
Bunting, Jr., then Chief Executive Officer and Chairman of the Company, that
it was making an unsolicited offer to acquire the Company for a price of $9.00
per Share. After a full review and consideration of the proposal, the Board
determined that the offer was inadequate, and that it was not in the best
interests of the Company or its stockholders to proceed with an acquisition of
the Company by CPT.
On January 14, 1997, Mr. Bunting and Timothy R. Duke, the then President and
Chief Operating Officer of the Company (and currently its Chief Executive
Officer and President), met with Donald G. Smith, the President, Chief
Executive Officer and Chairman of the Parent, at the offices of the Parent.
The purpose of the meeting was to discuss the possibility of the Parent being
a "white knight" in the event that CPT proceeded to attempt a hostile takeover
of the Company.
The Parent retained the services of Ewing Monroe Bemiss & Co. ("Ewing
Monroe") to evaluate the possibility of the Parent acquiring the Company and
to advise the Board of Directors of the Parent in this regard. After
consideration of the factors affecting the Company and the Parent at that
time, and in light of the advice of Ewing Monroe, the Board of Directors of
the Parent determined to pursue discussions with the Company for the possible
acquisition of the Company.
At the meeting of the Board held on March 5, 1997, Mr. Duke advised the
Board that the Parent advised him that it might have an interest in acquiring
the Company at a price to be negotiated, but in no event greater than $11.00
per Share.
In April 1997, based on information from the Parent, Mr. Duke understood
that due to the possible entry of new competitors into the Company's markets,
the Parent's revised valuation was in the neighborhood of $10.00 per Share.
Later in April 1997, Mr. Duke informed Mr. Smith that the Board concluded that
it was not in the best interests of the Company's stockholders to enter into a
transaction with the Parent given the Parent's suggested valuation. There were
no further contacts between the Company and the Parent until June 1998, other
than with regard to the Company's purchasing of billets from the Parent.
At a meeting of the Board held on June 5, 1998, the Board reviewed the
operations of the Huntington facility, including the progress of the Company's
modernization program, industry trends, potential competitors, various
possible strategic alliances, and, in light of the Company's stock trading
price at the time, the possibility of an unsolicited, inadequate offer to
stockholders which could also disrupt the Company's operations and employment
levels, and leave the Company unable to serve its customers. The Board
authorized Mr. Duke to contact Mr. Smith to ascertain whether the Parent might
have an interest in a strategic alliance.
On June 11, 1998, Mr. Duke and Mr. Smith discussed the possible advantages
of a strategic alliance between the Company and the Parent, including that the
combined entity would have greater financial strength, that the Company's
Huntington facility would have a ready source of billets from the Parent's
facility, and that the Parent would have a "built-in" customer for its
billets. At the same time, Mr. Smith expressed a concern regarding any
strategic alliance with the Company due to the possible entry of new
competitors into the Company's markets.
The Parent again consulted Ewing Monroe to evaluate a possible transaction
with the Company and to advise its Board of Directors in this regard.
15
<PAGE>
On July 20, 1998, the Parent and the Company entered into the Parent
Confidentiality Agreement preceding the Parent's review of certain information
concerning the Company. Following the execution of this agreement, Mr. Duke
and Daniel N. Pickens, a director of the Company and a First Vice President of
Janney, kept the directors informed regularly regarding discussions with the
Parent and the Parent's representatives.
On July 28, 1998, Mr. Duke and Mr. Pickens met with Mr. Smith, Mr. A. Hugh
Ewing III, President of Ewing Monroe, Ms. Mary Adams Bacon, a Managing
Director of Ewing Monroe, and other representatives of the Parent. At the
meeting the parties discussed the Company's business, the Parent's business,
industry trends, potential competitors, and general parameters and concerns
regarding possible terms and conditions of any transaction between the Company
and the Parent.
At a meeting of the Parent's Board of Directors on August 14, 1998, Mr.
Ewing and Ms. Bacon made a detailed presentation regarding a possible
transaction between the Company and the Parent. After considerable discussion,
the Parent's Board of Directors determined to consider the issue further at
its regularly scheduled meeting on August 18, 1998. At the meeting on August
18, the Parent's Board of Directors again met with Mr. Ewing and Ms. Bacon and
again discussed the transaction under consideration. After a further detailed
presentation by management and discussion, including consideration of the
possible benefits to the Parent of a combination of the business of the
Company and the Parent, the Parent's Board of Directors authorized management
to negotiate the terms and conditions for the possible acquisition of the
Company.
At a meeting on August 19, 1998, the Board reviewed and analyzed the
discussion of July 28, together with the updated information on the operations
of the Huntington facility, including the progress of the Company's
modernization program, competitive trends in the industry and the Company's
stock price and performance. At the meeting, the Board further discussed the
identity and key characteristics of other potential strategic partners. After
considerable discussion, the Board authorized Mr. Duke and Mr. Pickens to
continue discussions with the Parent.
On August 24, 1998, Mr. Duke and Mr. Pickens met again with Mr. Smith, Mr.
Ewing and Ms. Bacon to review historical and projected performance of the
Company and the Parent, strategic opportunities, valuation parameters and
terms and conditions of a possible transaction.
On September 9, 1998, the Board met to discuss a possible transaction with
Parent. The Board reviewed materials prepared by management and by Janney
regarding the Company's historical performance, projected financial results,
industry trends, stock price history, stock market data, and potential
competition. The Board also reviewed the meeting held with the Parent's
representatives on August 24, 1998 and authorized further discussion with the
Parent.
On September 11, 1998, Mr. Duke and Mr. Pickens met with Mr. Smith, Mr.
Ewing and Ms. Bacon to discuss a possible transaction. At this meeting, Mr.
Smith indicated that the Parent was only prepared to proceed with a
transaction in which it acquired 100% of the Shares for $11.00 cash. After
considerable discussion, Mr. Smith agreed to recommend to the Parent's Board
of Directors that the Parent pay a price of $11.50 per Share in cash to
acquire the Company. Mr. Smith's willingness to recommend that price to the
Parent's Board of Directors was conditioned upon various other issues,
including protective devices such as break-up fees, Company options and
stockholder lock-ups, completion of due diligence and the negotiation of
definitive agreements. At a recess in the meeting, Mr. Duke, Mr. Pickens,
Albert W. Eastburn, the Chairman of the Company, and Stephen A. Albert, a
director of the Company and a member of Sierchio & Albert, P.C., general
counsel to the Company, discussed the proposed sale of the Company via a
conference call and concluded that Mr. Duke and Mr. Pickens should continue
further discussions with the Parent. Negotiations between the Company and the
Parent continued through the day.
On September 14, 1998, via a conference call, counsel to the Company and
counsel to the Parent discussed a possible transaction, including structure,
due diligence, and the preparation of documents.
16
<PAGE>
The Parent's Board of Directors met again on September 15, 1998, and
discussed the September 11, 1998 meeting described above. The Parent's Board
of Directors authorized the commencement of extensive due diligence activities
by the Parent's counsel and consultants and, subject to the results thereof
and satisfaction of further conditions of management, the continued
negotiation of a possible agreement.
On September 17, 1998, the Board held a telephonic meeting at which it
reviewed the Company's historical and projected results, industry trends,
stock market trends, and competitive factors. The Board also analyzed and
discussed the proposed purchase price in light of these factors, the Company's
stock price, performance and trading volume, and other possible strategic
alternatives. The Board approved the Company's retention of Janney as the
Company's investment banker with regard to the transaction, and the Company's
retention of legal counsel with regard to the transaction. Thereafter, legal
counsel advised the Board with respect to certain legal matters, including the
Board's fiduciary obligations in connection with any possible sale of the
Company. The Board authorized the Company to continue negotiations with
Parent.
On September 29, 1998, the Board held a meeting at which Mr. Duke, Janney
and legal counsel reviewed the status of negotiations with the Parent. Legal
counsel again advised the Board with respect to certain legal matters and
reviewed the principal aspects of the Merger Agreement, including protective
devices such as break-up fees, Company options and stockholder lock-ups.
Representatives of Janney delivered its oral opinion to the Board as to the
fairness of the $11.50 cash consideration to be paid to the holders of the
outstanding Shares. The Board then analyzed and discussed the offer, the
Merger Agreement and the transactions contemplated thereby in light of the
Company's historical performance, projected financial results, industry
trends, potential competitors, stock price history and data, other strategic
alternatives and various other matters that it considered relevant.
Thereafter, the Board unanimously resolved to recommend acceptance of the
offer and approval and adoption of the Merger Agreement by the Company's
stockholders.
On October 6, 1998, Parent's Board of Directors met again with
representatives of Ewing Monroe to consider the proposed transaction. Based
upon the Parent's due diligence investigation, as well as current competitive
conditions in the industry and the decline in the Company's stock price, all
of which were reviewed and addressed by Mr. Ewing and Ms. Bacon, the Parent's
Board of Directors determined not to proceed with consideration of a final
written agreement at that time, but did authorize Mr. Smith and other
representatives of the Parent to continue due diligence investigations, as
well as discussions and negotiations with representatives of the Company, and
determined to meet and consider the matter further after additional due
diligence and consideration of the financial aspects of the transaction.
During the following three weeks, discussions continued between the parties
and the Parent proceeded with its continuing due diligence investigation. The
Parent's Board of Directors met again on October 20, 1998, and considered the
status of the ongoing due diligence review and the differential between the
trading price of the Company's stock and $11.50. The Board determined to
reconvene to make a final decision on whether or not to proceed after
management had further discussions with the Company's representatives and
concluded other outstanding issues to management's satisfaction.
On October 26, 1998, Mr. Duke and Mr. Pickens met with Mr. Smith, Mr. Ewing
and Ms. Bacon. During that meeting, Mr. Smith reviewed the results of the
Parent's due diligence investigation, industry trends and increased
competition, and proposed a revised offer price of $10.00 per share. After
discussion, although no agreement was reached regarding the possible terms and
conditions of a revised transaction, the parties narrowed their discussion of
price to a range of $10.50 to $11.00 per Share. Following the meeting, Mr.
Duke reported the results of the meeting to the other Board members, and a
meeting of the Board was scheduled for November 2, 1998.
On November 2, 1998, the Board met to review the proposed transaction in
light of all relevant data, including, in particular, industry trends,
potential new competition, the operations of the Huntington facility,
including the progress of the Company's modernization program, historical and
projected results, the Company's stock price history and performance, together
with other stock market data and trends, other strategic alternatives
17
<PAGE>
available to the Company and the due diligence performed by the Parent. The
Board then discussed and analyzed the data, and concluded that a sale of the
Company to the Parent at a price of $10.75 per share would achieve for
stockholders a value that they would not likely be able to realize in the
foreseeable future and, accordingly, would be in the best interests of
stockholders. Janney delivered its oral opinion to the Board as to the
fairness of a $10.75 price per Share to the stockholders of the Company from a
financial point of view. The Board then unanimously resolved to recommend
acceptance of an offer of $10.75 per share, should the Parent make such an
offer, and directed Mr. Pickens to approach Mr. Ewing regarding the Parent's
willingness to enter into such a revised transaction who, in turn, talked to
Mr. Smith. Later that day, Mr. Smith indicated that he was prepared to
recommend an offer price of $10.75 per share to the Parent's Board of
Directors.
On November 9, 1998, the Board of Directors of the Parent met and considered
the offer price of $10.75, and the report of management on further
investigations and negotiations with the Company. Ewing Monroe delivered its
fairness opinion to the Parent's Board of Directors which stated that the
Offer Price was fair to the Parent from a financial point of view. The
Parent's Board of Directors reviewed the fairness opinion and financing
commitment letters. Following further discussion, the Parent's Board of
Directors unanimously approved the proposed transaction and directed the
officers to conclude the negotiations concerning various relevant documents
and, upon finalizing such documents, to execute the Merger Agreement. On
November 10, 1998, after finalization of the various open issues, including
completion of the Commitment Letter, the Merger Agreement, the Stock Option
Agreement, the Amendment to the Rights Agreement, the Stock Tender Agreements
and related agreements (the "Transaction Documents") were executed and
delivered, and the transaction was announced publicly after the closing of
trading on November 10, 1998.
In approving the Offer, the Merger, the Transaction Documents and the
transactions contemplated thereby, the Board considered a number of factors,
including:
1. The Board's view that a sale of the Company at this time is in the
best interest of the Company and its stockholders in light of: (a) the
Company's operating performance; (b) the Company's historical financial
results; (c) the likelihood of new competitors in the Company's markets,
both foreign and domestic; and, (d) the recent market price and performance
of the Company's Common Stock;
2. That the $10.75 per share cash offer price represents a premium of
approximately 68.6% over the closing price for the Shares of $6.375 on the
Nasdaq National Market on November 10, 1998, the last trading date prior to
the public announcement of the execution of the Merger Agreement, and a
value for the Shares that the stockholders are unlikely to otherwise be
able to realize in the foreseeable future;
3. The opinion of Janney presented to the Board on November 2, 1998, and
confirmed in writing on November 10, 1998, to the effect that the
consideration to be paid to the Company's stockholders in the Offer and the
Merger is fair to the stockholders of the Company from a financial point of
view; in considering such opinion, the Board was aware that, upon
completion of the Merger, Janney becomes entitled to certain fees described
in Item 5 below in connection with its engagement by the Company;
4. The presentation of Janney in connection with such opinion as to
various financial and other considerations deemed relevant to the Board's
evaluation of the Offer and the Merger, including (i) the terms and
conditions of the Merger Agreement; (ii) the business, financial condition,
results of operations and prospects of the Company; (iii) the financial
terms of certain business combinations that Janney deemed relevant; (iv)
selected financial and stock market data for certain other publicly traded
companies that Janney deemed relevant; (v) the recent trading history of
the Company's common stock; and (vi) other financial studies and analyses
that Janney deemed appropriate;
5. The terms and conditions of the Merger Agreement, which the Board
views as favorable to the Company's stockholders, including that the
Company's stockholders will realize the entire value of the purchase price
without the risk of post-closing indemnification obligations;
6. The Board's ability to withdraw or modify its approval or
recommendation of the Offer, the Merger and any of the other transactions
contemplated by the Merger Agreement if necessary for the Company Board to
comply with its fiduciary duties, and to terminate the Merger Agreement
under certain circumstances; and
18
<PAGE>
7. The Purchaser's execution of the financing commitment and its
agreement to conclude the transaction expeditiously and without any
financing contingency.
The foregoing discussion of factors considered and given weight by the
Company Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Offer and the
Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determinations and recommendations. In addition, individual
members of the Board may have given different weights to different factors in
reaching their own respective determinations.
Except as disclosed herein, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to the Company's stockholders with respect to the Offer or
the Merger.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to the terms of a letter agreement dated July 17, 1998 (the
"Engagement Letter"), the Company retained Janney to assist the Board as its
financial advisor in evaluating the terms of the Offer and to render an
opinion as to the fairness, from a financial point of view, of the
consideration to be received by the stockholders of the Company pursuant to
the Offer. A copy of Janney's opinion is attached to this Schedule 14D-9 as
Annex I, filed herewith as Exhibit 6 and incorporated herein by reference. The
Company has agreed to pay Janney a fee of approximately $586,000 and to
reimburse Janney for all reasonable out-of-pocket expenses incurred in
carrying out its duties under the engagement. Pursuant to the Engagement
Letter, the Company has agreed to indemnify Janney and its directors,
officers, agents, employees affiliates, and controlling persons for certain
costs, expenses and liabilities, including liabilities under federal
securities laws, to which it might be subjected arising out of its engagement
as financial advisor. Daniel N. Pickens, a member of the Board, is a First
Vice President of Janney.
The Company has also agreed to pay $150,000 to the law firm of Sierchio &
Albert, P.C. for legal services performed by such firm in connection with the
Merger Agreement, the Offer and the Merger, except that if the Offer is not
completed, Sierchio & Albert, P.C. will charge for its legal services
performed in connection with the Merger Agreement and the Offer in accordance
with its standard hourly rates. Mr. Stephen Albert, a member of the Board, is
a shareholder of Sierchio & Albert, P.C.
Except as disclosed herein, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to the Company's stockholders with respect to the Offer or
the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth on Annex II hereto, 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) Each of the Company's directors and certain of its officers have entered
into a Stock Tender Agreement requiring them, so long as the Merger Agreement
is in effect, to tender pursuant to the Offer all Shares owned of record or
beneficially by them (other than Shares issuable upon exercise of stock
options and Shares, if any, which if tendered could cause such persons to
incur liability under the provisions of Section 16(b) of the Exchange Act).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale
or transfer of a
19
<PAGE>
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 described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex II is being furnished to
the Company's stockholders in connection with the possible designation by
Purchaser, pursuant to the Merger Agreement, of certain persons to be
appointed to the Company's Board other than at a meeting of the Company's
stockholders, and such information is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1. Agreement and Plan of Merger dated as November 10, 1998, by
and among the Company, the Parent and the Purchaser.
Exhibit 2. Pages 1 through 13 of the Company's Proxy Statement dated
April 10, 1998, relating to its Annual Meeting of
Stockholders.
Exhibit 3. Employment Agreement between the Company and Timothy R. Duke
dated November 10, 1998.
Exhibit 4. Letter to Stockholders of the Company, dated November 17,
1998.*
Exhibit 5. Opinion of Janney Montgomery Scott Inc. dated November 10,
1998.*
Exhibit 6. Stock Option Agreement between the Company, the Purchaser
and the Parent dated November 10, 1998.
Exhibit 7. Form of Stock Tender and Voting Agreement between the
Purchaser and Certain Stockholders of the Company.
Exhibit 8. Amendment No. 1 to the Rights Agreement (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on November 13, 1998).
Exhibit 9. Confidentiality Agreement between the Parent and Janney
Montgomery Scott Inc., as agent for the Company, dated July
20, 1998.
- --------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
20
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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: November 17, 1998 By: /s/ Timothy R. Duke
---------------------------------
Timothy R. Duke,
President and Chief Executive
Officer
21
<PAGE>
EXHIBIT 1
Agreement and Plan of Merger dated as November 10, 1998,
by and among the Company, Parent and Purchaser.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
ROANOKE ELECTRIC STEEL CORPORATION
SWVA ACQUISITION, INC.
AND
STEEL OF WEST VIRGINIA, INC.
DATED AS OF NOVEMBER 10, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
ARTICLE I
THE OFFER................................................................... 2
Section 1.1: The Offer..................................................... 2
Section 1.2: Company Action................................................ 3
ARTICLE II
THE MERGER.................................................................. 4
Section 2.1: The Merger.................................................... 4
Section 2.2: Closing; Effective Time....................................... 5
Section 2.3: Effects of the Merger......................................... 5
Section 2.4: Certificate of Incorporation; By-Laws......................... 5
Section 2.5: Directors and Officers of the Surviving Corporation........... 5
Section 2.6: Conversion of Securities...................................... 6
Section 2.7: Treatment of Options.......................................... 6
Section 2.8: Dissenting Shares and Section 262 Shares...................... 7
Section 2.9: Surrender of Shares; Stock Transfer Books..................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... 9
Section 3.1: Organization and Qualification; Subsidiaries.................. 9
Section 3.2: Certificate of Incorporation and By-Laws...................... 9
Section 3.3: Capitalization................................................ 9
Section 3.4: Authority Relative to This Agreement.......................... 10
Section 3.5: No Conflict; Required Filings and Consents.................... 11
Section 3.6: Compliance.................................................... 12
Section 3.7: SEC Filings; Financial Statements............................. 12
Section 3.8: Absence of Certain Changes or Events.......................... 13
Section 3.9: Absence of Litigation......................................... 14
Section 3.10: Employee Benefit Plans........................................ 14
Section 3.11: Tax Matters................................................... 15
Section 3.12: Offer Documents; Proxy Statement.............................. 17
Section 3.13: Environmental Matters......................................... 17
Section 3.14: Title and Condition of Properties............................. 19
Section 3.15: Brokers....................................................... 21
Section 3.16: Intellectual Property......................................... 21
Section 3.17: Contracts..................................................... 22
Section 3.18: Potential Conflicts of Interest............................... 23
Section 3.19: Year 2000 Compliance.......................................... 23
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER....................... 24
Section 4.1: Corporate Organization......................................... 24
Section 4.2: Authority Relative to This Agreement........................... 24
Section 4.3: No Conflict; Required Filings and Consents..................... 24
Section 4.4: Offer Documents; Proxy Statement............................... 25
Section 4.5: Brokers........................................................ 25
Section 4.6: Funds.......................................................... 25
Section 4.7: No Prior Activities............................................ 26
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER....................................... 26
Section 5.1: Conduct of Business of the Company Pending the Merger.......... 26
Section 5.2: No Amendment of the Rights Agreement........................... 28
ARTICLE VI
ADDITIONAL AGREEMENTS........................................................ 28
Section 6.1: Stockholders Meeting........................................... 28
Section 6.2: Proxy Statement................................................ 29
Section 6.3: Company Board Representation; Section 14(f).................... 29
Section 6.4: Access to Information; Confidentiality......................... 30
Section 6.5: No Solicitation of Transactions................................ 31
Section 6.6: Employee Matters............................................... 32
Section 6.7: Directors' and Officers' Indemnification and Insurance......... 33
Section 6.8: Nomination of Timothy R. Duke.................................. 34
Section 6.9: Notification of Certain Matters................................ 34
Section 6.10: Further Action; Reasonable Best Efforts........................ 34
Section 6.11: Public Announcements........................................... 35
Section 6.12: Disposition of Litigation...................................... 35
Section 6.13: Commitment Letter.............................................. 35
ARTICLE VII
CONDITIONS OF MERGER......................................................... 36
Section 7.1: Conditions to Obligation of Each Party to Effect the Merger.... 36
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER............................................ 37
Section 8.1: Termination.................................................... 37
Section 8.2: Effect of Termination.......................................... 38
Section 8.3: Fees and Expenses.............................................. 38
Section 8.4: Amendment...................................................... 39
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 8.5: Waiver.......................................................... 39
ARTICLE IX
GENERAL PROVISIONS............................................................ 39
Section 9.1: Non-Survival of Representations, Warranties and Agreements...... 39
Section 9.2: Notices......................................................... 39
Section 9.3: Certain Definitions............................................. 41
Section 9.4: Severability.................................................... 42
Section 9.5: Entire Agreement; Assignment.................................... 42
Section 9.6: Parties in Interest............................................. 42
Section 9.7: Governing Law................................................... 42
Section 9.8: Headings........................................................ 42
Section 9.9: Counterparts; Facsimile Signatures.............................. 43
Section 9.10: Specific Performance............................................ 43
ANNEX A............................................................................ 45
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of November 10, 1998 (this
"Agreement"), among Roanoke Electric Steel Corporation, a Virginia corporation
("Parent"), SWVA Acquisition, Inc., a Virginia corporation and a wholly owned
subsidiary of Parent ("Purchaser"), and Steel of West Virginia, Inc., a Delaware
corporation (the "Company").
B A C K G R O U N D
A. The Board of Directors of the Company has determined that it is in the
best interests of the Company and the stockholders of the Company to enter into
this Agreement with Parent and Purchaser, providing for a tender offer (as may
be amended from time to time, the "Offer") for all of the issued and outstanding
shares of common stock, par value $0.01 per share, of the Company (being
6,010,795) (the "Shares"), including the associated rights to purchase common
stock of the Company (the "Rights") issued pursuant to the Rights Agreement
dated as of March 19, 1997, between Steel of West Virginia, Inc., and
Continental Stock Transfer & Trust Company, as Rights Agent (the "Rights
Agreement"), to be made by Purchaser, followed by the merger of Purchaser with
the Company (the "Merger") in accordance with the General Corporation Law of the
State of Delaware (the "DGCL"), and the Virginia Stock Corporation Act (the
"VSCA"), in each case upon the terms and subject to the conditions set forth
herein.
B. The Board of Directors of Parent and Purchaser have each approved the
Offer and the Merger, in each case, upon the terms and subject to the conditions
set forth herein.
C. Concurrently with the execution and delivery of this Agreement, and as
an inducement to Parent and Purchaser to enter into this Agreement, the Company
has entered into a Stock Option Agreement with Parent and Purchaser (the "Stock
Option Agreement"), pursuant to which the Company has granted to Purchaser an
option to purchase Shares upon the terms and subject to the conditions set forth
in the Stock Option Agreement.
D. Concurrently with the execution and delivery of this Agreement, and as
an inducement to Parent and Purchaser to enter into this Agreement, certain
stockholders of the Company have each entered into a Stock Tender and Voting
Agreement, dated as of the date hereof, among Parent, Purchaser and the
stockholders named therein providing, among other things, that each such
stockholder will tender such Shares beneficially owned by such stockholder
pursuant to the Offer and will vote such Shares beneficially owned by such
stockholder in favor of the Merger.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Purchaser and the Company hereby agree as follows:
<PAGE>
ARTICLE I
THE OFFER
SECTION 1.1: THE OFFER.
-----------------------
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 8.1 and no event shall have occurred and no circumstance
shall exist that would result in a failure to satisfy any of the conditions set
forth in Annex A hereto (the "Offer Conditions," as defined in Annex A),
Purchaser shall, as soon as reasonably practicable after the date hereof (and in
any event within five business days from the date of public announcement of the
execution hereof), commence the Offer to purchase for cash all of the Shares,
together with the associated Rights (all references herein to Shares in the
context of the transactions contemplated by this Agreement shall be deemed to
include such Rights), at a price of $10.75 per Share, net to the seller in
cash. The obligation of Purchaser to accept for payment Shares tendered
pursuant to the Offer shall be subject to the terms and conditions of this
Agreement and to the satisfaction or waiver by Purchaser of the Offer
Conditions. Purchaser shall not, without the prior written consent of the
Company, (i) decrease the price per Share to be paid in the Offer, change the
form of consideration payable in the Offer (other than by adding consideration)
or decrease the number of Shares sought in the Offer, (ii) change or amend the
Offer Conditions (other than to waive any condition, except that the Minimum
Condition (as defined in Annex A) may not be waived without the consent of the
Company), (iii) impose additional conditions to the Offer or (iv) amend any
other term of the Offer in any manner adverse to the holders of Shares (other
than insignificant changes or amendments). The Offer shall expire at 12:00
midnight, Eastern Standard Time, on the 20/th/ business day following
commencement of the Offer (such date and time, as may be extended in accordance
with the terms hereof, is referred to as the "Expiration Date"); provided,
--------
however, that if, on the Expiration Date, the Offer Conditions have not been
- -------
satisfied or waived, Purchaser shall have the right, in its sole discretion, to
extend the Offer for one or more periods not to exceed an aggregate of thirty
business days; provided further that if all of the Offer Conditions have been
----------------
satisfied or waived and less than 90% of the outstanding Shares have been
tendered in the Offer and not withdrawn, then Purchaser shall have the
additional right, in its sole discretion, so long as Purchaser and Parent each
waives in writing the satisfaction of each of the Offer Conditions, to extend
the Offer for one or more periods not to exceed an aggregate of twenty business
days; and provided further that in no event shall the Expiration Date be
----------------
extended beyond February 28, 1999 (the "Outside Date") without the consent of
the Company.
The Offer Conditions shall be for the benefit of Purchaser and, except
with respect to the Minimum Condition, may be waived by Purchaser, in whole or
in part at any time and from time to time, in its sole discretion.
(b) As soon as reasonably practicable after the date hereof (and in
any event within five business days from the date of public announcement of the
execution hereof), Purchaser shall file a Tender Offer Statement on Schedule
14D-1 (together with all amendments and supplements thereto, collectively the
"Schedule 14D-1") with respect to the Offer with the Securities and Exchange
Commission (the "SEC"). The Schedule 14D-1 shall contain an offer to
2
<PAGE>
purchase (together with all amendments and supplements thereto collectively the
"Offer to Purchase"), form of the related letter of transmittal, together with
all amendments and supplements thereto (collectively the "Letter of
Transmittal"), and the form of summary advertisement (which Schedule 14D-1,
Offer to Purchase, Letter of Transmittal and other documents, together with any
supplements or amendments thereto, are referred to herein collectively as the
"Offer Documents"). The Company and its counsel shall be given an opportunity to
review the Offer Documents before they are filed with the SEC. Parent and
Purchaser jointly represent and warrant that the Offer Documents will, in all
material respects, comply with the requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder and all other applicable laws, and will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein not misleading; provided, however, that the
-------- -------
representations and warranties in this subsection shall not apply to statements
in or omissions from the Offer Documents made in reliance upon and in conformity
with information furnished to Parent in writing by or on behalf of the Company.
Parent and Purchaser shall promptly provide to the Company a copy of any written
comments received by them from the SEC with respect to the Offer Documents.
Parent and Purchaser shall promptly correct any information provided by it for
use in the Offer Documents that have become false or misleading in any material
respect, and Parent and Purchaser further agree to take all steps necessary to
cause the Offer Documents as so corrected to be filed with the SEC and the Offer
Documents (other than the Schedule 14D-1), as so corrected, to be disseminated
to holders of Shares, in each case as and to the extent required by applicable
federal securities laws.
SECTION 1.2: COMPANY ACTION.
----------------------------
(a) The Company hereby approves of and consents to the Offer and
represents and warrants that: (i) its Board of Directors, at a meeting duly
called and held on September 29, 1998, has unanimously (A) determined that this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, are advisable and in the best interests of the Company and the holders
of Shares, (B) approved this Agreement, the Stock Option Agreement, and the
transactions contemplated hereby and thereby, including each of the Offer and
the Merger, and (C) resolved to recommend that the stockholders of the Company
accept the Offer, tender their Shares to Purchaser thereunder and adopt this
Agreement; provided, however, that prior to the consummation of the Offer, if
-------- -------
the Company's Board of Directors by majority vote shall have determined in good
faith, based upon the advice of outside counsel to the Company, that failure to
modify or withdraw its recommendation is reasonably likely to constitute a
breach of the Board's fiduciary duty under applicable law, then the Board of
Directors may so modify or withdraw its recommendation; and (ii) Janney
Montgomery Scott, Inc. (the "Financial Adviser"), has delivered to the Board of
Directors of the Company its opinion that the consideration to be paid to the
holders of Shares, other than Parent and Purchaser, pursuant to each of the
Offer and the Merger is fair to such holders from a financial point of view.
The Company has been authorized by the Financial Adviser to permit, subject to
prior review and consent by such Financial Adviser, the inclusion of such
fairness opinion, in its entirety, in the Schedule14D-9 (as defined in
subsection (b) hereof) and the Proxy Statement (as defined in Section 3.12).
The Company hereby consents to the inclusion in the Offer Documents of the
recommendations of the Company's Board of Directors described in this Section
1.2(a).
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(b) As soon as reasonably practicable after the date hereof (and in
any event within five business days from the date of public announcement of the
execution hereof), the Company shall file with the SEC, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9"), containing the
recommendations of the Company's Board of Directors described in and subject to
Section 1.2(a)(i) and shall promptly mail the Schedule 14D-9 to the stockholders
of the Company. The Company represents and warrants that the Schedule 14D-9
will comply in all material respects with all applicable laws, including without
limitation the Exchange Act and the rules and regulations promulgated thereunder
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein not misleading;
provided, however, that the representations and warranties in this subsection
- -------- -------
shall not apply to statements in or omissions from the Schedule 14D-9 made in
reliance upon and in conformity with information furnished to the Company in
writing by or on behalf of Parent or Purchaser. Parent and Purchaser and their
counsel shall be given an opportunity to review the Schedule 14D-9 before it is
filed with the SEC. The Company shall promptly provide to Parent and Purchaser
a copy of any written comments received by it from the SEC with respect to the
Schedule 14D-9. The Company, Parent and Purchaser shall promptly correct any
information provided by it for use in the Schedule 14D-9 that shall have become
false or misleading in any material respect, and the Company further agrees to
take all steps necessary to cause the Schedule 14D-9, as so corrected, to be
filed with the SEC and disseminated to holders of Shares, in each case as and to
the extent required by applicable federal securities laws.
(c) In connection with the Offer, the Company shall promptly furnish
Purchaser with mailing labels, security position listings, any non-objecting
beneficial owner lists and any available listings or computer files containing
the names and addresses of the record holders of Shares, each as of a recent
date, and shall promptly furnish Purchaser with such additional information
(including but not limited to updated lists of stockholders, mailing labels,
security position listings and non-objecting beneficial owner lists) and such
other customary assistance as Parent, Purchaser or their agents may reasonably
require in communicating the Offer to the record and beneficial holders of
Shares. Subject to the requirements of law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Offer and the Merger, Purchaser, Parent and each of their
affiliates, agents and associates shall hold in confidence the information
contained in any of such lists, labels or additional information subject to the
terms and conditions of the Confidentiality Agreement (as defined below).
ARTICLE II
THE MERGER
SECTION 2.1: THE MERGER. Upon the terms and subject to the conditions
------------------------
of this Agreement and in accordance with the DGCL and the VSCA, at the Effective
Time (as defined in Section 2.2), Purchaser shall be merged with and into the
Company. As a result of the Merger,
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the separate corporate existence of Purchaser shall cease and the Company shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation").
SECTION 2.2: CLOSING; EFFECTIVE TIME. Subject to the provisions of
-------------------------------------
Article VII, the closing of the Merger (the "Closing") shall take place in
Roanoke, Virginia at the offices of Woods, Rogers & Hazlegrove, P.L.C., First
Union Tower, Suite 1400, 10 South Jefferson Street, Roanoke, Virginia, as soon
as practicable but in no event later than the fifth business day after the
satisfaction or waiver of the conditions set forth in Article VII, or at such
other place or at such other date as Parent and the Company may mutually agree.
The date on which the Closing actually occurs is hereinafter referred to as the
"Closing Date". At the Closing, the parties hereto shall cause the Merger to be
consummated by the filing of (a) articles of merger and (b) a certificate of
merger or a certificate of ownership and merger (the Articles of Merger and such
appropriate certificate to be referred to herein collectively as the
"Certificate of Merger"), respectively, with the Virginia State Corporation
Commission and the Secretary of State of the State of Delaware, in such form as
required by and executed in accordance with the relevant provisions of the DGCL
and the VSCA (the later of (x) the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
(y) the date and time of the filing of the Articles of Merger with the Virginia
State Corporation Commission being the "Effective Time").
SECTION 2.3: EFFECTS OF THE MERGER. The Merger shall have the effects
-----------------------------------
set forth in the applicable provisions of the DGCL and the VSCA. Without
limiting the generality of the foregoing and subject thereto, at the Effective
Time all the property, rights, privileges, immunities, powers and franchises of
the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Purchaser shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 2.4: CERTIFICATE OF INCORPORATION; BY-LAWS.
---------------------------------------------------
(a) At the Effective Time and without any further action on the part
of the Company and Purchaser, the Certificate of Incorporation of the Company,
as in effect immediately prior to the Effective Time, shall be the certificate
of incorporation of the Surviving Corporation until thereafter amended as
provided therein and under the DGCL.
(b) At the Effective Time and without any further action on the part
of the Company and Purchaser, the By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the Certificate of Incorporation of the Company and as provided by law.
SECTION 2.5: DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
-----------------------------------------------------------------
directors of Purchaser immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation (directors and officers of the Company shall tender their
resignations effective upon the Effective Time), and the officers of the
Surviving Corporation shall be Timothy R. Duke, President, Mark Meikle, Vice
President and Treasurer, Bruce Groff,
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Vice President of Human Resources and Secretary and Donald G. Smith, Chairman of
the Board, in each case to hold office until their respective successors are
duly elected or appointed (as the case may be) and qualified.
SECTION 2.6: CONVERSION OF SECURITIES. At the Effective Time, by virtue
--------------------------------------
of the Merger and without any action on the part of Purchaser, the Company,
holders of any Shares, holders of common stock of Purchaser or the holders of
any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to Section 2.6(b),
and any Dissenting Shares (as defined in Section 2.8(a)) by virtue of the Merger
and without any action on the part of the holder thereof, shall be canceled,
extinguished and converted into the right to receive $10.75 in cash or such
greater amount that may be paid pursuant to the Offer (the "Merger
Consideration"), payable to the holder thereof, without interest, less any
required withholding taxes. Each holder of a certificate representing any such
Shares shall thereafter cease to have any rights with respect to such Shares,
except the right to receive the Merger Consideration for such Shares upon the
surrender of such certificate in accordance with Section 2.9 below.
(b) Each share of Company common stock, par value $0.01 per share (the
"Company Common Stock") held in the treasury of the Company together with the
associated Rights (all references herein to Company Common Stock in the context
of the transactions contemplated by this Agreement shall be deemed to include
such Rights), and each Share owned by the Company, Parent, Purchaser or any
other direct or indirect subsidiary of such persons, in each case immediately
prior to the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, shall be canceled and retired without any
conversion thereof and no payment or distribution shall be made with respect
thereto.
(c) Each share of common stock of Purchaser issued and outstanding
immediately prior to the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, shall be converted into and become one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
SECTION 2.7: TREATMENT OF OPTIONS. Immediately after the payment for
----------------------------------
Shares in the Offer, the Company shall cause each of the 153,500 outstanding
options, which the Company represents and warrants are the only outstanding
options to purchase Company Common Stock (including, without limitation, under
the Company's 1995 Employee Stock Option Plan and the Company's 1995 Non-
Employee Directors' Stock Option Plan), as set forth in Schedule 2.7 to the
Company Disclosure Letter (the "Options"), whether or not then exercisable or
vested, to be canceled, and the holder thereof to be entitled to receive
thereafter in consideration for such cancellation, an amount in cash equal to
the product of (a) the number of Shares subject to such Option immediately
before the cancellation of same and (b) the excess, if any, of the Merger
Consideration over the exercise price per Share of the Option immediately before
the cancellation of same (such payment to be net of applicable withholding
taxes).
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SECTION 2.8: DISSENTING SHARES AND SECTION 262 SHARES.
------------------------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, Shares
that are issued and outstanding immediately prior to the Effective Time and
which are held by stockholders who have not voted in favor of or consented to
the Merger and who shall have delivered a written demand for appraisal of such
Shares in the time and manner provided in Section 262 of the DGCL and who shall
not have failed to perfect or shall not have effectively withdrawn or lost their
rights to appraisal and payment under the DGCL (the "Dissenting Shares") shall
not be converted into the right to receive the Merger Consideration, but shall
be entitled to receive the consideration as shall be determined pursuant to
Section 262 of the DGCL; provided, however, that if such holder shall have
failed to perfect or shall have effectively withdrawn or lost his, her or its
right to appraisal and payment under the DGCL, such holder's Shares shall
thereupon be deemed to have been converted, at the Effective Time, into the
right to receive the Merger Consideration set forth in Section 2.6(a) of this
Agreement, without any interest thereon.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal pursuant to Section 262 received by the Company, withdrawals of such
demands, and any other instruments served pursuant to the DGCL and received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Parent or as otherwise required by
applicable law, make any payment with respect to any such demands for appraisal
or offer to settle or settle any such demands.
SECTION 2.9: SURRENDER OF SHARES; STOCK TRANSFER BOOKS.
-------------------------------------------------------
(a) Prior to the Effective Time, Purchaser shall designate First Union
National Bank, NationsBank, N.A., or such other bank or trust company reasonably
acceptable to the Company, to act as agent for the holders of Shares in
connection with the Merger (the "Paying Agent") to receive and disburse the cash
to which holders of Shares shall become entitled pursuant to Section 2.6(a). At
the Effective Time, Parent or Purchaser will make available to the Paying Agent
sufficient funds to make all payments pursuant to Section 2.6(a). Such funds
shall be invested by the Paying Agent as directed by Purchaser or, after the
Effective Time, the Surviving Corporation, provided that such investments shall
be in obligations of or guaranteed by the United States of America, in
commercial paper obligations rated A-1 or P-1 or better by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, respectively, or in certificates
of deposit, bank repurchase agreements or banker's acceptances of commercial
banks with capital exceeding $500 million. Any net profit resulting from, or
interest or income produced by, such investments will be payable to the
Surviving Corporation or Parent, as Parent directs.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate, certificates or lost certificate affidavits which
immediately prior to the Effective Time represented Shares (the "Certificates"),
a form of letter of transmittal mutually agreeable to the Company and Parent
(which shall specify that delivery shall be effected, and risk of loss and title
7
<PAGE>
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and such Certificate shall then be canceled. Upon surrender to the Paying Agent
of such certificates, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, the Surviving
Corporation promptly, but in no event later than three business days after
receipt of such documents by the Paying Agent, shall cause to be paid to the
persons entitled thereto, a check in the amount to which such persons are
entitled. No interest shall be paid or accrued for the benefit of holders of the
Certificates on the Merger Consideration payable upon the surrender of the
Certificates. If payment of the Merger Consideration is to be made to a person
other than the person in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or shall be otherwise in proper form for transfer and that the
person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such tax
either has been paid or is not applicable. The Surviving Corporation shall pay
all charges and expenses, including those of the Paying Agent, in connection
with the exchange of Merger Consideration for Shares. In the event any
certificate representing Shares shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such certificate
to be lost, stolen or destroyed, the Paying Agent will issue in exchange for
such affidavit, as well as an unsecured indemnity in favor of the Surviving
Corporation for any claim that may be made against the Surviving Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed,
the Merger Consideration deliverable in respect thereof.
(c) At any time following the first anniversary of the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest received with respect thereto)
which had been made available to the Paying Agent and which have not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Merger Consideration payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of Shares on the records of the Company. From and after the Effective
Time, the holders of Certificates evidencing ownership of Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares except as otherwise provided for herein or by applicable
law.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that,
except as set forth in the letter (the "Company Disclosure Letter") delivered by
the Company to Purchaser prior to the date of execution of this Agreement:
SECTION 3.1: ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Except as
----------------------------------------------------------
set forth on Schedule 3.1 to the Company Disclosure Letter, the Company and each
of its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority and has all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and governmental
approvals will not, individually or in the aggregate, have a Material Adverse
Effect (as defined below) or prevent or materially delay the consummation of the
Offer or the Merger. Each of the Company and each of its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing as are not likely, to have a Material
Adverse Effect. When used in connection with the Company or any of its
subsidiaries, the term "Material Adverse Effect" means any change or effect that
would be materially adverse to the results of operations, financial condition or
business of the Company and its subsidiaries taken as a whole.
SECTION 3.2: CERTIFICATE OF INCORPORATION AND BY-LAWS. Except as set
------------------------------------------------------
forth on Schedule 3.2 to the Company Disclosure Letter, the Company has
heretofore furnished to Parent a complete and correct copy of the Certificate of
Incorporation and the By-Laws of the Company as currently in effect. Such
Certificate of Incorporation and By-Laws are in full force and effect and no
other organizational documents are applicable to or binding upon the Company.
The Company is not in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
SECTION 3.3: CAPITALIZATION. The authorized capital stock of the
----------------------------
Company consists of 17,000,000 shares of Company Common Stock. As of November
10, 1998, (a) 6,010,795 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
were issued free of preemptive (or similar) rights and (b) 1,105,300 shares of
Company Common Stock were held in the treasury of the Company. Except for
options issued pursuant to the Stock Option Agreement, no Options have been
granted and no Shares have been issued and the total number of Options
outstanding as of the date of this Agreement is 153,500. Except (i) as set
forth above and (ii) as a result of the exercise of Options, there are
outstanding (A) no shares of capital stock or other voting or non-voting
securities of the Company, (B) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting or non-voting securities of
the Company, (C) no options, warrants or other rights to acquire from the
Company, and no obligation of the Company to issue, any capital
9
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stock, non-voting securities, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of the Company and (D) no
equity equivalents, interests in the ownership or earnings of the Company or
other similar rights (collectively, "Company Securities"). Except as set forth
above, there are no outstanding obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
There are no other options, calls, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any of its subsidiaries to which the Company or
any of its subsidiaries is a party. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive (or similar)
rights. Except as disclosed in Schedule 3.3 to the Company Disclosure Letter,
there are no outstanding contractual obligations of the Company or any of its
subsidiaries to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any such subsidiary or any other entity.
Each of the outstanding shares of capital stock of each of the Company's
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and all such shares are owned by the Company or another wholly owned subsidiary
of the Company as set forth in Schedule 3.3 to the Company Disclosure Letter and
are owned free and clear of all security interests, liens, claims, pledges,
agreements, limitations in voting rights, charges or other encumbrances of any
nature whatsoever, except where the failure to own such shares free and clear is
not, individually or in the aggregate, likely to have a Material Adverse Effect.
Disclosed in Schedule 3.3 to the Company Disclosure Letter is a list of the
subsidiaries and affiliates of the Company which evidences, among other things,
the percentage of capital stock or other equity interests owned by the Company,
directly or indirectly, in such subsidiaries or associated entities.
SECTION 3.4: AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
--------------------------------------------------
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby (other than, with respect to the Merger, the adoption of
this Agreement by the holders of a majority of the Shares if and to the extent
required by applicable law, and the filing of appropriate merger documents as
required by the DGCL and the VSCA). The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than, with respect to the Merger, the
adoption of this Agreement by the holders of a majority of the Shares if and to
the extent required by applicable law, and the filing of appropriate merger
documents as required by the DGCL and the VSCA). This Agreement has been duly
and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The Board of Directors of the
Company has approved this Agreement and the transactions contemplated hereby
(including but not limited to the Offer and the Merger and the Stock Option
Agreement, and the transactions contemplated by each such agreement) so as to
render inapplicable hereto and thereto the limitation on business combinations
contained in Section 203 of the DGCL (or any similar provision). As a result of
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the foregoing actions subject to the applicability of Section 253 of the DGCL,
the only vote required to authorize the Merger is the affirmative vote of a
majority of the outstanding Shares.
SECTION 3.5: NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
--------------------------------------------------------
(a) Except as disclosed in Schedule 3.5 to the Company Disclosure
Letter, the execution and delivery of this Agreement by the Company do not and
the performance of this Agreement by the Company will not: (i) conflict with or
violate the Certificate of Incorporation or By-Laws of the Company or the
equivalent organizational documents of any of its subsidiaries; (ii) assuming
that all consents, approvals and authorizations contemplated by clauses (i),
(ii) and (iii) of subsection (b) below have been obtained and all filings
described in such clauses have been made, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties are bound
or affected; or (iii) result in any breach or violation of or constitute a
default (or an event which with notice or lapse of time or both could become a
default) or result in the loss of a material benefit under, or give rise to any
right of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties are bound or affected, except, in the case of clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which are not, individually or in the aggregate, likely to have a
Material Adverse Effect.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the Merger by the Company do not and will not
require any consent, approval, authorization or permit of, action by, filing
with or notification to, any governmental or regulatory authority, except for
(i) applicable requirements, if any, of the Exchange Act and the rules and
regulations promulgated thereunder, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), state securities, takeover and "blue
sky" laws, (ii) the filing and recordation of appropriate merger or other
documents as required by the DGCL and the VSCA and (iii) such consents,
approvals, authorizations, permits, actions, filings or notifications the
failure of which to make or obtain are not, individually or in the aggregate,
likely to (x) prevent or materially delay the Company from performing its
obligations under this Agreement or (y) have a Material Adverse Effect.
(c) Concurrently with the execution of this Agreement, the Company
has, by all proper and required actions, consents and approvals of the Board of
Directors of the Company, amended the Rights Agreement (the "Rights Amendment")
to provide that (i) Parent and Purchaser each will be deemed to be an Exempt
Person (as defined in the Rights Agreement) so long as Parent or Purchaser only
acquires beneficial ownership of Shares pursuant to the transactions
contemplated by this Agreement (including, without limitation, the Offer and the
Merger) or acquires shares of Company Common Stock pursuant to the Stock Option
Agreement and (ii) the Rights shall expire upon the consummation of the Offer.
So long as Parent and Purchaser are each an Exempt Person, (1) neither shall
become an Acquiring Person (as defined
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in the Rights Agreement) and (2) no Distribution Date, Triggering Event or
Exchange (as such terms are defined in the Rights Agreement) or any adjustment
to the Purchase Price (as defined in the Rights Agreement) shall occur solely by
reason of the execution of this Agreement, the execution of the Stock Option
Agreement, the Offer, the Merger or any of the transactions contemplated by this
Agreement or the Stock Option Agreement.
SECTION 3.6: COMPLIANCE. Except as disclosed in Schedule 3.6 to the
------------------------
Company Disclosure Letter, neither the Company nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its subsidiaries
or by which its or any of their respective properties are bound or affected, or
(ii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or affected,
except for any such conflicts, defaults or violations which are not,
individually or in the aggregate, likely to have a Material Adverse Effect. All
licenses, permits and approvals required under such laws, rules and regulations
are in full force and effect, except where the failure to have such licenses,
permits and approvals would not have a Material Adverse Effect on the Company or
its subsidiaries.
SECTION 3.7: SEC FILINGS; FINANCIAL STATEMENTS.
-----------------------------------------------
(a) The Company and, to the extent applicable, each of its then or
current subsidiaries, has filed all forms, reports, statements and documents
required to be filed with the SEC for periods beginning January 1, 1995
(collectively, the "SEC Reports"). Each of the SEC Reports (exclusive of
financial statements and any selected or other financial data for periods prior
to January 1, 1995, and any Management's Discussion and Analysis of Financial
Conditions and Results of Operations applicable to such financial information),
at the time of its filing, complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations promulgated thereunder, or the Exchange Act, and
the rules and regulations promulgated thereunder, each as in effect on the date
so filed. Except as disclosed in Schedule 3.7(a) to the Company Disclosure
Letter, none of the SEC Reports (including, but not limited to, any financial
statements or schedules included or incorporated by reference therein but
excluding any financial statements and any selected or other financial data for
periods prior to January 1, 1995, and any Management's Discussion and Analysis
of Financial Conditions and Results of Operations applicable to such financial
information) contained when filed, or (except to the extent revised or
superseded by a subsequent filing with the SEC) contains, any untrue statement
of a material fact or omitted or omits to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Company's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the audited consolidated balance sheets of the Company for
periods beginning January 1, 1995, and the related statements of consolidated
income and retained earnings, and statements of consolidated cash flows for each
of the financial statements of the Company included in the SEC Reports for
fiscal years beginning January 1, 1995, in each
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case, including any related notes thereto, as filed with the SEC (collectively,
the "Company Financial Statements"), and each of the unaudited interim financial
statements for the three- and six-month periods ending March 31, 1998, June 30,
1998, and September 30, 1998, respectively, has been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly presents in all material respects the consolidated financial
position of the Company and its subsidiaries at the respective date thereof and
the consolidated results of its operations and changes in cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which will not
materially alter the financial position of the Company and its subsidiaries, as
reflected on such interim financial statements.
(c) Except as disclosed in Schedule 3.7(c) to the Company Disclosure
Letter, there are no liabilities of the Company or any of its subsidiaries of
any kind whatsoever, whether or not accrued and whether or not contingent or
absolute, which individually or in the aggregate is likely to have a Materially
Adverse Effect, other than (i) liabilities disclosed or provided for in the
consolidated balance sheet of the Company and its subsidiaries at December 31,
1997, including the notes thereto, (ii) the SEC Reports, (iii) liabilities
incurred on behalf of the Company in connection with this Agreement and the
contemplated Merger, and (iv) liabilities incurred in the ordinary course of
business consistent with past practice since December 31, 1997, none of which
are, individually or in the aggregate, likely to have a Material Adverse Effect.
(d) The Company has heretofore furnished or made available to Parent a
complete and correct copy of any amendments or modifications which have not yet
been filed with the SEC to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Securities
Act and the rules and regulations promulgated thereunder or the Exchange Act and
the rules and regulations promulgated thereunder.
SECTION 3.8: ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
--------------------------------------------------
1997, except as contemplated by this Agreement or as disclosed in Schedule 3.8
to the Company Disclosure Letter, the Company and its subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been: (i) any
changes in the assets, liabilities, results of operation, financial condition or
business of the Company or any of its subsidiaries having or likely to have a
Material Adverse Effect; (ii) any condition, event or occurrence which,
individually or in the aggregate, is likely to have a Material Adverse Effect;
(iii) any damage, destruction or loss (whether or not covered by insurance) with
respect to any assets of the Company or any of its subsidiaries which is likely,
individually or in the aggregate, to have a Material Adverse Effect; (iv) any
change by the Company in its accounting methods, principles or practices; (v)
any revaluation by the Company of any of its material assets, including but not
limited to writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (vi) any entry by the
Company or any of its subsidiaries into any commitment or transactions material
to the Company and its subsidiaries taken as a whole (other than commitments or
transactions entered into in the ordinary course of business); (vii) any
declaration, setting aside or payment of
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any dividends or distributions in respect of the Shares; (viii) any increase in
or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including without limitation
the granting of stock options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase or other employee benefit plan or
agreement or arrangement, or any other increase in the compensation payable or
to become payable to any present or former directors, officers or key employees
of the Company or any of its subsidiaries, except for increases in base
compensation in the ordinary course of business consistent with past practice,
or any employment, consulting or severance agreement or arrangement entered into
with any such present or former directors, officers or key employees; or (ix)
any other action which, if it had been taken after the date hereof, would have
required the consent of Parent under Section 5.1.
SECTION 3.9: ABSENCE OF LITIGATION. Except as disclosed in Schedule
-----------------------------------
3.9 of the Company Disclosure Letter, there are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any court, arbitrator
or administrative, governmental or regulatory authority or body, that,
individually or in the aggregate, is likely to have a Material Adverse Effect.
As of the date hereof, neither the Company nor any of its subsidiaries nor any
of their respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which, insofar as can be
reasonably foreseen, is likely to have a Material Adverse Effect or prevent or
materially delay consummation of the transactions contemplated hereby.
SECTION 3.1: EMPLOYEE BENEFIT PLANS.
------------------------------------
(a) Schedule 3.10(a) to the Company Disclosure Letter contains a true
and complete list of each "employee benefit plan" (within the meaning of section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, without limitation, multiemployer plans within the meaning
of ERISA section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA,
whether formal or informal, oral or written, legally binding or not, under which
any employee or former employee of the Company or any of its subsidiaries, has
any present or future right to benefits or under which the Company or any of its
subsidiaries has any present or future liability. All such plans, agreements,
programs, policies and arrangements shall be collectively referred to as
"Company Plans."
(b) With respect to each Company Plan, the Company has delivered or
made available to Parent a current, accurate and complete copy (or, to the
extent no such copy exists, an accurate description) thereof and, to the extent
applicable: (i) any related trust agreement or other funding instrument; (ii)
the most recent determination letter, if applicable; (iii) any summary plan
description and other written communications by the Company or any of its
subsidiaries to their employees concerning the extent of the benefits provided
under a Company Plan; and (iv) for the three most recent years (A) the Form 5500
and attached schedules, (B) audited financial statements and (C) actuarial
valuation reports.
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(c) Except as disclosed in Schedule 3.10(c) to the Company Disclosure
Letter, (i) Each Company Plan has been established and administered in material
compliance with its terms, and in material compliance with the applicable
provisions of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"),
and other applicable laws, rules and regulations; (ii) each Company Plan which
is intended to be qualified within the meaning of Code section 401(a) is so
qualified and has received a favorable determination letter as to its
qualification, and nothing has occurred, whether by action or failure to act,
that would cause the loss of such qualification; (iii) no event has occurred and
no condition exists that would subject the Company or any of its subsidiaries,
either directly or by reason of their affiliation with any member of their
"Controlled Group" (defined as any organization which is a member of a
controlled group of organizations within the meaning of Code sections 414(b),
(c), (m) or (o)), to any tax, fine, lien or penalty imposed by ERISA, the Code
or other applicable laws, rules and regulations; (iv) for each Company Plan with
respect to which a Form 5500 has been filed, no material change has occurred
with respect to the matters covered by the most recent Form since the date
thereof; and (v) no "reportable event" (as such term is defined in ERISA section
4043), "prohibited transaction" (as such term is defined in ERISA section 406
and Code section 4975) or "accumulated funding deficiency" (as such term is
defined in ERISA section 302 and Code section 412 (whether or not waived)) has
occurred with respect to any Company Plan.
(d) With respect to each of the Company Plans that is subject to Title
IV of ERISA, as of the Effective Time, the assets of each such Company Plan are
at least equal in value to the present value of the accrued benefits (vested and
unvested) of the participants in such Company Plan on a termination basis, based
on the actuarial methods and assumptions indicated in the most recent actuarial
valuation reports.
(e) With respect to any Company Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or,
to the knowledge of the Company, threatened, and (ii) no facts or circumstances
exist, to the knowledge of the Company, that could give rise to any such
actions, suits or claims.
(f) Except as disclosed in Schedule 3.10(f) to the Company Disclosure
Letter, no Company Plan exists that could result in the payment to any present
or former employee of the Company or any of its subsidiaries of any money or
other property or accelerate or provide any other rights or benefits to any
present or former employee of the Company or any of its subsidiaries as a result
of the transaction contemplated by this Agreement, whether or not such payment
would constitute a parachute payment within the meaning of Code section 280G.
SECTION 3.11: TAX MATTERS.
--------------------------
(a) The Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for tax purposes of which the Company or
any of its subsidiaries is or has been a member has timely filed all Tax Returns
(as defined below) required to be filed by it in the manner provided by law, has
paid all Taxes (as defined below) (including interest and penalties) shown
thereon to be due and has provided adequate reserves in its financial statements
according to generally accepted accounting principles for any Taxes that
15
<PAGE>
have not been paid, whether or not shown as being due on any Tax Returns. All
such Tax Returns were true, correct and complete in all material respects.
(b) Except as has been disclosed in Schedule 3.11(b) to the Company
Disclosure Letter: (i) no material claim for unpaid Taxes has become a lien or
encumbrance of any kind against the property of the Company or any of its
subsidiaries or is being asserted against the Company or any of its
subsidiaries; (ii) as of the date hereof no audit of any Tax Return of the
Company or any of its subsidiaries is being conducted by a Tax authority; and
(iii) no extension of the statute of limitations on the assessment of any Taxes
has been granted by the Company or any of its subsidiaries and is currently in
effect.
(c) Except as disclosed in Schedule 3.11(c) of the Company Disclosure
Letter, during their most recent five taxable years respectively, neither the
Company nor any of its subsidiaries has made a change in accounting methods (nor
has any taxing authority proposed in writing any such adjustment or change of
accounting method), received a ruling from any taxing authority or signed an
agreement with any taxing authority which could have a Material Adverse Effect
on the Company or any of its subsidiaries, or has entered into any closing or
similar agreement with any taxing authority.
(d) Except as disclosed in Schedule 3.11(d) of the Company Disclosure
Letter, neither the Company nor any of its subsidiaries is a party to, is bound
by or has any obligation under any Tax sharing agreement, Tax indemnification
agreement or similar contract or arrangement.
(e) Except as disclosed in Schedule 3.11(e) of the Company Disclosure
Letter, no power of attorney with respect to any matter relating to Taxes or Tax
Returns has been granted by or with respect to the Company or any of its
subsidiaries.
(f) Neither the Company nor any of its subsidiaries has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor provision)
concerning collapsible corporations, or agreed to have Section 341(f)(2) of the
code apply to any disposition of a "subsection (f) asset" (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or any of its
subsidiaries.
(g) None of the subsidiaries of the Company is a controlled foreign
corporation within the meaning of Section 957 of the Code or a passive foreign
investment company within the meaning of Section 1296 of the Code.
(h) Except as disclosed in Schedule 3.11(h) of the Company Disclosure
Letter, the Company has delivered to Parent complete and accurate copies of each
of: (A) all audit, examination and similar reports and all letter rulings and
technical advice memoranda relating to United States federal, state, local and
foreign Taxes due from or with respect to the Company and its subsidiaries; (B)
all United States federal, state and local, and foreign Tax Returns, Tax
examination reports and similar documents filed by the Company and its
subsidiaries; and (C) all closing agreements entered into by the Company and its
subsidiaries with any taxing authority and all statements of Tax deficiencies
assessed against or agreed to by the Company and its
16
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subsidiaries. The Company will deliver to Purchaser all materials with respect
to the foregoing for all matters arising after the date hereof.
(i) As used in this Agreement, the following terms shall have
the following meanings: "Taxes" shall mean any taxes of any kind, including but
not limited to those on or measured by or referred to as income, gross receipts,
capital, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority;
"Tax Return" shall mean any return, report or statement required to be filed
with any governmental authority with respect to Taxes.
SECTION 3.12: OFFER DOCUMENTS; PROXY STATEMENT. Neither the Schedule 14D-
-----------------------------------------------
9, nor any of the information supplied by the Company for inclusion in the Offer
Documents, shall, at the respective times such Schedule 14D-9, the Offer
Documents or any amendments or supplements thereto are filed with the SEC or are
first published, sent or given to stockholders, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Neither the proxy statement to be sent to the stockholders of the Company in
connection with the Stockholders Meeting (as defined in Section 6.1) or the
information statement to be sent to such stockholders, as appropriate (such
proxy statement or information statement, as amended or supplemented, is herein
referred to as the "Proxy Statement"), shall, at the date the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to stockholders
and at the time of the Stockholders Meeting, if any, and at the Effective Time,
contain any untrue or misleading statement of a material fact, or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which they
are made, not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meeting which has become false or misleading. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any information
supplied by Parent or Purchaser or any of their respective representatives which
is contained in the Schedule 14D-9 or the Proxy Statement. The Schedule 14D-9
and the Proxy Statement will comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
SECTION 3.13: ENVIRONMENTAL MATTERS.
-----------------------------------
(a) Except as disclosed in Schedule 3.13(a) of the Company Disclosure
Letter and to the extent that the inaccuracy of any of the following (or the
circumstances giving rise to such inaccuracy), individually or in the aggregate,
is not likely to have a Material Adverse Effect:
(i) the Company and its subsidiaries are, and within the
period of all applicable statutes of limitation have been,
in compliance with all applicable Environmental Laws;
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(ii) the Company and its subsidiaries hold all Environmental
Permits (each of which is in full force and effect)
required for any of their current operations and for any
property owned, leased, or otherwise operated by any of
them, and are, and within the period of all applicable
statutes of limitation have been, in compliance with all
such Environmental Permits;
(iii) no review by, or approval of, any Governmental Authority
or other person is required under any Environmental Law in
connection with the execution or delivery of this
Agreement or the consummation of the transactions
contemplated hereby;
(iv) neither the Company nor any of its subsidiaries has
received any Environmental Claim (as hereinafter defined)
against any of them, and the Company has no knowledge of
any such Environmental Claim being threatened;
(v) to the knowledge of the Company, Hazardous Materials are
not present on any property owned, leased, or operated by
the Company or any of its subsidiaries, that is likely to
form the basis of any Environmental Claim against any of
them; and the Company has no reason to believe that
Hazardous Materials are present on any other property that
is likely to form the basis of any Environmental Claim
against any of them;
(vi) the Company has no knowledge of any material Environment
Claim pending or threatened, or of the presence or
suspected presence of any Hazardous Materials that is
likely to form the basis of any Environmental Claim, in
any case against any person or entity whose liability the
Company or any of its subsidiaries has or may have
retained or assumed either contractually or by operation
of law. or against any real property which the Company or
any of its subsidiaries formerly owned, leased, or
operated, in whole or in part; and
(vii) to the knowledge of the Company, the Company has informed
Parent and Purchaser of: all material facts which the
Company reasonably believes could form the basis of a
material Environmental Claim against the Company or any of
its subsidiaries arising out of the non-compliance or
alleged non-compliance with any Environmental Law, or the
presence or suspected presence of Hazardous Materials at
any location.
(b) For purposes of this Agreement, the terms below shall have the
following meanings:
18
<PAGE>
"Environmental Claim" means any claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter,
or notice (written or oral) of noncompliance, violation, or liability,
by any person or entity asserting liability or potential liability
(including without limitation liability or potential liability for
enforcement, investigatory costs, cleanup costs, governmental response
costs, natural resource damages, property damage, personal injury,
fines or penalties) arising out of, based on or resulting from (i) the
presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, (ii) circumstances forming the
basis of any violation or alleged violation of any Environmental Laws
or Environmental Permits, or (iii) otherwise relating to obligations
or liabilities under any Environmental Law.
"Environmental Laws" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or
other legally enforceable requirement (including, without limitation,
common law) of any foreign government, the United States, or any
state, local, municipal or other governmental authority, regulating,
relating to or imposing liability or standards of conduct concerning
protection of human health as affected by the environment or Hazardous
Materials (including without limitation employee health and safety) or
the environment (including without limitation indoor air, ambient air,
surface water, groundwater, land surface, subsurface strata, or plant
or animal species).
"Environmental Permits" means all permits, licenses, registrations,
approvals, exemptions and other filings with or authorizations by any
Governmental Authority under any Environmental Law.
"Governmental Authority" means any government, any state or other
political subdivision thereof and any entity (including, without
limitation, a court) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof), petroleum products, asbestos, asbestos-containing materials,
pollutants, contaminants, radioactivity, electromagnetic fields and
all other materials, whether or not defined as such, that are
regulated pursuant to any Environmental Laws or that could result in
liability under any applicable Environmental Laws.
SECTION 3.14: TITLE AND CONDITION OF PROPERTIES.
------------------------------------------------
(a) Except as disclosed in Schedule 3.14(a) of the Company Disclosure
Letter, neither the Company nor any of its subsidiaries own any real property.
(b) Except as disclosed in Schedule 3.14(b) of the Company Disclosure
Letter, the Company or its subsidiaries, as the case may be, has good, valid,
and, in the case of Owned Properties (as defined below), marketable fee simple
title to: (i) all of the material real property
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and interests in real property owned by the Company or its subsidiaries, except
for properties sold or otherwise disposed of in the ordinary course of business
(the "Owned Properties"), and (ii) all of the material leasehold estates in all
real properties leased by the Company or its subsidiaries, except leasehold
interests terminated in the ordinary course of business (the "Leased
Properties"; the Owned Properties and Leased Properties being sometimes referred
to herein as the "Real Properties"), in each case except as disclosed in
Schedule 3.14 of the Company Disclosure Letter, free and clear of all mortgages,
liens, security interests, easements, covenants, rights-of-way, subleases and
other similar restrictions and encumbrances ("Encumbrances"), except for
Encumbrances for current Taxes not yet due and payable.
(c) Except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy), individually or in the
aggregate, are not likely to have a Material Adverse Effect or as disclosed in
Schedule 3.14(c) of the Company Disclosure Letter: (i) each of the agreements
by which the Company has obtained a leasehold interest in each Leased Property
(individually, a "Lease" and collectively, the "Leases") is in full force and
effect in accordance with its respective terms and the Company or its subsidiary
is the holder of the lessee's or tenant's interest thereunder; to the knowledge
of the Company, there exists no default under any Lease and no circumstance
exists which, with the giving of notice, the passage of time or both, is likely
to result in such a default; the Company and its subsidiaries have complied with
and timely performed all conditions, covenants, undertakings and obligations on
their parts to be complied with or performed under each of the Leases; the
Company and its subsidiaries have paid all rents and other charges to the extent
due and payable under the Leases; (ii) there are no leases, subleases, licenses,
concessions or any other contracts or agreements granting to any person or
entity other than the Company or any of its subsidiaries any right to the
possession, use, occupancy or enjoyment of any Real Property or any portion
thereof; (iii) the current operation and use of the Real Properties does not
violate any statute, law, regulation, rule, ordinance, permit, requirement,
order or decree now in effect; the use being made of each Real Property at
present materially conforms with the certificate of occupancy issued for such
Real Property; (iv) there are no existing, or to the knowledge of the Company,
threatened, condemnation or eminent domain proceedings (or proceedings in lieu
thereof) affecting the Real Properties or any portion thereof; (v) no default or
breach exists under any of the covenants, conditions, restrictions, rights-of-
way, or easements, if any, affecting all or any portion of a Real Property,
which are to be performed or complied with by the Company or any of its
subsidiaries; and (vi) all the buildings, structures, equipment and other
tangible assets of the Company (whether owned or leased) are in normal operating
condition (normal wear and tear excepted).
(d) Neither the Company nor any of its subsidiaries is obligated under
or bound by any option, right of first refusal, purchase contract, or other
contractual right to sell or dispose of any Owned Property or any portions
thereof or interests therein which property, portions and interests,
individually or in the aggregate, are material to the Company and its
subsidiaries.
(e) Except as disclosed in Schedule 3.14(e) of the Company Disclosure
Letter, the Company and its subsidiaries own good and marketable title, free and
clear of all Encumbrances, to all of the personal property and assets shown on
the Company Financial Statements or acquired after December 31, 1997, except for
(A) assets which have been disposed
20
<PAGE>
of to nonaffiliated third parties since December 31, 1997, in the ordinary
course of business, (B) Encumbrances reflected in the Company Financial
Statements, (C) liens for fees, taxes, levies, imposts, duties or governmental
charges of any kind which are not yet delinquent, (D) liens for mechanics or
materialmen arising by operation of law for sums which are not yet delinquent,
(E) easements and similar encumbrances ordinarily created for fuller utilization
and enjoyment of property, (F) a security interest in favor of C.I.T., (G)
Encumbrances or imperfections of title which will not, individually or in the
aggregate, have a Material Adverse Effect.
(f) All of the material equipment (including computer hardware) and
other tangible personal property and assets owned or used by the Company and its
subsidiaries are in operating condition and repair, except for ordinary wear and
tear not caused by neglect, and are useable in the ordinary course of business.
The personal property and assets reflected on the Financial Statements or
acquired after December 31, 1997, the rights under Company agreements and the
Intellectual Property (as defined in Section 3.16) owned or used by the Company
under valid license, collectively include all assets necessary to provide,
produce, franchise, sell and license the services and products currently
provided, produced, franchised, sold and licensed by the Company and its
subsidiaries and to conduct the business of the Company and its subsidiaries as
presently conducted or as currently contemplated to be conducted.
SECTION 3.15: BROKERS. No broker, finder or investment banker (other
----------------------
than the Financial Adviser) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company. The Company has
heretofore furnished to Parent information concerning the fee which will be
payable to the Financial Advisor in connection with the transactions
contemplated hereby.
SECTION 3.16: INTELLECTUAL PROPERTY.
-------------------------------------
(a) As used in this Agreement, "Intellectual Property" means all of
the following, in which the Company holds or owns any rights which are necessary
to conduct the business of the Company and its subsidiaries as presently
conducted or as currently proposed to be conducted: (i) trademarks, trade
dress, service marks, logos, trade names, corporate names and all registrations
and applications to register the same; (ii) patents and pending patent
applications, and any and all divisions, continuations, continuations-in-part,
reissues, reexaminations, and extensions thereof; (iii) copyrights, rights of
publicity, rights in any semi-conductor chip product works or "mask works" and
all registrations and applications to register the same; (iv) all computer
software programs, including without limitation, all source code and object
code; databases and compilations, including all data and compilations of data;
all descriptions, flow-charts and other work product used to design, plan,
organize and develop any of the foregoing; and all documentation, including user
manuals and training materials relating to the foregoing (collectively,
"Computer Software"); (v) all technology, know-how, trade secrets and
proprietary processes and formulae; and (vi) all licenses and agreements to
which the Company or any of the subsidiaries is a party which relate to any of
the foregoing, including but not limited to Computer Software licenses other
than shrink-wrap licenses for off-the-shelf applications ("Licenses").
21
<PAGE>
(b) Except as disclosed in Schedule 3.16(b) of the Company Disclosure
Letter, the Company or its subsidiaries owns or has the right to use, sell or
license all Intellectual Property, free and clear of all Encumbrances. Section
3.16(b) of the Company Disclosure Letter contains a true and complete list of
all the following Intellectual Property: (i) copyright registrations and
applications and material unregistered copyrights; (ii) trademarks and service
mark registrations and applications and material applications; (iii) Computer
Software; and (iv) material Licenses.
(c) Except as disclosed in Section 3.16(c) of the Company Disclosure
Letter, all Computer Software (i) was developed (x) by employees of the Company
or its subsidiaries within the scope of their employment or (y) as "works-made-
for-hire" as that term is defined under Section 101 of the United States
copyright laws, pursuant to a written agreement; (ii) was assigned to the
Company or its subsidiaries pursuant to a written agreement; (iii) is used in
written License; or (iv) is in the public domain. Except as set forth in
Section 3.16(c) of the Company Disclosure Letter, no former or present
employees, officers or directors of the Company hold any right, title or
interest directly or indirectly, in whole or in part, in or to any Computer
Software or any other Intellectual Property.
(d) No breach or default (or event which with notice or lapse of time
or both would result in an event of default) by the Company or any of its
subsidiaries exists under any of the Licenses, and the consummation of the
transactions contemplated by this Agreement will not violate or conflict with or
constitute such a default, result in a forfeiture under, or constitute a basis
for termination of any such License.
(e) Except as disclosed in Schedule 3.16(e) of the Company Disclosure
Letter, to the Company's knowledge the conduct of the Company's and its
subsidiaries' business and the use of the Intellectual Property do not infringe,
violate or misuse any intellectual property rights or any other proprietary
right of any person or give rise to any obligations to any person as a result of
co-authorship, or co-inventorship. Neither the Company nor any of the
subsidiaries have received any notice of any claims or threats that the
Company's and its subsidiaries' use of any of the Intellectual Property
infringes, violates or misuses, or is otherwise in conflict with any
Intellectual Property or proprietary rights of any third party or that any of
the Intellectual Property is invalid or unenforceable, nor to the Company's
knowledge, is there a basis for such a claim. Except as disclosed in Schedule
3.16(e) of the Company Disclosure Letter, neither the Company nor any of its
subsidiaries has sent to any other person any notice or claim of any present or
threatened infringement, violation or misuse by any other person of any of the
Intellectual Property and, to the Company's knowledge, there are no such
infringements, violations or misuses.
(f) The Company and its subsidiaries have used reasonable efforts to
maintain the confidentiality of its trade secrets and other confidential
Intellectual Property.
SECTION 3.17: CONTRACTS.
------------------------
(a) Each material Company agreement is disclosed in Schedule 3.17(a)
of the Company Disclosure Schedule and is legally valid and binding and in full
force and effect. The
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Company has previously made available for inspection by Parent or Purchaser or
their representatives all such material Company agreements.
(b) Each contract, agreement or arrangement between the Company and
any bank or financial institution with respect to borrowing funds or financing
arrangements (the "Bank Product Agreements") is disclosed in Schedule 3.17(b) of
the Company Disclosure Letter and is legally valid and binding and in full force
and effect. The Company is not in default, nor to the Company's knowledge is
any third party in default, under any Bank Product Agreement. The Company has
previously made available for inspection by Parent or Purchaser or their
representatives complete and accurate copies of all Bank Product Agreements.
SECTION 3.18: POTENTIAL CONFLICTS OF INTEREST. Except as disclosed in
----------------------------------------------
Schedule 3.18 of the Company Disclosure Letter, no officer or director of the
Company or any of its subsidiaries owns, directly or indirectly, any interest in
(excepting not more than 1% stock holdings for investment purposes in securities
of publicly held and traded companies) or is an officer, director, employee or
consultant of any person which is a competitor, lessor, lessee, franchisee,
customer or supplier of the Company or any of its subsidiaries; and no officer
or director of the Company or any of its subsidiaries (i) owns, directly or
indirectly, in whole or in part, any Intellectual Property which the Company or
any of its subsidiaries is using or the use of which is necessary for the
business of the Company or any of its subsidiaries; (ii) has any claim, charge,
action or cause of action against the Company or any of its subsidiaries, except
for claims for accrued vacation pay, accrued benefits under the Benefits Plans
and similar matters and agreements existing on the date hereof which have been
disclosed in Schedule 3.18 of the Company Disclosure Letter; (iii) has made, on
behalf of the Company or any of its subsidiaries, any payment or commitment to
pay any commission, fee or other amount to, or to purchase or obtain or
otherwise contract to purchase or obtain any goods or services from, any other
person of which any officer or director of the Company, or, to the Company's
knowledge, a relative of any of the foregoing, is a partner or stockholder
(except stock holdings solely for investment purposes in securities of publicly
held and traded companies); (iv) owes any money to the Company or any of its
subsidiaries; (v) is owed any money by the Company or any of its subsidiaries;
except for claims for accrued vacation pay, accrued benefits under the Benefits
Plans and similar matters and agreements existing on the date hereof which have
been disclosed in Schedule 3.18 of the Company Disclosure Letter; or (vi) is a
party to any transaction, agreement, arrangement or understanding with the
Company or any of its subsidiaries other than items arising out of the ordinary
course of employment with the Company.
SECTION 3.19: YEAR 2000 COMPLIANCE. The reports set forth on Schedule
----------------------------------
3.19 of the Company Disclosure Letter regarding Year 2000 compliance are, to the
Company's knowledge, true and correct in all material respects.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and warrant
to the Company that:
SECTION 4.1: CORPORATE ORGANIZATION. Each of Parent and Purchaser is a
------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of incorporation and has the requisite corporate
power and authority and any necessary governmental authority to own, operate or
lease its properties and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority and governmental approvals is not, individually or in
the aggregate, likely to prevent the consummation of the Offer or the Merger.
Each of Parent and Purchaser is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such licensing necessary, except for such failures to be so
qualified or licensed and in good standing as are not likely to have a Material
Adverse Effect.
SECTION 4.2: AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
--------------------------------------------------
Purchaser has all necessary corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Purchaser and the consummation by each of
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
other than filing and recordation of appropriate merger documents as required by
the DGCL and the VSCA. This Agreement has been duly executed and delivered by
Parent and Purchaser and, assuming due authorization, execution and delivery by
the Company, constitutes a legal, valid and binding obligation of each such
corporation enforceable against such corporation in accordance with its terms.
SECTION 4.3: NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
--------------------------------------------------------
(a) The executions and delivery of this Agreement by Parent and
Purchaser do not and the performance of this Agreement by Parent and Purchaser
will not: (i) conflict with or violate the respective articles of incorporation
or by-laws of Parent or Purchaser; (ii) assuming that all consents, approvals
and authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b)
below have been obtained and all filings described in such clauses have been
made, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or Purchaser or by which either of them or their
respective properties are bound or affected; or (iii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of Parent or Purchaser pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or Purchaser is a party or by
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which Parent or Purchaser or any of their respective properties are bound or
affected, except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which are not, individually
or in the aggregate, likely to prevent or materially delay the consummation of
the Offer or the Merger.
(b) The execution, delivery and performance of this Agreement by
Parent and Purchaser do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, except (i) for applicable requirements, if
any, of the Exchange Act and the rules and regulations promulgated thereunder,
the HSR Act, state securities, takeover and "blue sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as required by the DGCL,
and (iii) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain are not, individually or in
the aggregate, likely to prevent the consummation of the Offer or the Merger.
SECTION 4.4: OFFER DOCUMENTS; PROXY STATEMENT. The Offer Documents, as
----------------------------------------------
filed pursuant to Section 1.1, will not, at the time such Offer Documents are
filed with the SEC or are first published, sent or given to stockholders, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
and Purchaser for inclusion in the Proxy Statement shall not, on the date the
Proxy Statement is first mailed to stockholders, at the time of the Stockholders
Meeting (as defined in Section 6.1), if any, or at the Effective Time, contain
any statement which, at such time and in light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact, or
shall omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Stockholders Meeting which has become false or
misleading. Notwithstanding the foregoing, Parent and Purchaser make no
representation or warranty with respect to any information supplied by the
Company or any of its representatives which is contained in or incorporated by
reference in any of the foregoing documents or the Offer Documents. The Offer
Documents, as amended and supplemented, will comply in all material respects as
to form with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder.
SECTION 4.5: BROKERS. No broker, finder or investment banker (other
---------------------
than Ewing Monroe Bemiss & Co.) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of Parent or Purchaser.
SECTION 4.6: FUNDS. Parent or Purchaser has, and at the Expiration Date
-------------------
and at the Effective Time, will have the funds necessary to consummate the Offer
and the Merger, respectively. The Company has been provided with a true and
accurate copy of commitment letters duly executed by all parties thereto
evidencing the availability of such funds, which Parent currently anticipates
will be used to consummate the Offer and the Merger.
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SECTION 4.7: NO PRIOR ACTIVITIES. Except for obligations or liabilities
---------------------------------
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing), Purchaser has not incurred any obligations or
liabilities, and has not engaged in any business or activities of any type or
kind whatsoever or entered into any agreements or arrangements with any person
or entity.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1: CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER. The
-------------------------------------------------------------------
Company covenants and agrees that, during the period from the date hereof to the
Effective Time, unless Parent shall otherwise agree in writing, the businesses
of the Company and its subsidiaries shall be conducted only in, and the Company
and its subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company and its
subsidiaries shall each use its reasonable best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations to the end that the Company's and its subsidiaries' goodwill
and ongoing business shall be unimpaired at the Effective Time. By way of
amplification and not limitation, neither the Company nor any of its
subsidiaries shall, between the date of this Agreement and the Effective Time,
directly or indirectly do, or commit to do, any of the following without the
prior written consent of Parent:
(a) Amend or otherwise change its certificate of incorporation or by-
laws or equivalent organizational documents;
(b) Except as disclosed in Schedule 5.1(b) of the Company Disclosure
Letter, issue, deliver, sell, pledge, dispose of or encumber, or authorize or
commit to the issuance, sale, pledge, disposition or encumbrance of, (i) any
shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest (including but not limited to stock appreciation
rights or phantom stock), of the Company or any of its subsidiaries or (ii) any
material assets of the Company or any of its subsidiaries, except for sales of
inventory in the ordinary course of business and in a manner consistent with
past practice;
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock except as disclosed in Schedule 5.1(c) of the Company
Disclosure Letter;
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
26
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(e) (i) Acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money (except for drawdowns on
the Company's existing credit facility in the ordinary course of business
consistent with past practice) or issue any debt securities or assume, guarantee
or endorse, or otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans, advances or capital contributions
to, or investments in, any other person; (iii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice; (iv) authorize any single capital expenditure except (A) as set forth
in Schedule 5.1(e)(iv) of the Company Disclosure Letter, which letter includes
the Company's capital expenditure budget, (B) with the prior approval of
Purchaser or Parent, such approval not to be unreasonably withheld, or (C) in an
amount not exceeding $100,000 for the emergency repair or replacement of the
plant facility necessary to continue operation of the plant in the normal course
of business; or (v) authorize several capital expenditures pursuant to clause
(iv)(C) immediately above in an aggregate amount exceeding $300,000.
(f) Except to the extent required under existing Company plans and
employee and director agreements as in effect on the date of this Agreement and
disclosed in the Company Disclosure Letter, increase the compensation or fringe
benefits of any of its directors, officers or employees, except for increases in
salary or wages of employees of the Company or its subsidiaries who are not
officers of the Company in the ordinary course of business in accordance with
past practice, or grant any severance or termination pay not currently required
to be paid under existing severance plans to or enter into any employment,
consulting or severance agreement or arrangement with any present or former
director, officer or other employee of the Company or any of its subsidiaries,
or establish, adopt, enter into or amend or terminate any collective bargaining
agreement or Company Plan, including, but not limited to, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) Change any of the accounting practices or principles used by it;
(h) Make any material Tax election, change any material method of Tax
accounting or settle or compromise any material federal, state, local or foreign
Tax liability;
(i) Settle or compromise any pending or threatened suit, action or
claim which is material or which relates to the transactions contemplated
hereby;
(j) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of its subsidiaries not constituting an inactive
subsidiary (other than the Merger);
(k) Pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction (i) in the ordinary course of business
and consistent with past practice of liabilities reflected or reserved against
in the Company Financial Statements or incurred in the ordinary
27
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course of business and consistent with past practice and (ii) of liabilities
required to be paid, discharged or satisfied pursuant to the terms of any
contract in existence on the date hereof (including, without limitation, benefit
plans relating to directors); or
(l) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 5.1(a) through 5.1(k) or any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue and incorrect as of the date when made if
such action had then been taken, or would result in any of the conditions set
forth in Annex A not being satisfied.
SECTION 5.2: NO AMENDMENT OF THE RIGHTS AGREEMENT. Subsequent to the
-------------------------------------------------
Rights Amendment, the Company shall not amend or modify the Rights Agreement to
change the status of Parent or Purchaser as an Exempt Person or the meaning and
effect of such status.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1: STOCKHOLDERS MEETING.
----------------------------------
(a) If Shares are purchased in the Offer and adoption of this
Agreement by the Company's stockholders is required, by applicable law, the
Company's Certificate of Incorporation or Bylaws, to occur at a duly convened
meeting of the Corporation's stockholders, the Company, acting through its Board
of Directors, shall in accordance with and subject to applicable law and the
Company's Certificate of Incorporation and By-Laws, (i) duly call, give notice
of, convene and hold a meeting of its stockholders as soon as practicable
following consummation of the Offer for the purpose of adopting this Agreement
(the "Stockholders Meeting"), (ii) include in the Proxy Statement the unanimous
recommendation of the Board of Directors that the stockholders of the Company
vote in favor of the adoption of this Agreement and the written opinion of the
Financial Adviser that the consideration to paid to the stockholders of the
Company pursuant to the Offer and the Merger is fair to such stockholders from a
financial point of view and (iii) use its reasonable best efforts to obtain the
necessary adoption of this Agreement.
(b) If Shares are purchased in the Offer and adoption of this
Agreement by the Company's stockholders may, by applicable law, the Company's
Certificate of Incorporation and By-Laws, occur by written consent of the
holders of a majority of the Shares entitled to vote on such adoption (the
"Written Consent"), then, subject to the Company's obligations with respect to
the preparation, filing, and dissemination of the Proxy Statement (which, in
such case, shall be an information statement prepared in accordance with the
Exchange Act and the rules and regulations thereunder) as set forth in Section
6.2 below, Purchaser shall execute the Written Consent and take all necessary
and appropriate action to cause the Merger to become effective as soon as
reasonably practicable after such purchase of Shares in the Offer.
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(c) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90% of the outstanding Shares, the Company agrees, at the
request of Purchaser, subject to Article VII, to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 253 of the DGCL.
SECTION 6.2: PROXY STATEMENT. If required by applicable law, as soon as
-----------------------------
practicable following Parent's request, the Company shall file with the SEC
under the Exchange Act and the rules and regulations promulgated thereunder, and
shall use its reasonable best efforts to have cleared by the SEC, the Proxy
Statement with respect to the Stockholders Meeting. Parent, Purchaser and the
Company will cooperate with each other in the preparation of the Proxy
Statement; without limiting the generality of the foregoing, each of Parent and
Purchaser will furnish to the Company the information relating to it required by
the Exchange Act and the rules and regulations promulgated thereunder to be set
forth in the Proxy Statement. The Company agrees to use its reasonable best
efforts, after consultation with the other parties hereto, to respond promptly
to any comments made by the SEC with respect to the Proxy Statement and any
preliminary version thereof filed by it and cause such Proxy Statement to be
mailed to the Company's stockholders at the earliest practicable time.
SECTION 6.3: COMPANY BOARD REPRESENTATION; SECTION 14(F).
---------------------------------------------------------
(a) Promptly upon the purchase by Purchaser of Shares pursuant to the
Offer, and from time to time thereafter, Purchaser shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Board of Directors of the Company as shall give Purchaser representation
on the Board of Directors equal to the product of the total number of directors
on such Board (giving effect to the directors elected pursuant to this sentence
and including any vacancies or unfilled newly-created directorships) multiplied
by the percentage that the aggregate number of Shares beneficially owned by
Purchaser or any affiliate of Purchaser bears to the total number of Shares then
outstanding, and the Company shall amend, or cause to be amended its by-laws to
provide for each of the matters set forth in this Section 6.3 and shall, at such
time, promptly take all action necessary to cause Purchaser's designees to be so
elected, including either increasing the size of the Board of Directors or
securing the resignations of incumbent directors or both. At such times, the
Company will use its reasonable best efforts to cause persons designated by
Purchaser to constitute the same percentage as is on the board of (i) each
committee of the Board of Directors, (ii) each board of directors of each
subsidiary of the Company and (iii) each committee of each such board, in each
case only to the extent permitted by law. Until Purchaser acquires a majority
of the outstanding Shares on a fully diluted basis, the Company shall use its
reasonable best efforts to ensure that all the members of the Board of Directors
and such boards and committees as of the date hereof who are not employees of
the Company shall remain members of the Board of Directors and such boards and
committees.
(b) The Company's obligations to appoint Purchaser's designees to its
Board of Directors (or to any committee of its Board of Directors or to the
board of directors or any committee thereof of any subsidiary of the Company)
pursuant to subsection (a) shall be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder. The Company shall promptly take all
actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill
29
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its obligations under this Section 6.3 and shall include in the Schedule 14D-9
or a separate Rule 14f-1 information statement provided to stockholders such
information with respect to the Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill its obligations under
this Section 6.3. Parent or Purchaser will supply to the Company and be solely
responsible for the accuracy and completeness of any information with respect to
either of them and their nominees, officers, directors and affiliates required
by Section 14(f) and Rule 14f-1.
(c) In addition to any vote of the Board of Directors required by law,
the Certificate of Incorporation or the By-laws of the Company, or by this
Agreement, following the election or appointment of Purchaser's designees
pursuant to this Section 6.3 and prior to the Effective Time, the concurrence of
a majority of the directors of the Company then in office who are neither
designated by Purchaser nor are employees of the Company (the "Disinterested
Directors") will be required to authorize any amendment, or waiver of any term
or condition, of this Agreement or the Certificate of Incorporation or By-Laws
of the Company, any termination of this Agreement by the Company, and any
extension by the Company of the time for the performance of any of the
obligations or other acts of Purchaser or waiver or assertion of any of the
Company's rights hereunder. Notwithstanding Section 6.3(a) hereof, the number
of Disinterested Directors shall be not less than two; provided, however, that,
-------- -------
in such event, if the number of Disinterested Directors is reduced below two for
any reason, the remaining Disinterested Director(s) shall be entitled to
designate persons to fill such vacancies who shall be deemed to be Disinterested
Directors for purposes of this Agreement, or if no Disinterested Directors then
remain, the other directors who were directors prior to the date hereof shall
designate two persons to fill such vacancies who cannot be officers or
affiliates of the Company, Parent or Purchaser, and such persons shall be deemed
to be Disinterested Directors for purposes of this Agreement.
SECTION 6.4: ACCESS TO INFORMATION; CONFIDENTIALITY.
----------------------------------------------------
(a) From the date hereof to the Effective Time, upon reasonable prior
notice, the Company shall, and shall cause its subsidiaries, officers,
directors, employees, and shall use its reasonable best efforts to cause its
auditors and other agents to, afford the officers, employees, auditors and other
agents of Parent, and financing sources who shall agree to be bound by the
provisions of this Section 6.4 as though a party hereto, complete access,
consistent with applicable law, at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities and to all
books and records, and shall furnish Parent and such financing sources with all
financial, operating and other data and information as Parent, through its
officers, employees or agents, or such financing sources may from time to time
reasonably request. Notwithstanding the foregoing, any such investigation or
consultation shall be conducted, where possible, during normal business hours
and, in each case, in such a manner as not to interfere unreasonably with the
business or operations of the Company or its subsidiaries.
(b) As soon as practicable after the date of this Agreement, Company
and Parent shall cooperate in good faith to develop a plan (the "Plan") with
respect to the communications with their respective employees and the employees
of their respective subsidiaries regarding the transactions contemplated by this
Agreement. Prior to consummation
30
<PAGE>
of the Offer, Parent shall coordinate any communications to the Company's
employees (including employees of the Company's subsidiaries) through the
officers of the Company and in a manner that will not disrupt the operations of
the Company.
(c) All information obtained by Parent and Purchaser pursuant to this
Section 6.4 shall be kept confidential in accordance with that certain letter
agreement, dated July 20, 1998 (the "Parent Confidentiality Agreement"), between
Parent and the Financial Advisor as agent for the Company.
SECTION 6.5: NO SOLICITATION OF TRANSACTIONS. The Company, its affiliates
---------------------------------------------
and their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any acquisition or exchange of
all or any material portion of the assets of, or any equity interest in, the
Company or any of its subsidiaries or any business combination with or involving
the Company or any of its subsidiaries. At any time prior to consummation of the
Offer, the Company may, directly or indirectly, furnish information and access,
in each case only in response to a request for such information or access to any
person made after the date hereof that was not solicited, initiated or knowingly
encouraged by the Company or any of its affiliates or any of its or their
respective officers, directors, employees, representatives or agents after the
date hereof, pursuant to appropriate confidentiality agreements containing terms
and conditions (including standstill provisions) that are no less favorable than
the terms and conditions contained in the Parent Confidentiality Agreement.
Additionally, the Company, its affiliates, officers, directors employees or
representatives, may participate in discussions and negotiate with such person
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction (including an exchange of stock or assets) involving the
Company or any subsidiary or division of the Company, only if such person has
submitted a proposal to the Board of Directors of the Company relating to any
such transaction and the Board by a majority vote determines in good faith,
based upon the advice of outside counsel to the Company, that failing to take
such action is reasonably likely to constitute a breach of the Board of
Director's fiduciary duty under applicable law. The Board of Directors shall
provide a copy of any such written proposal to Parent immediately after receipt
thereof (except such written proposal shall be provided to Parent by 10:30 a.m.
on the next business day in cases where such written proposal is not received
during normal business hours) and shall notify Parent immediately if any
proposal (oral or written) is made (except Parent shall be notified by 10:30
a.m. on the next business day in cases where such proposal is not received
during normal business hours) and shall in such notice, indicate in reasonable
detail the identity of the offeror and the terms and conditions of any proposal
and shall keep Parent promptly advised of all developments which could
reasonably be expected to culminate in the Board of Directors withdrawing,
modifying or amending its recommendation of the Offer, the Merger and the other
transactions contemplated by this Agreement. Except as set forth in this Section
6.5, neither the Company or any of its affiliates, nor any of its or their
respective officers, directors, employees, representatives or agents, shall,
directly or indirectly, solicit, initiate or knowingly encourage discussions or
negotiations with, any corporation, partnership, person or other entity or group
(other than Parent and Purchaser, any affiliate or associate of Parent and
Purchaser or any designees of Parent or Purchaser) concerning any merger, sale
of any material portion or assets, sale of any shares of capital stock or
similar transactions (including an exchange of stock or assets) involving the
Company or any
31
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subsidiary or division of the Company. Nothing in this Section 6.5 shall prevent
the Board of Directors from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender offer; provided, further, that the
Board of Directors shall not recommend that the stockholders of the Company
tender their Shares in connection with any such tender offer unless the Board by
majority vote shall have determined in good faith, based upon the advice of
outside counsel to the Company, that failing to take such action is reasonably
likely to constitute a breach of the Board of Director's fiduciary duty under
applicable law. The Company agrees not to release any third party from, or waive
any provisions of, any confidentiality or standstill agreement to which the
Company is a party, unless the Board of Directors determines, based upon the
advice of outside counsel, that the failure to make such release or waiver is
reasonably likely to constitute a breach of the Board of Director's fiduciary
duties under applicable law.
SECTION 6.6: EMPLOYEE MATTERS.
------------------------------
(a) On and after the Effective Time, Parent shall cause the Surviving
Corporation and its subsidiaries to promptly pay or provide when due all
compensation and benefits earned through or prior to the Effective Time as
provided pursuant to the terms of any compensation arrangements, employment
agreements and employee or director benefit plans, programs and policies in
existence as of the date hereof for all employees (and former employees) and
directors (and former directors) of the Company and its subsidiaries (including
all compensation and benefits earned through the Effective Time pursuant to the
Company Plans disclosed in the Company Disclosure Letter). Parent and the
Company agree that the Surviving Corporation and its subsidiaries shall pay
promptly or provide when due all compensation and benefits required to be paid
pursuant to the terms of any individual agreement with any employee, former
employee, director or former director in effect as of the date hereof and
disclosed in the Company Disclosure Letter.
(b) If employees of the Surviving Corporation and its subsidiaries
become eligible to participate in a medical, dental or health plan of Parent or
its subsidiaries, Parent shall cause such plan to (i) waive any preexisting
condition limitations for conditions covered under the applicable medical,
health or dental plans of the Company and its subsidiaries and (ii) honor any
deductible and out-of-pocket expenses incurred by the employees and their
beneficiaries under such plans during the portion of the calendar year prior to
such participation.
(c) The Surviving Corporation shall perform all of Company's
obligations under and pursuant to the Union Contract.
(d) Nothing in this Section 6.6 shall require the continued
employment of any person or, with respect to clause (c) hereof, prevent the
Company and/or the Surviving Corporation and their subsidiaries from taking any
action or refraining from taking any action that the Company and its
subsidiaries prior to the Effective Time, could have taken or refrained from
taking.
(e) The Surviving Corporation shall pay management bonuses of up to
an aggregate of $600,000 for the fiscal year 1998, in accordance with past
practices and pursuant to
32
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the direction and discretion of Timothy R. Duke, to the extent that such bonuses
have been accrued on the Company's unaudited interim financial statements for
the nine-month period ended September 30, 1998.
SECTION 6.7: DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
---------------------------------------------------------------------
(a) The Articles of Incorporation and By-Laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in the Certificate of Incorporation and By-
laws of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of 6 years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who at or prior
to the Effective Time were directors, officers or employees of the Company.
(b) For 6 years after the Effective Time, the Surviving Corporation
will indemnify and hold harmless each present and former director and officer of
the Company (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") (but only to the extent such
Costs are not otherwise covered by insurance and paid) incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative (collectively, "Claims"), arising out
of or pertaining to matters existing or occurring at or prior to the Effective
Time, whether asserted or claimed prior to, at or after the Effective Time, to
the fullest extent permitted under applicable law (and the Surviving Corporation
will also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.7(b), upon learning of any such Claim, shall promptly notify Parent
thereof.
(d) Parent shall, or shall cause, the Surviving Corporation to
maintain the Company's existing officers' and directors' liability insurance
("D&O Insurance") for a period of 6 years after the Effective Time so long as
the annual premium therefor is not in excess of twice the current premium (the
"Maximum Premium"); provided, however, if the existing D&O Insurance expires, or
-------- -------
is terminated or canceled by the insurance carrier during such period, the
Surviving Corporation will use its reasonable best efforts to obtain as much D&O
Insurance and, to the extent possible, covering substantially the same matters
that were covered under the D&O Insurance as in effect on the date hereof, as
can be obtained for the remainder of such period for a premium not in excess (on
an annualized basis) of the Maximum Premium.
(e) If the Surviving Corporation or Parent or any of their respective
successors or assigns, (i) reorganizes or consolidates with or merges into any
other person and is not the resulting, continuing or surviving corporation or
entity of such consolidation or merger or (ii) liquidates, dissolves or
transfers all or substantially all of its properties and assets to any person,
then, and in each such case, prior to such action, proper provision will be made
so that the successors and assigns of such party assume the obligations of
Surviving Corporation or Parent hereunder, as applicable.
33
<PAGE>
SECTION 6.8: NOMINATION OF TIMOTHY R. DUKE. Upon acceptance and payment
-------------------------------------------
for the Shares in the Offer, Parent, acting through its Board of Directors,
shall cause its Board of Directors to be expanded and shall appoint Timothy R.
Duke to fill the vacancy created by such expansion. Thereafter, Parent shall
cause Timothy R. Duke to be nominated as a director nominee for consideration by
Parent's stockholders at the next regularly scheduled annual meeting of Parent's
stockholders.
SECTION 6.9: NOTIFICATION OF CERTAIN MATTERS. The Company shall give
---------------------------------------------
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
the occurrence or non-occurrence of (i) any event the occurrence or non-
occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.9 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.10: FURTHER ACTION; REASONABLE BEST EFFORTS.
-----------------------------------------------------
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement as
soon as practicable, including but not limited to (i) cooperation in the
preparation and filing of the Offer Documents, the Schedule 14D-9, the Proxy
Statement, any required filings under the HSR Act and any amendments to any
thereof, (ii) cooperation with respect to consummating the financing for the
Offer and the Merger and (iii) using its reasonable best efforts to promptly
make all required regulatory filings and applications including, without
limitation, responding promptly to requests for further information and to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries and Parent and its subsidiaries as are
necessary for the consummation of the transactions contemplated by this
Agreement and to fulfill the conditions to the Offer and the Merger. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and directors
of each party to this Agreement shall use their reasonable best efforts to take
all such necessary action.
(b) The Company and Parent each shall keep the other reasonably
apprised of the status of matters relating to completion of the transactions
contemplated hereby, including promptly furnishing the other with copies of
notices or other communications received by Parent or the Company, as the case
may be, or any of their subsidiaries, from any governmental authority with
respect to the Offer or the Merger or any of the other transactions contemplated
by this Agreement. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another in connection with
any analyses, appearances, presentations,
34
<PAGE>
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
the HSR Act or any other antitrust law.
(c) Each party shall timely and promptly make all filings which are
required under the HSR Act and Parent shall pay the filing fee. Each party will
furnish to the other such necessary information and reasonable assistance as it
may request in connection with its preparation of such filings. Each party will
supply the other with copies of all correspondence, filings or communications
between such party or its representatives and the Federal Trade Commission, the
Antitrust Division of the United States Department of Justice or any other
governmental agency or authority or members of their respective staffs with
respect to this Agreement or the transactions contemplated hereby.
SECTION 6.11: PUBLIC ANNOUNCEMENTS. The parties agree that the initial
-----------------------------------
press release announcing the execution of this Agreement shall be a joint
release approved by all parties. Parent and the Company shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Offer or the Merger and shall not issue any such press
release or make any such public statement prior to such consultation and prior
to approval by Parent, except as may be required by law or any listing agreement
with its securities exchange.
SECTION 6.12: DISPOSITION OF LITIGATION.
----------------------------------------
(a) The Company shall not settle any litigation currently pending, or
commenced after the date hereof, against the Company or any of its directors by
any stockholder of the Company relating to the Offer or this Agreement, without
the prior written consent of Parent (which shall not be unreasonably withheld).
(b) The Company shall not voluntarily cooperate with any third party
that has sought or may hereafter seek to restrain or prohibit or otherwise
oppose the Offer or the Merger and shall cooperate with Parent and Purchaser to
resist any such effort to restrain or prohibit or otherwise oppose the Offer or
the Merger, unless the Board of Company, based upon the advice of outside legal
counsel, determines that such cooperation is mandatory in order to comply with
its fiduciary duties.
SECTION 6.13: COMMITMENT LETTER. Parent covenants and agrees that, during
--------------------------------
the period from the date hereof to the Effective Time, unless the Company shall
otherwise agree in writing, it shall operate its business, and cause each of its
subsidiaries and affiliates, including Purchaser, to operate their respective
businesses, in a manner so as not to materially impact its ability to borrow the
monies contemplated to be loaned to it or them as set forth in the Commitment
Letter. By way of example, and not of limitation, Parent agrees that neither it,
nor any of its subsidiaries or affiliates (including Purchaser) will (i) enter
into any financing transaction (other than the sale of common equity for cash
consideration resulting in gross proceeds per share equal to the fair market
value of such common equity) or any merger, consolidation, or purchase or sale
of a substantial portion of the equity or assets, with or of any other person or
entity, or (ii) enter into any recapitalization, reorganization, liquidation or
dissolution, to the extent that any such action
35
<PAGE>
under clauses (i) or (ii) hereof would materially and adversely impact Parent's
ability to borrow funds pursuant to the Commitment Letter. From and after the
date hereof and continuing until completion of the Merger, or the earlier
termination of this Agreement in accordance with its terms, Parent and Purchaser
agree to use the funds currently available under Parent's existing revolving
credit facility with First Union National Bank, as Agent, and Wachovia Bank of
North Carolina, N.A., as co-Agent (the "Revolving Credit Facility"), solely to
fund the purchase of Shares pursuant to the Offer and the payment of the Merger
Consideration. Parent and Purchaser jointly and severally represent and warrant
to the Company that, on the date hereof, there is at least $30,000,000 of
availability under the Revolving Credit Facility. Additionally, Parent and
Purchaser jointly and severally represent and warrant to the Company that, on
the date hereof, Parent has unrestricted cash on its balance sheet of at least
$20,000,000 (the "Minimum Cash Balance"), and covenants and agrees that the
Minimum Cash Balance shall be used by Parent and Purchaser solely to fund the
purchase of Shares pursuant to the Offer and the payment of the Merger
Consideration.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1: CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
-------------------------------------------------------------------------
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) If required by the DGCL, this Agreement shall have been adopted
by the affirmative vote of the stockholders of the Company by the requisite vote
in accordance with the Company's Certificate of Incorporation and the DGCL.
(b) No statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent) shall
have been enacted, entered, promulgated or enforced by any United States,
foreign, federal or state court or governmental authority that prohibits,
restrains, enjoins or restricts the consummation of the Merger; provided,
--------
however, that prior to invoking this condition each party agrees to comply with
- -------
Section 6.10.
(c) Purchaser shall have purchased all Shares validly tendered
pursuant to the Offer (except that payment for all validly tendered Shares is
not a condition to Parent's or Purchaser's obligation if Purchaser fails to
accept for payment and pay for any Shares in violation of the terms of the Offer
or this Agreement).
(d) Any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired.
36
<PAGE>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1: TERMINATION. This Agreement may be terminated and the
-------------------------
transactions contemplated herein may be terminated and abandoned at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) By mutual written consent of Parent, Purchaser and the Company;
(b) By either of Purchaser or Parent or of the Company if, by the
Outside Date, any of the Offer Conditions (as defined in Annex A) has not been
satisfied or (except with respect to the Minimum Condition) has not been waived
by Purchaser;
(c) By the Company prior to the purchase of Shares pursuant to the
Offer, if (i) there has been a material breach of any representation, warranty,
covenant or agreement on the part of Parent or Purchaser contained in this
Agreement that materially adversely affects Parent's or Purchaser's ability to
consummate (or materially delays commencement or consummation of) the Offer and
that has not been cured prior to the earlier of (A) 10 business days following
notice of such breach by the Company to Parent and Purchaser and (B) two
business days prior to the Expiration Date or (ii) Purchaser has (x) terminated
the Offer or (y) failed to pay for Shares pursuant to the Offer;
(d) By the Company if, prior to the purchase of Shares pursuant to
the Offer, any person has made a bona fide offer to acquire the Company (i) that
the Board of Directors of the Company determines in its good faith judgment is
more favorable to the Company's stockholders than the Offer and the Merger and
(ii) as a result of which the Board of Directors determines in good faith, based
upon the advice of outside counsel, that the failure to terminate this Agreement
is reasonably likely to constitute a breach of the Board's fiduciary obligations
under applicable law, provided that such termination under this paragraph shall
--------
not be effective until the Company has made payment of the full fee and expense
reimbursement required by Section 8.3;
(e) By Parent prior to the purchase of Shares pursuant to the Offer,
if (1) there has been a breach of any representation, warranty, covenant or
agreement on the part of the Company contained in this Agreement that is likely
to have a Material Adverse Effect and that has not been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B) two
business days prior to the date on which the Offer expires; (2) the Board of
Directors of the Company has (x) modified (including by amendment of the
Schedule 14D-9) in a manner adverse to Purchaser or withdrawn its approval or
recommendation of the Offer, this Agreement or the Merger, (y) approved or
recommended another offer or transaction pursuant to, or otherwise knowingly and
intentionally breached in a material manner the provisions of, Section 6.5, or
(z) amended the Rights Agreement to facilitate an offer by any other person to
acquire the Company, or has resolved to effect any of the foregoing; (3) there
has been, solely as a result of the operation of the Rights Agreement, a
material breach of any representation, warranty, covenant or agreement contained
in Section 3.3 or Section 3.4, which material breach
37
<PAGE>
has not been cured by the earlier of (X) the Outside Date or (Y) 20 days after
receipt by the Company of notice of such breach from Parent or Purchaser; or (4)
there has been a material breach of any representation, warranty, covenant or
agreement contained in Section 3.5(c) or Section 5.2; or
(f) By Parent or the Company, upon the entry or issuance of any
order, preliminary or permanent injunction, decree, judgment or ruling in any
action or proceeding before any court or governmental, administrative or
regulatory authority or agency, or any statute, rule or regulation enacted,
entered, enforced, promulgated, amended or issued that is applicable to Parent,
Purchaser, the Company or any subsidiary or affiliate of Purchaser or the
Company or the Offer or the Merger, by any legislative body, court, government
or governmental, administrative or regulatory authority or agency that is likely
to have the effect of: (i) making illegal or otherwise directly or indirectly
restraining or prohibiting the making of the Offer in accordance with the terms
of this Agreement, the acceptance for payment of, or payment for, some of or all
the Shares by Purchaser or any of its affiliates or the consummation of the
Merger; (ii) prohibiting the ownership or operation of the Company and its
subsidiaries by Parent or any of Parent's subsidiaries, (iii) imposing material
limitations on the ability of Parent, Purchaser or any of Parent's affiliates
effectively to acquire or hold or to exercise in all material respects full
rights of ownership of the Shares, including without limitation the right to
vote any Shares acquired or owned by Parent or Purchaser or any of its
affiliates on all matters properly presented to the stockholders of the Company,
including, without limitation, the adoption of this Agreement or the right to
vote any shares of capital stock of any subsidiary directly or indirectly owned
by the Company; or (iv) requiring divestiture by Parent or Purchaser or any of
their affiliates of any Shares.
SECTION 8.2: EFFECT OF TERMINATION. In the event of the termination of
-----------------------------------
this Agreement pursuant to Section 8.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except as
set forth in Section 8.3 and Section 9.1; provided, however, that the payment of
-------- -------
the Termination Fee (as defined in Section 8.3(a) below) pursuant to Section
8.3(a)(i) shall be considered with respect to the calculation of any damages
resulting from any such willful breach by the Company. Notwithstanding anything
herein to the contrary, nothing in this Section 8.2 shall relieve any party from
liability for fraud or breach of any covenant, agreement or any other term in
this Agreement. If this Agreement is terminated by the Company and a
Termination Fee is paid pursuant to Section 8.3(a)(i)(B) or Section 8.3(a)(ii),
the Termination Fee shall be deemed to be liquidated damages rather than a
penalty, and shall constitute the total damages and sole remedy of Parent and
Purchaser upon any such termination.
SECTION 8.3: FEES AND EXPENSES.
-------------------------------
(a) If (i) the Company terminates this Agreement (A) pursuant to
Section 8.1(d) or (B) in a manner or for a reason not expressly permitted by
Section 8.1 or (ii) Parent terminates this Agreement pursuant to Section
8.1(e)(2), Section 8.1(e)(3) or Section 8.1(e)(4), then the Company shall pay to
Parent, within three business days following termination of this Agreement a
fee, in cash, of $5,000,000 (the "Termination Fee"). If, from and after July
20, 1998, and prior to the purchase of Shares pursuant to the Offer, (1) any
other person has made a bona-fide offer to acquire at least 50% of the Shares or
substantially all of the assets of the
38
<PAGE>
Company, or otherwise to acquire the Company (the "Third-Party Offer"), at a
price per Share (or the equivalent price per Share, in the case of an asset
purchase) (x) that is higher on its face than the price per Share to be paid in
the Offer or (y) that the Company determines, based upon the advice of its
Financial Advisor, is higher than the price per Share to be paid in the Offer,
(2) the Offer remains outstanding until the Outside Date but is not consummated
solely as a result of the failure of the Minimum Condition and (3) the Third-
Party Offer is consummated within 180 days of the termination of this Agreement,
then the Company shall pay to Parent, within three business days following the
consummation of the Third Party Offer, the Termination Fee. The Company in no
event shall be obligated to pay more than one such fee with respect to all such
agreements and occurrences.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
SECTION 8.4: AMENDMENT. Subject to Section 6.3, this Agreement may be
-----------------------
amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after adoption of the Agreement by the stockholders of
the Company, no amendment may be made which would reduce the amount or change
the type of consideration into which each Share shall be converted upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.5: WAIVER. Subject to Section 6.3, at any time prior to the
--------------------
Effective Time, any party hereto may (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1: NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
------------------------------------------------------------------------
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 8.1, as the case may be, except that the agreements set forth in Article
II, Section 6.6, Section 6.7, and Section 6.8 and Article IX shall survive the
Effective Time and those set forth in Section 5.2, Section 6.4, Section 8.3 and
Article IX, as well as the Parent Confidentiality Agreement, shall also survive
termination of this Agreement.
SECTION 9.2: NOTICES. All notices, requests, claims, demands and other
---------------------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or United States express mail (postage prepaid,
39
<PAGE>
return receipt requested) or by overnight courier service guaranteeing next
business day delivery (charges prepaid) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
if to Parent or Purchaser:
Roanoke Electric Steel Corporation
102 Westside Blvd., N.W.
P.O. Box 13948
Roanoke, Virginia 24038-3948
Attention: Donald G. Smith
Telecopy: (540) 342-9437
with additional copies to:
Woods, Rogers & Hazlegrove, P.L.C.
First Union Tower, Suite 1400
10 South Jefferson Street
P.O. Box 14125
Roanoke, Virginia 24038-4125
Attention: Heman A. Marshall, III, Esq.
Telecopy: (540) 983-7711
if to the Company:
Steel of West Virginia, Inc.
P.O. Box 2547
Huntington, West Virginia 25726
Attention: Timothy R. Duke
Telecopy: (304) 529-1479
with a copy to:
Sierchio & Albert, P.C.
41 East 57th Street
Floor 39 - At Madison Avenue, Penthouse A
New York, New York 10022
Attention: Stephen A. Albert, Esq.
Telecopy: (212) 446-9504
with a further copy to:
Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, Pennsylvania 19103
40
<PAGE>
Attention: James D. Epstein, Esq.
Telecopy: (215) 981-4750
SECTION 9.3: CERTAIN DEFINITIONS. For purposes of this Agreement, the
---------------------------------
term:
"affiliate" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is
under common control with, the first mentioned person;
"beneficial owner" with respect to any Shares means a person who shall
be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates beneficially owns,
directly or indirectly, (ii) which such person or any of its
affiliates or associates (as such term is defined in Rule 12b-2 of the
Exchange Act) has, directly or indirectly, (A) the right to acquire
(whether such right is exercisable immediately or subject only to the
passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding or (iii) which
are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or person with whom
such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares; provided, however, that no person
nor any affiliate or associate of such person shall be deemed to be
the beneficial owner of any securities by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which
shares neither such person nor any such affiliate or associate is
otherwise deemed the beneficial owner.
"control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of
the management policies of a person, whether through the ownership of
stock, as trustee or executor, by contract or credit arrangement or
otherwise;
"generally accepted accounting principles" shall mean the generally
accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by a
significant segment of the accounting profession in the United States,
in each case applied on a basis consistent with the manner in which
the audited financial statements for the fiscal year of the Company
ended December 31, 1997 were prepared;
41
<PAGE>
"person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined
in Section 13(d)(3) of the Exchange Act); and
"subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation,
partnership, joint venture or other legal entity of which the Company,
the Surviving Corporation, Parent or such other person, as the case
may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holder of which is generally entitled to
vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
SECTION 9.4: SEVERABILITY. If any term or other provision of this
--------------------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 9.5: ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, together with
------------------------------------------
the other agreements referenced herein (including the Parent Confidentiality
Agreement), constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of law
or otherwise, except that Parent and Purchaser may assign all or any of their
respective rights and obligations hereunder to any direct or indirect wholly
owned subsidiary or subsidiaries of Parent, provided that no such assignment
shall relieve the assigning party of its obligations.
SECTION 9.6: PARTIES IN INTEREST. This Agreement shall be binding upon
---------------------------------
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, except for the provisions of Sections 6.6(c) and
6.7, is intended to or shall confer upon any other person any rights, benefits
or remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9.7: GOVERNING LAW. This Agreement shall be governed by, and
---------------------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8: HEADINGS. The descriptive headings contained in this
----------------------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
42
<PAGE>
SECTION 9.9: COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
------------------------------------------------
executed in one or more counterparts (including facsimile signatures), and by
the different parties hereto in separate counterparts (including facsimile
signatures), each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 9.10: SPECIFIC PERFORMANCE. The parties agree that irreparable
----------------------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in the U.S. District
Court for the Western District of Virginia, Roanoke Division or the Circuit
Court for the City of Roanoke, Virginia, this being in addition to any other
remedy to which such party is entitled at law or in equity. In addition, each of
the parties hereto (i) consents to submit itself to the personal jurisdiction of
such courts in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, (iii) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal or state court sitting in City of
Roanoke, and (iv) consents to service being made through the notice procedures
set forth in Section 9.2.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
43
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ROANOKE ELECTRIC STEEL CORPORATION
By: /s/ Donald G. Smith
-------------------------------
Name: Donald G. Smith
Title: President
SWVA ACQUISITION, INC.
By: /s/ Donald G. Smith
--------------------------------
Name:
Title:
STEEL OF WEST VIRGINIA, INC.
By: /s/ Timothy R. Duke
--------------------------------
Name: Timothy R. Duke
Title: President
44
<PAGE>
ANNEX A
OFFER CONDITIONS
The capitalized terms used in this Annex A have the meanings set forth in
the attached Merger Agreement.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for any Shares tendered pursuant to
the Offer, and Purchaser may postpone the acceptance for payment or payment for
any Shares tendered pursuant to the Offer, and Purchaser may terminate the Offer
(whether or not Purchaser has purchased or paid for any Shares) to the extent
permitted by the Merger Agreement unless the following conditions (the "Offer
Conditions") have been satisfied:
(1) at the expiration of the Offer, a number of Shares that
constitutes more than 50% of the voting power (determined on a fully-
diluted basis) on the date of purchase of all the securities of the Company
entitled to vote generally in the election of directors or in a merger has
been validly tendered in the Offer and not properly withdrawn prior to the
expiration of the Offer (the "Minimum Condition");
(2) all of the representations and warranties of the Company set
forth in the Merger Agreement that are qualified by reference to a Material
Adverse Effect are true and correct, and any such representations and
warranties that are not so qualified are true and correct in all respects
except in any respect that is not likely to have a Material Adverse Effect,
in each case as if such representations and warranties were made at the
time of such determination; or
(3) At any time on or after the date of the Merger Agreement, none of
the following events has occurred:
(a) the entry or issuance of any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or
proceeding before any court or governmental, administrative or
regulatory authority or agency, or any statute, rule or
regulation enacted, entered, enforced, promulgated, amended or
issued that is applicable to Parent, Purchaser, the Company or
any subsidiary or affiliate of Purchaser or the Company or the
Offer or the Merger, by any legislative body, court, government
or governmental, administrative or regulatory authority or agency
that is likely to have the effect of: (i) making illegal or
otherwise directly or indirectly restraining or prohibiting the
making of the Offer in accordance with the terms of the Merger
Agreement, the acceptance for payment of, or payment for, some of
or all the Shares by Purchaser or any of its affiliates or the
consummation of the Merger; (ii) prohibiting the ownership or
operation of the Company and its subsidiaries by Parent or any of
Parent's
45
<PAGE>
subsidiaries, (iii) imposing material limitations on the ability
of Parent, Purchaser or any of Parent's affiliates effectively to
acquire or hold or to exercise in all material respects full
rights of ownership of the Shares, including without limitation
the right to vote any Shares acquired or owned by Parent or
Purchaser or any of its affiliates on all matters properly
presented to the stockholders of the Company, including, without
limitation, the adoption of the Merger Agreement or the right to
vote any shares of capital stock of any subsidiary directly or
indirectly owned by the Company; or (iv) requiring divestiture by
Parent or Purchaser or any of their affiliates of any Shares;
(b) (i) any general suspension of trading in, or limitation on prices
(other than suspensions or limitations triggered on NASDAQ by
price fluctuations on a trading day) for, securities on any
national securities exchange, (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in
the United States, (iii) a commencement of a war or material
armed hostilities or other material national calamity directly
involving the entire United States or materially adversely
affecting the consummation of the Offer or (v) in the case of any
of the foregoing existing at the time of commencement of the
Offer, a material acceleration or worsening thereof;
(c) (i) the Board of Directors of the Company or any committee
thereof has withdrawn or modified in a manner adverse to Parent
or Purchaser the approval or recommendation of the Offer, the
Merger or the Merger Agreement, or approved or recommended any
takeover proposal or any other acquisition of Shares other than
the Offer, (ii) any such person or group has entered into a
definitive agreement or an agreement in principle with the
Company with respect to a tender offer or exchange offer for any
Shares or a merger, consolidation or other business combination
with or involving the Company or any of its subsidiaries, or
(iii) the Board of Directors of the Company or any committee
thereof has resolved to do any of the foregoing;
(d) the Company fails to perform in any material respect any material
obligation or to comply in any material respect with any material
agreement or material covenant of the Company to be performed or
complied with by it under the Merger Agreement;
(e) the Merger Agreement has been terminated in accordance with its
terms or the Offer has been terminated with the consent of the
Company; or
(f) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer or the Merger have not expired or
been terminated;
46
<PAGE>
and, upon the failure of any of the conditions set forth in Sections 2 or 3 of
this Annex A, Purchaser determines, in its reasonable judgment, that it is
inadvisable for Purchaser to proceed with the Offer or with the acceptance for
payment of or payment for Shares.
The Offer Conditions (other than the Minimum Condition) are for the sole
benefit of Purchaser and may be waived by Purchaser in writing in whole or in
part at any time and from time to time in its sole discretion.
47
<PAGE>
EXHIBIT 2
Pages 1 through 13 of the Company's Proxy Statement
dated April 10, 1998, relating to its annual meeting of
stockholders.
<PAGE>
STEEL OF WEST VIRGINIA, INC.
17TH STREET AND 2ND AVENUE
HUNTINGTON, WEST VIRGINIA 25703
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998
GENERAL INFORMATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Steel of West Virginia, Inc. (the "Company") to be used at the
Annual Meeting of Stockholders to be held at the Radisson Hotel Huntington, 1001
3rd Avenue, Huntington, West Virginia on Thursday, May 28, 1998, at 10:30 a.m.
and any adjournments thereof.
When the enclosed proxy is properly executed and returned, the shares of
Common Stock of the Company, par value $.01 per share (the "Common Stock"), it
represents will be voted at the meeting in accordance with any directions noted
thereon and, if no direction is indicated, the shares it represents will be
voted: (i) FOR the election of the nominees for Directors set forth below; (ii)
FOR the proposed amendment to the Company's Certificate of Incorporation to
authorize 5,000,000 additional shares of Common Stock; (iii) FOR the
ratification of the reappointment of Ernst & Young LLP as independent
accountants for the Company; and (iv) in the discretion of the holders of the
proxy with respect to any other business that may properly come before the
meeting. Any stockholder signing and delivering a proxy may revoke it at any
time before it is voted by delivering to the Secretary of the Company a written
revocation or a duly executed proxy bearing a date later than the date of the
proxy being revoked. Any stockholder attending the meeting in person may
withdraw his or her proxy and vote his or her shares.
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made only by mail; provided, however, that officers and
regular employees of the Company may solicit proxies personally or by telephone
or telegram. Such persons will not be specially compensated for such services.
The Company may reimburse brokers, banks, custodians, nominees and fiduciaries
holding stock in their names or in the names of their nominees for their
reasonable charges and expenses in forwarding proxies and proxy material to the
beneficial owners of such stock.
The approximate mailing date of this Proxy Statement and the accompanying
proxy is April 10, 1998.
VOTING RIGHTS
Only stockholders of record at the close of business on April 3, 1998, will
be entitled to vote at the Annual Meeting of Stockholders. On that date, there
were 6,010,795 shares of Common Stock outstanding, the holders of which are
entitled to one vote per share on each matter to come before the meeting. Voting
rights are non-cumulative. A majority of the outstanding shares will constitute
a quorum at the meeting and abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business.
Directors are elected by plurality vote. The approval of the amendment to
the Company's Certificate of Incorporation will require the affirmative vote of
a majority of the outstanding Common Stock, and the ratification of the
reappointment of Ernst & Young LLP will require the affirmative vote of a
majority of the Common Stock voting on the proposal. Abstentions and broker
non-votes will not be counted in the election of directors or in determining
whether such ratification has been given.
1
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 25, 1998, the beneficial ownership
of Common Stock of each person known to the Company who owns more than 5% of the
issued and outstanding Common Stock.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class(6)
- ------------------- -------------------- -------------------
FMR Corp. 698,000 (1) 11.34
82 Devonshire Street
Boston, Massachusetts 02109
Robert L. Bunting, Jr. 475,267 (2) 7.72
62 North Calibougue
Hilton Head, South Carolina 29928
First Manhattan Co. 466,000 (3) 7.57
437 Madison Avenue
New York, New York 10022
Wachovia Corporation 345,000 (4) 5.60
301 North Main Street
Winston-Salem, NC 27150-3099
Corbin & Company 317,715 (5) 5.16
6300 Ridglea Place, Suite 1111
Fort Worth, Texas 76116
- ------------------------------
(1) Fidelity Management & Research Company ("Fidelity"), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisors
Act of 1940, is the beneficial owner of 698,000 shares of Common Stock as a
result of acting as investment advisor to various investment companies
registered under Section 8 of the Investment Company Act of 1940. The
ownership of one investment company, Fidelity Low-Priced Stock Fund,
amounted to 663,000 shares of Common Stock. Fidelity Low-Priced Stock Fund
has its principal business office at 82 Devonshire Street, Boston,
Massachusetts 02109. Edward C. Johnson 3d, FMR Corp., through its control of
Fidelity, and the funds each has sole power to dispose of the 698,000 shares
owned by the Funds. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of
FMR Corp., has the sole power to vote or direct the voting of the shares
owned directly by the funds, which power resides with the funds' Board of
Trustees. Fidelity carries out the voting of the shares under written
guidelines established by the funds' Board of Trustees. Members of the
Edward C. Johnson 3d family and trusts for their benefit are the predominant
owners of Class B shares of Common Stock of FMR Corp., representing
approximately 49% of the voting power of FMR Corp. Mr. Johnson 3d owns 12.0%
and Abigail P. Johnson owns 24.5% of the aggregate outstanding voting stock
of FMR Corp. Mr. Johnson 3d is chairman of FMR Corp. and Abigail P. Johnson
is a director of FMR Corp. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of voting Common Stock
and the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the Investment Company Act of 1940, to
form a controlling group with respect to FMR Corp. The information set forth
herein is based on a Schedule 13G dated February 14, 1998 filed by FMR Corp.
with the Securities and Exchange Commission.
2
<PAGE>
(2) Of this amount, 231,710 shares are held in a trust for the benefit of Mr.
Bunting's wife, Nancy L. Bunting, and 235,557 shares are held in a trust
for the benefit of Mr. Bunting. Mr. and Mrs. Bunting are co-trustees of
each of said trusts. This amount includes 8,000 shares that Mr. Bunting has
the right to acquire through the exercise of options.
(3) Includes 100,600 shares owned by family members of general partners of
First Manhattan Co., as to which First Manhattan Co. disclaims dispositive
power as to 600 of such shares and beneficial ownership as to 100,000 of
such shares. The information set forth herein is based on a Schedule 13G
dated February 9, 1998 filed by First Manhattan Co. with the Securities and
Exchange Commission.
(4) Wachovia Corporation ("Wachovia"), a holding company, is the beneficial
owner of 345,000 shares of Common Stock held by Wachovia Bank, N.A., as
trustee. Wachovia has sole voting and dispositive power over such shares.
The information set forth herein is based on a Schedule 13G dated February
11, 1998 filed by Wachovia with the Securities and Exchange Commission,
which filing Wachovia states should not be deemed an admission of
beneficial ownership by Wachovia or Wachovia Bank, N.A.
(5) Corbin & Company is a registered Investment Advisor. All of Corbin &
Company's holdings are held on behalf of other persons who have the right
to receive or the power to direct the receipt of dividends from or the
proceeds from the sale of such securities but no single client account
relates to more than 5% of the outstanding Common Stock. The information
set forth herein is based on a Schedule 13G dated February 6, 1998, filed
by Corbin & Company with the Securities and Exchange Commission.
(6) Includes 145,500 shares deemed outstanding that may be acquired through the
exercise of options.
3
<PAGE>
DIRECTORS
PROPOSAL 1. ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders, the entire Board of Directors,
consisting of five members, is to be elected. In the absence of instructions to
the contrary, the shares of Common Stock represented by a proxy delivered to the
Board of Directors will be voted FOR the five nominees named below. Each
nominee named below is presently serving as a Director of the Company and is
anticipated to be available for election and able to serve. However, if any
such nominee should decline or become unable to serve as a Director for any
reason, votes will be cast instead for a substitute nominee designated by the
Board of Directors or, if none is so designated, will be cast according to the
judgment in such matters of the person or persons voting the proxy.
The tables below and the paragraphs that follow present certain information
concerning the nominees for Director and the executive officers of the Company.
Each elected Director will serve until the next Annual Meeting of Stockholders
and until his successor has been elected and qualified. Officers are elected by
and serve at the discretion of the Board of Directors. None of the Company's
Directors or executive officers has any family relationship with any other
Director or executive officer.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
POSITION WITH YEARS WITH OWNED AS OF PERCENT
NAME COMPANY AGE COMPANY MARCH 25, 1998 OF CLASS (4)
- ---- ------------- --- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Albert W. Eastburn (1) Chairman and 69 5 12,388(2) *
Director
Timothy R. Duke President, Chief 46 11 38,197(3) *
Executive Officer
and Director
Stephen A. Albert Director 45 11 6,000(2) *
Daniel N. Pickens (1) Director 48 5 9,621(2) *
Paul E. Thompson (1) Director 67 4 8,733(2) *
All Directors and 85,406 1.39
executive officers
as a group
- ---------------------------
</TABLE>
* Less than one percent
(1) Member of the Compensation and Benefits Committee and the Audit Committee.
(2) This amount includes 6,000 shares that may be acquired by each of Messrs.
Albert, Eastburn, Pickens and Thompson through the exercise of options.
(3) This amount includes 17,700 shares that may be acquired through the
exercise of options.
(4) Includes 145,500 shares deemed outstanding that may be acquired through the
exercise of options.
4
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION> SHARES OF
COMMON STOCK
BENEFICIALLY
POSITION AND OFFICES EXECUTIVE OWNED AS OF PERCENT
NAME WITH COMPANY AGE OFFICER SINCE MARCH 25, 1998 OF CLASS (2)
- ---- ------------------- --- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
W. Bruce Groff, Jr. Vice President of 56 1998 1,270 *
Human Relations
Mark G. Meikle Vice President, 33 1996 9,197(1) *
Treasurer and Chief
Financial Officer
- -------------------------
</TABLE>
* Less than one percent.
(1) This amount includes 7,800 shares that may be acquired through the exercise
of options.
(2) Includes 145,500 shares deemed outstanding that may be acquired through the
exercise of options.
BUSINESS EXPERIENCE OF NOMINEES AND EXECUTIVE OFFICERS
Albert W. Eastburn has been a Director of the Company since April 1993 and
Chairman of the Board since July 1997. Mr. Eastburn was President and Chief
Operating Officer of the Steel Group of Lukens, Inc., a leading specialized
manufacturer of steel plate and stainless steel products ("Lukens"), from
November 1988 until his retirement in 1991. Prior thereto, Mr. Eastburn held
various positions at Lukens, which he joined in 1955.
Timothy R. Duke has been President and Chief Executive Officer since July
1997; President and Chief Operating Officer from October 1996 to July 1997; a
Director since October 1996; Vice President, Treasurer and Chief Financial
Officer from March 1988 to October 1996; and Controller from June 1987 to March
1988. Mr. Duke was formerly the Manager-Operations Accounting at Joy
Manufacturing Company ("Joy"), and served in various positions at Joy from 1979
until he joined the Company. Mr. Duke is a certified public accountant and a
certified management accountant.
Stephen A. Albert has been a Director of the Company since December 1986.
Since January 1996, Mr. Albert has been a member of the law firm of Sierchio &
Albert, P.C., counsel to the Company. Prior thereto, Mr. Albert was, since
February 1989, special counsel to the law firm of Proskauer Rose LLP, counsel to
the Company until January 1996, and prior thereto, Mr. Albert was a member of
the law firms of Feit & Ahrens and Feit & Shor, which were counsel to the
Company until February 1989. Mr. Albert has been engaged in the practice of law
in New York City since 1977.
Daniel N. Pickens has been a Director of the Company since April 1993. Mr.
Pickens has been a Vice President in the investment banking firm of Janney
Montgomery Scott Inc. since July 1996. Prior thereto, Mr. Pickens was a First
Vice President in the Corporate Finance Department of Wheat First Securities,
Inc. ("Wheat First") and held various positions at Wheat First since 1981.
Before joining Wheat First, Mr. Pickens practiced
5
<PAGE>
as an attorney in Philadelphia, Pennsylvania.
Paul E. Thompson has been a Director of the Company since January 1994. From
1986 until his retirement in 1992, Mr. Thompson was a Sub-District Director,
District 23, of the United Steel Workers of America ("USWA"). Prior thereto,
Mr. Thompson was a Staff Representative, District 23, of the USWA.
W. Bruce Groff, Jr. has been the Vice President of Human Relations of the
Company since January 1998. Mr. Groff was the Director of Human Resources at
Cerro Metal Products from July, 1996, until joining the Company. Prior thereto,
Mr. Groff was the Director of Human Resources of Otis Elevator Company, North
American Operations for eight years and before that Mr. Groff held various
positions at Joy for 15 years, the last of which was Director of Labor
Relations.
Mark G. Meikle has been Vice President, Treasurer and Chief Financial Officer
of the Company since October 1996, Corporate Controller from February 1991 until
October 1996, and Assistant Controller from April 1989 to February 1991. Mr.
Meikle previously was employed by Ernst & Young working in both the audit and
tax departments. Mr. Meikle is a certified public accountant and a certified
management accountant.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the year ended December 31, 1997, the Board of Directors held 13
meetings. During that period no Director attended fewer than 75% of the
aggregate of (i) the total number of meetings of the Board of Directors held
during the period for which he was a Director and (ii) the total number of
meetings held by all Committees of the Board of Directors on which he served
during the period that he served on such Committees.
The Company's Board of Directors has a Compensation and Benefits Committee
and an Audit Committee. The Board of Directors does not have a standing
nominating committee. The Compensation and Benefits Committee (the "Compensation
Committee") reviews employee compensation and benefits, and the Audit Committee
reviews the scope of the independent audit, the appropriateness of the
accounting policies, the adequacy of internal controls, the Company's year-end
financial statements and such other matters relating to the Company's financial
affairs as its members deem appropriate. During 1997, the Compensation and
Benefits Committee held two meetings and the Audit Committee held one meeting.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth individual compensation
information for the Chief Executive Officer and each of the Company's executive
officers whose aggregate compensation exceeded $100,000 during the year ended
December 31, 1997 (the "Named Executive Officers").
6
<PAGE>
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Robert L. Bunting, Jr. 1997 $121,875 $ 85,995(4) $413,821(5)
(former) Chief Executive Officer 1996 225,000 112,500 8,538(5)
and Director (1) 1995 225,000 150,750 9,958(5)
Timothy R. Duke, Chief 1997 $219,775 $158,760(4) $ 12,703(6)
Executive Officer, President 1996 153,327 78,400 6,058(6)
and Director (2) 1995 139,167 77,679 9,570(6)
Mark G. Meikle, Vice President, 1997 $101,667 $ 58,960(4) $ 4,978(7)
Treasurer and Chief 1996 80,676 1,869 3,111(7)
Financial Officer 1995 70,544 5,470 3,609(7)
Larry E. Gue, (former) Vice 1997 $120,000 $ 1,987 $ 6,630(8)
President of Human 1996 120,000 1,869 5,268(8)
Resources (3) 1995 120,000 35,470 6,403(8)
</TABLE>
(1) Mr. Bunting retired from his positions as Chief Executive Officer and
Director as of July 11, 1997.
(2) Mr. Duke became the Chief Executive Officer of the Company on
July 11, 1997.
(3) Mr. Groff replaced Mr. Gue, as Vice President of Human Relations,
in January, 1998.
(4) Includes the following discretionary cash bonuses recognized in 1997 results
of operations but paid in January 1998; $85,995 to Robert L. Bunting, Jr.;
$158,760 to Timothy R. Duke; and $58,960 to Mark G. Meikle.
(5) Consists of (i) $383,644 paid to Mr. Bunting pursuant to the Non-Competition
Agreement described herein under "Agreements Regarding Termination of
Employment," (ii) $21,443 paid to Mr. Bunting pursuant to his supplemental
executive retirement plan, which paid the amount that he would have received
under the Company's tax qualified retirement plan if the Internal Revenue
Code limits did not apply; and (iii) $7,281, $6,081 and $7,500 contributed
to a defined contribution plan and $1,453, $2,457, and $2,458 of costs for
group-term life insurance coverage provided by the Company for 1997, 1996
and 1995, respectively.
(6) Consists of $7,500, $5,676 and $6,708 contributed to a defined contribution
plan, $593, $382, and $186 costs for group-term life insurance coverage
provided by the Company and $4,610, $0 and $2,676 paid in connection with
the Company's scholarship program, which is available to all employees to
which the Company pays a portion of the cost of post-high school education
for employees' dependents, for 1997, 1996 and 1995, respectively.
(7) Consists of $4,921, $3,076 and $3,583 contributed to a defined contribution
plan and $26, $35 and $57 of costs for group-term life insurance coverage
provided by the Company for 1997, 1996 and 1995, respectively.
(8) Consists of $6,000, $4,865 and $6,000 contributed to a defined contribution
plan and $630, $403 and $403 of costs for group-term life insurance
coverage provided by the Company for 1997, 1996 and 1995, respectively.
7
<PAGE>
The following tables present certain additional information concerning stock
options granted to the Named Executive Officers in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
GRANTED TO EXERCISE ANNUAL RATES OF
EMPLOYEES OR BASE STATED STOCK PRICE
OPTIONS IN FISCAL PRICE(PER EXPIRATION APPRECIATION FOR
NAME GRANTED(#)(1) YEAR SHARE)(2) DATE OPTION TERM(3)
- ---- ------------- ----------- ---------- --------- --------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
---------- ---------
Robert L. Bunting, Jr. 12,300(4) 17.2 $9.00 5/15/07 $180,319 $287,123
Timothy R. Duke 11,700 16.4 $9.00 5/15/07 171,523 273,117
Mark G. Meikle 4,800 6.7 $9.00 5/15/07 70,368 112,048
Larry E. Gue 3,600 5.0 $9.00 5/15/07 52,776 84,036
- --------------------------
</TABLE>
(1) These options were granted as of May 15, 1997 in connection with the
Company's 1995 Employee Stock Option Plan, and each option becomes
exercisable on May 15, 1998.
(2) The exercise price for these options is equal to the market price of the
Company's Common Stock on May 15, 1997.
(3) The amounts shown under these columns are the result of calculations at
5% and 10% rates over the ten year term of the options as required by the
Securities and Exchange Commission and are not intended to forecast future
appreciation of the stock price of the Company's Common Stock. The actual
value, if any, an executive officer may realize will depend on the excess of
the stock price over the exercise price on the date the option is exercised.
(4) These options expired on July 11, 1997, upon Mr. Bunting's retirement.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money
at December 31, 1997 Options at December 31, 1997
------------------------------ ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C>
Robert L. Bunting, Jr. 8,000 0 --- $ ---
Timothy R. Duke 6,000 11,700 --- 1,462
Mark G. Meikle 3,000 4,800 --- 600
Larry Gue 3,000 3,600 --- 450
</TABLE>
AGREEMENTS REGARDING TERMINATION OF EMPLOYMENT
The Company entered into Change of Control Severance Agreements with Mr. Duke
and Mr. Meikle, dated July 9, 1997 and July 7, 1997, respectively, which provide
that upon a "change of control," Mr. Duke or Mr. Meikle will be entitled to
receive an amount equal to the greater of (i) 125% of his annual base salary for
the year in which such severance of employment occurs, and (ii) 125% of his
annual base salary for the year preceding the
8
<PAGE>
year in which such severance of employment occurs, payable at Mr. Duke's or Mr.
Meikle's option in a lump sum or bi-monthly during the 12 months following such
severance. A "change of control" is defined in the agreement to have occurred
if (i) the Company or SWVA, Inc., a wholly-owned subsidiary of the Company
("SWVA"), is a party to a merger or combination under the terms of which any
person or group (as that term is defined in Rule 13d-5 under the Securities and
Exchange Act of 1934, as amended) owns 20% or more of the shares in the
resulting company, or (ii) at least 50% in fair market value of the Company's or
SWVA's assets are sold, or (iii) at least 20% in voting power in election of
directors of the Company's or SWVA's capital stock is acquired by any one person
or group as that term is used in Rule 13d-5, or (iv) the individuals comprising
the Board of Directors of the Company on the date of the agreement cease to
comprise a majority of the Board of Directors of the Company or SWVA.
In connection with Mr. Bunting's retirement from the positions of Chairman
and Chief Executive Officer the Company and Mr. Bunting entered into a Non-
Competition Agreement effective as of July 11, 1997. The Non-Competition
Agreement provides that Mr. Bunting will not engage in any activities that are
competitive with the Company during the 18 month period following the effective
date of that Agreement. Pursuant to said Agreement Mr. Bunting received a lump-
sum payment of 383,644.
DIRECTORS' COMPENSATION
Pursuant to the 1995 Non-Employee Director's Stock Option Plan (the
"Directors' Plan"), which is administered by the Compensation Committee, on
April 1 of each year each Director (currently Messrs. Albert, Eastburn, Pickens
and Thompson) who is not an active employee of the Company receives a grant of
options to purchase 2,000 shares of Common Stock. All such options are
exercisable at the fair market value (determined in accordance with the
provisions of the Directors' Plan) at the date of grant, commencing on the first
anniversary of that date, and expire ten years after that date. The Directors'
Plan authorizes the issuance of up to 70,000 shares of Common Stock upon the
exercise of non-qualified stock options granted to non-employee Directors of the
Company.
The non-employee Directors (other than Mr. Albert) also receive cash
compensation for services as a Director, consisting of an annual retainer in the
amount of $6,000, a fee of $1,000 for each committee on which he serves, and a
fee of $1,000 for each meeting of the Board of Directors, the Compensation
Committee and the Audit Committee that he attends, of which $11,000 of the
compensation payable for a given year is paid in cash, and the balance of such
compensation is paid by an award of shares of the Company's Common Stock. The
award is paid on December 15 of each year, with the number of shares to be
awarded determined by dividing the Director's compensation for the year, less
$11,000, by the fair market value of the Common Stock on that date, with the
Director receiving cash in lieu of fractional shares. In 1997, the non-employee
Directors as a group received for their services as Directors cash compensation
of $33,000 and 4,026 shares of Common Stock.
As of March 24, 1998, all Directors who are not active employees of the
Company have been granted options for an aggregate of 32,000 shares (8,000
shares each), of which options to acquire 24,000 shares have vested, and options
to acquire 6,000 shares will vest on April 1, 1999. Of the vested options, one-
third have an exercise price of $11 5/8 per share, one-third have an exercise
price of $9 per share, and one-third have an exercise price of $8 per share. The
exercise price of the unvested options is $10 1/4 per share. All of the options
are for a period of ten years from the date of grant.
On March 24, 1998, the closing sale price for the Common Stock on the NASDAQ
Stock Market, Inc. $10 1/2.
COMPENSATION COMMITTEE REPORT
COMPENSATION POLICIES
The Compensation Committee of the Board of Directors is comprised of
Directors who are not active employees of the Company. The Compensation
Committee is responsible for reviewing and making
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recommendations to the Board of Directors regarding the compensation and
benefits of the Company's management. The Committee's philosophy is that the
Company's goals are more likely to be achieved if management is encouraged to
work together as a team and if final compensation is tied to the Company's and
the individual's performance during the year, so that incentive compensation is
awarded to management personnel, including the Company's Chief Executive
Officer, to the extent that the Company achieves certain corporate goals, and
the particular individual achieves certain personal goals. These goals include
such Company factors as the change in operating income from the prior year, the
Company's achievement of budgeted earnings objectives, and the Company's results
of operations in light of economic conditions in the industry and the general
economy, and such personal factors as the individual's supervision of or
performance in his or her particular business unit, and his or her supervision
of significant corporate projects. Stock options are granted so as to more
directly align the long-term financial interests of the Company's management and
stockholders.
FISCAL 1997 COMPENSATION
In 1997, the base compensation of the Company's Chief Executive Officer,
Timothy R. Duke, was $225,000, which was the base compensation earned by the
preceding Chief Executive Officer and the base compensation deemed by the
Compensation Committee to be appropriate for the position. Discretionary
bonuses awarded to management personnel for 1997 were paid in 1998, as described
under "Executive Compensation." In May 1997 the Compensation Committee granted
options for a total of 79,500 shares of Common Stock, including options granted
to the Named Executive Officers (as set forth herein under "Option Grants in
Last Fiscal Year"), at an exercise price of $9.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Albert W. Eastburn, a member of the Compensation Committee, was elected the
Chairman of the Company as of July 11, 1997. The compensation received by Mr.
Eastburn for serving as a Director of the Company is non-discretionary, as
described above under "Directors' Compensation." Mr. Eastburn receives no
additional compensation for serving as Chairman.
COMPENSATION COMMITTEE
Albert W. Eastburn
Daniel N. Pickens
Paul E. Thompson
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PERFORMANCE GRAPH
Below is a graph comparing the cumulative total stockholder return on the
Company's Common Stock for the last five years with the cumulative total return
of companies included in the S&P 500 Stock Index and an index of peer companies
selected by the Company. The graph assumes (i) investment of $100 on December
31, 1992 in the Company's Common Stock, the S&P 500 Index and common stock of
the peer group and (ii) the reinvestment of all dividends. The peer group
consists of Commercial Metals Co., Lukens, Inc., New Jersey Steel Corp., Nucor
Corp. and Roanoke Electric Steel Corp.
[PERFORMANCE GRAPH APPEARS HERE]
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
PEER GROUP 100.00% 130.32% 134.99% 138.98% 125.11% 118.49%
SWVA 100.00% 154.55% 133.33% 112.12% 90.91% 110.61%
S&P 500 100.00% 107.06% 105.41% 141.36% 170.01% 222.72%
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's Directors, executive officers and beneficial owners of
more than 10% of the Company's Common Stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Form 5's
to report the receipt of stock option grants to Messrs. Stephen Albert, Albert
Eastburn, Timothy Duke, Daniel Pickens, Paul Thompson, Mark Meikle, Larry Gue
and Robert L. Bunting under the Company's 1995 Employee Stock Option Plan and
the Directors' Plan, and to report the receipt of Common Stock by Messrs.
Eastburn, Pickens and Thompson pursuant to the Directors' Plan, all of which
Forms have been filed, were not initially filed on a timely basis. Mr. T. Elton
North, the former President of Marshal Steel, Inc. (a wholly-owned subsidiary of
the Company), did not file a Form 5 with regard to stock options granted to him
in May 1997, which options expired upon his leaving the Company in December
1997.
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CERTAIN TRANSACTIONS
The law firm of Sierchio & Albert, P.C., of which Stephen Albert, a Director
of the Company, is a member, has served as general counsel to the Company since
January 1996. In 1997, the Company paid legal fees totalling $123,000 to
Sierchio & Albert, P.C. for general representation of the Company.
PROPOSAL 2. AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
AUTHORIZE 5,000,000 ADDITIONAL SHARES OF COMMON STOCK
The Board of Directors of the Company has approved, subject to stockholder
approval, an amendment to Article FOURTH of the Company's Certificate of
Incorporation to increase the authorized shares of Common Stock from 12,000,000
to 17,000,000. The full text of the proposed amendment is as follows:
"FOURTH: The total number of shares of capital stock that the Corporation
shall have authority to issue is seventeen million (17,000,000) shares of
Common Stock, par value $.01 per share."
As of March 25, 1998, there were 6,010,795 shares of Common Stock
outstanding, and options to purchase an aggregate of 145,500 shares of Common
Stock were outstanding under the 1995 Employee Stock Option Plan and the
Directors' Plan (the "Option Plans") (a total of 500,000 shares are reserved for
issuance under the Option Plans). The additional shares of Common Stock that
would be available for issuance if the proposed amendment to the Certificate of
Incorporation is approved may be issued for any proper corporate purpose at any
time without further stockholder approval (subject, however, to applicable
statutes or the rules of the NASDAQ National Market which require stockholder
approval for the issuance of shares in certain circumstances). The Board of
Directors believes it is desirable to give the Company this flexibility in
considering such matters as raising additional capital, acquisitions, or other
corporate purposes, including any future issuance of shares in connection with
the Company's Shareholders' Rights Plan. The authorization of such shares will
enable the Company to act promptly and without additional expense if appropriate
circumstances arise which require the issuance of such shares. The Company has
no current agreements, commitments, plans or intentions to issue any additional
shares. Holders of Common Stock are not entitled to preemptive rights, and to
the extent that any additional shares of Common Stock or securities convertible
into Common Stock may be issued other than on a pro rata basis to current
stockholders, the current ownership portion of current stockholders may be
diluted. Depending upon the circumstances in which such additional shares of
Common Stock are issued, the overall effects of such issuance may be to render
more difficult or to discourage a merger, tender offer, proxy contest, or the
assumption of control by a holder of a large block of Common Stock and the
removal of incumbent management. For example, such shares could be used to
create voting or other impediments or to discourage persons seeking to gain
control of the Company, and such shares could be privately placed with
purchasers favorable to the Board of Directors in opposing such action. The
issuance of new shares also could be used to dilute the stock ownership of a
person or entity seeking to obtain control of the Company should the Board of
Directors consider an action of such entity or person not to be in the best
interests of the stockholders and the Company. Management of the Company is not
aware of any takeover attempts at this time.
In the absence of instructions to the contrary, the shares of Common Stock
requested by a proxy delivered to the Board of Directors will be voted FOR the
approval of the amendment to the Company's Certificate of Incorporation to
authorize 5,000,000 additional shares of Common Stock.
ACCOUNTANTS
PROPOSAL 3. SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends the ratification by the stockholders of the
reappointment by the Board of Directors of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 1998. In the
absence of instructions to the contrary, the shares of Common Stock represented
by a proxy delivered to the Board of Directors will be voted FOR the
ratification of the reappointment of Ernst & Young LLP.
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A representative of Ernst & Young LLP is expected to be present at the Annual
Meeting and will be available to respond to appropriate questions and make such
statements as he or she may desire.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINEES
FOR 1999 ANNUAL MEETING
It is contemplated that the Company's 1999 Annual Meeting of Stockholders
will be held on or about May 27, 1999. Stockholders of the Company who intend
to submit proposals or submit nominees for the election of Directors at the next
Annual Meeting of Stockholders must submit such proposals to the Company no
later than December 10, 1998. Stockholder proposals should be submitted to
Steel of West Virginia, Inc., P.O. Box 2547, Huntington, West Virginia 25726,
Attention: Mark G. Meikle, Vice President, Treasurer and Chief Financial
Officer.
ANNUAL REPORT
The Company's Annual Report for the year ended December 31, 1997, including
financial statements, is being mailed together with this Proxy Statement to the
Company's stockholders of record at the close of business on April 3, 1998. THE
COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED BY
THIS PROXY STATEMENT A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
A WRITTEN REQUEST FOR A COPY OF SUCH ANNUAL REPORT ON FORM 10-K SHOULD BE
DIRECTED TO STEEL OF WEST VIRGINIA, INC., P.O. BOX 2547, HUNTINGTON, WEST
VIRGINIA 25726, ATTENTION: MARK G. MEIKLE, VICE PRESIDENT, TREASURER AND CHIEF
FINANCIAL OFFICER.
OTHER BUSINESS
The Board of Directors does not know of any other business to be presented to
the meeting and does not intend to bring any other matters before the meeting.
However, if any other matters properly come before the meeting or any
adjournments thereof, it is intended that the persons named in the accompanying
proxy will vote thereon according to their best judgment in the interests of the
Company.
By Order of the Board of Directors
Stephen A. Albert
Secretary
APRIL 10, 1998
STOCKHOLDERS ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES. YOUR PROMPT RESPONSE WILL BE HELPFUL, AND YOUR COOPERATION
WILL BE APPRECIATED.
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EXHIBIT 3
Employment Agreement between the Company and Timothy R.
Duke dated November 10, 1998.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated this 10th day of November, 1998, by and between Steel of
West Virginia, Inc. (the "Company") and Timothy R. Duke ("Executive").
WITNESSETH:
WHEREAS, the Company is engaged in the business of manufacturing steel and
steel products, fabricating steel components, truck trailers, off-highway
construction equipment, industrial lift trucks, accessories for the mining
industry and related services (the "Business");
WHEREAS, Executive is and has been employed by the Company in the
capacities of President and Chief Executive Officer;
WHEREAS, the Company is entering into an Agreement and Plan of Merger dated
November 10, 1998 by and among Roanoke Electric Steel Corporation ("Parent"),
SWVA Acquisition, Inc. ("Acquisition") and the Company (the "Merger Agreement")
pursuant to which, among other things, Acquisition will make a tender offer for
the shares of Company (the "Offer"), and Acquisition will be merged into the
Company (the "Merger"); and
WHEREAS, pursuant to and simultaneous with the acceptance and payment
for the Shares in the Offer, the Company wishes to retain the services of
Executive as the President and CEO of the Company; and Executive wishes to
assume the position of President and CEO of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the Company and Executive agree as follows:
1. Employment and Other Positions:
(a) The Company hereby agrees to employ Executive, and Executive
hereby agrees to serve, subject to the provisions of this Agreement, as an
employee of Company in accordance with the terms of this Agreement. Executive
agrees to devote all of his business time, attention and energies to the
performance of the duties assigned to him hereunder, and to perform such duties
faithfully, diligently and to the best of his abilities and subject to such
laws, rules, regulations and policies from time to time applicable to the
Company's employees. Except as otherwise provided herein, Executive is
permitted to pursue outside interests, including, but not limited to charitable
work, membership in trade associations, industry boards, and on the boards of
directors of other companies, provided that such outside interests do not
interfere with the performance of his duties and obligations hereunder, and
further provided that Executive receives the prior consent of the Board of
Directors of the Company which consent will not be
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unreasonably withheld. Executive agrees to refrain from engaging in any activity
that does, will or could reasonably be deemed to conflict with the best
interests of the Company. Without limiting the generality of the foregoing,
Executive shall perform the duties associated with the positions of President
and CEO, and such other duties and responsibilities as are from time to time
assigned to Executive by the Board of Directors of the Company consistent with
such positions, at his current office location, or in such other capacity or at
such other locations as may be mutually agreed by Company and Executive.
(b) In addition to the employment specified above, in accordance with
Section 6.8 of the Merger Agreement, Executive shall be appointed to the Board
of Parent and thereafter nominated for such position at the next annual meeting
of stockholders of Parent, and Parent will appoint Executive as a director of
the Company for such terms as he shall serve as a director of Parent during the
term of this Agreement.
2. Term: This Agreement shall commence upon acceptance and payment for
the Shares in the Offer , as set forth in the Merger Agreement, and shall
expire on the third (3rd) anniversary thereof (the "Term"), unless sooner
terminated in accordance with Section 7 hereof; except that, if the Effective
Time of the Merger shall not occur within one hundred and twenty (120) days of
the Outside Date for the Offer, all as defined in the Merger Agreement, Company
or Parent may declare the Agreement null and void, and other than for any
amounts payable by reason of Section 8(b) hereof, and, notwithstanding anything
herein otherwise to the contrary, neither Company nor Parent shall have any
further responsibility for any payments of any amounts or for the provision of
any benefits to Executive under this Agreement.
3. Compensation:
(a) Base Salary: Executive's base salary shall be at the annual
rate of Two Hundred and Twenty-Five Thousand Dollars ($225,000) (the "Annual
Base Salary") during the Term, payable in accordance with the Company's regular
payroll practices. All applicable withholding taxes shall be deducted from such
payments. Annual Base Salary may be increased (but not decreased), from time to
time during the Term, in the exercise of the good faith discretion of the
Company's Board of Directors.
(b) Incentive Plan: Executive shall receive additional compensation,
if and as provided in any incentive compensation plan applicable to Executive,
adopted, in the sole discretion of the Board of Directors of the Company, from
time to time (herein referred to as the "Incentive Amount"). The current
Incentive Plan applicable to Executive is described in Schedule 1 attached
hereto and incorporated herein by reference.
4. Benefits: Executive shall be eligible to participate in such benefit
plans, including but not limited to stock option and similar plans and officers'
and directors' liability insurance, as are, or from time-to-time hereafter may
be, provided by the Company or Parent for executive employees and/or directors
(except salary Incentive Plans or similar incentive
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compensation plans, other than stock option plans of Parent or any other
subsidiary of Parent, except as described in Section 3(b) above and as set forth
in the Merger Agreement), and as permitted by the terms of such plans Where
different plans covering substantially similar benefits are provided by each of
the Company and Parent, Executive shall participate, if permitted by the terms
of the plan, in the plan that provides the higher level of benefits (except that
Executive shall not be entitled to simultaneously participate in plans of both
of the Company and Parent covering the same or substantially similar benefits).
All benefits shall be provided to Executive in accordance with the terms and
conditions of such benefit plans and programs as are maintained by the Company
or Parent, as such plans are amended from time to time.
5. Reimbursement of Expenses: The Company shall reimburse Executive for
reasonable and necessary business expenses of Executive for travel, meals and
similar items incurred in connection with the performance of Executive's duties,
and which are consistent with such guidelines as the Board of Directors of the
Company may from time to time establish. All payments for reimbursement of such
expenses shall be made to the Executive only upon the presentation to the
Company of appropriate vouchers or receipts, if, and in such form as may be,
required by such guidelines, from time to time.
6. Confidentiality, Non-Competition, Etc.:
(a) Executive acknowledges that: (i) the Business is highly
competitive and that Executive's employment by the Company will require that
Executive have access to and knowledge of confidential information of the
Company which may include, but shall not be limited to, the identity of the
Company's customers, the identity of the representatives of customers with whom
the Company has dealt, the kinds of products and services provided by the
Company to customers and offered to potential customers, the manner in which
such products are manufactured and such services are performed or offered to be
manufactured or performed, the needs of actual or prospective customers, pricing
information, information concerning the creation, acquisition or disposition of
products and services, computer software applications and other programs,
personnel information and other trade secrets not generally known to the public
(the "Confidential Information"); (ii) the direct and indirect disclosure of any
such Confidential Information to existing or potential competitors of the
Company would place the Company at a competitive disadvantage and would do
damage, monetary or otherwise, to the Company's business; and (iii) the engaging
by Executive in any of the activities prohibited by this Section 8 would
constitute improper appropriation and/or use of such Confidential Information.
Executive expressly acknowledges the trade secret status of the Confidential
Information and that the Confidential Information constitutes a protectible
business interest of the Company.
(b) For purposes of this Section 6, the "Company" shall be construed
to include the Company and its parents, subsidiaries and affiliated companies of
each engaged in the Business, including any divisions or subsidiaries managed by
Executive.
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<PAGE>
(c) During Executive's Term of employment, and at all times after the
termination of Executive's employment, by expiration of the Term or otherwise,
Executive shall not, directly or indirectly, whether individually, as a
director, stockholder, owner, partner, employee, principal or agent of any
business, or in any other capacity, make known, disclose, furnish, make
available or utilize any of the Confidential Information, other than in the
proper performance of the duties contemplated herein, or as expressly permitted
herein, or as required by a court of competent jurisdiction or other
administrative or legislative body; provided that, prior to disclosing any of
the Confidential Information as required by a court or other administrative or
legislative body, Executive shall promptly notify the Company so that the
Company may seek a protective order or other appropriate remedy. Executive
agrees to return all Confidential Information, including all photocopies,
extracts and summaries thereof, and any such information stored electronically
on tapes, computer disks or in any other manner to the Company at any time upon
request by the Company and upon the termination of his employment for any
reason.
(d) During Executive's employment hereunder, Executive shall not
engage in "Competition" with the Company. For purposes of this Agreement,
"Competition" by Executive shall mean Executive's engaging in, or otherwise
directly or indirectly being employed by or acting as a consultant or lender to,
or being a director, officer, employee, principal, agent, stockholder, member,
owner or partner of, or permitting his name to be used in connection with the
activities of any other business or organization anywhere in the United States
which competes, directly or indirectly, with the Business of the Company. This
provision shall not, however, prevent Executive from owning 19.9% or less of any
publicly traded company which may compete with the Company, provided Executive
has no active participation with such company, including but not limited to
serving on such company's board of directors.
(e) Executive acknowledges that the services to be rendered by him to
the Company are of a special and unique character, which gives this Agreement a
peculiar value to the Company, the loss of which may not be reasonably or
adequately compensated for by damages in an action at law; and that a material
breach or threatened breach by him of any of the provisions contained in this
Section 6 will cause the Company irreparable injury. Executive therefore
agrees that the Company shall be entitled, in addition to any other right or
remedy, to a temporary, preliminary and permanent injunction, without the
necessity of proving the inadequacy of monetary damages or the posting of any
bond or security, enjoining or restraining Executive from any such violation or
threatened violations.
(f) Executive further acknowledges and agrees that, due to the
uniqueness of his services and confidential nature of the information he will
possess, the covenants set forth herein are reasonable and necessary for the
protection of the Business and goodwill of the Company.
(g) Should a court of competent jurisdiction determine that any of the
restrictions set forth in this Section 6, including those as regards the scope
of Executive's
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activities restricted, the duration of the restriction or the geographic scope
of the restriction, is overly broad or unenforceable as written, the parties
agree that this Agreement shall be deemed amended to reduce any or all of such
restrictions to those deemed appropriate and enforceable by such court.
7. Termination:
(a) The employment of Executive hereunder shall terminate on the first
to occur of the following:
(i) the date of Executive's death, adjudicated incompetency or
adjudicated bankruptcy;
(ii) the date on which Executive shall have experienced a
Disability (as defined below), and the Board of Directors of the Company
gives Executive notice of termination on account of Disability;
(iii) the date on which Executive shall have engaged in conduct
which constitutes Cause (as defined below), and the Board of Directors of
the Company gives Executive notice of termination for Cause;
(iv) the date on which Executive gives the Company notice of
termination for Good Reason (as defined below); or,
(v) expiration of the Term.
(b) For purposes of this Agreement, "Disability" shall mean an
illness, injury or other incapacitating condition as a result of which Executive
is unable to perform the services required to be performed under this Agreement
for a period of one hundred eighty (180) consecutive days during the Term;
provided, however, that if long term disability insurance benefits payable to
Executive pursuant to any policy of disability insurance then maintained by the
Company or Parent for the benefit of employees commences during such 180-day
period, the amount payable to Executive for such benefits shall be deducted from
the Annual Base Salary payable to Executive for as long as such benefits are
payable. Executive agrees to submit to such medical examinations as may be
necessary to determine whether a Disability exists, pursuant to such reasonable
requests made by the Board of Directors of the Company, from time to time.
(c) For purposes of this Agreement, "Cause" shall mean the occurrence
of any of the following:
(i) Executive's willful and continued failure to substantially
perform his duties with the Company, other than by reason of physical or
mental illness;
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(ii) Executive's conviction of, guilty plea, to plea of nolo
contendere or confession to, a felony or misdemeanor involving fraud, theft
or other Class 1 or Class 2 misdemeanor;
(iii) Executive willfully or negligently engaging in conduct
which is demonstrably and materially injurious to the Company, monetarily
or otherwise;
(iv) Any attempt of Executive to obtain any personal profit from
any transactions in which the Executive has an interest which is adverse to
the Company unless Executive shall first obtain the consent of the
Company's Board of Directors; or,
(v) Executive's breach of any material term of this Agreement.
Notwithstanding the foregoing, Cause shall not be deemed to have occurred
in the case of Section 7(c)(i), (iii), (iv) or (v) until Company shall have
given Executive notice of the facts that constitute Cause and Executive shall
have failed to cure such Cause within ten (10) business days.
(d) For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following:
(i) Company's failure to maintain Executive's job privileges
and responsibilities in a manner generally consistent with and reasonable
for the position of President and CEO of the Company;
(ii) Company's breach of any of the material terms of this
Agreement;
(iii) Relocation of Executive's principal office outside of the
Huntington, West Virginia area, without Executive's prior consent; or
(iv) The occurrence of a Change in Control, meaning: a change
in control of Parent of a nature that would be required to be reported
(assuming such event has not been "previously reported") in response to
Item 1(a) of the Current Report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act"); provided that, without limitation, such
a Change in Control shall be deemed to have occurred at such time as (i)
any Person is or becomes the "beneficial owner" (as defined in Rule 13d-3
or Rule 13d-5 under the Exchange Act as in effect on January 1, 1996),
directly or indirectly, of 20% or more of the combined voting power of
Parent's voting securities; (ii) the Incumbent Board of Parent ceases for
any reason to constitute at least the majority of the Board; provided,
however, that any person becoming a director subsequent to the date hereof
whose election, or nomination for election by Parent's shareholders was
approved by a vote of at least 75% of the directors comprising the
Incumbent Board (either by a specific vote or by
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approval of the proxy statement of Parent in which such person is named as
a nominee for director, without objection to such nomination) shall be, for
purposes of this clause (ii), considered as though such person were a
member of the Incumbent Board; (iii) all or substantially all of the assets
of Parent are sold, transferred or conveyed if the transferee is not
controlled by Parent (control meaning the ownership of more than 50% of the
combined voting power of such entity's voting securities); or (iv) Parent
is merged or consolidated with another corporation or entity and, as a
result of such merger or consolidation, less than 75% of the outstanding
voting securities of the surviving or resulting corporation or entity shall
be owned in the aggregate by the former shareholders of Parent.
Notwithstanding anything in the foregoing to the contrary, no Change in
Control shall be deemed to have occurred for purposes of this Agreement by
virtue of any transaction (i) which results in the Executive or a group of
Persons which includes the Executive, acquiring, directly or indirectly,
20% or more of the combined voting power of Parent's voting securities; or
(ii) which results in Parent, any subsidiary of Parent or any profit-
sharing plan, employee stock ownership plan or employee benefit plan of the
Company or Parent or any of Parent's subsidiaries (or any trustee of or
fiduciary with respect to any such plan acting in such capacity) acquiring,
directly or indirectly, 20% or more of the combined voting power of
Parent's voting securities.
Notwithstanding the foregoing, Good Reason shall not be deemed to have
occurred in the case of Section 7(d)(i) or (ii) until Executive shall have
given Company notice of the facts that constitute Good Reason and Company
shall have failed to cure such Good Reason within ten (10) business days.
8. Compensation in Event of Termination; Survival:
(a) Upon termination of Executive's employment for any reason, this
Agreement shall terminate and the Company shall have no further obligation to
Executive except as set forth in this Section 8; provided that, the provisions
set forth in Sections 6 (with the exception of Section 6(d)), 11 and 12 hereof
shall remain in full force and effect after the termination of Executive's
employment.
(b) In the event Executive's employment is terminated pursuant to
Sections 7(a)(i) through (iii) or (v) prior to the expiration of the Term,
Executive or his estate, conservator or designated beneficiary, as the case may
be, shall be entitled to payment of any accrued but unpaid Annual Base Salary,
accrued but unpaid Incentive Amount, and reimbursement of incurred business
expenses (upon the conditions set forth in Section 5 hereof), all through the
date of termination, subject, however, to the Company's right to pursue any
claims for any damages which it may incur by reason of termination in accordance
with Section 7(a)(iii). Following any such termination, neither Executive nor
his estate, conservator or designated beneficiary shall be entitled to receive
any other salary or other payment provided for hereunder
-7-
<PAGE>
with respect to any period after such termination, except as Executive may
otherwise be entitled pursuant to any employee benefit plan.
(c) In the event Executive's employment is terminated pursuant to
Section 7(a)(iv) , in addition to the payment of amounts payable under Section
8(b) above, Executive shall be entitled to receive, as his sole and exclusive
remedy, the Annual Base Salary, payable for the remainder of the Term, payable
in installments in accordance with the Company's regular payroll practices,
after deduction of all applicable withholding taxes and similar payments, which
sum shall not be offset by any amounts otherwise earned by Executive during such
period, and Executive shall have no duty to seek other employment during such
period.
9. Assignment: The duties assumed hereunder by Executive shall not be
assignable by Executive. It is further agreed that neither Executive or any
beneficiary of any amount hereunder shall have any right to commute, sell,
assign, transfer or otherwise convey the right to receive any payment hereunder,
except as expressly provided herein or in the applicable plan, etc., which
payments and the right thereto are expressly declared to be non-assignable and
non-transferable, and in the event of any attempted assignment or transfer,
Company shall have no further liability hereunder. Company may only assign this
Agreement as contemplated in Paragraph 10 hereof.
10. Successors and Assigns; Binding Agreement: This Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective heirs, administrators, executors, successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and Business.
11. Return of Company Property: Executive agrees that, promptly following
the termination of his employment for any reason, he shall return all property
of the Company, its subsidiaries, affiliates and any divisions thereof which is
then in or thereafter comes into his possession, including, but not limited to,
documents, contracts, agreements, plans, photographs, books, notes,
electronically stored data and all copies of the foregoing, as well as any
materials or equipment supplied by the Company to Executive.
12. Resignation as Director: Executive shall, promptly following the
termination of his employment for any reason, resign as a director of Parent and
as a director of Company, respectively, to the extent that he is serving in
either of those capacities at the time of termination.
13. Entire Agreement: This Agreement sets forth the entire agreement
between the parties with respect to its subject matter and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
between them, including any prior employment agreement, whether written or oral,
between the Company and Executive as of the effective date of the Term, and
neither party shall be bound by any term or condition with respect
-8-
<PAGE>
to the subject matter of this Agreement other than as expressly set forth or
provided for herein. This Agreement may not be changed or modified except by an
agreement in writing, signed by the parties hereto.
14. Each Party the Drafter: This Agreement and the provisions contained
in it shall not be construed or interpreted for or against any party to this
Agreement because that party drafted or caused that party's legal representative
to draft any of its provisions.
15. Waiver: The failure of either party to this Agreement to enforce any
of its terms, provisions or covenants shall not be construed as a waiver of the
same or of the right of such party to enforce the same. Waiver by either party
hereto of any breach or default by the other party of any term or provision of
this Agreement shall not operate as a waiver of any other breach or default.
16. Severability: In the event that any one or more of the provisions of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remainder of the Agreement shall
not in any way be affected or impaired thereby. Moreover, if any one or more of
the provisions contained in this Agreement shall be held to be excessively broad
as to duration, activity or subject, such provisions shall be construed by
limiting and reducing them so as to be enforceable to the maximum extent allowed
by applicable law.
17. Arbitration: Any controversy or claim arising out of or related to
this Agreement or the breach thereof shall be settled by arbitration to be
conducted in Roanoke, Virginia, in accordance with the rules of American
Arbitration Association. The decision of the arbitrator shall be final and
binding and judgment upon the award rendered thereby may be entered in any court
having competent jurisdiction thereof. The expenses of the arbitration shall be
shared equally by the Company and Executive; except that each of the parties
hereto shall be individually responsible for any and all attorneys,
accountants, consultants or other expert witness fees and expenses incurred by
such party in relation to such arbitration.
18. Governing Law: This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, without regard to its
conflict of law rules.
19. Descriptive Headings: The paragraph headings and recitals contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
20. Counterparts: This Agreement may be executed in one or more
counterparts, which, together, shall constitute one and the same agreement.
-9-
<PAGE>
21. Guarantee: Parent hereby joins in this Agreement to guarantee the
performance of the covenants and agreements herein made by the Company.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
THE COMPANY EXECUTIVE
By: /s/ Mark G. Meikle /s/ Timothy R. Duke
---------------------------- ----------------------
Its: Vice President and
Chief Financial Officer
PARENT
By: /s/ Donald G. Smith
-----------------------------
Its: Chairman of the Board, President,
Treasurer and Chief Executive Officer
-11-
<PAGE>
SCHEDULE A
CURRENT INCENTIVE PLAN
From the Effective Date of the Employment Agreement and for fiscal year
1998-1999, the Incentive Compensation Plan applicable to the Agreement pursuant
to Section 3(b) shall be as follows:
Employee shall be paid, in addition to Annual Base Compensation, on a
monthly basis, an amount equal to two percent (2%) of the monthly gross
profits of the Company (exclusive of profits of Parent or subsidiaries of
Parent than SWVA, Inc., Marshall Steel, Inc., and Steel Ventures, Inc.), if
any, before profit sharing contributions and taxes, but after deduction of
only such interest expense as would have been attributable to the
financing in place for the Company immediately prior to acceptance and
payment for the Shares in the Offer, as set forth in the Merger Agreement,
all as determined by the Company's certified public accountants (the
"Incentive Amount").
Beginning in fiscal year 1999-2000, and thereafter, the Incentive Plan
applicable to the Agreement shall be such Incentive Plan as is, from time
to time, determined by the Board of the Company.
-12-
<PAGE>
EXHIBIT 4
Letter to Stockholders of the Company, dated
November 17, 1998.*
<PAGE>
[LOGO OF STEEL OF WEST VIRGINIA APPEARS HERE]
November 17, 1998
To the Shareholders of
Steel of West Virginia, Inc.:
We are pleased to inform you that on November 10, 1998, Steel of West
Virginia, Inc. (the "Company") entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Roanoke Electric Steel Corporation (the
"Parent") and SWVA Acquisition, Inc., a wholly owned subsidiary of the Parent
(the "Purchaser"), pursuant to which the Purchaser has today commenced a
tender offer (the "Offer") to purchase all of the outstanding shares of common
stock, $.01 par value per share (the "Shares"), of the Company for $10.75 per
Share in cash. Under the terms of the Merger Agreement, following the
successful completion of the Offer, the Purchaser will be merged (the
"Merger") with and into the Company, and all Shares not purchased in the Offer
(other than Shares owned by the Parent, the Purchaser or the Company, or
Shares owned by stockholders of the Company who properly exercise appraisal
rights under Delaware law) will be converted into the right to receive $10.75
per Share in cash, or such higher price as may be paid in the Offer.
Your Board of Directors has approved the Merger Agreement, the Offer and the
Merger and has determined that each of the Offer and the Merger is fair to,
and in the best interests of, the Company's stockholders. The Board of
Directors unanimously recommends that the Company's stockholders accept the
Offer and tender their Shares in the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the opinion of Janney Montgomery Scott Inc.,
the Company's financial advisor, that the consideration to be received by the
stockholders of the Company in the Offer and the Merger is fair to the
stockholders of the Company from a financial point of view. A copy of the
fairness opinion is attached to the Schedule 14D-9 as Annex I thereto.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Purchaser's Offer to Purchase, dated November 17, 1998,
together with related materials, including a Letter of Transmittal to be used
for tendering your Shares. These documents set forth the terms and conditions
of the Offer and the Merger and provide instructions as to how to tender your
Shares. Additionally, certain information required by Section 14(f) of the
Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder, is
enclosed in an Information Statement attached as Annex II to the Schedule 14D-
9. We urge you to read the enclosed materials carefully.
Sincerely,
/s/ Timothy R. Duke
President and Chief Executive
Officer
Steel of West Virginia Address Logo
<PAGE>
EXHIBIT 5
Opinion of Janney Montgomery Scott Inc. dated
November 10, 1998.*
<PAGE>
ANNEX I
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT APPEARS HERE]
November 10, 1998
Board of Directors
Steel of West Virginia, Inc.
17th Street and 2nd Avenue
Huntington, WV 25703
Dear Members of the Board:
You have requested our opinion with respect to the fairness, from a
financial point of view, to the stockholders of Steel of West Virginia, Inc.
(the "Company") of the consideration to be received by such stockholders
pursuant to the Agreement and Plan Of Merger (the "Agreement") dated November
10, 1998 by and among Roanoke Electric Steel Corporation, SWVA Acquisition,
Inc. (together, "Roanoke"), and the Company.
Under the terms of the Agreement, Roanoke will commence a tender offer to
purchase all of the issued and outstanding common stock of the Company for
$10.75 per share, in cash (the "Tender Offer"), and after acceptance for
payment of all shares tendered and not withdrawn in the Tender Offer, the
Company would be merged with and into SWVA Acquisition, Inc. (the "Merger"
and, together with the Tender Offer, the "Transaction") and the holders of all
issued and outstanding shares of common stock not purchased pursuant to the
Tender Offer, other than Roanoke or its affiliates, would be entitled to
receive in the Merger $10.75 per share, in cash, or such greater amount as may
be paid in the Tender Offer. The terms and conditions of the Merger are more
fully set forth in the Agreement.
In arriving at our opinion, we undertook the following activities:
1. Analyzed and reviewed the terms and conditions of the Agreement;
2. Investigated the business, financial condition, results of operations
and prospects of the Company;
3. Investigated the financial terms of certain business combinations that
we deemed relevant;
4. Reviewed selected financial and stock market data for certain other
publicly traded companies that we deemed relevant;
5. Reviewed the recent trading history of the Company's common stock; and
6. Performed such other financial studies and analyses as we deemed
necessary.
In addition, we held discussions with the management of the Company
regarding the Company's business, operating results, financial condition and
prospects.
In connection with our review, we have relied upon the accuracy and
completeness of all information provided to us by the Company and its
representatives, and we have not attempted to independently verify any such
information. We have also relied upon the assessment of the management of the
Company regarding the Company's business and prospects, and also assumed that
the budgets and financial projections of the Company were reasonably prepared
by management on bases reflecting the best currently available estimates and
good faith judgments of the future financial performance of the Company. We
have not made an independent
I-1
<PAGE>
evaluation or appraisal of the Company's assets and liabilities. Our opinion
is necessarily based on financial, market, economic and other conditions as
they exist and can be evaluated as of the date of this letter.
Janney Montgomery Scott Inc. ("Janney") is acting as the financial advisor
to the Company in connection with the Transaction and will receive customary
fees in connection with, and upon the completion of, the Transaction. In
addition, the Company has agreed to indemnify Janney against certain
liabilities arising out of the rendering of this opinion. Janney is a
nationally recognized investment banking firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate and other purposes. From time to time, Janney has
provided financial advisory services to the Company for customary fees, and
Daniel N. Pickens, a First Vice President of Janney, is a member of the
Company's Board of Directors.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the Transaction and does not constitute
a recommendation to any stockholder of the Company as to whether such
stockholder should tender their shares in the Tender Offer or as to how such
stockholder should vote their shares in the Merger. This opinion may not be
used for any other purpose, and may not be quoted or referred to, in whole or
in part, without our prior written consent, except that this opinion may be
included in its entirety in any filing with the Securities and Exchange
Commission in connection with the Transaction.
Based upon the foregoing, we are of the opinion, as of the date hereof, that
the consideration to be paid to the stockholders of the Company pursuant to
the Agreement is fair to the stockholders of the Company from a financial
point of view.
Very truly yours,
/s/ Janney Montgomery Scott Inc.
I-2
<PAGE>
EXHIBIT 6
Stock Option Agreement by and between the Company, the
Purchaser and the Parent dated November 10, 1998.
<PAGE>
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT, dated as of November 10, 1998, between Steel of
West Virginia, Inc., a Delaware corporation ("Company"), and SWVA Acquisition,
-------
Inc., a Virginia corporation ("Purchaser").
---------
WITNESSETH:
-----------
WHEREAS, Purchaser, Roanoke Electric Steel Corporation, a Virginia
corporation of which Purchaser is a wholly owned subsidiary ("Parent"), and
------
Company, propose to enter into an Agreement and Plan of Merger (the "Merger
------
Agreement"), which would provide, among other things, that Purchaser, upon the
- ---------
terms and subject to the conditions thereof, would make a cash tender offer (the
"Offer") for all outstanding shares of common stock, par value $0.01 per share,
of Company (the "Shares") and thereafter Purchaser would merge with Company (the
------
"Merger"); and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Purchaser have requested that Company agree, and Company
has agreed, as set forth herein, to grant to Purchaser an option to purchase
authorized but unissued Shares.
NOW, THEREFORE, to induce Parent and Purchaser to enter into the Merger
Agreement and in consideration of the mutual covenants and agreements set forth
herein and therein, the parties agree as follows:
1. Grant of Option. Company hereby grants to Purchaser an irrevocable
---------------
option, exercisable as provided herein (the "Option"), to purchase up to an
------
aggregate of 1,196,148 authorized but unissued Shares (the "Option Shares") for
-------------
an exercise price (the "Exercise Price") equal to the closing bid price per
--------------
Share, as reported by The Nasdaq Stock Market, on the date following the date of
the first joint public announcement of the Merger by Company and Parent;
provided, however, that the number of Option Shares shall not exceed 19.9% of
issued and outstanding Shares (not counting the Option Shares) and shall be
subject to adjustments as set forth in Section 7 below. In the event that after
the date hereof any additional Shares (other than the Option Shares) are either
(i) issued or become outstanding, or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding, the number of Option Shares shall be
increased or decreased, as appropriate, so that, after such issuance, such
number equals 19.9% of the number of Shares then issued and outstanding (not
counting the Option Shares).
2. Exercise of Option. The Option may be exercised by Purchaser at any
------------------
time or from time to time following the occurrence of a Triggering Event (as
hereinafter defined), in whole or in part, until the 180th day following the
termination of the Merger Agreement. If Purchaser wishes to exercise the Option,
Purchaser shall give written notice to Company of its intention to exercise the
Option, specifying the number of Option Shares it will purchase and a place,
time and date not earlier than one day and not later than 20 days from the date
such notice is given for the closing of such purchase (the "Closing"). Each
-------
Closing shall be held on the date
<PAGE>
specified in such notice unless, on such date, there shall be any preliminary or
permanent injunction or other order by any court of competent jurisdiction or
any other legal restraint or prohibition preventing the consummation of such
purchase, in which event such Closing shall be held as soon as practicable
following the lifting, termination or suspension of such injunction, order,
restraint or prohibition (each party agreeing to use its commercially reasonable
efforts to have such injunction, order, restraint or prohibition lifted,
terminated or suspended). Company's obligation to issue Option Shares upon
exercise of the Option is subject to the conditions that (i) any waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), applicable to the purchase of the Option Shares shall have expired
-------
or been terminated and (ii) there shall be no preliminary or permanent
injunction or other order preventing or restricting the issuance of the Option
Shares. Purchaser and Company shall each promptly make such filings and provide
such information as may be required under the HSR Act with respect to the
purchase of the Option Shares. Notwithstanding the termination of the Option,
purchaser will be entitled to exercise its rights under this Section 2 if it has
exercised such rights in accordance with the terms hereof prior to the
termination of the Option. The term "Triggering Event" shall mean the occurrence
of (a) the termination of the Merger Agreement under circumstances that caused a
Termination Fee (as defined in the Merger Agreement) to become payable by
Company to Parent, (b) the occurrence of all of the events set forth in clauses
(1), (2) and (3) of the second sentence of Section 8.3(a) of the Merger
Agreement or (c) the purchase by Purchaser of Shares pursuant to the Offer
following satisfaction of the Minimum Condition (as defined in Annex A to the
Merger Agreement). Company shall promptly notify Purchaser and Parent in writing
of the occurrence of any Triggering Event (which notice is not a condition to
the exercise of the Option).
3. Payment and Delivery of Certificates. At any Closing hereunder (a)
------------------------------------
Purchaser shall make payment to Company of the aggregate purchase price for the
Option Shares so purchased in immediately available funds by certified or
official bank check or by wire transfer to a bank account designated by Company
to Purchaser prior to such Closing and (b) Company shall deliver or cause to be
delivered to Purchaser a certificate or certificates, duly executed by Company
and registered in the name of Purchaser, representing the number of Option
Shares so purchased.
4. Payment in Lieu of Exercise. If, after the occurrence of a Triggering
---------------------------
Event but prior to the expiration of the Option, any Third Party (a) acquires
beneficial ownership of more than 50 percent of the then outstanding Shares or
(b) enters into an agreement with Company to acquire Company, by merger,
consolidation or purchase of all or substantially all of its assets or other
similar business combination, reorganization or recapitalization, then Purchaser
may, in lieu of exercising the Option, surrender the Option to Company and
Company shall pay to Purchaser upon Purchaser's written demand, an amount in
cash for each of the Option Shares equal to the excess of (a) the highest price
per Share paid or to be paid by such Third Party pursuant to such transaction
(or such consideration paid to Company, in the case of an asset acquisition or
similar transaction, divided by the number of Shares outstanding on a
fully-diluted basis (after taking into consideration the exercise of all
outstanding options, warrants, rights
-2-
<PAGE>
(other than rights issued pursuant to that certain Rights Agreement between
Company and Continental Stock Transfer & Trust Company, as Rights Agent, dated
March 19, 1997, as amended to date), convertible securities or exchangeable
securities issued by Company), excluding Shares issuable pursuant to this
Agreement) over (b) the Exercise Price. In the event the price per Share paid or
to be paid by such Third Party pursuant to such transaction includes both cash
and non-cash consideration, the value of such non-cash consideration shall be
determined by an investment banking firm acceptable to Company and Purchaser (it
being understood that the firm retained by Company to render financial advisory
services in connection with the Offer and Merger is acceptable to Company and
Purchaser for such purpose). Upon but not until (i) the surrender by Purchaser
of the Option and its demand for cash pursuant to this Section 4 and (ii)
Purchaser's receipt of the full amount of such cash, any and all obligations of
Purchaser to make payment and the obligations of Company to deliver certificates
for Option Shares pursuant to Section 3 hereof shall terminate.
5. Representations and Warranties of Company. Company hereby represents
-----------------------------------------
and warrants to Purchaser as follows:
a. Due Authorization, Etc. This Agreement has been duly authorized by
-----------------------
all necessary corporate action on the part of Company and has been duly executed
and delivered by a duly authorized officer of Company. Prior to the execution
and delivery of this Agreement and the issuance of the Option, the Board of
Directors of Company (at a meeting duly called and held) has duly and validly
approved this Agreement and the transactions contemplated hereby and by the
Merger Agreement, including the Offer and the Merger and the acquisitions of
Shares contemplated hereby and thereby, and for purposes of (S)203 of the
Delaware General Corporation Law, such approval occurring prior to the time
Purchaser became an "interested stockholder", as that term is defined in
(S).203.
b. Option Shares. Company has taken all necessary corporate action to
--------------
authorize and reserve for issuance, upon exercises of the Option, the number of
Option Shares and will take all necessary corporate action to authorize and
reserve for issuance all additional Shares or other securities that may be
issued as a result of Section 7 hereof upon exercise of the Option. The Shares
(or such other securities) to be issued upon due exercise, in whole or in part,
of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights,
without liability attaching to the ownership thereof, and will be delivered free
add clear of all claims, liens, encumbrances and security interests of any kind
whatsoever.
c. Conflicting Instruments. Neither the execution and delivery of this
------------------------
Agreement by Company nor the consummation by Company of the transactions
contemplated hereby will violate or result in any violation of, or be in
conflict with or constitute a default under, or require the consent of any
person under, (i) the Certificate of Incorporation or By-Laws of Company or (ii)
any agreement, instrument, indenture, judgment, decree, order, statute, rule or
governmental regulation applicable to or binding upon Company except, in the
case of clause (ii),
-3-
<PAGE>
for violations, breaches or defaults which (x) are not in the aggregate material
to the business, results of operations or financial condition of Company and its
subsidiaries taken as a whole, (y) will not prevent or delay the consummation of
the transactions contemplated hereby and (z) would not prevent or restrict
Purchaser from exercising full rights of ownership over the Option Shares.
Except for any filing that may be required under the HSR Act, the Exchange Act
or the Securities Act of 1933 (the "Securities Act"), no consent, approval,
--------------
order or authorization of, or registration, declaration or filing with, any
government authority is required in connection with the execution and delivery
of this Agreement by Company or the performance by Company of its obligations
hereunder.
6. Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents and warrants to Company as follows:
a. Due Authorization, Etc. This Agreement has been duly authorized by
----------------------
all necessary corporate action on the part of Purchaser and has been duly
executed and delivered by a duly authorized officer of Purchaser.
b. No Distribution. Purchaser is acquiring the Option, and will
---------------
acquire the Option Shares issuable upon exercise of the Option, for its own
account and not with a view to or for sale in connection with any distribution
thereof, and Purchaser will not sell or otherwise dispose of the Option, or any
Option Shares, except in each case in compliance with the Securities Act and the
rules and regulations thereunder.
7. Adjustment Upon Changes in Capitalization. In the event of any change
-----------------------------------------
in the Shares by reason of any stock dividend, extraordinary dividend or
distribution, split-up, recapitalization, combination, exchange of shares or the
like, the number of Option Shares subject to the Option, the Exercise Price and
the price per Option Share to be paid by Company upon surrender of the Option
pursuant to Section 4 hereof shall be appropriately adjusted.
8. Registration Under the Securities Act. If the Option is exercised and
-------------------------------------
Purchaser so requests, Company shall file and use its commercially reasonable
efforts to register the Option Shares for sale as promptly as practicable after
receiving such request, but only after the termination of the Merger Agreement
in accordance with its terms, under the Securities Act and any applicable state
securities law. Purchaser shall pay all fees and expenses in connection with
such registration, including the reasonable fees and expenses of counsel and
accountants of Parent, Purchaser and Company, including underwriting discounts
and commissions to brokers or dealers.
9. Listing. If the Shares or any other securities to be acquired upon
-------
exercise of the Option are then listed on the National Association of Securities
Dealers Automated Quotation System (the "NASDAQ") (or any other national
securities quotation system or national securities exchange), the Company, upon
the request of the Purchaser, will promptly file an application to list the
Shares or other securities to be acquired upon exercise of the Option on the
-4-
<PAGE>
NASDAQ (and any other national securities quotation system or national
securities exchange) and will use commercially reasonable efforts to obtain
approval of such listing as promptly as practicable. The Purchaser shall pay all
fees and expenses in connection with such listing.
10. Further Assurances. From time to time, at the other party's
------------------
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective the transactions
contemplated by this Agreement in accordance with the terms and conditions
hereof.
11. Specific Performance. The parties hereto acknowledge and agree
--------------------
that if any of the provisions of this Agreement were not performed by Company in
accordance with their specific terms or were otherwise breached, Purchaser would
not have an adequate remedy at law and would be harmed irreparably and that the
damages therefor would be difficult to determine. Accordingly, it is agreed that
Purchaser shall be entitled to injunctive relief to prevent breaches of this
Agreement by Company and specifically to enforce the terms and provisions
hereof, in addition to any other remedy to which it may be entitled, at law or
in equity.
12. Miscellaneous.
-------------
a. Assignment. This Agreement shall not be assigned, by operation
----------
of law or otherwise, except that Purchaser may assign its rights and
obligations, in whole or in part, to Parent or to another wholly owned
subsidiary of Parent, but no such assignment shall relieve Purchaser of its
obligations hereunder if such assignee does not perform such obligations.
b. Amendments. This Agreement may not be modified, amended,
----------
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
c. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received upon receipt) in accordance with the terms of
the Merger Agreement.
d. Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Delaware,
without regard to its conflicts of law rules.
e. Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in several counterparts (including by facsimile signature), each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
f. Effect of Headings. The headings herein are for reference
------------------
purposes only and shall not in any way affect the meaning or interpretation
hereof.
-5-
<PAGE>
g. Entire Agreement. This Agreement and the Merger Agreement
----------------
contain the entire understanding of the parties with respect to their subject
matter and supersede all prior agreements or understandings among the parties
with respect to such subject matter. Company will not revoke the approvals
contemplated by Section 5(a) hereof.
h. Governing Law; Jurisdiction; and Consent to Service. Except as
---------------------------------------------------
expressly set forth below, this Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Purchaser and Company hereby agree that any dispute arising
out of this Agreement, the Offer or the Merger shall be heard in the Court of
Chancery of the State of Delaware or in the United States District Court for the
District of Delaware and, in connection therewith, each party to this Agreement
hereby consents to the jurisdiction of such courts and agrees that any service
of process in connection with any dispute arising out of this Agreement, the
Offer or the Merger may be given to any other party hereto in accordance with
subsection (c) above.
i. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
j. Third Party Beneficiaries. Nothing in this Agreement, expressed
-------------------------
or implied, shall be construed to give any person other than the parties hereto
any legal or equitable right, remedy or claim under or by reason of this
Agreement or any provision contained herein.
k. Expenses. Each party shall pay its own costs and expenses
--------
incurred in connection with the negotiation, execution, delivery, interpretation
and enforcement of this Agreement (including the fees and disbursements of its
accountants and advisors), except that in the event any legal proceeding is
commenced by any party to this Agreement to enforce or recover damages for any
breach of the provisions hereof, the prevailing party in such legal proceeding
shall be entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees.
l. No Waiver. The failure of any party hereto to exercise any
---------
right, power or remedy provided under this Agreement or otherwise or to insist
upon compliance by any other party hereto with its obligations hereunder, and
any custom or practice of the parties at variance with the terms hereof, shall
not constitute a waiver by such party of its right to exercise
-6-
<PAGE>
any such or other right, power or remedy or to demand such compliance, either
with respect to the particular instance or future instances.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by Company and Purchaser on the date first above written.
STEEL OF WEST VIRGINIA, INC.
By: /s/ Timothy R. Duke
------------------------------
SWVA ACQUISITION, INC.
By: /s/ Donald G. Smith
------------------------------
-7-
<PAGE>
EXHIBIT 7
Form of Stock Tender and Voting Agreement between the
Purchaser and Certain Stockholders of the Company.
<PAGE>
FORM OF
STOCK TENDER AND VOTING AGREEMENT
---------------------------------
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of
November 10, 1998 by and among _____________ ("Shareholder"), Roanoke Electric
Steel Corporation, a Virginia corporation ("Parent"), and SWVA Acquisition,
------
Inc., a Virginia corporation and a wholly-owned subsidiary of Parent
("Purchaser").
---------
W I T N E S S E T H:
-------------------
WHEREAS, concurrently herewith, Parent, Purchaser and Steel of West
Virginia, Inc., a Delaware corporation ("Company"), are entering into an
-------
Agreement and Plan of Merger of even date herewith (the "Merger Agreement"),
----------------
pursuant to which Purchaser agrees to make a tender offer (the "Offer") for all
-----
outstanding shares of common stock, $.01 par value per share (the "Common
------
Stock"), of the Company, at $10.75 in cash, to be followed by a merger (the
- -----
"Merger") of Purchaser with the Company;
------
WHEREAS, Shareholder beneficially owns (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act")), as of the date hereof, ______ shares of Common Stock (the "Existing
- --- --------
Shares", together with any shares of Common Stock beneficial ownership of which
- ------
is acquired by Shareholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares");
------
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Purchaser have requested that Shareholder agree, and
Shareholder has agreed, to enter into this Agreement; and
WHEREAS, Parent and Purchaser have entered into the Merger Agreement in
reliance on Shareholder's representations, warranties, covenants and agreements
hereunder;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other, good and valuable consideration, and intending to be
legally bound hereby, it is agreed as follows:
1. Agreement to Tender and Vote.
----------------------------
1.1. Tender. Shareholder agrees to validly tender all Shares
------
beneficially owned by it (which, for purposes of this Section 1.1 shall be
determined with reference to Rule 13d-3(a)(2) promulgated under the Exchange Act
pursuant to the Offer within ten business days of commencement of the Offer and
not withdraw any such Shares, except to the extent that the tender of shares
(excluding Shares acquired after the date hereof) pursuant to the Offer could
subject Shareholder to liability under Section 16(b) of the Exchange Act.
1.2. Voting. Shareholder hereby agrees that, during the time this
------
Agreement is in effect, at any meeting of the shareholders of Company, however
called, and in
<PAGE>
any action by consent of the stockholders of Company, Shareholder shall vote all
Shares beneficially owned by it (which, for purposes of this Section 1.2 shall
be determined with reference to Rule 13d-3(a)(1) promulgated under the Exchange
Act) (a) in favor of the Merger and (b) against any action or agreement that
would impede, interfere with, delay, postpone or attempt to discourage the
Merger or the Offer including, but not limited to, (i) any extraordinary
corporate transaction (other than the Merger), such as a merger, other business
combination, reorganization, consolidation, recapitalization, dissolution or
liquidation (each, an "Extraordinary Transaction") involving Company, (ii) a
-------------------------
sale or transfer of a material amount of assets of Company or any of its
subsidiaries, (iii) any change in the board of directors of Company or (iv) any
material change in the capitalization of the Company. Shareholder acknowledges
receipt and review of a copy of the Merger Agreement.
2. Representations and Warranties of Shareholder. Shareholder represents
---------------------------------------------
and warrants to Parent and purchaser as follows:
2.1. Ownership of Shares. On the date hereof the Existing Shares are
-------------------
all of the Shares currently beneficially owned by Shareholder. On the Closing
Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Shareholder. Shareholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to Options (as defined in
the Merger Agreement). Shareholder currently has with respect to the Existing
Shares, and at Closing will have with respect to the Shares, good, valid and
marketable title, free and clear of all liens, encumbrances, restrictions,
options, warrants, rights to purchase, voting agreements or voting trusts, and
claims of every kind (other than the encumbrances created by this Agreement and
other than restrictions on transfer under applicable Federal and State
securities laws).
2.2. Power; Binding Agreement. Shareholder has the full legal
------------------------
capacity, right, power and authority to enter into and perform all of
Shareholder's obligations under this Agreement. The execution and delivery of
this Agreement by Shareholder will not violate any other agreement to which
Shareholder is a party including, without limitation, any voting agreement,
shareholders agreement or voting trust. This Agreement has been duly executed
and delivered by Shareholder and constitutes a legal, valid and binding
agreement of Shareholder, enforceable in accordance with its terms. Neither the
execution or delivery of this Agreement nor the consummation by Shareholder of
the transactions contemplated hereby will (a) other than filings required under
the federal or state securities laws, require any consent or approval of or
filing with any governmental or other regulatory body, or (b) constitute a
violation of, conflict with or constitute a default under, any contract,
commitment, agreement, understanding, arrangement or other restriction of any
kind to which Shareholder is a party or by which Shareholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
-------------
commission or finder's fees from Shareholder in connection with this Agreement
or the transactions
-2-
<PAGE>
contemplated hereby exclusive of any commission or finder's fees referred to in
the Merger Agreement.
3. Representations and Warranties of Parent and Purchaser. Parent and
------------------------------------------------------
Purchaser, jointly and severally, represent and warrant to Shareholder as
follows:
3.1. Authority. Each of Parent and Purchaser has full legal right,
---------
power and authority to enter into and perform all of its obligations under this
Agreement. The execution and delivery of this Agreement by Parent and Purchaser
will not violate any other agreement to which Parent or Purchaser is a party.
This Agreement has been duly executed and delivered by each of Parent and
Purchaser and constitutes a legal, valid and binding agreement of Parent and
Purchaser, enforceable in accordance with its terms. Neither the execution of
this Agreement nor the consummation by Parent or Purchaser of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under, any contract, commitment,
agreement, understanding, arrangement or other restriction of any kind to which
Parent or Purchaser is a party or by which it is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
-------------
commission or finder's fee from Parent or Purchaser in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections 5, 6
-----------
and 7), shall terminate on the earliest to occur of (a) the date on which
Purchaser accepts for payment the Shares tendered in the Offer, so long as the
Shares are so tendered and not withdrawn, (b) the Effective Time (as defined in
the Merger Agreement), and (c) the date immediately following the date on which
the Merger Agreement is terminated.
5. Expenses. Except as provided in Section 19, each party hereto will pay
--------
all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers.
6. Confidentiality. Shareholder recognizes that successful consummation of
---------------
the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to these matters. In this connection, pending
public disclosure, Shareholder agrees that he will not disclose or discuss these
matters with anyone (other than officers, directors, legal counsel and advisors
of Shareholder or the Company, if any) not a party to this Agreement, without
prior written consent of Parent, except for filings required pursuant to the
Exchange Act, and the rules and regulations thereunder or disclosures
Shareholder's legal counsel advises in writing are necessary in order to fulfill
Shareholder's obligations imposed by law, in which event Shareholder shall give
prompt prior notice of such disclosure to Parent.
-3-
<PAGE>
7. Indemnification. In the event Shareholder is sued for a breach of his
---------------
fiduciary duty as an officer or director of the Company by reason of
Shareholder's execution, delivery or performance of this Agreement, Shareholder
shall be entitled to indemnification and advancement of expenses in respect of
such claim to the same extent as an Indemnified Party (as defined in the Merger
Agreement) is entitled to the indemnification and advancement of expenses set
forth in Section 6.7 of the Merger Agreement as fully as if such Shareholder had
been named therein.
8. Certain Covenants of Shareholder.
--------------------------------
8.1. Except in accordance with the provisions of this Agreement,
Shareholder agrees, while this Agreement is in effect, not to, directly or
indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option or other arrangement or understanding
with respect to the sale, transfer, pledge, encumbrance, assignment or other
disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or
(c) (i) take any action to encourage, initiate or solicit any
inquiries or the making of any proposal with respect to (A) any Extraordinary
Transaction involving, or (B) any purchase of all or any significant portion of
the assets of, or any significant equity interest in, the Company or any of its
subsidiaries (either of clauses (A) and (B) being an "Acquisition Proposal") or,
(ii) except to the extent required for Shareholder, in his capacity as an
officer or director of Company, to discharge its fiduciary duties as advised by
counsel, (A) engage in any negotiations concerning, provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal or (B) otherwise assist or facilitate any effort or attempt
by any person or entity (other than Parent and Purchaser, or their officers,
directors, representatives, agents, affiliates or associates) to make or
implement an Acquisition Proposal; Shareholder will immediately cease and cause
to be terminated any existing activities, discussions or negotiations on his
part with any parties conducted heretofore with respect to any of the foregoing,
and, except to the extent required for Shareholder, in his capacity as an
officer or director of the Company, to discharge his fiduciary duties as advised
by counsel, will notify Purchaser and Parent promptly if he becomes aware of any
such inquiries or that any proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
instituted or continued with, the Company (or its officers, directors,
representatives, agents, affiliates or associates), such notice to include the
material terms communicated.
8.2. Shareholder agrees, while this Agreement is in effect, to notify
Parent promptly of the number of any shares of Common Stock beneficial ownership
of which is acquired by Shareholder after the date hereof.
-4-
<PAGE>
9. Survival of Representations and Warranties. None of the representations,
------------------------------------------
warranties, covenants and agreements made by Shareholder, Parent or Purchaser in
this Agreement shall survive the Closing hereunder.
10. Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing (except as otherwise provided herein) and shall be
deemed duly given when received, addressed as follows:
If to Parent or Purchaser:
Roanoke Electric Steel Corporation
102 Westside Boulevard, N.W.
P.O. Box 13948
Roanoke, VA 24038-3948
Attention: Donald G. Smith
Telephone: (540) 342-1831
Facsimile: (540) 342-9437
With copies to:
Heaman A. Marshall, Esq.
Woods, Rogers & Hazlegrove, P.L.C.
First Union Tower, Suite 1400
10 South Jefferson Street
Roanoke, VA 24011
Telephone: (540) 983-7654
Facsimile: (540) 983-7711
If to Shareholder:
----------------
----------------
----------------
Telephone:
---------------
Facsimile:
---------------
-5-
<PAGE>
With copies to:
James D. Epstein, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2799
Telephone: (215) 981-4368
Facsimile: (215) 981-4750
and
Stephen A. Albert
Sierchio & Albert, P.C.
41 E. 57th Street, 39th Floor
New York, NY 10022
Telephone: (212) 446-9500
Facsimile: (212) 446-9504
11. Entire Agreement; Amendment. This Agreement, together with the
---------------------------
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement shall be binding upon and inure to the benefit
-------
of the parties hereto and their respective successors, assigns and personal
representatives, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties, except that Purchaser may assign,
any or all of its rights and obligations hereunder to Parent or any direct or
indirect wholly-owned subsidiary of Parent without the consent of Shareholder or
Company, but no such transfer shall relieve Purchaser of its obligations under
this Agreement if such subsidiary does not perform the obligations of Purchaser
hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
---------------------------------------------------
expressly set forth below, this Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of the Company, Purchaser and Parent hereby agree that any
dispute arising out of this Agreement, the Offer or the Merger shall be heard in
the Court of Chancery of the State of Delaware or in the United States District
Court for the District of Delaware and, in connection therewith, each party to
this Agreement hereby
-6-
<PAGE>
consents to the jurisdiction of such courts and agrees that any service of
process in connection with any dispute arising out of this Agreement, the Offer
or the Merger may be given to any other party hereto by certified mail, return
receipt requested, at the respective addresses set forth in Section 12 above.
14. Injunctive Relief. The parties agree that in the event of a breach of
-----------------
any provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. The parties therefore agree that in the event of a breach of any
provision of this Agreement, the aggrieved party shall be entitled to obtain in
any court of competent jurisdiction a decree of specific performance or to
enjoin the continuing breach of such provision, in each case without the
requirement that a bond be posted, as well as to obtain damages for breach of
this Agreement. By seeking or obtaining such relief, the aggrieved party will
not be precluded from seeking or obtaining any other relief to which it may be
entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed in
----------------------------------
any number of counterparts (including by facsimile signature), each of which
shall be deemed to be an original and all of which together shall constitute one
and the same documents.
16. Severability. Any term or provision of this Agreement which is invalid
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
17. Further Assurances. Each party hereto shall execute and deliver such
------------------
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
-------------------------
implied, shall be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by any
--------------
party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding shall be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees.
20. Amendment and Modification. This Agreement may be amended, modified and
--------------------------
supplemented by a written document executed by Parent, Purchaser and
Shareholder.
-7-
<PAGE>
21. Parent Guarantee. Parent hereby guarantees Purchaser's performance of
----------------
its obligations to Shareholder under and pursuant to this Agreement.
IN WITNESS WHEREOF, Parent and Purchaser have caused this Agreement to be
executed by their duly authorized officers, and Shareholder has duly executed
this Agreement, as of the date and year first above written.
SHAREHOLDER:
---------------------------------
Name:
ROANOKE ELECTRIC STEEL
CORPORATION
By:
-----------------------------
SWVA ACQUISITION, INC.
By:
------------------------------
-8-
<PAGE>
EXHIBIT 9
Confidentiality Agreement dated July 20, 1998 between
the Parent and Janney, as agent for the Company.
<PAGE>
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT APPEARS HERE]
July 20, 1998
PRIVATE AND CONFIDENTIAL
- ------------------------
Donald G. Smith
President & CEO
Roanoke Electric Steel Corporation
102 Westside Boulevard, N.W.
Roanoke, VA 24017
Dear Mr. Smith:
In order to allow Roanoke Electric Steel Corporation ("Roanoke") to evaluate a
possible transaction with Steel of West Virginia, Inc. (the "Company"), the
Company or its Representatives (as defined below) will deliver to Roanoke, upon
Roanoke's execution and delivery to us of this letter of agreement, certain
information (the "Confidential Information") about the properties and operations
of the Company that is either non-public, confidential or proprietary. Roanoke
agrees to treat as confidential and, except as required by applicable law, legal
process or stock exchange rule, to reveal to no one, except to its respective
directors, officers, employees, financing sources, agents or advisors (including
without limitation attorneys, accountants, consultants, brokers and financial
advisors) (collectively, "Representatives") to the extent permitted below, (i)
the fact that Roanoke is having discussions in this regard and (ii) any
Confidential Information that the Company or its Representatives may furnish
Roanoke about the Company.
The term "Confidential Information" means all the information about the Company,
whether written or oral, that is provided to Roanoke (including any information
provided before the execution of this agreement), and all reports, analyses,
compilations, data, studies, or other documents prepared by Roanoke or its
Representatives containing or based, in whole or in part, on any such furnished
information or, to the extent that it contains Confidential Information,
reflecting Roanoke's review of, or interest in, the Company. The term
"Confidential Information" does not include information which (i) is or becomes
general public knowledge other than as a result of a disclosure by Roanoke or
its Representatives in breach of this Agreement, (ii) was within Roanoke's
possession prior to its being furnished to Roanoke by the Company, provided that
the source of such information was not bound by an obligation of confidentiality
to the Company, or (iii) becomes available to Roanoke on a non-confidential
basis from a source other than the Company or any of its Representatives,
provided that, such other source is not bound by an obligation of
confidentiality to the Company.
<PAGE>
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT APPEARS HERE]
Roanoke Electric Steel Company
July 20,1998
Page 2 of 4
Roanoke will hold the Confidential Information in confidence, will use the
Confidential Information only to assist Roanoke in its evaluation of an
investment in the Company or any proposed transaction with respect thereto,
shall not otherwise use the Confidential Information for its own or anyone
else's benefit, and will not disclose any of the Confidential Information except
(i) to Roanoke's directors, officers, employees and Representatives (including
outside attorneys, accountants and consultants) who need such information for
the purpose of such evaluation (and Roanoke shall inform such persons of the
confidential nature of the material, and shall take reasonable measures to
enforce confidentiality and prevent unauthorized use or disclosure of
Confidential Information), or (ii) as may be required by law, legal process or
stock exchange rule. If any person, listed in clause (i) discloses Confidential
Information in breach of this Agreement, Roanoke shall be strictly liable for
such disclosure (regardless of any measures taken by Roanoke to prevent
disclosure). In the event of proposed disclosure under clause (ii), Roanoke will
provide the Company with prior notice so that the Company may seek a protective
order or other appropriate remedy, and Roanoke will not oppose action by the
Company to obtain such order or remedy.
Upon termination of Roanoke's evaluation of the proposed investment, or at any
earlier time, Roanoke shall return to the Company all documents furnished to
Roanoke by or on behalf of the Company containing Confidential Information. Any
notes and other documents prepared by Roanoke containing or based upon
Confidential Information will be held subject to the terms of this agreement or
destroyed.
Roanoke understands that the Company will endeavor to include in the
Confidential Information materials that may be relevent to Roanoke's evaluation,
but Roanoke acknowledges that the Company and its Representatives make no
representation or warranty (express or implied) as to the accuracy or
completeness of the Confidential Information. Roanoke agrees that the Company
and its Representatives shall have no liability to Roanoke or to any of its
Representatives, it being understood that only those particular representations
and warranties that may be made in a definitive agreement, when, as and if it is
executed, and subject to such limitations and restrictions as may be specified
in such definitive agreement, including restrictions on survival, shall have any
legal effect.
<PAGE>
[LETTERHEAD JANNEY MONTGOMERY SCOTT APPEARS HERE]
Roanoke Electric Steel Company
July 20, 1998
Page 3 of 4
Roanoke further agrees that for a period of two years from the date hereof,
neither Roanoke nor any of its Representatives will knowingly solicit as
employees or consultants any of the current officers or employees of the
Company, without obtaining the prior written consent of the Company. The
foregoing, however, shall not prohibit general solicitations for employees
including through newspapers or similar advertisements or through search firms,
provided that such solicitations are not directed at the Company's employees.
Roanoke also agrees that neither Roanoke nor any of its Representatives will
contact any employees of the Company in connection with Roanoke's evaluation of
the Company without prior approval.
Roanoke agrees that the intention of the parties is to prevent absolutely the
disclosure or use by Roanoke or its Representatives (except for purposes of
evaluating a proposed investment in the Company) of any Confidential Information
obtained by Roanoke from the Company or its Representatives. The Company and
Roanoke agree that for all purposes this agreement will be construed to
accomplish that result.
This Confidentiality Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their respective successors and assigns, and
shall be strictly adhered to by all of Roanoke's Representatives. By making any
Confidential Information available to any such person, Roanoke agrees that it
will be held strictly and fully responsible for any damages suffered by the
Company as a result of disclosure by such person, regardless of Roanoke's fault.
Roanoke agrees that disclosure of any Confidential Information could irreparably
injure the Company's business and its relationship with its employees, its
customers and others, and the Company shall be entitled to equitable relief in
the event of any breach or threatened breach of this agreement. Such remedies
shall not be exclusive. Any breach or threatened breach of this agreement by
Roanoke shall entitle the Company to apply to any court of competent
jurisdiction to enjoin the violation, threatened or actual, of this agreement,
without the necessity of posting surety or injunction bond and regardless of
the existence or absence of any legal remedies or the sufficiency thereof.
Roanoke, and its successors and assigns, hereby waive any right to assert any
contention that the remedy at law for any breach or threatened breach of this
agreement is sufficient and consent to non-exclusive personal jurisdiction and
venue in the state and federal courts with jurisdiction in West Virginia.
Roanoke shall indemnify and hold harmless the Company and its Representatives
from any and all claims, injuries, losses, damages or expenses (including
attorneys' fees and costs) arising out of a breach by Roanoke or its
Representatives of any provision of this agreement.
<PAGE>
JANNEY MONTGOMERY SCOTT
INVESTMENT BANKING
Established 1832
Roanoke Electric Steel Company
July 20, 1998
Page 4 of 4
This agreement sets forth the entire understanding and agreement of the parties
and related persons with regard to the subject matter hereof and supersedes all
prior and contemporancous agreements, arrangements and understandings related
thereto. In the event of any inconsistency between this agreement and any
statement contained in or transmitted with the Confidential Information this
agreement shall control. This agreement may be amended, superseded or canceled
only by a written instrument which specifically states that it amends,
supersedes or cancels this agreement, executed and delivered by an authorized
officer of each entity to be bound thereby.
Very truly yours,
Janney Montgomery Scott, Inc.
Authorized Agent of the Company, on behalf of the Company
By: /s/ Michael J. Mufson
---------------------------
Michael J. Mufson
Senior Vice President
Co-Director-Investment Banking
Accepted and Agreed as of the date first written above:
Roanoke Electric Steel Corporation
By: /s/ Donald G. Smith
---------------------------
Donald G. Smith
President and CEO
