<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Rule 13e-3 Transaction Statement
(Amendment No. 2)
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
Atrix International, Inc.
- --------------------------------------------------------------------------------
(Name of the Issuer)
Atrix Acquisition Corp.
Atrix International, Inc.
Steven D. Riedel
Clifford B. Meacham
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Statement)
Common Stock, $.04 par value per share, of Atrix International, Inc.
- --------------------------------------------------------------------------------
(Title of Class of Securities)
0496P102
- --------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
Steven D. Riedel
Atrix International, Inc.
14301 Ewing Avenue South
Burnsville, MN 55306
(612) 894-6154
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
with copies to:
Robert E. Tunheim, Esq.
Lindquist & Vennum PLLP
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
(612) 371-3915
Fax: (612) 371-3207
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This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
Transaction Valuation* Amount of Filing Fee
$2,826,898 $565.38
* For purposes of calculating fee only. This amount assumes the purchase of
1,413,449 shares of the Common Stock, par value $.04 per share (the "Common
Shares") of Atrix International, Inc. at $2.00 per share net. Such number of
Common Shares represents all common shares (and options to purchase Common
Shares) reported to be outstanding at or about December 23, 1998 other than
those common shares already owned directly or indirectly, by Atrix Acquisition
Corp. The amount of the filing fee, calculated in accordance with Rule 0-11
under the Securities Exchange Act of 1934, as amended, equals one-50th of one
percent of the value of the Common Shares to be purchased.
[X] Check box if any part of the fee is off set as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
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Amount previously paid: $565.39
Form or Registration No.: 5-41312
Filing Party: Atrix Acquisition Corp.
Date filed: December 23, 1998
SCHEDULE 13E-3
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Transaction
Statement") filed pursuant to Section 13(e) of the Securities Exchange Act of
1934, as amended, relates to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of December 18, 1998, by and among Atrix International,
Inc. ("Atrix"), Atrix Acquisition Corp., a Minnesota corporation ("Newco") and
Steven D. Riedel ("Riedel"), pursuant to which Atrix will merge with and into
Newco (the "Merger") upon the terms and conditions of the Merger Agreement and
subject to shareholder approval. Pursuant to the Merger, each outstanding share
of common stock, $0.04 par value per share, of Atrix ("Atrix Common Stock"),
other than those shares of Atrix Common Stock held by shareholders of Atrix who
perfect their dissenters' appraisal rights under Minnesota law, will be
converted into the right to receive $2.00 in cash, without interest. Atrix will
no longer exist as a separate entity after the Merger.
The terms and conditions of the Merger Agreement are set forth in the
preliminary proxy statement, as amended (the "Proxy") filed herewith as Exhibit
17(d). A copy of the Merger Agreement is filed as Annex A to the Proxy. The
following responses and cross-references are supplied pursuant to General
Instruction F to Schedule 13E-3 and show the locations in the Proxy (including
all annexes and appendices thereto) of the information required to be included
in response to the items of this Transaction Statement. The information in the
Proxy, including all attachments, exhibits and appendices thereto, is hereby
expressly incorporated herein by reference and the responses to each item of
this Transaction Statement are qualified in their entirety by the provisions of
the Proxy.
CROSS-REFERENCE SHEET REQUIRED PURSUANT TO
GENERAL INSTRUCTION F OF SCHEDULE 13E-3
Item in Schedule 13E-3 Caption in Proxy
- ---------------------- ----------------
Item 1(a) --
Item 1(b) SUMMARY - The Annual Meeting - Record Date; Quorum, and
SUMMARY - Common Stock Information.
Item 1(c) SUMMARY - Common Stock Information.
Item 1(d) SUMMARY - Common Stock Information.
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Item 1(e) Not applicable.
Item 1(f) SPECIAL FACTORS--Transactions by Certain Persons in
Common Shares.
Item 2(a)-(d) INTRODUCTION - Purposes of Annual Meeting, SUMMARY -
The Companies - Atrix Acquisition Corp, PROPOSAL
No. 3 - Election of Directors - Other Information
About Nominees, and PRINCIPAL SHAREHOLDERS AND
OWNERSHIP OF MANAGEMENT.
Item 2(e)-(f) --
Item 2(g) --
Item 3(a)-(b) INTRODUCTION - Purposes of Annual Meeting, SUMMARY -
Special Factors, SUMMARY - The Merger, SPECIAL FACTORS
- Background and Reasons for the Merger, SPECIAL
FACTORS - Recommendation of Special Committee, SPECIAL
FACTORS - Recommendation of Board of Directors, SPECIAL
FACTORS - Interests of Certain Persons in the Merger,
SPECIAL FACTORS - Shareholder Agreement, and Proposal
No. 3 - Election of Directors.
Item 4(a) INTRODUCTION, SUMMARY, SPECIAL FACTORS, and
PROPOSAL No. 2 - Proposal to Approve Merger Agreement.
Item 4(b) PROPOSAL NO. 1 - Proposal to Authorize Voting of Shares.
Item 5(a)-(e) SUMMARY - Special Factors - Plans of Newco, SPECIAL
FACTORS - Plans of Newco, SPECIAL FACTORS -Management
of Newco Following the Merger, SPECIAL FACTORS - Certain
Effects of the Merger, and SUMMARY - The Merger.
Item 5(f)-(g) SPECIAL FACTORS - Certain Effects of the Merger, and
AVAILABLE INFORMATION.
Item 6(a) SUMMARY - Special Factors - Source of Funds, and
SPECIAL FACTORS - Source of Funds.
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Item 6(b)-(c) SUMMARY - Special Factors - Source of Funds, SPECIAL
FACTORS - Source of Funds, and SPECIAL FACTORS - Fees
and Expenses.
Item 6(d) Not applicable.
Item 7(a)-(c) SPECIAL FACTORS - Background and Reasons for the Merger,
SPECIAL FACTORS Recommendation of Special Committee,
SPECIAL FACTORS - Recommendation of Board of Directors,
and SPECIAL FACTORS - Structure and Purpose of the Merger.
Item 7(d) SUMMARY - Special Factors - Certain Effects of the Merger,
SUMMARY - The Annual Meeting - Dissenters' Appraisal
Rights, SUMMARY - Special Factors - Material Federal Income
Tax Consequences, SUMMARY - The Merger, SPECIAL
FACTORS - Certain Effects of the Merger, SPECIAL FACTORS -
Material Federal Income Tax Consequences of the Merger,
DISSENTERS' APPRAISAL RIGHTS, Proposal No 2. - General,
Proposal No. 2 - Conversion of Common Shares.
Item 8(a) SUMMARY - Special Factors - Recommendation of Special
Committee and Board of Directors.
Item 8(b) SUMMARY Special Factors - Recommendation of Special
Committee and Board of Directors, SUMMARY - Special Factors
- Fairness of the Merger, SUMMARY - Special Factors -
Opinion
of Financial Advisor, SUMMARY - Special Factors - Reports,
SPECIAL FACTORS - Recommendation of Special Committee,
SPECIAL FACTORS - Recommendation of Board of Directors,
SPECIAL FACTORS - Fairness of the Merger, SPECIAL
FACTORS - Opinion of Financial Advisor, and SPECIAL
FACTORS - Reports.
Item 8(c)-(e) SUMMARY - The Annual Meeting - Required Vote, SPECIAL
FACTORS - Recommendation of Board of Directors, and
SPECIAL FACTORS - Fairness of the Merger.
Item 8(f) SPECIAL FACTORS - Background of and Reasons for the
Merger.
Item 9(a) SUMMARY - Special Factors - Recommendation of Special
Committee and Board of Directors, SUMMARY - Special
Factors - Fairness of the Merger, SUMMARY - Special
Factors -
<PAGE>
Opinion of Financial Advisor, and SUMMARY - Special
Factors - Reports.
Item 9(b) SUMMARY - Special Factors - Recommendation of Special
Committee and Board of Directors, SUMMARY - Special
Factors - Fairness of the Merger, SUMMARY - Special
Factors - Opinion of Financial Advisor, SUMMARY - Special
Factors - Reports, SPECIAL FACTORS - Recommendation of
Special Committee, SPECIAL FACTORS - Recommendation of
Board of Directors, SPECIAL FACTORS - Fairness of the
Merger, SPECIAL FACTORS - Opinion of Financial Advisor, and
SPECIAL FACTORS - Reports.
Item 9(c) Annex B of the Proxy.
Item 10(a) SUMMARY - The Annual Meeting - Required Vote, SUMMARY
- Special Factors - Interests of Certain Persons in the
Merger, SPECIAL FACTORS - Interests of Certain Persons in
the Merger, and PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF
MANAGEMENT.
Item 10(b) SPECIAL FACTORS - Shareholder Agreement.
Item 11 SPECIAL FACTORS - Interests of Certain Persons in the
Merger, SPECIAL FACTORS - Shareholder Agreement, and SPECIAL
FACTORS - Source of Funds.
Item 12(a) SPECIAL FACTORS - The Annual Meeting - Required Vote,
SUMMARY - Special Factors - Interests of Certain Persons in
the Merger, SPECIAL FACTORS - Interests of Certain Persons
in the Merger, and SPECIAL FACTORS - Shareholder Agreement.
Item 12(b) SPECIAL FACTORS - Recommendation of Special Committee,
and SPECIAL FACTORS - Recommendation of Board of
Directors.
Item 13(a) SUMMARY - the Annual Meeting - Dissenters' Appraisal Rights,
DISSENTERS' APPRAISAL RIGHTS, and ANNEX C.
Item 13(b) --
Item 13(c) --
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Item 14(a) CERTAIN FINANCIAL INFORMATION, and DOCUMENTS
INCORPORATED BY REFERENCE.
Item 14(b) --
Item 15(a)-(b) SPECIAL FACTORS - Source of Funds, and SPECIAL
FACTORS - Fees and Expenses.
Item 16 Additional information set forth in the Proxy is
incorporated herein by reference.
Item 17(a) To be filed by amendment.
Item 17(b) Opinion of Miller, Johnson & Kuehn included as Annex B to
the Proxy.
Item 17(b)(1) Report of John G. Kinnard & Co., Inc. (filed herewith).
Item 17(b)(2) Report of Miller, Johnson & Kuehn to Atrix International,
Inc. Board of Directors (filed herewith).
Item 17(c)(1) Shareholder Agreement, incorporated by reference to
Schedule 13D of Steven D. Riedel filed with the Commission
on December 4, 1998.
Item 17(c)(2) Agreement and Plan of Merger, dated December 18, 1998,
included as Annex A to the Proxy.
Item 17(d) Preliminary Proxy, as revised (filed herewith).
Item 17(e) Minnesota Dissenters' Rights Statute, included as Annex C
to the Proxy.
Item 17(f) --
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The issuer and class of securities subject of the Rule 13e-3
transaction reported on this Schedule 13E-3 is the Common Stock, par
value $.04 per share, of Atrix International, Inc. ("Atrix"). The
address of the principal executive offices of Atrix is 14301 Ewing
Avenue South, Burnsville, MN 55306.
(b) Incorporated by reference to the following sections of the Proxy:
"SUMMARY - The Annual Meeting - Record Date; Quorum," and "SUMMARY -
Common Stock Information."
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(c) Incorporated by reference to the following section of the Proxy:
"SUMMARY - Common Stock Information."
(d) Incorporated by reference to the following section of the Proxy:
"SUMMARY - Common Stock Information."
(e) Not applicable.
(f) Incorporated by reference to the following section of the Proxy:
"SPECIAL FACTORS--Transactions by Certain Persons in Common
Shares."
ITEM 2. IDENTITY AND BACKGROUND.
This Transaction Statement is being jointly filed by Atrix (the issuer of
the common stock subject to the proposed Merger), Newco (which was formed for
the purpose of effecting the Merger), Steven D. Riedel and Clifford B. Meacham.
Atrix and Newco are both Minnesota corporations.
(a)-(d) Incorporated by reference to the following sections of the
Proxy: "INTRODUCTION - Purposes of Annual Meeting," "SUMMARY -
The Companies - Atrix Acquisition Corp," and "PROPOSAL No. 3 -
Election of Directors - Other Information About Nominees."
(e)-(f) None of Atrix, Newco or Messrs. Riedel or Meacham have, during
the last 5 years, been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or been a
party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of which such person
was or is subject to a judgment, decree, or final order
enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any
violation of such laws.
(g) All of the individuals identified above are citizens of the
United States. Atrix and Newco are corporations incorporated
under the laws of the State of Minnesota.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)-(b) Incorporated by reference to the following sections of the
Proxy: "INTRODUCTION - Purposes of Annual Meeting," "SUMMARY -
Special Factors," "SUMMARY - The Merger," "SPECIAL FACTORS -
Background and Reasons for the Merger," "SPECIAL FACTORS -
Recommendation of Special Committee," "SPECIAL FACTORS -
Recommendation of Board of Directors," "SPECIAL FACTORS -
Interests of Certain Persons in the Merger," "SPECIAL FACTORS -
Shareholder Agreement," and "Proposal No. 3 - Election of
<PAGE>
Directors."
ITEM 4. TERMS OF THE TRANSACTION.
(a) Incorporated by reference to the following sections of the
Proxy: "INTRODUCTION," "SUMMARY," "SPECIAL FACTORS," and
"PROPOSAL No. 2 - Proposal to Approve Merger Agreement."
(b) Incorporated by reference to the following section of the Proxy:
"PROPOSAL NO. 1 - Proposal to Authorize Voting of Shares."
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(e) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - Special Factors - Plans of Newco," "SPECIAL
FACTORS - Plans of Newco," "SPECIAL FACTORS - Management of
Newco Following the Merger," "SPECIAL FACTORS - Certain Effects
of the Merger," and "SUMMARY - The Merger."
(f)-(g) Incorporated by reference to the following sections of the
Proxy: "SPECIAL FACTORS - Certain Effects of the Merger" and
"AVAILABLE INFORMATION."
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - Special Factors - Source of Funds," and
"SPECIAL FACTORS - Source of Funds."
(b)-(c) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - Special Factors - Source of Funds," "SPECIAL
FACTORS - Source of Funds," and "SPECIAL FACTORS - Fees and
Expenses."
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) Incorporated by reference to the following sections of the
Proxy: "SPECIAL FACTORS - Background and Reasons for the
Merger," "SPECIAL FACTORS - Recommendation of Special
Committee," "SPECIAL FACTORS - Recommendation of Board of
Directors," and "SPECIAL FACTORS - Structure and Purpose of the
Merger."
<PAGE>
(d) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - Special Factors - Certain Effects of the
Merger," "SUMMARY - The Annual Meeting - Dissenters' Appraisal
Rights," "SUMMARY - Special Factors - Material Federal Income
Tax Consequences," "SUMMARY - The Merger," "SPECIAL FACTORS -
Certain Effects of the Merger," "SPECIAL FACTORS - Material
Federal Income Tax Consequences of the Merger," "DISSENTERS'
APPRAISAL RIGHTS," "Proposal No 2. - General," and "Proposal No.
2 - Conversion of Common Shares."
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) Incorporated by reference to the following section of the Proxy:
"SUMMARY - Special Factors - Recommendation of Special Committee
and Board of Directors."
(b) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - Special Factors - Recommendation of Special
Committee and Board of Directors," "SUMMARY - Special Factors -
Fairness of the Merger," "SUMMARY - Special Factors - Opinion of
Financial Advisor," "SUMMARY - Special Factors - Reports,"
"SPECIAL FACTORS - Recommendation of Special Committee,"
"SPECIAL FACTORS - Recommendation of Board of Directors,"
"SPECIAL FACTORS - Fairness of the Merger," "SPECIAL FACTORS -
Opinion of Financial Advisor," and "SPECIAL FACTORS - Reports."
(c)-(e) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - The Annual Meeting - Required Vote," "SPECIAL
FACTORS - Recommendation of Board of Directors," and "SPECIAL
FACTORS - Fairness of the Merger."
(f) Incorporated by reference to the following section of the Proxy:
"SPECIAL FACTORS - Background of and Reasons for the Merger."
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - Special Factors - Recommendation of Special
Committee and Board of Directors," "SUMMARY - Special Factors -
Fairness of the Merger," "SUMMARY - Special Factors - Opinion of
Financial Advisor," and "SUMMARY - Special Factors - Reports."
(b) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - Special Factors - Recommendation of Special
Committee and Board of Directors," "SUMMARY - Special Factors -
Fairness of the Merger,"
<PAGE>
"SUMMARY - Special Factors - Opinion of Financial Advisor,"
"SUMMARY - Special Factors - Reports," "SPECIAL FACTORS -
Recommendation of Special Committee," "SPECIAL FACTORS -
Recommendation of Board of Directors," "SPECIAL FACTORS -
Fairness of the Merger," "SPECIAL FACTORS - Opinion of Financial
Advisor," and "SPECIAL FACTORS - Reports."
(c) Incorporated by reference to Annex B of the Proxy. See also
Exhibits 17(b)(2) and 17(b)(3) to this Transaction Statement.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) Incorporated by reference to the following sections of the
Proxy: "SUMMARY - The Annual Meeting - Required Vote," "SUMMARY
- Special Factors - Interests of Certain Persons in the Merger,"
"SPECIAL FACTORS - Interests of Certain Persons in the Merger,"
and "PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT."
(b) Incorporated by reference to the following section of the Proxy:
"SPECIAL FACTORS - Shareholder Agreement."
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO ISSUER'S
SECURITIES.
Incorporated by reference to the following sections of the Proxy: "SPECIAL
FACTORS - Interests of Certain Persons in the Merger," "SPECIAL FACTORS
- -Shareholder Agreement," and "SPECIAL FACTORS - Source of Funds."
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) Incorporated by reference to the following sections of the
Proxy: "SPECIAL FACTORS - The Annual Meeting - Required Vote,"
"SUMMARY - Special Factors - Interests of Certain Persons in the
Merger," "SPECIAL FACTORS - Interests of Certain Persons in the
Merger," and "SPECIAL FACTORS - Shareholder Agreement."
(b) Incorporated by reference to the following sections of the
Proxy: "SPECIAL FACTORS - Recommendation of Special Committee,"
and "SPECIAL FACTORS - Recommendation of Board of Directors."
ITEM 13. OTHER PROVISIONS IN THE TRANSACTION.
(a) Incorporated by reference to the following sections of the
Proxy: "SUMMARY -
<PAGE>
the Annual Meeting - Dissenters' Appraisal Rights," "DISSENTERS'
APPRAISAL RIGHTS," and "ANNEX C."
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) Incorporated by reference to the following sections of the
Proxy: "CERTAIN FINANCIAL INFORMATION, " and "DOCUMENTS
INCORPORATED BY REFERENCE."
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)-(b) Incorporated by reference to the following sections of the
Proxy: "SPECIAL FACTORS - Source of Funds," and "SPECIAL FACTORS
- Fees and Expenses."
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Merger and the persons filing this
Transaction Statement is contained in the Proxy which is incorporated by
reference herein.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Loan Agreement with Bremer Business Finance Corporation, to be
filed by amendment.
(b) Opinion of Miller, Johnson & Kuehn, included as Annex B to the
Proxy.
(b)(1) Report of John G. Kinnard & Co., Inc.
(b)(2) Report of Miller, Johnson & Kuehn to Atrix International, Inc.
Board of Directors.
(c)(1) Shareholder Agreement, incorporated by reference to Schedule 13D
of Steven D. Riedel filed with the Commission on December 4,
1998.
(c)(2) Agreement and Plan of Merger, dated December 18, 1998, included
as Annex A to the Proxy.
(d) Preliminary Proxy, as revised (filed herewith).
(e) Minnesota Dissenters' Rights Statute, included as Annex C to the
Proxy.
(f) Not applicable.
<PAGE>
SIGNATURES
After due 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: March 29, 1999.
ATRIX ACQUISITION CORP.
/s/ Steven D. Riedel
-----------------------------------------
(Signature)
Steven D. Riedel, Chief Executive Officer
-----------------------------------------
(Name and Title)
ATRIX INTERNATIONAL, INC.
/s/ Steven D. Riedel
-----------------------------------------
(Signature)
Steven D. Riedel, Chief Executive Officer
-----------------------------------------
(Name and Title)
/s/ Steven D. Riedel
-----------------------------------------
Steven D. Riedel, individually
/s/ Clifford B. Meacham
-----------------------------------------
Clifford B. Meacham, individually
<PAGE>
EXHIBIT 17(b)(1)
[JOHN G. KINNARD & CO., INC. LETTER HEAD]
April 27, 1998
Mr. Steve D. Riedel
President and Chief Executive Officer
Atrix International Incorporated
14301 Ewing Avenue South
Burnsville. MN 55306
Dear Mr. Riedel:
You have requested our opinion of the current fair market value of minority
holdings of the common stock of Atrix International Incorporated ("Atrix" or the
"Company"). We understand our opinion may be used by the Company in connection
with corporate planning purposes.
We understand fair market value to mean the price at which ownership could be
expected to trade in a transaction between a willing buyer and a willing seller,
with both parties having reasonable knowledge of the relevant facts and neither
party acting under compulsion.
The common stock of Atrix is traded on the Nasdaq SmallCap Market. The fair
market value of a company with a limited public market cannot be determined by
any precise mathematical formula. Exact comparison to other securities is seldom
possible. Accordingly, our single figure evaluation should be considered an
estimate based upon a careful study of the many internal and external factors
that help to determine fair market value. We have not attempted to determine the
value of Atrix' s separate assets and liabilities, which would be appropriate if
the Company was intending to liquidate its assets and cease operations, but
rather have concentrated upon the Company as a going concern.
In arriving at a valuation conclusion, we have considered the history and
business of Atrix; Annual Reports for the fiscal years ended June 30, 1995 --
1997; Form 10-KSB for the fiscal years ended June 30, 1996-- 1997; Form 1OQSB
for the period ended December 31, 1997; financial results for the period ended
March 31, 1997 and 1998, as prepared by Atrix management; and projections for
fiscal years ending June 30, 1998-2003, as prepared by Company management. In
addition, we have held discussions with Company management and directors
regarding the operations of and future prospects for Atrix; visited the
Company's facilities; considered the economics, performance and market
valuations of publicly-held companies engaged in relatively similar businesses
and with relatively similar investment characteristics; and considered the
current general stock market and economic environment. Exhibits A and B present
historical income statements and balance sheets for Atrix, respectively. Exhibit
C presents projected income statements for fiscal years ending June 30, 1998-
2003.
<PAGE>
In determining the fair market value of the common stock of Atrix, we have
compared the Company to publicly-traded companies and utilized a discounted cash
flow analysis.
Similar Publicly-Traded Companies
- ---------------------------------
We selected eleven publicly-traded companies to use for comparison with Atrix.
We selected companies which have operations and products similar to the product
lines of Atrix, as follows:
Industrial/Commercial Vacuums: Tenant Company, HMI Industries, Inc., and
- ----------------------------- Minuteman International, Inc.
Tools and Tool Kits Distribution: Danaher Corporation, Kennametal Inc., W. W.
- -------------------------------- Grainger, Inc.,
Marshall Industries, and Avnet, Inc.
Copy Control: Equitrac Corporation
- -----------------------------------
Process Control: Nicollet Process Engineering, Inc. and Electro-Sensors, Inc.
- ---------------
Exhibit D presents a current summary analysis of the financial performance and
valuations for the above companies. Exhibit E presents brief descriptions of
their operations and products.
As shown in Exhibit D, the revenues of all of the publicly-traded companies are
substantially larger than the segment product revenues of Atrix and the
publicly-traded companies are more diversified than Atrix. Atrix has been
experiencing a decline in total revenues since fiscal 1996, with most of the
decline in the distribution segment due to the loss of a major customer. The
publicly traded companies, with one exception, have experienced increases in
revenues ranging from 2.0% to 16.8% over the past three years.
Atrix's gross profit margins by product line compare to the margins of the
publicly-traded companies as follows:
- ----------------------------------------------------------------------
Latest 12 months GPM
- ----------------------------------------------------------------------
Atrix Publicly-Traded
Companies
- ----------------------------------------------------------------------
Industrial/Commercial Vacuums 39.0% 34.1% (mean)
- ----------------------------------------------------------------------
Tools and Tool Kit Distribution 28.6% 28.9% (mean)
- ----------------------------------------------------------------------
Copy Control 35.8% 63.9% (1 datapoint)
- ----------------------------------------------------------------------
Process Control 3.0% 48.7% (mean)
- ----------------------------------------------------------------------
Atrix was profitable for the fiscal years ending June 30, 1995-1997. For the 12
months ending March 31, 1998, however, the Company has a pre-tax loss of
$199,843. Management's budget
<PAGE>
for the fiscal year ending June 30, 1998, as shown in Exhibit C, shows a pre-tax
loss of $108.000. Management believes the loss could be in a range of
approximately $125,000 -$150,000. Nine of the eleven publicly traded companies
are profitable for the latest 12 months, with net profit margins ranging from
3.1% to 7.5%.
Given that Atrix has an operating loss and a net loss for the 12 months ending
March 31, 1998, it is our opinion that the common shares of Atrix would be
currently valued based upon a multiple of product revenues. The
industrial/commercial vacuum group of publicly-traded companies is currently
trading at a mean total capitalization (interest bearing debt and market
capitalization of equity)/revenue multiple of 1.0x; the tool and tool kits
distribution group is currently trading at a mean of 1.28x; the copy control
company is currently trading at 1.5x; and the process control group is currently
trading at a mean of 1.35x. It is our opinion that the common shares of Atrix
would trade at a discount to the publicly-traded companies due to its smaller
size, current losses, lower revenue growth, and limited stock trading liquidity.
Based upon the analysis in Exhibit D and the above considerations, it is our
opinion that Atrix's common shares would be currently valued as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Product Latest 12 Months Total Capitalization/ Value Range
Revenue Revenues
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial/Commercial Vacuums $2,394,534 .55-.65 $1,316,994 - $1,556,447
- -----------------------------------------------------------------------------------------------------------
Tool and Tool Kit Distribution $1,900,337 .64 -.77 $1,216,216 - $1,463,259
- -----------------------------------------------------------------------------------------------------------
Copy Control $ 193,247 1.05--1.20 $202,909 - $231,896
- -----------------------------------------------------------------------------------------------------------
Process Control $ 23,652 .68-.81 $16,083 - $19,158
- -----------------------------------------------------------------------------------------------------------
Total $2,752,202 - $3,270,760
- -----------------------------------------------------------------------------------------------------------
Less Interest Bearing Debt as of 967,658
March 31, 1998
- -----------------------------------------------------------------------------------------------------------
Equity Value $1,784,544 - $2,303,102
- -----------------------------------------------------------------------------------------------------------
Value Per Share (based on $1.26 - $1.63
1,413,449 shares outstanding)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Discounted Cash Flow Analysis
- -----------------------------
As shown in Exhibit C, Atrix management is projecting revenues to grow from
$5,690,000 in fiscal 1999 to $11,750,000 in fiscal 2003. Gross profit margins
are projected to increase from 36.0% in fiscal 1999 to 38.9% in fiscal 2003. Net
income is projected to grow from $276,000 in fiscal 1999 to $l,214.000 in fiscal
2003 with net profit margins increasing from 4.8% in fiscal 1999 to 10.3% in
fiscal 2003. These growth expectations and margin contributions are
significantly higher than the Company's historic or current financial
performance. The discounted cash flow analysis, therefore, will use discount
rates that reflect the risks associated with the Company achieving significantly
higher levels of performance and profitability.
<PAGE>
Exhibit F presents the cash flow projections for the fiscal years ending June
30, 1999-2003 and the present values of these projected cash flows using various
assumptions about discount rates and terminal values. With respect to discount
rates, we feel the following ranges are appropriate, by product line:
- -----------------------------------------------------------------------
Vacuums 35 - 45%
- -----------------------------------------------------------------------
Tool and Tool Kit Distribution 35 - 45%
- -----------------------------------------------------------------------
Copy Control 45 - 55%
- -----------------------------------------------------------------------
Process Controls 45 - 55%
- -----------------------------------------------------------------------
Midpoint Blended Discount Rate Based on Fiscal 1999 4 1.3%
Projected Revenue Contribution
- -----------------------------------------------------------------------
A blended discount rate range of approximately 40-42.5% is appropriate based
upon current yields of equity securities, the risks associated with Atrix
achieving the projections, and Atrix's smaller size. We feel a terminal value of
approximately .5x 2003 revenues is appropriate based upon the current market,
the relatively smaller size of Atrix in 2003, and the fact that current market
valuations are at significantly higher levels than the 30 year historical
average. The highlighted area of Exhibit F shows the discounted cash flow value
using the above ranges for discount rates and terminal value, which results in a
fair market value of approximately $2,249,000 to $2,386,000, or $1.59 to $1.69
per share.
Conclusion
- ----------
Based upon the above valuation methodologies, the current fair market value of
minority holdings of the common stock of Atrix is approximately $1.48 per share,
in a range of $1.26 to $1.69 per share. We have not included stock options in
the valuation calculation because the stock options are not in the money. This
per share value of $1.48 compares to the current stock price of Atrix of $1.25
and a stock price range of $1.00 to $3.50 in the past year.
Sincerely,
/s/Nancy C. Mankovich /s/Michael E. Pohlen
Nancy C. Mankovich, C.F.A. Michael E. Pohlen
Managing Director Associate Vice President
Mergers & Acquisitions Corporate Finance
<PAGE>
April 27, 1998
Mr. Steve D. Riedel
President and Chief Executive Officer
Atrix International Incorporated
14301 Ewing Avenue South
Burnsville. MN 55306
Dear Mr. Riedel:
You have requested our opinion of the current fair market value of minority
holdings of the common stock of Atrix International Incorporated ("Atrix" or the
"Company"). We understand our opinion may be used by the Company in connection
with corporate planning purposes.
We understand fair market value to mean the price at which ownership could be
expected to trade in a transaction between a willing buyer and a willing seller,
with both parties having reasonable knowledge of the relevant facts and neither
party acting under compulsion.
The common stock of Atrix is traded on the Nasdaq SmallCap Market. The fair
market value of a company with a limited public market cannot be determined by
any precise mathematical formula. Exact comparison to other securities is seldom
possible. Accordingly, our single figure evaluation should be considered an
estimate based upon a careful study of the many internal and external factors
that help to determine fair market value. We have not attempted to determine the
value of Atrix' s separate assets and liabilities, which would be appropriate if
the Company was intending to liquidate its assets and cease operations, but
rather have concentrated upon the Company as a going concern.
In arriving at a valuation conclusion, we have considered the history and
business of Atrix; Annual Reports for the fiscal years ended June 30, 1995 --
1997; Form 10-KSB for the fiscal years ended June 30, 1996-- 1997; Form 1O-QSB
for the period ended December 31, 1997; financial results for the period ended
March 31, 1997 and 1998, as prepared by Atrix management; and projections for
fiscal years ending June 30, 1998-2003, as prepared by Company management. In
addition, we have held discussions with Company management and directors
regarding the operations of and future prospects for Atrix; visited the
Company's facilities; considered the economics, performance and market
valuations of publicly-held companies engaged in relatively similar businesses
and with relatively similar investment characteristics; and considered the
current general stock market and economic environment. Exhibits A and B present
historical income statements and balance sheets for Atrix, respectively. Exhibit
C presents projected income statements for fiscal years ending June 30,
1998-2003.
<PAGE>
In determining the fair market value of the common stock of Atrix, we have
compared the Company to publicly-traded companies and utilized a discounted cash
flow analysis.
Similar Publicly-Traded Companies
We selected eleven publicly-traded companies to use for comparison with Atrix.
We selected companies which have operations and products similar to the product
lines of Atrix, as follows:
Industrial/Commercial Vacuums: Tenant Company, HMI Industries, Inc., and
Minuteman International, Inc.
Tools and Tool Kits Distribution: Danaher Corporation, Kennametal Inc.,
W. W. Grainger, Inc., Marshall Industries,
and Avnet, Inc.
Copy Control: Equitrac Corporation
Process Control: Nicollet Process Engineering, Inc. and Electro-Sensors, Inc.
Exhibit D presents a current summary analysis of the financial performance and
valuations for the above companies. Exhibit E presents brief descriptions of
their operations and products.
As shown in Exhibit D, the revenues of all of the publicly-traded companies are
substantially larger than the segment product revenues of Atrix and the
publicly-traded companies are more diversified than Atrix. Atrix has been
experiencing a decline in total revenues since fiscal 1996, with most of the
decline in the distribution segment due to the loss of a major customer. The
publicly traded companies, with one exception, have experienced increases in
revenues ranging from 2.0% to 16.8% over the past three years.
Atrix's gross profit margins by product line compare to the margins of the
publicly-traded companies as follows:
- -----------------------------------------------------------------
Latest 12 months GPM
- -----------------------------------------------------------------
Atrix Publicly-Traded
Companies
- -----------------------------------------------------------------
Industrial/Commercial Vacuums 39.0% 34.1% (mean)
- -----------------------------------------------------------------
Tools and Tool Kit Distribution 28.6% 28.9% (mean)
- -----------------------------------------------------------------
Copy Control 35.8% 63.9% (1 datapoint)
- -----------------------------------------------------------------
Process Control 3.0% 48.7% (mean)
- -----------------------------------------------------------------
Atrix was profitable for the fiscal years ending June 30, 1995-1997. For the 12
months ending March 31, 1998, however, the Company has a pre-tax loss of
$199,843. Management's budget for the fiscal year ending June 30, 1998, as shown
in Exhibit C, shows a pre-tax loss of $108.000. Management believes the loss
could be in a range of approximately $125,000 -$150,000. Nine of
<PAGE>
the eleven publicly traded companies are profitable for the latest 12 months,
with net profit margins ranging from 3.1% to 7.5%.
Given that Atrix has an operating loss and a net loss for the 12 months ending
March 31, 1998, it is our opinion that the common shares of Atrix would be
currently valued based upon a multiple of product revenues. The
industrial/commercial vacuum group of publicly-traded companies is currently
trading at a mean total capitalization (interest bearing debt and market
capitalization of equity)/revenue multiple of 1.0x; the tool and tool kits
distribution group is currently trading at a mean of 1.28x; the copy control
company is currently trading at 1.5x; and the process control group is currently
trading at a mean of 1.35x. It is our opinion that the common shares of Atrix
would trade at a discount to the publicly-traded companies due to its smaller
size, current losses, lower revenue growth, and limited stock trading liquidity.
Based upon the analysis in Exhibit D and the above considerations, it is our
opinion that Atrix's common shares would be currently valued as follows:
<TABLE>
<CAPTION>
Product Latest 12 Months Total Capitalization/
Revenue Revenues Value Range
- ----------------------------------------- ----------------------- -------------------------- -----------------------
<S> <C> <C> <C>
Industrial/Commercial Vacuums $2,394,534 .55-.65 $1,316,994 - $1,556,447
Tool and Tool Kit Distribution $1,900,337 .64 - .77 $1,216,216 - $1,463,259
Copy Control $193,247 1.05--1.20 $202,909 - $231,896
Process Control $23,652 .68- .81 $16,083 - $19,158
Total $2,752,202 - $3,270,760
Less Interest Bearing Debt as of
March 31, 1998 967,658
Equity Value $1,784,544 - $2,303,102
Value Per Share (based on 1,413,449 $1.26 - $1.63
shares outstanding)
</TABLE>
Discounted Cash Flow Analysis
As shown in Exhibit C, Atrix management is projecting revenues to grow from
$5,690,000 in fiscal 1999 to $11,750,000 in fiscal 2003. Gross profit margins
are projected to increase from 36.0% in fiscal 1999 to 38.9% in fiscal 2003. Net
income is projected to grow from $276,000 in fiscal 1999 to $l,214.000 in fiscal
2003 with net profit margins increasing from 4.8% in fiscal 1999 to 10.3% in
fiscal 2003. These growth expectations and margin contributions are
significantly higher than the Company's historic or current financial
performance. The discounted cash flow analysis, therefore, will use discount
rates that reflect the risks associated with the Company achieving significantly
higher levels of performance and profitability.
<PAGE>
Exhibit F presents the cash flow projections for the fiscal years ending June
30, 1999-2003 and the present values of these projected cash flows using various
assumptions about discount rates and terminal values. With respect to discount
rates, we feel the following ranges are appropriate, by product line:
Vacuums 35 - 45%
Tool and Tool Kit Distribution 35 - 45%
Copy Control 45 - 55%
Process Controls 45 - 55%
Midpoint Blended Discount Rate Based
on Fiscal 1999 Projected
Revenue Contribution 4 1.3%
A blended discount rate range of approximately 40-42.5% is appropriate based
upon current yields of equity securities, the risks associated with Atrix
achieving the projections, and Atrix's smaller size. We feel a terminal value of
approximately .5x 2003 revenues is appropriate based upon the current market,
the relatively smaller size of Atrix in 2003, and the fact that current market
valuations are at significantly higher levels than the 30 year historical
average. The highlighted area of Exhibit F shows the discounted cash flow value
using the above ranges for discount rates and terminal value, which results in a
fair market value of approximately $2,249,000 to $2,386,000, or $1.59 to $1.69
per share.
Conclusion
Based upon the above valuation methodologies, the current fair market value of
minority holdings of the common stock of Atrix is approximately $1.48 per share,
in a range of $1.26 to $1.69 per share. We have not included stock options in
the valuation calculation because the stock options are not in the money. This
per share value of $1.48 compares to the current stock price of Atrix of $1.25
and a stock price range of $1.00 to $3.50 in the past year.
Sincerely,
Nancy C. Mankovich, C.F.A. Michael E. Pohlen
Managing Director Associate Vice President
Mergers & Acquisitions Corporate Finance
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Latest Twelve
Income Statement Months Ending Fiscal Year End
- ---------------------------------- ----------------- ----------------------------------------------------------
3/31/98 6/30/97 6/30/96 6/30/95
----------------- -------------------- ---------------- --------------------
Sales:
<S> <C> <C> <C> <C>
Manufacturing $ 2,394,534 $ 2,377,175 $ 2,268,508 $2,164,684
Distribution 1,900,337 3,048,152 3,384,883 3,056,923
Copy Control (R3) 193,246 322,246 368,596 147,691
Process Control (M1) 23,652 53,727 - -
Royalties - - 6,439 408,364
Disposal - - - 517
Total sales 4,511,770 5,801,300 6,028,427 5,778,179
Cost of Sales:
Manufacturing 1,461,045 1,486,239 1,487,371 1,332,697
Gross Margin 39.0% 37.5% 34.4% 38.4%
Distribution 1,357,661 2,259,355 2,413,870 2,186,384
Gross Margin 28.6% 25.9% 28.7% 28.5%
Copy Control (R3) 124,109 192,266 203,599 81,880
Gross Margin 35.8% 40.3% 44.8% 44.6%
Process Control (M1) 22,936 30,978 - -
Gross Margin 3.0% 42.3% - -
Other 177,360 131,888 149,756 266,280
----------------- -------------------- ---------------- --------------------
Total cost of sales 3,143,111 4,100,726 4,254,596 3,867,241
Gross Profit 1,368,658 1,700,573 1,773,830 1,910,938
Gross Profit Margin 30.3% 29.3% 29.4% 33.1%
Selling, general and
administrative expenses
1,596,839 1,642,760 1,630,934 1,754,398
-----------------
Income from operations (228,181) 587,813 142,896 156,540
Interest income/(expense), net 28,338 18,540 (2,227) (18,404)
Patent infringement settlements - - 1,990 169,496
----------------- -------------------- ---------------- --------------------
Income before income taxes (199,843) 76,353 142,659 307,632
Income tax expense/(benefit) (120,235) (124,517) (1,382) 7,350
----------------- -------------------- ---------------- --------------------
Net income $ (79,608) $ 200,870 $ 144,041 $ 300,282
Net Income Margin -1.8% 3.5% 2.4% 5.2%
================= ==================== ================ ====================
Net income per share $ (0.06) $ 0.04 $ 0.03 $ 0.06
Weighted average number of common
shares outstanding 1,413,449 5,653,644 5,541,345 5,201,978
</TABLE>
<PAGE>
Exhibit B
<TABLE>
Balance Sheet as of: 3/31/98 6/30/97 6/30/96 6/30/95
- -------------------------------------------------------------- --- ---------------- ---------------- ---------------- ------------
Assets
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,437,504 $ 1,386,514 $ 541,515 $ 567,255
Restricted cash - - 250,000 400,000
Marketable securities, at cost - 329,057 693,648 190,000
Receivables, less allowance for doubtful accounts 577,725 543,091 757,650 746,490
Inventories 975,795 918,493 994,858 851,671
Prepaid expenses 88,192 94,315 76,489 33,978
---------------- ---------------- ---------------- ------------
Total current assets 3,079,216 3,271,470 3,314,160 2,789,394
Deferred income taxes 124,000 124,000 - -
Property and equipment, net 306,963 375,624 492,096 299,832
Intangible assets, net 76,105 82,381 82,345 14,424
Capitalized software development costs, net 191,170 231,249 207,358 276,465
---------------- ---------------- ---------------- ------------
Total Assets $ 3,777,455 $ 4,084,724 $ 4,095,959 $ 3,380,115
================ ================ ================ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 424,740 $ 494,766 $ 595,388 $ 661,640
Notes payable - bank 876,928 850,000 941,299 812,653
Current maturities of long-term debt - 62,622 76,553 5,742
Other liabilities 70,280 97,365 52,305 91,958
---------------- ---------------- ---------------- ------------
Total current liabilities 1,371,948 1,504,753 1,665,545 1,571,993
Long-term debt, net of current maturities 90,730 111,294 162,607 8,106
---------------- ---------------- ---------------- ------------
Total Liabilities 1,462,679 1,616,047 1,828,152 1,580,099
---------------- ---------------- ---------------- ------------
Shareholders' Equity:
Preferred stock, $0.01 par value, 3,000,000 shares
authorized, no shares issued - - - -
Common stock 56,536 56,536 56,536 52,019
Additional paid-in capital 3,276,969 3,276,969 3,276,969 2,957,736
Accumulated deficit (1,018,729) (864,828) (1,065,698) (1,209,739)
---------------- --------------- --------------- --------------
Total Shareholders' Equity 2,314,776 2,468,677 2,267,807 1,800,016
---------------- ---------------- ---------------- ------------
Total Liabilities and Shareholders' Equity $ 3,777,455 $ 4,084,724 $ 4,095,959 $ 3,380,115
================ =============== =============== ==============
</TABLE>
<PAGE>
Exhibit C
<TABLE>
<CAPTION>
Fiscal Year End 6/30 1998 1999 2000 2001 2002 2003
- ------------------------------- ------- ------- ------- ------- ------- -------
Sales
- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $ 2,430 $ 3,000 $ 3,450 $ 3,968 $ 4,562 $ 5,246
Distribution $ 1,737 $ 1,970 $ 2,328 $ 2,770 $ 3,269 $ 3,858
Copy Control (R3) $ 314 $ 470 $ 625 $ 831 $ 1,105 $ 1,470
Process Control (M1) $ 18 $ 250 $ 500 $ 665 $ 885 $ 1,176
- ------------------------------- ------- ------- ------- ------- ------- -------
Total Sales $ 4,499 $ 5,690 $ 6,903 $ 8,234 $ 9,821 $11,750
Cost of Sales
Manufacturing $ 1,486 $ 1,800 $ 2,070 $ 2,341 $ 2,646 $ 3,043
Gross Margin 38.9% 40.0% 40.0% 41.0% 42.0% 42.0%
Distribution $ 1,217 $ 1,379 $ 1,630 $ 1,939 $ 2,288 $ 2,700
Gross Margin 29.9% 30.0% 30.0% 30.0% 30.0% 30.0%
Copy Control (R3) $ 174 $ 235 $ 313 $ 416 $ 553 $ 735
Gross Margin 44.4% 50.0% 50.0% 50.0% 50.0% 50.0%
Process Control (M1) $ 26 $ 100 $ 200 $ 266 $ 354 $ 471
Gross Margin -46.8% 60.0% 60.0% 60.0% 60.0% 60.0%
Other $ 142 $ 125 $ 152 $ 173 $ 196 $ 235
- ------------------------------- ------- ------- ------- ------- ------- -------
Total Cost of Sales $ 3,046 $ 3,639 $ 4,364 $ 5,135 $ 6,037 $ 7,184
Gross Profit $ 1,453 $ 2,051 $ 2,539 $ 3,099 $ 3,784 $ 4,567
Gross Profit Margin 32.3% 36.0% 36.8% 37.6% 38.% 38.9%
Selling Expenses $ 501 $ 638 $ 702 $ 802 $ 950 $ 1,140
G&A Expenses $ 1,083 $ 1,120 $ 1,185 $ 1,280 $ 1,350 $ 1,420
- ------------------------------- ------- ------- ------- ------- ------- -------
Operating Income $ (132) $ 293 $ 652 $ 1,017 $ 1,484 $ 2,007
Other Income (Expenses) $ 24 $ 16 $ 16 $ 16 $ 16 $ 16
- ------------------------------- ------- ------- ------- ------- ------- -------
Pretax Income $ (108) $ 309 $ 668 $ 1,033 $ 1,500 $ 2,023
Taxes $ 3 $ 33 $ 72 $ 300 $ 600 $ 809
Net Income $ (111) $ 276 $ 596 $ 733 $ 900 $ 1,214
Net Income Margin -2.5% 4.8% 8.6% 8.9% 9.2% 10.3%
EPS $ (0.08) $ 0.20 $ 0.42 $ 0.52 $ 0.64 $ 0.86
Weighted Avg # Shares 1,413 1,413 1,413 1,413 1,413 1,413
</TABLE>
<PAGE>
Exhibit D
<TABLE>
<CAPTION>
Atrix International
Comparable Company Analysis Industrial/Commercial Vacuums Tools and Tool Kits
----------------------------------- -------------------
(in 000's except per share ATRIX INTL TENNANT CO HMI INDS MINUTEMAN DANAHER CP
data) ---------- ---------- -------- --------- -----------
Income Statement Data ATXI TANT HMII MMAN DHR
- ------------------------------- ------------ ------------ --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
LTM Ending Mar-97 Dec-97 Dec-97 Dec-97 Dec-97
Revenue $4,511 $372,428 $44,881 $53,346 $2,050,968
3 Year Revenue Growth -3.3% 9.8% N/A 8.7% 16.8%
Gross Income $1,369 $157,036 $12,118 $17,622 $668,493
% of Revenue 30.3% 42.2% 27.0% 33.0% 32.6%
Operating Income ($228) $36,088 ($20,276) $4,250 $266,885
% of Revenue N/M 9.7% N/M 8.0% 13.0%
Pre-tax Income ($200) $37,630 ($22,814) $4,353 $253,781
Net Income ($80) $24,205 ($14,925) $2,847 $154,806
% of Revenue N/M 6.5% N/M 5.3% 7.5%
3 Year Income Growth -42.4% 15.4% N/A -3.9% 23.8%
Income - After E&D ($80) $24,205 ($17,687) $2,847 $154,806
% of Revenue N/M 6.5% N/M 5.3% 7.5%
3 Year Income Growth -42.4% 15.4% N/A -3.9% 23.8%
EPS ($0.06) $2.43 ($2.97) $0.80 $2.63
EPS - After E&D ($0.06 $2.43 ($2.97) $0.80 $2.59
Balance Sheet
- ------------------------------- ------------ ------------ --------- ------------ ----------
Total Assets $3,777 $233,870 $54,948 $32,493 $1,879,717
Cash & Equivalents $1,438 $16,279 $819 $722 $33,317
Total S-T and current portion
of L-T debt $877 $2,377 $23,835 $0 $35,527
Long Term Debt, net of
current portion $91 $42,635 $553 $0 $162,720
Shareholder Equity $2,469 $134,086 $13,196 $29,082 $916,881
Market and Valuation
Information
- ------------------------------- ------------ ------------ --------- ------------ ----------
Closing Price: 4/27/98 4/27/98 4/27/98 4/27/98 4/27/98
Price $1.25 $42.63 $4.75 $10.50 $69.56
LTM P/E N/M 17.5 N/M 13.1 26.4
P/E - After E&D N/M 17.5 N/M 13.1 26.9
52 Week High Price $3.50 $44.94 $6.50 $11.75 $78.38
52 Week Low Price $1.00 $27.00 $3.88 $8.75 $42.50
Shares Outstanding 1,413 9,661 5,034 3,568 58,555
Market Capitalization $1,766 $411,800 $23,911 $37,464 $4,073,232
Total Capitalization $2,734 $456,812 $48,299 $37,464 $4,271,479
Market Cap/Revenue 0.4 1.1 0.5 0.7 2.0
Market Cap/Op. Inc. N/M 11.4 N/M 8.8 15.3
Total Cap/Revenue 0.6 1.2 1.1 0.7 2.1
Total Cap/Op. Inc. N/M 12.7 N/M 8.8 16.0
Current EPS Estimate N/A N/A $0.40 N/A $2.98
Current Estimated P/E N/A N/A 1.19 N/A 23.3
Next EPS Estimate N/A N/A N/A N/A $3.49
Next Estimated P/E N/A N/A N/A N/A 19.9
- ------------------------------- ------------ ------------ --------- ------------ -----------
Long-Term Growth Rate Est N/A N/A N/A N/A 16.25%
PEG (`99 P/E est. used) N/A N/A N/A N/A 1.23
Fiscal Year-End 30-Jun 31-Dec 30-Sep 31-Dec 31-Dec
</TABLE>
<TABLE>
<CAPTION>
Comparable Company Analysis Tools and Tool Kits Copy Control Process Control
----------------------------------------------------- ------------- -----------------------
(in 000's except per share KENNAMETAL GRAINGR INC MARSHAL IND ANVET INC EQUITRAC CP NICOLLET ELECTRO-SEN
data) ---------- ----------- ----------- --------- ----------- -------- -----------
Income Statement Data KMT GWW MI AVT ETRC NPET ELSE
- -------------------------------------------- ------------ -------------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LTM Ending Dec-97 Dec-97 Nov-97 Dec-97 Nov-97 Nov-97 Dec-97
Revenue $1,288,545 $4,136,559 $1,304,603 $5,636,635 $47,888 $2,093 $6,441
3 Year Revenue Growth 13.5% 11..0% 13.6% 13.9% 16.2% -11..7% 2.0%
Gross Income $583,403 $1,554,769 $212,604 $706,383 $30,615 $789 $3,842
% of Revenue 45.3% 37.6% 16.3% 12.5% 63.9% 37.7% 59.6%
Operating Income $151,305 $393,159 $70,077 $326,170 $4,222 ($2,609) $716
% of Revenue 11.7% 9.5% 5.4% 5.8% 8.8% N/M 11.1%
Pre-tax Income $120,042 $389,636 $69,404 $328,080 $4,787 ($2,629) $690
Net Income $69,384 $231,833 $40,199 $188,961 $2,983 ($2,629) $453
% of Revenue 5.4% 5.6% 3.1% 3.4% 6.2% N/M 7.0%
3 Year Income Growth 13.5% 21.9% 4.6% 18.2% 37.8% N/A -0.5%
Income - After E&D $69,384 $231,833 $40,199 $188,961 $2,983 ($2,629) $453
% of Revenue 5.4% 5.6% 3.1% 3.4% 6.2% N/M 7.0%
3 Year Income Growth 13.5% 21.9% 4.6% 18.2% 37.8% N/A -0.5%
EPS $2.63 $4.61 $2.39 $4.55 $0.81 ($0.79) $0.23
EPS - After E&D $2.63 $4.56 $3.25 $4.55 $0.81 ($0.79) $0.23
Balance Sheet
- -------------------------------------------- ------------ -------------- ----------- ------------- ----------- -----------
Total Assets $2,061,216 $1,997,821 $541,904 $2,680,449 $33,011 $1,606 $10,895
Cash & Equivalents $29,265 $46,929 $5,372 $54,820 $9,253 $0 $7,236
Total S-T and current portion
of L-T debt $31,349 $26,814 $0 $234 $0 $245 $0
Long Term Debt, net of
current portion $1,110,074 $131,201 $18,000 $577,124 $0 $26 $0
Shareholder Equity $535,781 $1,294,661 $389,254 $1,497,943 $26,801 $692 $9,108
Market and Valuation
Information
- -------------------------------------------- ------------ -------------- ----------- ------------- ----------- -----------
Closing Price: 4/27/98 4/27/98 4/27/98 4/27/98 4/27/98 4/27/98 4/27/98
Price $50.75 $104.75 $32.06 $60.56 $20.75 $0.50 $3.88
LTM P/E 19.3 22.7 13.4 13.3 25.6 N/M 16.8
P/E - After E&D 19.3 23.0 9.9 13.3 25.6 N/M 16.8
52 Week High Price $55.69 $108.63 $43.13 $74.50 $24.00 $2.88 $5.00
52 Week Low Price $33.13 $72.50 $28.38 $55.63 $11.50 $0.38 $3.25
Shares Outstanding 30,000 48,834 16,616 40,001 3,487 5,536 1,965
Market Capitalization $1,522,500 $5,115,362 $532,750 $2,422,560 $72,355 $2,768 $7,614
Total Capitalization $2,663,923 $5,273,377 $550,750 $2,999,918 $72,355 $3,039 $7,614
Market Cap/Revenue 1.2 1.2 0.4 0.4 1.5 1.3 1.2
Market Cap/Op. Inc. 10.1 13.0 7.6 7.4 17.1 N/M 10.6
Total Cap/Revenue 2.1 1.3 0.4 0.5 1.5 1.5 1.2
Total Cap/Op. Inc. 17.6 13.4 7.9 9.2 17.1 N/M 10.6
Current EPS Estimate $2.96 $5.10 $2.10 $4.20 N/A $0.04 N/A
Current Estimated P/E 17.1 20.5 15.3 14.4 N/A 12.5 N/A
Next EPS Estimate $3.88 $5.77 $2.45 $4.74 N/A N/A N/A
Next Estimated P/E 13.1 18.2 13.1 12.8 N/A N/A
- -------------------------------------------- ------------ -------------- ----------- ------------- ----------- -----------
Long-Term Growth Rate Est 13.60% 12.36% 13.00% 14.64% N/A N/A N/A
PEG (`99 P/E est. used) 0.96 1.47 1.01 0.87 N/A N/A N/A
Fiscal Year-End 30-Jun 31-Dec 31-May 30-Jun 28-Feb 31-Aug 31-Dec
</TABLE>
<PAGE>
Exhibit E
Industrial/Commercial Vacuums
TENNANT COMPANY
Tenant designs, makes, and sells industrial and commercial floor maintenance
equipment; including sweepers, scrubbers, vacuum cleaners, buffers, polishers,
extractors, and burnishers. It also markets floor-coating products. Industrial
Products include vacuumized power sweepers and scrubbers used to clean surfaces
characterized by heavy vehicle traffic, such as factories, warehouses, stadiums,
airport hangars, and parking garages. Commercial Products include vacuum
cleaners, buffers, polishers, extractors, scrubbers, burnishers, and sweepers
for floor and carpet maintenance in office buildings, retail outlets, hospitals,
airports, and other areas which experience heavy foot traffic. The company also
markets floor-coating products with various combinations of durability, gloss,
and resistance to chemical damage. Tenant maintains equipment service centers
and markets replacement items for its equipment. Products are sold throughout
the U.S., Canada, and more than 40 countries throughout the world.
HMI INDUSTRIES, INC.
HMI makes and sells consumer appliances with an emphasis on home cleaning
systems, and engages in industrial, metal, and tubular fabrication for the
commercial, industrial, automotive, and aerospace markets. Consumer Goods
Division makes and sells portable, bagless vacuum cleaners, central vacuum
cleaning systems, portable canister vacuums, and an upright vacuum. It also
sells filtration products and accessories that attach to the canister vacuum's
exhaust outlet. Manufactured Products Division makes and sells metal-formed
tubing, tools, dies, specialty machinery, needle-free injection systems, and
metal stamped components.
MINUTEMAN INTERNATIONAL, INC.
Minuteman makes and sells commercial and industrial vacuums, floor and carpet
care equipment, and chemical cleaning and coating products. Products include
hard surface floor care equipment, carpet care and maintenance products,
sweepers, scrubbers, commercial and industrial specialized vacuums, and
complementary accessories. Included in the specialized vacuum area are the
hazardous location/explosive environment vacuums and the clean-room nuclear
vacuums. Products are used in supermarkets, retail stores, offices, hotels,
factories, churches, schools, hospitals, nursing homes, convalescent centers,
and other commercial, industrial, and institutional facilities. Products are
sold in the U.S., Canada, and many countries around the world.
<PAGE>
Tools and Tool Kits
DANAHER CORPORATION
Danaher, through subsidiaries, produces and distributes general purpose
mechanics' hand tools and automotive specialty tools; produces and sells
temperature, level, and position sensing devices; and makes and distributes
wheel service equipment and diesel engine retarders. The Tools and Components
segment products and distributes ratchets, sockets, wrenches, drill chucks,
custom designed headed tools and components, high quality precision fasteners,
tool boxes and storage containers, and high quality miniature precision parts.
The company also makes specialized automotive service tools for the professional
and do-it-yourself markets. Process/Environmental Controls products include
underground storage tank leak detection systems and temperature, level, and
position sensing devices, liquid flow measuring devices, electronic and
mechanical counting and controlling devices, extruded thermoplastic mill shapes,
and custom molded plastic products.
KENNAMETAL INC.
Kennametal makes, buys, and distributes a broad range of tools, tooling systems,
supplies, and services for the metalworking, mining, and highway construction
industries. The company's tooling systems usually consist of a steel toolholder
and indexable cutting tool insert. Metal-cutting operations include tools for
turning, boring, threading, grooving, milling, and drilling. The company also
makes wear-resistant parts for use in abrasive environments and speciality
applications. Kennametal distributes a full line of industrial supplies to the
metalworking industry, including cutting tools, abrasives, precision measuring
devices, power tools, hand tools, machine tool accessories, and some
maintenance, repair, and operating supplies. The company also supplies compacts
for mining, quarrying, water well drilling, and oil and gas exploration. The
company also makes proprietary metallurgical powders for use as a basic material
in many of its metalworking, mining, and construction products. Products are
sold in the U.S., Canada, Western Europe, Asia-Pacific, Eastern Europe, and
other countries. Products are marketed through a direct sales force,
full-service supply programs, retail showrooms, and mail order catalogs.
W.W. GRAINGER, INC.
Grainger distributes industrial and commercial equipment and supplies; including
motors, HVAC equipment, lighting, hand and power tools, pumps, and electrical
equipment. The company offers its products through catalogs and stores in the
U.S. and Mexico. The company sells mainly to contractors, service shops,
industrial and commercial maintenance departments, manufacturers, hotels, and
health care and educational facilities.
MARSHALL INDUSTRIES
Marshall Industries distributes industrial electronic components and production
supplies; including semiconductor products, passive components, connector and
interconnect products, computer systems and peripherals, and industrial
production supplies. Marshall is the fifth largest United States distributor of
electronic components and industrial production supplies. The company provides
both manned technical field resources and high-technology capabilities;
including
<PAGE>
parametric part number searching, on-line engineering design lab, on-line
training, and 24-hour-a-day support. Marshall provides supplier with nationwide
coverage of customers in major electronics manufacturing areas of the United
States and Canada. To its 30,000 customers, Marshall offers a broad range of
franchised, brand name products (more than 125,000) from more than 50 major
suppliers. The company is a major United States distributor of Japanese
semiconductor products and also holds a 16% equity position in Sonepar
Electronique International, a Paris-based electronics distributor with coverage
in 24 countries. In January 1998, Marshall acquired Sterling Electronics Corp.
for about $162 million cash, plus about $55 million in debt assumption. Sterling
is an international broad-line electronic parts distributor with 39 branches in
the United States and Canada.
AVNET, INC.
Avnet distributes electronic components and computer products for original
equipment manufacturers and produces or distributes other electronic,
electrical, and video communications products for consumer, military, and
industrial use. Avnet is one of the world's largest distributors of electronic
components and computer products sold principally to industrial customers. The
company connects suppliers of semiconductors, passive and electromechanical
components and offers an array of value-added services to its customers, such as
inventory replenishment systems, kitting, connector and cable assembly, and
semiconductor programming. Avnet has been strategically acquiring companies and
also divesting of non-core businesses. Since July 1994, the company had
completed eleven acquisitions; including four in Europe and three in the
Asia/Pacific region.
<PAGE>
Copy Control
EQUITRAC CORPORATION
Equitrac designs, makes, markets, and supports a computer hardware and software
communications network designed to automatically track, record, and report usage
of such items as photocopy machines, facsimile machines, laser printers, word
processing terminals, telephones, and postage meters. The company's systems
allow users to bill incurred costs, maximize office equipment efficiency, and
contain overhead costs. The company's cost recovery and expense management
systems are installed at over 6,000 client sites worldwide. Equitrac also
provides maintenance service on a wide range of computer equipment, supporting
many major equipment manufacturers. This multi-vendor support covers a variety
of services; including installation, preventive maintenance, and on-site repair
service.
Process Control
NICOLLET PROCESS ENGINEERING, INC.
Nicollet Process Engineering designs, makes, markets, and supports process
monitoring and control systems, client/server software at the host level, and
machine diagnostic tools for the die casting and plastic injection molding
industries. The company designs, manufactures, markets and supports high speed
data acquisition systems that bring a range of solutions to solve process
automation problems; including process visualization, machine and process
control, and real-time database management products. Nicollet has developed a
die casting industry-specific, "turn-key" manufacturing information and process
control system (Process Vision). This system monitors, collects, and displays
machine performance data; monitors process performance continuously against
pre-set values; provides feedback to the machine's controller to bring
out-of-tolerance performance back into conformance; and aggregates data for
real-time presentation of process reports for use by the machine operator. As
part of its product offering to the die casting industry, the company has
developed client/server software which provides access to factory floor data
stored in file servers and distributes that data, on a real-time basis, to all
levels of an organization in either pre-programmed report formats or on a
user-defined basis. The company has developed a line of products in the plastics
injection molding industry that provides process and production monitoring to
all levels of an organization. The Plastics Monitoring System monitors,
collects, and displays machine performance data; monitors process performance
continuously against pre-set values; and provides the information collected and
analyzed to all levels of an organization. In addition, Nicollet manufactures
and sells its Machine Capability Analyzer, which is a portable, troubleshooting
instrument that tests the functioning of a manufacturing machine for
inconsistencies in operation.
ELECTRO-SENSORS, INC.
Electro-Sensors operates in three distinct business lines. The Company makes a
complete line of speed monitoring and control systems for industrial machinery,
makes small gas torches and related accessories, and develops PC-based software
for both automated survey processing and hand printed character recognition.
<PAGE>
Exhibit F
DCF 1999 2000 2001 2002 2003
- -------- ------ ------ ------ ------ -------
Revenue $5,690 $6,903 $8,234 $9,821 $11,750
EBIT (Op Income) 293 652 1,017 1,484 2,007
Income Taxes 33 72 300 594 803
Adjusted Net Income 260 580 717 890 1,204
Add: Depreciation/Amortization 170 170 170 170 170
Less: Capital Expenditures 40 40 40 40 40
Less: Inc. in Working Capital 298 291 306 349 405
Cash Flow 92 419 542 671 929
Year 1 2 3 4 5
PRESENT VALUES
Terminal Value (x 2003 Sales)
Discount Rate 0.45 0.50 0.55 0.60 0.65
- ------------- ------ ------ ------ ------ ------
35.0% $2,576 $2,707 $2,838 $2,969 $3,100
37.5% 2,419 2,539 2,658 2,778 2,897
40.0% 2,277 2,386 2,496 2,605 2,714
42.5% 2,149 2,249 2,349 2,449 2,549
45.0% 2,032 2,123 2,215 2,307 2,398
Above present values include the subtraction of interest bearing debt of
$967,658 as of March 31, 1998 and the addition of cash of $1,437,504 as of March
31, 1998.
<PAGE>
ATRIX INTERNATIONAL, INC.
MANAGEMENT PROPOSED BUYOUT
OF 100% OF THE OUTSTANDING
SHARES OF COMMON STOCK
FAIRNESS OPINION AND SUPPORTING DOCUMENTS
PREPARED BY
[LOGO]
MILLER, JOHNSON & KUEHN,
INCORPORATED
INVESTMENT SECURTIES
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
TAB
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<S> <C>
FAIRNESS OPINION DATED DECEMBER 17, 1998
FAIRNESS OPINION OVERVIEW 1
. Economic Analysis
. Nature of Atrix's Business
. Discussion of Publicly Traded Stock
. Discussion of Methodology Employed
. Equity Premium Paid
SUPPORTING DOCUMENTS 2
. 100% Acquisitions of Publicly Traded U.S. Based Companies
. Summary of Recent Transactions
. SIC Codes 3635 & 5085
. SIC Codes 3699 & 3829
. Atrix Financial Results
. Atrix Management Financial Projections
. Comparable Public Company Values
SUPPORTING FINANCIAL MODELS 3
. Consolidated Valuation Results
. Summary of Atrix Financial Projections
. Market Capitalization Results
. Discounted Cash Flow Model
. Control Equipment Division Valuation Results
. Summary of Financial Projections
. Market Capitalization Results
. Discounted Cash Flow Model
. Tools Division Valuation Results
. Summary of Financial Projections
. Market Capitalization Results
. Discounted Cash Flow Model
</TABLE>
<PAGE>
[LETTER HEAD OF MILLER, JOHNSON & KUEHN, INCORPORATED APPEARS HERE]
December 17, 1998
Board of Directors
Atrix International, Inc.
14301 Ewing Avenue South
Burnsville, MN 55306
Members of the Board,
You have requested our opinion as to whether the consideration to be received by
the shareholders of the Company pursuant to the acquisition (the "Transaction")
of all the issued and outstanding shares of capital stock of Atrix
International, Inc. (the "Company") on a fully diluted basis ("Common Stock") by
an entity to be formed by current management of the Company (the "Acquiror") is
fair, from a financial point of view.
We are not opining as to any other transactions or contractual arrangements
previously entered into, or to be entered into (whether or not in connection
with the Transaction) between the Company, or its Board of Directors or
management, on the one hand, and the Acquiror (or any of its affiliates) or any
other person, on the other, including without limitation, any agreements entered
into and the payments made in connection therewith. Additionally, our opinion
relates solely to whether the consideration is fair, from a financial point of
view, to the shareholders of the Company and we have not been
<PAGE>
requested to opine on, and this opinion does not in any manner address, the
Company's underlying decision to proceed with or effect the Transaction.
We understand that (i) the purchase price per share to be paid by the Acquiror
for the Common Stock will be $2.00 in cash; and (ii) the aggregate consideration
to be received by the shareholders of the Company in connection with the
Transaction is $2,826,898.
As a customary part of our investment banking business, we are engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements, and valuations for estate, corporate and other purposes. For our
services in rendering this opinion, the Company will pay us a fee and indemnify
us against certain liabilities. We have never managed a public offering of stock
for either the Company or the Acquiror, have not acted as a financial advisor in
the Transaction for either the Company or the Acquiror, do not provide research
coverage on the Company or the Acquiror and, in the ordinary course of our
business, do not make a market in the stock of either the Company or the
Acquiror.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
As the Transaction is to provide the shareholders of the Company with cash and
not securities of any kind from the Acquiror, we have limited our evaluation to
a review of the business and financial condition of the Company. Among other
things, we have reviewed, but have not limited our review to: (i) the
correspondence between Mr. Steven Riedel and the Board of Directors of the
Company or certain members thereof, during the months of June, July, and August
of 1998; (ii) the Agreement and Plan of Merger between Atrix, International,
Inc. and Newco, Inc. (the "Merger Agreement"); and (iii) the Proxy Statement
draft dated December , 1998. In addition, we have (i) conducted interviews with
management of the Company; (ii)
2
<PAGE>
conducted telephone interviews with the Company's major suppliers and customers;
(iii) toured the Company's facilities; (iv) reviewed and discussed with Company
senior management ("Management") its five year financial projections, which, on
our request, have been augmented by Management to include a Statement of Income
for the Company's two divisions: Machine Tools and Data Processing Management;
(v) reviewed financial and other publicly available information with respect to
the Company, including annual reports, Forms 10-KSB and 10-QSB and proxy
statements; (vi) consulted government and industry economic statistics that
could have a direct bearing on the business of Company; and (vii) examined
securities data on comparable mergers and acquisitions of similar public
companies, to the extent available. Finally, we have reviewed the December 1998
draft of the "Agreement and Plan of Merger" between Atrix International and
Newco, Inc.
The opinion contained herein is subject to the following qualifications: (i) we
have relied upon and assumed the accuracy and completeness of the financial and
other information (including the financial statements and projections of the
Company) provided to us and prepared by the Company and its Management and their
representations relating thereto, and we have not independently verified any
such information or representations; (ii) with respect to the Company's
projections, budgets and current estimates, we have assumed, based upon
representations of the Company's Management, that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's Management as to the expected future performance of
the Company; (iii) we have relied upon and assumed the accuracy and completeness
of the information provided by, and the representations of, the Company's
Management and Board of Directors in respect of which our understandings set
forth on this opinion are based and we have relied upon the assurance of the
Company's Management that they are unaware of any facts that would make the
information provided to us incomplete or misleading; (iv) we have not performed
or obtained any independent appraisals or valuations of specific assets of the
Company and we express no opinion as to its liquidation value; (v) our analysis
is necessarily based on economic, monetary, market and other conditions existing
and which can be evaluated as of the date of our opinion
3
<PAGE>
(however, such conditions are subject to rapid and unpredictable change); and
(vi) we have not been authorized by the Company or the Board to solicit, nor
have we solicited, offers for transactions alternative to the Transaction, nor
have we been asked to advise the Company or the Board as to financial
alternatives to the Transaction.
Finally, in rendering our opinion, we have considered the current price per
share of the Company's Common Stock and current market conditions. We have also
examined the trading volume and liquidity of the Company's Common Stock and its
current price per share during the last two years.
This opinion is furnished pursuant to our engagement letter, dated October 14,
1998, as one element in the Board's consideration of the proposed Transaction.
This opinion is not to be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in whole or in part, in any
manner, or for any purpose, without our prior written consent.
Based upon and subject to the foregoing, and upon such other factors as we
consider relevant, it is our opinion that the consideration to be received by
the shareholders of the Company pursuant to the Transaction is fair, from a
financial point of view, to the shareholders of the Company.
Very truly yours,
/s/ Miller, Johnson & Kuehn, Incorporated
Miller, Johnson & Kuehn, Incorporated
4
<PAGE>
FAIRNESS OPINION OVERVIEW
ECONOMIC ANALYSIS
Atrix International, Inc. ("Atrix") has operated its business in a strong
economic environment over the last several years. With the exception of Q2 `98,
the Gross Domestic Product of the U.S. has been steady, if not slightly
increasing on a quarterly basis. Housing starts for the same period have been
brisk and reflect a generally strong economy with relatively high consumer
confidence. Until the last 6 months, the world economy has been strong, but
declining international currency values during 1998 have decreased the world's
purchasing power for U.S. goods and services due to a strong, stable U.S.
dollar. The effect of the strong dollar could have an impact on earnings of
companies doing business abroad over the next several quarters.
NATURE OF ATRIX'S BUSINESS
BACKGROUND
The company was formed in 1987 under the name Tiempo Equities, Inc. as a vehicle
to raise capital for investments in an operating business. In October 1990,
Tiempo merged with Atrix Tool, Inc. (a private company) and the name of the
business became Atrix International, Inc.
OVERVIEW
At present, Atrix operates three separate divisions: tool distribution,
manufacturing and monitoring. Products from each of these divisions are sold to
the office machine servicing and maintenance industries, with product sales from
one division often complementing sales from another division.
* Tool Distribution
Market Analysis and Competition: Products in this area consist of tools used for
- --------------------------------
maintenance, cleaning and testing of equipment. The tool industry is very
competitive with relatively low barriers to entry. Gross margins for the
industry average between 10% and 30%, depending on the specialized nature of the
tools. Companies in the direct catalog sales channel achieve gross margins
around 18-20%. In this area, Atrix competes against several larger companies
such as Jensen Tools, Inc., Specialized Products Co. and Techni-Tool.
<PAGE>
Atrix's Position: The tool distribution division was Atrix Tool, Inc.'s original
- -----------------
business. At present, this business consists largely of distributing tools and
custom tools kits to companies that sell, service and support the office machine
and copy machine industry. To increase sales over the last few years, Atrix has
attempted to sell direct via catalog. This strategy was not successful and the
company terminated its catalog sales efforts. The year 1997 saw tool sales of
$3.05 million which represented a 10% decline from 1996 levels, due largely to
the ATT/Lucent breakup. Sales further declined in 1998 to $1.56 million as
Avnet, a major Atrix customer and supplier to Lucent, chose to go direct rather
than honoring a three-year contract with Atrix. Arbitration regarding the
matter was settled in Atrix's favor in 1998. Management believes this business
segment can outpace the 1996 level of sales ($3.4 million) by 2003 while
maintaining gross margins of 27%.
* Manufacturing
Market Analysis and Competition: Atrix manufactures a series of vacuum cleaners
- --------------------------------
and tools for copy machine cleaning and maintenance and asbestos and lead
abatement. This business is roughly a $15 million market and is dominated by
three companies, Atrix (sales of $2.4 million), Eltrex ($1.8 million) and 3M ($3
million). The industry as a whole enjoys fairly good gross margins, running as
high as 40%. Domestically, the copy industry has been a slow growth market (3-
5% per year) due to more efficient use of toner and the introduction of high
quality, efficient laser printers. Growth in this market can be found in
developing countries internationally and in the niche area of retail office
vacuum cleaners, a niche which is growing at 10% per year.
Atrix's Position: The three leading companies in this industry tend to increase
- -----------------
sales by taking away market share from competitors. Atrix has succeeded in
doing this not only by being cost competitive but also by making its filters
interchangeable with the competition, allowing Atrix to get a foothold on its
competitors with its filter replacement strategy and looking for the machine
sale when the unit itself is replaced. Atrix owns the asbestos and lead
abatement markets with its Omega product lines and is aggressively pursuing
international distributors where the company sells product on an OEM basis.
Management believes this business can grow from the 1998 sales level of $2.4
million to over $5 million by the year 2003. The company maintains respectable
gross margins in the 35-36% range.
* Control Monitoring
Market Analysis and Competition: Monitoring copy machines is a relatively new
- -------------------------------
industry that has been slow to take off. Copy dealers and distributors have not
taken to the idea that the number of copies made should be monitored and
controlled as they benefit from greater usage. Management believes, however,
that this is a $100 million business opportunity, with the legal community
accounting for roughly 60% of
<PAGE>
this $100 million. Two significant companies, Xerox and Equatrak, control this
legal market, an area where Atrix hopes to become a significant player in years
ahead. Devices for this industry, when not imbedded in larger companies'
products (Xerox or Pitney Bowes), are often retrofitted to machines out in the
field.
Atrix's Position: Atrix entered this market a little over three years ago.
- ----------------
While sales have doubled in that period, they remain below management's
expectations. The company has done several things to increase its market share,
including introducing new products and moving into new market niches. A new
focus for the division is the federal government and the legal markets, both of
which seem interested in controlling and tracking copy usage. In addition, new
products have been developed for the plastic injection molding business, a new
market for this type of monitoring system. 1998 sales in the control and
monitoring business were $236,000. Currently Pitney Bowes takes roughly 60% of
Atrix's product on an OEM basis. Management believes that with its new products
and targeted market approach, it can increase sales tenfold in the next five
years.
Miscellaneous Findings
Atrix is in compliance with all bank covenants, is in good standing with the
State of Minnesota and is current in its SEC filings. There are no lawsuits
currently in process nor do there appear to be any pending. Customers are
generally happy with the service and products they receive from the company and
the company is close to being current on payables.
DISCUSSION OF PUBLICLY TRADED STOCK
Liquidity Issues
Atrix trades under the symbol ATXI on the NASDAQ Small Cap market, meaning it
has less liquidity than National Market System stocks and the stock is not
marginable. There are 1,413,449 common shares outstanding-- post a reverse
stock split of 1 for 4 on December 16, 1997 -- on a fully diluted basis assuming
a $2.00 stock price with roughly all of them freely tradable. There are 112,980
vested options and 62,222 warrants outstanding. The average monthly volume for
the stock for the last two years has been 113,900 shares, with daily volume
running between 3400 and 9300 shares on average days. An additional
consideration is the new NASDAQ trading rules, which have led many market
markers to drop market-making support of companies with thinly traded stock. A
move to the NASDAQ Bulletin Board Market further dampens liquidity.
<PAGE>
Recent Activity
Several events over the last 8 months have increased the volatility of Atrix's
stock considerably. The company's price per share has fluctuated over 100% (Low
of 1 1/4 ; High 3 3/8) and average daily volume has been as high as 213,800
shares on May 21, 1998. The first reason for this increase in volume and price
fluctuation was the announcement of the merger of Atrix and Firamada, Inc. back
in April (subsequently called off). A second reason was the aggressive
acquisition of outstanding shares by a non-affiliate of the company. Within six
weeks of these events the stock settled down to its pre-run-up price and volume.
DISCUSSION OF METHODOLOGY EMPLOYED
Three criteria are relied on heavily when determining the fair value of any
public company: management's past performance, the current price of the common
stock and future financial projections provided by management. The analysis of
Atrix presented several challenges because of the diverse nature of its business
units. As a result, two valuation models were run on the company. We looked
first at the company as a whole unit and compared it with publicly traded
companies in the same industries and with similar SIC codes. We applied typical
valuation models to both past financial performance and to future projections.
Our analyses included a discounted cash flow model using the Capital Asset
Pricing Model to determine the company's Weighted Average Cost of Capital,
valuation screens on revenues, EBIT and earnings, as well as evaluating mergers
and acquisitions data where appropriate. Weighting was assigned to each one of
these valuation screens depending on its reliability and appropriateness to this
particular situation.
The second set of valuation models looked at Atrix as two business units; a
machine tools unit and a data processing and management unit. We evaluated
these two units as though they were to be sold off as private companies. Again,
similar valuation screens were applied to these two separate units using public
company multiples for comparative purposes. A weighting system was assigned to
each one of these valuation screens as well.
Miller, Johnson & Kuehn, Incorporated's policy on any valuation study is to put
more weight on past performance results than on management's future projections.
We believe this is standard practice in the industry. However, as no analyst
covers Atrix's stock, it is unlikely that any future projections-- normally
present in an analyst's report-- are factored into the stock price.
Accordingly, we tended to give higher weighting to management's projections than
might be appropriate under circumstances where analysts actively cover a
publicly traded company. In applying a weighting system to our results to
determine an
<PAGE>
enterprise value, 60% percent weighting was given to actual trailing twelve-
month results and 40% weighting was given to management's future projections.
Our work revealed that the entire enterprise deserves a higher valuation than
could be achieved by selling off the two separate units. In our discussions
with management, they concurred with this assessment. From our perspective, the
reasons for this could be partially attributed to the discount factors used in
our financial models (particularly the discounted cash flow model) and partially
attributed to financial projections given to us by management. From
management's perspective, the sum of the two parts would be less efficient than
the whole, as sales from one unit tend to drive sales from the other unit.
Discount Policy
The final step in our analysis involved determining the appropriate discounts to
apply to our derived valuations. After determining values based on comparisons
with larger, more liquid public companies, we took into account the lack of a
readily liquid market for Atrix's stock by applying appropriate discounts to the
valuations we derived using these larger, more liquid public companies as
comparables. In the case of the entire enterprise, we have applied a 30%
discount to the value derived. Our standard practice would apply a 25%
liquidity discount to a public stock with limited liquidity. In Atrix's case we
believe that there is an additional risk of loss of liquidity in the months
ahead due to changes in NASDAQ listing requirements. We have applied an
additional 5% to the standard 25% discount to accommodate this additional risk.
When valuing a private company using public company multiples, a 40% discount is
customary, and we have taken a 40% discount against the values derived from
selling off the company as two private divisions.
EQUITY PREMIUM PAID
At the time of this writing and prior to any announcement concerning a
management buyout, Atrix stock has been trading at a $1.375 offer, $1.25 bid.
For the buyer, $2.00 per share offer represents a 45% premium to the offer (at
$1.375). For a seller, this represents a 60% premium to the bid price. This
premium compares extremely favorably with the average premium of 38% paid in 59
buy-outs, in various industries, that have taken place in the prior 6 months.
<PAGE>
100% ACQUISITIONS
PUBLICLY TRADED UNITED STATES BASED COMPANIES
6 MONTHS - 6/1/98 - 12/7/98
<TABLE>
<CAPTION>
PREMIUM PREMIUM 4
1 DAY PRIOR TO WEEKS PRIOR TO
DATE ANNOUNCEMENT ANNOUNCEMENT
EFFECTIVE TARGET NAME ACQUIROR NAME DATE (%) DATE (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7/2/98 Imo Industries Inc Constellation Capital Partners -1.053 2.545
7/20/98 Pollo Tropical Inc Carrols Corp 10 18.121
7/21/98 Triangle Pacific Corp Armstrong World Industries Inc 26.136 24.022
7/28/98 ARCO Chemical Co(ARCO) Lyondell Petrochemical Co 14.215 3.356
8/20/98 Lecg Inc Metzler Group Inc 46.5 41.774
8/20/98 Bionutrics Inc AC HUMKO(Assoc British Foods) -34.694 14.286
8/27/98 FTP Software Inc NetManage Inc 14.05 -23.967
8/28/98 PST Vans Inc US Xpress Enterprises Inc 32.8 10.667
8/31/98 Personnel Management Inc Linsalata Capital Partners 25.49 23.077
8/31/98 Camco International Inc Schlumberger Technology Corp 32.572 19.495
8/31/98 Broderbund Software Inc Learning Co Inc 21.212 18.959
9/2/98 DeCrane Aircraft Holdings Inc DLJ Merchant Banking Inc 30.496 33.818
9/10/98 CyberMedia Inc Network Associates Inc 25.62 117.143
9/11/98 E-Z Serve Corp EBC Texas Acquisition Corp 37.143 20
9/14/98 Icon CMT Corp Qwest Commun Int Inc 65.517 -4
9/18/98 Saks Holdings(Investcorp Bk) Proffitt's Inc 34.463 40.85
9/21/98 Republic Engineered Steels Investor Group 56.757 45
9/22/98 Dawson Production Services Inc Key Energy Group Inc 40.704 66.667
9/24/98 PMT Services Inc NOVA Corp 21.983 31.982
9/25/98 Manor Care Inc Health Care and Retirement 21.774 17.969
9/30/98 US Rentals Inc United Rentals Inc 5.107 1.576
9/30/98 Physio-Control International Medtronic Inc 19.565 31.343
10/1/98 US SerVis Inc HBO & Co 151.624 151.624
10/5/98 Penederm Inc Mylan Laboratories Inc 38.968 88.28
10/5/98 Veranda Club(NHP Retirement) Capital Senior Living Corp 0 0
10/6/98 General Signal Corp SPX Corp 19.601 19.403
10/7/98 Newmont Gold Co Newmont Mining Corp -5.159 62.368
10/8/98 RF Power Products Advanced Energy Industries 251.613 431.707
10/8/98 Innova Corp Digital Microwave Corp 16.17 30
10/9/98 American Materials & Techs Cytec Industries 100 81.132
10/15/98 Capstone Capital Corp Healthcare Realty Trust Inc 5.087 0.971
10/15/98 BetzDearborn Inc Hercules Inc 100.697 73.494
10/15/98 American Disposal Services Inc Allied Waste Industries Inc 16.249 -4.265
10/16/98 Continental Natural Gas Inc CMS Energy Corp 8.844 46.789
</TABLE>
<PAGE>
100% ACQUISITIONS
PUBLICLY TRADED UNITED STATES BASED COMPANIES
6 MONTHS - 6/1/98 - 12/7/98
<TABLE>
<CAPTION>
PREMIUM PREMIUM
1 DAY PRIOR TO WEEKS PRIOR TO
DATE ANNOUNCEMENT ANNOUNCEMENT
EFFECTIVE TARGET NAME ACQUIROR NAME DATE (%) DATE (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10/20/98 Merry Land & Investment Co Inc Equity Residential Pptys Trust 11.937 14.503
10/20/98 Stratus Computer Inc Ascend Communications Inc 19.114 33.408
10/26/98 McDonald & Co Investments Inc KeyCorp,Cleveland,Ohio 0.678 7.361
10/26/98 New West Eyeworks Inc National Vision Associates Ltd 23.81 30
10/26/98 Cayenne Software Inc Sterling Software Inc -14.286 -53.846
10/28/98 Eltron International Inc Zebra Technologies Corp 25.764 57.377
10/30/98 IMNET Systems Inc HBO & Co 55.625 62.5
11/2/98 Wells Fargo & Co Norwest Corp,Minneapolis, MN 9.257 6.723
11/3/98 Cable Michigan Inc Avalon Cable 14.894 23.194
11/5/98 Depuy Inc(Corange Ltd) Johnson & Johnson 11.111 22.271
11/6/98 Gull Laboratories(Fresenius) Meridian Diagnostics Inc -14.286 -41.935
11/13/98 Allied Life Financial Corp Nationwide Mutual Insurance Co 4.348 26.316
11/13/98 Golden Eagle Group Inc USFreightways Corp 223.636 223.636
11/16/98 Dominick's Supermarkets Inc Safeway Inc 18.429 16.667
11/17/98 Freeport-McMoRan Sulphur Inc McMoRan Oil & Gas Co 14.943 4.167
11/19/98 Tele-Commun Intl(Tele-Commun) Liberty Media(Tele-Commun) -1.095 -9.94
11/20/98 Firstar Corp Star Banc Corp,Cincinnati, OH 44.641 33.687
11/20/98 Marquette Medical Systems Inc GE Medical Systems 95.924 83.5
11/23/98 NSS Bancorp,Norwalk, CT Summit Bancorp,Princeton, NJ 28.235 31.459
11/30/98 Telco Systems Inc World Access Inc 77.778 63.855
11/30/98 ALBANK Financial Corp, NY Charter One Finl,Cleveland, OH 14.029 11.327
11/30/98 Capital Factors Holdings Inc Union Planters Bk Nat Assoc 4.478 2.941
12/1/98 Altron Inc Sanmina Corp 16.565 7.696
12/1/98 Monocacy Bancshares Inc F&M Bancorp,Frederick, MD 43.531 43.531
12/3/98 Clearview Cinema Group Inc Cablevision Systems Corp 10.227 7.778
</TABLE>
Source: Securities Data Company (973) 622-3100 Date: 12/8/98
<PAGE>
SUMMARY OF RECENT TRANSACTIONS
<TABLE>
<CAPTION>
MULTIPLE ON MULTIPLE ON MULITPLE
Date of Tranaction TTM TTM on TTM
Target Name Acquiror Name Transaction Value Revenues EBIT EPS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
In SIC Codes 3635 & 5085
- ------------------------
Engineered Sales Inc Bearings Inc 2/9/96 13.50 NA NA NA
Vanegas Enterprises-Corro-Filo Harrington Industrial
Thermoplastic Pipework Systems Plastics Inc (Glynwed
International PLC) 5/8/96 10.20 NA NA NA
Monitek Technologies Inc Sentex Sensing
Technology Inc 6/26/96 2.00 NA NA NA
Vogt Valves Co Inc Edward Valves Inc
(Henry Vogt Machine) (BTR PLC) 7/15/96 31.00 NA NA NA
Hercules Hydraulics Inc Diploma PLC 7/22/96 14.60 NA NA NA
Isometric Group Simpson Manufacturing
Co Inc 3/12/97 7.30 NA NA NA
Big A Well Service,Sunco
Trucking,Justis Supply Key Energy Group Inc 7/21/97 30.60 NA NA NA
Crane Co-Valve Systems
and Controls Division Undisclosed Acquiror 10/6/97 9.00 NA NA NA
Curtis Industries Inc Paragon Corporate
(Noel Group Inc) Holdings (Nesco Inc) 12/5/97 14.70 NA NA NA
Elastomeric Silicone
Products Inc Meggitt PLC 12/10/97 2.20 NA NA NA
EC Blackstone Co,Continental Air Industrial Distribution
Tools,Northern Tool & Supply Inc Group Inc 2/18/98 12.50 NA NA NA
Forward Enterprises Inc Ferguson Enterprises
Inc (Wolseley PLC) 6/2/98 6.50 NA NA NA
</TABLE>
<PAGE>
SUMMARY OF RECENT TRANSACTIONS
<TABLE>
<CAPTION>
MULTIPLE ON MULTIPLE ON MULITPLE
Date of Transction TTM TTM on TTM
Target Name Acquiror Name Transaction Value Revenues EBIT EPS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
In SIC Codes 3699 & 3829
- ------------------------
Roxcorp(Westwood Corp) Investor Group 10/3/97 2.50 NA NA NA
Nylo-Flex Manufacturing Co Calterm Inc
(BG Electrical) 10/16/97 3.00 NA NA NA
Industrial Data Systems Roper Industries Inc 10/31/97 4.80 NA NA NA
Brimfield Precision Image Guided
Instruments Technologies Inc 12/15/97 9.20 0.909 9.90 NA
Del City Wire Co Applied Power Inc 1/5/98 23.00 NA NA NA
Nurad Technology Inc Chelton Communications
Systems Inc(Cobham PLC) 1/8/98 5.60 NA NA NA
Optimag Inc Elamex SA de CV
(Accel SA) 1/30/98 1.30 NA NA NA
Waekon Industries Inc Hickok Inc 2/17/98 1.70 0.333 4.20 NA
Oryx Power Products Corp
(Oryx Technology Corp) Todd Products Corp 3/9/98 6.00 NA NA NA
High Voltage Engineering-
General Eastern Instruments Div Bowthorpe PLC 3/26/98 21.00 NA NA NA
Kavouras Inc Data Transmission
Network Corp 7/6/98 22.70 1.150 NA NA
Primex Physics International
Co-Electromagnetic
Systems Business Maxwell Technologies Inc 4/2/98 10.00 NA NA NA
Del Mar Avionics-Laser
Optics Division Toolex International NV 4/3/98 15.00 NA NA NA
Genus Inc-Certain Ion
Implantation Equipment Assets Varian Associates Inc 4/16/98 25.00 NA NA NA
Disney Production Services- Matthews Studio
Grip and Lighting Department Equipment Group 5/19/98 3.10 NA NA NA
Global Marine Electronics Inc Yeoman Group PLC 6/3/98 4.40 NA NA NA
Concept Systems Design Inc Mattson Technology Inc 7/13/98 4.20 NA NA NA
</TABLE>
<PAGE>
ATRIX INTERNATIONAL, INC.
FINANCIAL RESULTS
<TABLE>
<CAPTION>
1996 1997 1998
- ---------------------------------------------------------------------------
Sales
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Manufacturing 2,268 2,377 2,399
Distribution 3,385 3,048 1,564
Control Monitoring 375 376 236
- ---------------------------------------------------------------------------
Total Sales 6,028 5,801 4,199
Total Cost of Sales 4,254 4,100 2,839
Gross Profit 1,774 1,701 1,360
Gross Profit Margin 29.4% 29.3% 32.4%
SG&A Expenses 1,631 1,643 1,571
- ---------------------------------------------------------------------------
SG&A Percentage 27.1% 28.3% 37.4%
Operating Income 143 58 (211)
Interest Income/(Expense), net (2) 18 26
Other Income/(Expense) 2 - 126
- ---------------------------------------------------------------------------
Pretax Income 143 76 (59)
Taxes @ 40% (1) (125) 4
Net Income 144 201 (63)
Net Income Margin 2.4% 3.5% -1.5%
EPS 0.10 0.14 (0.04)
Weighted Avg # Shares 1,385 1,413 1,413
</TABLE>
<PAGE>
ATRIX INTERNATIONAL, INC.
MANAGEMENT FINANCIAL PROJECTIONS
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------
Sales
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Manufacturing 2,897 3,332 3,832 4,405 5,066
Distribution 1,852 2,189 2,604 3,073 3,627
Control Monitoring 664 1,030 1,370 1,822 2,423
- -----------------------------------------------------------------------------------------------------
Total Sales 5,413 6,550 7,806 9,301 11,116
Cost of Sales 3,470 4,155 4,922 5,824 6,922
- -----------------------------------------------------------------------------------------------------
Gross Profit 1,943 2,395 2,884 3,477 4,194
Gross Profit Margin 35.9% 36.6% 36.9% 37.4% 37.7%
SG&A Expenses 1,726 1,791 1,974 2,178 2,422
- -----------------------------------------------------------------------------------------------------
SG&A Percentage 31.9% 27.3% 25.3% 23.4% 21.8%
Operating Income 217 605 910 1,298 1,772
Other Income/(Expense) 14 16 16 16 16
- -----------------------------------------------------------------------------------------------------
Pretax Income 231 621 926 1,314 1,788
Taxes @ 40% 92 248 370 526 715
Net Income 139 372 556 789 1,073
Net Income Margin 2.6% 5.7% 7.1% 8.5% 9.7%
EPS 0.10 0.26 0.39 0.56 0.76
Weighted Avg # Shares 1,413 1,413 1,413 1,413 1,413
</TABLE>
<PAGE>
COMPARATIVE PUBLIC COMPANY VALUES
<TABLE>
<CAPTION>
NO. OF COMPANIES AVERAGE SHARES AVERAGE TTM/1/ X TTM/1/ X TTM/1/ X
INDUSTRY WITHIN THE INDUSTRY OUTSTANDING MARKET CAP REVENUES EBIT EPS
- -------- ------------------- ----------- ---------- -------- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Machine Tools 24 18.242 491.629 0.596 4.006 26.449
Data Processing Management 85 31.643 945.548 2.52 14.21 51.94
Overall Averages 1.56 9.11 39.20
<CAPTION>
PE PE
PRICE TO CURRENT NEXT
INDUSTRY BOOK/2/ FISCAL YEAR FISCAL YEAR
- -------- ------- ----------- -----------
<S> <C> <C> <C>
Machine Tools 0.868 12.016 8.596
Data Processing Management 2.29 29.06 19.97
Overall Averages 1.58 20.54 14.28
</TABLE>
/1/ TTM = Trailing Twelve Months
/2/ Per last publicly filed quarterly report
<PAGE>
CONSOLIDATED VALUATION RESULTS
<PAGE>
SUMMARY OF ATRIX FINANCIAL PROJECTIONS
ATRIX INTERNATIONAL CONSOLIDATED
<TABLE>
<CAPTION>
TRAILING TWELVE YEAR ENDING
MONTHS ENDING JUNE 30/2/
SEPTEMBER 30, 1998/1/ 1999 2000 2001 2002 2003
----------------------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Annual Revenue 4,296,826 5,413,000 6,550,532 7,806,076 9,301,236 11,116,360
Gross Profit 1,396,746 1,943,000 2,395,532 2,884,076 3,477,236 4,194,360
Operating income per year (174,125) 217,000 604,882 910,279 1,298,960 1,772,413
Net income per year (11,012) 138,600 372,529 555,767 788,976 1,073,400
Book Value as of 9/30/98 2,416,593
</TABLE>
/1/ - As reported
/2/ - Future projections provided by the Company
<PAGE>
MARKET CAPITALIZATION RESULTS
ATRIX INTERNATIONAL CONSOLIDATED
MARKET CAPITALIZATION APPROACH BASED ON TTM RESULTS
<TABLE>
<CAPTION>
PUBLIC COMPANY ATRIX VALUE BASED
TRAILING TWELVE MULTIPLES ON: ON MULTIPLE:
MONTHS ENDING AVERAGE OF AVERAGE OF
SEPTEMBER 30, 1998 INDUSTRIES INDUSTRIES
------------------ ---------- ----------
<S> <C> <C> <C>
Annual Revenue $4,296,826 1.56 $6,688,010
Operating Income ($174,125) 9.11 N/A
Net Income ($11,012) 39.20 N/A
Book Value $2,416,593 1.58 $3,813,384
</TABLE>
MARKET CAPITALIZATION RESULTS BASED ON FUTURE EARNINGS PROJECTIONS
<TABLE>
<CAPTION>
YEAR ENDED NET OPERATING CURRENT COMPANY CURRENT
30-JUN INCOME PE RATIO VALUE
------ ------ -------- -----
<S> <C> <C> <C>
1999 $138,600 20.54 $2,846,636
2000 $372,529 14.28 $5,321,396
</TABLE>
<PAGE>
DISCOUNTED CASH FLOW MODEL
ATRIX INTERNATIONAL CONSOLIDATED
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 2000 2001 2002 2003
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Income (from Summary of Atrix Financial Projections) $217,000 $604,882 $910,279 $1,298,960 $ 1,772,413
Capitalization Rate (ROR on Market, Ibbotson Assoc.) 12.50%
Risk Free Rate a/o 11/3/98 4.38%
Beta (micro cap stocks per Ibbotson Assoc.) 1.39
CAPM Required return K=Risk Free + Beta(Risk Prem) 15.67%
Borrowing Rate (Debt at Prime Plus 1%) 9.25%
Amount Equity $2,405,706
Amount Debt $872,000
Total Capital $3,277,706
Weighted Ave cost of Capital 12.98%
Discounted Cash Flow $192,077 $473,919 $631,282 $ 797,373 $ 963,045
Terminal Value of Operating Income $14,179,300
Discounted Terminal Value $ 8,704,029
TOTAL PV OF FUTURE CASH FLOWS AND TERMINAL VALUE $10,798,680
</TABLE>
<PAGE>
CONTROL EQUIPMENT DIVISION VALUATION RESULTS
<PAGE>
SUMMARY OF ATRIX FINANCIAL PROJECTIONS
ATRIX CONTROL EQUIPMENT DIVISION
<TABLE>
<CAPTION>
TRAILING TWELVE YEAR ENDING
MONTHS ENDING JUNE 30/2/
SEPTEMBER 30, 1998/1/ 1999 2000 2001
--------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
Annual Revenue 269,005 664,000 1,030,000 1,370,000
Cost of Sales 189,425 326,250 490,760 648,990
Gross Profit 79,580 337,750 539,240 721,010
SG&A Expenses 392,718 431,500 447,750 493,500
Operating income per year (313,138) (93,750) 91,490 227,510
Other Income/(Expense) 41,104 3,500 4,000 4,000
Pretax Income (272,034) (90,250) 95,490 231,510
Taxes 2,296 (36,100) 38,196 92,604
Net income per year (274,330) (54,150) 57,294 138,906
<CAPTION>
2002 2003
----------------------------------------
<S> <C> <C>
Annual Revenue 1,823,000 2,424,000
Cost of Sales 859,080 1,139,050
Gross Profit 963,920 1,284,950
SG&A Expenses 544,500 605,500
Operating income per year 419,420 679,450
Other Income/(Expense) 4,000 4,000
Pretax Income 423,420 683,450
Taxes 169,368 273,380
Net income per year 254,052 410,070
</TABLE>
/1/ - As reported
/2/ - Future projections provided by the Company
<PAGE>
MARKET CAPITALIZATION RESULTS
ATRIX CONTROL EQUIPMENT COMPANY
MARKET CAPITALIZATION APPROACH BASED ON TTM RESULTS
<TABLE>
<CAPTION>
PUBLIC COMPANY ATRIX VALUE BASED
TRAILING TWELVE MULTIPLES ON: ON MULTIPLE:
MONTHS ENDING DATA PROCESSING/ DATA PROCESSING/
SEPTEMBER 30, 1998 MGMT. INDUSTRY MGMT. INDUSTRY
------------------ -------------- --------------
<S> <C> <C> <C>
Annual Revenue $269,005 2.52 $677,086
Operating Income ($313,138) 14.21 N/A
Net Income ($274,330) 51.94 N/A
Book Value N/A 2.29 N/A
</TABLE>
MARKET CAP RESULTS BASED ON FUTURE EARNINGS PROJECTIONS
<TABLE>
<CAPTION>
YEAR ENDED NET OPERATING CURRENT COMPANY CURRENT
30-JUN INCOME PE RATIO VALUE
------ ------ -------- -----
<S> <C> <C> <C>
1999 ($54,150) 29.06 N/A
2000 $57,294 19.97 $1,144,333
</TABLE>
<PAGE>
DISCOUNTED CASH FLOW MODEL
Atrix Control Equipment Division
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 2000 2001 2002 2003
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Income (from Summary of Atrix Financial Projections) ($93,750) $91,490 $227,510 $419,420 $ 679,450
Assumed perpetual growth rate 15.00%
Multiple on Operating Income 14.21
Multiple Used 14.21
Capitalization rate (reciprocal of the EBIT multiple) 7.04%
Discount rate, or cost of equity capital (cap rate + growth rate) 22.04%
Risk free rate of return 4.38%
Discounted value (NPV) of period CF ($97,856) $61,431 $125,176 $189,094 $ 251,012
Terminal Value of Operating Income $ 9,654,985
Discounted Terminal Value $ 4,352,926
TOTAL PRESENT VALUE (DISCOUNTED CASH FLOWS PLUS DISCOUNTED TERMINAL VALUES) $ 4,630,771
</TABLE>
<PAGE>
TOOLS DIVISION VALUATIONS RESULTS
<PAGE>
SUMMARY OF ATRIX FINANCIAL PROJECTIONS
ATRIX TOOLS DIVISION
<TABLE>
<CAPTION>
TRAILING TWELVE YEAR ENDING
MONTHS ENDING JUNE 30/2/
SEPTEMBER 30, 1998/1/ 1999 2000 2001 2002 2003
----------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Annual Revenue 4,027,821 4,749,000 5,521,000 6,436,000 7,478,000 8,693,000
Cost of Sales 2,710,655 3,143,350 3,663,740 4,272,510 4,964,620 5,782,950
Gross Profit 1,317,166 1,605,650 1,857,260 2,163,490 2,513,380 2,910,050
SG&A Expenses 1,178,153 1,294,500 1,343,250 1,480,500 1,633,500 1,816,500
Operating income per year 139,013 311,150 514,010 682,990 879,880 1,093,550
Other Income/(Expense) 123,311 10,500 12,000 12,000 12,000 12,000
Pretax Income 262,324 321,650 526,010 694,990 891,880 1,105,550
Taxes (994) 128,660 210,404 277,996 356,752 442,220
Net income per year 263,318 192,990 315,606 416,994 535,128 663,330
</TABLE>
/1/ - As reported
/2/ - Future projections provided by the Company
<PAGE>
MARKET CAPITALIZATION RESULTS
ATRIX TOOLS COMPANY
MARKET CAPITALIZATION APPROACH BASED ON TTM RESULTS
<TABLE>
<CAPTION>
PUBLIC COMPANY ATRIX VALUE BASED
TRAILING TWELVE MULTIPLES ON: ON MULTIPLE:
MONTHS ENDING MACHINE TOOLS MACHINE TOOLS
SEPTEMBER 30, 1998 INDUSTRY INDUSTRY
------------------ -------- --------
<S> <C> <C> <C>
Annual Revenue $4,027,821 0.596 $2,400,581
Operating Income $139,013 4.006 $556,885
Net Income $263,318 26.449 $6,964,511
Book Value N/A 0.868 N/A
</TABLE>
MARKET CAPITALIZATION RESULTS BASED ON FUTURE EARNINGS PROJECTIONS
<TABLE>
<CAPTION>
YEAR ENDED NET OPERATING CURRENT COMPANY CURRENT
30-JUN INCOME PE RATIO VALUE
------ ------ -------- -----
<S> <C> <C> <C>
1999 $311,150 12.016 $3,738,778
2000 $514,010 8.596 $4,418,430
</TABLE>
<PAGE>
DISCOUNTED CASH FLOW MODEL
ATRIX TOOLS DIVISION
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 2000 2001 2002 2003
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Income (from Summary of Atrix Financial Projections) $311,150 $514,010 $682,990 $879,880 $ 1,093,550
Assumed perpetual growth rate 10.00%
EBIT Multiple 4.01
Multiple Used 4.01
Capitalization rate (reciprocal of the EBIT multiple) 24.96%
Discount rate, or cost of equity capital (cap rate + growth rate) 34.96%
Risk free rate of return 4.38%
Discounted value (NPV) of period CF $230,545 $282,192 $277,827 $265,198 $ 244,215
Terminal Value of Operating Income $ 4,380,761
Discounted Terminal Value $ 1,320,372
TOTAL PRESENT VALUE (DISCOUNTED CASH FLOWS PLUS DISCOUNTED TERMINAL VALUES) $ 2,376,135
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant [X]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
----------------------
ATRIX INTERNATIONAL, INC.
(Name of Registrant as Specified In Its Charter)
_______________________________________________
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
----------------------
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1 Title of each class of securities to which transaction applies:
Common Stock, $.04 Par Value.
----------------------------
2 Aggregate number of securities to which transaction applies:
1,413,449.
---------
3 Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $2.00 cash
----------
per share in accordance with the Merger Agreement.
-------------------------------------------------
4 Proposed maximum aggregate value of transaction: 2,826,898.
---------
5 Total fee paid: $565.38.
-------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1 Amount Previously Paid:____________________________________________
2 Form, Schedule or Registration Statement No.:______________________
3 Filing Party:______________________________________________________
4 Date Filed:________________________________________________________
<PAGE>
[ATRIX INTERNATIONAL, INC. LETTERHEAD]
May ___, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders of
Atrix International, Inc. (the "Company"). The meeting will be held on Tuesday,
June 15, 1999, at 10:30 a.m., local time, at the Company's offices, 14301 Ewing
Avenue South, Burnsville, Minnesota 55306. We suggest that you carefully read
the enclosed Notice of Annual Meeting and Proxy Statement. At the Annual
Meeting, the Company's shareholders will be asked, among other things, to
consider and vote on a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of December 18, 1998 (the "Merger Agreement"), pursuant to
which Atrix International, Inc. (the "Company") would be merged with and into
Atrix Acquisition Corp., a Minnesota corporation ("Newco"), which has been
approved and recommended by a Special Committee of the Board of Directors of the
Company and approved by the full Board of Directors of the Company (the
"Merger"). Newco would be the surviving corporation in the Merger.
Under the terms of the Merger Agreement, each outstanding share of common stock,
$.04 par value, of the Company ("Company Common Stock"), other than those shares
of Company Common Stock held by shareholders of the Company who perfect their
dissenters' rights in accordance with the Minnesota Business Corporation Act
(the "MBCA"), would be converted into the right to receive $2.00 in cash,
without interest and all as more fully described in the accompanying Proxy
Statement. Officers and directors of the Company currently own approximately
14.40% of the outstanding shares of Company Common Stock. In addition, pursuant
to a shareholder agreement, dated November 24, 1998 (the "Shareholder
Agreement"), between Jerry E. Mathwig and Steven D. Riedel, Mr. Mathwig, who
owns 24.44% of the outstanding Company Common Stock, has agreed to vote (or
cause to be voted) his shares of Company Common Stock for the Merger Agreement
(subject to limitations under the Minnesota Control Share Acquisition Act and
the terms of the Shareholder Agreement). Mr. Mathwig has also granted to Mr.
Riedel an irrevocable proxy to vote Mr. Mathwig's shares for the Merger,
although Mr. Riedel's ability to vote more than 19.99% of the outstanding shares
of Company Common Stock is subject to approval by the Company's shareholders
pursuant to the Minnesota Control Share Acquisition Act. See "Special Factors --
Shareholder Agreement," "--Minnesota Control Share Acquisition Act" and
"Proposal to Authorize Voting of Shares Under Minnesota Control Share
Acquisition Act (Proposal No. 1)." If Proposal No. 1 is approved, officers and
directors will have the right to vote approximately 38.85% of the outstanding
shares of Company Common Stock for the Merger Agreement, and all of these
persons have indicated that they will do so. If Proposal No. 1 is not approved,
officers and directors will have the right to vote approximately 32.47% of the
outstanding shares of Company Common Stock for the Merger Agreement. Pursuant to
the MBCA, assuming a quorum is present, the affirmative vote of the holders of a
majority of all outstanding shares of Company Common Stock is required to
approve the Merger Agreement.
In the event that the Merger is not approved, the Company's directors for the
upcoming year will be elected.
All Company shareholders of record on the close of business on May 12, 1999 are
entitled to notice of and to vote at the Annual Meeting.
You are also receiving a Notice of Annual Meeting of Shareholders, a Proxy
Statement relating to the Annual Meeting and a Proxy Card. Please read these
documents carefully. Whether or not you plan to
<PAGE>
attend the Annual Meeting, please complete, sign, date and return the enclosed
proxy card in order to make certain your shares of Company Common Stock will be
represented at the Annual Meeting.
The Board of Directors of the Company, with Mr. Steven Riedel and Mr. Clifford
Meacham abstaining, has unanimously approved the Merger and recommends that you
vote FOR the Merger. The Board of Directors has received a written opinion on
December 17, 1998 to the effect that the Merger consideration of $2.00 per share
to be paid to the Company's shareholders is fair, from a financial point of
view, to such shareholders.
Following the consummation of the Merger, Company shareholders will receive
instructions as to the procedure for exchanging their shares for the cash
payable pursuant to the terms of the Merger Agreement.
Very truly yours,
William W. Bednarczyk
Chairman of the Board
____________
<PAGE>
________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JUNE 15, 1999
________________________
TO THE SHAREHOLDERS OF ATRIX INTERNATIONAL, INC.:
The Annual Meeting of Shareholders of Atrix International, Inc. (the "Company")
will be held on Tuesday, June 15, 1999, at 10:30 a.m., local time, at the
Company's offices, 14301 Ewing Avenue South, Burnsville, Minnesota 55306 (the
"Annual Meeting"), for the following purposes:
1. To consider and vote upon a proposal to enable Steven D. Riedel to vote,
under the Minnesota Control Share Acquisition Act, all shares of Company
Common Stock that he has the right to vote with respect to the Merger.
2. To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger, dated as of December 18, 1998 (the "Merger Agreement"),
pursuant to which the Company would be merged with and into Atrix
Acquisition Corp., a Minnesota corporation ("Newco"), with Newco being the
surviving corporation (the "Merger"). As a result of the Merger, each
outstanding share of common stock, $.04 par value, of the Company ("Company
Common Stock"), other than those shares of Company Common Stock held by
shareholders who perfect their dissenters' appraisal rights in accordance
with the Minnesota Business Corporation Act (the "MBCA"), will be converted
into the right to receive $2.00 in cash, without interest, all as more
fully described in the accompanying Proxy Statement. After the Merger, the
Company will no longer exist as a separate corporation, and Newco will
continue as the surviving corporation under the name Atrix International,
Inc. Newco is and will continue to be a privately owned corporation, with
certain officers and directors of the Company owning a majority of the
outstanding stock of Newco.
3. In the event that the Merger Agreement is not approved and adopted, to
elect seven directors to serve until the next Annual Meeting or until their
successors are elected and qualified.
4. To transact such other business as may be properly brought before the
Annual Meeting or any adjournment thereof.
SHAREHOLDERS OF THE COMPANY WHO DO NOT VOTE IN FAVOR OF THE MERGER AND WHO GIVE
PROPER NOTICE TO THE COMPANY PRIOR TO THE ANNUAL MEETING WILL HAVE THE RIGHT TO
RECEIVE THE "FAIR VALUE" OF THEIR SHARES OF COMMON STOCK UPON SATISFACTION OF
CERTAIN PROCEDURAL REQUIREMENTS UNDER MINNESOTA LAW. IN ORDER TO PRESERVE SUCH
RIGHTS, SHAREHOLDERS MUST: (A) FILE A WRITTEN NOTICE DEMANDING PAYMENT OF THE
FAIR VALUE OF THEIR SHARES WITH THE COMPANY PRIOR TO THE VOTE AT THE ANNUAL
MEETING; (B) NOT ABSTAIN FROM VOTING ON, VOTE IN FAVOR OF OR CONSENT IN WRITING
TO THE MERGER; AND (C) NOT RETURN A PROXY WITHOUT VOTING ON THE MERGER. SEE
"PROPOSAL TO APPROVE MERGER AGREEMENT (PROPOSAL NO. 2) -- DISSENTERS' APPRAISAL
RIGHTS" ON PAGE 45 OF THE PROXY STATEMENT FOR A DETAILED DISCUSSION OF
DISSENTERS' APPRAISAL RIGHTS. FAILURE TO FOLLOW THESE PROCEDURES PRECISELY MAY
RESULT IN THE LOSS OF SUCH RIGHTS.
Only holders of Company Common Stock (the "Shareholders") of record as shown on
the books of the Company at the close of business on May 12, 1999 will be
entitled to notice of and vote at the Annual Meeting or any adjournment thereof.
Each share of Company Common Stock on such date is entitled to one vote at the
Annual Meeting.
May ___, 1999 By Order of the Board of Directors
Thomas A. Letscher
Secretary
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. 1
PURPOSES OF ANNUAL MEETING.............................................. 1
PROXIES AND VOTING...................................................... 2
SUMMARY................................................................... 5
THE COMPANIES........................................................... 5
THE ANNUAL MEETING...................................................... 5
SPECIAL FACTORS......................................................... 6
MINNESOTA CONTROL SHARE ACQUISITION ACT................................. 9
THE MERGER.............................................................. 9
COMMON STOCK INFORMATION................................................ 12
SPECIAL FACTORS........................................................... 13
BACKGROUND OF AND REASONS FOR THE MERGER................................ 13
RECOMMENDATION OF SPECIAL COMMITTEE..................................... 15
RECOMMENDATION OF BOARD OF DIRECTORS.................................... 19
FAIRNESS OF THE MERGER.................................................. 20
OPINION OF FINANCIAL ADVISOR............................................ 23
REPORTS................................................................. 30
STRUCTURE AND PURPOSE OF THE MERGER..................................... 31
CERTAIN EFFECTS OF THE MERGER........................................... 32
INTERESTS OF CERTAIN PERSONS IN THE MERGER.............................. 32
TRANSACTIONS BY CERTAIN PERSON IN COMMON SHARES......................... 34
SHAREHOLDER AGREEMENT................................................... 34
ACCOUNTING TREATMENT.................................................... 36
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.................. 36
</TABLE>
i
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<TABLE>
<S> <C>
SOURCE OF FUNDS......................................................... 36
PLANS OF NEWCO.......................................................... 37
MANAGEMENT OF NEWCO FOLLOWING THE MERGER................................ 38
PROPOSAL TO AUTHORIZE VOTING OF SHARES.................................... 40
PROPOSAL................................................................ 40
BACKGROUND.............................................................. 40
VOTE REQUIRED........................................................... 41
PROPOSAL TO APPROVE MERGER AGREEMENT...................................... 42
GENERAL................................................................. 42
AGREEMENT AND PLAN OF MERGER............................................ 42
EFFECTIVE TIME.......................................................... 42
ARTICLES OF INCORPORATION; BY-LAWS..................................... 42
OFFICERS AND DIRECTORS.................................................. 42
STOCK TRANSFER BOOKS.................................................... 42
CONVERSION OF COMMON SHARES............................................. 43
COMPANY STOCK OPTIONS AND WARRANTS...................................... 43
SOURCE OF FUNDS; PAYMENT FOR COMMON SHARES.............................. 43
SURRENDER OF COMMON SHARE CERTIFICATES.................................. 44
REPRESENTATIONS AND WARRANTIES.......................................... 45
CONDITIONS TO THE MERGER................................................ 45
TERMINATION AND AMENDMENT............................................... 47
CONDUCT OF BUSINESS PENDING THE MERGER.................................. 47
DISSENTERS' APPRAISAL RIGHTS............................................ 48
VOTE REQUIRED........................................................... 50
ELECTION OF DIRECTORS..................................................... 51
NOMINATION.............................................................. 51
INFORMATION ABOUT NOMINEES.............................................. 51
</TABLE>
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<TABLE>
<S> <C>
OTHER INFORMATION ABOUT NOMINEES........................................ 52
ADDITIONAL INFORMATION ABOUT THE BOARD OF DIRECTORS..................... 53
DIRECTOR COMPENSATION................................................... 54
COMPENSATION AND OTHER BENEFITS........................................... 54
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.......................... 54
EMPLOYMENT AGREEMENTS................................................... 55
OPTION GRANTS AND EXERCISES............................................. 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 57
CERTAIN FINANCIAL INFORMATION............................................. 57
PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT........................ 58
INDEPENDENT AUDITORS...................................................... 60
SHAREHOLDER PROPOSALS..................................................... 60
OTHER BUSINESS............................................................ 60
ADDITIONAL INFORMATION.................................................... 60
AVAILABLE INFORMATION..................................................... 61
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................... 61
DOCUMENTS INCORPORATED BY REFERENCE....................................... 61
</TABLE>
iii
<PAGE>
ATRIX INTERNATIONAL, INC.
14301 EWING AVENUE SOUTH
BURNSVILLE, MN 55306
_______________________
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS,
JUNE 15, 1999
_______________________
INTRODUCTION
This Proxy Statement is being furnished in connection with the solicitation by
the Board of Directors of Atrix International, Inc. (the "Company") of proxies
to be voted at the Annual Meeting of Shareholders of the Company to be held on
Tuesday, June 15, 1999, at 10:30 a.m., local time, at the Company's offices,
14301 Ewing Avenue South, Burnsville, Minnesota 55306 (the "Annual Meeting"),
for the purposes set forth below. This Proxy Statement is first being mailed to
shareholders on or about May ___, 1999.
PURPOSES OF ANNUAL MEETING
The purposes of the Annual Meeting are to:
. To consider and vote upon a proposal to enable Steven D. Riedel ("Riedel") to
vote, under the Minnesota Control Share Acquisition Act, all shares of
Company Common Stock that he has the right to vote with respect to the
"Merger" described below.
. To consider and vote upon the approval and adoption of the Agreement and Plan
of Merger, dated as of December 18, 1998 (the "Merger Agreement"), among the
Company, Atrix Acquisition Corp., a Minnesota corporation ("Newco"), and
Riedel.
. In the event that the Merger Agreement is not approved and adopted, to elect
seven directors to serve until the next Annual Meeting or until their
successors are elected and qualified.
. To transact such other business as may be properly brought before the Annual
meeting or any adjournment thereof.
The Merger Agreement contemplates a merger (the "Merger") of the Company with
and into Newco, with Newco being the surviving corporation, pursuant to which
(a) each outstanding share of common stock, $.04 par value, of the Company
("Company Common Stock") (shares of Company Common Stock being collectively
referred to as "Common Shares," or individually as a "Common Share"), other than
those shares of Company Common Stock held by shareholders of the Company who
perfect their dissenters' appraisal rights in accordance with the Minnesota
Business Corporation Act (the "MBCA"), will be converted into the right to
receive $2.00 in cash, without interest (the "Merger Consideration") and (b) the
Company will no longer exist as a separate entity after the Merger. Common
Shares held by Newco, if any, will be canceled without consideration.
Newco is 100% owned by Steven D. Riedel, the President and Chief Executive
Officer and a Director of
1
<PAGE>
the Company. Clifford B. Meacham, the founder and a Director of the Company, has
agreed to purchase capital stock of Newco, contingent upon consummation of the
Merger. In addition, Newco is expected to merge, immediately prior to the
Merger, with SCI Enterprises LLC, a Minnesota limited liability company that is
owned 85% by Steven Riedel and 15% by Mr. Riedel's son, Phillip Riedel. If such
merger is consummated, Phillip Riedel will own 3% of Newco's Common Stock.
Finally, Mr. Riedel may sell a minority equity interest in Newco to one other
investor who is not affiliated with the Company. Messrs. Riedel and Meacham
currently collectively own 9.79% of the outstanding Company Common Stock, and
Mr. Riedel has the right to vote an additional 24.44% of the outstanding Company
Common Stock, pursuant to a shareholder agreement, dated November 24, 1998 (the
"Shareholder Agreement"), between Jerry E. Mathwig and Mr. Riedel. Under the
Shareholder Agreement, Mr. Mathwig, who owns 24.44% of the outstanding Company
Common Stock, has agreed to vote (or cause to be voted) his shares of Company
Common Stock for the Merger Agreement (subject to limitations under the
Minnesota Control Share Acquisition Act and the terms of the Shareholder
Agreement). Mr. Mathwig has also granted to Mr. Riedel an irrevocable proxy to
vote Mr. Mathwig's shares for the Merger, although Mr. Riedel's ability to vote
more than 19.99% of the outstanding shares of Company Common Stock is subject to
approval by the Company's shareholders pursuant to the Minnesota Control Share
Acquisition Act. See "Special Factors -- Shareholder Agreement." As the
President and Chief Executive Officer of the Company, Mr. Riedel is involved in
the Company's day to day operations. Other officers and directors of the Company
collectively own 12.48% of the outstanding Company Common Stock. Each officer
and director of the Company, including Messrs. Riedel and Meacham, and will
receive the Merger Consideration in the same manner as all other shareholders of
the Company.
PROXIES AND VOTING
A proxy card is enclosed for your use. You are solicited on behalf of the Board
of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING ENVELOPE. No
postage is required if mailed within the United States. The cost of soliciting
proxies, including the preparation, assembly and mailing of the proxies and
soliciting material, as well as the cost of forwarding such material to the
beneficial owners of Shares, will be borne by the Company. Directors, officers
and regular employees of the Company may, without compensation other than their
regular compensation, solicit proxies by telephone, telegraph or personal
conversation. The Company may reimburse brokerage firms and others for expenses
in forwarding proxy material to the beneficial owners of Common Shares.
Any shareholder of the Company giving a proxy may revoke it any time prior to
its use at the Annual Meeting by giving written notice of such revocation to the
Secretary of the Company. Written notice of revocation may be given prior to the
Annual Meeting, or a shareholder may appear at the Annual Meeting and give
written notice of revocation prior to use of the proxy. Proxies will be voted
as specified by shareholders. Proxies that are signed by shareholders but that
lack any such specification will be voted in favor of the proposals set forth in
the Notice of Meeting.
THE BOARD, WITH MR. RIEDEL AND MR. MEACHAM ABSTAINING, RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE PROPOSALS SET FORTH IN THE NOTICE OF
MEETING.
With respect to the second proposal, shareholders should be aware that after
consummation of the Merger, the entire equity interest of Newco will be
beneficially owned by Mr. Riedel and Mr. Meacham, both of whom are directors of
the Company, Mr. Riedel's son Phillip, and possibly one other minority investor
in Newco who is not affiliated with the Company. Because of their interests in
Newco, Mr. Riedel and Mr. Meacham have a conflict of interest with respect to
the proposed Merger. Accordingly,
2
<PAGE>
Mr. Riedel and Mr. Meacham abstained from the vote of the Board of Directors in
approving the Merger and recommending that shareholders vote in favor of the
Merger. See "Special Factors - Interests of Certain Persons in the Merger."
Only holders of Common Shares of record at the close of business on May 12, 1999
(the "Record Date") will be entitled to vote at the Annual Meeting (the
"Shareholders"). On May 12, 1999, the Company had 1,413,449 Common Shares
outstanding, each Common Share entitling the holder thereof to one vote on each
matter to be voted on at the Annual Meeting. Holders of Common Shares are not
entitled to cumulative voting rights. The holders of a majority of the total
Common Shares issued and outstanding at the close of business on the Record Date
will constitute a quorum for the transaction of business at the Annual Meeting.
Approval of the proposal to enable Mr. Riedel to vote, under the Minnesota
Control Share Acquisition Act, all Common Shares that he has the right to vote
with respect to the Merger requires the affirmative vote, whether made in person
or by proxy, of (i) the holders of a majority of the voting power of all shares
entitled to vote including all shares held by Mr. Riedel and (ii) the holders of
a majority of the voting power of all shares entitled to vote excluding the
Common Shares owned by Mr. Riedel, any officer of the Company and any employee
of the Company who is also a director of the Company. The affirmative vote,
whether made in person or by proxy, of the holders of a majority of the
outstanding Common Shares is required for the approval of the Merger Agreement.
If the Merger Agreement is not approved and the election of directors is
conducted, the approval of a majority of the Common Shares present and entitled
to vote in person or by proxy (and at least a majority of the minimum number of
votes necessary for a quorum to transact business at the Annual Meeting) is
required to elect a nominee for director and to approve any other matters as may
properly come before the Annual Meeting.
The presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the Common Shares entitled to vote at the Annual Meeting (706,725 of
the 1,413,449 outstanding Common Shares) is required for a quorum for the
transaction of business. In general, Common Shares represented by a properly
signed and returned proxy card will be counted as shares present and entitled to
vote at the Annual Meeting for purposes of determining a quorum, whether the
card reflects abstentions (or is left blank) or reflects a "broker non-vote" on
a matter (i.e., a card returned by a broker on behalf of its beneficial owner
----
customer that is not voted on a particular matter because voting instructions
have not been received and the broker has no discretionary authority to vote).
Common Shares represented by a proxy card voted as abstaining on any of the
proposals will be treated as Common Shares present and entitled to vote that
were not cast in favor of a particular matter, and will be counted against that
matter. Common Shares represented by a proxy card that includes broker non-votes
on a matter will be treated as shares not entitled to vote on that matter and
will not be counted in determining whether that matter has been approved.
Abstentions will constitute a waiver of dissenters' appraisal rights but broker
"non-votes" will not constitute a waiver of such rights.
THE BOARD OF DIRECTORS, ACTING IN ACCORDANCE WITH THE RECOMMENDATION OF THE
SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS AND THE OPINION OF THE FINANCIAL
ADVISOR, HAS DETERMINED THAT THE MERGER AGREEMENT IS IN THE BEST INTEREST OF THE
COMPANY AND ITS SHAREHOLDERS, AND IS FAIR TO THE UNAFFILIATED SHAREHOLDERS. THE
BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. MR. RIEDEL
AND MR. MEACHAM, BOTH OF WHOM ARE DIRECTORS OF THE COMPANY, HAVE A CONFLICT OF
INTEREST WITH RESPECT TO THE
3
<PAGE>
PROPOSED MERGER. ACCORDINGLY, BOTH MR. RIEDEL AND MR. MEACHAM ABSTAINED FROM THE
VOTE OF THE BOARD OF DIRECTORS IN APPROVING THE MERGER AND RECOMMENDING THAT
SHAREHOLDERS VOTE IN FAVOR OF THE MERGER. HOWEVER, FOLLOWING THE BOARD OF
DIRECTORS' APPROVAL AND RECOMMENDATION, MR. RIEDEL, ON BEHALF OF HIMSELF AND
NEWCO, AND MR. MEACHAM STATED FOR THE RECORD THAT THEY CONCURRED IN THE BOARD OF
DIRECTORS' DETERMINATION. SEE "SPECIAL FACTORS -INTERESTS OF CERTAIN PERSONS IN
THE MERGER." THE BOARD OF DIRECTORS ALSO RECOMMENDS APPROVAL OF THE PROPOSAL TO
ENABLE STEVEN D. RIEDEL TO VOTE, UNDER THE MINNESOTA CONTROL SHARE ACQUISITION
ACT, ALL COMMON SHARES THAT HE HAS THE RIGHT TO VOTE WITH RESPECT TO THE
MERGER.
This Proxy Statement is being filed by the Company. All information contained
in this Proxy Statement relating to Newco has been supplied by Newco for
inclusion herein and has not been independently verified by the Company.
The Board of Directors of the Company is not aware of any other matters that
will be presented for consideration at the Annual Meeting. However, if any
other matter should properly come before the Annual Meeting, including but not
limited to any procedural matter relating to the conduct of the Annual Meeting,
it is intended that proxies in the accompanying form will be voted in respect
thereof in accordance with determination of a majority of the Board of Directors
of the Company.
Article II, Section 2.11 of the Company's Bylaws specifies procedures which
shareholders must follow in order to (a) nominate persons for election as
directors of the Company at an annual meeting or special meeting of shareholders
or (b) proposed business to be brought before an annual meeting or special
meeting of shareholders. The Board of Directors is not required to follow these
procedures. Nominations other than by or at the direction of the Board must be
made pursuant to timely notice to the Chairman of the Board or the Chief
Executive Officer of the Company prior to the meeting and must contain: (i)
certain specified information about the person the shareholder proposes to
nominate for election as a director of the Company; and (ii) certain specified
information about the proposing shareholder. In order to propose business to be
brought before an annual meeting or special meeting of shareholders, a
shareholder must give timely notice to the Chairman of the Board or the Chief
Executive Officer of the Company prior to the meeting, which notice must contain
certain information about the shareholder and a brief description of the
business he or she desires to bring before the meeting. In order to be timely,
such notice must be delivered to or mailed and received by the Chairman of the
Board or the Chief Executive Officer of the Company not less than thirty (30)
days nor more than ninety (90) days prior to the scheduled date of such meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that if the Corporation gives less than forty
(40) days' notice of such meeting, notice by the shareholder to be timely must
be so delivered or received not later than the close of business on the tenth
(10th) day after the date on which the Corporation first mailed notice of such
meeting. Accordingly, if any shareholder desires to nominate any person for
election as a director at the Annual Meeting or propose any business to be
brought before the Annual Meeting, such notice must be delivered to or received
by May ___, 1999. The full text of Article II, Section 2.11 of the Bylaws is
set forth in Annex F attached hereto and incorporated by reference.
The date of this Proxy Statement is May ___, 1999.
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement. Certain capitalized terms
used in this summary are defined elsewhere in this Proxy Statement. This
summary is necessarily incomplete and is qualified in its entirety by, and
reference is made to, the more detailed information in this Proxy Statement and
the documents referred to and incorporated herein by reference.
THE COMPANIES
Atrix International, Inc. Atrix International, Inc., a Minnesota corporation
(the "Company"), is located at 14301 Ewing Avenue South, Burnsville, Minnesota
55306 and its telephone number is (612) 894-6154. The Company is a manufacturer
of copy control products and service vacuums for toner, developer, asbestos and
lead abatement within the telecommunication, computer and office product
industries. In addition, the Company distributes tools and instrumentation to
field service organizations throughout the world.
Atrix Acquisition Corp. Atrix Acquisition Corp., a Minnesota corporation
("Newco"), was incorporated on December 11, 1998 to acquire the Company. Upon
effectiveness of the Merger, Newco will be located at 14301 Ewing Avenue South,
Burnsville, Minnesota 55306 and its telephone number will be (612) 894-6154.
Newco has conducted no activities to date, except for those incident to the
Merger. After the Merger, the name of Newco will be changed to "Atrix
International, Inc." and it is expected that it will operate as a privately-held
company in substantially the same manner as the Company is currently operating,
with the addition of the business of SCI Enterprises LLC, a value-added reseller
of personal computers, network systems and technical services that is currently
owned 85% by Steven Riedel and 15% by Mr. Riedel's son, Phillip.
THE ANNUAL MEETING
Time, Date and Place. An Annual Meeting of the Shareholders will be held on
Tuesday, June 15, 1999, at 10:30 a.m., local time, at the Company's offices,
14301 Ewing Avenue South, Burnsville, Minnesota 55306 (the "Annual
Meeting").
Purposes of the Annual Meeting. The purposes of the Annual Meeting are: (a) to
consider and vote upon a proposal to enable Steven D. Riedel to vote, under the
Minnesota Control Share Acquisition Act, all Common Shares that he has the right
to vote with respect to the Merger; (b) to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of December 18,
1998 (the "Merger Agreement"), among the Company, Newco and Riedel, a copy of
which is attached to this Proxy Statement as Annex A; (c) in the event the
Merger Agreement is not approved and adopted, to elect seven directors to serve
until the next Annual Meeting or until their successors are elected and
qualified; and (d) to transact such other business as may properly come before
the Annual Meeting or any adjournment thereof. See "Introduction -- Purposes of
Annual Meeting."
Record Date; Quorum. The close of business on May 12, 1999 has been fixed as
the record date for determining holders of Common Shares entitled to vote at the
Annual Meeting (the "Record Date"). Each Common Share outstanding on such date
is entitled to one vote at the Annual Meeting. As of the Record Date, 1,413,449
Common Shares were outstanding and held of record by [NUMBER] holders (the
"Shareholders"). The presence, in person or by proxy, of the holders of a
majority of the Common Shares entitled to vote at the Annual Meeting is
necessary to constitute a quorum for the transaction of
5
<PAGE>
business at the Annual Meeting. See "Introduction -- Proxies and Voting."
Required Vote. Pursuant to the Minnesota Business Corporation Act (the "MBCA"),
assuming a quorum is present, the affirmative vote of holders of a majority of
all of the outstanding Common Shares is required to approve the Merger. See
"Proposal to Approve Merger Agreement (Proposal No. 2) -- General" and "--
Conditions to the Merger." Pursuant to a certain shareholder agreement, dated
November 24, 1998 (the "Shareholder Agreement"), between Steven D. Riedel and
Jerry E. Mathwig, Mr. Mathwig, who owns 24.44% of the outstanding Company Common
Stock (or 345,500 Common Shares), has agreed to vote (or cause to be voted) his
shares of Company Common Stock in favor of the Merger Agreement (subject to
limitations under the Minnesota Control Share Acquisition Act and the terms of
the Shareholder Agreement). Mr. Mathwig has also granted to Mr. Riedel an
irrevocable proxy to vote Mr. Mathwig's shares for the Merger. However, in
order for Mr. Riedel to vote in excess of 19.99% of the outstanding Common
Shares in favor of the Merger, he must receive, pursuant to the Minnesota
Control Share Acquisition Act, the affirmative vote of (i) the holders of a
majority of the voting power of all Common Shares entitled to vote, including
all shares held by Mr. Riedel, and (ii) the holders of a majority of the voting
power of all Common Shares entitled to vote, excluding the Common Shares owned
by Mr. Riedel, any officer of the Company and any employee of the Company who is
also a director of the Company. Not including Mr. Mathwig's shares, the
directors and officers of the Company collectively hold the right to vote
203,557 Common Shares, or approximately 14.40% of all of the issued and
outstanding Common Shares and have indicated that they will vote in favor of the
Merger and in favor of the proposal to allow Mr. Riedel to vote all Common
Shares that he has the right to vote with respect to the Merger. The approval of
a majority of the Common Shares present and entitled to vote in person or by
proxy (and at least a majority of the minimum number of votes necessary for a
quorum to transact business at the Annual Meeting) is required to elect a
nominee for director and to approve any other matters as may properly come
before the Annual Meeting. See "Introduction -- Proxies and Voting," "Special
Factors -- Interests of Certain Persons in the Merger" and "-- Shareholder
Agreement."
Proxies. A proxy card is enclosed for use at the Annual Meeting. A proxy may
be revoked at any time prior to its exercise at the Annual Meeting. Common
Shares represented by properly executed proxies received at or prior to the
Annual Meeting and which have not been revoked will be voted in accordance with
the instructions indicated therein. If no instructions are indicated on a
properly executed proxy, such proxy will be voted "FOR" approval and adoption of
the Merger Agreement and "FOR" approval of the proposal to allow Mr. Riedel to
vote all Common Shares that he has the right to vote with respect to the Merger.
See "Introduction -- Proxies and Voting."
SPECIAL FACTORS
Background of and Reasons for the Merger. For a description of the events
leading to the approval and adoption of the Merger Agreement by the Company's
Board of Directors, see "Special Factors -- Background of and Reasons for the
Merger."
Recommendation of Special Committee and Board of Directors. A special committee
of the Company's Board of Directors (the "Special Committee"), consisting of
William Bennett and Les Eck, was formed on June 5, 1998 to review and negotiate
any proposals by Mr. Riedel to acquire the outstanding shares of Company Common
Stock, as well as to discuss, evaluate and consider other alternatives for
maximizing shareholder value in the Company, including proposals for the Merger.
Based on the conclusions of the Special Committee, in evaluating and considering
the Merger, the Company's Board of Directors (the "Board of Directors")
concluded that the terms of the Merger are fair to, and in the best interests
of, the
6
<PAGE>
Shareholders, including the unaffiliated Shareholders. Accordingly, the Board of
Directors, based upon the unanimous recommendation of the Special Committee, has
unanimously approved the Merger. The Special Committee and the Board of
Directors recommend a vote "FOR" approval and adoption of the Merger Agreement.
After consummation of the Merger, the entire equity interest of Newco will be
beneficially owned by Mr. Riedel and Mr. Meacham, both of whom are directors of
the Company, Mr. Riedel's son Phillip, and possibly one other minority investor
in Newco who is not affiliated with the Company. Because of their interests in
Newco, Mr. Riedel and Mr. Meacham have a conflict of interest with respect to
the proposed Merger. Accordingly, Mr. Riedel and Mr. Meacham abstained from the
vote of the Board of Directors in approving the Merger and recommending that
shareholders vote in favor of the Merger. However, following the Board of
Directors' approval and recommendation, Mr. Riedel, on behalf of himself and
Newco, and Mr. Meacham stated for the record that they concurred in the Board of
Directors' determination. See "Special Factors - Interest of Certain Persons in
the Merger." See "Special Factors -- Recommendation of Special Committee," and
Special Factors -- Recommendation of Board of Directors" and "Special Factors -
Interests of Certain Persons in the Merger."
Fairness of the Merger. The Special Committee concluded on December 17, 1998
that the Merger was fair to the Shareholders and recommended approval of the
Merger to the Board of Directors. In reaching this conclusion, the Special
Committee considered a number of factors, including (a) the written opinion of
Miller, Johnson & Kuehn, Incorporated ("MJK"); (b) Company information
consisting of financial statements, periodic reports filed with the Securities
and Exchange Commission (the "Commission") and the Company's current business
plan; (c) the Shareholder Agreement; (d) the valuation of the Company by an
investment bank presented to the Board of Directors in April 1998; (e) the stock
price and volume history of the Company Common Stock; (f) the fact that the
$2.00 per Common Share to be received by the Shareholders in the Merger
represented a substantial premium over the trading price of the Common Shares;
(g) the net book value, going concern value and liquidation value of the
Company; and (h) the availability of dissenters' appraisal rights to dissenting
Shareholders under the MBCA. Accordingly, the Special Committee and the Board
of Directors recommend a vote "FOR" approval and adoption of the Merger
Agreement. After consummation of the Merger, the entire equity interest of
Newco will be beneficially owned by Mr. Riedel and Mr. Meacham, both of whom are
directors of the Company, Mr. Riedel's son Phillip, and possibly one other
minority investor in Newco who is not affiliated with the Company. Because of
their interests in Newco, Mr. Riedel and Mr. Meacham and have a conflict of
interest with respect to the proposed Merger. Accordingly, Mr. Riedel and Mr.
Meacham abstained from the vote of the Board of Directors in approving the
Merger and recommending that shareholders vote in favor of the Merger. See
"Special Factors - Interests of Certain Persons in the Merger." See "Special
Factors -- Fairness of the Merger."
Opinion of Financial Advisor. On December 17, 1998, MJK delivered its written
opinion, dated December 17, 1998, to the Special Committee and the Board of
Directors that, as of such date, the $2.00 per Common Share to be received by
the Shareholders in the Merger is fair to the Shareholders from a financial
point of view. The full text of the fairness opinion of MJK, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with such opinion, is attached hereto as Annex B and is incorporated
herein by reference. Shareholders are urged to, and should, read such opinion
in its entirety. See "Special Factors -- Opinion of Financial Advisor."
Certain Effects of the Merger. Upon consummation of the Merger, each Common
Share, other than Common Shares as to which dissenters' appraisal rights have
been perfected pursuant to and in accordance with the MBCA ("Dissenting Common
Shares"), will be converted into the right to receive $2.00 in cash, without
interest. Following the Merger, Newco will be the "Surviving Corporation" and
7
<PAGE>
the Company will cease to exist. Newco will, after the Merger, possess all the
property, rights, privileges and powers and franchises of the Company, and there
will be no public market for Newco's shares of common stock. Upon consummation
of the Merger, the Common Shares will cease to be quoted on the Nasdaq SmallCap
Market and the registration of the Common Shares under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), will be terminated. See "Special
Factors -- Certain Effects of the Merger."
Structure and Purpose of the Merger. The transaction was structured as a merger
because the parties believe that a merger will be the most efficient and cost-
effective structure for completing the transaction. The purpose of the Merger
is to provide the Shareholders the opportunity to receive a fair consideration
for their Common Shares in excess of the market price of the stock preceding the
announcement of the Merger, and to provide Messrs. Riedel and Meacham with the
ability to acquire at least a majority, and possibly all, of the equity interest
in the Company and an opportunity to manage the Company with the flexibility
inherent in a closely held enterprise. See "Special Factors -- Structure and
Purpose of the Merger."
Interests of Certain Persons in the Merger. Steven D. Riedel, the President and
Chief Executive Officer and a Director of the Company, and Clifford B. Meacham,
the founder and a Director of the Company, each currently owns 27,125 and
111,294 Common Shares, respectively, representing 1.92% and 7.87% of the
outstanding Common Shares. In addition, Mr. Riedel has the right to vote an
additional 345,500 shares, or 24.44% of the outstanding Common Shares, in favor
of the Merger pursuant to the terms of the Shareholder Agreement, subject to
approval by the Company's shareholders of Mr. Riedel's ability to vote more than
19.99% of the Common Shares pursuant to the Minnesota Control Share Acquisition
Act. Newco is 100% owned by Mr. Riedel, but Mr. Meacham has agreed to purchase
preferred stock of Newco that will be convertible into Newco common stock
constituting 5% of the outstanding shares of Newco as of the closing of the
Merger. Other officers and directors of the Company collectively own 12.48% of
the outstanding Common Shares. All officers and directors of the Company,
including Messrs. Riedel and Meacham, will receive the Merger Consideration in
the same manner as all other Shareholders of the Company. See "Special Factors
- -- Interests of Certain Persons in the Merger."
Shareholder Agreement. Pursuant to the Shareholder Agreement, Jerry E. Mathwig,
who owns 24.44% of the outstanding Company Common Stock, has agreed to vote (or
cause to be voted) his shares of Company Common Stock in favor of the Merger
Agreement (subject to limitations under the Minnesota Control Share Acquisition
Act and the terms of the Shareholder Agreement). Mr. Mathwig has also granted
to Mr. Riedel an irrevocable proxy to vote Mr. Mathwig's shares for the Merger,
although Mr. Riedel's ability to vote more than 19.99% of the outstanding shares
of Company Common Stock is subject to approval by the Shareholders pursuant to
the Minnesota Control Share Acquisition Act. See "Special Factors --
Shareholder Agreement" and "-- Control Share Acquisition Act."
Material Federal Income Tax Consequences. The receipt of cash in exchange for
Common Shares pursuant to the Merger (and the receipt of cash by a Shareholder
who exercises dissenters' appraisal rights) will be a taxable transaction for
federal income tax purposes, and may be a taxable transaction under applicable
foreign, state, local and other tax laws. For federal income tax purposes,
Shareholders receiving cash will generally recognize a gain or loss in an amount
equal to the difference between the amount of cash received and their adjusted
tax basis in the Common Shares. Shareholders are urged to consult their own tax
advisor as to the specific tax consequences of the transaction. See "Special
Factors -- Material Federal Income Tax Consequences of the Merger."
Source of Funds. The Company estimates that approximately $2,826,898 will be
required to pay the
8
<PAGE>
Shareholders $2.00 per Common Share and approximately $275,000 will be required
to pay the related fees and expenses of the Company and Newco in connection with
the Merger (collectively, the "Merger Amount"). While Newco does not currently
have sufficient cash to compete the Merger, it has delivered to the Company a
copy of a commitment letter (the "Commitment Letter") expiring June 20, 1999
from Bremer Business Financial Corporation. Equity investments in the aggregate
of $450,000 are also being made in Newco prior to the Effective Time. Newco has
represented that, assuming satisfaction or waiver of all applicable conditions
set forth in the Commitment Letter, the debt financing, the equity investment
and the Company's cash will provide sufficient funds to pay the Merger Amount.
See "Special Factors -- Source of Funds" and "Proposal to Approve Merger
Agreement (Proposal No. 2) -- Source of Funds; Payment for Common Shares."
Plans of Newco. After the Merger, Newco, after changing its name to Atrix
International, Inc., will continue to operate in substantially the same manner
as the Company is currently operating, although Newco will cause the Common
Shares to be deregistered under the Exchange Act following completion of the
Merger. As such, the Company will no longer be a public company. In addition,
Newco intends to merge with SCI Enterprises LLC, a value-added reseller of
personal computers, network systems and technical services that is owned 85% by
Mr. Riedel and 15% by Mr. Riedel's son, Phillip. Following the Merger, Newco
intends to have a board consisting of up to four directors consisting of Messrs.
Riedel and Meacham and up to two additional directors to be named. Newco
intends to retain on substantially similar terms all or substantially all of the
personnel of the Company following consummation of the Merger, including its
current executive officers, Steven D. Riedel, President and Chief Executive
Officer of the Company, and Dean L. Gerber, Vice President and Chief Financial
Officer of the Company. See "Special Factors --Plans of Newco" and "--
Management of Newco Following the Merger."
MINNESOTA CONTROL SHARE ACQUISITION ACT
The Minnesota Control Share Acquisition Act, Section 302A.671 of the MBCA,
requires approval by shareholders to allow a person acquiring shares in a
"control share acquisition" (as defined) to vote shares acquired in excess of
certain threshold limits (e.g., 20% or more). The Shareholder Agreement between
Jerry E. Mathwig and Steven D. Riedel may constitute a "control share
acquisition" subject to the Minnesota Control Share Acquisition Act because Mr.
Riedel has the right to vote 20% or more of the issued and outstanding Common
Shares in favor of the Merger. As such, without the required shareholder
approval, Mr. Riedel can vote only 282,548 of the 372,625 Common Shares he has
the power to vote in connection with the Merger. Therefore, Mr. Riedel is
seeking the required shareholder approval of his ability to vote all Common
Shares that he has the right to vote with respect to the Merger. See "Proposal
to Authorize Voting of Shares Under Minnesota Control Share Acquisition Act
(Proposal No. 1)" and "Special Factors -- Minnesota Control Share Acquisition
Act."
THE MERGER
General. Upon consummation of the Merger, the Company will be merged with and
into Newco and Newco will be the "Surviving Corporation." The Surviving
Corporation will succeed to all the rights and obligations of the Company. See
"Proposal to Approve Merger Agreement (Proposal No. 2) -- General."
Effective Time. Pursuant to the Merger Agreement, the Effective Time will occur
upon the filing of Articles of Merger by the Company with the Minnesota
Secretary of State. See "Proposal to Approve Merger Agreement (Proposal No. 2)
- -- Effective Time."
Articles of Incorporation; By-Laws. At the Effective Time, the Articles of
Incorporation and By-Laws of
9
<PAGE>
Newco will be the Articles of Incorporation and By-Laws of the Surviving
Corporation, provided that Article I of the Articles of Incorporation of the
Surviving Corporation will be amended as of the Effective Time to read "The name
of this corporation is Atrix International, Inc."
Directors and Officers. The directors and officers of Newco immediately prior
to the Effective Time will be the initial directors and officers of the
Surviving Corporation.
Conversion of Common Shares. At the Effective Time: (a) each issued and
outstanding Common Share immediately prior to the Effective Time other than (i)
Common Shares then owned by Newco (currently, there is none) and (ii) Dissenting
Common Shares, will, by virtue of the Merger and without any action on the part
of the holder thereof, be canceled and converted into the right to receive the
Merger Consideration, upon surrender of the certificate which prior to the
Effective Time evidenced such Common Share; and (b) each Common Share
outstanding immediately prior to the Effective Time which is then owned by Newco
will, by virtue of the Merger and without any action on the part of the holder
thereof, be canceled and retired and cease to exist, without any conversion
thereof and no payment or distribution shall be made with respect thereto.
Holders of Common Shares who do not vote in favor of the Merger at the Annual
Meeting and who have properly elected to dissent in the manner provided in
Section 302A.471 and 302.473 of the MBCA will be entitled to payment of the fair
value of their Common Shares in accordance with, and subject to, the provisions
of Section 302A.471 and 302.473. See "Proposal to Approve Merger Agreement
(Proposal No. 2) -- Dissenters' Appraisal Rights."
Surrender of Stock Certificates. Newco and the Company have designated Norwest
Bank Minnesota, N.A., to act as the "Paying Agent" under the Merger Agreement.
Promptly after the Effective Time, Newco will cause the Paying Agent to mail to
each person who was a record holder of an outstanding certificate or
certificates that immediately prior to the Effective Time represented Common
Shares (the "Certificates"), a notice and letter of transmittal and instructions
for its use in effecting the surrender of such Certificates for payment in
accordance with the Merger Agreement. Upon the surrender to the Paying Agent of
a Certificate, together with a properly completed and duly executed letter of
transmittal, and other documents that are customarily required by letters of
transmittal in similar situations, the holder thereof will be entitled to
receive cash in an amount equal to the product of the number of Common Shares
formerly represented by such Certificate and the Merger Consideration, less any
applicable withholding tax, if any, and such Certificate will then be canceled.
Until surrendered, except with respect to Dissenting Common Shares, each
Certificate will represent solely the right to receive the Merger Consideration,
without interest, into which the number of Common Shares represented by such
Certificate has been converted. See "Proposal to Approve Merger Agreement
(Proposal No. 2) -- Surrender of Common Share Certificates." SHAREHOLDERS OF
THE COMPANY SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON SHARES WITH
THEIR PROXY CARDS.
Conditions to the Merger; Termination and Amendment. Pursuant to the Merger
Agreement, the obligations of Newco and the Company to effect the Merger are
subject to certain conditions set forth in the Merger Agreement. In certain
circumstances, the Merger Agreement may be terminated at any time prior to the
closing of the Merger. The Merger Agreement may be amended by the parties in
writing at any time before or after approval by the Shareholders, except that
after approval by the Shareholders, no amendment may be made which reduces the
amount or changes the form of the Merger Consolidation or in any way materially
adversely affects the rights of the Shareholders. See "Proposal to Approve
Merger Agreement (Proposal No. 2) -- Conditions to the Merger" and "--
Termination and Amendment."
Dissenters' Appraisal Rights. Shareholders who do not vote in favor of the
Merger and who give proper
10
<PAGE>
notice to the Company prior to the Annual Meeting will have the right to receive
the "fair value" of their Common Shares upon satisfaction of certain procedural
requirements under the MBCA. In order to preserve such rights, Shareholders
must: (a) file a written notice demanding payment of the fair value of their
- ----
shares with the Company prior to the vote at the Annual Meeting; (b) not abstain
from, vote in favor of or consent in writing to the Merger; and (c) not return a
proxy without voting with respect to the Merger. Failure to follow these
procedures precisely may result in the loss of such rights. See "Proposal to
Approve Merger Agreement (Proposal No. 2) --Dissenters' Appraisal Rights" and
Section 302A.471 of the Minnesota Business Corporation Act attached hereto as
Annex C.
Accounting Treatment. The Merger will be accounted for as a "purchase" as such
term is used under generally accepted accounting principles for accounting and
financial reporting purposes. Accordingly, a determination of the fair value of
the Company's assets and liabilities will be made in order to allocate the
purchase price to the assets acquired and liabilities assumed in the Merger.
See "Special Factors -- Accounting Treatment."
11
<PAGE>
COMMON STOCK INFORMATION
The Company Common Stock is traded in the over-the-counter market and is quoted
on the Nasdaq Small Cap Market under the symbol "ATXI." On December 1, 1998, the
last trading day prior to the announcement of the Merger, the high and low
prices as quoted on the Nasdaq Small Cap Market were $1.4375 and $1.125. The
following table sets forth, for each of the calendar periods indicated, the
range of high and low prices for the Common Shares as quoted on the Nasdaq Small
Cap Market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1997 Quarter.................................. 3 1/4 2
Second Quarter........................... 3 2
Third Quarter............................ 2 1/2 1 7/8
Fourth Quarter........................... 3 1/2 1 1/4
1998 First Quarter............................ 3 1/2 1 3/8
Second Quarter........................... 3 1/8 1
Third Quarter............................ 1 9/32 1 1/4
Fourth Quarter........................... 2 1 1/8
1999 First Quarter............................ 2 5/16 1 11/16
Second Quarter (through April 19)........ 1 7/8 1 5/8
</TABLE>
Common Stock prices for calendar year 1997 have been restated to reflect a 1-
for-4 Reverse Stock Split, effective December 16, 1997.
As of the Record Date, the Company had 1,413,449 shares of Company Common Stock
outstanding, which were held by approximately [NUMBER] record Shareholders. The
Company has not declared or paid any cash dividends on Company Common Stock
since its inception and does not intend to pay any dividends for the foreseeable
future, although there are no restrictions on its ability to pay dividends.
12
<PAGE>
SPECIAL FACTORS
BACKGROUND OF AND REASONS FOR THE MERGER
The Company was formed in 1987 under the name Tiempo Equities, Inc. ("Tiempo")
for use as a vehicle to raise capital for investment in an operating business.
Tiempo completed a public offering in February 1989 and became a public
reporting company. In October 1990, Tiempo completed a merger with Atrix Tool,
Inc. ("Atrix Tool"), pursuant to which Atrix Tool was merged into Tiempo and
Tiempo changed its name to Atrix International, Inc. Prior to the merger with
Tiempo, Atrix Tool was privately held and controlled by Mr. Meacham.
In February 1991, the Company acquired a patent and the technology used in the
Company's R3 copy control products. At the time of this acquisition, the
Company believed this technology would provide it with a significant growth
opportunity and increase its visibility and attractiveness in the public
securities markets. After several years of attempting to develop a copy control
product that would gain wide market acceptance, the Company finally reached an
agreement with Pitney Bowes to develop a copy management system utilizing the
Company's technology. The Company delivered the copy management system in early
1994 and began to market this product throughout the United States.
Unfortunately, the Company has been unable to generate significant revenues from
its copy control product, and this strategy has failed to provide the growth
that the Company had originally hoped to achieve.
The Company embarked on a strategy to increase revenues and earnings through the
acquisition of product lines, other operating businesses and mergers. In
November 1995, the Company successfully completed the acquisition of an
additional line of vacuum products, which now comprises the core of the
Company's Omega series of vacuums. During the past three years, the Company has
contacted approximately 10 to 15 other parties for the purposes of discussing
the potential acquisition of a product line or an operating business or the
consummation of a merger. During this time, the Company entered into serious
discussions with three different parties. Since early summer 1998, the Company
had not had discussions with any third parties, other than Mr. Riedel, regarding
the potential acquisition of the Company. Unfortunately, the Company has not
been able to complete any transactions, other than the acquisition of an
additional line of vacuum products in November 1995. In addition, in November
1997, the Company's largest customer, to whom the Company supplied tools and
tool kits, abruptly stopped purchasing product from the Company. This customer
had accounted for revenues of $1,351,149 in fiscal 1997. As a result, the
Company has seen its revenue decrease substantially in the last 18 months.
Revenues were $4,199,116 in fiscal 1998, compared to revenues of $5,301,300 in
fiscal 1997.
Although the Company Common Stock has been listed on Nasdaq since its public
offering in February 1989, shares of Company Common Stock have generally been
thinly traded and, for at least the past several years, a wide spread has
existed between quoted bid and ask prices. During the past four years, the
Company has devoted a significant amount of effort to cultivating relationships
with brokers and research analysts at smaller local and regional investment
banking firms. The Company's goals have been to increase its visibility in a
public securities market, persuade analysts to begin covering the Company and
attract additional market makers for its Common Shares. During this time, the
Company has worked with three different investor relations firms to assist in
increasing its visibility in a public securities market and has made numerous
presentations at investor conferences and investment banking firms. Despite all
of these activities, the Company has been unable to increase public securities
market interest in the Common Shares. Currently, there are no research analysts
covering the Company. The Company believes it has been unsuccessful in these
efforts primarily because of its relatively small size, the relatively small
markets that the Company serves and its inability to significantly increase
revenues
13
<PAGE>
and earnings.
In April 1997, the Board of Directors first considered a reverse split of the
Common Shares. The purpose of a reverse split would be to increase the per share
trading price of the Common Shares. From October 1995 to December 1997, the
Common Shares had consistently traded below $1.00 per share. In September 1997,
Nasdaq notified the Company that it was no longer meeting Nasdaq's requirement
that the minimum bid price for the Common Shares be at least $1.00 per share to
qualify for continued listing on the Nasdaq SmallCap Market. In December 1997,
the Board of Directors concluded that it would be in the best interest of the
Company's shareholders to maintain listing on the Nasdaq SmallCap Market, rather
than having the Common Shares quoted on the OTC Bulletin Board. The Board of
Directors believed that effecting a reverse split would increase the per share
market price of the Common Shares and, thereby, increase the attractiveness of
the Common Shares to market makers and enable investment banking firms that had
not been permitted by internal policies to make a market in the Common Shares
due to the bid price being below $1.00 per share to begin making a market in the
Common Shares. As a result, in December 1997, the Company effected a one-for-
four reverse split of the Common Shares. Although the reverse split had the
intended effect of increasing the per share market price of the Common Shares,
it did not increase the visibility or acceptance of the Common Shares in the
public securities market and no additional firms began making a market therein.
The Company believes that the lack of an active and established trading market
for the Common Shares has effectively prevented the Company and its shareholders
from enjoying the advantages that are typically available to public entities. In
addition, the expenses associated with being a public entity are significant and
burdensome to the Company. The Company estimates that its total out-of-pocket
expenses associated with maintaining its status as a public company are
approximately $80,000 to $150,000 per year. These costs include the preparation,
printing, filing and distribution of annual reports to shareholders, proxy
materials and periodic reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (such as Form 10-KSB and Form 10-QSB), legal and
accounting fees relating to such matters, investor relations fees, annual fees
for the Company's transfer agent and the cost of holding an annual meeting of
shareholders. These costs do not include the salaries and time of employees of
the Company who devote time to these matters. The Company believes that its
administrative expenses would be significantly reduced if it became a private
entity and was not required to comply with the disclosure and legal requirements
of the federal securities laws. In addition, management will have more
flexibility to make decisions regarding the Company's future plans of operation
as a private company.
Accordingly, in early 1998, the Board of Directors began to evaluate seriously
the possibility of a sale of the Company. In connection with these activities,
the Company engaged a Twin Cities-based investment banking firm to provide the
Board of Directors with a valuation of the Company. See "--Reports." On April 7,
1998, the Company entered into a letter of intent with a third party regarding
the acquisition of the Company. However, the Company never reached a definitive
agreement with this third party, and the letter of intent was terminated on
April 24, 1998, because the Company did not believe that this third party had a
serious interest in or the ability to complete an acquisition of the Company.
After the letter of intent was terminated, Mr. Riedel began to evaluate the
possibility of acquiring all of the outstanding shares of Company Common Stock
and discussed this possibility with certain members of the Board of Directors.
The directors encouraged Mr. Riedel to continue his evaluation. At a meeting of
the Board of Directors held on June 5, 1998, Mr. Riedel notified the Board of
Directors that he was inclined to make such an offer. See "--Reports."
14
<PAGE>
RECOMMENDATION OF SPECIAL COMMITTEE
At a meeting of the Board of Directors held on June 5, 1998, the Board of
Directors discussed the merger and acquisition opportunities that the Company
had been evaluating for the past few months. The Board of Directors concluded
that the opportunities being evaluated were either not in the Company's interest
or were unlikely to be completed. At the end of this Board of Directors meeting,
Mr. Riedel informed the Board of Directors that he was inclined to make an offer
to acquire all of the outstanding shares Company Common Stock at a price of
$1.94 per share. The Board of Directors then established a Special Committee of
the Board of Directors (the "Special Committee"), consisting of William Bennett
and Les Eck, to review and negotiate with Mr. Riedel any formal proposal by Mr.
Riedel to acquire the outstanding shares of Company Common Stock and to make a
recommendation to the Board of Directors with respect to any such proposed
transaction. The members of the Special Committee were appointed because none of
them had ever been an officer or employee of the Company. The Special Committee
was also authorized to retain an investment banking firm to review and evaluate
any proposal and to advise the Special Committee whether such transaction was
fair to the holders of Common Shares (the "Shareholders") from a financial point
of view. Mr. Bennett, as Chair of the Special Committee, contacted four
investment banking firms in the Twin Cities area requesting a proposal to act as
financial advisor to the Special Committee and to provide a fairness opinion
with respect to any such transaction. He met with representatives of all of
these firms, and all of them submitted proposals. On October 14, 1998, the Board
of Directors and the Special Committee retained Miller, Johnson & Kuehn,
Incorporated ("MJK") to act as the financial advisor to the Special Committee
and the Board of Directors and to render its opinion as to the fairness of the
transaction from a financial point of view. MJK was selected based on its
proposal, its experience in evaluating similar kinds of transactions and its
fee. MJK was retained without any understanding, implicit or explicit, that it
would find that the transaction was fair, from a financial point of view, to the
Shareholders.
From June through December 1998, the Special Committee held seven meetings to
discuss and evaluate Mr. Riedel's proposals, to consider other alternative
strategies for maximizing shareholder value and to respond to Mr. Riedel's
proposals. During this time, the other alternative strategies that the Special
Committee evaluated consisted of retaining an investment banking firm to
actively solicit potential acquirers of the Company or a portion of its assets,
the liquidation of the Company's assets and the sale of the Company to other
third parties as a going concern or in segments. The Special Committee decided
not to pursue any of these alternatives because it believed that, due in large
part to the significant publicity and trading activity in the Common Shares in
April 1998 in connection with the letter of intent that had been entered into at
that time, potential acquirers of the Company were well aware that the Board of
Directors was evaluating a possible sale of the Company. Despite the significant
publicity, the Company did not receive any indications of interest from any
third parties. As a result, the Special Committee concluded that the only likely
buyer of the Company would be Mr. Riedel and that pursuing other potential
buyers would be a significant burden on the Company's limited resources and
would likely jeopardize a potential transaction with Mr. Riedel. Some of the
other non-employee directors of the Company also met with the Special Committee.
By letter dated June 15, 1998, Mr. Riedel submitted a written proposal to the
Special Committee to acquire all of the outstanding shares of Company Common
Shares at a price of $1.94 per share. Mr. Riedel's proposal also required that
(a) he be paid $200,000 if, after entering into a letter of intent, the Board of
Directors approved the sale of or sold the Company to a third party or decided
not to complete the transaction with Mr. Riedel, (b) Mr. Riedel have the right
to terminate the transaction and be reimbursed in full for his out-of-pocket
expenses if the Company's expenses exceeded $200,000 and (c) Mr. Riedel have a
right of first refusal with respect to any competing proposals to acquire the
Company.
15
<PAGE>
Mr. Riedel's proposal was also contingent upon his obtaining adequate financing
to acquire the outstanding shares of Company Common Stock. The proposal also
contemplated that the acquisition would be structured as a tender offer and
included a requirement that at least 51% of the outstanding shares of Company
Common Stock be tendered.
On June 12, 1998, Mr. Bennett contacted Mr. Riedel to arrange a meeting, and on
June 16, 1998, the Special Committee met with Mr. Riedel to discuss his June 15,
1998 proposal. On June 23, 1998, Mr. Bennett informed Mr. Riedel that the
Special Committee and certain other non-employee directors would be meeting on
June 30, 1998.
On June 30, 1998, the Special Committee, along with non-employee directors
William Bednarczyk, Clifford Meacham, John Hey and Company legal counsel, met to
review and decide upon a response to Mr. Riedel's proposal and to review other
proposals from the investment banking firms. The Special Committee reviewed the
proposals from three investment banking firms and concluded that Mr. Bennett
should continue discussions with the investment banking firms for the purpose of
possibly engaging one of them should Mr. Riedel's proposal proceed and should he
obtain financing commitments necessary to complete the acquisition. The Special
Committee and the other attending members of the Board of Directors also
discussed Mr. Riedel's proposal in detail and concluded that they did not have
sufficient information to respond to his proposed purchase price but believed it
to provide a sufficient basis for proceeding with negotiations. The Special
Committee also concluded that a $200,000 "topping fee" was not acceptable, but
that a $150,000 "topping fee" would be acceptable, that the Board of Directors
could not grant Mr. Riedel a right-of-first-refusal, but would agree to provide
him notice of third-party offers and the Board of Directors would not give Mr.
Riedel the right to terminate the transaction if the Company's expenses exceeded
$200,000. Members of the Board of Directors also concluded that Mr. Riedel would
need to provide financing commitments in order to proceed. By letter dated June
30, 1998, Mr. Bennett informed Mr. Riedel of the Special Committee's response.
On July 2, 1998, Mr. Bennett contacted Mr. Riedel to inform him that the Special
Committee and the Board of Directors would need to retain a financial advisor
and obtain a fairness opinion from its financial advisor. On July 9, 1998, Mr.
Bennett informed Mr. Riedel that Mr. Bennett had received proposals from four
investment banking firms and described the fees that were being quoted.
On July 11, 1998, the Special Committee, along with non-employee directors
William Bednarczyk and Clifford Meacham and Company legal counsel, met after a
regular meeting of the Board of Directors to discuss the status of Mr. Riedel's
proposal to acquire the outstanding shares of Company Common Stock and the
engagement of an investment banking firm. The directors discussed proposals from
two investment banking firms and directed Mr. Bennett to continue negotiations
with one of them.
On July 12, Mr. Riedel contacted Mr. Bennett with questions regarding the
fairness opinion and the cost of an opinion. On July 24, 1998, Mr. Bennett
contacted Mr. Riedel to arrange a meeting to discuss Mr. Riedel's progress in
obtaining financing. The Special Committee, along with non-employee director
William Bednarczyk, met with Mr. Riedel on July 24, 1998 to discuss Mr. Riedel's
progress in obtaining financing.
On July 28, 1998, the Special Committee, along with non-employee directors
William Bednarczyk and Clifford Meacham, Company legal counsel and
representatives of MJK, met to discuss the Board of Directors' strategy and the
next response to Mr. Riedel's proposal to acquire the outstanding shares of
Company Common Stock. The Special Committee and the other directors discussed
various issues related to Mr. Riedel's proposal and the need for a fairness
opinion and financial advice from an
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investment banking firm, possibly MJK. The directors concluded that the Special
Committee should negotiate the best price possible with Mr. Riedel and pursue
completing an acquisition with him. The Special Committee also concluded that if
it did not appear that Mr. Riedel would be able to obtain financing commitments
for the acquisition in the near future, then it should begin seeking other
alternatives for a possible sale of the Company. The Special Committee and the
other directors discussed at length Mr. Riedel's proposed price of $1.94 per
share and reviewed a previous valuation prepared for the Board of Directors in
April 1998 by a different Twin Cities-based investment banking firm. After this
discussion, the Special Committee concluded that it should counteroffer at a
price of $2.23 per share. On July 29, 1998, Mr. Bennett called Mr. Riedel and
sent Mr. Riedel a letter informing him that the financing commitment letters Mr.
Riedel had submitted to the Special Committee to date were not adequate and that
the Special Committee would recommend that the Board of Directors accept a price
of $2.23 per share. Finally, the letter informed Mr. Riedel that if he was
unable to obtain adequate financing commitments by August 7, 1998, then Board
would likely start exploring other alternatives for the sale of the Company.
By letter dated July 31, 1998, Mr. Riedel responded to Mr. Bennett's July 29,
1998 letter. In his July 31, 1998, letter Mr. Riedel indicated that he would
accept a $150,000 "topping fee," which would be payable if the deal was not
completed for any reason other than Mr. Riedel's failure to obtain adequate
financing. Mr. Riedel also rejected the Board of Directors' offer of $2.23 per
share and increased his offer to acquire all of the outstanding shares of
Company Common Stock at a price of $2.00 per share. Mr. Riedel also requested
that the Company deposit $750,000 of its funds into an escrow account to ensure
that the Company would have sufficient cash on hand at the completion of a
transaction in order for Mr. Riedel to obtain the necessary financing.
On August 3, 1998, Mr. Riedel contacted Mr. Bennett to discuss the July 31, 1998
proposal.
On August 4, 1998, the Special Committee, along with non-employee directors
William Bennett, Clifford Meacham and John Hey, and Company legal counsel, met
to discuss Mr. Riedel's July 31, 1998 letter. Mr. Riedel also participated in a
portion of this meeting by telephone for the purpose of answering various
questions that the directors had regarding Mr. Riedel's proposal and financing
commitments he had received to date. The Special Committee agreed that if a
definitive agreement was entered into and the Company completed a transaction
for the sale of the Company with a third party, the Company would pay Mr. Riedel
a "topping fee" of $150,000, and that if the Company terminated a definitive
agreement, without selling the Company to a third party, the Company would
reimburse Mr. Riedel for his out-of-pocket expenses up to a maximum of $75,000.
The Special Committee and the other members of the Board of Directors also
discussed at length the $2.00 per share price proposed by Mr. Riedel. The
Special Committee considered whether the Board would be able to sell the Company
or any significant portion of its assets to third parties in a timely and cost-
effective manner, the amount of financing that the Board of Directors believed
Mr. Riedel would be able to obtain and the desire to conclude a transaction in a
timely and cost-effective manner. Following this discussion, the Special
Committee concluded that it would recommend that the Board of Directors accept a
price of $2.00 per share. The Special Committee, however, did not accept Mr.
Riedel's request to escrow $750,000. The Special Committee also required that
Mr. Riedel obtain financing commitments by no later than August 31, 1998. By
letter dated August 5, 1998, Mr. Bennett informed Mr. Riedel of the Special
Committee's decision.
On August 24, 1998, Mr. Bennett called Mr. Riedel to request an update on Mr.
Riedel's progress in obtaining financing. On August 25, 1998, Mr. Riedel
contacted Mr. Bennett to update him on the status of financing and to request an
extension of time to obtain financing commitments.
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By letter dated August 27, 1998, Mr. Riedel provided Mr. Bennett with certain
financing commitments that he had received and requested an extension of time to
obtain the balance of his needed financing commitments. On August 31, 1998, the
Special Committee, along with non-employee directors Clifford Meacham and
Charles Mitchell, and Company legal counsel, met to consider Mr. Riedel's
request for an extension of time. The members of the Board of Directors
discussed the chronology of events relating to the proposed transaction that had
taken place to date. They also discussed proposals from investment banking firms
and narrowed the list of investment banking firms that they believed were most
suitable. In addition, the Special Committee concluded that it should not agree
to a formal extension of time and that following Labor Day, the Board of
Directors would begin pursuing other alternatives due to a lack of confidence
that Mr. Riedel would be able to obtain the necessary financing. Nonetheless,
the directors also concluded that they should encourage Mr. Riedel to continue
to pursue a potential transaction. On September 1, 1998, Mr. Bennett verbally
informed Mr. Riedel of the Special Committee's decision. Mr. Bennett sent Mr.
Riedel a confirming letter on September 3, 1998.
On September 4, 1998, Mr. Bennett met briefly with Mr. Riedel to discuss the
Special Committee's August 31, 1998 decision. On September 15, 1998, Mr. Riedel
updated Mr. Bennett on the status of financing.
On September 22, 1998, the Special Committee, along with non-employee directors
William Bednarczyk and Cliff Meacham, and Company legal counsel, met with
representatives of a Twin Cities-based investment banking firm. The directors
asked various questions regarding the firm's background and experience and the
proposed transaction. Without representatives of the firm present, the Special
Committee and the other attending non-employee directors discussed various
alternatives for pursuing a sale of the Company, the engagement proposal from
the investment banking firm and Mr. Riedel's current proposal. The Special
Committee concluded that because it appeared Mr. Riedel would not be able to
obtain financing in the near future, it would retain an investment banking firm
to assist the Special Committee in evaluating and identifying other strategies
for a sale of the Company. On September 23, 1998, Mr. Bennett called Mr. Riedel
to inform him of the Special Committee's September 22, 1998 decision.
On September 28, 1998, Mr. Riedel called Mr. Bennett to inform him that Mr.
Riedel believed he had obtained the necessary financing commitments and to
arrange a meeting. On September 29, 1998 and prior to the Special Committee
retaining an investment banking firm, Mr. Riedel received a commitment letter
from Bremer Business Finance Corporation ("BBFC"). On September 30, 1998, the
Special Committee met with Mr. Riedel to review and discuss the BBFC commitment.
The Special Committee believed the BBFC commitment would be adequate for Mr.
Riedel to complete the acquisition of the outstanding shares of Company Common
Stock. The BBFC commitment letter was subject to BBFC completing its due
diligence regarding the Company. Mr. Riedel informed the Special Committee that
BBFC had completed a significant portion of its due diligence and that such due
diligence condition would be removed in the near future.
On October 6, 1998, Mr. Bennett called Mr. Riedel to inform him that the Special
Committee would begin working toward a definitive agreement with Mr. Riedel and
that the Special Committee would be retaining MJK. On October 8, 1998, Mr.
Bennett called Mr. Riedel to discuss timing of MJK beginning their review at the
Company. On October 13, 1998, Mr. Riedel called Mr. Bennett to inform him that
BBFC planned to begin its due diligence at the Company during the week of
October 19, 1998. On October 14, 1998, the Board of Directors and the Special
Committee retained MJK. On or about October 21, Mr. Riedel called Mr. Bennett to
advise him on the status of BBFC's due diligence. On October 26,
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1998, Mr. Riedel called Mr. Bennett to advise him that BBFC had concluded its
due diligence and inquire on the status of MJK's opinion. On November 13, 1998,
Mr. Riedel received a second commitment letter from BBFC with the due diligence
condition removed. On December 10, 1998, Mr. Riedel received another commitment
letter from BBFC, pursuant to which BBFC extended the commitment letter through
March 31, 1999. In March 1999, BBFC subsequently reissued its commitment letter
with an expiration date of June 20, 1999.
On November 6, 1998, Mr. Riedel called Mr. Bennett to discuss Mr. Riedel's
concern about moving forward without Mr. Mathwig's support for Mr. Riedel's
acquisition of all of the outstanding Common Shares. On November 12, 1998, Mr.
Bennett called Mr. Riedel to request an update on his discussions with Mr.
Mathwig. On November 19, 1998, Mr. Riedel called Mr. Bennett to inform him that
discussions were continuing with Mr. Mathwig, but that no agreement had been
reached. On November 24, 1998, Mr. Riedel reached an agreement with Mr. Mathwig,
pursuant to which Mr. Mathwig would agree to vote in favor of the Merger. Mr.
Riedel informed Mr. Bennett of this agreement. See "Special Factors --
Shareholder Agreement."
On December 3, 1998, Mr. Bennett called Mr. Riedel to discuss reimbursement of
Mr. Riedel's expenses if the Merger was not completed and certain tax issues. On
December 9, 1998, Mr. Bennett sent Mr. Riedel a memorandum regarding certain tax
matters. On December 14, 1998 Mr. Bennett called Mr. Riedel to discuss
reimbursement of Mr. Riedel's expenses further and the agenda for the December
17, 1998 Board of Directors meeting.
At a meeting held on December 17, 1998, the Special Committee unanimously
determined that the terms of the Merger are fair to, and in the best interest
of, all of the Shareholders (including the unaffiliated Shareholders), and
recommended that the Board of Directors approve the Merger and that the Board of
Directors recommend to the Shareholders that they vote to approve and adopt the
Merger Agreement. In reaching its decision, the Special Committee considered the
factors set forth below under the headings "Special Factors - Fairness with the
Merger."
RECOMMENDATION OF BOARD OF DIRECTORS
At a meeting of the Board of Directors held on December 17, 1998 immediately
after the meeting of the Special Committee, the Board of Directors, based on the
unanimous recommendation of the Special Committee, unanimously (with Mr. Riedel
and Mr. Meacham abstaining) approved and adopted the Merger Agreement,
determined to recommend to the Shareholders that they vote to approve and adopt
the Merger Agreement and determined that the terms of the Merger Agreement are
fair to, and in the best interest of, all of the Shareholders (including the
unaffiliated Shareholders). After consummation of the Merger, the entire equity
interest of Newco will be beneficially owned by Mr. Riedel and Mr. Meacham, both
of whom are directors of the Company, Mr. Riedel's son Phillip, and possibly one
other minority investor in Newco who is not affiliated with the Company. Because
of their interests in Newco, Mr. Riedel and Mr. Meacham have a conflict of
interest with respect to the proposed Merger. Accordingly, Mr. Riedel and Mr.
Meacham abstained from the vote of the Board of Directors in approving the
Merger and recommending that shareholders vote in favor of the Merger. However,
following the Board of Directors' approval and recommendation, Mr. Riedel, on
behalf of himself and Newco, and Mr. Meacham stated for the record that they
concurred in the Board of Directors' determination. See "Special Factors -
Interests of Certain Persons in the Merger." In reaching its decision, the Board
of Directors considered the factors set forth below under the heading "Special
Factors -- Fairness of Merger." The Board of Directors concurred with the
Special Committee's conclusion that MJK's valuation of the Company as a whole,
which indicated a value of approximately $2.84 per share, significantly
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overstated the Company's value for the reasons described below under the heading
"- Fairness of the Merger."
FAIRNESS OF THE MERGER
On December 17, 1998, the Special Committee concluded that the Merger was fair
to the Shareholders (including the unaffiliated Shareholders) and recommended
approval of the Merger Agreement to the Board of Directors. In reaching this
conclusion, and in making its recommendation to the Board of Directors, the
Special Committee considered a number of factors in light of the Special
Committee's knowledge and familiarity with the business, financial condition,
results of operations and prospects of the Company, as well as the industry it
serves, the risks associated with achieving its prospective operating results
and general economic and market conditions. The material factors consisted
of:
. The opinion of MJK to the effect that $2.00 per share to be received by the
Shareholders in the Merger is fair, from a financial point of view, to the
Shareholders. See "Special Factors -- Opinion of Financial Advisor."
. The presentation of MJK to the Special Committee.
. Information that the Special Committee received from the Company
(consisting primarily of the Company's historical and audited financial
statements, periodic reports filed with the Securities and Exchange
Commission (the "Commission")).
. The agreement of Mr. Mathwig, the beneficial owner of 345,500 Common
Shares, representing approximately 24.44% of the outstanding shares of
Company Common Stock, and the Company's largest shareholder, to vote (or
cause to be voted) his Common Shares in favor of the Merger Agreement and
grant to Mr. Riedel an irrevocable proxy to vote Mr. Mathwig's Common
Shares in favor of the Merger. The Special Committee believes that Mr.
Mathwig's agreement reflects his independent evaluation that the $2.00 per
share to be received by the Company's unaffiliated Shareholders is fair. In
reaching this conclusion, the Special Committee recognized that Mr. Mathwig
is familiar with the Company's business and industry and operates a
business in a similar industry. See "Special Factors -- Shareholder
Agreement."
. The independent valuation of the Company received by the Board of Directors
in April 1998. See "Special Factors -- Reports."
. The stock price and trading volume history of the Common Shares and the
fact that the Common Shares are thinly traded.
. The fact that $2.00 per share to be received by the Shareholders in the
Merger represented a substantial premium over the trading price of the
Common Shares during the period of time that the transaction was being
negotiated and prior to public announcement of the Merger.
. MJK's valuation of the Company as a whole, which indicated a value of
approximately $2.84 per share, weighed against the fairness determination.
However, the Special Committee and the Board of Directors concluded that
this analysis significantly overstated the Company's value primarily for
two reasons. First, this valuation included analyses that were based on
management's projections of future earnings, which the Special Committee
and the Board of Directors, except for Mr. Riedel, believed to be
aggressive. Second, this valuation included analyses that did not account
for the extreme variance in the revenue mix of the Company's two product
lines and the significant difference in the market multiples applicable to
the two product lines. During the 12-month period ended September 30, 1998,
the Machine Tools product line generated approximately 94% of total
revenues, and the Data
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Processing Management product line generated approximately 6% of total
revenues. However, the industry multiples for the Data Processing Management
product line are significantly higher than the industry multiples for the
Machine Tools product line. See "Special Factors - Opinion of Financial
Advisor."
. The net book value, going concern value and liquidation value of the Common
Shares.
. The availability of dissenters' appraisal rights under the MBCA to dissenting
Shareholders in the Merger.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Special Committee did not find it practical to,
and did not quantify or otherwise attempt to, assign specific weights to the
factors considering in reaching its determination. The Special Committee
considered each of the factors listed above to be an integral basis of its
determination to recommend the Merger and was not able to assign relative
importance to any one factor over another factor.
The Special Committee relied in part on the analysis of MJK with respect to the
going concern value of the Common Shares, which indicated a value of between
$1.85 and $2.84 per share. The Special Committee concluded that none of the
above factors, other than MJK's valuation of the Company as a whole, which
indicated a value of approximately $2.84 per share, weighed against the fairness
determination. However, the Special Committee and the Board of Directors
concluded that this analysis significantly overstated the Company's value
primarily for two reasons. First, this valuation included analyses that were
based on management's projections of future earnings, which the Special
Committee and the Board of Directors, except for Mr. Riedel, believed to be
aggressive. Management's projections of future earnings assumed that the
Company's revenues would grow approximately 29% in fiscal 1999 and approximately
20% per year in fiscal years 2000 through 2003, even though the Company's
revenues had declined from $6,028,427 in fiscal 1996, to $5,801,300 in fiscal
1997 and to $4,199,116 in fiscal 1998. In addition, the Company operates in
relatively small mature markets that do not have significant opportunities for
growth. For these reasons, the Special Committee concluded that it was unlikely
that management's projections could be achieved and that all of MJK's analyses
that were based on management's projections of future earnings significantly
overstated the Company's value. Second, this valuation included analyses that
did not account for the extreme variance in the revenue mix of the Company's two
product lines and the significant difference in the market multiples applicable
to the two product lines. Accordingly, the Special Committee believed that an
analysis of the Company's two product lines was relevant. During the 12-month
period ended September 30, 1998, the Machine Tools product line generated
revenues of $4,027,821, or approximately 94% of total revenues for the period,
and the Data Processing Management product line generated revenues of $269,005,
or approximately 6% of total revenues for the period. However, the industry
multiples for the Machine Tools product line are significantly lower than the
industry multiples for the Data Processing Management product line, as shown in
the tables under the heading "Special Factors - Opinion of Financial Advisor."
Because MJK's analysis of the Company as a whole did not account for the revenue
mix of the Company's two product lines and gave equal weight to the higher
market multiple applicable to the Data Processing Management product line, the
Special Committee agreed with MJK's conclusion that values derived from this
analysis significantly overstated the Company's value. For all of these
reasons, the Special Committee concluded that the value of the Company based on
the historical financial results of the Company's two separate product lines was
more accurate and relevant than the values based on either Management's
projections or an analysis of the Company as a whole. See "Special Factors -
Opinion of Financial Advisor."
The estimated the net book value and the liquidation value of the Common Shares,
as of September 30, 1998, was approximately $1.71 and $.96 per share,
respectively.
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The Special Committee believes that the Merger is procedurally fair because: (a)
the Special Committee consists of disinterested directors appointed to represent
the interests of, and to negotiate on an arms' length basis with Mr. Riedel on
behalf of the Shareholders; (b) all of the non-employee directors who own shares
of Company Common Stock have indicated that they intend to vote in favor of the
Merger; (c) all of the non-employee directors who own shares of Company Common
Stock, other than Mr. Meacham, will be foregoing any ability to participate in
the future growth of Newco, and (d) Mr. Mathwig, the Company's largest
Shareholder, negotiated with Mr. Riedel an agreement to vote in favor of the
Merger and granted to Mr. Riedel an irrevocable proxy to vote Mr. Mathwig's
Common Shares in favor of the Merger. In addition, the Special Committee
believes that it is well known within the industry in which the Company operates
that the Company has been actively seeking acquisition or merger opportunities,
and there have been no serious indications of interest from other third parties
in acquiring the Company. In support of this conclusion, the Special Committee
recognized that in April 1998, the Company entered into a letter of intent with
a third party, pursuant to which the third party would acquire the Company.
Although discussions with this third party were ultimately terminated before a
definitive agreement was negotiated or executed, a significant amount of
publicity surrounded this letter of intent and the underlying potential sale of
the Company. In spite of all of these factors, no other potential buyers have
indicated an interest in acquiring the Company or any significant portion of the
Company's assets.
The Special Committee considered that the $2.00 cash per share to be bid to the
Shareholders pursuant to the Merger represents a premium of 78% over the $1.125
closing bid price for the Common Shares as reported on the Nasdaq SmallCap
Market on December 1, 1998, the last trading date prior to public announcement
of the proposed Merger. On December 2, 1998, the Company issued a press release
disclosing that the Company had reached an agreement in principle with Mr.
Riedel regarding the proposed Merger. The Special Committee reviewed and
concurred with the analysis prepared by MJK. The Special Committee also noted
that effecting the Merger at this time would avoid the delay and uncertainty of
attempting to realize the Company's value for the benefit of the Shareholders by
continuing the Company in existence as a public company, seeking another buyer
or by selling the Company's assets and liquidating the Company.
The Special Committee took into consideration the fact that the Shareholders,
other than Mr. Riedel and Mr. Meacham, will not have the opportunity to
participate in any future growth of Newco following consummation of the Merger.
The Special Committee also recognized that because of the equity interest in
Newco which Mr. Riedel and Mr. Meacham will hold prior to and after the Merger
and such financial interests of other members of management in Newco, these
persons have existing or potential conflicts of interest in connection with the
Merger. Accordingly, the Special Committee considered the Company's results of
operations and current forecasts of future sales and earnings in light of these
and other factors.
The Special Committee also considered whether or not to require Mr. Riedel and
Mr. Meacham, in voting for approval and adoption of the Merger Agreement, to
vote their Common Shares of Common Stock in proportion to the vote of the other
Shareholders. The Special Committee decided that such a special voting
requirement was not necessary due to all of the factors upon which it relied in
establishing the fairness of the $2.00 per share to be paid to the Shareholders
in the Merger, particularly the agreement of Mr. Mathwig, the Company's largest
Shareholder, to vote in favor of the Merger. Mr. Mathwig did not receive any
consideration, monetary or otherwise, for entering into this agreement. The
Special Committee did not retain an independent representative to assist in
negotiating the terms of the Merger Agreement. The proposed transaction must be
approved by the affirmative vote of a majority of the Company's outstanding
common stock, and will not require the approval of a majority of unaffiliated
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security holders. The non-employee directors did not retain an unaffiliated
representative to act solely on behalf of the unaffiliated security holders. The
Special Committee and the Board of Directors believe that the Merger is
procedurally fair to the Shareholders because of the foregoing reasons and
because of all the steps that the Special Committee took (which are discussed
above under "Special Factors -- Recommendation of Special Committee" and
"Special Factors -- Recommendation of Board of Directors") prior to making it
recommendation to the Board of Directors.
The Board of Directors has determined, following the unanimous recommendation of
the Special Committee and its receipt of MJK's written opinion, dated December
17, 1998, to the effect that the consideration to be received by the
Shareholders in the Merger is fair, from a financial point of view, to
Shareholders, that the Merger is fair to, and in the best interest of, all of
the Shareholders (including the unaffiliated Shareholders) and recommends that
all of the Shareholders vote to approve and adopt the Merger Agreement. In
reaching its conclusion and making its recommendation to the Shareholders to
approve and adopt the Merger Agreement, the Board of Directors considered those
factors listed above, the recommendation of the Special Committee and the fact
that the Special Committee consulted with an independent financial advisor as
well as the fact that after consummation of the Merger, the entire equity
interest of Newco will be beneficially owned by Mr. Riedel and Mr. Meacham, both
of whom are directors of the Company, Mr. Riedel's son Phillip, and possibly one
other minority investor in Newco who is not affiliated with the Company.
Because of their interests in Newco, Mr. Riedel and Mr. Meacham have a conflict
of interest with respect to the proposed Merger. Accordingly, Mr. Riedel and
Mr. Meacham abstained from the vote of the Board of Directors in approving the
Merger and recommending that shareholders vote in favor of the Merger. However,
following the Board of Directors' approval and recommendation, Mr. Riedel, on
behalf of himself and Newco, and Mr. Meacham stated for the record that they
concurred in the Board of Directors' determination. See "Special Factors -
Interests of Certain Persons in the Merger."
No member of the Special Committee is employed by or affiliated with the Company
or Newco except as a director and shareholder of the Company. No such member is,
or is expected to become, an affiliate of, or has or is expected to acquire any
equity interest in, Newco. In light of the amount of time that was expected to
be devoted by the members of the Special Committee in connection with their
consideration of the Merger, the Board has approved a fee of $5,000 for Mr.
Bennett and $2,000 to Mr. Eck for their service on the Special Committee in
connection with consideration of the Merger. The members of the Special
Committee and the other members of the Board of Directors of the Company are
entitled to indemnification by the Company under its Articles of Incorporation
and the MBCA with respect to their actions in connection with the Merger. In
addition, the members of the Special Committee and the other members of the
Board of Directors of the Company are entitled to the benefits of the directors
and officers liability insurance policy maintained by the Company.
OPINION OF FINANCIAL ADVISOR
In October 1998, the Board of Directors and the Special Committee retained
Miller, Johnson, & Kuehn, Inc. ("MJK") to act as their financial advisor for the
purpose of rendering an opinion as to the fairness, from a financial point of
view, of a proposed acquisition of 100% of the outstanding common stock of the
Company for $2.00 per share by a company formed by Mr. Riedel. For its services,
the Company agreed to pay MJK $35,000, with an initial non-refundable retainer
of $15,000 and $20,000 to be paid upon delivery of the opinion. MJK's opinion
was not contingent on MJK finding that the merger was fair to the unaffiliated
shareholders. Approximately one month later, MJK rendered to the Board of
Directors and the Special Committee its preliminary oral opinion that, as of
that date and subject to various conditions, the proposed Merger was fair, from
a financial point of view, to the shareholders of
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the Company. At a meeting of the Board of Directors and the Special Committee on
December 17, 1998, MJK delivered to the Board of Directors and the Special
Committee its written opinion (the "Opinion"), confirming the verbal opinion
given earlier.
The Opinion addresses only the fairness of the proposed Merger, from a financial
point of view, to the shareholders of the Company. MJK was not retained to opine
as to any other transactions or contractual arrangements previously entered
into, or to be entered into (whether or not in connection with the Merger)
between the Company, the Board of Directors or senior management ("Management"),
or any other person, including without limitation, any agreements entered into
and the payments made in connection therewith. Furthermore, the Opinion does not
in any manner address the Board of Director's underlying decision to proceed
with or effect the Merger, but is simply to be used as one element in the
Special Committee's and the Board of Director's decision making process.
In arriving at the Opinion, no limitations were imposed by the Board of
Directors or the Special Committee with respect to the investigations to be
conducted or the procedures to be followed by MJK. MJK undertook such reviews,
analyses and inquiries as it deemed necessary and appropriate under the
circumstances. As the Merger provides the shareholders of the Company with cash
and not securities of any kind, MJK limited its procedures to a review of the
business and financial condition of the Company. Among other things, MJK
reviewed, but did not limit its review to: (i) the correspondence between Mr.
Riedel and the Board of Directors, or certain members thereof, during the months
of June, July and August 1998; and (ii) drafts of the Agreement and Plan of
Merger, dated as of December 18, 1998, among the Company, Mr. Riedel and Newco.
MJK subsequently reviewed the definitive agreement and plan of merger. In
addition, MJK (i) conducted interviews with Management of the Company; (ii)
conducted telephone interviews with the Company's major suppliers and customers;
(iii) toured the Company's facilities; (iv) reviewed and discussed with
Management their five year financial projections, which, on MJK's request, were
augmented by Management to include a Statement of Income for the Company's two
product lines: Machine Tools and Data Processing Management; (v) reviewed
financial and other publicly available information with respect to the Company,
including annual reports, Forms 10-KSB and 10-QSB and proxy statements; (vi)
consulted government and industry economic statistics that could have a direct
bearing on the Company; and (vii) examined securities data on comparable mergers
and acquisitions of similar public companies, to the extent available.
MJK's Opinion is subject to the following qualifications: (i) MJK relied upon
and assumed the accuracy and completeness of the financial and other information
(including the financial statements and projections of the Company) provided to
MJK and prepared by Management and their representations relating thereto, and
MJK has not independently verified any such information or representations; (ii)
with respect to the Company's projections and current estimates, MJK assumed,
based upon representations of Management, that they have been reasonably
prepared on bases reflecting the best currently available estimates and judgment
of Management as to the expected future performance of the Company; (iii) MJK
relied upon and assumed the accuracy and completeness of the information
provided by, and the representations of, Management and the Board of Directors
in respect of which MJK's understandings, set forth in the Opinion, are based,
and MJK relied upon the assurance of Management that they are unaware of any
facts that would make the information provided to MJK incomplete or misleading;
(iv) MJK did not perform or obtain any independent appraisals or valuations of
specific assets of the Company and MJK expressed no opinion as to the Company's
liquidation value; and (v) MJK's analysis was necessarily based on economic,
monetary, market and other conditions existing and which could be evaluated as
of the date of the Opinion (however, such conditions are subject to rapid and
unpredictable change). MJK was not authorized by the Company, the Special
Committee or the Board of Directors to solicit, nor did MJK solicit, offers for
transactions alternative to
24
<PAGE>
the Merger. Further, MJK was not asked to advise the Company, the Special
Committee or the Board of Directors as to financial alternatives to the Merger.
Overview of Methodology
The evaluation of the fairness of the price paid for the Company included
examining the Company's past financial performance, the Company's public stock
valuation and an analysis of Management's good faith projections of future
financial performance. MJK used a market capitalization approach to determine
the Company's value using the Company's past financial performance and
Management's projections for the current and the next fiscal year and a
discounted cash flow model to determine the Company's value based on
Management's future projections.
The characteristics of companies with similar businesses and the multiples
derived from their market capitalizations were compared closely with those of
the Company. The reliability of the models used to evaluate the Company was
based on the business and market characteristics of comparable companies and
those of the Company itself. The various valuation models used were weighted
according to their applicability to the Company in this situation. In
particular, MJK analyzed the nature of the businesses and the market
characteristics of the common stock of these comparable companies and tended to
apply a heavier (i.e., more reliable) weighting to the results based upon the
models that MJK believed to be the most appropriate.
Once weightings were applied to the various models, the liquidity of the
Company's common stock was compared with that of the companies used as
comparables. Since the liquidity of the Company's common stock was radically
different from that of the comparable companies, appropriate liquidity discounts
were applied to the valuations derived for the Company.
In addition, MJK evaluated 62 mergers and acquisitions, six of which were Rule
13e-3 transactions, and compared the buyout or control premiums paid in these
situations with the control premium offered for the Company.
Market Capitalization Approach
The evaluation analysis of the Company presented several challenges because of
the diverse nature of its product lines and the fact that one product line
accounted for approximately 94% of total revenues. As a result, MJK evaluated
the Company in two ways. First, MJK compared the Company as a whole with other
publicly traded companies in the same industries and with similar Standard
Industrial Classification ("SIC") codes. SIC Codes are a U.S. Department of
Commerce system that organizes all industry types in the United States. Each
business establishment is classified according to its primary activity,
signified by a 4-digit SIC code. When the Company's results were positive
numbers, MJK applied to the Company's last reported book value, trailing twelve
month ("TTM") revenues, earnings before interest and taxes ("EBIT"), and GAAP
earnings per share to the average industry market multiples for the twenty-four
companies in the Machine Tools industry (SIC Codes 36--) and the eighty-five
companies in the Data Processing Management industry (SIC Codes 38--). MJK
also applied the price to earnings market multiples for these industries to
Management's projections. MJK used a simple average of the multiples for the
two industries and applied the average of the multiples to the financial results
of the entire Company as a whole, thus giving equal weight to the two product
lines, despite the substantial variance in revenues produced.
Although MJK valued the Company on an enterprise basis, as is customary when a
company is being
25
<PAGE>
sold as a going concern, MJK did not believe that using a simple average of the
multiples for the two industries was an accurate or relevant indicator of value.
MJK concluded that this type of enterprise valuation was not an accurate
indicator of value because of the revenue mix of the Company's two product lines
and the fact that the Data Processing Management product line has a
significantly higher industry multiple than the Machine Tools product line.
During the 12-month period ended September 30, 1998, the Machine Tools product
line generated revenues of $4,027,821, or approximately 94% of total revenues
for the period, and the Data Processing Management product line generated
revenues of $269,005, or approximately 6% of total revenues for the period.
However, the industry multiples for the Data Processing Management product line
are significantly higher than the industry multiples for the Machine Tools
product line, as shown in the tables below. Therefore, MJK concluded that a
simple average of the industry multiples applied to the Company as a whole would
significantly overstate the value of the Company.
For these reasons, MJK conducted a sales-weighted valuation of the Company's two
product lines - Machine Tools and Data Processing Management. The fair value of
each of these two product lines was determined as if they were to be sold
separately, even though the Company was being sold as a whole. The market
multiples for the SIC Code 36-- group were applied to the financial results
(again, where the Company's numbers were positive) of the Machine Tools product
line, and the market multiples for the SIC Code 38-- group were applied to the
financial results (again, where the Company's numbers were positive) of the Data
Processing Management product line.
Using this sales-weighted valuation approach, MJK's analysis valued the Company
based on industry multiples of trailing 12 months revenue at $3,077,086, before
liquidity discounts,. Using this approach, MJK's analysis valued the Company
based on industry multiples of projected operating income for the year ending
June 3, 2000 at $5,562,763, before liquidity discounts. Neither of these values
has been discounted due to the lack of liquidity of the Company's Common Stock,
as described below under " -- Liquidity Issues Surrounding the Company's Common
Stock" and "-- Discount Policy."
The results of these two valuation approaches were as follows:
Enterprise Valuation
<TABLE>
<CAPTION>
Public Company
Trailing Twelve Multiples Based On
Months Ending The Average of the Value Based
September 30, 1998 Two Industries on the Derived Multiple
------------------ -------------- -----------------------
<S> <C> <C> <C>
Annual Revenue $4,296,826 1.56 $6,688,010
Operating Income ($174,125) 9.11 N/A
Net Income ($11,012) 39.20 N/A
Book Value $2,416,593 1.58 $3,813,384
</TABLE>
<TABLE>
<CAPTION>
Public Company
Management's Forward PE Multiples Current Value
Year Ending Projections For Net Based on the Average Based on the
June, 30 Operating Income of the Two Industries Derived Multiple
-------- ---------------- --------------------- ----------------
<S> <C> <C> <C>
1999 $138,600 20.54 $2,846,636
2000 $372,529 14.28 $5,321,396
</TABLE>
26
<PAGE>
Product Line Valuations
<TABLE>
<CAPTION>
MACHINE TOOLS UNIT
Trailing Twelve Public Company
Months Ending Multiples Based On Value Based
September 30, 1998 Machine Tools Industry on the Derived Multiple
------------------ ---------------------- -----------------------
<S> <C> <C> <C>
Annual Revenue $4,027,821 0.596 $2,400,581
Operating Income $ 139,013 4.006 $ 556,885
Net Income $ 263,318 26.449 $6,964,511
Book Value N/A 0.868 N/A
</TABLE>
<TABLE>
<CAPTION>
Management's Public Company Forward Current Value
Year Ending Projections For Net PE Multiples Based on the Based on the
June, 30 Operating Income Machine Tools Industry Derived Multiple
-------- ---------------- ---------------------- ----------------
<S> <C> <C> <C>
1999 $ 311,150 12.016 $3,738,778
2000 $ 514,010 8.596 $4,418,430
</TABLE>
DATA PROCESSING MANAGEMENT UNIT
<TABLE>
<CAPTION>
Public Company
Trailing Twelve Multiples On
Months Ending Data Processing Value Based
September 30, 1998 Management Industry on the Derived Multiple
------------------ ------------------- -----------------------
<S> <C> <C> <C>
Annual Revenue $269,005 2.52 $ 677,086
Operating Income ($313,138) 14.21 N/A
Net Income ($274,330) 51.94 N/A
Book Value N/A 2.29 N/A
</TABLE>
<TABLE>
<CAPTION>
Public Company Forward
Management's PE Multiples Based Current Value
Year Ending Projections For Net On Data Processing/ Based on the
June, 30 Operating Income Management Industry Derived Multiple
--------- ---------------- ------------------- ----------------
<S> <C> <C> <C>
1999 ($54,150) 29.06 N/A
2000 $57,294 19.97 $1,144,333
</TABLE>
Discounted Cash Flow Approach
Management provided MJK with three sets of financial projections: one for the
Company as a whole, one for the Data Processing Management product line and one
for the Machine Tools product line. The following table summarizes the three
sets of financial projections that Management provided to MJK:
27
<PAGE>
<TABLE>
<CAPTION>
Year Ending June 30
-------------------------------------------------------------------
1999 2000 2001 2002 2003
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Atrix Enterprise
Revenue (thousands) 5,413 6,551 7,806 9,301 11,116
Net Income (thousands) 139 373 556 789 1,073
Machine Tools
Revenue (thousands) 4,749 5,521 6,436 7,478 8,693
Net Income (thousands) 193 316 417 535 663
Data Processing
Revenue (thousands) 664 1,030 1,370 1,823 2,424
Net Income (thousands) (54) 57 139 254 410
</TABLE>
As discussed above, MJK determined that valuing the Company's two product lines
separately was a more accurate valuation method than valuing the Company as a
whole because of the revenue mix of the Company's two product lines and the
higher industry multiple associated with the Data Processing Management product
line. Nonetheless, MJK performed a discounted cash flow analysis of the Company
as a whole, as well as for the two product lines for the fiscal years ending
1999 through 2003, using the EBIT projections provided by Management to
represent cash flow. In MJK's analysis of the Company as a whole, the Company's
terminal cash flow was capitalized at a rate of 15.96%, in accordance with the
market rate of return and Beta data for "Small Company Stocks" as defined by
Ibbotson Associates. MJK calculated the Company's computed average weighted cost
of capital to be 12.98%, based on the market rate of return and Beta for Small
Company Stocks. For this purpose Small Company Stocks consists of the fifth
lowest quintile market capitalization stocks traded on the New York Stock
Exchange. These stocks had an average market capitalization of $128 million and
a Beta of 1.39. However, MJK did not believe that this 12.98% discount rate was
appropriate for the Company because the characteristics of the companies in this
index were significantly different from the Company. The Company's market
capitalization on December 2, 1998, was only approximately $1.6 million. In
addition, MJK believed that an appropriate Beta for the Company, based on the
Company's size, operating history and the lack of liquidity for the Company's
Common Stock, should be significantly higher than 1.39. MJK conducted this
analysis because it is one of the customary analyses used when valuing
companies. However, MJK believed that the discounted cash flow valuation using a
12.98% discount rate significantly overstated the value of the Company.
For these reasons, MJK valued the discounted cash flows from the Company's two
product lines separately. In this analysis, MJK calculated an appropriate
discount rate for each of the Company's two product lines by calculating cost of
equity capital for each product line, as determined by the market capitalization
approach described above, and adding the result to the assumed perpetual growth
rate for each product line. The assumed perpetual growth rates were supplied by
Management. Using this approach, cash flows and terminal value were discounted
at 34.96% for the Machine Tools Unit and 22.04% for the Data Processing Unit.
The valuation results, before liquidity discounts, for the Discounted Cash Flow
models were as follows:
Enterprise $10,798,680
===========
Machine Tools Unit $ 2,376,135
Data Processing Unit $ 926,154
-----------
Total $ 3,302,289
===========
28
<PAGE>
Weighting Considerations
MJK then compiled each of the values derived above (where they were positive
numbers) and weighted the values to calculate a value, before applying any
liquidity discounts, for the Company as a whole, and the two product lines. In
its analysis, MJK put more weight on Company values derived from past
performance (i.e., industry TTM multiples applied to the Company's actual TTM
results) than on values dependent largely on Management's future projections
(i.e., discounted cash flow and forward earnings per share analyses). MJK
applied a 40% aggregate weighting to values based on Management's projected
financial results and a 60% aggregate weighting to values that were derived
primarily from historical financial statements. After the appropriate
weightings were applied to the various models, the Company could be deemed to
have the following valuations before applying appropriate discounts:
Enterprise $5,736,154
==========
Machine Tools Unit $2,805,171
Data Processing Unit $1,561,272
----------
Total $4,366,443
==========
Liquidity Issues Surrounding the Company's Common Stock
MJK undertook an evaluation of the Company's common stock for the two-year
period prior to the estimated date of the Merger. MJK examined the market
performance of the stock, the spread between the bid and ask prices and the
volume associated with various price movements over that two-year period. The
average monthly trading volume for the stock for the last two years has been
113,900 shares. Accordingly, MJK determined that the Company's stock is
relatively thinly traded and illiquid.
In determining the role common stock liquidity had on its evaluation, MJK
discussed with the Board of Directors and the Special Committee the new NASDAQ
Small Cap Market maintenance listing requirements. The limited public float and
limited sponsorship of the Company's common stock made it possible that the
Company's stock could be subject to NASDAQ delisting, which would further reduce
liquidity. MJK's analysis, therefore, took into account the possibility of
reduced liquidity.
Discount Policy
As part of its analysis, MJK determined the appropriate discounts to apply to
valuations which were derived from multiples for much larger companies with
considerably greater public sponsorship and liquidity. The market
capitalization of the Company, as defined by total number of shares outstanding
times the price per share, on December 2, 1998 was approximately $1.6 million.
Companies in the Machine Tools category had an average market capitalization of
$492 million. In the Data Processing Management category, the average market
capitalization approached $950 million. MJK took into account the lack of a
readily liquid market for the Company's stock and applied a 30% discount to the
value derived for the entire enterprise, a 25% discount for limited liquidity
and an additional 5% discount because of changes in NASDAQ listing requirements
discussed above. When valuing the Company's two units as private companies, a
40% discount was taken against the derived values. These discounts are in line
with recommendations suggested by the Institute of Chartered Financial Analysts'
1990 report "Valuation of Closely Held Companies and Inactively Traded
Securities." Appropriately discounted values for the Company could be deemed to
be:
Enterprise $5,736,154
29
<PAGE>
X .70
---------
$4,015,308 or $2.84 per share
Two Product Lines $4,366,443
X .60
----------
$2,619,865 or $1.85 per share
Equity Premium Paid
Prior to any announcement concerning the Merger, the Company's stock was trading
at a $1.375 ask price and a $1.25 bid price. For a seller of the Company's
stock, the $2.00 Merger price represented a 60% premium to the bid price. In
MJK's examination of sixty-two acquisitions of publicly traded companies, with
transaction values of between $2 million and $30 million, in various industries
over the previous six months, MJK found an average premium paid of 38% when
compared to the price of the stock four weeks prior to any announcement. Six of
these companies involved Rule 13e-3 transactions for the same period and had an
average premium of 26.5%, with a range of premiums from 2.6% to 58.2%. The 60%
premium in the case of the proposed Merger compares favorably with the average
and the range of premiums paid in these other cases.
Conclusions
MJK's analysis of the Company yielded a range of values. The range of per share
values for the Company, appropriately discounted for liquidity factors, ranged
from $1.85 valuing the Company's two product lines separately to $2.84 valuing
the Company as a whole. Newco's $2.00 per share offer falls within this range
of values and compares favorably with control premiums paid in similar
transactions.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. MJK
believes that its process must be viewed as a whole, in light of the
difficulties encountered comparing the Company to companies in similar
industries with much higher market capitalizations. Selecting portions of the
analysis and focusing on them to the exclusion of the whole process would create
an incomplete and inaccurate picture of the process and the derived valuation
used to render the Opinion. Based upon the foregoing, MJK concluded that the
$2.00 share price offered for the common stock falls within the range of values
derived and represents a fair price, from a financial point of view, to the
shareholders of the Company.
As a customary part of its investment banking business, MJK is engaged in the
valuation of businesses and their securities in connection with fairness
opinions, mergers and acquisitions, underwriting and secondary distributions of
securities, private placements, and valuations for estate, corporate and other
purposes. MJK has never managed a public offering of stock for the Company, has
not acted as a financial advisor in the Merger for the Company or Mr. Riedel,
did not provide research coverage on the Company and, in the ordinary course of
its business, does not make a market in the common stock of the Company.
REPORTS
By April 1998, the Board of Directors had evaluated a number of merger and
acquisition opportunities that had been identified by management, and in April
1998, the Company entered into a letter of intent with a third party regarding
the potential acquisition of the Company. See "Special Factors -- Background of
and Reasons for the Merger." Because of this activity, the Board of Directors
engaged a
30
<PAGE>
Twin Cities-based investment banking firm to prepare an independent valuation of
the Company to assist the Board in negotiating with third parties. In April
1998, the Company received this valuation. In arriving at its valuation
conclusion, the investment banking firm considered the history and business of
the Company; annual reports for the fiscal years ended June 30, 1995-1997; Form
10-KGB for the fiscal years ended June 30, 1996-1997; Form 10-QSB for the period
ended December 31, 1997; financial results for the period ended March 31, 1997
and 1998, as prepared by the Company's management; and projections for the
fiscal years ending June 30, 1998-2003, as prepared by Company management. In
addition, the investment banking firm had discussions with Company management
and directors regarding the operations of and future prospects of the Company;
visited the Company's facilities; considered the economics, performance and
market valuations of publicly held companies engaged in relatively similar
businesses and with relatively similar investment characteristics; and
considered the general stock market and economic environment. The Board of
Directors did not impose any limits on the investment banking firm with respect
to its procedures or investigations and the Company and its management
cooperated fully in connection with its investigations. The Company paid the
investment banking firm a fee of $9,000 for its services. The Company also
reimbursed the investment banking firm for its out-of-pocket expenses and agreed
to indemnify it against certain liabilities, including liabilities under the
federal securities laws. The engagement letter with respect to the investment
banking firm's valuation of the Company did not contemplate the use of such
information in connection with other transactions, including the Merger, but the
information was, nonetheless, a factor considered by the Special Committee and
the Board of Directors in connection with their evaluation of the Merger. In
April 1998, the investment banking firm delivered its report to the Board of
Directors, which valued a minority interest in the Company's Common Stock at
approximately $1.48 per share, in a range of $1.26 to $1.69 per share.
STRUCTURE AND PURPOSE OF THE MERGER
The decision to structure the acquisition as a merger was made by the Special
Committee and Newco. The Special Committee and Newco evaluated two possible
alternative structures for effecting the acquisition: (a) a merger of the
Company with Newco and (b) a tender offer for the outstanding shares of Company
Common Stock by Newco. The primary concerns in evaluating the alternative
structures were to (a) establish a process of ensuring that the Shareholders
would be fairly represented, (b) ensure that the Shareholders would receive a
fair price for the equity interest in the Company, (c) structure the transaction
in manner most likely to enable to Newco to obtain necessary financing and (d)
complete the transaction in an efficient and cost-effective manner. A tender
offer was rejected primarily because the Company would have been required to
engage in a second step merger to complete the transaction. Furthermore, the
second step merger would require shareholder approval under the MBCA if more
than 10% of the Common Shares was held by the Shareholders after the tender
offer. Because of this two-step process, the Special Committee and Newco
believed that a tender offer would have been more costly and would likely have
taken more time to complete.
Either structure would have accomplished the goals of establishing a process
ensuring that the Shareholders would be fairly represented and ensuring that the
Shareholders would receive a fair price for the equity interest in the Company.
A tender offer would have involved the solicitation of the Shareholders to sell
their Common Shares to Newco, followed by a merger of the Company and Newco.
The Special Committee and Newco ultimately decided to structure the acquisition
as a merger because they believe that a merger will be most likely to satisfy
the Special Committee's goals of structuring the transaction in manner most
likely to enable to Newco to obtain necessary financing and completing the
transaction in an efficient and cost-effective manner.
31
<PAGE>
The purpose of the Merger is to provide the Shareholders the opportunity to
receive a fair consideration for their Common Shares in excess of the market
price of the stock preceding the announcement of the Merger, while at the same
time providing Mr. Riedel with what he views as an attractive investment
opportunity and an opportunity to manage the Company with the flexibility
inherent in a closely held enterprise. See "Special Factors -- Background of
and Reasons for the Merger." Mr. Riedel chose to propose the Merger at the
present time because the Company's efforts to grow through acquisitions or merge
with other companies had not been successful, management's efforts to attract
interest in the public securities market for the Common Shares over the past
several years had not had any positive effect on the trading market for the
Common Shares, and the Board of Directors and Mr. Riedel had concluded that none
of these activities were likely to become successful in the foreseeable future.
CERTAIN EFFECTS OF THE MERGER
Under the terms of the Merger Agreement, the Company will be merged with and
into Newco. Immediately prior to the merger, Newco will merge with SCI
Enterprises LLC, a value added reseller of personal computers, network systems
and technical services, 85% of which is owned by Steven Riedel and 15% of which
is owned by Mr. Riedel's son, Phillip. As a result of the SCI Enterprises
merger, Phillip Riedel will own approximately 3% of Newco's common stock. Steve
Riedel will own all of the other outstanding shares of common stock of Newco,
with Clifford Meacham holding preferred stock that is convertible into 5% of the
outstanding common stock of Newco as of the closing of the Merger. In addition,
Mr. Riedel may sell a minority equity interest in Newco to an investor who is
not affiliated with the Company. The proposed equity arrangements in Newco
would result in Mr. Riedel owning 92% of the equity interest in Newco, and the
Company following the Merger, if the third party does not invest in Newco and
80% if the third party does invest in Newco. In either case, Mr. Meacham would
own 5% of the equity interest in Newco, and the Company following the Merger.
As such, Messrs. Riedel and Meacham and any such other Newco investor will enjoy
all of the benefits of the Company's potential future growth, cash flow and
earnings, if any, and Mr. Riedel will be able to exercise voting control over
the Company. Based on the estimated book value of Newco following the Merger
and taking into account the proposed merger of SCI Enterprises LLC with and into
Newco, the book value of these percentage interests would be approximately as
follows: 92% - $44,000; 80% - $360,000; and 5% - $22,500. The Company incurred
a net loss for the fiscal year ended June 30, 1998. Accordingly, the Company is
not able to provide any meaningful estimate of the dollar amount of the net
earnings of Newco, if any, that these percentage interests would represent. If
the Merger Agreement is approved at the Annual Meeting, the Company's
shareholders will no longer have the opportunity to continue their interest in
the Company and will not have any benefit of any potential future growth, cash
flow or earnings, if any of the Company. Following the transaction, the Company
intends to deregister the Common Shares under the Securities Act of 1934 (the
"Exchange Act") and will no longer file with the Securities and Exchange
Commission reports under (S)12(g)(4) or (S)15(d) under the Exchange Act, such as
Annual Reports on Form 10-KSB and Quarterly Reports on Form 10-QSB. In
addition, the Company would no longer be obligated to comply with the proxy
rules of Regulation 14A under Section 14 of the Exchange Act, and its officers,
directors and 10% Shareholders would be relieved of the reporting requirements
and restrictions on insider trading under Section 16 of the Exchange Act.
Accordingly, substantially less information will be required to be made publicly
available than presently is the case.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect to the
Merger, Shareholders should be aware that certain directors and officers of the
Company have certain interests which are described below and which present
conflicts of interest in connection with the Merger. The Special
32
<PAGE>
Committee and the Board were aware of those conflicts and considered them among
the matters described under "Special Factors -- Fairness of Merger."
After consummation of the Merger, the entire equity interest of Newco will be
beneficially owned by Mr. Riedel and Mr. Meacham, who beneficially own
(excluding options and warrants with an exercise price greater than $2.00 per
share) 27,125 and 111,294 Common Shares, respectively, representing an aggregate
of approximately 9.79% of the outstanding Common Shares, Mr. Riedel's son
Phillip, and possibly one other minority investor in Newco who is not affiliated
with the Company. In addition, Mr. Riedel holds a proxy to vote an additional
345,500 Common Shares, representing an additional 24.44% of the outstanding
shares of Company Common Stock, in favor of the Merger, subject to approval by
the Company's shareholders of Mr. Riedel's ability to vote more 19.99% of the
Common Shares pursuant to the Minnesota Control Share Acquisition Act. Because
of these conflicts of interest, Mr. Riedel and Mr. Meacham abstained from the
vote of the Board of Directors in approving the Merger and recommending that
shareholders vote in favor of the Merger. See "Special Factors -- Shareholder
Agreement," "--Minnesota Control Share Acquisition Act" and "Proposal to
Authorize Voting of Shares Under Minnesota Control Share Acquisition Act
(Proposal No. 1)."
As of the date of this Proxy Statement, the executive officers and directors of
the Company beneficially own (excluding options and warrants with an exercise
price greater than $2.00 per share) an aggregate of 203,557 Common Shares,
representing approximately 14.40% of the outstanding shares of Company Common
Stock. These individuals have indicated that they intend to vote all of their
shares of Common Stock in favor of the Merger. If the Merger is consummated,
such persons will receive an aggregate of approximately $407,114 for their
Common Shares. The following table sets forth, as of the date of this Proxy
Statement, the number of shares of Company Common Stock owned by, and the
aggregate amounts to be received by, each of the executive officers and
directors of the Company pursuant to the Merger:
<TABLE>
<CAPTION>
NUMBER OF PERCENT AMOUNT TO BE
NAME COMMON SHARES(1) OF CLASS RECEIVED
---- ---------------- -------- --------
<S> <C> <C> <C>
Steven D. Riedel 27,125 1.92% $ 54,250
Clifford B. Meacham 111,294 7.87% $222,588
W. William Bednarczyk 30,544 2.16% $ 61,088
Charles J. B. Mitchell, Jr. 27,750 1.96% $ 55,500
William E. Bennett 2,844 0.20% $ 5,688
Les Eck 0 0.00% $ 0
John C. Hey 0 0.00% $ 0
Dean Gerber 4,000 0.28% $ 8,000
- ----------
</TABLE>
(1) Excludes options and warrants with an exercise price greater than $2.00
per share.
Each of the foregoing directors have indicated that they intend to vote their
shares of Common Stock in favor of the Merger, and each will receive $2.00 per
share in the Merger.
The Merger Agreement provides that Newco, for a period of six years after the
Effective Time, will not change the provisions of its Articles of Incorporation
and Bylaws relating to indemnification of present or former directors or
officers of the Company in a manner which adversely effects their rights to
indemnification and for one year after the Effective Time to maintain specified
officers and directors liability insurance indemnifying them.
33
<PAGE>
Following completion of the Merger, Mr. Riedel, Mr. Meacham, Mr. Riedel's son,
Phillip, and possibly one other minority investor in Newco who is not affiliated
with the Company will own the entire equity interest in Newco and, as such, will
enjoy the benefits of Newco's potential future growth, cash flow and earnings,
if any. If the Merger is approved, the Shareholders will have no interest in
Newco and will not have the benefit of any of Newco's potential future growth,
cash flow or earnings, if any.
The Board of Directors has also authorized the payment of $5,000 to Mr. Bennett
and $2,000 to Mr. Eck, members of the Special Committee, who devoted a
substantial amount of time to the transaction in excess of their regular duties
as members of the Board of Directors, as compensation for serving on the Special
Committee.
TRANSACTIONS BY CERTAIN PERSON IN COMMON SHARES
<TABLE>
<CAPTION>
Person Quarterly Period Common Shares Price Range Avg. Price
------ ---------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Steven D. Riedel Fourth Quarter 1996 2,250 Purchased $2.25 to $2.37 $2.317
Steven D. Riedel Second Quarter 1997 655 Purchased $2.50 $ 2.50
Steven D. Riedel Second Quarter 1998 7,000 Purchased $1.125 to $1.187 $1.143
Clifford B. Meacham Fourth Quarter 1996 6,250 Sold $2.50 $ 2.50
Clifford B. Meacham Fourth Quarter 1996 3,750 Sold $2.50 $ 2.50
</TABLE>
In addition, pursuant to a shareholder agreement, dated November 24, 1998, Mr.
Mathwig has granted Mr. Riedel his irrevocable proxy to vote Mr. Mathwig's
Common Shares for the Merger. See "Special Factors - Shareholder Agreement."
SHAREHOLDER AGREEMENT
In August 1998, Mr. Riedel and Mr. Mathwig had a general discussion over the
telephone regarding the Company, and they agreed to meet. Mr. Mathwig owns
345,500 Common Shares, representing approximately 24.4% of the outstanding
Common Shares. On September 22, 1998, Mr. Riedel and Mr. Mathwig met to discuss
Mr. Mathwig's intentions regarding his ownership of Company Common Stock. At
this meeting, Mr. Mathwig asked whether Mr. Riedel would be interested in buying
Mr. Mathwig's shares. Mr. Riedel indicated that he would likely be interested.
On October 21, 1998, Mr. Riedel and Mr. Mathwig met to discuss Mr. Riedel's
potential acquisition of the Company. Mr. Riedel asked Mr. Mathwig whether he
would support such an acquisition, and Mr. Mathwig indicated that he might be
willing to do so, depending on the price. On November 10, 1998, Mr. Riedel and
Mr. Mathwig met again. At this meeting, they reached a preliminary agreement
under which Mr. Mathwig would agree to vote his shares in favor Mr. Riedel's
acquisition of the outstanding Common Shares. From November 10, 1998 through
November 24, 1998, Mr. Riedel and Mr. Mathwig had a number of conversations for
the purpose of negotiating the terms of such an agreement.
On November 24, 1998, Mr. Riedel and Mr. Mathwig entered into a Shareholder
Agreement (the "Shareholder Agreement"). Mr. Mathwig did not receive any
consideration, monetary or otherwise, for entering into the Shareholder
Agreement. Pursuant to the Shareholder Agreement, Mr. Mathwig agreed to vote
(or cause to be voted) the shares held of record or beneficially owned by him,
subject to applicable limitations under the Minnesota Control Common Share
Acquisition Act: (a) in favor of the proposed Merger between the Company and
Newco, the execution and delivery by the Company of a Merger Agreement with
respect to the Merger and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and the Shareholder Agreement
and any actions required
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in furtherance thereof, but only if the Merger consideration to be paid to the
Company Shareholders is not less than $2.00 per Common Share; and (b) except as
otherwise agreed to in writing in advance by Riedel, against the following
actions (other than the Merger and the transactions contemplated by the Merger
Agreement): (i) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company; (ii) a sale,
lease or transfer of a material amount of assets of the Company or a
reorganization, recapitalization, dissolution or liquidation of the Company; or
(iii) a change in the majority of the Board of Directors of the Company, any
material change in the present capitalization of the Company, any amendment to
the Articles of Incorporation of the Company, any other material change in the
corporate structure or business of the Company, or any other action which is
intended or could reasonably be expected to impede, interfere with, delay,
postpone, discourage or materially adversely affect the contemplated economic
benefits to Newco or Riedel of the Merger or the transactions contemplated by
the Merger Agreement. Mr. Mathwig also granted to Mr. Riedel his irrevocable
proxy and attorney in fact (with full power of substitution) to vote his Common
Shares for the Merger and otherwise in accordance with the foregoing voting
agreements.
Mr. Mathwig retains full voting authority and discretion as to all other matters
which may be presented to the shareholders of the Company for vote or consent.
Mr. Mathwig also agreed that he will not, directly or indirectly, solicit or
respond to any inquiries or the making of any proposal by any person or entity
(other than Riedel or Newco) with respect to the Company that constitutes or
could reasonably be expected to lead to a merger or sale of all or substantially
all of the assets of capital stock of the Company (other than the Merger), and
he will immediately cease any existing activities, discussions or negotiations
with any parties with respect to any of the foregoing.
The covenants and agreements contained in the Shareholder Agreement with respect
to the shares of Common Stock of the Company owned by Mr. Mathwig terminate on
the first to occur of (a) the effective time of the Merger; (b) the date upon
which the Merger Agreement is terminated in accordance with its terms; (c) a
failure to enter into a definitive Merger Agreement by December 18, 1998; (d) a
failure of Riedel to use best efforts to consummate the Merger as soon as
practicable following the date on which a definitive Merger Agreement is signed,
including the filing of the Company of preliminary proxy materials and the
filing by Riedel of a Schedule 13E-3 no later than December 24, 1998, the
mailing by the Company of proxy materials to the Company shareholders within
five business days after clearance of such materials by the Securities and
Exchange Commission ("SEC") and holding the meeting of the Company shareholders
to approve the Merger Agreement no later than 45 days after SEC clearance of the
proxy materials; (e) upon written release from Riedel and (f) at any time when
the current bid price for the Company's Common Stock, as reported by Nasdaq,
remains at or above $2.10 per share for a period of three consecutive trading
days.
Because the Shareholder Agreement grants to Mr. Riedel a proxy to vote Mr.
Mathwig's shares in favor of the Merger, Mr. Riedel may be deemed the beneficial
owner of Mr. Mathwig's Common Shares. As a result, Mr. Riedel filed with the
Securities and Exchange Commission on December 4, 1998, a Schedule 13D
reflecting such deemed beneficial ownership. In addition, because of such
deemed beneficial ownership, Mr. Riedel's acquisition of voting power over Mr.
Mathwig's shares may be deemed to be a "control share acquisition" under the
Minnesota Control Share Acquisition Act, requiring shareholder approval for Mr.
Riedel to be able to vote Common Shares constituting 20% or more of the total
outstanding Common Shares. In compliance with the Minnesota Control Share
Acquisition Act, Mr. Riedel has filed an information statement, a copy of which
is attached hereto as Annex D, and is seeking approval by the shareholders of a
proposal to enable him to vote the Common Shares that he has the right to vote
pursuant to the Merger in excess of 19.99% of the issued and outstanding Common
Shares. See "Proposal to Authorize Voting of Shares Under Minnesota Control
Share Acquisition Act
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<PAGE>
(Proposal No. 1)."
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" as that term is used under
generally accepted accounting principles for accounting and financial reporting
purposes. Accordingly, a determination of the fair values of the Company's
assets and liabilities will be made in order to allocate the purchase price of
the assets acquired and liabilities assumed in the Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of Common Shares under the law in
effect as of the date hereof. This discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to the Company Shareholders as
described herein. The following discussion may not apply to particular
categories of holders, such as financial institutions, broker-dealers, tax-
exempt entities, holders who acquired their Common Shares pursuant to the
exercise of employee stock options or other compensation arrangements with the
Company and holders who are not citizens or residents of the United States. THE
FOLLOWING SUMMARY WAS PREPARED BY OUTSIDE COUNSEL TO THE COMPANY. THE COMPANY
HAS NOT RETAINED AN INDEPENDENT TAX CONSULTANT WITH REGARD TO THE TAX
CONSEQUENCES OF THE MERGER. ALL HOLDERS OF THE COMMON SHARES SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE MERGER TO THEM WITH
SPECIFIC REFERENCE TO THEIR PARTICULAR TAX SITUATIONS, INCLUDING SUCH TAX
CONSEQUENCES UNDER STATE, LOCAL, FEDERAL AND FOREIGN TAX LAWS.
The receipt of cash in exchange for Common Shares pursuant to the Merger, and
the receipt of cash by a Shareholder who exercises his, her or its dissenter's
appraisal rights under the MBCA, will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under applicable
state, local and foreign tax laws. A Shareholder will generally recognize gain
or loss for federal income tax purposes in an amount equal to the difference
between such Shareholder's adjusted tax basis in the Common Shares and the
amount of cash received in exchange therefor (other then amounts received
pursuant to a Shareholder's statutory rights of appraisal that are denominated
as interest, which amounts would be taxable as ordinary income). Such gain or
loss will be a capital gain or loss if such Shareholder has held such Common
Shares as capital assets within the meaning of Section 1221 of the Code. Such
capital gain or loss will be a long-term capital gain or loss if such
Shareholder has held such Common Shares for more than one year as of the date of
exchange. There are certain limitations on the deductibility of capital losses.
A Shareholder who also owns, directly or by attribution, stock or other equity
interest of Newco as of the date of exchange should consult such Shareholder's
own tax advisor regarding the possibility that the cash received will be treated
as a dividend.
SOURCE OF FUNDS
The Company estimates that approximately $3.1 million will be required to pay
the Shareholders $2.00 per Common Share and expenses of the Company and Newco
related to the Merger. The Company estimates that its fees and expenses related
to the Merger will be approximately as follows: filing fees - $566, legal fees
- - $75,000; investment banking (including fairness opinion) - $35,000; accounting
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<PAGE>
- - $5,000; and printing and mailing - $8,000. All of the foregoing fees and
expenses will be borne by the Company whether or not the Merger is completed.
Newco estimates its fees and expenses related to the Merger will be
approximately as follows: filing fees - $566; legal fees - $50,000; broker fees
- - $70,000; and financing commitment fees - $18,000. While Newco's fees and
expenses will generally be paid by Newco, the Company has agreed to reimburse
Newco for its reasonable out-of-pocket expenses, up to a maximum of $75,000, in
certain circumstances if the Merger is not completed. See "Proposal to Approve
Merger Agreement -- Termination and Amendment."
Messrs. Riedel and Meacham, Mr. Riedel's son Phillip, and possibly one other
minority Newco investor who is not affiliated with the Company, will own all of
the outstanding capital stock of Newco as of the Effective Time and will be
making equity investments in the aggregate of $450,000 in Newco prior to the
Effective Time. As a result, Newco does not currently have sufficient cash to
purchase all of the outstanding shares of Company Common Stock and pay estimated
fees and expenses. In order to raise sufficient capital to both purchase the
Company's Stock and pay the fees and expenses associated with the transaction,
Newco received a commitment letter from Bremer Business Finance Corporation
("BBFC") to provide a $1,000,000 term loan (the "Note") and a revolving line of
credit in the amount of $1,500,000 ("RLOC").
The RLOC will mature one year from the date of the closing of the Merger and
will renew for additional one year periods based on the mutual consent of both
Newco and BBFC. The RLOC will accrue interest at a rate of the national prime
rate of interest plus 1.25%. The interest on the RLOC must be paid monthly. The
RLOC will be secured by a perfected first security interest in Newco's accounts
receivable, inventory, equipment, general intangibles and all of Newco's other
assets.
The Note will have a bullet maturity five years from the date of the closing of
the Merger and will bear an annual interest rate of 12% which is to be paid
monthly, plus an annual rate of 6% to be paid at the time the Note is paid off.
The Note will be secured by a perfected first security interest in Newco's
accounts receivable, inventory, equipment, general intangibles and all of
Newco's other assets as well as a life insurance policy on Mr. Riedel in the
amount of $1,000,000 with BBFC named as the beneficiary. Mr. Riedel will issue
a guaranty for both the RLOC and the Note in the amount of $100,000.
Both the RLOC and the Note will be subject to various terms and conditions,
primarily related to the financial condition of Newco and the furnishing of
financial information to BBFC and the reservation of a seat on Newco's Board of
Directors. One of the conditions requires the merger of SCI Enterprises LLC, a
Minnesota limited liability company, 85% of which is owned by Steven Riedel and
15% of which is owned by Steven Riedel's son Phillip, with and into Newco prior
to funding the RLOC or the Note.
PLANS OF NEWCO
After the Merger, Newco, after changing its name to Atrix International, Inc.,
will continue to operate in substantially the same manner as the Company is
currently operating, with the addition of the business of SCI Enterprises LLC, a
value added reseller of personal computers, network systems and technical
services. SCI Enterprises, 85% of which is owned by Steven Riedel and 15% of
which is owned by Steven Riedel's son Phillip, has recorded average annual
revenues of approximately $1.1 million over the past three years. It is being
merged with and into Newco at the insistence of BBFC. Following completion of
the Merger, Newco will cause the Common Shares to be deregistered under the
Exchange Act. As such, the Company will no longer be a public company and will
be operated following the Merger as a privately held enterprise. Newco believes
that the Company may be operated much more efficiently as a privately held
entity. Newco intends to continue to focus on the vacuum, distribution and
controls markets in
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<PAGE>
which the Company currently operates, and intends to invest additional time and
money in the development of the Company's M1 injection molding production
monitoring system. Newco hopes to open new markets for this product, but
management does not expect immediate results with respect to this product. Newco
also plans to continue to work with the Department of Agriculture to seek
additional sales during 1999 of the Company's R-3 copy management system with
attached proximity card reading devices. The Company announced in April 1998
that the Department of Agriculture had purchased 48 such units and Newco is
hopeful to make additional sales of such units in 1999. Newco will continue to
operate the business of SCI Enterprises LLC in substantially the same manner as
it is currently operated, although it is expected that such business will be
operated more efficiently through sharing space and resources with Newco.
MANAGEMENT OF NEWCO FOLLOWING THE MERGER
The Board of Directors of Newco is currently comprised of only one director,
Steven D. Riedel. However, Newco intends to have a board consisting of up to
four directors as of the Effective Time of the Merger, consisting of Mr. Riedel,
Mr. Meacham and up to two additional directors to be named. As contemplated in
the Commitment Letter, BBFC will receive the right to a seat on Newco's Board of
Directors following consummation of the Merger. In addition, at such time as
this right is not exercised, BBFC will have the right to attend Newco's meetings
as an observer. The Commitment Letter also contemplates that Newco will hold a
minimum of three board meetings per year. In addition, the other potential
minority investor in Newco who is not affiliated with the Company would have the
right to designate one director of Newco.
Newco intends to retain on substantially similar terms all or substantially all
of the personnel of the Company following consummation of the Merger, including
its current executive officers, Steven D. Riedel, President and Chief Executive
Officer of the Company, and Dean L. Gerber, Vice President and Chief Financial
Officer of the Company.
Newco's currently identified directors and executive officers, along with their
ages and expected positions with Newco following the Merger are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Steven D. Riedel 55 Chief Executive Officer, President, Secretary, Treasurer and Director
Clifford B. Meacham 65 Director
Dean L. Gerber 43 Vice President and Chief Financial Officer
</TABLE>
Steven D. Riedel joined the Company as its President on December 8, 1992. He
became Chief Executive Officer and was appointed to the Board of Directors in
May 1993. He also served as Chief Financial Officer from November 1993 to August
1997. Prior to joining Atrix, he was President and Chief Executive Officer of
InterconData. Mr. Riedel was also employed by Northern Telecom as Vice President
of Product Management for its IOS Division in Minneapolis. Previously, he held
numerous management positions with Burroughs Corporation with the most recent
being regional sales manager for the 15 state Midwest region.
Clifford B. Meacham was the President and Treasurer of Atrix Tool, Inc. as well
as one of the Directors and the majority shareholder of Atrix Tool, Inc. from
the date of its incorporation in 1981. He was
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<PAGE>
elected as a member of the Board of Directors and as an officer and as President
of the Company effective with the merger of Atrix Tool, Inc. into Tiempo
Equities, Inc. on October 17, 1990. In April 1996, Mr. Meacham retired from
active employment with the Company. Mr. Meacham is an engineer, having graduated
from the Utica Institute of Technology, Utica, New York, in 1952.
Dean L. Gerber joined the Company as Controller in September 1996. He became
Vice President and Chief Financial Officer in August 1997. Mr. Gerber, a
Certified Public Accountant, was previously employed for 15 years by Unisys
Corporation and by the Arizona Country Club prior to that, as Controller.
39
<PAGE>
PROPOSAL TO AUTHORIZE VOTING OF SHARES UNDER
MINNESOTA CONTROL SHARE ACQUISITION ACT
(PROPOSAL NO. 1)
PROPOSAL
At the Annual Meeting, Shareholders will be asked to consider and vote on the
following proposed resolution of shareholders:
"RESOLVED, that pursuant to Section 302A.671, Subd. 4a of the Minnesota
Business Corporation Act, full voting rights are hereby granted to all
shares of common stock, par value $.04 per share, of Atrix International,
Inc. that are, or become, beneficially owned by Steven D. Riedel or over
which Steven D. Riedel has or will obtain the right to vote, regardless of
whether such shares were or are acquired in a control share acquisition as
defined in Section 302A.011, Subd. 38, or otherwise."
BACKGROUND
Pursuant to Section 302A.671 of the Minnesota Business Corporation Act, and
related definitions (the "Control Share Acquisition Provisions"), Common Shares
acquired by an "acquiring person" (as defined) in a "control share acquisition"
(as defined) that exceed the voting threshold of a certain percentage (e.g., at
least 20% but less than or equal to 33 1/3%) shall have the same voting rights
as other shares only if approved, by the required votes, by resolution of the
Company's shareholders. Pursuant to such statute, Steven D. Riedel has
requested that the Company seek shareholder approval of the above resolution in
connection with the Annual Meeting.
A COPY OF THE CONTROL SHARE ACQUISITION PROVISIONS IS INCLUDED AS ANNEX E
ATTACHED TO THIS PROXY STATEMENT.
On November 24, 1998, Mr. Riedel entered into the Shareholder Agreement with
Jerry Mathwig. Mr. Mathwig owns 345,500 Common Shares, representing
approximately 24.44% of the outstanding Common Shares. Mr. Riedel owns 27,125
shares, representing approximately 1.92% of the outstanding Common Shares.
Pursuant to the Shareholder Agreement, Mr. Mathwig granted to Mr. Riedel an
irrevocable proxy to vote Mr. Mathwig's shares in favor of the Merger. As a
result of his ability to vote Mr. Mathwig's shares with respect to the Merger,
Mr. Riedel may be deemed under applicable federal and state securities laws to
be the beneficial owner of Mr. Mathwig's Common Shares. Accordingly, Mr. Riedel
filed with the Securities and Exchange Commission on December 4, 1998, a
Schedule 13D. In addition, Mr. Riedel may not be able to vote in excess of
19.99% of all outstanding Common Shares without the prior approval of the
Shareholders. Mr. Riedel is therefore seeking such Shareholder approval in
accordance with the Control Share Acquisition and whether or not approved by the
Shareholders, intends to vote all shares over which he has voting control in
favor of the Merger. If Shareholder approval is not granted, Mr. Riedel will be
able to vote 282,548 Common Shares in favor of the Merger. If the approval is
granted, he will be able to vote 372,625 Common Shares, or 26.36% of all the
issued and outstanding Common Shares.
Pursuant to the Shareholder Agreement, Mr. Mathwig retains full voting authority
and discretion as to all matters other than the Merger which may be presented to
the Shareholders for vote or consent, although he has not complied with the
Control Share Acquisition Provisions, so currently he can only vote 282,548 of
his 345,500 Common Shares on matters presented to the Shareholders for vote or
consent.
40
<PAGE>
In compliance with the Control Share Acquisition Provisions, Mr. Riedel has
filed an information statement, a copy of which is attached hereto as Annex D.
VOTE REQUIRED
Under the Control Share Acquisition Provisions, the proposal being presented to
enable Mr. Riedel to vote all Common Shares that he has the right to vote with
respect to the Merger must receive the following affirmative votes to be
approved:
(1) The affirmative vote, whether in person or by proxy, of the holders of a
majority of all the outstanding Common Shares; and
(2) The affirmative vote, whether in person or by proxy, of the holders of a
majority of all the outstanding Common Shares, excluding "interested
shares" as that term is defined in the Minnesota statutes
Under Minnesota Statutes, "interested shares" consist of shares owned by the
acquiring person (i.e. Mr. Riedel), by officers of the Company and by any
employee of the Company who is also a director. As of the record date (i)
1,413,449 Common Shares were outstanding and entitled to vote at the Annual
Meeting, with approximately ____________ holders of record and (ii) 61,679
Common Shares were considered "interested shares" (27,125 shares owned by Mr.
Riedel and 34,544 shares owned by other officers of the Company). See
"Principal Shareholders and Ownership of Management."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
PROPOSAL TO ENABLE STEVEN D. RIEDEL TO VOTE ALL COMMON SHARES THAT HE HAS THE
RIGHT TO VOTE WITH RESPECT TO THE MERGER.
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<PAGE>
PROPOSAL TO APPROVE MERGER AGREEMENT
(PROPOSAL NO. 2)
GENERAL
At the Annual Meeting, Shareholders will be asked to approve the Merger
Agreement. The following is a summary of the Merger Agreement. All references
to and summaries of the Merger Agreement in this Proxy Statement are qualified
in their entirety by reference to the Merger Agreement, a copy of which is
attached hereto as Annex A. The Merger Agreement provides for the merger of the
Company with and into Newco. Newco will be the "Surviving Corporation" and it
will continue its corporate existence under the laws of the State of Minnesota.
At the Effective Time, the separate corporate existence of the Company will
cease. The Surviving Corporation will possess all the property, rights,
privileges, powers and franchise of the Company, and Newco will assume and
become liable for all debts, liabilities, obligations, restrictions,
disabilities and duties of Newco and the Company.
AGREEMENT AND PLAN OF MERGER
The Company and Newco have entered into the Agreement and Plan of Merger, dated
as of December 18, 1998 (the "Merger Agreement"), pursuant to which the Company
is to be merged with and into Newco, with Newco being the Surviving Corporation.
As a result of the Merger, each outstanding Common Share, other than Dissenting
Common Shares, is to be converted into the right to receive the Merger
Consideration of $2.00 in cash, without interest and all as more fully described
in this Proxy Statement. The Merger Agreement establishes a termination date of
June 18, 1999.
EFFECTIVE TIME
The Effective Time will occur upon the filing of the Articles of Merger with the
Minnesota Secretary of State or at such later time as is specified in the
Articles of Merger. The Articles of Merger will be filed as promptly as
practicable after requisite approval and adoption of the Merger Agreement and
the Merger by the Shareholders at the Annual Meeting is obtained and the other
conditions precedent to the consummation of the Merger have been satisfied, or
if permissible, waived. See "-- Conditions to the Merger" and "-- Termination
and Amendment".
ARTICLES OF INCORPORATION; BY-LAWS
At the Effective Time, the Articles of Incorporation and By-Laws of Newco will
be the Articles of Incorporation and By-Laws of the Surviving Corporation,
provided that Article I of the Articles of Incorporation of the Surviving
Corporation will be amended as of the Effective Time to read "The name of this
corporation is Atrix International, Inc."
OFFICERS AND DIRECTORS
The officers and directors of Newco immediately prior to the Effective Time will
be the initial officers and directors of the Surviving Corporation.
STOCK TRANSFER BOOKS
42
<PAGE>
At the Effective Time, the Common Share transfer books will be closed and no
transfer of Common Shares may be made thereafter. If after the Effective Time
certificates are presented to the Surviving Corporation or the Paying Agent (as
defined below), they will be canceled and exchanged for the Merger Consideration
as provided above (subject to applicable law in the case of Dissenting Common
Shares).
CONVERSION OF COMMON SHARES
At the Effective Time: (a) each issued and outstanding Common Share immediately
prior to the Effective Time other than (i) Common Shares then owned beneficially
or of record by Newco and (ii) Dissenting Common Shares will, by virtue of the
Merger and without any action on the part of the holder thereof, be canceled and
converted into the right to receive the Merger Consideration, upon surrender of
the certificate that immediately prior to the Effective Time evidenced such
Common Share; and (b) each Common Share outstanding immediately prior to the
Effective Time which is then owned by Newco will, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled and retired
and cease to exist, without any conversion thereof and no payment or
distribution will be made with respect thereto.
Holders of Common Shares who do not vote in favor of the Merger at the Annual
Meeting and who have properly elected to dissent in the manner provided in
Sections 302A.471 and 302A.473 of the MBCA will be entitled to payment for their
Common Shares in accordance with, and subject to the provisions of the MBCA.
COMPANY STOCK OPTIONS AND WARRANTS
As of the Effective Time, each holder of an option outstanding pursuant to the
Company's 1994 Stock Option Plan (the "Company Option Plan") and each holder of
an outstanding warrant for the purchase of Common Shares, whether or not such
option or warrant is then vested or exercisable (each, an "Option," and
collectively, the "Options"), will have the right to receive from Newco a cash
payment (less applicable withholding taxes) in the aggregate amount equal to the
difference between the Merger Consideration and the exercise price per Common
Share applicable to such Option for all Common Shares subject to the Option as
expressly stated in the applicable stock option agreement, warrant or other
agreement. However, since all outstanding Options have an exercise price
greater than the Merger Consideration, it is not expected that any holders of
Options will exercise prior to the Merger. Pursuant to the terms of certain
outstanding warrant agreements, Newco is required to contact each warrant holder
to advise them that Newco will honor such warrants through their applicable
termination dates, but will only be required to deliver the Merger Consideration
for each share acquired upon exercise of such warrants. Each of the Company's
non-employee directors has agreed to cancel their outstanding Options without
consideration as of the Effective Time and the Company has agreed to take all
action permitted under the Company Option Plan to cancel all outstanding options
granted thereunder effective as of the Effective Time.
SOURCE OF FUNDS; PAYMENT FOR COMMON SHARES
In December 1998, Bremer Business Financial Corporation ("BBFC") and Newco
executed a commitment letter, pursuant to which BBFC agreed to provide a
$1,200,000 term loan and a revolving line of credit in the amount of $1,500,000.
The initial commitment letter required Newco to obtain at least $250,000 in
equity contributions and contained certain conditions regarding the Company's
revenue. In February 1999, BBFC withdrew its initial commitment letter. In
March 1999, BBFC and Newco executed a revised commitment letter (the "Commitment
Letter"), pursuant to which BBFC
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<PAGE>
agreed to provide a $1,000,000 term loan (the "Note") and a revolving line of
credit in the amount of $1,500,000 ("RLOC"). The RLOC will mature one year from
the date of closing of the Merger and will renew for additional one-year periods
based on the mutual consent of both Newco and BBFC. The RLOC will accrue
interest at a rate of the national prime rate of interest plus 1.25%. The
interest on the RLOC must be paid monthly. The RLOC will be secured by a
perfected first security interest in Newco's account receivable, inventory,
equipment, general intangibles and all of Newco's other assets.
The Note will have a final maturity five years from the date of closing of the
Merger. The Note requires quarterly principal payments and bears an annual
interest rate of 12% which is to be paid monthly, plus an annual rate of 6% to
be paid at the time the Note is paid off. The Note will be secured by a
perfected first security interest in Newco's accounts receivable, inventory,
equipment, general intangibles and all of Newco's other assets, as well as a
life insurance policy on Mr. Riedel in the amount of $1,000,000 with BBFC named
as the beneficiary. Mr. Riedel will issue a guarantee for both the RLOC and the
Note in the amount of $100,000.
Both the RLOC and the Note will be subject to various terms and conditions,
primarily related to the financial condition of Newco and the furnishing of
financial information to BBFC and the reservation of a seat on Newco's Board of
Directors.
BBFC's obligation to provide financing pursuant to the Commitment Letter is
subject to a number of conditions, including certain financial requirements with
respect to the Company. These financial contingencies include requirements that
the Company's cash balance at closing of the Merger and borrowing base
availability, consisting of eligible accounts receivable, inventory and
equipment be sufficient to provide a combined amount of at least $1,650,000, and
that the Company have a cash balance of at least $825,000. The Merger Agreement
requires that Newco use best efforts to obtain the financing referenced in the
Commitment Letter, but acknowledges that a failure to obtain such financing due
to the failure of the Company to satisfy the above-referenced financial
covenants will not constitute a failure to use such best efforts. See "--
Termination and Amendment."
The Commitment Letter requires Newco to obtain at lease $450,000 in equity
contributions. Messrs. Riedel and Meacham and possibly another investor who is
not affiliated with the Company will be making equity investments in the
aggregate of $450,000 in Newco prior to the Effective Time. See "Special Factors
- -- Source of Funds."
SURRENDER OF COMMON SHARE CERTIFICATES
Newco and the Company have designated Norwest Bank Minnesota to act as the
"Paying Agent" under the Merger Agreement. Prior to the Effective Time, Newco
will deposit in trust with the Paying Agent cash in an aggregate amount equal to
the product of: (x) the number of Common Shares issued and outstanding at the
Effective Time (other than Common Shares owned beneficially or of record by
Newco and Dissenting Common Shares); and (y) the Merger Consideration (such
amount being hereinafter referred to as the "Payment Fund"). The Paying Agent
will, pursuant to irrevocable instructions, make the payments provided for under
the Merger Agreement out of the Payment Fund.
Promptly after the Effective Time, Newco will cause the Paying Agent to mail to
each person who was a record holder of an outstanding certificate or
certificates that immediately prior to the Effective Time represented Common
Shares (the "Certificates"), a notice and letter of transmittal (which will
specify that delivery will be effected and risk of loss and title to
Certificates will pass only upon proper delivery of the Certificates to the
Paying Agent) and instructions for its use in effecting the surrender of such
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Certificates for payment in accordance with the Merger Agreement. Upon the
surrender to the Paying Agent of a Certificate, together with a properly
completed and duly executed letter of transmittal, and other documents that are
customarily required by letters of transmittal in similar situations, the holder
thereof will be entitled to receive cash in an amount equal to the product of
the number of Common Shares formerly represented by such Certificate and the
Merger Consideration, less any applicable withholding tax, if any, and such
Certificate will then be canceled.
Until surrendered pursuant to the procedures described above, except with
respect to Dissenting Common Shares, each Certificate will represent solely the
right to receive the Merger Consideration, without interest, into which the
number of Common Shares formerly represented by such Certificate will have been
converted.
Promptly following the date which is six months after the Effective Time, the
Paying Agent will return to Newco all cash, certificates and other instruments
in its possession that constitute any portion of the Payment Fund and the Paying
Agent's duties will terminate.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of Newco to the
Company with respect to the following matters: (i) the due organization, valid
existence and good standing of Newco; (ii) the power and authority of Newco to
enter into the Merger Agreement and the due authorization of the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby; (iii) the execution and delivery of the Merger Agreement
will not result in a breach of or require any consent or constitute a default
under Newco's Articles of Incorporation or By-Laws or similar governing document
or any agreements or contracts to which Newco is a party; (iv) regulatory
filings and approvals; (v) the absence of any brokerage fees (other than fees
payable to Northwest Capital Corporation); and (vi) the debt financing
referenced in the Commitment Letter, along with equity investments of $250,000
in Newco, will be sufficient to enable Newco to pay the Merger Consideration
with respect to all of the Common Shares.
The Merger Agreement also contains various representations and warranties of the
Company to Newco with respect to the following matters: (i) the due
incorporation, valid existence and good standing of the Company; (ii) the
capitalization of the Company; (iii) the power and authority of the Company to
enter into the Merger Agreement and the due authorization of the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby; (iv) the execution and delivery of the Merger Agreement
will not result in a breach or require any consent or constitute a default under
the Company's Articles of Incorporation or By-Laws or similar governing document
or certain agreements or contracts to which the Company is a party or its assets
are subject; (v) regulatory filings and approvals; and (vi) the absence of any
brokerage fees. The Company specifically disclaims in the Merger Agreement any
implied warranties with respect to its business and assets.
CONDITIONS TO THE MERGER
Pursuant to the Merger Agreement, the obligations of Newco and the Company to
effect the Merger are subject to the following conditions: (a) neither Newco
nor the Company will be subject to any order, decree or injunction of a court of
competent jurisdiction within the United States which (i) prevents or materially
delays the consummation of the Merger or (ii) would impose any material
limitation on the ability of Newco effectively to exercise full rights of
ownership of the assets or business of the Company; (b) no investigation and no
suit, action or proceeding before any court or any governmental or
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regulatory authority will be pending or threatened by any Authority (as defined
in the Merger Agreement) against Newco, the Company or any of their Affiliates
(as defined in the Merger Agreement), officers or directors seeking to restrain,
prevent or change in any material respect the transactions contemplated thereby
or seeking damages in connection with such transactions; (c) the approval of the
Shareholders with respect to the transactions contemplated by the Merger
Agreement will have been obtained, in accordance with applicable corporate law
and the Articles of Incorporation of the Company; (d) Articles of Merger for the
Merger will have been properly filed with the Minnesota Secretary of State
pursuant to the MBCA and will have become effective; (e) the Company will have
received a written opinion of Miller, Johnson & Kuehn, Incorporated to the
effect that the Merger Consideration to be delivered in connection with the
Merger is fair, from a financial point of view, to the Shareholders of the
Company, and such opinion will not have been withdrawn prior to the Effective
Time; and (f) the Merger Consideration will have been delivered to the Paying
Agent.
In addition, the obligation of the Company to effect the Merger is also subject
to the satisfaction, or waiver by the Company, of the following conditions: (a)
the representations and warranties of Newco Company and in all certificates or
other documents delivered by Newco to the Company will be true and correct in
all material respects on the date of the Merger Agreement and on the Closing
Date as though such representations and warranties were made on or as of that
date; and (b) Newco will have performed and complied in all material respects
with all agreements, obligations, covenants and conditions required by the
Merger Agreement to be performed or complied with by it on or prior to the
Closing.
Additionally, the obligations of Newco to effect the Merger are also subject to
the satisfaction, or waiver by Newco, of the following conditions: (a) the
representations and warranties of the Company and in all certificates or other
documents delivered by the Company to Newco will be true and correct in all
material respects on the date of the Merger Agreement and on the Closing Date as
though such representations and warranties were made on or as of that date; (b)
the Company will have performed and complied in all material respects with all
agreements, obligations, covenants and conditions required by the Merger
Agreement to be performed or complied with by it on or prior to the Closing; (c)
(i) all consents required under the Merger Agreement to consummate the
transactions contemplated thereby and to allow Newco to transact the business of
the Company following the Merger will have been obtained; (ii) such consents
will be in effect and no proceeding will have been initiated or threatened with
respect thereto; (iii) all applicable waiting periods with respect to such
consents will have expired; (iv) all conditions and requirements prescribed by
applicable law or by such consents will have been satisfied; and (v) any
consents required under the Merger Agreement to consummate the transactions
contemplated thereby do not impose regulatory conditions that cause a material
adverse change in the financial condition or operations of Newco; and (d) Newco
will have obtained its debt financing from BBFC in accordance with the
Commitment Letter. The Company is not aware of any state or regulatory
approvals that are required to consummate this transaction.
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TERMINATION AND AMENDMENT
The Merger Agreement may be terminated at any time prior to the closing of the
Merger (a) by mutual written consent of Newco and the Company; (b) by either
Newco or the Company if (i) the Effective Time has not have occurred on or
before June 18 1999 or (ii) any court of competent jurisdiction or any
governmental body has issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibiting the Merger
and such order has become final and nonappealable; (c) by the Company if Newco
fails to perform in any material respect any if its obligations under the Merger
Agreement and such failure has not been cured in accordance with the provisions
of the Merger Agreement; (d) by Newco if the Company fails to perform in any
material respect any if its obligations under the Merger Agreement and such
failure has not been cured in accordance with the provisions of the Merger
Agreement; or (e) by the Company if the Company's Board of Directors has
approved, accepted or recommended and Approved Offer (as defined in the Merger
Agreement).
If Newco is not in material breach of any of its representations, warranties,
covenants or other obligations under the Merger Agreement and the Merger
Agreement is terminated pursuant to clause (a), (b) or (d) of the paragraph
above, then the Company will reimburse Newco for all reasonable out-of-pocket
Expenses (as defined in the Merger Agreement), subject to a maximum
reimbursement of $75,000; provided that in the case of a termination of the
Merger Agreement pursuant to clause (a) or (b), certain severance benefits that
the Company would otherwise be obligated to pay Mr. Riedel upon termination of
his employment with the Company will be reduced by the amount of Expenses that
the Company reimburses Newco under the Merger Agreement. Additionally, if Newco
is not in material breach of any of its representations, warranties, covenants
or other obligations under the Merger Agreement and it terminates the Merger
Agreement pursuant to clause (e) the paragraph above, then the Company will pay
Newco, upon the closing of an Approved Offer, a "topping fee" of $150,000.
The Merger Agreement may be terminated at any time prior to the Merger and may
be amended by the parties in writing at any time before or after approval by the
Shareholders, provided that after Shareholder approval, no amendment may be made
which reduces the amount or changes the form of the Merger Consideration or in
any way materially adversely affects the rights of the Shareholders.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the terms of the Merger Agreement, during the period from the date
of the Merger Agreement to the Effective Time, with certain exceptions, the
Company and Mr. Riedel have agreed they will not cause the Company:
(a) to issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of: (i) additional shares of capital stock of any class (including the
Common Shares), or securities convertible into any such shares, or any rights,
warrants or options to acquire any such shares or other convertible securities,
or grant or accelerate any right to convert or exchange any securities of the
Company for Common Shares, other than Common Shares issuable pursuant to the
terms of outstanding Options hereof; or (ii) any other securities in respect of,
in lieu of or in substitution for the Common Shares outstanding on the date
hereof;
(b) to purchase or otherwise acquire, or propose to purchase or otherwise
acquire, any of its outstanding securities (including the Common Shares);
(c) to split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any
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<PAGE>
dividend or distribution on any shares of capital stock of the Company;
(d) to make any acquisition of a material amount of assets (by merger,
consolidation or acquisition of stock or assets) or securities, any disposition
of a material amount of assets or securities or any material change in its
capitalization, or enter into a material contract or release or relinquish any
material contract rights not in the ordinary course of business;
(e) to incur any liability or obligation (absolute, accrued, contingent or
otherwise) other than in the ordinary and usual course of business and either
consistent with past practice or in the reasonable business judgment of the
officers of the Company (including borrowing in the ordinary course pursuant to
existing loan agreements or debt instruments) or issue any debt securities or
assume, guarantee, endorse or otherwise as an accommodation become responsible
for the obligations of any other individual or entity in any case in an amount
material to the Company, taken as a whole;
(f) (i) to enter into any new employment agreements with any officers,
directors or key employees or grant any material increases in the compensation
or benefits to officers, directors and key employees other than increases in the
ordinary course of business and consistent with past practice; (ii) to pay or
agree to pay any pension, retirement allowance or other employee benefit not
required or permitted by any existing plan, agreement or arrangement to any such
director, officer or key employee in amounts material to the Company; (iii) to
commit itself (other than pursuant to any collective bargaining agreement) to
any additional pension, profit-sharing bonus, extra compensation, incentive,
defined compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or to any employment or consulting agreement with or
for the benefit of any director, officer or key employee, whether past or
present, in amounts material to the Company; or (iv) except as required by
applicable law, amend in any material respect any such plan, agreement or
arrangement; or
(g) to take certain other actions enumerated in the Merger Agreement.
In addition, the Company and Mr. Riedel have agreed to operate the Company in
the ordinary course consistent with past practice pending the Closing.
DISSENTERS' APPRAISAL RIGHTS
Pursuant to Sections 302A.471 and 302A.473, the MBCA holders of the Company's
Common Stock are entitled to assert appraisal rights in connection with the
Merger and obtain payment of the "fair value" of their Common Stock provided
that such shareholders comply with the requirements of the MBCA. In this
context, the term "fair value" means the value of the shares of the Common Stock
immediately before the effective date of the Merger.
The following is a summary of the statutory procedures to be followed by holders
of Common Shares electing to exercise their appraisal rights in order to perfect
such rights under the MBCA, and is qualified in its entirety by reference to
Sections 302A.471 and 302A.473 of the MBCA, the full text of which is attached
hereto as Annex C. There sections should be reviewed carefully by holders of
Common Shares who wish to assert their appraisal rights or wish to preserve the
right to do so, since failure to comply with those provisions will result in the
loss of such appraisal rights.
Shareholders who elect to exercise appraisal rights must satisfy each of the
following conditions: (a) such holders must file with the Company, before the
taking of the vote with respect to the Merger,
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written notice of their intention to demand payment of the fair value of their
Common Shares (this written notice must be in addition to and separate from any
proxy or vote against the Merger; neither voting against nor a failure to vote
for the Merger will constitute such a notice within the meaning of the Sections
302A.471 or 302A.473); and (b) such holders must not vote in favor of the Merger
(a failure to vote will satisfy this requirement, but a vote in favor of the
Merger, by proxy or in person, will constitute a wavier of holders' appraisal
rights and will nullify any previously filed written notice of intent to demand
payment). The Company will consider a proxy that is returned by a shareholder
without indicating a direction as to how it should be voted (or an abstention)
as constituting such a waiver. Shareholders who fail to comply with either of
these conditions will have no appraisal rights with respect to their Common
Shares.
All written notices should be addressed to: Atrix International, Inc., 14301
Ewing Avenue South, Burnsville, Minnesota 55306, Attention: Chief Financial
Officer, and filed before the taking of the vote on the Merger at the Annual
Meeting and should be executed by, or with the consent of, the holder of record.
The notice must reasonably inform the Company of the identity of the shareholder
and the intention of such shareholder to demand appraisal rights.
After a vote approving the Merger, the Company must give written notice to each
shareholder who has filed written notice of intent to demand appraisal and who
did not vote in favor of the Merger setting forth the address to which a demand
for payment and stock certificates must be sent by such shareholder in order to
obtain payment, and the date by which they must be received. This notice will
also include a form for demanding payment to be completed by the shareholder and
a request for certification of the date on which the shareholder (or the person
on whose behalf the holder is asserting appraisal rights) acquired beneficial
ownership of the Common Shares. Shareholders who fail to demand payment or
deposit their stock certificates as required by the notice within 30 days after
the notice is given will irrevocably forfeit their appraisal rights.
If a demand for payment and deposits of stock certificates is duly made by a
shareholder with the Company as required by the notice, then upon the
effectiveness of the Merger or the receipt of the demand, whichever is later,
the Company will pay such holder an amount which the Company estimates to be the
fair value of the Common Shares, with interest, if any. For purposes of a
holder's appraisal rights under the MBCA, "fair value" means the value of a
Common Share immediately before the effectiveness of the Merger, and "interest"
means interest from the effective date of the Merger until the date of payment
at the rate provided by Minnesota law for interest on verdicts and judgments.
If a shareholder believes the payment received from the Company is less than the
fair value of the Common Shares, with interest, if any, such holder must given
written notice to the Company of his or her own estimate of the fair value of
the Common Shares, with interest, if any, within 30 days after the date of the
Company's remittance and demand payment of the difference between his or her
estimate and the Company's remittance. If the holder fails to give written
notice of such estimate to the Company within the 30-day time period, such
shareholder will be entitled only to the amount remitted by the Company.
If the Company and the shareholder cannot settle the shareholder's demand within
60 days after the Company receives the shareholder's estimate of the fair value
of his or her Common Shares, then the Company will file an action in a court of
competent jurisdiction in Dakota County, Minnesota, requesting that the court
determine the fair value of the Common Shares. All shareholders whose demands
are not settled within the applicable 60-day settlement periods shall be made
parties to this proceeding.
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After notice to such shareholders, the court will institute proceedings to
determine the fair value of the Common Shares. The court may appoint one or
more persons as appraisers to receive evidence and make recommendations to the
court. Dissenting shareholders will be entitled to discovery on the same basis
as any other party to a civil action. The court will determine the fair value
of the shares of Common Stock, taking into account any and all factors the court
finds relevant, computed by any method or combination of methods that the court,
in its discretion, sees fit to use. The fair value of the Common Shares as
determined by the court is binding on all shareholders. If the court determines
that the fair value of the Common Shares is in excess of the Company's estimate
of the fair value of the Common Shares, then the court will enter a judgment in
favor of the holders in an amount by which the value determined by the court
exceeds the Company's estimated value, plus interest. If the court determines
that fair value of the Common Shares is less than the Company's estimate, the
dissenting shareholder will not be liable to the Company for the amount by which
the estimate exceeds the fair value as determined.
VOTE REQUIRED
The affirmative vote, whether made in person or by proxy, of the holders of a
majority of the outstanding Common Shares is required for the approval of the
Merger Agreement. Assuming approval of Proposal No. 1, officers and directors
of the Company own or have the right to vote approximately 38.85% of the
outstanding Common Shares. If Proposal No. 1 is not approved, the officers and
directors will have the right to vote 32.47% of the Common Shares. Either way,
these persons have indicated that they intend to vote in favor of the Merger
Agreement. THE BOARD, WITH MR. RIEDEL AND MR. MEACHAM ABSTAINING, HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT. After consummation of the
Merger, the entire equity interest of Newco will be beneficially owned by Mr.
Riedel and Mr. Meacham, both of whom are directors of the Company, Mr. Riedel's
son Phillip, and possibly one other minority investor in Newco who is not
affiliated with the Company. Because of their interests in Newco, Mr. Riedel
and Mr. Meacham have a conflict of interest with respect to the proposed Merger.
Accordingly, Mr. Riedel and Mr. Meacham abstained from the vote of the Board of
Directors in approving the Merger and recommending that shareholders vote in
favor of the Merger. See "Special Factors - Interests of Certain Persons in the
Merger."
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ELECTION OF DIRECTORS
(PROPOSAL NO. 3)
NOMINATION
In the event that the Merger Agreement is not approved at the Annual Meeting,
directors for the upcoming year will be elected. If the Merger Agreement is
approved, the directors of Newco will become the directors of the Company, and
the Shareholders will not vote on the election of directors.
The Company's Bylaws provide that the Board shall consist of not less then three
and not more than seven members. The Board of Directors has set the number of
directors at seven and has nominated seven persons to be elected as directors of
the Company at the Annual Meeting if the Merger Agreement is not approved. In
the absence of other instructions, the proxies will be voted for each of the
individuals named below, each of whom the Company's Board of Directors proposes
for election as a director of the Company. If elected, all seven nominees will
serve until the next Annual Meeting of Shareholders or until their successors
are duly elected and qualified. All of the nominees are members of the current
Board of Directors and were elected at last year's Annual Meeting of
Shareholders.
The election of each of the nominees requires the affirmative vote of a majority
of the shares of Common Stock represented in person or by proxy at the Annual
Meeting, (and at least a majority of the minimum number of votes necessary for a
quorum). The Board recommends a vote FOR the election of each of the nominees
listed below. If prior to the Annual Meeting, the Board should learn that any
nominee will be unable to serve by reason of death, incapacity or other
unexpected occurrence, the proxies that would have otherwise been voted for such
nominee will be voted for a substitute nominee as selected by the Board.
Alternatively, the proxies may, at the Board's discretion, be voted for such
fewer number of nominees as results from such death, incapacity or other
unexpected occurrence. The Board has no reason to believe that any of the
nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following information has been furnished to the Company by the respective
nominees for director.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEES AGE POSITION SINCE
---------------- --- -------- -----
<S> <C> <C> <C>
W. William Bednarczyk 54 Chairman of the Board of Directors 1984
Clifford B. Meacham 65 Vice Chairman of the Board of Directors 1981
Steven D. Riedel 55 President, Chief Executive Officer, and Director 1993
William E. Bennett 52 Director 1986
Charles J. B. Mitchell, Jr. 57 Director 1992
Les Eck 65 Director 1996
John C. Hey 53 Director 1997
</TABLE>
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OTHER INFORMATION ABOUT NOMINEES
The present principal occupation or employment of each nominee and a description
of his business experience during the past five years is set forth below. Such
information has been provided by the respective nominees.
W. WILLIAM BEDNARCZYK has been Director of the Company since 1984 and has
been Chairman of the Board since 1991. Since 1988, Mr. Bednarczyk has been
president of Bednarczyk Business Services, which is engaged in management
consulting and private investment activities. From 1984 to 1988, Mr. Bednarczyk
was president of Human Asset Management, Inc. an employee/labor relations
consulting firm in Edina, Minnesota.
CLIFFORD B. MEACHAM founded the Company and has been a Director of the
Company since that time. In April 1996, Mr. Meacham retired from active
employment with the Company. Mr. Meacham is an engineer, having graduated from
the Utica Institute of Technology, Utica, New York in 1952. Prior to founding
Atrix Tool, Inc., Mr. Meacham was the President and General Manager of CACO
Incorporated and Airport Industrial Machine Corporation (AIMC) in Lakeville,
Minnesota for 16 years. CACO was a general-line tool distributor and AIMC was a
manufacturer job shop engaged in the design and manufacture of special tools,
vacuum tables, and concrete scarifies.
STEVEN D. RIEDEL joined the Company as President on December 8, 1992. He
became Chief Executive Officer and was elected to the Board of Directors in May
of 1993. He also served as Chief Financial Officer from November 1993, to August
1997. Prior to that he was President and Chief Executive Officer of Enercon
Data, an energy management and lighting control company located in Edina,
Minnesota. Mr. Riedel also was employed by Northern Telecom as Vice President of
Product Management for the IOS division in Minneapolis. Previously, he held
numerous management positions with Burroughs Corporation with the most recent
being regional sales manager for the 15 state midwest region. He is also an
active member of Norex, an organization for CEO's of companies within the
greater metropolitan areas. Mr. Riedel is also a principal owner of SCI
Enterprise, a personal computer VAR located in Edina, MN.
WILLIAM E. BENNETT has been a Director of the Company since January 1986.
Mr. Bennett is licensed as an attorney and as a certified public accountant in
Minnesota and has acted as an independent consultant since August 1991. Mr.
Bennett was general counsel and chief financial officer of I.C. Systems, Inc. of
St. Paul, Minnesota, a collections agency, from October 1985 to August 1991.
Prior to that time, he was a partner in the accounting firm of Main Hurdinan
(now KPMG Peat Marwick) of Minneapolis, Minnesota.
CHARLES J.B. MITCHELL, JR. has been a director of the Company since April
1992. Mr. Mitchell has been employed as President and CEO of Automotive Systems
International, Inc. ("ASI") since 1996. ASI is a manufacturer of components for
the OEM automotive manufacturing industry. From 1994 through 1995, Mr. Mitchell
served as a consultant in general management for Deluxe Corporation, a producer
of checks for financial institutions. Prior to that, from 1991 through 1993,
Mr. Mitchell was President of Environmental Solutions, Inc. From 1985 to 1991,
Mr. Mitchell was President and Chief Executive Officer of Alta Acquisition
Corporation, a manufacturing company.
LES ECK has been a director of the Company since October 1996. Mr. Eck is
the former President and now Chairman of the Board of Directors of Haldeman-
Homme, Inc., a distributor of
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industrial and institutional products, and through their Anderson-Ladd division,
a provider of commercial and residential hardwood flooring. Mr. Eck has been
employed by Haldeman-Homme for 37 years in a variety of sales and management
roles. During his business career, he also served in the Army Reserve Command.
Mr. Eck has been active in a number of civic and professional organizations and
served on the dealer advisory councils of several of his company's suppliers.
Mr. Eck has a degree in Forestry from the University of Minnesota and is a
graduate of the Army Command and General Staff College.
JOHN C. HEY is President of IKON Office Solutions-Minnesota. Mr. Hey has
been in the office products industry in a variety of sales and management roles
for 25 years. He began his career with D.C. Hey Company in 1973 and became
President in 1984. In 1988, D.C. Hey was acquired by Alco Standard Corporation.
Recently, Alco changed its name to IKON Office Solutions. Prior to that, he was
employed by the Campbell Soup Company. In addition, Mr. Hey has been active in
a number of civic and professional organizations located in the Twin Cities
area.
ADDITIONAL INFORMATION ABOUT THE BOARD OF DIRECTORS
The Company's Board of Directors held 9 meetings during the fiscal year ended
June 30, 1998. All of the directors attended at least 75% of the meetings, and
at least 75% of the Committee meetings for the committees on which they served,
with the exception of Charles J.B. Mitchell and John C. Hey.
The Board of Directors has established the following standing committees of the
Board:
COMPENSATION COMMITTEE: Charles J.B. Mitchell, Jr. Chairman
W. William Bednarczyk
Les Eck
The Compensation Committee's primary responsibilities are to formulate and
recommend to the Board of Directors the compensation package for the Company's
president and chief executive officer; to formulate and recommend to the Board
of Directors the terms of the Company's officer incentive compensation plan; and
to periodically review and make recommendations on the Company's general salary
administration and benefits plan. This Committee did not meet during fiscal
1998.
AUDIT COMMITTEE: William E. Bennett, Chairman
Clifford Meacham
Les Eck
The Audit Committee's primary responsibility is to oversee the Company's
internal financial controls and to assist management in reporting financial
information. This Committee did not meet during fiscal 1998.
NOMINATING COMMITTEE: W. William Bednarczyk, Chairman
Clifford B. Meacham
Steven D. Riedel
The Nominating Committee's primary responsibilities are to nominate officers of
the Company for election by the Board, recommend a slate of directors for
approval by the Board to election by the shareholders, and to review with the
chief executive officer the manpower and organizational strengths. Shareholder
nominees for the election to the Board must be submitted to the Company by June
1 of each year. This Committee met one time prior to the Annual Meeting.
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DIRECTOR COMPENSATION
Directors who are not employees of the Company generally receive $350 per board
meeting and $200 per committee meeting for their service.
The Company's 1994 Stock Option Plan also contains an automatic grant provision
pursuant to which non-employee directors are automatically granted options to
purchase shares of common stock. Any non-employee director who is initially
elected to the Board will receive an option to purchase 6,250 shares of common
stock which will vest, on a cumulative basis, with respect to 1,250 shares on
June 30 first following such initial election and one June 30 each year
thereafter. William Bednarczyk, in his capacity as Chairman of the Board, was
also automatically granted an option to purchase 2,500 shares of Common Stock
which has vested with respect to 2,000 shares and will vest, on a cumulative
basis, with respect to 500 shares on June 30, 1999. In addition, each subsequent
Chairman of the Board (if such person is not an employee of the Company) will
automatically be granted an option to purchase 2,500 shares of Common Stock
which will vest, on a cumulative basis, with respect to 500 shares beginning on
June 30 following such election and on June 30 of each year thereafter. These
options have a term of ten years and an exercise price equal to 100% of the fair
market value of the Common Stock on the date of grant.
Effective April 1, 1996, the Company entered into a Supplemental Retirement
Benefit Agreement with Clifford Meacham, a director and former officer of the
Company. Under this agreement, the Company has agreed to pay Mr. Meacham $2,800
per month through May 1999. If Mr. Meacham dies prior to May 1999, the remaining
monthly payments will be made to his spouse. If Mr. Meacham is not married at
the time of his death, there is no further beneficiary.
In addition, the Company has granted in the past, and may grant in the future,
options to non-employee directors for service beyond that generally provided by
a non-employee director.
COMPENSATION AND OTHER BENEFITS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash and non-cash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company. No other executive officer of the Company earned over $100,000
in the fiscal year ended June 30, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
COMMON SHARES
UNDERLYING
NAME AND ANNUAL COMPENSATION OPTIONS
PRINCIPAL POSITION FISCAL SALARY BONUS OTHER (#)
------------------ ----- ------ ----- ----- ---
YEAR
----
<S> <C> <C> <C> <C> <C>
Steven D. Riedel 1998 $117,000 $ 0 $4,800(1) 2,500
President and Chief Executive 1997 $111,300 $ 0 2,500
Officer 1996 $104,583 $19,500 1,250
</TABLE>
54
<PAGE>
(1) Consists of a car allowance of $400 per month.
EMPLOYMENT AGREEMENTS
Effective December 8, 1992, the Company entered into a letter agreement with
Steven D. Riedel, pursuant to which he agreed to be employed as the president of
the Company in December 1992 and the Chief Executive Officer beginning May 1993.
Mr. Riedel is currently paid an annual salary of $117,000 and receives an
automobile allowance of $400 per month. If the Company experiences a "change of
control" prior to June 30, 1999, and within one year of such "change in control"
either Mr. Riedel's employment is terminated by the Company, or Mr. Riedel
decides for "good reason" to terminate his employment with the Company, then in
either case, the Company is obligated to pay Mr. Riedel his then current annual
salary over a twelve month period in severance pay.
On April 20, 1998, Dean Gerber, Vice President and Chief Financial Officer of
the Company, entered into a severance agreement with the Company with terms
similar to those described above for Mr. Riedel, except Mr. Gerber's severance
payments are limited to 2/3 of his then current annual base salary.
Under the Company's 1994 Stock Option Plan (the "Plan"), upon the occurrence of
a "change in control" all outstanding options granted under the Plan become and
remain exercisable in full during their remaining terms regardless of whether
the plan participants thereafter remain employees of the Company or a
subsidiary. The acceleration of the exercisability of options under the Plan
may be limited, however, if the acceleration would be subject to an excise tax
imposed upon "excess parachute payments." Under the Plan, a "change in control"
has occurred in the event of (a) the sale, lease, exchange or other transfer of
all or substantially all of the assets of the Company (in one transaction or a
series of related transactions) to a corporation that is not controlled by the
Company; (b) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company; (c) a merger or
consolidation to which the Company is a party if the stockholders of the Company
immediately prior to the effective date of the merger or consolidation have
"beneficial ownership", immediately following the effective date of such merger
or consolidation, of securities of the surviving corporation representing 50% or
less of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at elections of
directors; (d) any person becomes the "beneficial owner," directly or
indirectly, of 50% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors; (e) individuals who constitute the board of directors of the Company
on the effective date of the Plan cease for any reason to constitute at least
the majority thereof, provided that any person becoming a director subsequent to
the effective date of the Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
Company's shareholders, was approved by a vote of at least a majority of the
directors comprising the board of directors of the Company on the effective date
of the Plan (either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director, without
objection to such nomination) shall be considered as though such person were a
member of the board of directors of the Company on the effective date of the
Plan; or (f) a change in control of the Company of a nature that would be
required to be reported pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirement. In addition, the Board,
without the consent of any affected participant, may determine that some or all
of the participants holding outstanding options will receive cash in an amount
equal to the excess of the fair market value of such shares immediately before
the effective date of the change in control over the exercise price per share of
the options.
55
<PAGE>
OPTION GRANTS AND EXERCISES
The following table summarizes option grants during fiscal 1998 to the executive
officer named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
OPTIONS GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------
% OF TOTAL
NUMBER OF OPTIONS
COMMON SHARES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#)(1) YEAR ($/SH) DATE
- ---- ------------- ---- ------ ----
<S> <C> <C> <C> <C>
Steven D. Riedel 2,500 11.1% $2.24 July 1, 2007
</TABLE>
(1) The options were granted under the Company's 1994 Stock Option Plan. The
foregoing options become exercisable at the rate of 20% of the number of
shares covered by such option on the date of grant and 20% on each of the
next four anniversary dates of the grant of such option, so long as the
executive remains employed by the Company or one of its subsidiaries. To
the extent not already exercisable, options under the plan become
immediately exercisable in full upon certain changes in control of the
Company and remain exercisable for the remainder of their term.
The following table summarizes the options values held by the executive officer
named in the Summary Compensation Table at June 30, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT JUNE 30,1998 JUNE 30,1998
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven D. Riedel (1) 47,500 2,500 0 0
</TABLE>
(1) No options were exercised by Mr. Riedel in the fiscal year ended June 30,
1998, and all of the options held by Mr. Riedel had an exercise price
greater than the fair market value of the Company Common Stock as of June
30, 1998. The exercise price may be paid in cash, or in the Board of
Director Committee's discretion, in shares of the Company's Common Stock
valued at fair market value on the date of exercise or pursuant to a
cashless exercise procedure under which the executive provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sales proceeds, an amount equal to the exercise
price plus applicable withholding taxes. The Board of Directors also has
the discretion to grant a supplemental cash bonus to an optionee in
connection with the grant or exercise of an option.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Riedel and the Company, along with Newco, have entered into the Merger
Agreement pursuant to which the Company will be merged out of existence and
Newco will be the surviving corporation. See "Proposal to Approve Merger
Agreement (Proposal No. 2)."
CERTAIN FINANCIAL INFORMATION
The Company's annual report on Form 10-KSB for the year ended June 30, 1998 and
quarterly reports on Form 10-QSB for the quarters ended September 30, 1998 and
December 31, 1998, which include audited financial statements as of June 30,
1997 and 1998 and unaudited financial statements as of September 30, 1997 and
1998 and December 31, 1997 and 1998, are incorporated by reference in this Proxy
Statement and are being mailed to Shareholders along with this Proxy Statement.
The Company's ratio of earnings to fixed charges for the three and twelve-month
periods indicated below and net book value per share as of the dates indicated
below are shown in the table below:
<TABLE>
<CAPTION>
June 30, September 30, December 31, March 31,
----------------- ------------------ ------------------ ---------------
1997 1998 1997 1998 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to 2.0 (1) (2) 1.8 (3) .2
Fixed Charges
Net Book Value per $1.76 $1.70 $1.72 $1.71 $1.66 $1.70
Common Share
</TABLE>
________________
(1) As a result of the pre-tax loss incurred in fiscal 1998, the Company was
unable to fully cover the indicated fixed charges. Earnings did not cover
fixed charges by $58,983 in fiscal 1998.
(2) As a result of the pre-tax loss incurred in the first quarter of fiscal
1998, the Company was unable to fully cover the indicated fixed charges.
Earnings did not cover fixed charges by $38,386 in the first quarter of
fiscal 1998.
(3) As a result of the pre-tax loss incurred in the second quarter of fiscal
1998, the Company was able to fully cover the indicated fixed charges.
Earnings did not cover fixed charges by $80,864 in the second quarter of
fiscal 1998.
57
<PAGE>
PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 31, 1999, the beneficial ownership of
Common Stock by (i) each person who is known to the Company to be the beneficial
owner of more than 5% of the Common Stock of the Company; (ii) each director and
each nominee, (iii) each executive officer named in the Summary Compensation
Table below; and (iv) all officers and directors of the Company as a group.
Securities reported as "beneficially owned" included those for which the persons
listed have, alone or together with others, voting power or investment power.
Voting power and investment power are not shared with others unless so
stated.
<TABLE>
<CAPTION>
COMMON SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
NAME AND ADDRESS NO. OF COMMON SHARES PERCENTAGE OF CLASS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jerry Mathwig 345,500(3) 24.4%
9031 Avila Circle
Eden Prairie, MN 55347
Clifford B. Meacham 126,919(4) 8.9%
14301 Ewing Avenue South
Burnsville, MN 55306
Steven A. McMichael 78,125(5) 5.5%
C/O Anthony Atwater Ltd.
P.O. Box 28
Waconia, MN 55387
Steven D. Riedel 79,000(2) 5.4%
14301 Ewing Avenue South
Burnsville, MN 55306
W. William Bednarczyk 57,377(6) 4.0%
Bednarczyk Business Services
601 Lakeshore Parkway, Suite 1140
Minneapolis, MN 55305
Charles J.B. Mitchell, Jr. 41,833(7) 2.9%
Environmental Solutions
Wilson Ridge
7500 Flying Cloud Drive, Suite 740
Minneapolis, MN 55344
William E. Bennett 13,094(8) *
4170 Myrle
White Bear Lake, MN 55110
Les Eck 2,500(9) *
7201 Glenwood
Golden Valley, MN 55427
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C>
John C. Hey 1,250(10) *
4610 Moorland Avenue
Minneapolis, MN 55424
All Directors and Officers as 329,423(11) 21.4%
a Group (8 persons)
</TABLE>
(*) Less than 1% of the outstanding shares.
(1) Common Shares not outstanding but deemed beneficially owned by virtue of
the right of a person or member of a group to acquire them within 60 days
are treated as outstanding only when determining the amount and percent
owned by such person or group.
(2) Includes 51,875 Common Shares which Mr. Riedel has the right to acquire
pursuant to outstanding options and warrants exercisable within 60 days.
Excludes 345,500 Common Shares owned by Mr. Mathwig which Mr. Riedel has
the right to vote only with respect to the Merger pursuant to the
Shareholder Agreement, as to which shares Mr. Riedel disclaims beneficial
ownership. See "Special Factors -- Shareholder Agreement."
(3) Based on representations made in the Shareholder Agreement
(4) Includes 2,500 Common Shares which Mr. Meacham has the right to acquire
pursuant to outstanding options exercisable within 60 days; and 13,125
Common Shares which he has the right to acquire pursuant to outstanding
warrants exercisable within 60 days.
(5) Based solely on a Schedule 13G filed by Mr. McMichael with the Securities
and Exchange Commission on January 14, 1991.
(6) Includes 21,625 Common Shares which Mr. Bednarczyk has the right to acquire
pursuant to outstanding options exercisable within 60 days; and 5,208
Common Shares which he has the right to acquire pursuant to outstanding
warrants exercisable within 60 days.
(7) Includes 8,875 Common Shares which Mr. Mitchell has the right to acquire
pursuant to outstanding options exercisable within 60 days; and 5,208
Common Shares which he has the right to acquire pursuant to outstanding
warrants exercisable within 60 days.
(8) Includes 10,250 Common Shares which Mr. Bennett has the right to acquire
pursuant to outstanding options exercisable within 60 days.
(9) Includes 2,500 Common Shares which Mr. Eck has the right to acquire
pursuant to outstanding options exercisable within 60 days.
(10) Includes 1,250 Common Shares which Mr. Hey has the right to acquire
pursuant to outstanding options exercisable within 60 days.
(11) Includes a total of 125,916 Common Shares members of the group have the
right to acquire pursuant to outstanding options and warrants exercisable
within 60 days.
59
<PAGE>
INDEPENDENT AUDITORS
The Company has requested and expects a representative of the Company's
independent auditors to be present at the Annual Meeting to make a statement if
he or she so desires and to respond to appropriate questions.
SHAREHOLDER PROPOSALS
If the Merger Agreement is approved at the Annual Meeting, there will not be a
1999 Annual Meeting of the Shareholders. If the Merger Agreement is not
approved, the Company will hold a 1999 Annual Meeting on or about October 19,
1999. Any Shareholder desiring to submit a proposal for action at the 1999
Annual Meeting of Shareholders and presentation in the Company's proxy statement
with respect to such meeting should arrange for such proposal to be delivered to
the Company's offices, 14301 Ewing Avenue South, Burnsville, Minnesota 55306,
addressed to Dean Gerber, Vice President/Chief Financial Officer, no later than
June 15, 1999 in order to be considered for inclusion in the Company's proxy
statement relating to the meeting. Matters pertaining to such proposals,
including the number and length thereof, eligibility of persons entitled to have
such proposals included and other aspects are regulated by the Securities and
Exchange Act of 1934, Rules and Regulations of the Securities and Exchange
Commission and other laws and regulations to which interested persons should
refer.
On May 21, 1998 the Securities and Exchange Commission adopted an amendment to
Rule 14a-4 as promulgated under the Securities and Exchange Act of 1934, as
amended. The amendment to Rule 14a-4(c)(1) governs the Company's use of its
discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The new amendment
provides that if a proponent of a proposal fails to notify the Company at least
45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion of
the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Shareholders, if the
Company is not provided notice of a Shareholder proposal which the Shareholder
has not previously sought to include in the Company's proxy statement by June
15, 1999, the Company will be allowed to use its voting authority as described
above.
OTHER BUSINESS
The Company knows of no business that will be presented for consideration at the
Annual Meeting, other than that described in this Proxy Statement. As to other
business, if any, that may properly come before the Annual Meeting, it is
intended that proxies solicited by the Board of Directors will be voted in
accordance with the judgment of the person or persons voting the proxies.
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Exchange Act and Rule 13e-3
thereunder, the Company, Newco and Messrs. Riedel and Meacham have filed with
the Commission a Rule 13e-3 Transaction Statement ("Schedule 13E-3") relating to
the transactions contemplated by the Merger Agreement. As permitted by the
rules and regulations of the Commission, this Proxy Statement omits certain
information, exhibits and undertakings contained in the Schedule 13E-3. Such
additional information can be inspected at and obtained from the Commission in
the manner set forth below under
60
<PAGE>
"Available Information." Statements contained herein concerning any documents
are not necessarily complete and, in each instance, reference is made to a copy
of such document filed as an exhibit to the Schedule 13E-3. Each such statement
is qualified in its entirety by such reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed with the Commission can be inspected and copied at the
Commission's Public Reference Room at Room 1024, 450 South Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
the Chicago Regional Office, Northwestern Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60601; and the New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. If the Merger is approved by the shareholders, the Company will no
longer be subject to the information requirements of the Exchange Act. In
addition, the Commission maintains a site on the World Wide Web portion of the
Internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934, as amended, requires the Company's
directors and executive officers and all persons who beneficially own more than
10% of the outstanding shares 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 the Company's Common Stock. Executive officers,
directors and greater than 10% beneficial owners are also required to furnish
the Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based upon a review of the copies of such reports furnished to the
Company and written representations that no other reports were required, during
the period ended September 30, 1998, and based on representations by such
persons, all such Section 16(a) filing requirements applicable to its executive
officers, directors and beneficial owners of greater than 10% of the Company
Common Stock were complied with.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Commission
(File No. O-18880) are incorporated by reference in this Proxy Statement and
included herewith:
1. Annual Report on Form 10-KSB for the year ended June 30, 1998.
2. Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998.
3. Quarterly Report on Form 10-QSB for the quarter ended December 31, 1998.
4. Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999.
61
<PAGE>
Preliminary Copy
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ATRIX ACQUISITION CORP.,
STEVEN D. RIEDEL
AND
ATRIX INTERNATIONAL, INC.
DATED AS OF DECEMBER 18, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Preliminary Copy
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 18, 1998 (the
"Agreement"), by and among, Atrix Acquisition Corp., a Minnesota corporation
("Newco"), Steven D. Riedel, an individual ("Riedel"), and Atrix International,
Inc., a Minnesota corporation (the "Company").
RECITALS:
---------
WHEREAS, Riedel, the President, Chief Executive Officer and a Director
of the Company, has caused Newco to be incorporated for the purpose of
completing the transactions contemplated by this Agreement.
WHEREAS, all of the equity interest of Newco is, or prior to the
closing of the transactions contemplated by this Agreement will be, held by
Riedel and Clifford B. Meacham (collectively, the "Newco Investors").
WHEREAS, the Boards of Directors of Newco and the Company have each
determined that it is in the best interests of their shareholders for Newco to
acquire the Company upon the terms and subject to the conditions set forth
herein; and
WHEREAS, in furtherance of such acquisition, the Board of Directors of
Newco and the Company have each approved the transactions contemplated hereby,
including, without limitation, the merger of the Company with and into Newco in
accordance with the Minnesota Business Corporation Act (the "MBCA") upon the
terms and subject to the conditions set forth herein (the "Merger").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Newco and the Company hereby agree as follows:
ARTICLE
1.
THE MERGER
1.1. The Merger. Upon the terms and subject to the satisfaction of the
conditions set forth in Article 6, and in accordance with the MBCA, at the
Effective Time (as defined), the Company will be merged with and into Newco. As
a result of the Merger, the separate corporate existence of the Company will
cease and Newco will continue as the surviving corporation of the Merger (the
"Surviving Corporation").
1.2. Effective Time; Closing. Within three business days after
satisfaction of the conditions set forth in Article 6 (other than the condition
that the Articles of Merger (as defined) be filed and effective), or at an
earlier or later date as may be mutually agreed upon by the parties, Newco and
the Company will duly execute and file articles of merger (the "Articles of
Merger") with the Minnesota Secretary of State in accordance with the MBCA. The
Merger will become effective at such time as the Articles of Merger are filed
with the Minnesota Secretary of State or at such later time as is specified in
the Articles of Merger (the "Effective Time"). A closing (the "Closing") will be
held at the offices of Oppenheimer Wolff & Donnelly LLP, Plaza VII, 45 South
Seventh Street, Minneapolis, Minnesota, or
<PAGE>
Preliminary Copy
such other place as the parties agree, for the purpose of confirming the
satisfaction of the conditions set forth in Article 6 (the date of such Closing
being the "Closing Date").
1.3. Effects of the Merger. At the Effective Time, the effect of the
Merger will be as provided herein and in the applicable provisions of the MBCA.
Without limiting the generality of the foregoing, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company will vest in
Newco, and all debts, liabilities, obligations, restrictions, disabilities and
duties of the Company will become the debts, liabilities, obligations,
restrictions, disabilities and duties of Newco.
1.4. Articles of Incorporation and By-Laws. The Articles of
Incorporation and the By-Laws of Newco in effect at the Effective Time will be
the Articles of Incorporation and By-Laws of the Surviving Corporation, until
amended in accordance with applicable law; provided, however, that Article I of
the Articles of Incorporation of the Surviving Corporation will be amended as of
the Effective Time to read "The name of this corporation is Atrix International,
Inc."
1.5. Directors and Officers. The directors of Newco immediately prior
to the Effective Time will be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Newco immediately prior to the Effective Time will be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
1.6. Shares. At the Effective Time, by virtue of the Merger and without
any action on the part of Newco, the Company or the holders of any shares of
common stock, $.04 par value, of the Company ("Company Common Stock ") (shares
of Company Common Stock being collectively referred to as "Shares," or,
individually, as a "Share"), each Share issued and outstanding immediately prior
to the Effective Time (other than any Dissenting Shares (as defined)) will be
canceled and converted automatically into the right to receive an amount equal
to the Merger Consideration (as defined), payable, without interest, to the
holder of such Share upon surrender of the certificate that formerly evidenced
such Share, in the manner provided in Section 1.7. The "Merger Consideration"
will consist of cash in the amount of $2.00. The Merger Consideration will in
all events be equal to $2,826,898; provided, however, that any Shares issued and
outstanding immediately prior to the Effective Time which are then owned
beneficially or of record by Newco will, by virtue of the Merger, be canceled
and retired without payment of any consideration therefor.
1.7. Payment for Shares. Prior to the Effective Time, Newco will
deposit, in trust with Norwest Bank Minnesota (the "Paying Agent") and for the
benefit of the holders of Company Common Stock, immediately available funds in
an amount sufficient to make the payments contemplated by Sections 1.6 and 1.8
on a timely basis. Such funds may, as directed by Newco (so long as such
directions do not impair the rights of holders of Company Common Stock to
receive the Merger Consideration promptly upon surrender of their Shares in
accordance with this Agreement), be invested by the Paying Agent in short-term
obligations of, or guaranteed by, the United States of America (collectively the
"Permitted Investments") or in money market funds that are invested solely in
Permitted Investments. Any net profit resulting from, or income interest
provided by, Permitted Investments, will be payable to Newco, which will also
replace any monies lost through any investment made at its direction pursuant to
this Section 1.7. Any portion of the Merger Consideration remaining with the
Paying Agent six months after the Effective Time will be released and repaid by
the Paying Agent to Newco, or its nominee, upon demand, after which time persons
entitled to Merger Consideration may look, subject to applicable escheat and
other similar laws, only to Newco therefor, without interest.
2
<PAGE>
Preliminary Copy
1.8. Company Option Plans and Warrants. No consideration will be paid
with respect to any outstanding option or warrant for the purchase of Shares
(each, an "Option," collectively, the "Options") that has an exercise price of
$2.00 per share or more. The parties acknowledge and agree that the Company has
no outstanding Options that have an exercise price less than $2.00 per share.
1.9. Capitalization Changes. If between the date of this Agreement and
the Effective Time the issued and outstanding Shares have been changed into a
different number of Shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
stock dividend, the Merger Consideration will be appropriately adjusted.
ARTICLE
2.
DISSENTING SHARES; PAYMENT FOR SHARES
2.1. Dissenting Shares. 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 any holder of Company Common Stock who has
not voted in favor of the Merger and has properly exercised and perfected
appraisal rights in accordance with Sections 302A.471 and 302A.473 of the MBCA
(the "Dissenting Shares") will not be converted into the right to receive Merger
Consideration, but will become the right to receive such consideration as may be
determined to be due such Dissenting Shares pursuant to the MBCA; provided,
however, that any holder of Dissenting Shares who has failed to perfect or who
has effectively withdrawn or lost his or her rights of appraisal of such
Dissenting Shares under the MBCA will forfeit the right to appraisal of such
Dissenting Shares, such Dissenting Shares will no longer be Dissenting Shares
and such Dissenting Shares will thereupon be deemed to have been converted into
the right to receive, as of the Effective Time, the respective amounts and
rights set forth in Section 1.6, without interest. The Company will give Newco
prompt notice of any written demands for appraisal, withdrawals of demands for
appraisal and any other related instruments received by the Company and, prior
to the Effective Time, the Company will not, except with the prior written
consent of Newco, make any payment with respect to, or settle or offer to
settle, any such demands. Notwithstanding anything to the contrary contained in
this Section 2.1, if (a) the Merger is rescinded or abandoned or (b) if the
shareholders of the Company revoke the authority to effect the Merger, then the
right of any shareholder to be paid the fair value of such a shareholder's
Shares will cease. The Surviving Corporation will comply with all of the
obligations of the MBCA with respect to dissenting shareholders.
2.2. Payment for Shares.
(a) Promptly after the Effective Time, Newco will cause the Paying
Agent to mail and/or make available to each holder of record (other than Newco)
of a certificate or certificates, which immediately prior to the Effective Time
represented issued and outstanding Shares (the "Certificates"), a notice and
letter of transmittal and instructions for its use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent, together with the letter of
transmittal, duly executed and completed in accordance with the instructions
therein, the holder of such Certificate will be entitled to receive the Merger
Consideration, and the Certificate so surrendered will be canceled. No interest
will be paid or accrued in respect of the Merger Consideration. In the event of
a transfer of ownership of the Company Common Stock which is not registered in
the transfer records of the Company, it will be a condition to the payment of
the Merger Consideration that the Certificate so surrendered be properly
endorsed or be otherwise in proper form for
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transfer and that such transferee will (i) pay to the Paying Agent any transfer
or other taxes required or (ii) establish to the satisfaction of the Paying
Agent that such tax has been paid or is not payable.
(b) The Merger Consideration paid upon the surrender for exchange of
Shares in accordance with the above terms and conditions will be deemed to have
been issued in full satisfaction of all rights pertaining to such Shares.
(c) After the Effective Time, there will be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the Shares
which were issued and outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such Shares are presented to
Newco, they will be canceled and exchanged as provided above.
(d) In the event any Certificate has been lost, stolen or destroyed,
the Paying Agent will disburse in exchange for such lost, stolen or destroyed
Certificate, upon the making of an affidavit of that fact by the holder thereof,
the Merger Consideration; provided, however, that Newco may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificate to deliver a bond, in such sum as it may
direct, as indemnity (or as to any such owner who is a holder of record as of
the date of this Agreement, an agreement to indemnify without any bond) against
any claim that may be made against Newco, the Company, the Paying Agent or any
other party with respect to the Certificate alleged to have been lost, stolen or
destroyed.
ARTICLE
3.
REPRESENTATIONS AND WARRANTIES
OF NEWCO
Newco represents and warrants to the Company as follows:
3.1. Organization and Qualification. Newco 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 to carry
on its business as it is now being conducted and to own, lease and operate its
property and assets. Newco is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
result in a material adverse effect on Newco. The copies of the Articles of
Incorporation and By-Laws of Newco previously delivered to the Company are true,
complete and correct as of the date hereof.
3.2. Authority Relative to this Agreement. Newco has all requisite
corporate power and authority to execute and deliver this Agreement, to carry
out its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery by Newco of this Agreement and the
consummation by Newco of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors and shareholders of Newco, and no
other corporate proceedings on the part of Newco are necessary to authorize this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Newco and, assuming this
Agreement constitutes a valid and binding obligation of the Company, this
Agreement constitutes a valid and binding agreement of Newco, enforceable
against Newco in accordance with its terms.
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3.3. Proxy Statement. None of the information supplied or to be
supplied by Newco and its Affiliates (as defined) specifically for inclusion in
the Proxy Statement (as defined) will, at the time the Proxy Statement is
mailed, at the time of the meeting of the shareholders to consider approval of
the Merger and this Agreement (the "Meeting") or at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any letter to shareholders, notice of meeting, proxy statement and
form of proxy, or the information statement, as the case may be, distributed to
shareholders in connection with the Merger, or any schedule required under
applicable law to be filed with the Securities and Exchange Commission (the
"SEC") in connection therewith are collectively referred to herein as the "Proxy
Statement." If, at any time prior to the Effective Time, any event relating to
Newco or any of its Affiliates (as defined in Rule 405, as promulgated under the
Securities Act of 1933, as amended), officers or directors is discovered by
Newco that should be set forth in a supplement to the Proxy Statement, Newco
will promptly inform the Company.
3.4. Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by Newco, nor the performance by Newco of its
obligations hereunder, nor the consummation of the transactions contemplated
hereby will: (a) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-Laws of Newco; (b) require any consent,
approval, authorization or permit of, or filing with or notification to, any
third party or any public governmental body or regulatory authority, except (i)
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (ii) the filing of the Articles of Merger pursuant to the MBCA, or (iii)
where the failure to obtain such consent, approval, authorization or permit, or
to make such filing or notification, would not prevent or delay consummation of
the Merger and would not otherwise prevent Newco from performing its obligations
under this Agreement; (c) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, lease, mortgage, license, agreement or other instrument
or obligation to which Newco is a party or by which any of its assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which, in the aggregate, would not result in a material adverse effect on Newco;
or (d) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Newco or any of its assets, except for violations which would not
result in a material adverse effect on Newco.
3.5. Financing; Equity Investment. Newco has entered into a commitment
letter, dated December 9, 1998 (the "Commitment Letter"), with Bremer Business
Financial Corporation ("Bremer") for the borrowing of funds necessary to
consummate the Merger and the transactions contemplated hereby and to pay the
related fees and expenses and will make such funds available to the Paying Agent
on or before the Effective Time. The funds underlying the Commitment Letter,
along with the equity investments of $250,000, will be sufficient to enable
Newco to make the payments contemplated by Sections 1.6, and Newco has no reason
to believe that the terms and conditions set forth in the Commitment Letter will
not be met by it within the time frame contemplated thereby. Newco will not
amend the Commitment Letter (except for amendments that solely extend such
commitment) without the prior written consent of the Company. Prior to the
Effective Time, the Newco Investors will have made an equity investment in Newco
in an aggregate amount of not less than $250,000. Newco has delivered to the
Company true and complete copies of the Commitment Letter and letters from each
Newco Investor evidencing their commitment to provide equity investments in the
aggregate minimum amount of $250,000.
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3.6. Brokerage Fees. Except for Northwest Capital Corporation
("Northwest"), no broker or finder has acted for Newco or any of the Newco
Investors in connection with this Agreement and the transactions contemplated
hereby, and no other natural person, firm, limited liability company,
partnership, corporation, company, association, trust or governmental body
(collectively "Person") is entitled to any payment, fee or commission from the
Company as a result of any of Newco's or the Newco Investors' actions in respect
to this Agreement or the transactions contemplated hereby. Newco is solely
responsible for any payment, fee or commission that may be due Northwest in
connection with the transactions contemplated hereby.
ARTICLE
4.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to Newco as follows:
4.1. Organization and Qualification. The Company 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 to carry
on its business as it is now being conducted and to own, lease and operate its
property and assets. The Company is duly qualified as a foreign corporation to
do business, and, is in good standing in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
result in a material adverse effect on the Company. The copies of the Company's
Articles of Incorporation and By-Laws previously delivered to Newco are true,
complete and correct as of the date hereof.
4.2. Capitalization. The authorized capital stock of the Company
consists of 12,500,000 Shares, and 3,000,000 preferred shares, par value $.01
per share (the "Preferred Stock"). As of the date hereof: (a) 1,413,449 Shares
were issued and outstanding; (b) no shares of Preferred Stock were issued or
outstanding; and (c) Options to purchase an aggregate of 188,639 Shares were
outstanding, none of which have an exercise price less than $2.00 per share. All
of the issued and outstanding Shares have been, and all Shares which are to be
issued pursuant to the exercise of the Options will be, when issued in
accordance with the respective terms thereof, duly authorized and validly issued
and fully paid and nonassessable with no liability attaching to the ownership
thereof and not subject to preemptive or similar rights created by statute, the
Articles of Incorporation or By-Laws of the Company or any agreement to which
the Company is a party or is bound. Except as set forth in this Section 4.2 and
except for Shares that may be issued upon exercise of the Options, there are not
now, and at the Effective Time there will not be, any shares of capital stock of
the Company issued or outstanding or any subscriptions, options, warrants,
calls, rights, commitments or any other agreements of any character obligating
the Company to issue any additional Shares or any other shares of capital stock
of the Company or any other securities convertible into or evidencing the right
to subscribe for any Shares or any other shares of capital stock of the Company.
There are no voting trusts or other agreements or understandings to which the
Company is a party with respect to the voting of the capital stock of the
Company. There are no contracts, commitments, understandings or arrangements by
which the Company is obligated to repurchase, redeem or otherwise acquire any
Shares. The Company has no subsidiaries.
4.3. Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement,
to carry out its obligations hereunder and to
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consummate the transactions contemplated hereby (subject to the approval of the
Merger and this Agreement by the holders of a majority of the outstanding
Shares). The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of the Company 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 the approval of this Agreement by shareholders holding a majority of
the votes represented by the Shares). This Agreement has been duly and validly
executed and delivered by the Company, and, assuming this Agreement constitutes
a valid and binding obligation of Newco, this Agreement constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
4.4. Proxy Statement. None of the information supplied or to be
supplied by the Company and its Affiliates specifically for inclusion in the
Proxy Statement will, at the time the Proxy Statement is mailed, at the time of
the Meeting or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. If, at any time prior to the
Effective Time, any event relating to the Company or its Affiliates, officers or
directors is discovered by the Company that should be set forth in a supplement
to the Proxy Statement, the Company will promptly inform Newco and cause such
supplement to the Proxy Statement to be prepared, filed and delivered as
required under the Exchange Act and the MBCA.
4.5. Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by the Company, nor the performance by the Company of
the obligations hereunder, nor the consummation of the transactions contemplated
hereby will: (a) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-Laws of the Company; (b) require any consent,
approval, authorization or permit of, or filing with or notification to, any
third party or any public governmental body or regulatory authority, except (i)
pursuant to the Exchange Act, (ii) the filing of the Articles of Merger pursuant
to the MBCA, (iii) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not
prevent or delay consummation of the Merger and would not otherwise prevent the
Company from performing its obligations under this Agreement; (c) result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any document filed as a
material agreement exhibit to the Company's annual report on Form 10-KSB for the
year ended June 30, 1998, except (x) for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not result in a
material adverse effect on the Company; and (y) as set forth in the last
sentence of this Section 4.5 and except as set forth in a letter to be delivered
by the Company to Newco no later than January 15, 1999 or (d) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company
or any of its assets, except for violations which would not in the aggregate
result in a material adverse effect on the Company. The consummation of the
Merger (i) would violate the loan agreement between the Company and Riverside
Bank, (ii) could give rise to certain change in control benefits under separate
letter agreements between the Company and Riedel and the Company and Dean
Gerber, (iii) would result in acceleration of all outstanding options under the
Company's 1994 Stock Option Plan and (iv) may result in a default under the
lease for the Company's facility in Burnsville, Minnesota.
4.6. Brokerage Fees. No broker or finder has acted for the Company in
connection with this Agreement and the transactions contemplated hereby, and no
broker or finder is entitled to any payment, fee or commission from the Company
as a result of any of the Company's actions in respect to this Agreement or the
transactions contemplated hereby.
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4.7. No Further Obligations. Since June 30, 1998, the Board of
Directors of the Company has not obligated the Company to any liabilities or
commitments, which are not reflected in the financial statements included in the
Company's audited financial statements for the fiscal year ended June 30, 1998
or the Company's quarterly report on Form 10-QSB for the quarter ended September
30, 1998, except for engaging Miller Johnson & Kuehn, Incorporated and
Oppenheimer Wolff & Donnelly LLP in connection with the transactions
contemplated hereby.
4.8. No Implied Representation. Notwithstanding anything contained in
this Article 4 or any other provision of this Agreement, (a) Newco and the
Company acknowledge and agree that neither the Company nor any of its
Affiliates, agents, employees or representatives is making any implied warranty
or representation as to the value, condition, merchantability or suitability as
to any of the properties or assets of the business operated by the Company, and
(b) it is understood that except for the representations and warranties
contained herein, Newco takes such business and assets, by virtue of the Merger,
"AS IS" and "WHERE IS" with all faults and without any implied warranties.
ARTICLE
5.
COVENANTS
5.1. Conduct of Business of the Company. Except as otherwise expressly
provided in this Agreement (including, but not limited to, Section 4.7 and
8.10), the Company and Riedel will cause the Company to:
(a) operate the business of the Company in the ordinary course
consistent with past practices;
(b) not issue, sell or pledge, or authorize or propose the issuance,
sale or pledge of: (i) additional shares of capital stock of any class
(including the Shares), or securities convertible into any such shares, or any
rights, warrants or options to acquire any such shares or other convertible
securities, or grant or accelerate any right to convert or exchange any
securities of the Company for Shares, other than Shares issuable pursuant to the
terms of outstanding Options hereof; or (ii) any other securities in respect of,
in lieu of or in substitution for the Shares outstanding on the date hereof;
(c) not purchase or otherwise acquire, or propose to purchase or
otherwise acquire, any of its outstanding securities (including the Shares);
(d) not split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or distribution on any shares of capital
stock of the Company;
(e) not propose or adopt any amendments to the Articles of
Incorporation or By-Laws of the Company;
(f) not make any acquisition of a material amount of assets (by merger,
consolidation or acquisition of stock or assets) or securities, any disposition
of a material amount of assets or securities or any material change in its
capitalization, or enter into a material contract or release or relinquish any
material contract rights not in the ordinary course of business (except as
permitted pursuant to Section 5.2);
(g) not incur any liability or obligation (absolute, accrued,
contingent or otherwise) other than in the ordinary and usual course of business
and either consistent with past practice or in the
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reasonable business judgment of the officers of the Company (including borrowing
in the ordinary course pursuant to existing loan agreements or debt instruments)
or issue any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual or
entity in any case in an amount material to the Company, taken as a whole;
(h) not make any change in accounting methods, principles or practices;
(i) not other than as contemplated or permitted by this Agreement: (i)
enter into any new employment agreements with any officers, directors or key
employees or grant any material increases in the compensation or benefits to
officers, directors and key employees other than increases in the ordinary
course of business and consistent with past practice; (ii) pay or agree to pay
any pension, retirement allowance or other employee benefit not required or
permitted by any existing plan, agreement or arrangement to any such director,
officer or key employee in amounts material to the Company; (iii) commit itself
(other than pursuant to any collective bargaining agreement) to any additional
pension, profit-sharing bonus, extra compensation, incentive, defined
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, agreement
or arrangement, or to any employment or consulting agreement with or for the
benefit of any director, officer or key employee, whether past or present, in
amounts material to the Company; or (iv) except as required by applicable law,
amend in any material respect any such plan, agreement or arrangement; or
(j) agree in writing to or otherwise to take any actions in violation
of this Section 5.1 or any action which would make any representation or
warranty in this Agreement untrue or incorrect.
5.2. No Solicitation. Unless this Agreement is terminated in accordance
with Article 7, neither the Company nor any of its officers, directors,
employees, financial advisors, counsel, representatives, agents and affiliates
will, directly or indirectly, encourage, solicit, initiate, or, subject to the
fiduciary duties of the Company's Board of Directors, officers or shareholders
as advised by outside counsel to the Company, enter into any agreement with
respect to, or participate in any way in discussions or negotiations with any
Third Party (as defined) concerning any tender offer (including a self-tender
offer), exchange offer, merger, sale of substantial assets, sale of securities
or similar transactions involving the Company (each, an "Acquisition Proposal"),
except that nothing contained in this Section 5.2 or in any other provision of
this Agreement will prohibit the Company or its Board of Directors from: (a)
taking and disclosing to the Company's shareholders a position with respect to a
tender or exchange offer by a Third Party pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act; (b) making such disclosure to the Company's
shareholders as, in the judgment of its Board of Directors with the advice of
outside counsel, is required under applicable law; or (c) considering and
negotiating an unsolicited Acquisition Proposal if the Board of Directors
determines in good faith, after consultation with its outside counsel, that such
consideration and negotiation would be necessary to fulfill the fiduciary duties
of the Board of Directors. For purposes of this Agreement, "Third Party" will
mean any corporation, partnership, person, or other entity or "group" (as
defined in Section 13(d)(3) of the Exchange Act), other than Newco, its
affiliates and its directors, officers, employees, representatives and agents.
As long as this Agreement remains in effect, the Company may furnish
confidential information regarding the Company to any Third Party if, and only
if, the Company's Board of Directors determines in good faith, with the advice
of outside counsel, that its fiduciary duties require disclosure of the
information. Subject to the provisions of Section 7.1, the Company may approve,
accept and recommend an Acquisition Proposal if, and only if: (x) the Company's
Board of Directors determines in good faith, in the exercise of its fiduciary
duties and after consultation with its outside counsel and financial advisors,
that the Acquisition Proposal would result in
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a transaction more favorable to the Company's shareholders from a financial
point of view than the transaction contemplated by this Agreement (such
Acquisition Proposal is referred to hereinafter as an "Approved Offer"); and (y)
Newco does not make, within five business days of Newco's receiving notice of
such third-party offer, an offer which the Board of Directors, after
consultation with its financial advisers, determines is superior to such
third-party offer. As used in this Section 5.2, "third-party offer" will mean
any bona fide Third Party offer, other than an offer by Newco or its Affiliates,
for a merger or other business combination involving the Company resulting in
the acquisition of more than 50% of the outstanding Shares or to acquire in any
manner more than 50% of the outstanding Shares or all or substantially all of
the assets of the Company. The Company will promptly notify Newco of the receipt
and the terms of any offer which it may receive in respect of an Acquisition
Proposal, including the identity of the offeror.
5.3. Access to Information. Between the date of this Agreement and the
Effective Time, the Company will, upon reasonable notice: (a) give Newco and its
authorized representatives access during regular business hours to all of the
Company's offices, warehouses and other facilities and to all of its books and
records; (b) permit Newco to make such inspections as it may require during
regular business hours; and (c) cause its officers to furnish Newco with such
financial and operating data and other information with respect to the business
and properties of the Company as Newco may from time to time reasonably request.
5.4. Reasonable Efforts. Subject to the terms and conditions herein,
and to the fiduciary duties of the Company's Board of Directors under applicable
laws, each of the parties hereto agrees to use its reasonable 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. 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 will take all such necessary
action. Such efforts will include, without limitation: (a) obtaining all
necessary consents, approvals or waivers from third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement; and (b) opposing vigorously any litigation or administrative
proceeding relating to this Agreement or the transactions contemplated hereby,
including, without limitation, promptly appealing any adverse court or agency
order.
5.5. Indemnification and Insurance. Newco agrees that all rights to
indemnification existing in favor of, and all limitations on the personal
liability of, the directors and officers of the Company provided for in the
Company's Articles of Incorporation (or similar organizational document) or its
By-Laws, as in effect as of the date hereof, with respect to matters occurring
prior to the Effective Time will continue without amendment in full force and
effect for a period of not less than six years from the Closing; provided,
however, that all rights to indemnification in respect of any claims (a "Claim")
asserted or made within such period will continue until the disposition of such
Claim. At or prior to the Effective Time, Newco also will continue the Company's
existing directors' and officers' liability insurance coverage for the Company's
directors in a form reasonably acceptable to the Company (including the same
policy limits and retention amounts that are contained in the existing policy)
and which will provide such directors with coverage for one (1) year following
the Effective Time. Notwithstanding anything to the contrary in this Section
5.5, nothing contained in this Section 5.5 will at any time be construed to
limit or otherwise impair or will at any time limit or otherwise impair the
rights of any officer or director to indemnification for acts occurring prior to
the Effective Time by the Company, any subsidiary or the Surviving Corporation
under the MBCA, it being understood that the provisions of this Section 5.5
constitute a contractual obligation.
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5.6. Financing; Equity Investment. Newco will use best efforts to
obtain the financing contemplated by the Commitment Letter and will obtain the
equity investments described in Section 3.5, in an aggregate amount sufficient
to consummate the Merger and the transactions contemplated hereby and to pay its
related fees and expenses, and will make such funds available to the Paying
Agent on or before the Effective Time. The parties acknowledge that the
Commitment Letter requires the Company to achieve minimum average monthly
revenues of $382,000, have cash at Closing of at least $745,000 and a borrowing
base at Closing sufficient to support an advance under the line of credit of at
least $800,000, which if not met would permit Bremer not to provide financing
under the Commitment Letter. If the financing under the Commitment Letter is not
made available by Bremer because the Company fails to meet the requirements,
Newco will not be deemed to have failed to use its best efforts to obtain such
financing; provided that Riedel has complied with Section 5.1.
5.7. Meeting of the Company's Shareholders. The Company will promptly
take all action necessary in accordance with the MBCA and its Articles of
Incorporation and By-Laws to convene the Meeting to consider and vote on a
proposal to permit Riedel to vote certain shares for which he has a proxy in
accordance with Section 708A.671 of the MBCA (the "302A.671 Vote") and to
consider and vote on the Merger and this Agreement. At the Meeting, all of the
Shares then owned by Newco and Riedel, or any Shares over which Newco or Riedel
have voting power, if any, will be voted to approve the Merger and this
Agreement. Subject to applicable fiduciary obligations to shareholders of the
Company as advised by counsel, the Board of Directors of the Company will
recommend that the Company's shareholders vote to approve (i) the 302A.671 Vote
and (ii) the Merger and this Agreement if either such vote is sought (which
recommendation will be included in the Proxy Statement), will use all reasonable
efforts to solicit from shareholders of the Company proxies in favor of the
Merger and will take all other action in its judgment necessary and appropriate
to secure the vote of shareholders required by the MBCA to effect the Merger.
5.8. Proxy Statement. The Company and Newco will prepare the Proxy
Statement, file it with the SEC under the Exchange Act as promptly as
practicable after the date hereof and use all reasonable efforts to have it
cleared by the SEC. As promptly as practicable after the Proxy Statement has
been cleared by the SEC, but in no event more than five business days following
such clearance, the Company will mail the Proxy Statement to the shareholders of
the Company as of the record date for the Meeting. The Company will use all
reasonable efforts to obtain and furnish the information required to be included
by it in the Proxy Statement and, after consultation with Newco, respond
promptly to any comments of the SEC relating to the preliminary proxy statement
relating to the transactions contemplated by this Agreement and to cause the
definitive proxy statement relating to the transactions contemplated by this
Agreement to be mailed to its shareholders, all at the earliest practical time.
Whenever any event occurs which should be set forth in an amendment or
supplement to the Proxy Statement or any other filing required to be made with
the SEC, each party will promptly inform the other and cooperate in filing with
the SEC and/or mailing to shareholders such amendment or supplement. The Proxy
Statement, and all amendments and supplements thereto, will comply with
applicable law and be in form and substance satisfactory to Newco.
5.9. Public Announcements. Newco and the Company will, to the fullest
extent practicable, consult with each other before issuing any press release or
otherwise making any public statement with respect to the Merger and will not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any governmental agency if
required by such agency or the rules of the National Association of Securities
Dealers, Inc. or the Nasdaq Small Cap Market.
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5.10. Section 302A.673. Prior to the Effective Time, a committee of
disinterested directors of the Board of Directors of the Company shall approve
the Merger in accordance with Section 302A.673 of the MBCA. From and after the
date hereof, the Company will not, except pursuant to an Approved Offer or as
otherwise provided in this Agreement, approve any acquisition of Shares by any
Person which would result in such person becoming an interested shareholder (as
such term is defined in Section 302A.011, Subd. 49 of the MBCA) or otherwise be
subject to Section 302A.673 of the MBCA.
5.11. Options and Warrants. Prior to the Effective Time, the Company
will take all action permitted under the Company's 1994 Stock Option Plan (the
"Company Option Plan") to cancel all outstanding options granted thereunder and
will obtain the agreement of each of non-employee director of the Company s to
cancel all Options held by them; provided that the Closing occurs. Prior to the
Effective Time, Newco shall issue and mail to all holders of warrants to
purchase Shares its agreement, in form and content reasonably satisfactory to
the Company, to assume the Company's obligations to provide the Merger
Consideration to such holders upon exercise of such warrants. The Company and
Newco will take such other actions (including, without limitation, giving
requisite notices to holders of Options advising such holders of the actions
taken pursuant to this Section 5.11 as are necessary to fully advise holders of
Options of their rights under this Agreement, the Company Option Plan and the
applicable stock option agreement or warrant agreement.
ARTICLE
6.
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1. Conditions to Obligations of each Party. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement will be subject to the fulfillment at or prior to the Closing of the
following conditions:
(a) Neither Newco nor the Company will be subject to any order, decree
or injunction of a court of competent jurisdiction within the United States
which (i) prevents or materially delays the consummation of the Merger or (ii)
would impose any material limitation on the ability of Newco effectively to
exercise full rights of ownership of the assets or business of the Company.
(b) No investigation and no suit, action or proceeding before any court
or any governmental or regulatory authority will be pending or threatened by any
Authority against Newco, the Company or any of their Affiliates, officers or
directors seeking to restrain, prevent or change in any material respect the
transactions contemplated hereby or seeking damages in connection with such
transactions.
(c) The approval of the shareholders of the Company with respect to the
transactions contemplated by this Agreement will have been obtained, in
accordance with applicable corporate law and the Articles of Incorporation of
the Company.
(d) Articles of Merger for the Merger will have been properly filed
with the Minnesota Secretary of State pursuant to the MBCA and will have become
effective.
(e) Prior to mailing the Proxy Statement, the Company will have
received a written opinion of Miller, Johnson & Kuehn, Incorporated to the
effect that the Merger Consideration to be delivered in connection with the
Merger is fair, from a financial point of view, to the shareholders of the
Company, and such opinion will not have been withdrawn prior to the Effective
Time.
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(f) The Merger Consideration will have been delivered to the Paying
Agent.
6.2. Conditions to Obligations of Newco. The obligations of Newco to
consummate the transactions contemplated by this Agreement will be subject to
the fulfillment at or prior to the Closing of the following additional
conditions:
(a) The representations and warranties of the Company and in all
certificates or other documents delivered by the Company to Newco will be true
and correct in all material respects on the date of this Agreement and (except
as to representations that specify a particular time, which will be true and
correct as of such time) on the Closing Date as though such representations and
warranties were made on or as of that date.
(b) The Company will have performed and complied in all material
respects with all agreements, obligations, covenants and conditions required by
this Agreement to be performed or complied with by them on or prior to the
Closing.
(c) (i) All consents required hereunder to consummate the transactions
contemplated hereby and to allow Newco to transact the business of the Company
following the Effective Time will have been obtained (and Newco will have
received copies thereof); (ii) such consents will be in effect and no proceeding
will have been initiated or threatened with respect thereto; all applicable
waiting periods with respect to such consents will have expired; (iii) all
conditions and requirements prescribed by applicable law or by such consents
will have been satisfied; and (iv) any consents required hereunder to consummate
the transactions contemplated hereby and to allow Newco to transact the business
of the Company following the Effective Time do not impose regulatory conditions
that cause a material adverse change in the financial condition or operations of
Newco.
(d) The form and substance of all legal matters contemplated hereby and
all papers delivered hereunder will be reasonably acceptable to Lindquist &
Vennum PLLP, counsel to Newco.
(e) The Company will have furnished such certificates of its respective
officers to evidence compliance with the conditions in Sections 6.1 and 6.2 to
be satisfied by the Company.
(f) Newco shall have obtained the financing referred to in the
Commitment Letter.
6.3. Conditions to Obligations of the Company. The obligation of the
Company to consummate the transactions contemplated by this Agreement will be
subject to the fulfillment at or prior to the Closing of the following
additional conditions:
(a) The representations and warranties of Newco contained herein will
be true and correct in all material respects on the date of this Agreement and
(except as to representations that specify a particular time) on the Closing
Date as though such representations and warranties were made on or as of that
date.
(b) Newco will have performed and complied in all material respects
with all agreements, obligations, covenants and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing.
(c) Newco will have delivered the Merger Consideration to the Paying
Agent.
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(d) The form and substance of all legal matters contemplated hereby and
all papers delivered hereunder will be reasonably acceptable to Oppenheimer
Wolff & Donnelly LLP, counsel to the Company.
(e) Newco will have furnished such certificates of its officers to
evidence compliance with the conditions in Sections 6.1 and 6.3 to be satisfied
by Newco.
(f) (i) All consents required hereunder to consummate the transactions
contemplated hereby will have been obtained; (ii) such consents will be in
effect and no proceeding will have been initiated or threatened with respect
thereto; and (iii) all applicable waiting periods with respect to such consents
will have expired; all conditions and requirements prescribed by law or by such
consents will have been satisfied.
ARTICLE
7.
TERMINATION; AMENDMENT; WAIVER
7.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the shareholders of the Company, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of
Directors of the Company and Newco;
(b) by either the Company or Newco:
(i) if the Merger has not been consummated on or before six
months after the date hereof, unless the failure to consummate the
Merger is the result of a material breach of this Agreement by the
party seeking to terminate this Agreement; or
(ii) if any court of competent jurisdiction or any other
governmental body has issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
has become final and nonappealable;
(c) by the Company if Newco fails to perform in any material respect
any of their respective obligations under this Agreement and such failure to
perform has not been cured within five business days after notice thereof is
given to Newco by the Company (except that no cure period will be provided for
any failure which, by its nature, cannot be cured);
(d) by Newco if the Company fails to perform in any material respect
any of its obligations under this Agreement and such failure to perform has not
been cured within five business days after notice thereof is given to the
Company by Newco (except that no cure period will be provided for any failure
which, by its nature, cannot be cured); or
(e) by the Company if the Board of Directors of the Company has
approved, accepted or recommended an Approved Offer in accordance with Section
5.2.
7.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement, except
for the provisions of Section 7.3, and will
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become void and have no effect, without any liability on the part of any party
or its directors, officers or shareholders. Nothing in this Section 7.2 will
relieve any party to this Agreement of liability for willful breach of this
Agreement.
7.3. Termination Fee; Reimbursement of Newco's Expenses.
(a) If Newco is not in material breach of any of its representations,
warranties, covenants or other obligations (including, without limitation, its
obligation to use best efforts to obtain financing pursuant to the Commitment
Letter) under this Agreement and this Agreement is terminated pursuant to
Section 7.1 (a), (b) or (d), then the Company will reimburse Newco for all
reasonable and documented out-of-pocket expenses and fees, including, without
limitation, fees payable to all banks, investment banking firms and other
financial institutions, and their respective agents, for arranging or providing
the financing, and all fees of counsel to Newco incurred by Newco in good faith
in connection with the negotiation, preparation, execution and performance of
this Agreement and the financing (all of the foregoing being referred to
collectively as the "Expenses"), subject to a maximum reimbursement of $75,000.
(b) If Newco is not in material breach of any of its representations,
warranties, covenants or other obligations (including, without limitation, its
obligation to use best efforts to obtain financing pursuant to the Commitment
Letter) under this Agreement and this Agreement is terminated by the Company
pursuant to Section 7.1(e) then the Company will pay Newco, upon the closing of
an Approved Offer, a "topping fee" of $150,000, which amount will be payable in
same day funds.
(c) If this Agreement is terminated pursuant to Section 7.1(a) or (b),
any severance benefits that the Company would otherwise be obligated to pay
Riedel upon termination of his employment with the Company pursuant to any
agreement, understanding, resolution of the Board or any committee of the Board
or otherwise, will be reduced by the amount of Expenses that the Company
reimburses Newco under this Agreement; provided, however, that the foregoing
offset shall not apply to any severance benefit that may become payable pursuant
to the letter agreement, dated April 20, 1998, between the Company and Riedel
providing for salary continuation in certain events following a change in
control of the Company.
(d) If this Agreement is terminated by either party for any other
reason, the Company will have no obligation to make any payments to Newco or
reimburse Newco for any Expenses.
7.4. Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the Boards of the
Company and Newco at any time before or after approval of this Agreement by the
shareholders of the Company but, after any such shareholder approval, no
amendment will be made which decreases or changes the form of the Merger
Consideration or which adversely affects the rights of the Company's
shareholders hereunder without the approval of all such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all the parties.
7.5. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken by or on behalf of the respective Boards of
Directors of the Company or Newco, 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 by any
other applicable party or in any document, certificate or writing delivered
pursuant hereto by any other applicable party; or (c) waive compliance with any
of the agreements or conditions contained herein. Any agreement on the part
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of any party to any such extension or waiver will be valid only if set forth in
an instrument in writing signed on behalf of such party.
ARTICLE
8.
MISCELLANEOUS
8.1. Non-Survival of Representations and Warranties. Except for Section
5.5 and the obligations contained in Article 2 hereof, none of the
representations and warranties made in this Agreement will survive after the
Effective Time. This Section 8.1 will not limit any covenant or agreement of the
parties hereto which by its terms contemplates performance after the Effective
Time.
8.2. Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof and
(b) will not be assigned by operation of law or otherwise.
8.3. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties will be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any federal or state
court located in the State of Minnesota (as to which the parties agree to submit
to jurisdiction for the purposes of such action), this being in addition to any
other remedy to which they are entitled at law or in equity.
8.4. Validity. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provisions of this Agreement, which will remain in full force and effect.
8.5. Notices. All notices, requests, claims, demands and other
communications hereunder will be in writing and will be deemed to have been duly
given when delivered in person, by cable, telegram, facsimile transmission with
confirmation of receipt, or telex, or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties as follows:
if to Newco:
Atrix Acquisition Corp.
14301 Ewing Avenue South
Burnsville, MN 55306
Attention: Steven D. Riedel
Fax: (612) 894-6154
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with a copy to:
Lindquist & Vennum PLLP
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attention: Robert Tunheim, Esq.
Fax: (612) 371-3207
if to the Company:
Atrix International, Inc.
c/o William E. Bennett
4170 Myrle
White Bear Lake, MN 55110
Fax: (651) 426-7913
with a copy to:
Oppenheimer Wolff & Donnelly LLP
Plaza VII, Suite 3400
45 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Thomas A. Letscher, Esq.
Fax: (612) 607-7100
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address will be effective only upon
receipt thereof).
8.6. Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws of the State of Minnesota regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto.
8.7. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
8.8. Parties in Interest. This Agreement will be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement except
for Section 5.5 (which is intended to be for the benefit of the persons entitled
to therein, and may be enforced by such persons).
8.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
will constitute one and the same agreement.
8.10. Expenses. Subject to Section 7.3, all costs and expenses incurred
in connection with the transactions contemplated by this Agreement will be paid
by the party incurring such expenses. Newco
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acknowledges and agrees that the Company has disclosed it is indebted for fees
and expenses (including fees and expenses of its counsel and financial advisors)
incurred by it in connection with the transactions contemplated by this
Agreement. It is understood that certain of such fees and expenses may be paid
by the Company prior to or after the execution of this Agreement, and Newco
agrees to refrain from taking any action which would interfere with the payment
of the foregoing fees and expenses by the Company.
8.11. Submission to Jurisdiction. The parties to this Agreement, acting
for themselves and for their respective successors and assigns, hereby
irrevocably and unconditionally consent to submit to the jurisdiction of the
federal or state courts located in the State of Minnesota for any actions, suits
or proceedings arising out of or relating to this Agreement (and none of such
persons will commence any action, suit or proceeding relating thereto except in
such courts). Such person hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement, in the federal or state courts located in the State of
Minnesota.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all at or on
the day and year first above written.
ATRIX ACQUISITION CORP.
By: /s/ Steven D. Riedel
--------------------------------
Steven D. Riedel, President
STEVEN D. RIEDEL
/s/ Steven D. Riedel
-----------------------------------
Steven D. Riedel
ATRIX INTERNATIONAL, INC.
By: /s/ Les Eck
--------------------------------
Les Eck, Director
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ANNEX B
December 17, 1998
The Special Committee of the Board of Directors and the Board of Directors
Atrix International, Inc.
14301 Ewing Avenue South
Burnsville, MN 55306
Members of the Board,
You have requested our opinion as to whether the consideration to be received by
the shareholders of the Company pursuant to the acquisition (the "Transaction")
of all the issued and outstanding shares of capital stock of Atrix
International, Inc. (the "Company") on a fully diluted basis ("Common Stock") by
an entity to be formed by current management of the Company (the "Acquiror") is
fair, from a financial point of view.
We are not opining as to any other transactions or contractual arrangements
previously entered into, or to be entered into (whether or not in connection
with the Transaction) between the Company, or its Board of Directors or
management, on the one hand, and the Acquiror (or any of its affiliates) or any
other person, on the other, including without limitation, any agreements entered
into and the payments made in connection therewith. Additionally, our opinion
relates solely to whether the consideration is fair, from a financial point of
view, to the shareholders of the Company and we have not been requested to opine
on, and this opinion does not in any manner address, the Company's underlying
decision to proceed with or effect the Transaction.
We understand that (i) the purchase price per share to be paid by the Acquiror
for the Common Stock will be $2.00 in cash; and (ii) the aggregate consideration
to be received by the shareholders of the Company in connection with the
Transaction is $2,826,898.
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As a customary part of our investment banking business, we are engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements, and valuations for estate, corporate and other purposes. For our
services in rendering this opinion, the Company will pay us a fee and indemnify
us against certain liabilities. We have never managed a public offering of stock
for either the Company or the Acquiror, have not acted as a financial advisor in
the Transaction for either the Company or the Acquiror, do not provide research
coverage on the Company or the Acquiror and, in the ordinary course of our
business, do not make a market in the stock of either the Company or the
Acquiror.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
As the Transaction is to provide the shareholders of the Company with cash and
not securities of any kind from the Acquiror, we have limited our evaluation to
a review of the business and financial condition of the Company. Among other
things, we have reviewed, but have not limited our review to: (i) the
correspondence between Mr. Steven Riedel and the Board of Directors of the
Company or certain members thereof, during the months of June, July, and August
of 1998; (ii) the Agreement and Plan of Merger between Atrix, International,
Inc. and Newco, Inc. (the "Merger Agreement"); and (iii) the Proxy Statement
draft dated December , 1998. In addition, we have (i) conducted interviews with
management of the Company; (ii) conducted telephone interviews with the
Company's major suppliers and customers; (iii) toured the Company's facilities;
(iv) reviewed and discussed with Company senior management ("Management") its
five year financial projections, which, on our request, have been augmented by
Management to include a Statement of Income for the Company's two divisions:
Machine Tools and Data Processing Management; (v) reviewed financial and other
publicly available information with respect to the Company, including annual
reports, Forms 10-KSB and 10-QSB and proxy statements; (vi) consulted government
and industry economic statistics that could have a direct bearing on the
business of Company; and (vii) examined securities data on comparable mergers
and acquisitions of similar public companies, to the extent available.
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The opinion contained herein is subject to the following qualifications: (i) we
have relied upon and assumed the accuracy and completeness of the financial and
other information (including the financial statements and projections of the
Company) provided to us and prepared by the Company and its Management and their
representations relating thereto, and we have not independently verified any
such information or representations; (ii) with respect to the Company's
projections, budgets and current estimates, we have assumed, based upon
representations of the Company's Management, that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's Management as to the expected future performance of
the Company; (iii) we have relied upon and assumed the accuracy and completeness
of the information provided by, and the representations of, the Company's
Management and Board of Directors in respect of which our understandings set
forth on this opinion are based and we have relied upon the assurance of the
Company's Management that they are unaware of any facts that would make the
information provided to us incomplete or misleading; (iv) we have not performed
or obtained any independent appraisals or valuations of specific assets of the
Company and we express no opinion as to its liquidation value; (v) our analysis
is necessarily based on economic, monetary, market and other conditions existing
and which can be evaluated as of the date of our opinion (however, such
conditions are subject to rapid and unpredictable change); and (vi) we have not
been authorized by the Company or the Board to solicit, nor have we solicited,
offers for transactions alternative to the Transaction, nor have we been asked
to advise the Company or the Board as to financial alternatives to the
Transaction.
Finally, in rendering our opinion, we have considered the current price per
share of the Company's Common Stock and current market conditions. We have also
examined the trading volume and liquidity of the Company's Common Stock and its
current price per share during the last two years.
This opinion is furnished pursuant to our engagement letter, dated October 14,
1998, as one element in the Board's consideration of the proposed Transaction.
This opinion is not to be
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used for any other purpose or reproduced, disseminated, quoted or referred to at
any time, in whole or in part, in any manner, or for any purpose, without our
prior written consent. We consent to the inclusion of this opinion in Schedule
13E-3 and the Proxy Statement.
Based upon and subject to the foregoing, and upon such other factors as we
consider relevant, it is our opinion that the consideration to be received by
the shareholders of the Company pursuant to the Transaction is fair, from a
financial point of view, to the shareholders of the Company.
Very truly yours,
/s/ Miller, Johnson & Kuehn, Incorporated
Miller, Johnson & Kuehn, Incorporated
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ANNEX C
SECTION 302A.471. RIGHTS OF DISSENTING SHAREHOLDERS.
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control shares acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
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(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
SUBDIVISION 2. BENEFICIAL OWNERS.
(a) A shareholder shall not assert dissenters' rights as to less than
all of the shares registered in the name of the shareholder, unless the
shareholder dissents with respect to all the shares that are beneficially
owned by another person but registered in the name of the shareholder and
discloses the name and address of each beneficial owner on whose behalf the
shareholder dissents. In that event, the rights of the dissenter shall be
determined as if the shares as to which the shareholder has dissented and
the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under
the terms of this section and section 302A.473, if the beneficial owner
submits to the corporation at the time of or before the assertion of the
rights a written consent of the shareholder.
SUBDIVISION 3. RIGHTS NOT TO APPLY.
(a) Unless the articles, the bylaws, or a resolution approved by the
board otherwise provide, the right to obtain payment under this section
does not apply to a shareholder of the surviving corporation in a merger,
if the shares of the shareholder are not entitled to be voted on the
merger.
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders entitled to vote on an action
described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
SUBDIVISION 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
SECTION 302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
SUBDIVISION 1. DEFINITIONS. For purposes of this section, the terms defined in
this subdivision have the meanings given them.
(a) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1,
or the successor by merger of that issue.
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(b) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(c) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision
1, up to and including the date of payment, calculated at the rate provided
in section 549.09 for interest on verdicts and judgments.
SUBDIVISION 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1, is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBDIVISION 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholder, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
SUBDIVISION 4. NOTICE OF PROCEDURES; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders
who have complied with subdivision 3 and to all shareholders entitled to
dissent if no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the
date by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that
will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them and to demand
payments; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice required by paragraph (a)
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was given, but the dissenter retains all other rights of a shareholder
until the proposed action takes effect.
SUBDIVISION 5. PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation
shall remit to each dissenting shareholder who has complied with
subdivisions 3 and 4 the amount the corporation estimates to be the fair
value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the
effective date of the corporate action, together with the latest
available interim financial statements;
(2) An estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the
estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may not withhold the remittance described in
paragraph (a) from a person who was not a shareholder on the date the
action dissented from was first announced to the public or who is
dissenting on behalf of a person who was not a beneficial owner on that
date. If the dissenter has complied with subdivisions 3 and 4, the
corporation shall forward to the dissenter the materials described in
paragraph (a), a statement of the reason for withholding the remittance,
and an offer to pay to the dissenter the amount listed in the materials if
the dissenter agrees to accept that amount in full satisfaction. The
dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
cancel all transfer restrictions. However, the corporation may again give
notice under subdivision 4 and require deposit or restrict transfer at a
later time.
SUBDIVISION 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
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SUBDIVISION 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that received a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this preceding. The jurisdiction
of the court is plenary and exclusive. The court may appoint appraisers, with
powers and authorities the court deems proper, to receive evidence on and
recommend the amount of the fair value of the shares. The court shall determine
whether the shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees fit
to use, whether or not used by the corporation or by a dissenter. The fair value
of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment in cash for the amount by
which the fair value of the shares as determined by the court, plus interest,
exceeds the amount, if any, remitted under subdivision 5, but shall not be
liable to the corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
SUBDIVISION 8. COST; FEES; EXPENSES.
(a) The court shall determine the costs and expenses of a proceeding
under subdivision 7, including the reasonable expenses and compensation of
any appraisers appointed by the court, and shall assess those costs and
expenses against the corporation, except that the court may assess part or
all of those costs and expenses against a dissenter whose action in
demanding payment under subdivision 6 is found to be arbitrary, vexatious,
or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured in those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
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Annex D
INFORMATION STATEMENT
This Information Statement is provided to Atrix International, Inc., a
Minnesota corporation ("Atrix" or the "Company") by Steven D. Riedel ("Riedel")
pursuant to the requirements of the Minnesota Control Share Acquisition Act
contained in ss.302A.671 of the Minnesota Business Corporation Act (the "MBCA").
The Minnesota Control Share Acquisition Act requires shareholder approval in the
event that any person acquires voting power of a public corporation exceeding
certain specified thresholds (20% - 33 1/3% - 50%). Without shareholder
approval, the shares acquired will have only limited voting rights.
On November 24, 1998, Riedel entered into a Shareholder Agreement (the
"Shareholder Agreement") with Jerry E. Mathwig ("Mathwig") in which Riedel
received an irrevocable proxy to vote the 345,500 shares of Atrix Common Stock
owned by Mathwig in favor of a proposed merger (the "Merger") between Atrix and
Atrix Acquisition Corp., a Minnesota corporation ("Newco") which is controlled
by Riedel (See Proposal No. 2) and certain other matters. As the Merger involves
a transaction directly with Atrix, it is not a "control share acquisition" under
the Minnesota Control Share Acquisition Act. However, the acquisition by Riedel
of the ability to vote 20% or more of the outstanding shares of Atrix Common
Stock in connection with the Merger appears to constitute a "control share
acquisition" that requires shareholder approval to allow Riedel to vote more
than 19.99% of the outstanding shares of Atrix Common Stock.
1. IDENTITY AND BACKGROUND
Steven D. Riedel is the President, Chief Executive Officer and a Director
of Atrix and his business address is Atrix International, Inc., 14301 Ewing
Avenue South, Burnsville, Minnesota 55306. Atrix develops, markets and services
the R3 copy control system and software, the A-Trax production monitoring
system, vacuum cleaners, cleaning equipment and supplies, hand tools and custom
tool kits, static protection products, instrumentation, and specialty tools.
Riedel is also the sole current shareholder, director and officer of Newco.
Newco has obtained the agreement of Clifford B. Meacham, a current director of
Atrix, to acquire preferred stock of Newco that will be convertible into 5% of
the outstanding common stock of Newco, contingent upon the closing of the
Merger.
2. HISTORY OF CONTROL SHARE ACQUISITIONS
Prior to his execution of the Shareholder Agreement with Mathwig, Riedel
owned 27,125 shares of Atrix Common Stock and had the right to acquire an
additional 51,875 shares of Atrix Common Stock pursuant to outstanding options
and warrants. As a result of the execution of the Shareholder Agreement, Riedel
has the right to vote shares of Atrix Common Stock
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owned by Mathwig in favor of the Merger and certain related matters.
3. TERMS OF CONTROL SHARE ACQUISITIONS
In connection with the execution of the Shareholder Agreement, no money
changed hands and each of Messrs. Mathwig and Riedel paid the expenses incurred
in connection with the negotiation of the Shareholder Agreement from their
personal funds. Such expenses were not material.
Pursuant to the Shareholder Agreement, Mathwig agreed to vote (or cause to
be voted) the shares held of record or beneficially owned by him:
(a) in favor of a proposed Merger (See Proposal No. 2) between Atrix and Newco,
the execution and delivery by Atrix of the Merger Agreement with respect to the
Merger and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and the Shareholder Agreement and any
actions required in furtherance thereof, but only if the Merger consideration to
be paid to the Atrix shareholders is not less than $2.00 per Share; and
(b) except as otherwise agreed to in writing in advance by Riedel, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (i) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving Atrix; (ii) a
sale, lease or transfer of a material amount of assets of Atrix or a
reorganization, recapitalization, dissolution or liquidation of Atrix; or (iii)
a change in the majority of the Board of Directors of Atrix, any material change
in the present capitalization of Atrix, any amendment to the Articles of
Incorporation of Atrix, any other material change in the corporate structure or
business of Atrix, or any other action which is intended or could reasonably be
expected to impede, interfere with, delay, postpone, discourage or materially
adversely affect the contemplated economic benefits to Newco or Riedel of the
Merger or the transactions contemplated by the Merger Agreement.
Mathwig also granted to Riedel his irrevocable proxy and attorney-in-fact
(with full power of substitution) to vote his shares of Atrix Common Stock for
the Merger and otherwise in accordance with the voting agreements referenced
above. Mathwig retains full voting authority and discretion as to all other
matters which may be presented to the shareholders of Atrix for vote or consent.
Mathwig also agreed that he will not, directly or indirectly, solicit or respond
to any inquiries or the making of any proposal by any person or entity (other
than Riedel or Newco) with respect to Atrix that constitutes or could reasonably
be expected to lead to a merger or sale of all or substantially all of the
assets of capital stock of Atrix (other than the Merger), and he will
immediately cease any existing activities, discussions or negotiations with any
parties with respect to any of the foregoing.
The covenants and agreements contained in the Shareholder Agreement
with respect to the shares of Atrix Common Stock owned by Mathwig terminate on
the first to occur of (a) the
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effective time of the Merger; (b) the date upon which the Merger Agreement is
terminated in accordance with its terms; (c) a failure to enter into a
definitive Merger Agreement by December 18, 1998; (d) a failure of Riedel to use
best efforts to consummate the Merger as soon as practicable following the date
on which a definitive Merger Agreement is signed, including the filing by Atrix
of preliminary proxy materials and the filing by Riedel of Schedule 13E-3 no
later than December 24, 1998, the mailing by Atrix of proxy materials to Atrix
shareholders within five business days after clearance of such materials by the
Securities and Exchange Commission ("SEC") and holding the meeting of Atrix
shareholders to approve the Merger Agreement no later than 45 days after SEC
clearance of the proxy materials; (e) upon written release from Riedel and (f)
at any time when the current bid price for Atrix Common Stock, as reported by
Nasdaq, remains at or above $2.10 per share for a period of three consecutive
trading days.
Riedel entered into the Shareholder Agreement in contemplation of the
proposed Merger. The terms and conditions of the Merger, including the
consideration to be received by Atrix shareholders, are explained in detail in
the Proxy Statement to which this Information Statement is an attachment. All
shareholders are urged to carefully review such information and the conditions
to the closing of the Merger. As a result of the Merger, Atrix would cease to be
a public corporation.
If the Merger is consummated, Riedel, through Newco, currently plans to
continue the Company's current operations. Riedel has no current plans or
proposals to liquidate or dissolve Atrix, sell all or a substantial part of the
Company's assets, or merge the Company or exchange its shares with any other
person (except in the Merger), or to change the location of the Company's
principal place of business or its principal executive office or of a material
portion of its business activities.
In addition, Riedel has no current plans or proposals to change materially
the Company's management or policies of employment, to change materially the
Company's charitable or community contributions or its policies, programs, or
practices relating hereto. Riedel has no current plans or proposals to change
materially the Company's relationship with its suppliers or customers or the
communities in which it operates, or to make any other material change in the
Company's business, corporate structure, management or personnel.
However, if the Merger is consummated, Riedel would change the composition
of the Board of Atrix. At this time, Riedel is the sole shareholder, director
and officer of Newco, but he currently contemplates that prior to consummation
of the Merger the Board of Newco will consist of three persons, Riedel, Clifford
Meacham and a third director to be named. Newco's planned source of financing
for the Merger, Bremer Business Finance Corporation, has indicated in its
commitment letter with Newco that it will receive the right to a seat on Newco's
Board of Directors and, if this right is not exercised, it will have observation
rights. Because of the change in Board composition, the new Board may suggest or
effect changes based on its ongoing review of the Company's business, operation,
management, corporate structure and personnel, although no such changes are
currently contemplated or expected.
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ANNEX E
SECTION 302A.671. CONTROL SHARE ACQUISITION.
SUBDIVISION 1. APPLICATION.
(a) Unless otherwise expressly provided in the articles or in bylaws
approved by the shareholders of an issuing public corporation, this
section applies to a control share acquisition;
(b) The shares of an issuing public corporation acquired by an acquiring
person in a control share acquisition that exceed the threshold of
voting power of any of the ranges specified in subdivision 2,
paragraph (d), shall have only the voting rights as shall be accorded
to them pursuant to subdivision 4a.
SUBDIVISION 2. INFORMATION STATEMENT.
An acquiring person shall deliver to the issuing public corporation at its
principal executive office an information statement containing all of the
following:
(a) The identity and background of the acquiring person, including the
identity and background of each member of any partnership, limited
partnership, syndicate, or other group constituting the acquiring
person, and the identity and background of each affiliate and
associate of the acquiring person, including the identity and
background of each affiliate and associate of each member of such
partnership, syndicate, or other group; provided, however, that with
respect to a limited partnership, the information need only be given
with respect to a partner who is denominated or functions as a general
partner and each affiliate and associate of the general partner;
(b) A reference that the information statement is made under this section;
(c) The number and class or series of shares of the issuing public
corporation beneficially owned, directly or indirectly, before the
control share acquisition by each of the persons identified pursuant
to paragraph (a);
(d) The number and class or series of shares of the issuing public
corporation acquired or proposed to be acquired pursuant to the
control share acquisition by each of the persons identified pursuant
to paragraph (a) and specification of which of the following ranges of
voting power in the election of directors that, except for this
section, resulted or would result from consummation of the control
share acquisition:
(1) at least 20 percent but less than 33-1/3 percent;
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(2) at least 33-1/3 percent but less than or equal to 50 percent;
(3) over 50 percent; and
(e) The terms of the control share acquisition or proposed control share
acquisition, including, but not limited to, the source of funds or
other consideration and the material terms of the financial
arrangements for the control share acquisition; plans or proposals of
the acquiring person (including plans or proposals under
consideration) to (1) liquidate or dissolve the issuing public
corporation, (2) sell all or a substantial part of its assets, or
merge it or exchange its shares with any other person, (3) change the
location of its principal place of business or its principal executive
office or a material portion of its business activities, (4) change
materially its management or policies of employment, (5) change
materially its charitable or community contributions or its policies,
programs, or practices relating thereto, (6) change materially its
relationship with suppliers or customers or the communities in which
it operates, or (7) make any other material change in its business,
corporate structure, management or personnel; and other objective
facts as would be substantially likely to affect the decision of a
shareholder with respect to voting on the control share acquisition.
If any material change occurs in the facts set forth in the
information statement, including but not limited to any material
increase or decrease in the number of shares of the issuing public
corporation acquired or proposed to be acquired by the persons
identified pursuant to paragraph (a), the acquiring person shall
promptly deliver to the issuing public corporation at its principal
executive office an amendment to the information statement containing
information relating to the material change. An increase or decrease
or proposed increase or decrease equal, in the aggregate for all
persons identified pursuant to paragraph (a), to one percent or more
of the total number of outstanding shares of any class or series of
the issuing public corporation shall be deemed "material" for purposes
of this paragraph; an increase or decrease or proposed increase or
decrease of less than this amount may be material, depending upon the
facts and circumstances.
SUBDIVISION 3. MEETING OF SHAREHOLDERS.
If the acquiring person so requests in writing at the time of delivery of
an information statement pursuant to subdivision 2, and has made, or has
made a bona fide written offer to make, a control share acquisition and
gives a written undertaking to pay or reimburse the issuing public
corporation's expenses of a special meeting, except the expenses of the
issuing public corporation in opposing according voting rights with respect
to shares acquired or to be acquired in the control share acquisition,
within ten days after receipt by the issuing public corporation of the
information statement, a special meeting of the shareholders of the issuing
public corporation shall be called pursuant to section 302A.433,
subdivision 1, for the sole purpose of considering the voting rights to be
accorded to shares referred to in subdivision 1, paragraph (b), acquired or
to be acquired pursuant to the control share acquisition. The special
meeting shall be held no later than
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55 days after receipt of the information statement and written undertaking
to pay or reimburse the issuing public corporation's expenses of the
special meeting, unless the acquiring person agrees to a later date. If the
acquiring person so requests in writing at the time of delivery of the
information statement, (1) the special meeting shall not be held sooner
than 30 days after receipt by the issuing public corporation of the
information statement and (2) the record date for the meeting must be at
least 30 days prior to the date of the meeting. If no request for a special
meeting is made, consideration of the voting rights to be accorded to
shares referred to in subdivision 1, paragraph (b), acquired or to be
acquired pursuant to the control share acquisition shall be presented at
the next special or annual meeting of the shareholders, unless prior
thereto the matter of the voting rights becomes moot. The notice of the
meeting shall at a minimum be accompanied by a copy of the information
statement (and a copy of any amendment to the information statement
previously delivered to the issuing public corporation) and a statement
disclosing that the board of the issuing public corporation recommends
approval of, expresses no opinion and is remaining neutral toward,
recommends rejection of, or is unable to take a position with respect to
according voting rights to shares referred to in subdivision 1, paragraph
(b), acquired or to be acquired in the control share acquisition. The
notice of meeting shall be given at least ten days prior to the meeting.
Any amendments to the information statement received after mailing of the
notice of the meeting must be mailed promptly to the shareholders by the
issuing public corporation.
SUBDIVISION 4. FINANCING.
Notwithstanding anything to the contrary contained in this chapter, no call
of a special meeting of the shareholders of the issuing public corporation
shall be made pursuant to subdivision 3 and no consideration of the voting
rights to be accorded to shares referred to in subdivision 1, paragraph
(b), acquired or to be acquired pursuant to a control share acquisition
shall be presented at any special or annual meeting of the shareholders of
the issuing public corporation unless at the time of delivery of the
information statement pursuant to subdivision 2, the acquiring person shall
have entered into, and shall deliver to the issuing public corporation a
copy or copies of, a definitive financing agreement or definitive financing
agreements, with one or more responsible financial institutions or other
entities having the necessary financial capacity, for any financing of the
control share acquisition not to be provided by funds of the acquiring
person. A financing agreement is not deemed not definitive for purposes of
this subdivision solely because it contains conditions or contingencies
customarily contained in term loan agreements with financial institutions.
SUBDIVISION 4A. VOTING RIGHTS.
(a) Shares referred to in subdivision 1, paragraph (b), acquired in a
control share acquisition shall have the same voting rights as other
shares of the same class or series only if approved by resolution of
shareholders of the issuing public corporation at a special or annual
meeting of shareholders pursuant to subdivision 3;
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(b) The resolution of shareholders must be approved by (1) the affirmative
vote of the holders of a majority of the voting power of all shares
entitled to vote including all shares held by the acquiring person,
and (2) the affirmative vote of the holders of a majority of the
voting power of all shares entitled to vote excluding all interested
shares. A class or series of shares of the issuing public corporation
is entitled to vote separately as a class or series if any provision
of the control share acquisition would, if contained in a proposed
amendment to the articles, entitle the class or series to vote
separately as a class or series;
(c) To have the voting rights accorded by approval of a resolution of
shareholders, any proposed control share acquisition not consummated
prior to the time of the shareholder approval must be consummated
within 180 days after the shareholder approval;
(d) Any shares referred to in subdivision 1, paragraph (b), acquired in a
control share acquisition that do not have voting rights accorded to
them by approval of a resolution of shareholders shall regain their
voting rights upon transfer to a person other than the acquiring
person or any affiliate or associate of the acquiring person unless
the acquisition of the shares by the other person constitutes a
control share acquisition, in which case the voting rights of the
shares are subject to the provisions of this section.
SUBDIVISION 5. RIGHTS OF ACTION.
An acquiring person, an issuing public corporation, and shareholders of an
issuing public corporation may sue at law or in equity to enforce the
provisions of this section and section 302A.449, subdivision 7.
SUBDIVISION 6. REDEMPTION.
Unless otherwise expressly provided in the articles or in bylaws approved
by the shareholders of an issuing public corporation, the issuing public
corporation shall have the option to call for redemption all but not less
than all shares referred to in subdivision 1, paragraph (b), acquired in a
control share acquisition, at a redemption price equal to the market value
of the shares at the time the call for redemption is given, in the event
(1) an information statement has not been delivered to the issuing public
corporation by the acquiring person by the tenth day after the control
share acquisition, or (2) an information statement has been delivered but
the shareholders have voted not to accord voting rights to such shares
pursuant to subdivision 4a, paragraph (b). The call for redemption shall be
given by the issuing public corporation within 30 days after the event
giving the issuing public corporation the option to call the shares for
redemption and the shares shall be redeemed within 60 days after the call
is given.
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SECTION 302AA011. DEFINITIONS.
SUBDIVISION 37. ACQUIRING PERSON.
"Acquiring person" means a person that makes or proposes to make a control
share acquisition. When two or more persons act as a partnership, limited
partnership, syndicate, or other group pursuant to any written or oral
agreement, arrangement, relationship, understanding, or otherwise for the
purposes of acquiring, owning, or voting shares of an issuing public
corporation, all members of the partnership, syndicate, or other group
constitute a "person."
"Acquiring person" does not include (a) a licensed broker/dealer or
licensed underwriter who (1) purchases shares of an issuing public
corporation solely for purposes of resale to the public and (2) is not
acting in concert with an acquiring person, or (b) a person who becomes
entitled to exercise or direct the exercise of a new range of voting power
within any of the ranges specified in section 302A.671, subdivision 2,
paragraph (d), solely as a result of a repurchase of shares by, or
recapitalization of, the issuing public corporation or similar action
unless (1) the repurchase, recapitalization, or similar action was proposed
by or on behalf of, or pursuant to any written or oral agreement,
arrangement, relationship, understanding, or otherwise with, the person or
any affiliate or associate of the person or (2) the person thereafter
acquires beneficial ownership, directly or indirectly, of outstanding
shares entitled to vote of the issuing public corporation and, immediately
after the acquisition, is entitled to exercise or direct the exercise of
the same or a higher range of voting power under section 302A.671,
subdivision 2, paragraph (d), as the person became entitled to exercise as
a result of the repurchase, recapitalization, or similar action.
SUBDIVISION 38. CONTROL SHARE ACQUISITION.
"Control share acquisition" means an acquisition, directly or indirectly,
by an acquiring person of beneficial ownership of shares of an issuing
public corporation that, except for section 302A.671, would, when added to
all other shares of the issuing public corporation beneficially owned by
the acquiring person, entitle the acquiring person, immediately after the
acquisition, to exercise or direct the exercise of a new range of voting
power within any of the ranges specified in section 302A.671, subdivision
2, paragraph (d), but does not include any of the following:
(a) An acquisition before, or pursuant to an agreement entered into
before, August 1, 1984;
(b) An acquisition by a donee pursuant to an inter vivos gift not made to
avoid section 302A.671 or by a distributee as defined in section
524.1-201, clause (10);
(c) An acquisition pursuant to a security agreement not created to avoid
section 302A.671;
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(d) An acquisition under sections 302A.601 to 302A.661, if the issuing
public corporation is a party to the transaction;
(e) An acquisition from the issuing public corporation;
(f) An acquisition for the benefit of others by a person acting in good
faith and not made to avoid section 302A.671, to the extent that the
person may not exercise or direct the exercise of the voting power or
disposition of the shares except upon the instruction of others;
(g) An acquisition pursuant to a savings, employee stock ownership, or
other employee benefit plan of the issuing public corporation or any
of its subsidiaries, or by a fiduciary of the plan acting in a
fiduciary capacity pursuant to the plan; or
(h) An acquisition subsequent to January 1, 1991, pursuant to an offer to
purchase for cash pursuant to a tender offer all shares of the voting
stock of the issuing public corporation:
(i) which has been approved by a majority vote of the members of a
committee comprised of the disinterested members of the board of
the issuing public corporation formed pursuant to section
302A.673, subdivision 1, paragraph (d), before the commencement
of, or the public announcement of the intent to commence, the
tender offer; and
(ii) pursuant to which the acquiring person will become the owner of
over 50 percent of the voting stock of the issuing public
corporation outstanding at the time of the transaction.
For purposes of this subdivision, shares beneficially owned by a plan
described in clause (g), or by a fiduciary of a plan described in clause
(g) pursuant to the plan, are not deemed to be beneficially owned by a
person who is a fiduciary of the plan. All shares the beneficial ownership
of which is acquired within a 120-day period, and all shares the beneficial
ownership of which is acquired pursuant to a plan to make a control share
acquisition, shall be deemed to have been acquired in the same acquisition.
SUBDIVISION 39. ISSUING PUBLIC CORPORATION.
"Issuing public corporation" means a corporation which has at least 50
shareholders.
SUBDIVISION 40. PUBLICLY HELD CORPORATION.
"Publicly held corporation" means a corporation that has a class of equity
securities registered pursuant to section 12, or is subject to section
15(d), of the Securities Exchange Act of 1934.
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SUBDIVISION 41. BENEFICIAL OWNER; BENEFICIAL OWNERSHIP.
(a) "Beneficial owner," when used with respect to shares or other
securities, includes, but is not limited to, any person who, directly
or indirectly through any written or oral agreement, arrangement,
relationship, understanding, or otherwise, has or shares the power to
vote, or direct the voting of, the shares or securities or has or
shares the power to dispose of, or direct the disposition of, the
shares or securities, except that:
(1) a person shall not be deemed the beneficial owner of shares or
securities tendered pursuant to a tender or exchange offer made
by the person or any of the person's affiliates or associates
until the tendered shares or securities are accepted for purchase
or exchange; and
(2) a person shall not be deemed the beneficial owner of shares or
securities with respect to which the person has the power to vote
or direct the voting arising solely from a revocable proxy given
in response to a proxy solicitation required to be made and made
in accordance with the applicable rules and regulations under the
Securities Exchange Act of 1934 and is not then reportable under
that act on a Schedule 13D or comparable report, or, if the
corporation is not subject to the rules and regulations under the
Securities Exchange Act of 1934, would have been required to be
made and would not have been reportable if the corporation had
been subject to the rules and regulations.
(b) "Beneficial ownership" includes, but is not limited to, the right to
acquire shares or securities through the exercise of options,
warrants, or rights, or the conversion of convertible securities, or
otherwise. The shares or securities subject to the options, warrants,
rights, or conversion privileges held by a person shall be deemed to
be outstanding for the purpose of computing the percentage of
outstanding shares or securities of the class or series owned by the
person, but shall not be deemed to be outstanding for the purpose of
computing the percentage of the class or series owned by any other
person. A person shall be deemed the beneficial owner of shares and
securities beneficially owned by any relative or spouse of the person
or any relative of the spouse, residing in the home of the person, any
trust or estate in which the person owns ten percent or more of the
total beneficial interest or serves as trustee or executor or in a
similar fiduciary capacity, any corporation or entity in which the
person owns ten percent or more of the equity, and any affiliate of
the person;
(c) When two or more persons act or agree to act as a partnership, limited
partnership, syndicate, or other group for the purposes of acquiring,
owning, or voting shares or other securities of a corporation, all
members of the partnership, syndicate, or other group are deemed to
constitute a "person" and to have acquired beneficial
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ownership, as of the date they first so act or agree to act together,
of all shares or securities of the corporation beneficially owned by
the person.
SUBDIVISION 42. INTERESTED SHARES.
"Interested shares" means the shares of an issuing public corporation
beneficially owned by any of the following persons:
(1) the acquiring person;
(2) any officer of the issuing public corporation; or
(3) any employee of the issuing public corporation who is also a
director of the issuing public corporation.
SUBDIVISION 43. AFFILIATE.
"Affiliate" means a person that directly or indirectly controls, is
controlled by, or is under common control with, a specified person.
<PAGE>
Preliminary Copy
ANNEX F
ATRIX INTERNATIONAL, INC.
BYLAW PROVISION
ARTICLE II, SECTION 2.11 OF THE BYLAWS
SECTION 2.11. NOTIFICATIONS OF NOMINATIONS AND PROPOSED BUSINESS. Except
as otherwise required by the corporation's Articles of Incorporation (including
any certificate of designation for any class of preferred stock) or applicable
law, (a) nominations for the election of directors and (b) business proposed to
be brought before any shareholder meeting may be made (x) by or at the direction
of the Board of Directors or (y) by any shareholder entitled to vote in the
election of directors generally who complies with the procedures set forth in
this Article II, Section 2.11. For any such shareholder to nominate one or more
persons for election as directors at a meeting of shareholders or to propose
business to be brought before a meeting of shareholders, or both, such
shareholder must have given timely notice in proper written form of his or her
intent to make such nomination or nominations or to propose such business. To
be timely, a shareholder's notice must be delivered to or mailed and received by
the Chairman of the Board or the Chief Executive Officer of the corporation not
less than forty-five (45) days nor more than ninety (90) days prior to the
scheduled date of such meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if the
corporation gives less than fifty-five (55) days' notice of such meeting, notice
by the shareholder to be timely must be so delivered or received not later than
the close of business on the tenth (10th) day after the date on which the
corporation first mailed notice of such meeting; provided further that if the
meeting is a special meeting of shareholders that is being called at the demand
of a shareholder in accordance with applicable law, to be timely the shareholder
demanding such special meeting must so deliver the notice required pursuant to
this Article II, Section 2.11 at or before the delivery by the shareholder of
the shareholder's demand for such special meeting of shareholders. To be in
proper written form, a shareholder's notice to the corporation shall set forth:
(i) the name and address of the shareholder who intends to make the nominations
or propose the business and any other shareholders known by such shareholder to
be supporting such nominations or proposals; (ii) the number of shares of each
class of capital stock of the corporation beneficially owned by the shareholder
who intends to make the nominations or propose the business and any other
shareholders known by such shareholder to be supporting such nominations or
proposals; (iii) if applicable, the name, age, principal occupation or
employment, business and residence address and telephone number of each nominee,
and number of shares of each class of capital stock of the corporation
beneficially owned by each nominee; (iv) if applicable, a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (v) if applicable,
the consent of each nominee to serve as a director of the corporation if so
elected; (vi) if applicable, a brief description of the business to be proposed
by the shareholder at the meeting, the reasons for such proposal and a
description of any material interest of the shareholder in such proposal; and
(vii) such other information regarding each nominee or each proposal that is
required to be disclosed in the solicitation of proxies by the Board of
Directors pursuant to the proxy rules of the Securities and Exchange Commission,
whether or not the corporation is then subject to such proxy rules. If the
presiding officer of the meeting of shareholders determines that the nomination
of any persons or proposal of any business was not made in accordance with this
Article II, Section 2.11, he or she shall so declare at the meeting and such
nomination or proposal shall not be acted upon at the meeting.
<PAGE>
This Proxy is Solicited on Behalf of the Board of Directors of Atrix
International, Inc.
The undersigned hereby appoints [name] and [name], and each of them, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares of
common stock of Atrix International, Inc. held of record by the undersigned on
May __, 1999, at the Annual Meeting of Shareholders to be held on June 15, 1999.
<TABLE>
<S> <C>
1. PROPOSAL TO ENABLE STEVEN D. RIEDEL TO VOTE, UNDER THE MINNESOTA CONTROL SHARE
ACQUISITION ACT, ALL SHARES OF COMPANY COMMON STOCK, THAT HE HAS THE RIGHT TO VOTE
WITH RESPECT TO THE MERGER.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO APPROVE AND ADOPT AN AGREEMENT AND PLAN OF MERGER, DATED AS OF
DECEMBER 18, 1998, BETWEEN ATRIX ACQUISITION CORP. AND ATRIX INTERNATIONAL,
INC. WHEREBY STOCKHOLDERS OF ATRIX INTERNATIONAL INC. WILL RECEIVE $2.00 IN
CASH FOR EACH SHARE OF COMMON STOCK OWNED.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ELECTION OF DIRECTORS/1/: [ ] FOR all nominees listed below [ ] AGAINST all nominees listed below
(except as marked to the contrary below)
(INSTRUCTION: To vote against any individual nominee, strike a line through that nominee's name in the list below.)
W. WILLIAM BEDNARCZYK WILLIAM E. BENNET LES ECK JOHN C. HEY
CLIFFORD B. MEACHAM CHARLES J.B. MITCHELL, JR STEVEN D. RIEDEL
</TABLE>
________________ IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
proxy will be voted FOR Proposals 1 and 2 and FOR all nominees named in Proposal
--- ---
3 above. When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership or limited liability
company, please sign in partnership or applicable entity name by authorized
person.
Dated: , 1999
------------
--------------------------------
Signature
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Signature if held jointly
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2 AND FOR ALL
--- ---
NOMINEES LISTED IN PROPOSAL 3. PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
- ------------------------
/1/ THE ELECTION OF DIRECTORS WILL TAKE PLACE ONLY IF PROPOSAL 2 IS NOT
APPROVED.
