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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
Atrix International, Inc.
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(Name of the Issuer)
Atrix Acquisition Corp.
Atrix International, Inc.
Steven D. Riedel
Clifford B. Meacham
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(Name of Person(s) Filing Statement)
Common Stock, $.04 par value per share, of Atrix International, Inc.
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(Title of Class of Securities)
0496P102
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(CUSIP Number of Class of Securities)
Steven D. Riedel
Atrix International, Inc.
14301 Ewing Avenue South
Burnsville, MN 55306
(612) 894-6154
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(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
definitive 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 -
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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) Credit and Security Agreement between Atrix Acquisition
Corp. and Bremer Business Finance Corporation (filed
herewith).
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. (previously filed).
Item 17(b)(2) Report of Miller, Johnson & Kuehn to Atrix International,
Inc. Board of Directors (previously filed).
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) Definitive 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
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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."
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(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,"
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"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 -
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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) Credit and Security Agreement between Atrix Acquisition Corp.
and Bremer Business Finance Corporation (filed herewith).
(b) Opinion of Miller, Johnson & Kuehn, included as Annex B to the
Proxy Statement.
(b)(1) Report of John G. Kinnard & Co., Inc. (previously filed).
(b)(2) Report of Miller, Johnson & Kuehn to Atrix International, Inc.
Board of Directors (previously filed).
(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 Statement.
(d) Definitive Proxy Statement, as revised (filed herewith).
(e) Minnesota Dissenters' Rights Statute, included as Annex C to the
Proxy Statement.
(f) Not applicable.
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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: May 10, 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
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CREDIT AND SECURITY AGREEMENT
Dated as of May 18, 1999
ATRIX ACQUISITION CORP, a Minnesota corporation (the "Borrower"), and
BREMER BUSINESS FINANCE CORPORATION, a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is defined in
the UCC, including without limitation the aggregate unpaid obligations of
customers and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open account or
deferred payment basis.
"Accrual Rate" means six percent (6%) per annum.
"Acknowledgment" means the Acknowledgement of Ownership and Waiver of Liens
executed by Duo Plastics, Inc. in favor of the Lender and consented to by the
Borrower.
"Advance" means a Revolving Advance or the Term Advance.
"Affiliate" or "Affiliates" means the Guarantor and any other Person
controlled by, controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of this
definition, "control," when used with respect to any specified Person, means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
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"Assignment of Representations and Warranties" means the Assignment of
Representations, Warranties, Covenants and Indemnities by and among the
Borrower, the Lender and Atrix as the same may be amended and/or restated from
time to time.
"Atrix" means Atrix International, Inc.
"Atrix Merger" means the merger of Atrix with and into the Borrower, with
the Borrower being the surviving corporation, all as set forth in the Atrix
Merger Documents.
"Atrix Merger Documents" has the meaning specified in Section 5.15 hereof.
"Availability" means the difference between (i) the Borrowing Base and (ii)
the outstanding principal balance of the Revolving Note.
"Banking Day" means a day other than a Saturday, Sunday or other day on
which banks are generally not open for business in Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from time to time
by Bremer Financial Corporation as its "reference rate" or, if such corporation
ceases to announce a rate so designated, any similar successor rate designated
by the Lender.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's discretion,
the sum of:
(i) 85% of Eligible Accounts, plus
(ii) the lesser of (a) 50% of Eligible Inventory other than
Eligible Inventory consisting of non-standard motors for
vacuums, and the advance rate against Eligible Inventory
consisting of non-standard motors for vacuums shall be 30%;
or (b) $350,000, plus
(iii) the lesser of (a) 70% of the orderly liquidation value of
Eligible Equipment, (b) 55% of the net book value of
Eligible Equipment, or (c) $75,000.
So long as no Default Period has occurred and is continuing, the
Lender agrees to provide 45 days prior written notice of any change
the Lender may choose to make to the Borrowing Base in the Lender's
reasonable discretion. During any Default Period, the Lender may
change the Borrowing Base at any time and from time to time in the
Lender's sole discretion.
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"Capital Expenditures" for a period means any expenditure of money for the
purchase or construction of assets, or for improvements or additions thereto,
which are capitalized on the Borrower's balance sheet for the lease, purchase or
other acquisition of any capital asset, or for the lease of any other asset
whether payable currently or in the future.
"Collateral" means all of the Borrower's Equipment, General Intangibles,
Inventory, Receivables, Investment Property, all sums on deposit in any
Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii)
proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods, and (vi) the Life Insurance
Policy.
"Collateral Account" has the meaning given in the Collateral Account
Agreement.
"Collateral Account Agreement" means the Collateral Account Agreement of
even date herewith by and among the Borrower, Bremer Bank, National Association
and the Lender.
"Commitment" means the Lender's commitment to make Advances to or for the
Borrower's account pursuant to Article II.
"Credit Facility" means the revolving credit facility being made available
to the Borrower by the Lender pursuant to Article II.
"Current Maturities of Long Term Debt" as of a given date means the amount
of the Borrower's long-term debt and capitalized leases which will become due
during the period ending on the designated date.
"Current Ratio" as of a given date means the ratio of the Borrower's
current assets, excluding all intangible current assets, to the Borrower's
current liabilities (including the outstanding principal balance of the
Revolving Note), each as determined in accordance with GAAP.
"Debt" of any Person means all items of indebtedness or liability which in
accordance with GAAP would be included in determining total liabilities as shown
on the liabilities side of a balance sheet of that Person as at the date as of
which Debt is to be determined. For purposes of determining a Person's aggregate
Debt at any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Debt Service Coverage Ratio" means the ratio of (i) the sum of (A) Funds
from Operations and (B) Interest Expense minus (C) Capital Expenditures to (ii)
the sum of (A) Current Maturities of Long Term Debt and (B) Interest Expense.
"Debt to Book Net Worth Ratio" as of a given date means the ratio of the
Borrower's Debt to the Borrower's Book Net Worth.
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"Default" means an event that, with giving of notice or passage of time or
both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day of any
month during which a Default or Event of Default has occurred and ending on the
date the Lender notifies the Borrower in writing that such Default or Event of
Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances, an annual
rate equal to two percent (2%) over the Revolving Floating Rate, which rate
shall change when and as the Revolving Floating Rate changes and with respect to
the Term Advance, an annual rate equal to fourteen percent (14%) with respect to
the Term Rate, and eight percent (8%) with respect to the Accrual Rate.
"EBITA" for a period means, pretax earnings from continuing operations
before (i) special extraordinary gains, (ii) Interest Expense, (iii)
depreciation, and (iv) amortization, in each case for such period.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits, except
the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or more after the invoice
date;
(ii) That portion of Accounts that is disputed or subject to a claim
of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final delivery of
goods or rendition of services, as applicable, by the Borrower to the
customer;
(iv) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for
which the Borrower has provided evidence satisfactory to the Lender
that (A) the Lender has a first priority perfected security interest
and (B) such Accounts may be enforced by the Lender directly against
such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside the United
States which are not (A) backed by a bank letter of credit naming the
Lender as beneficiary or assigned to the Lender, in the Lender's
possession and acceptable to the Lender in all respects, in its sole
discretion, (B) covered by a foreign receivables insurance policy
acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent, the subject
of bankruptcy proceedings or has gone out of business;
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(vii) Accounts owed by a shareholder, Subsidiary, Affiliate, officer
or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security interest in
the Lender's favor or which are subject to any lien, security interest
or claim in favor of any Person other than the Lender (which lien,
security interest or claim is not subordinated to the Security
Interest pursuant to a subordination agreement in form and substance
acceptable to the Lender in its sole discretion) including without
limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured, extended,
amended or modified;
(x) That portion of Accounts that constitutes advertising, finance
charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii)or (ix)
above (provided that so long as no Default Period has occurred and is
continuing, eligibility under this clause (xi) of Accounts owed by any
account debtor who has more than one (1) billing address shall be
determined on a billing address basis, rather than for such account
debtor as a whole); and
(xii) Accounts, or portions thereof, otherwise deemed ineligible by
the Lender in its reasonable discretion.
"Eligible Equipment" means all Equipment of the Borrower, provided,
however, that the following shall not in any event be deemed Eligible Equipment:
molds, tooling and dies.
"Eligible Inventory" means all Inventory of the Borrower, at the lower of
cost or market value as determined in accordance with GAAP; provided, however,
that the following shall not in any event be deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse, job site
or other premises not approved by the Lender in writing; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other document of
title; on consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has executed
an agreement with the Lender;
(ii) Supplies, packaging, maintenance parts or sample Inventory;
(iii) Work-in-process Inventory;
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(iv) Inventory that is damaged, obsolete, slow moving or not currently
saleable in the normal course of the Borrower's operations;
(v) Inventory that the Borrower has returned, has attempted to return,
is in the process of returning or intends to return to the vendor
thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant to a license
unless the applicable licensor has agreed in writing to permit the
Lender to exercise its rights and remedies against such Inventory;
(viii) Inventory that is subject to a security interest in favor of
any Person other than the Lender (which lien, security interest or
claim is not subordinated to the Security Interest pursuant to a
subordination agreement in form and substance acceptable to the Lender
in its sole discretion);
(ix) Inventory other than Inventory consisting of instrumentation,
tool kits, circuit board cases, finished vacuums and filters, tools,
finished Pitney R3 products (AAi and AAP) and standard motors,
non-standard motors and power cords for raw vacuums, (which types of
Inventory are presently referred to in the Borrower's inventory list
as "INS", "KIT", "MFP", "MFV", "TLS" and "MRV", respectively); and
(x) Inventory otherwise deemed ineligible by the Lender in its
reasonable discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is defined
in the UCC, whether now owned or hereafter acquired, including but not limited
to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given period means the sum of (i) Net Income,
(ii) depreciation and amortization, (iii) deferred income taxes, and (iv) other
non-cash items, each as determined for such period in accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied on a basis
consistent with the accounting practices applied in the financial statements
described in Section 5.5.
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"General Intangibles" means all of the Borrower's general intangibles, as
such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guarantor" means Steven D. Riedel.
"Hazardous Substance" has the meaning given in Section 5.12.
"Interest Coverage Ratio" means the ratio of (i) sum of (A) EBITA and (B)
Interest Expense to (ii) Interest Expense.
"Interest Expense" means, for a fiscal year-to-date period, the Borrower's
total gross interest expense during such period (excluding interest income), and
shall in any event include, without limitation, (i) interest expensed (whether
or not paid) on all Debt, (other than interest accruing on the Term Loan at the
Accrual Rate) (ii) the amortization of debt discounts, (iii) the amortization of
all fees payable in connection with the incurrence of Debt to the extent
included in interest expense, and (iv) the portion of any capitalized lease
obligation allocable to interest expense.
"Inventory" means all of the Borrower's inventory, as such term is defined
in the UCC, whether now owned or hereafter acquired, whether consisting of whole
goods, spare parts or components, supplies or materials, whether acquired, held
or furnished for sale, for lease or under service contracts or for manufacture
or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property, as
such term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements, securities
accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
"Life Insurance Assignments" means the Riedel Life Insurance Assignment and
the Meacham Life Insurance Assignment.
"Life Insurance Policies" means the Riedel Life Insurance Policy and the
Meacham Life Insurance Policy.
"Loan Documents" means this Agreement, the Notes and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the Borrower,
Bremer Bank, National Association and, the Lender, of even date herewith.
"Maturity Date" means July 31, 2000.
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"Maximum Line" means $1,500,000, unless said amount is reduced pursuant to
Section 2.8, in which event it means the amount to which said amount is reduced.
"Meacham" means Clifford B. Meacham.
"Meacham Buyback Agreement" means those certain provisions of the
Certificate of Designation, Preferences and Rights of Series A Preferred Stock
to be filed by the Borrower with the Minnesota Secretary of State on or prior to
the date of the initial Revolving and Term Advance hereunder pursuant to which
the Borrower will have certain rights and obligations to repurchase the shares
of stock of the Borrower owned by Meacham under certain circumstances described
therein.
"Meacham Life Insurance Assignment" means an assignment of life insurance
policy as collateral to be executed by the owner and the beneficiary thereof, in
form and substance satisfactory to the Lender, granting Lender a first priority
lien on the Meacham Life Insurance Policy to secure payment of the obligations.
"Meacham Life Insurance Policy" has the meaning specified in Section 6.11.
"Net Income" means fiscal year-to-date after-tax net income, decreased by
the sum of any extraordinary, non-operating or non-cash income recorded by the
Borrower and increased by any extraordinary, non-cash or non-operating expense
or loss recorded by the Borrower, as determined in accordance with GAAP.
"Note" means the Revolving Note or the Term Note, and "Notes" means the
Revolving Note and the Term Note.
"Obligations" means the Notes and each and every other debt, liability and
obligation of every type and description which the Borrower may now or at any
time hereafter owe to the Lender, whether such debt, liability or obligation now
exists or is hereafter created or incurred, whether it arises in a transaction
involving the Lender alone or in a transaction involving other creditors of the
Borrower, and whether it is direct or indirect, due or to become due, absolute
or contingent, primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several, and including specifically, but not limited to,
all indebtedness of the Borrower arising under this Agreement, the Notes or any
other loan or credit agreement or guaranty between the Borrower and the Lender,
whether now in effect or hereafter entered into.
"Patent Security Agreement" means the Patent Security Agreement of even
date herewith executed by the Borrower in favor of the Lender.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business and
has any rights of possession, including (without limitation) the premises
legally described in Exhibit D attached hereto.
"Receivables" means each and every right of the Borrower to the payment of
money, whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition of goods
or other property, out of a rendering of services, out of a loan, out of the
overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in Title IV
of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the sum of the Base
Rate plus one and one-quarter percent (1 1/4%), which annual rate shall change
when and as the Base Rate changes.
"Revolving Note" means the Borrower's revolving promissory note, payable to
the order of the Lender in substantially the form of Exhibit A hereto and any
note or notes issued in substitution therefor, as the same may hereafter be
amended, supplemented or restated from time to time.
"Riedel Life Insurance Assignment" means an Assignment of Life Insurance
Policy as Collateral to be executed by the owner and the beneficiary thereof, in
form and substance satisfactory to the Lender, granting the Lender a first
priority lien on the Riedel Life Insurance Policy to secure payment of the
Obligations.
"Riedel Life Insurance Policy" has the meaning specified in Section 6.11
hereof.
"SCI" means SCI Enterprises, LLC.
"SCI Merger" means the merger of SCI with and into the Borrower, with the
Borrower being the surviving corporation, all as set forth in the SCI Merger
Documents.
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"SCI Merger Documents" has the meaning specified in Section 6.19 hereof.
"Security Documents" means this Agreement, the Acknowledgment, the
Collateral Account Agreement, the Lockbox Agreement, the Life Insurance
Assignments, the Assignment of Representations and Warranties, the Stock Pledge
Agreement, the Patent Security Agreement and any other document delivered to the
Lender from time to time to secure the Obligations, as the same may hereafter be
amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Stock Pledge Agreement" means the Stock Pledge Agreement of even date
herewith executed by the Guarantor in favor of the Lender.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Term Advance" has the meaning specified in Section 2.2.
"Term Rate" means an annual rate equal to twelve percent (12%).
"Term Note" means the Borrower's promissory note, payable to the order of
the Lender in substantially the form of Exhibit B hereto and any note or notes
issued in substitution therefor, as the same may hereafter be amended,
supplemented or restated from time to time.
"Termination Date" means the earliest of (i) the Maturity Date, (ii) the
date the Borrower terminates the Credit Facility, or (iii) the date the Lender
demands payment of the Obligations after an Event of Default pursuant to Section
8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time in
the state designated in Section 9.13 as the state whose laws shall govern this
Agreement, or in any other state whose laws are held to govern this Agreement or
any portion hereof.
Section 1.2. Cross References. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility and the Term Loan
Section 2.1. Revolving Advances. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all
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of the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to
the Termination Date, on the terms and subject to the conditions herein set
forth (the "Revolving Advances"). The Lender shall have no obligation to make a
Revolving Advance if, after giving effect to such requested Revolving Advance,
the sum of the outstanding and unpaid Revolving Advances would exceed the
Borrowing Base. The Borrower's obligation to pay the Revolving Advances shall be
evidenced by the Revolving Note and shall be secured by the Collateral as
provided in Article III. Within the limits set forth in this Section 2.1, the
Borrower may borrow, prepay pursuant to Section 2.8 and reborrow. The Borrower
agrees to comply with the following procedures in requesting Revolving Advances
under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to the
Lender before 11:00 a.m. (Minneapolis time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or (ii)
any person designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any person whom the
Lender reasonably believes to be an officer of the Borrower or such a
designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article IV,
the Lender shall disburse the proceeds of the requested Revolving Advance
by crediting the same to the Borrower's demand deposit account maintained
with Bremer Bank, National Association unless the Lender and the Borrower
shall agree in writing to another manner of disbursement. Upon the Lender's
request, the Borrower shall promptly confirm each telephonic request for an
Advance by executing and delivering an appropriate confirmation certificate
to the Lender. The Borrower shall repay all Advances even if the Lender
does not receive such confirmation and even if the person requesting an
Advance was not in fact authorized to do so. Any request for an Advance,
whether written or telephonic, shall be deemed to be a representation by
the Borrower that the conditions set forth in Section 4.2 have been
satisfied as of the time of the request.
Section 2.2. Term Loan. The Lender shall make a term loan (the "Term Loan")
in the aggregate principal amount of $1,000,000, which Term Loan is evidenced by
the Term Note and is secured by the Collateral as provided in Article III. On
the Funding Date, the Lender shall disburse loan proceeds by crediting the same
to the Borrower's demand deposit account maintained with Bremer Bank, National
Association unless the Lender and the Borrower shall agree in writing to another
manner of disbursement (the "Term Advance"). The principal of the Term Note
shall bear interest as provided herein and the principal balance of the Term
Note shall be payable (a) in quarterly installments on August 1, November 1,
February 1 and May 1, commencing with August 1, 1999, with the amount of such
quarterly installments being as follows: August 1, 1999: $10,000; November 1,
1999; February 1, 2000 and May 1, 2000: $15,000; August 1, 2000, November 1,
2000, February 1, 2001 and May 1, 2001: $20,000, and each August 1, November 1,
February 1 and May 1 thereafter: $25,000; and (b) the then unpaid principal
balance of the Term Note shall be payable in full on the earliest of (i) July
15, 2004, or
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(ii) the date the Lender demands payment of the Obligations after an Event of
Default pursuant to Section 8.2.
Section 2.3. Interest. Default Interest; Participations; Usury. Interest
accruing on the Notes shall be due and payable in arrears on the first day of
each month, except that interest accruing on the principal balance of the Term
Note at the Accrual Rate shall be due and payable as set forth in Section
2.3(c).
(a) Revolving Note. Except as set forth in Sections 2.3(d) and 2.3(f), the
outstanding principal balance of the Revolving Note shall bear interest at
the Revolving Floating Rate.
(b) Term Note. Except as set forth in Sections 2.3(d) and 2.3(f), the
outstanding principal balance of the Term Note shall bear interest at the
Term Rate and at the Accrual Rate.
(c) Accrual Rate Interest. In addition to the interest which accrues on the
outstanding principal balance of the Term Note at the Term Rate, interest
shall also accrue on the outstanding principal balance of the Term Note at
the Accrual Rate. Interest accruing at the Accrual Rate on the outstanding
principal balance of the Term Note shall be due and payable on the
Termination Date, or earlier as provided herein.
(d) Default Interest Rate. At any time during any Default Period, in the
Lender's sole discretion and without waiving any of its other rights and
remedies, the principal of the Advances outstanding from time to time shall
bear interest at the Default Rate, effective for any periods designated by
the Lender from time to time during that Default Period.
(e) Participations. If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under this
Agreement, along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with
respect to its participation at a lower rate than the Revolving Floating
Rate, the Term Rate or the Accrual Rate, as the case may be, or otherwise
elects to accept less than its prorata share of such fees, charges and
other amounts due under this Agreement.
(f) Usury. In any event no rate change shall be put into effect which would
result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in
the nature of interest, additional interest and other charges exceed the
applicable limits imposed by any applicable usury laws. If any payments in
the nature of interest, additional interest and other charges made
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under any Loan Document are held to be in excess of the limits imposed by
any applicable usury laws, it is agreed that any such amount held to be in
excess shall be considered payment of principal hereunder, and the
indebtedness evidenced hereby shall be reduced by such amount so that the
total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and
the Lender. This provision shall never be superseded or waived and shall
control every other provision of the Loan Documents and all agreements
between the Borrower and the Lender, or their successors and assigns.
(g) Late Charge. If any installment of principal or interest on any Note is
not paid within fifteen (15) days of the due date thereof, the Borrower
shall pay to the Lender a late charge equal to four percent (4%) of the
amount of such installment.
Section 2.4. Fees.
(a) Origination Fee. The Borrower hereby agrees to pay the Lender a fully
earned and non-refundable origination fee of $15,000, due and payable upon
the execution of this Agreement.
(b) Audit Fees. The Borrower hereby agrees to pay the Lender, on demand,
audit fees in connection with any audits or inspections conducted by the
Lender of any Collateral or the Borrower's operations or business at the
rates established from time to time by the Lender as its audit fees (which
fees are currently $70 per hour per auditor), together with all actual
out-of-pocket costs and expenses incurred in conducting any such audit or
inspection.
Section 2.5. Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
Section 2.6. Capital Adequacy. If any Related Lender determines at any time
that its Return has been reduced as a result of any Rule Change, such Related
Lender may require the Borrower to pay it the amount necessary to restore its
Return to what it would have been had there been no Rule Change. For purposes of
this Section 2.6:
(a) "Capital Adequacy Rule" means any law, rule, regulation, guideline,
directive, requirement or request regarding capital adequacy, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the
force of law, that applies to any Related Lender. Such rules include rules
requiring financial institutions to maintain total capital in amounts based
upon percentages of outstanding loans, binding loan commitments and letters
of credit.
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(b) "Return", for any period, means the return as determined by such
Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital
Adequacy Rules then in effect. Return may be calculated for each calendar
quarter and for the shorter period between the end of a calendar quarter
and the date of termination in whole of this Agreement.
(c) "Rule Change" means any change in any Capital Adequacy Rule occurring
after the date of this Agreement, but the term does not include any changes
in applicable requirements that at the Closing Date are scheduled to take
place under the existing Capital Adequacy Rules or any increases in the
capital that any Related Lender is required to maintain to the extent that
the increases are required due to a regulatory authority's assessment of
the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the Lender, any
parent corporation of the Lender and any assignee of any interest of the
Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.6, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.7. Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise provided
herein, the Borrower may prepay the Revolving Advances in whole at any time or
from time to time in part. The Borrower may prepay the Term Advance (other than
regularly scheduled payments made in accordance with Section 2.2), terminate the
Credit Facility or reduce the Maximum Line at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender the
prepayment, termination or line reduction fees in accordance with Section 2.8.
Any prepayment of the Term Advance (other than regularly scheduled payments made
in accordance with Section 2.2) or reduction in the Maximum Line must be in an
amount not less than $50,000 or an integral multiple thereof. Any partial
prepayments of the Term Note (other than regularly scheduled payments made in
accordance with Section 2.2) shall be applied to principal payments due and
owing in inverse order of their maturities. Upon termination of the Credit
Facility and payment and performance of all Obligations, the Lender shall
release or terminate the Security Interest and the Security Documents to which
the Borrower is entitled by law.
Section 2.8. Prepayment Fees; Waiver of Prepayment Fees.
(a) Termination and Line Reduction Fees. If the Credit Facility is
terminated by Borrower for any reason as of a date other than the Maturity
Date, or the Borrower reduces the Maximum Line, or if the Borrower prepays
the Revolving Note for any reason (from any source other than cash flow
generated
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from the Borrower's operations), the Borrower shall pay the Lender a fee in
an amount equal to two percent (2%) of the Maximum Line (or the reduction,
as the case may be).
(b) Prepayment Fees. If the Term Note is prepaid for any reason, the
Borrower shall pay to the Lender a fee in an amount equal to a percentage
of the amount prepaid as follows: (i) two percent (2%) if prepayment occurs
on or before the first anniversary of the Funding Date; (ii) one percent
(1%) if prepayment occurs after the first anniversary of the Funding Date
but on or before the second anniversary of the Funding Date; and (iii) zero
percent (0%) if prepayment occurs after the second anniversary of the
Funding Date.
(c) Waiver of Termination and Line Reduction Fees and Prepayment Fees. The
Borrower will not be required to pay the termination and line reduction
fees and prepayment fees otherwise due under this Section 2.8 if such
prepayment is made (i) because of increased cash flow generated from the
Borrower's operations, and with respect to prepayment of the Term Note
only, (ii) there is no outstanding balance under the Revolving Note at the
time of such prepayment.
Section 2.9. Mandatory Prepayment. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess. Any payment received by the
Lender under this Section 2.9 or under Section 2.8 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine; provided that any prepayment under Section 2.8
which the Borrower designates as a partial prepayment of the Term Note shall be
applied to principal installments of the Term Note in inverse order of maturity.
Section 2.10. Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations upon receipt
by the Lender. The Lender may hold all payments not constituting immediately
available funds for two (2) Banking Days before applying them to the
Obligations. Notwithstanding anything in Section 2.1, the Borrower hereby
authorizes the Lender, in its discretion at any time or from time to time
without the Borrower's request and even if the conditions set forth in Section
4.2 would not be satisfied, to make a Revolving Advance in an amount equal to
the portion of the Obligations from time to time due and payable.
Section 2.11. Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.12. Use of Proceeds. The Borrower shall use the proceeds of
Advances for ordinary working capital purposes and to fund the transaction
contemplated by the Merger Documents.
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Section 2.13. Liability Records. The Lender may maintain from time to time,
at its discretion, liability records as to the Obligations. All entries made on
any such record shall be presumed correct until the Borrower establishes the
contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1. Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2. Notification of Account Debtors and Other Obligors. The Lender
may at any time (during a Default Period) notify any account debtor or other
person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive and open but not dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3. Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
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Section 3.4. Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right to take
possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process, manufacture,
sell, use, store, liquidate, realize upon or otherwise dispose of goods
that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and terminate upon
the earlier of (i) payment in full and discharge of all Obligations and
termination of the Commitment, (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to purchasers, and
(iii) conclusion of the applicable Default Period.
(d) The Lender shall not be obligated to pay or account for any rent or
other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time
incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 3.4.
Section 3.5. License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6. Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Atrix Acquisition Corp.
14301 Ewing Avenue South
Burnsville, MN 55306
Federal Tax Identification No. 41-1925718
Name and address of Secured Party:
Bremer Business Finance Corporation
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445 Minnesota Street, Suite 2000
St. Paul, Minnesota 55101-2107
Federal Tax Identification No. 41-1851944
Section 3.7. Setoff. The Borrower agrees that the Lender may at any time or
from time to time, at its sole discretion and without demand and without notice
to anyone, setoff any liability owed to the Borrower by the Lender, whether or
not due, against any Obligation, whether or not due. In addition, each other
Person holding a participating interest in any Obligations shall have the right
to appropriate or setoff any deposit or other liability then owed by such Person
to the Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1. Conditions Precedent to the Initial Revolving and Term
Advance. The Lender's obligation to make the initial Revolving and Term Advance
hereunder shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Notes, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to which the
Borrower is leasing the Premises, together with a landlord's disclaimer and
consent with respect to each such lease.
(d) The shareholders and directors of the Borrower shall have adopted
resolutions and entered into such agreements as the Lender shall deem
necessary or appropriate in order to comply with Section 6.18.
(e) The Borrower shall open the Borrower's primary operating account at
Bremer Bank, National Association.
(f) A true and correct copy of any and all agreements pursuant to which the
Borrower's property is in the possession of any Person other than the
Borrower, together with, in the case of any goods held by such Person for
resale, (i) a consignee's acknowledgment and waiver of liens, (ii) UCC
financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other
secured party has filed a financing statement against such Person and
covering property similar to the Borrower's other than the Borrower, or if
there exists any such secured party, evidence that each such secured party
has received notice from the Borrower and the Lender
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sufficient to protect the Borrower's and the Lender's interests in the
Borrower's goods from any claim by such secured party.
(g) An acknowledgment and waiver of liens from each warehouse in which the
Borrower is storing Inventory.
(h) The Lender shall have received evidence acceptable to it that the
Borrower has received equity in the form of cash in the amount of at least
$450,000.
(i) Atrix must have achieved a gross margin of at least (i) $360,000 for
the three (3) months ending April 30, 1999, and (ii) $370,000 for the three
(3) months ending May 31, 1999.
(j) Atrix shall have no other outstanding indebtedness for borrowed money
or capitalized leases as of the funding date other than indebtedness for
borrowed money owed to Porous Media in an amount not to exceed $100,000.
(k) As of the Funding Date, no more than 12.5% of Atrix's accounts payable
shall be more than sixty (60) days past invoice date.
(l) As of the Funding Date, the Borrower shall be in compliance with the
covenants set forth in Sections 6.14, 6.15 and 6.16, based upon the
financial statements of Atrix for the month ended immediately prior to the
Funding Date.
(m) The Lender shall have received evidence acceptable to it that the
Borrower has a cash balance on hand of at least $825,000 as of the Funding
Date, all of which shall be available for the repurchase of common stock
contemplated by the Merger Documents.
(n) The Lender shall have received evidence acceptable to it that as of the
Funding Date the sum of the Borrower's cash balance on hand and
Availability is at least $1,650,000.
(o) A true and correct copy of any and all agreements pursuant to which the
Borrower's property is in the possession of any Person other than the
Borrower, together with, (i) an acknowledgment and waiver of liens from
each subcontractor who has possession of the Borrower's goods from time to
time, (ii) UCC financing statements sufficient to protect the Borrower's
and the Lender's interests in such goods, and (iii) UCC searches showing
that no other secured party has filed a financing statement covering such
Person's property other than the Borrower, or if there exists any such
secured party, evidence that each such secured party has received notice
from the Borrower and the Lender sufficient to protect the Borrower's and
the Lender's interests in the Borrower's goods from any claim by such
secured party.
(p) The Life Insurance Assignments each properly executed by the
beneficiary and owner thereof, and the Life Insurance Policies, each in
form and substance
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satisfactory to the Lender, together with such evidence as the Lender may
request that each Life Insurance Policy is subject to no assignments or
encumbrances other than the Life Insurance Assignment related thereto.
(q) The Collateral Account Agreement, properly executed by the Borrower and
Bremer Bank, National Association.
(r) The Lockbox Agreement, properly executed by the Borrower and Bremer
Bank, National Association.
(s) The Patent Security Agreement, properly executed by the Borrower.
(t) The Stock Pledge Agreement, properly executed by the Guarantor.
(u) The Meacham Buyback Agreement, properly filed by the Borrower with the
Minnesota Secretary of State.
(v) The Acknowledgment, properly executed by the parties thereto.
(w) A certified, true and correct copy of the Atrix Merger Documents,
together with a certificate executed by the Borrower and Atrix certifying
that the Atrix Merger contemplated by the Atrix Merger Documents has been
consummated in accordance with the terms of the Atrix Merger Documents,
without resort to any provision thereof permitting the waiver by any party
thereto of any condition, obligation, representation, warranty, covenant or
other requirement except as disclosed and consented to by the Lender.
(x) Articles of Merger evidencing the Atrix Merger, certified by the
Secretary of State of Minnesota.
(y) A certified, true and correct copy of the SCI Merger Documents,
together with a Certificate executed by the Borrower and SCI certifying
that the merger contemplated by the SCI Merger Documents has been
consummated in accordance with the terms of the SCI Merger Documents,
without resort to any provision thereof permitting the waiver by any party
thereto of any condition, obligation, representation, warranty, covenant or
other requirement except as disclosed and consented to by the Lender.
(z) Articles of Merger evidencing the SCI Merger, certified by the
Secretary of State of Minnesota.
(aa) Evidence acceptable to the Lender that all documents executed in
connection with the Atrix Merger have been filed with the Securities and
Exchange Commission ("SEC"), and that the Securities and Exchange
Commission has approved the form and content of the proxy materials
forwarded by Atrix to its shareholders in connection therewith.
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(bb) The Assignment of Representations and Warranties, duly executed and
delivered by the parties thereto.
(cc) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower or Atrix, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower or Atrix except those financing statements and assignments of
patents, trademarks or copyrights relating to Permitted Liens or to liens
held by Persons who have agreed in writing that upon receipt of proceeds of
the Advances, they will deliver UCC releases and/or terminations and
releases of such assignments of patents, trademarks or copyrights
satisfactory to the Lender, and (iii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
(dd) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, the Atrix Merger Documents and the SCI Merger
Documents, (ii) the Borrower's articles of incorporation and bylaws, and
(iii) the signatures of the Borrower's officers or agents authorized to
execute and deliver the Loan Documents, the Atrix Merger Documents, the SCI
Merger Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
(ee) A certificate of Atrix's Secretary certifying as to (i) the
resolutions of Atrix's directors and, if required, shareholders,
authorizing the execution, delivery and performance of the Atrix Merger
Documents, (ii) Atrix's Articles of Incorporation and Bylaws, and (iii) the
signatures of Atrix's officers or agents authorized to execute and deliver
the Atrix Merger Documents on Atrix's behalf.
(ff) A certificate of SCI's Chief Manager certifying as to (i) the
resolutions of SCI's members authorizing the execution, delivery and
performance of the SCI Merger Documents, (ii) SCI's Articles of
Organization and (iii) signatures of SCI's managers, officers or agents
authorized to execute and deliver the SCI Merger Documents on SCI's behalf.
(gg) A current certificate issued by the Secretary of State of Minnesota,
certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Minnesota.
(hh) Evidence that the Borrower is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing
or qualification necessary.
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(ii) An opinion of counsel to the Borrower and the Guarantor, addressed to
the Lender.
(jj) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(kk) Such documents executed by the Borrower and/or Porous Media Corp. as
the Lender may require with respect to the Borrower's obligations owed to
Porous Media Corp. and the security interests securing said obligations
including, without limitation, partial release or amendments of the UCC
financing statement securing said liens.
(ll) A guaranty, properly executed by the Guarantor, pursuant to which each
Guarantor unconditionally guarantees the full and prompt payment of all
Obligations subject to the limitations set forth therein, including a cap
on the Guarantor's liability thereunder of $100,000.
(mm) A waiver of interest, properly executed by the spouse of the
Guarantor, waiving any and all interest such spouse may have in the assets
disclosed to the Lender in the financial statements of the Guarantor and in
any future earnings or assets acquired by the Guarantor.
(nn) The Lender shall have received evidence acceptable to it that the
Borrower's total aggregate costs (not including costs and expenses of
Atrix) incurred in implementing the transactions contemplated hereby;
including without limitation, the Atrix Merger and the SCI Merger, did not
exceed $3,020,000.
(oo) Payment of the fees and commissions due through the date of the
initial Advance under Section 2.5 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section
9.6, including all legal expenses incurred through the date of this
Agreement subject to the limitations set forth therein.
(pp) Such other documents as the Lender in its sole discretion may require.
Section 4.2. Conditions Precedent to All Advances. The Lender's obligation
to make each Advance shall be subject to the further conditions precedent that
on such date:
(a) the representations and warranties contained in Article V are correct
on and as of the date of such Advance as though made on and as of such
date, except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance which constitutes a Default or an Event of Default.
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ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1. Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number. The Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Minnesota and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower, Atrix and SCI each has all requisite
power and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under those Loan Documents and Atrix Merger Documents and the SCI Merger
Documents executed by each of them. During its existence, the Borrower has done
business solely under the names set forth in Schedule 5.1 hereto. The Borrower's
chief executive office and principal place of business is located at the address
set forth in Schedule 5.1 hereto, and all of the Borrower's records relating to
its business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set forth
in Schedule 5.1 hereto. The Borrower's tax identification number is correctly
set forth in Section 3.6 hereto.
Section 5.2. Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower and, where
appropriate, Atrix and SCI, of the Loan Documents, the Atrix Merger Documents
and the SCI Merger Documents and the borrowings from time to time hereunder have
been duly authorized by all necessary corporate action and do not and will not
(i) require any consent or approval of the Borrower's, Atrix's or SCI's
stockholders (except that a majority of the shareholders of the Borrower, Atrix
and SCI shall have approved the Atrix Merger and the SCI Merger, as
appropriate); (ii) require any authorization, consent or approval by, or
registration, declaration or filing with, or notice to, any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any third party, except such authorization, consent, approval,
registration, declaration, filing or notice as has been obtained, accomplished
or given prior to the date hereof; (iii) violate any provision of any law, rule
or regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or of any order, writ, injunction or
decree presently in effect having applicability to the Borrower, Atrix or SCI or
of the Borrower's or Atrix's articles of incorporation or bylaws or SCI's
Articles of Organization or Operating Agreement; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower, Atrix or
SCI is a party or by which it or its properties may be bound or affected; or (v)
result in, or require, the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance of any
nature (other than the Security Interest) upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.
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Section 5.3. Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4. Subsidiaries. Except as set forth in Schedule 5.4 hereto, the
Borrower has no Subsidiaries.
Section 5.5. Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender (i) Atrix's audited financial statements for
its fiscal year ended June 30, 1998 and Atrix's unaudited financial statements
for the fiscal year-to-date period ended April 30, 1999 and (ii) SCI's federal
income tax return for its fiscal year ended December 31, 1998 and those
statements and/or tax returns, as the case may be, fairly present Atrix's and
SCI's, as the case may be, financial condition on the dates thereof and the
results of its operations and (with respect to Atrix only) cash flows for the
periods then ended and were prepared in accordance with generally accepted
accounting principles or, in the case of SCI's federal income tax return, in
accordance with applicable rules and regulations of the Internal Revenue
Service. Since the date of the most recent financial statements (and/or tax
returns, as the case may be), there has been no material adverse change in
Atrix's or SCI's business, properties or condition (financial or otherwise).
Section 5.6. Litigation. There are no actions, suits or proceedings pending
or, to the Borrower's knowledge, threatened against or affecting the Borrower,
or any of its Affiliates, or Atrix or SCI or the properties of the Borrower, any
of its Affiliates or Atrix or SCI before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower, any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates, or Atrix or SCI as the case
may be.
Section 5.7. Regulation U. Neither the Borrower, Atrix nor SCI is engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8. Taxes. The Borrower, its Affiliates and Atrix and SCI have
paid or caused to be paid to the proper authorities when due all federal, state
and local taxes required to be withheld by each of them. The Borrower, its
Affiliates and Atrix and SCI have each filed all federal, state and local tax
returns which to the knowledge of the officers of the Borrower, such Affiliate
or Atrix or SCI, as the case may be, are required to be filed, and the Borrower,
its Affiliates, Atrix and SCI have each paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.9. Titles and Liens. As of the Funding Date, the Borrower will
have good and absolute title to all Collateral described in the collateral
reports provided to the Lender and
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all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No financing statement naming the Borrower as debtor is on file
in any office except to perfect only Permitted Liens.
Section 5.10. Plans. Neither the Borrower, any of its Affiliates, Atrix nor
SCI maintains or has maintained any Plan. Neither the Borrower, any Affiliate,
Atrix nor SCI has received any notice or has any knowledge to the effect that it
is not in full compliance with any of the requirements of ERISA.
Section 5.11. Default. The Borrower and Atrix are each in compliance with
all provisions of all agreements, instruments, decrees and orders to which it is
a party or by which it or its property is bound or affected, the breach or
default of which could have a material adverse effect on the Borrower's
financial condition, properties or operations.
Section 5.12. Environmental Matters.
(a) Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants, hazardous
substances, hazardous wastes, petroleum and fractions thereof, and all
other chemicals, wastes, substances and materials listed in, regulated
by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or under
the Premises any Hazardous Substances in such form or quantity as to create
any liability or obligation for either the Borrower or the Lender under
common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.
(c) To the Borrower's best knowledge, neither the Borrower nor Atrix has
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and, to the Borrower's best knowledge, there never have
been any requests, claims, notices, investigations, demands, administrative
proceedings, hearings or litigation, relating in any way to the Premises,
the Borrower or Atrix, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best knowledge, no
such matter is threatened or impending.
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(e) To the Borrower's best knowledge, the Borrower's and Atrix's businesses
are and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within 12 months and, to the Borrower's best
knowledge, there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and never have
been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) To the Borrower's best knowledge, the Borrower has delivered to Lender
all environmental assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the Premises or Borrower's
or Atrix's businesses.
Section 5.13. Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower or Atrix in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14. Financing Statements. The Borrower has provided to the Lender
signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15. Rights to Payment. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral or other collateral covered by the Security Documents is (or, in the
case of all future Collateral or such other collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, to the best of
Borrower's knowledge, subject to no defense, setoff or counterclaim, of the
account debtor or other obligor named therein or in the Borrower's or Atrix's
records pertaining thereto as being obligated to pay such obligation.
Section 5.16. Atrix Merger Documents. The Agreement and Plan of Merger by
and among Atrix and the Borrower dated as of December 18, 1998, and all exhibits
and schedules thereto and all related agreements (collectively, the "Atrix
Merger Documents"), copies of which have been delivered to the Lender, are true
and correct and together comprised full and complete
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copies of all agreements among the parties thereto with respect to the
transactions contemplated by such Atrix Merger Documents, and there are no oral
agreements or understandings not contained therein relating to or modifying the
substance thereof. The Atrix Merger Documents are in full force and effect and
have not been further amended, terminated, rescinded or withdrawn, and no
material provision has been waived by any party thereto.
Section 5.17. Financial Solvency. Both before and after giving effect to
the Atrix Merger and the SCI Merger all of the transactions contemplated in the
Loan Documents, the Atrix Merger Documents and the SCI Merger Documents, neither
the Borrower, its Affiliates, Atrix nor SCI.
(a) was or will be insolvent, as that term is used and defined in Section
101(32) of the United States Bankruptcy Code and Section 2 of the Uniform
Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to engage in a
business or a transaction for which any remaining assets of the Borrower or
such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations under the Loan
Documents, the Atrix Merger Documents, the SCI Merger Documents or other
documents to which it is a party or by taking any action with respect
thereto, intends to, nor believes that it will, incur debts beyond its
ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under the Loan
Documents, the Atrix Merger, the SCI Merger Documents or other documents to
which it is a party or by taking any action with respect thereto, intends
to hinder, delay or defraud either its present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy or for an
arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of
any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
Section 5.18. Year 2000. The Borrower has reviewed and assessed its
business operations and computer systems and applications to address the "Year
2000 Problem" (that is, that computer applications and equipment used by the
Borrower, directly or indirectly through third parties, may be unable to
properly perform date sensitive functions before, during and after January 1,
2000). The Borrower reasonably believes that the Year 2000 Problem will not
result in a material adverse change in the Borrower's business condition
(financial or otherwise) operations, properties or prospects or ability to repay
the Lender.
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ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1. Reporting Requirements. The Borrower will deliver, or cause to
be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the end of
each fiscal year of the Borrower, the Borrower's audited financial
statements with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, which
annual financial statements shall include the Borrower's balance sheet as
at the end of such fiscal year and the related statements of the Borrower's
income, retained earnings and cash flows for the fiscal year then ended,
prepared, if the Lender so requests, on a consolidating and consolidated
basis to include any Affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; (ii) a report signed by such accountants
stating that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or
Event of Default hereunder and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.14, 6.15, 6.16,
6.17, and 7.10; and (iii) a certificate of the Borrower's chief financial
officer stating that such financial statements have been prepared in
accordance with GAAP and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so, stating
in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after the end of
each month, an unaudited/internal balance sheet and statements of income
and retained earnings of the Borrower as at the end of and for such month
and for the year to date period then ended, prepared, if the Lender so
requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit adjustments;
and accompanied by a certificate of the Borrower's chief financial officer,
substantially in the form of Exhibit C hereto stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail
the facts with respect thereto,
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and (iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.14, 6.15, 6.16, 6.17, and 7.10;
(c) as soon as available and in any event within ten (10) days after the
end of each month, a borrowing base certificate in substantially the form
of Exhibit E hereto, certified by the Borrower's chief financial officer;
(d) within 10 days after the end of each month or more frequently if the
Lender so requires, agings of the Borrower's accounts receivable and its
accounts payable, an inventory certification report, and a calculation of
the Borrower's Accounts, Eligible Accounts, Inventory and Eligible
Inventory as at the end of such month or shorter time period;
(e) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each month
of such year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer
as being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes, together
with such supporting schedules and information as the Lender may in its
discretion require;
(f) immediately after the commencement thereof, notice in writing of all
litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of $50,000;
(g) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(h) as soon as possible and in any event within 30 days after the Borrower
knows or has reason to know that any Reportable Event with respect to any
Plan has occurred, the statement of the Borrower's chief financial officer
setting forth details as to such Reportable Event and the action which the
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty
Corporation;
(i) as soon as possible, and in any event within 10 days after the Borrower
fails to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended, the
statement of the Borrower's chief financial officer setting forth details
as to such failure and
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the action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be provided
to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any disputes or claims
by the Borrower's customers exceeding $25,000 individually or $50,000 in
the aggregate during any fiscal year; (ii) credit memos involving amounts
in excess of $5,000; (iii) any goods returned to or recovered by the
Borrower involving amounts in excess of $5,000; and (iv) any change in the
persons constituting the Borrower's officers and directors;
(k) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such
other collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial statements,
reports and proxy statements which the Borrower shall have sent to its
stockholders;
(m) promptly after the sending or filing thereof, copies of all regular and
periodic reports which the Borrower shall file with the Securities and
Exchange Commission or any national securities exchange;
(n) as soon as possible, and in any event by not later than May 31st of
each year, copies of the state and federal tax returns and all schedules
thereto and an updated personal financial statement of each owner of the
Borrower and of the Guarantor;
(o) promptly upon knowledge thereof, notice of the Borrower's violation of
any law, rule or regulation, the non-compliance with which could materially
and adversely affect the Borrower's business or its financial condition;
and
(p) from time to time, with reasonable promptness, any and all receivables
schedules, collection reports, deposit records, equipment schedules, copies
of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as
the Lender may request.
Section 6.2. Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower,
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and to discuss the Borrower's affairs with any of its directors, officers,
employees or agents. The Borrower will permit the Lender, or its employees,
accountants, attorneys or agents, to examine and inspect any Collateral, other
collateral covered by the Security Documents or any other property of the
Borrower at any time during ordinary business hours.
Section 6.3. Account Verification. The Lender may at any time and from time
to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4. Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of applicable laws
and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower specifically
agrees that it will comply with all applicable Environmental Laws and
obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat,
store or dispose of any Hazardous Substances in such a manner as to create
any liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.5. Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
Section 6.6. Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the
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conduct of the Borrower's business and not disadvantageous in any material
respect to the Lender.
(b) The Borrower will defend the Collateral against all claims or demands
of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral covered by
the Security Documents free and clear of all security interests, liens and
encumbrances except Permitted Liens.
Section 6.7. Insurance. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8. Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9. Delivery of Instruments, etc. Upon request by the Lender, the
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10. Collateral Account.
(a) If, notwithstanding the instructions to debtors to make payments to the
Lockbox, the Borrower receives any payments on Receivables, the Borrower
shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as
the property of the Lender and shall not commingle such payments with any
of its other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear interest and
shall not be subject to withdrawal by the Borrower, except after full
payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute proceeds of
Collateral and shall not constitute payment of the Obligations. The Lender
from
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time to time at its discretion may, after allowing two (2) Banking Days,
apply deposited funds in the Collateral Account to the payment of the
Obligations, in any order or manner of application satisfactory to the
Lender, by transferring such funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be subject to final
payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11. Riedel Life Insurance Assignments. The Borrower shall
maintain insurance upon the life of the Guarantor, its President, with the death
benefit thereunder in an amount not less than $1,000,000 (the "Riedel Life
Insurance Policy"). The right to receive the proceeds of the Riedel Life
Insurance Policy shall be assigned to the Lender by the Riedel Life Insurance
Assignment. The Borrower shall also maintain insurance upon the life of Clifford
B. Meacham with the death benefit thereunder in an amount not less than $150,000
(the "Meacham Life Insurance Policy"). The right to receive the proceeds of the
Meacham Life Insurance Policy shall be assigned to the Lender by the Meacham
Life Insurance Assignment; provided, however, that so long as no Default Period
has occurred and then exists, the Lender agrees to transfer the proceeds of the
Meacham Life Insurance Policy to the Borrower so long as the Borrower
immediately uses such proceeds to purchase the shares of the Borrower owned by
Meacham pursuant to the Meacham Buyback Agreement.
Section 6.12. Performance by the Lender. If the Borrower at any time fails
to perform or observe any of the foregoing covenants contained in this Article
VI or elsewhere herein, and if such failure shall continue for a period of ten
calendar days after the Lender gives the Borrower written notice thereof (or in
the case of the agreements contained in Sections 6.5, 6.7 and 6.10, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's option, in the
Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the Lender
in connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To facilitate
the Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse
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or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.
Section 6.13. Operating Account. The Borrower shall open and maintain the
Borrower's primary operating account at Bremer Bank, National Association.
Section 6.14. Minimum Current Ratio. The Borrower will at all times
maintain its Current Ratio, determined as at the end of each fiscal quarter, at
or above 1.15 to 1.00.
Section 6.15. Minimum Debt Service Coverage Ratio. The Borrower will at all
times maintain its Debt Service Coverage Ratio, determined as at the end of each
fiscal quarter, at not less than 1.25 to 1.00.
Section 6.16. Minimum Interest Coverage Ratio. The Borrower will maintain
during each period described below, its Interest Coverage Ratio determined as at
the end of each fiscal quarter occurring during the periods set forth below, at
not less than the ratio set forth opposite such period:
Minimum Interest
Period Coverage Ratio
------ -----------------
For the fiscal quarter ending July 31, 1999 1.90 to 1.00
August 1, 1999 through January 31, 2000 2.00 to 1.00
February 1, 2000 through January 31, 2001 2.25 to 1.00
February 1, 2001 and thereafter 2.50 to 1.00
Section 6.17. Maximum Debt to Book Net Worth Ratio. The Borrower will maintain,
during each period described below, the ratio of its Debt to its Book Net Worth,
determined as at the end of each fiscal quarter occurring during the periods set
forth below at not greater than the ratio set forth opposite such period:
Maximum Debt to Book
Period Net Worth Ratio
------ --------------------
Funding date through January 31, 2000 5.75 to 1.00
February 1, 2000 through January 31, 2001 4.25 to 1.00
February 1, 2001 through January 31, 2002 3.25 to 1.00
February 1, 2002 and thereafter 3.00 to 1.00
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Section 6.18. Board of Directors. For so long as the Term Note is
outstanding, the Lender shall have the right to a seat on the Borrower's board
of directors. At such times as this right is not exercised, the Lender shall
have the right to attend the Borrower's board meetings as an observer. The
Borrower shall provide the Lender with notice of each and every meeting of the
Board of Directors of the Borrower, and the Lender shall have the right to
attend each and every such board meeting. The Borrower shall hold a minimum of
three (3) board meetings per calendar year.
Section 6.19. SCI Merger. The Borrower agrees to cause the merger of SCI
with and into the Borrower to occur on or prior to the date of the initial
Advance hereunder pursuant to a Merger Agreement which, together with all
exhibits and schedules thereto and all related agreements (collectively, the
"SCI Merger Documents") shall be in form and substance acceptable to the Lender.
The Borrower covenants that there will be no oral agreements or understandings
between SCI and the Borrower not contained in the SCI Merger Documents relating
to or modifying the substance thereof and that the SCI Merger Documents will be
in full force and effect and will not have been further amended, terminated,
rescinded or withdrawn prior to the date of the Revolving and Term Advance
hereunder, and no material provision of the SCI Merger Documents will have been
waived by any party thereto prior to such date.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1. Liens. The Borrower will not create, incur or suffer to exist
any mortgage, deed of trust, pledge, lien, security interest, assignment or
transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not Collateral
or other collateral described in the Security Documents, covenants,
restrictions, rights, easements and minor irregularities in title which do
not materially interfere with the Borrower's business or operations as
presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1
hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests created by the
Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of cost or
fair market value thereof,
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not exceeding $50,000 for any one purchase or $75,000 in the aggregate
during any fiscal year and so long as no Default Period is then in
existence and none would exist immediately after such acquisition.
Section 7.2. Indebtedness. The Borrower will not incur, create, assume or
permit to exist any indebtedness or liability on account of deposits or advances
or any indebtedness for borrowed money or letters of credit issued on the
Borrower's behalf, or any other indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and listed
in Schedule 7.2 hereto;
(c) indebtedness relating to liens permitted in accordance with Section
7.1; and
(d) indebtedness incurred in the ordinary course of business for the
purchase of SCI personal computer inventory or for payment of reasonable
out-of-pocket expenses and travel costs, whether under credit cards held by
the Borrower or otherwise; provided that the total amount of indebtedness
outstanding at any time under this Section 7.2(d) shall not exceed $60,000
in the aggregate and $20,000 for out-of-pocket expenses and travel costs.
Section 7.3. Guaranties. The Borrower will not assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for deposit
or collection or similar transactions in the ordinary course of business;
and
(b) guaranties, endorsements and other direct or contingent liabilities in
connection with the obligations of other Persons, in existence on the date
hereof and listed in Schedule 7.2 hereto.
Section 7.4. Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any stock or other
securities or evidences of indebtedness of, make or permit to exist any
loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except investments in direct
obligations of the United States of America or any agency or
instrumentality thereof whose obligations constitute full faith and credit
obligations of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2"
by Standard & Poors Corporation or "P-1" or "P-2" by Moody's Investors
Service or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the Federal Reserve
System having
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deposits in excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit Insurance
Corporation).
(b) The Borrower will not create or permit to exist any Subsidiary, other
than the Subsidiar(y)(ies) in existence on the date hereof and listed in
Schedule 5.4.
Section 7.5. Dividends. Except as set forth below, the Borrower will not
declare or pay any dividends (other than dividends payable solely in stock of
the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly; provided, that
the Borrower may pay dividends on an annual basis in an amount up to but not
exceeding 50% of Net Income for the year for which the dividends are proposed to
be paid so long as (i) no Default Period has occurred and is continuing, (ii)
all interest accrued on the outstanding principal balance of the Term Note as of
the date of the proposed dividend at the Accrual Rate has been paid in full, and
(iii) the Borrower will be in compliance with all financial covenants set forth
herein on a pro forma basis after giving effect to such dividend.
Section 7.6. Sale or Transfer of Assets; Suspension of Business Operations.
The Borrower will not sell, lease, assign, transfer or otherwise dispose of (i)
the stock of any Subsidiary, (ii) all or a substantial part of its assets, or
(iii) any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to any other Person other than the sale of Inventory in
the ordinary course of business and will not liquidate, dissolve or suspend
business operations. The Borrower will not in any manner transfer any property
without prior or present receipt of full and adequate consideration.
Section 7.7. Consolidation and Merger; Asset Acquisitions. Except with
respect to the Atrix Merger and the SCI Merger, the Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8. Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9. Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10. Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $75,000 in the aggregate
during any fiscal year, or more than $50,000 in any one transaction.
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Section 7.11. Accounting. The Borrower will not adopt any material change
in accounting principles other than as required by GAAP. The Borrower will not
adopt, permit or consent to any change in its fiscal year.
Section 7.12. Discounts, Etc. Other than in the ordinary course of business
consistent with past practices of Atrix the Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13. Defined Benefit Pension Plans. The Borrower will not adopt,
create, assume or become a party to any defined benefit pension plan, unless
disclosed to the Lender pursuant to Section 5.10.
Section 7.14. Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.15. Place of Business; Name. The Borrower will not transfer its
chief executive office or principal place of business, or move, relocate, close
or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. Except as contemplated in the
Atrix Merger Documents, the Borrower will not change its name.
Section 7.16. Organizational Documents; S Corporation Status. The Borrower
will not amend its certificate of incorporation, articles of incorporation or
bylaws. The Borrower will not become an S Corporation within the meaning of the
Internal Revenue Code of 1986, as amended.
Section 7.17. Salaries. The Borrower will not pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation; or
increase the salary, bonus, commissions, consultant fees or other compensation
of any director, officer or consultant, or any member of their families, by more
than 10% in any one year, either individually or for all such persons in the
aggregate, or pay any such increase from any source other than profits earned in
the year of payment; provided that, at any time after October 1, 1999 so long as
no Default Period has occurred and is continuing, the Borrower may increase the
Guarantor's compensation to a level commensurate with an amount equal to 110% of
the compensation of CEO's of Twin Cities based companies of comparable size,
industry type and character.
Section 7.18. Change in Ownership. The Borrower will not issue or sell any
stock of the Borrower or permit or suffer to occur the sale, transfer,
assignment, pledge or other disposition of any of the issued and outstanding
shares of stock of the Borrower if the result of any such event is to reduce the
percentage of issued and outstanding stock of the Borrower held by the Guarantor
to less than 51% of the issued and outstanding stock of the Borrower.
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Section 7.19. Offsite Inventory and Equipment. The Borrower will not allow
any Inventory or Equipment to be located at any location other than the
Borrower's current Premises at 14301 Ewing Avenue So., Burnsville, Minnesota,
except for (i) Inventory and Equipment located at Duo Plastics, Inc. (who has
executed, or will execute, the Acknowledgment), and (ii) Inventory located or to
be located at the other locations described in Section 5.1, so long as the total
value of all Inventory at all such other locations does not exceed $15,000 at
any time.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1. Events of Default. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of the Obligations when they become due and
payable;
(b) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or agreement of
the Borrower contained in this Agreement;
(d) The Borrower or any Guarantor shall be or become insolvent, or admit in
writing its or his inability to pay its or his debts as they mature, or
make an assignment for the benefit of creditors; or the Borrower or any
Guarantor shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or him or for all or any substantial
part of its or his property; or such receiver, trustee or similar officer
shall be appointed without the application or consent of the Borrower or
such Guarantor, as the case may be; or the Borrower or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him under
the laws of any jurisdiction; or any such proceeding shall be instituted
(by petition, application or otherwise) against the Borrower or any such
Guarantor; or any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Borrower or any Guarantor;
(e) A petition shall be filed by or against the Borrower or any Guarantor
under the United States Bankruptcy Code naming the Borrower or such
Guarantor as debtor;
(f) Any Life Insurance Policy shall be terminated, by the Borrower or
otherwise; or any Life Insurance Policy shall be scheduled to terminate
within 30
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days and the Borrower shall not have delivered a satisfactory renewal
thereof to the Lender; or the Borrower shall fail to pay any premium on any
Life Insurance Policy when due; or the Borrower shall take any other action
that impairs the value of any Life Insurance Policy.
(g) Any representation or warranty made by the Borrower in this Agreement,
by any Guarantor in any guaranty delivered to the Lender, or by the
Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement or any such guaranty shall prove to have been incorrect in any
material respect when deemed to be effective;
(h) The rendering against the Borrower of a final judgment, decree or order
for the payment of money in excess of $50,000 and the continuance of such
judgment, decree or order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(j) Any Reportable Event, which the Lender determines in good faith might
constitute grounds for the termination of any Plan or for the appointment
by the appropriate United States District Court of a trustee to administer
any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the Lender;
or a trustee shall have been appointed by an appropriate United States
District Court to administer any Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate any Plan or to
appoint a trustee to administer any Plan; or the Borrower shall have filed
for a distress termination of any Plan under Title IV of ERISA; or the
Borrower shall have failed to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal Revenue Code of
1986, as amended, which the Lender determines in good faith may by itself,
or in combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on the
Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security Document or under
any other security agreement, mortgage, deed of trust, assignment or other
instrument or agreement securing any obligations of the Borrower hereunder
or under any note;
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(l) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or remit any tax or
tax deficiency when assessed or due (other than any tax deficiency which is
being contested in good faith and by proper proceedings and for which it
shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued;
(n) Default in the payment of any amount owed by the Borrower to the Lender
other than any indebtedness arising hereunder;
(o) Any Guarantor shall repudiate, purport to revoke or fail to perform any
such Guarantor's obligations under such Guarantor's guaranty in favor of
the Lender, any individual Guarantor shall die or any other Guarantor shall
cease to exist;
(p) Any event or circumstance with respect to the Borrower shall occur such
that the Lender shall believe in good faith that the prospect of payment of
all or any part of the Obligations or the performance by the Borrower under
the Loan Documents is impaired or any material adverse change in the
business or financial condition of the Borrower shall occur;
(q) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender; or
(r) the Guarantor shall fail to serve as President and CEO of the Borrower
for any reason.
Section 8.2. Rights and Remedies. During any Default Period, the Lender may
exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the Commitment to be
terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations to
be forthwith due and payable, whereupon all Obligations shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest
or further notice of any kind, all of which the Borrower hereby expressly
waives;
(c) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and remedies
available upon default to a secured party under the UCC, including, without
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limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and, in connection therewith, the Borrower will
on demand assemble the Collateral and make it available to the Lender at a
place to be designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and remedies under the
Loan Documents; and (f) the Lender may exercise any other rights and
remedies available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3. Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1. No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3. Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail,
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(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Atrix Acquisition Corp.
14301 Ewing Avenue South
Burnsville, MN 55306
Telecopier: (612) 894-6256
Attention: Steven D. Riedel
If to the Lender:
Bremer Business Finance Corporation
445 Minnesota Street, Suite 2000
St. Paul, Minnesota 55101-2107
Telecopier: (651) 227-9022
Attention: Thomas J. Ratelle
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) the date two (2) Banking Days
after the date when deposited in the mail if delivered by mail, (c) the date one
(1) Banking Day after the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4. Further Documents. The Borrower will from time to time execute
and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5. Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
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Section 9.6. Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses, including (without limitation) attorneys' fees, incurred by
the Lender in connection with the Obligations, this Agreement, the Loan
Documents, and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest; provided, however, that the Borrower shall not be
obligated to reimburse the Lender for more than $18,000 in attorneys fees
incurred by the Lender in connection with the negotiation, preparation and
execution of this Agreement, the Loan Documents, and any other document or
agreement related hereto or thereto. The Lender acknowledges receipt of $11,000
from the Borrower prior to the date hereof for application against such costs
and expenses.
Section 9.7. Indemnity. In addition to the payment of expenses pursuant to
Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments or charges
made by any governmental authority by reason of the execution and delivery
of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may be subjected if
any representation or warranty contained in Section 5.12 proves to be
incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages, penalties, judgments,
suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be imposed on, incurred by
or asserted against any such Indemnitee, in any manner related to or
arising out of or in connection with the making of the Advances and the
Loan Documents or the use or intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy,
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the Borrower shall nevertheless make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The Borrower's obligation under this Section 9.7 shall survive
the termination of this Agreement and the discharge of the Borrower's other
obligations hereunder.
Section 9.8. Participants. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9. Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10. Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. The Lender
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates with the Lender's participants, accountants,
lawyers and other advisors, and the Borrower waives any right of confidentiality
it may have with respect to such exchange of such information.
Section 9.11. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
Section 9.12. Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Minnesota. The parties hereto
hereby (i) consent to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the District Court of Hennepin County, Minnesota, or the United
States District Court, District of Minnesota, Fourth Division; and (iv) agree
that a final judgment in any such suit, action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided
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by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
Section 9.14. Agreement to Subordinate. Notwithstanding anything contained
herein to the contrary, in the event the Borrower chooses to refinance the
Revolving Advances and terminate the Credit Facility, so long as no Default
Period has occurred, then the Lender agrees that it shall upon the request of
the new lender, subordinate its security interest in the Collateral (other than
the Life Insurance Policy and the stock secured by the Stock Pledge Agreement)
to a new security interest in favor of the new provider of the revolving line of
credit so long as such subordination is on terms and conditions reasonably
acceptable to the Lender in its reasonable discretion.
Section 9.15. Termination of Agreement. In the event the Borrower has not
satisfied all of the conditions precedent set forth in Sections 4.1 and 4.2 by
July 31, 1999, this Agreement, and the Lender's obligations hereunder, shall at
the Lender's option terminate and be of no further force or effect as of said
date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
BREMER BUSINESS FINANCE CORPORATION ATRIX ACQUISITION CORP.
By /s/ Thomas J. Ratelle By /s/ Steven D. Riedel
--------------------------------- ------------------------------
Thomas J. Ratelle Steven D. Riedel
--------------------------------- ------------------------------
Its Vice President Its President
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Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Note
Exhibit C Compliance Certificate
Exhibit D Premises
-------------------
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and
Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$1,500,000 Minneapolis, Minnesota
------------, ----
For value received, the undersigned, ATRIX ACQUISITION CORP., a Minnesota
corporation (the "Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of BREMER BUSINESS
FINANCE CORPORATION, a Minnesota corporation (the "Lender"), at its main office
in Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of One Million Five Hundred
Thousand Dollars ($1,500,000) or, if less, the aggregate unpaid principal amount
of all Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (as the same may hereafter be
amended, supplemented or restated from time to time, the "Credit Agreement") by
and between the Lender and the Borrower. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
ATRIX ACQUISITION CORP.
By
-----------------------------------
-----------------------------------
Its President
A-1
<PAGE>
Exhibit B to Credit and Security Agreement
TERM NOTE
$1,000,000 Minneapolis, Minnesota
------------, ----
For value received, the undersigned, ATRIX ACQUISITION CORP., a Minnesota
corporation (the "Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of BREMER BUSINESS
FINANCE CORPORATION, a Minnesota corporation (the "Lender"), at its main office
in Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of One Million Dollars
($1,000,000) or, if less, the amount of the Term Advance made by the Lender to
the Borrower under the Credit Agreement (defined below) together with interest
on the principal amount hereunder remaining unpaid from time to time, computed
on the basis of the actual number of days elapsed and a 360-day year, from the
date hereof until this Note is fully paid at the rate from time to time in
effect under the Credit and Security Agreement of even date herewith (as the
same may hereafter be amended, supplemented or restated from time to time, the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
By
-----------------------------------
-----------------------------------
Its President
B-1
<PAGE>
Exhibit C to Credit and Security Agreement
Compliance Certificate
To: _________________________________
Bremer Business Finance Corporation
Date: __________________, 199___
Subject: ___________________
Financial Statements
In accordance with our Credit and Security Agreement dated as of
____________, ____ (the "Credit Agreement"), attached are the financial
statements of ATRIX ACQUISITION CORP. (the "Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance with
GAAP, subject to year-end audit adjustments, and fairly present the Borrower's
financial condition and the results of its operations as of the date thereof.
Events of Default. (Check one):
The undersigned does not have knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement.
The undersigned has knowledge of the occurrence of a Default or Event of
Default under the Credit Agreement and attached hereto is a statement of
the facts with respect to thereto.
[ I hereby certify to the Lender as follows:
The Reporting Date does not mark the end of one of the Borrower's fiscal
quarters, hence I am completing only paragraph __ below.
The Reporting Date marks the end of one of the Borrower's fiscal quarters,
hence I am completing all paragraphs below except paragraph __.
The Reporting Date marks the end of the Borrower's fiscal year, hence I am
completing all paragraphs below.]
Financial Covenants. I further hereby certify as follows:
C-1
<PAGE>
1. Minimum Current Ratio. Pursuant to Section 6.14 of the Credit Agreement,
as of the Reporting Date, the Borrower's Current Ratio was _______ to 1.00 which
satisfies does not satisfy the requirement that such ratio be no less than 1.15
to 1.00 on the Reporting Date.
2. Minimum Debt Service Coverage Ratio. Pursuant to Section 6.15 of the
Credit Agreement, as of the Reporting Date, the Borrower's Debt Service Coverage
Ratio was _____ to 1.00 which satisfies does not satisfy the requirement that
such ratio be no less than 1.25 to 1.00 on the Reporting Date.
3. Minimum Interest Coverage Ratio. Pursuant to Section 6.16 of the Credit
Agreement, as of the Reporting Date, the Borrower's Interest Coverage Ratio was
_____ to 1.00 which "satisfies" does not satisfy the requirement that such ratio
be no less than ______ to 1.00 on the Reporting Date as set forth in table
below:
Minimum Interest
Period Coverage Ratio
------ ----------------
For the fiscal quarter ending July 31, 1999 1.90 to 1.00
August 1, 1999 through January 31, 2000 2.00 to 1.00
February 1, 2000 through January 31, 2001 2.25 to 1.00
February 1, 2001 and thereafter 2.50 to 1.00
4. Maximum Debt to Book Net Worth Ratio. Pursuant to Section 6.17 of the
Credit Agreement, as of the Reporting Date, the ratio of the Borrower's Debt to
its Book Net Worth was _____ to 1.00 which "satisfies" does not satisfy the
requirement that such ratio be no more than ______ to 1.00 on the Reporting Date
as set forth in table below:
Maximum Debt to
Period Book Net Worth
------ ---------------
Funding date through January 31, 2000 5.75 to 1.00
February 1, 2000 through January 31, 2001 4.25 to 1.00
February 1, 2001 through January 31, 2002 3.25 to 1.00
February 1, 2002 and thereafter 3.00 to 1.00
5. Capital Expenditures. Pursuant to Section 7.10 of the Credit Agreement,
for the year-to-date period ending on the Reporting Date, the Borrower has
expended or contracted to
C-2
<PAGE>
expend during the _____________ year ended ______________, 199___, for Capital
Expenditures, $__________________ in the aggregate and at most $______________
in any one transaction, which ("satisfies"/does not satisfy) the requirement
that such expenditures not exceed $75,000 in the aggregate and $50,000 for any
one transaction during such year.
7. Salaries. As of the Reporting Date, the Borrower ("is") (is not) in
compliance with Section 7.17 of the Credit Agreement -------- concerning
salaries.
Attached hereto are all relevant facts in reasonable detail to evidence,
and the computations of the financial covenants referred to above. These
computations were made in accordance with GAAP.
ATRIX ACQUISITION CORP.
By
----------------------------------
Its Chief Financial Officer
C-3
<PAGE>
Exhibit D to Credit and Security Agreement
Premises
The Premises referred to in the Credit and Security Agreement are legally
described as follows:
14301 Ewing Avenue South, Burnsville, Minnesota, legally described as Tract A of
Registered Land Survey No. 41, consisting of approximately 25,600 square feet of
warehouse space; 5,120 square feet of office space; and 5,120 square feet
mezzanine.
<PAGE>
Exhibit E to Credit and Security Agreement
Borrowing Base Certificate
<PAGE>
Schedule 5.1 to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place
of Business, and Locations of Collateral
Trade Names
NONE
Chief Executive Office/Principal Place of Business
14301 Ewing Avenue South
Burnsville, MN 55306
Other Inventory and Equipment Locations
Duo Plastics, Inc., 5119 West 212th Street, Farmington, Minnesota 55024;
Porous Media, 1350 Hammond Road, St. Paul, Minnesota 55110;
Custom Connections, 755 East Cliff Road, Burnsville, Minnesota 55337; and
Schneider Engineering, 601 West Benton Avenue, Cologne, Minnesota 55322
<PAGE>
Schedule 5.4 to Credit and Security Agreement
Subsidiaries
NONE
<PAGE>
Schedule 7.1 to Credit and Security Agreement
Permitted Liens
<TABLE>
<CAPTION>
Creditor Collateral Jurisdiction Filing Date Filing No.
- -------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Porous Media Corp. Certain assets purchased Minnesota November 13, 1995 1803400 and
from Porous Media (subject 1803401
to partial release or
amendment pursuant to
Section 4.1 hereof)
</TABLE>
<PAGE>
Schedule 7.2 to Credit and Security Agreement
Permitted Indebtedness and Guaranties
Indebtedness
<TABLE>
<CAPTION>
Principal Amount
--------------------
Creditor Maximum Minimum Maturity Date Monthly Payment Collateral
- -------- ------- ------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Porous Media Corp. $90,863 $65,863 12/31/00 * All assets purchased
from Porous Media
</TABLE>
* Quarterly payment varies. Royalty payment is based on 3% of quarterly sales
achieved.
Guaranties
NONE
<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
Filed by the Registrant [X]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] 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 17, 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 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 17, 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
<PAGE>
<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>
ii
<PAGE>
<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 17, 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 27, 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 17, 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 120 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
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<PAGE>
Shareholders, including the unaffiliated Shareholders. Accordingly, the Board of
Directors, based upon the unanimous recommendation of the Special Committee, has
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
credit and security letter (the "Credit Agreement") between Newco and 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
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<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
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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."
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<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 May 12).......... 2 1 9/16
</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.
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<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
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<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."
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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.
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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, (with Mr.
Riedel and Mr. Meacham abstaining) and based on the unanimous recommendation of
the Special Committee 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. Mr. Riedel is the only director who is also an executive officer of
the Company and the only director who was involved in preparing management's
projections. 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
22
<PAGE>
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
23
<PAGE>
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 Machine
Tools industry (SIC Codes 36--) and the Data Processing Management industry (SIC
Codes 38--). These multiples were obtained from Bloomberg Financial Services,
who determined the average industry multiples by looking at twenty-four
companies in SIC Codes 36-- and eighty-five companies in 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% - $414,000; 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
34
<PAGE>
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
35
<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
36
<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 has entered into a Credit and Security agreement with Bremer Business
Finance Corporation ("BBFC") under which BBFC has agreed to provide Newco with 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 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. Principal
payments under the note are due in quarterly installments beginning August 1,
1999 in the following amounts: $10,000 on August 1, 1999; $15,000 on November 1,
1999 and February 1, 2000; and $20,000 on August 1, 2000. 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 life insurance policies on Mr. Rider and Mr. Meacham in the amounts of
$1,000,000 and $150,000, respectively, 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. All capital stock of Newco will be pledged as additional collateral on
the RLOC and the Note.
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. Newco paid an origination fee of $15,000 to
BBFC upon execution of the Credit and Security agreement.
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
37
<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 Credit and Security agreement 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 Credit and Security agreement 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
38
<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.
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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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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
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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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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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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
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>
51
<PAGE>
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
52
<PAGE>
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.
53
<PAGE>
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 $1.64 $1.67
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.
(4) As a result of the pre-tax loss incurred in the third quarter of fiscal
1998, the Company was unable to cover the indicated fixed charges. Earnings
did not cover fixed charges by $30,885 in the third quarter of fiscal 1998.
(5) As a result of the pre-tax loss incurred in the third quarter of fiscal
1999, the Company was unable to cover the indicated fixed charges. Earnings
did not cover fixed charges by $30,173 in the third quarter of fiscal 1999.
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
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<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.
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ANNEX A
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ATRIX ACQUISITION CORP.,
STEVEN D. RIEDEL
AND
ATRIX INTERNATIONAL, INC.
DATED AS OF DECEMBER 18, 1998
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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
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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.
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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
3
<PAGE>
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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<PAGE>
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.
5
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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
6
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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
8
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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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<PAGE>
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
4
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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
<PAGE>
(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.
<PAGE>
(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)
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
1
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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
2
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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.
3
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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;
<PAGE>
(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
<PAGE>
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;
<PAGE>
(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.
<PAGE>
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;
<PAGE>
(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.
<PAGE>
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
<PAGE>
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>
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>
Atrix International, Inc.
14301 Ewing Avenue South
Burnsville, Minnesota 55306
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints W. William Bednarczyk and Thomas A. Letscher,
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 12, 1999, at the Annual Meeting of
Shareholders to be held on June 15, 1999.
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(except as marked to the
contrary below)
[_] AGAINST all nominees listed below
(Instruction: To vote against any individual nominee, strike a line through
that nominee's name in the list below.)
W. WILLIAM BEDNARCZYK WILLIAM R. BENNET LES ECK JOHN C. HEY
CLIFFORD B. MEACHAM CHARLES J.B. MITCHELL, JR. STEVEN D. RIEDEL
- -------
(1) The election of Directors will take place only if Proposal 2 is not
approved.
- --------------------------------------------------------------------------------
(continued from other side)
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.
Date: _______________________ , 1999
------------------------------------
Signature
------------------------------------
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.
