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SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.__)
Filed by the Registrant [X]
Filed by a 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 Rule 14a-11(c) or Rule 14a-12
M.H. RHODES, 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:
(2) Aggregate number of securities to which transaction applies:
(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):
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(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[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:
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M. H. RHODES, INC.
99 Thompson Road, Avon, Connecticut 06001
To the Stockholders:
You are cordially invited to attend a special meeting (the "Special
Meeting") of the stockholders of M.H. Rhodes, Inc. (the "Company") to be held at
10:00 a.m. local time on June 29, 1998, at its offices at 99 Thompson Road,
Avon, Connecticut 06001. A Notice of Special Meeting of the Stockholders, Proxy
Statement and Proxy Card are enclosed for your review. All holders of shares of
Company's common stock as of the close of business on May 28, 1998 are entitled
to notice of, and to vote at, the Special Meeting.
At the Special Meeting, holders of shares of common stock of the
Company will be asked to approve and adopt an Agreement and Plan of Merger (the
"Merger Agreement") dated as of April 3, 1998, among the Company, Owosso
Corporation ("Owosso"), a Pennsylvania corporation, and Cramer Company
("Cramer"), a Delaware corporation and a wholly-owned subsidiary of Owosso.
Under the Merger Agreement, Owosso will acquire the Company in a merger, and
stockholders of the Company (other than dissenters) will receive $14.51 in cash
for each of their shares of common stock of the Company.
Pursuant to the Company's Certificate of Incorporation, as amended,
approval and adoption of the Merger Agreement requires the affirmative vote of
the holders of 60% of the outstanding Common Stock of the Company entitled to
vote at the Special Meeting. Certain directors and executive officers of the
Company who presently own, in the aggregate, approximately 19.30% of the
outstanding shares of Common Stock have verbally stated their intentions to vote
all of such shares in favor of approval and adoption of the Merger Agreement and
the transactions contemplated thereby.
You are encouraged to read this Proxy Statement carefully. It contains
a description and copy of the Merger Agreement and other important information
regarding the merger.
Your Board of Directors has carefully reviewed and considered the terms
and conditions of the Merger Agreement and has received a fairness opinion of
Valuation and Financial Strategies, LLC that the consideration to be received in
the merger by the Company stockholders is fair from a financial point of view.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, DETERMINED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTEREST OF ITS STOCKHOLDERS, AND RECOMMENDS
THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
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YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY SHARES YOU OWN. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED PRE-ADDRESSED AND
PRE-PAID ENVELOPE SO THAT IT WILL BE RECEIVED NO LATER THAN 5:00 P.M. LOCAL
TIME, JUNE 26, 1998. YOU MAY ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN
IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED
SEPARATE INSTRUCTIONS AND A LETTER OF TRANSMITTAL. IF THE MERGER AGREEMENT IS
APPROVED, THESE WILL BE SENT TO YOU PROMPTLY AFTER THE MERGER IS COMPLETED.
Sincerely,
Joseph L. Morelli
President
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1998
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting")
of the stockholders of M.H. Rhodes, Inc. (the "Company") will be held at 10:00
a.m. local time on Monday, June 29, 1998 at its offices at 99 Thompson Road,
Avon, Connecticut 06001.
The Special Meeting is called for the purpose of considering and voting
upon:
1. A proposal for the holders of common stock of the Company to
approve an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
April 3, 1998, among the Company, Owosso Corporation ("Owosso"), and Cramer
Company ("Cramer"), a wholly-owned subsidiary of Owosso, under which the Company
will be acquired by Owosso in a merger. Upon the consummation of the merger,
each share of Company common stock (other than dissenters' shares and shares
held in the Company's treasury) will be converted into the right to receive
$14.51 in cash.
2. To consider and vote upon a proposal to adjourn the Special Meeting to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the Special Meeting to approve and adopt the Merger
Agreement.
3. To transact such other business as may properly come before the Special
Meeting.
The Board of Directors has fixed the close of business on May 28, 1998,
as the record date for the determination of the stockholders entitled to notice
of and to vote at the Special Meeting and any adjournments or postponements
thereof. Only holders of record of Company common stock on the record date are
entitled to vote at the Special Meeting. A list of such stockholders will be
available at the time and place of the Special Meeting and, during the ten days
prior to the Special Meeting, at the office of the Secretary of the Company at
the above address.
If you would like to attend the Special Meeting and your shares are
held by a broker, bank or other nominee, you must bring to the Special Meeting a
recent brokerage statement or a letter from the nominee confirming your
beneficial ownership of the shares. You must also bring a form of personal
identification.
In order to vote your shares at the Special Meeting, you must obtain
from the nominee a proxy in your name. You can ensure that your shares are voted
at the Special Meeting by promptly signing and dating the enclosed proxy and
returning it in the envelope provided, which requires no postage if mailed in
the United States. Sending in a signed proxy will not affect your right to
attend the Special Meeting and vote in person. You may revoke your proxy at any
time before it is voted by notifying the Secretary of the Company in writing
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delivered by registered mail five (5) days before the Special Meeting, or by
executing a subsequent proxy, which revokes your previously executed proxy.
Your Board of Directors has carefully reviewed and considered the terms
and conditions of the Merger Agreement and has received a fairness opinion of
Valuation and Financial Strategies, LLC that the consideration to be received in
the merger by the Company stockholders is fair from a financial point of view.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, DETERMINED THAT
THE MERGER IS FAIR TO AND IN THE BEST INTEREST OF ITS STOCKHOLDERS, AND
RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
Pursuant to the Company's Certificate of Incorporation, as amended,
approval and adoption of the Merger Agreement requires the affirmative vote of
the holders of 60% of the outstanding Common Stock of the Company entitled to
vote at the Special Meeting. Certain directors and executive officers of the
Company who presently own, in the aggregate, approximately 19.30% of the
outstanding shares of Common Stock have verbally stated their intentions to vote
all of such shares in favor of approval and adoption of the Merger Agreement and
the transactions contemplated thereby.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND, WE URGE
YOU TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE
PROVIDED.
Stockholders of the Company who do not vote in favor of the Merger
Agreement and who otherwise comply with Delaware law, will have the right, if
the merger is consummated, to dissent and to demand the appraisal of the fair
value of their shares. A copy of the relevant sections of Delaware law is
attached to this Proxy Statement.
By Order of the Board of Directors
Sharon L. Vanasse
Corporate Secretary
Avon, Connecticut
June 1, 1998
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M. H. RHODES, INC.
99 Thompson Road, Avon, Connecticut 06001
PROXY STATEMENT
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, JUNE 29, 1998
This Proxy Statement and accompanying Notice and Proxy Card is
furnished in connection with the solicitation of proxies by and on behalf of the
Board of Directors of M. H. Rhodes, Inc., a Delaware corporation, (the
"Company"), for use at the special meeting of Stockholders on June 29, 1998 or
any adjournments or postponements thereof (the "Special Meeting"), and was first
sent to stockholders on or about June 1, 1998. Solicitation expenses will be
borne by the Company. In addition to the use of the mails, proxies may be
solicited by directors and officers of the Company without additional
compensation, by personal interview, telephone, telegram or otherwise.
Arrangements also may be made with brokerage firms and other custodians,
nominees and fiduciaries who hold the voting securities of record for the
forwarding of solicitation material to the beneficial owners thereof. The
Company will reimburse such brokers, custodians, nominees and fiduciaries for
the reasonable out-of-pocket expenses incurred by them in connection therewith.
All proxies delivered pursuant to this solicitation are revocable at any time
before they are exercised by submission of another proxy bearing a later date,
by attending the meeting and voting in person or by giving written notice of the
revocation to the Secretary of the Company.
PURPOSE OF THE MEETING
At the Special Meeting, holders of shares of the Company's common
stock, $1.00 par value (the "Common Stock"), will be asked to consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger dated as of
April 3, 1998 (the "Merger Agreement") by and among the Company, Owosso
Corporation, a Pennsylvania corporation ("Owosso") and Cramer Company
("Cramer"), a Delaware corporation and a wholly-owned subsidiary of Owosso. A
copy of the Merger Agreement is attached to this Proxy Statement as Annex A.
Pursuant to the Merger Agreement, (i) Cramer will be merged with and into the
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Company (the "Merger"), with the Company continuing as the surviving corporation
(the "Surviving Corporation") and becoming a wholly-owned subsidiary of Owosso
and (ii) each outstanding share of Common Stock, other than shares held by the
Company or any direct or indirect wholly-owned subsidiary of the Company, shares
held by Owosso or any direct or indirect wholly-owned subsidiary of Owosso and
shares held by the stockholders, if any, who properly exercise their appraisal
rights under Delaware law, will be converted into the right to receive $14.51 in
cash, subject to certain adjustments described herein, without interest. Holders
of Common Stock who do not vote in favor of approving and adopting the Merger
Agreement and who otherwise comply with the applicable statutory procedures of
Section 262 of the Delaware General Corporation Law (the "DGCL") will be
entitled to appraisal rights under Section 262 of the DGCL. See "The Merger --
Appraisal Rights." Management knows of no matters to be brought before the
Special Meeting other than those referred to herein. If any other business
should properly come before the Special Meeting, the persons named in the proxy
will vote in accordance with their best judgment.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
All information contained in this Proxy Statement concerning Owosso and
its subsidiaries, including Cramer, has been supplied by Owosso and has not been
independently verified by the Company. Except as otherwise indicated, all other
information contained in this Proxy Statement (or, as permitted by applicable
rules and regulations of the Securities and Exchange Commission, incorporated by
reference herein) has been supplied or prepared by the Company.
The date of this Proxy Statement is June 1, 1998
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TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION..........................................................1
FORWARD-LOOKING STATEMENTS.....................................................1
SUMMARY ......................................................................3
The Companies.........................................................3
The Special Meeting...................................................4
The Merger............................................................5
Selected Financial Data...............................................8
THE SPECIAL MEETING............................................................9
General .............................................................9
Matters to Be Considered at the Special Meeting.......................9
Record Date..........................................................10
Voting Procedures....................................................10
Proxies; Revocation of Proxies.......................................10
Voting Securities....................................................10
Solicitation of Proxies..............................................11
THE MERGER....................................................................12
Background of the Merger.............................................12
Recommendation of the Board of Directors of the Company
and the Board's Reasons for the Merger...............................14
Opinion of Financial Advisor.........................................15
Interests of Certain Persons in the Merger...........................18
Financing the Merger.................................................19
Accounting Treatment.................................................19
Certain Federal Income Tax Consequences..............................19
Regulatory Approvals.................................................21
Certain Consequences of the Merger...................................21
Appraisal Rights.....................................................21
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THE MERGER AGREEMENT..........................................................25
The Merger...........................................................25
Representations and Warranties.......................................26
Certain Covenants....................................................27
Certain Conditions to the Merger.....................................32
Termination of the Merger Agreement..................................33
Fees and Expenses....................................................34
Amendment; Waiver....................................................34
THE COMPANIES.................................................................35
The Company..........................................................35
Owosso Corporation...................................................35
Cramer Company.......................................................35
SELECTED FINANCIAL DATA.......................................................36
MARKET PRICES OF COMMON STOCK.................................................37
CERTAIN PROJECTIONS OF FUTURE OPERATING RESULTS...............................38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................................40
STOCKHOLDER PROPOSALS.........................................................41
INDEPENDENT ACCOUNTANTS.......................................................41
ANNUAL REPORT.................................................................41
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................41
OTHER MATTERS.................................................................42
Annex A Agreement and Plan of Merger ........................................A-1
Annex B Opinion of Valuation and Financial Strategies, LLC ..................B-1
Annex C Section 262 of the Delaware General Corporation Law .................C-1
ii
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and also are available for inspection at the Commission's Regional
Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also may be obtained, at prescribed rates, from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Company is required to file electronic versions of certain
material with the Commission through the Commission's Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. The Commission maintains a site on the
Internet's World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY STATEMENT
OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT
CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF, AS THE CASE MAY
BE.
FORWARD-LOOKING STATEMENTS
Certain information contained or incorporated by reference in this
Proxy Statement, including the information set forth under "Certain Projections
of Future Operating Results" and other statements as to the future financial or
operating performance of the Company, may constitute "forward-looking
statements," which can be identified by the use of such forward-looking
terminology as "believes," "expects," "may," "will," "should," or "anticipates"
or the negative thereof or other variations thereon or comparable terminology,
or discussions of strategy that involves risks and uncertainties. The Private
Securities Litigation Reform Act of 1995 provides certain "safe harbor"
protections for forward-looking statements in order to
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encourage companies to provide prospective information about their businesses.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance, and underlying assumptions and
other statements which are other than statements of historical facts.
Forward-looking statements contained or incorporated by reference in this Proxy
Statement were not prepared in compliance with the published guidelines of the
American Institute of Certified Public Accountants regarding projections or
financial forecasts.
The forward-looking statements set forth or incorporated by reference
in this Proxy Statement are based upon various assumptions, many of which are
based, in turn, upon further assumptions, including without limitation,
management's examination of historical operating trends, data contained in the
Company's records and other data available from third parties. Although the
Company believes that such assumptions were reasonable when made, because such
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond the
Company's control, there can be no assurance, and no representation or warranty
is made, that management's expectations, beliefs or projections will result or
be achieved or accomplished. In addition to the other factors and matters
discussed elsewhere herein and in the documents incorporated by reference
herein, factors that, in the view of the Company, could cause actual results to
differ materially from those discussed in the forward-looking statements
include: (i) changes in economic conditions; (ii) wars; (iii) changes in
management or control of the Company; (iv) the inability to obtain new customers
or retain existing customers; (v) significant changes in competitive factors
affecting the Company; (vi) governmental/regulatory actions and initiatives,
including those affecting financings, and environmental/safety requirements;
(vii) significant changes from expectations in actual capital expenditures and
operating expenses and unanticipated project delays; (viii) occurrences
affecting the Company's ability to obtain funds from operations, debt or equity
to finance needed capital expenditures and other investments; (ix) changes in
foreign trade and monetary policies, laws and regulations related to foreign
operations, political governmental changes, inflation and exchange rates, taxes
and operating conditions; (x) significant changes in tax rates or policies or in
rates of inflation or interest; (xi) significant changes in the Company's
relationship with its employees and the potential adverse effects if labor
disputes or grievances were to occur; (xii) changes in accounting principles
and/or the application of such principles by the Company; (xiii) the
difficulties of predicting synergies from the integration of businesses
following a change of control; and (xiv) natural disasters and other occurrences
beyond the control of the Company.
None of the Company, Owosso, Cramer or any of their respective agents,
employees or advisors intend or have any duty or obligation to supplement,
amend, update or revise any of the forward-looking statements contained or
incorporated by reference in this Proxy Statement. Neither the Company's nor
Owosso's independent auditors have examined or compiled such statements or
applied any procedures with respect to such statements. Accordingly, such
auditors have not expressed any opinion or other form of assurance with respect
to such statements.
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information
contained elsewhere, or incorporated by reference, in this Proxy Statement and
the Annexes hereto. Stockholders are urged to read this Proxy Statement and the
Annexes hereto carefully and in their entirety. Unless otherwise defined herein,
all capitalized terms used in this Summary have the respective meanings assigned
to them elsewhere in this Proxy Statement.
THE COMPANIES
The Company
The Company, which has been in business since 1930, manufactures
mechanical and electrical timers and photocontrols. The timers are used in
commercial cooking equipment, HVAC applications, and bio-medical devices that
require a set time interval with an opening and closing of an electrical switch.
The electronic photocontrols are devices that are inserted on the tops of street
and roadway lights. The Company also manufactures magnetic type photocontrols
and thermal type photocontrols.
Owosso Corporation
Owosso, with headquarters in King of Prussia, Pennsylvania, is a
diversified manufacturer of products in defined niche markets in two business
segments: Engineered Component Products and Specialized Equipment. In the
Engineered Component Products segment, Owosso's operating subsidiaries
manufacture and sell electric motors, gear motors, and electromechanical timers
for non-automotive transportation, healthcare, welding, construction, heating
and air conditioning and other industrial applications; heat transfer coils for
non-automotive transportation, commercial refrigeration and other HVAC
applications; and replacement camshaft bearings, valve seats and shims for the
automotive after-market. In the Specialized Equipment segment, Owosso's
subsidiaries manufacture aluminum trailers and agricultural equipment. Owosso
has announced that it will be selling the agricultural equipment companies in
its Specialized Equipment segment.
Cramer Company
Cramer, located in Old Saybrook, Connecticut, manufactures
subfractional horsepower motors and electromechanical timers primarily for use
in residential and commercial appliances, business and capital equipment, and
heating and air conditioning systems. Owosso acquired Cramer in 1984, and Cramer
is a wholly-owned subsidiary of Owosso. Upon consummation of the Merger, Cramer
will be merged with and into the Company, with the
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Company continuing as the Surviving Corporation. The Surviving Corporation will
be a wholly-owned subsidiary of Owosso.
THE SPECIAL MEETING
Time, Date and Place
The Special Meeting will be held at 10:00 a.m., local time, on Monday
June 29, 1998, at the offices of the Company located at 99 Thompson Road, Avon,
Connecticut 06001.
Matters to Be Considered at the Special Meeting
At the Special Meeting, stockholders will consider and vote upon a
proposal to approve and adopt the Merger Agreement. See "The Special Meeting --
Matters to Be Considered at the Special Meeting."
Record Date; Voting at the Special Meeting
Thursday, May 28, 1998 has been fixed as the record date (the "Record
Date") for the determination of stockholders entitled to notice of, and to vote
at, the Special Meeting. Accordingly, only stockholders of record at the close
of business on the Record Date will be entitled to vote at the Special Meeting.
At the close of business on May 28, 1998, the most recent practicable date prior
to the date of this Proxy Statement, there were 196,736 shares of Common Stock
outstanding and entitled to vote. Stockholders of record on the Record Date are
entitled to one vote per share, exercisable in person or by properly executed
proxy, upon each matter properly submitted for the vote of stockholders at the
Special Meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the Special Meeting. Pursuant to the Company's
Certificate of Incorporation, as amended, the affirmative vote of the holders of
60% of the outstanding shares of Common Stock is required to approve and adopt
the Merger Agreement. Abstentions and broker non-votes will be counted as votes
against the proposal to approve and adopt the Merger Agreement. See "The Special
Meeting --Record Date; Voting at the Special Meeting."
Proxies; Revocation of Proxies
This Proxy Statement is being furnished to stockholders of record at
the close of business on the Record Date in connection with the solicitation of
proxies by and on behalf of the Board for use at the Special Meeting. All shares
of Common Stock which are represented at the Special Meeting by properly
executed proxies received and not duly and timely revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. In the
absence of contrary instructions, such shares will be voted "FOR" the approval
and adoption of the Merger Agreement.
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Any proxy signed and returned by a stockholder may be revoked by such
stockholder at any time before it is voted by giving due notice of such
revocation delivered by registered mail to the Secretary of the Company (99
Thompson Road, Avon, Connecticut 06001) five (5) days prior to the Special
Meeting, by signing and delivering a proxy bearing a later date or by attending
the Special Meeting and voting in person. Attendance at the Special Meeting
without taking other affirmative action as aforementioned will not constitute a
revocation of a proxy. See "The Special Meeting -- Proxies; Revocation of
Proxies."
THE MERGER
Effects of the Merger; Merger Consideration
Upon consummation of the Merger, (i) Cramer will be merged with and
into the Company, with the Company continuing as the Surviving Corporation and
becoming a wholly-owned subsidiary of Owosso and (ii) each outstanding share of
Common Stock, other than shares held by the Company, by Owosso and shares held
by stockholders, if any, who properly exercise their appraisal rights under
Delaware law, will be converted into the right to receive $14.51 in cash,
without interest (the "Merger Consideration"). Each outstanding share of Cramer
stock will be converted into one share of stock of the Surviving Corporation.
Recommendation of the Company's Board of Directors
The Board of Directors has determined that the Merger Agreement and the
Merger are fair to and in the best interests of the Company and its stockholders
and has approved and adopted the Merger Agreement.
ACCORDINGLY, THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
In reaching its determination that the Merger Agreement and the Merger
are fair to and in the best interests of the Company and its stockholders, the
Board considered a number of factors, as more fully described under "The
Merger -- Recommendation of the Board of Directors of the Company and the
Board's Reasons for the Merger."
Opinions of the Company's Financial Advisors
Valuation and Financial Strategies, LLC ("VFS"), has acted as a
financial advisor to the Company in connection with the Merger and has delivered
to the Board of Directors a written opinion, dated February 23, 1998, to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Merger Consideration was fair, from a
financial point of view, to the holders of Common Stock. The full text of the
written opinion of VFS, dated February 23, 1998, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex B to this Proxy
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Statement and should be read carefully in its entirety. The opinion of VFS is
directed to the Board and relates only to the fairness of the Merger
Consideration from a financial point of view, does not address any other aspect
of the Merger or related transactions and does not constitute a recommendation
to any stockholder as to how such stockholder should vote at the Special
Meeting. See "The Merger -- Opinion of the Financial Advisor."
Interests of Certain Persons in the Merger
Certain members of the Company's management and of the Board of
Directors will receive economic benefits as a result of the Merger. For
information concerning such benefits, see "The Merger -- Interests of Certain
Persons in the Merger."
Financing the Merger
The total amount required to pay the Merger Consideration to the
Company's stockholders, refinance the Company's existing bank debt and pay
estimated fees, expenses and other transaction costs of Owosso and Cramer in
connection with the Merger will be approximately $4.3 million. Owosso intends to
borrow such amounts under its existing credit facilities. See "The Merger --
Financing the Merger."
Conditions to the Merger
The Merger is subject to certain customary closing conditions,
including, without limitation, the approval and adoption of the Merger Agreement
by the affirmative vote of the holders of 60% of the outstanding Common Stock of
the Company entitled to vote at the Special Meeting in accordance with
applicable law and the Company's Certificate of Incorporation, as amended, the
limitation that no more than 7.5% of the stockholders have exercised appraisal
rights, the representations and warranties of each of Owosso, Cramer and the
Company being true and correct in all material respects on the date of the
Merger Agreement and as of the Effective Time (as defined in the Merger
Agreement), and each of Owosso, Cramer and the Company having performed in all
material respects its obligations to be performed prior to the Effective Time
under the Merger Agreement.
Termination; Certain Fees
The Merger Agreement will be subject to termination at any time prior
to the Effective Time by the mutual consent of the Owosso, Cramer and the
Company or by either Owosso, Cramer or the Company if the Company's stockholders
fail to approve and adopt the Merger Agreement at the Special Meeting, any
governmental entity has taken action to prohibit the Merger and such action has
become final and binding, or the Merger is not consummated by July 31, 1998. The
Merger Agreement also will be subject to termination by either Owosso or the
Company under certain other circumstances described herein. If the Merger
Agreement is terminated by Owosso, Cramer or the Company under certain
circumstances described herein,
6
<PAGE> 17
the Company will be obligated to pay to Owosso a termination fee. See "The
Merger Agreement -- Termination of the Merger Agreement" and "-- Fees and
Expenses."
Appraisal Rights
Holders of Common Stock on the Record Date who do not vote in favor of
approving and adopting the Merger Agreement and who otherwise comply with the
applicable statutory procedures of Section 262 of the DGCL will be entitled to
appraisal rights under Section 262 of the DGCL. A summary of the provisions of
Section 262 of the DGCL, including a summary of the requirements with which
holders of Common Stock desiring to assert appraisal rights must comply, is
contained herein under the heading "The Merger -- Appraisal Rights." The entire
text of Section 262 of the DGCL is attached hereto as Annex C.
Certain Federal Income Tax Consequences
The receipt of cash by a stockholder of the Company pursuant to the
Merger will be a taxable transaction for federal income tax purposes and may
also be taxable under applicable state, local and foreign income and other tax
laws. A stockholder will recognize gain or loss in an amount equal to the
difference between the adjusted tax basis of his or her Common Stock and the
amount of cash received in exchange therefor in the Merger. Such gain or loss
will be capital gain or loss if the Common Stock is a capital asset in the hands
of the stockholder and will be long-term capital gain or loss if the holding
period exceeds eighteen (18) months. See "The Merger -- Certain Federal Income
Tax Consequences."
The receipt of cash by the ESOP (as defined herein) in the Merger will
not be a taxable transaction for the ESOP or any of the individual ESOP
participants, unless a participant chooses to withdraw any of such cash proceeds
allocated to his or her account. The cash received in the Merger for the shares
of Common Stock held by the ESOP will be allocated to the participants' accounts
from which those shares were taken. Cash proceeds will be allocated to the
participants' accounts as earnings of the ESOP.
Certain Information In Connection With the Common Stock
There is no generally recognized or established active trading market
for the Company's Common Stock. On April 3, 1998, the last trading date prior to
the public announcement of the execution of the Merger Agreement, the closing
bid and ask prices of the Common Stock, as reported by the National Quotation
Bureau, LLC were $5.00 and $8.25 per share, respectively. Stockholders are urged
to obtain current market quotations for the Common Stock prior to making any
decision with respect to the Merger. See "Market Prices of Common Stock."
7
<PAGE> 18
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company
for the periods indicated. The data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 and the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, which are incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
M. H. RHODES, INC. AND M. H. RHODES (CANADA) LIMITED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS(1)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31 FOR THE TWELVE MONTHS ENDED DECEMBER 31
------------------------------ --------------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 2,533,853 $ 1,983,341 $ 8,493,936 $ 8,011,086 $ 8,081,871 $ 9,815,715 $ 10,304,525
Net income(loss) 20,258 51,608 264,968 (177,373) (895,488) 79,351 129,521
Basic earnings
(loss) per share .10 .25 1.35 (.88) (4.42) .38 .62
Cash dividends
paid per share .00 .00 .00 .00 .00 .00 .00
</TABLE>
(1) M. H. Rhodes (Canada) Limited Financial Statements have been translated
from Canadian to U.S. currency at applicable exchange rates.
M. H. RHODES, INC. AND M. H. RHODES (CANADA) LIMITED CONDENSED CONSOLIDATED
BALANCE SHEETS(1)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $5,010,581 $4,955,115 $5,106,392 $4,886,532 $5,346,957 $6,998,344 $6,709,115
Long term
obligations 544,284 771,792 615,629 826,537 397,378 1,286,956 1,067,983
Stockholders
Equity 2,404,237 2,577,714 2,341,031 2,007,022 2,496,336 3,330,925 3,120,481
</TABLE>
(1) M. H. Rhodes (Canada) Limited Financial Statements have been translated
from Canadian to U.S. currency at applicable exchange rates.
8
<PAGE> 19
THE SPECIAL MEETING
GENERAL
This Proxy Statement and accompanying Notice and Proxy Card is
furnished in connection with the solicitation of proxies by and on behalf of the
Board of Directors of M. H. Rhodes, Inc., a Delaware corporation, (the
"Company"), for use at the Special Meeting of Stockholders on June 29, 1998 or
any adjournments or postponements thereof (the "Special Meeting"), and was first
sent to stockholders on or about June 1, 1998.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement. The Board has
determined that the Merger Agreement and the Merger are fair to and in the best
interests of the Company and its stockholders and has approved and adopted the
Merger Agreement.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
See "The Merger -- Background of the Merger" and "-- Recommendation of the Board
of Directors of the Company and the Board's Reasons for the Merger."
THE MATTER TO BE CONSIDERED AT THE SPECIAL MEETING IS OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY, STOCKHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO RETURN A PROPERLY
EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT
AS A VOTE "AGAINST" THE MERGER AGREEMENT.
STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER IS COMPLETED, YOU WILL BE GIVEN INSTRUCTIONS PROMPTLY FOR
THE DELIVERY OF YOUR STOCK CERTIFICATES.
RECORD DATE
The Board of Directors has fixed the close of business on May 28, 1998
as the record date for the Special Meeting (the "Record Date"). Only holders of
record of the Company's Common Stock at the close of business on such Record
Date are entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. A list of such stockholders will be
available at the time and place of the Special Meeting and, during the ten
9
<PAGE> 20
days prior to the Special Meeting, at the office of the Secretary of the Company
at the address set forth on the cover page. The presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of Common Stock is necessary to constitute a quorum at the Special Meeting.
Holders of Common Stock on the Record Date who do not vote in favor of approving
and adopting the Merger Agreement and who otherwise comply with the applicable
statutory procedures of Section 262 of the DGCL will be entitled to appraisal
rights under the DGCL in connection with the Merger. Stockholders of the Company
who vote in favor of approving and adopting the Merger Agreement, however, will
thereby waive their appraisal rights. See "The Merger -- Appraisal Rights."
VOTING PROCEDURES
Pursuant to the Company's Certificate of Incorporation, as amended, the
affirmative vote of the holders of 60% of the Common Stock issued and
outstanding cast at a stockholders meeting duly called for that purpose is
required for the approval of the Merger Agreement. The affirmative vote of the
majority of shares present, in person or by proxy, is necessary for the approval
of such other business as may properly come before the Special Meeting or any
adjournments or postponements thereof. Votes will be counted manually.
Abstentions and broker non-votes will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum and not
voted in favor of the Merger Agreement.
PROXIES; REVOCATION OF PROXIES
All shares represented by properly executed proxies will be voted in
accordance with the instructions on the proxy. IF NO SUCH INSTRUCTIONS ARE MADE
ON AN EXECUTED PROXY, THE PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER
AGREEMENT (PROPOSAL NO. 1), AND UPON ALL OTHER MATTERS, THE PROXIES SHALL VOTE
IN ACCORDANCE WITH THEIR BEST JUDGMENT. A stockholder who has given a proxy
pursuant to this proxy solicitation may revoke it at any time before it is
exercised (i) by giving written notice thereof delivered by registered mail five
(5) days prior to the Special Meeting to the Company's Secretary; (ii) by
signing and returning a later dated proxy; or (iii) by voting in person at the
Special Meeting. Sending in a signed proxy will not affect a stockholder's right
to attend the Special Meeting and vote in person. However, mere attendance at
the Special Meeting will not, in and of itself, have the effect of revoking the
proxy. Any written instrument revoking a proxy should be sent to: M. H. Rhodes,
Inc., 99 Thompson Road, Avon, Connecticut 06001, Attention: Corporate Secretary.
VOTING SECURITIES
Only holders of record of the outstanding shares of the Common Stock,
$1.00 par value, at the close of business on the Record Date are entitled to
notice of, and to vote at, the meeting. On the Record Date there were
outstanding and entitled to vote 196,736 shares of Common Stock, each entitled
to one vote. Treasury shares are excluded from this total. The
10
<PAGE> 21
percentage of issued and outstanding shares of Common Stock entitled to vote
held by the Company's directors and executive officers and their respective
affiliates on the Record Date is 19.30% or 37,961 shares. The presence, in
person or by proxy, of a majority of the aggregate number of shares of Common
Stock outstanding and entitled to vote on the Record Date is necessary to
constitute a quorum at the meeting. If a quorum is not obtained, or if fewer
shares of Common Stock than the number required therefor are voted in favor of
approval and adoption of the Merger Agreement, it is expected that the Special
Meeting will be postponed or adjourned in order to permit additional time for
soliciting and obtaining additional proxies or votes, and, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the Special
Meeting, except for any proxies which have theretofore effectively been revoked
or withdrawn. In the absence of a quorum, the Special Meeting may be adjourned
from time to time by the holders of a majority of the shares represented at the
Special Meeting in person or by proxy.
The Company does not know of any matters other than as described in the
Notice of Special Meeting of Stockholders that are to come before the Special
Meeting. If any other matter or matters are properly presented for action at the
Special Meeting, the persons named in the enclosed Proxy Card and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld.
If you would like to attend the Special Meeting and your shares are
held by a broker, bank or other nominee, you must bring to the Special Meeting a
recent brokerage statement or a letter from the nominee confirming your
beneficial ownership of the shares. You must also bring a form of personal
identification. In order to vote your shares at the Special Meeting, you must
obtain from the nominee a proxy in your name.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies in the
accompanying form from stockholders. In addition to soliciting proxies by mail,
directors, officers and employees of the Company, without receiving additional
compensation therefor, may solicit proxies by telephone, by telegram, or in
person. Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of shares of Common Stock held of record by such persons, and
the Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE COMPANY'S STOCKHOLDERS. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED HEREIN AND TO COMPLETE,
DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE.
11
<PAGE> 22
THE MERGER
BACKGROUND OF THE MERGER
In April 1997, the Chairman of the Board sought to find two new members
for the Company's Board of Directors. One was to replace Harold LeMay who had
passed away in March of that year and another to bring the total Board
membership to five. The Chairman contacted James W. Pogmore, President of the
Cramer Company and a prior acquaintance, to see if he was interested in the
position. The Chairman also contacted Mr. James Mayerhofer an independent
business consultant and prior Corporate Vice President of The Dexter
Corporation.
On May 29, 1997, Messrs. Pogmore and Mayerhofer were officially
appointed to the Company's Board of Directors.
In early September 1997, Mr. Pogmore approached the Chairman with the
concept of a merger between the Company and Cramer. Mr. Pogmore commented that
he believed there was potentially a vast amount of synergy between the companies
and that Cramer's lease of its present facilities would be expiring soon. At Mr.
Pogmore's request, the Chairman agreed to a meeting with George B. Lemmon, Jr.,
President and CEO of Owosso, the parent of Cramer.
On September 12, 1997, the Chairman and Allan Springer, Vice President
of Finance of the Company, met with Messrs. Lemmon and Pogmore to discuss the
concept of a merger.
On September 18, 1997, Owosso representatives identified to the Company
the terms of a proposed merger.
On September 29, 1997, the Company's Board of Directors met to discuss
the proposed terms and the possibilities of consummating a merger. Mr. Pogmore
presented to the Board a general overview of the business of Cramer and Owosso
and the cost savings to Cramer of moving to the Company's principal offices.
After Mr. Pogmore left the meeting, the remaining directors discussed the
long-term effect of combining the two businesses and concluded to proceed with
due diligence based upon the proposed terms.
On October 28, 1997, the Company's Board of Directors, absent Mr.
Pogmore, again met to discuss the acquisition. After lengthy discussion, the
Board approved the transaction in principle. During the following weeks, counsel
for Owosso prepared a draft Merger Agreement.
In late November, 1997, Owosso delivered to the Company its first draft
of the Merger Agreement. On January 7, 1998, key management from the Company met
with key management from Owosso in Avon, Connecticut. During this meeting, with
counsel in attendance, the parties discussed the draft Merger Agreement and
their comments thereto. The
12
<PAGE> 23
parties negotiated a break-up fee in the event the Merger is not consummated as
a result of certain circumstances described in the Merger Agreement, including
the merger of the Company with a buyer other than Owosso.
The Company's Board of Directors, absent Mr. Pogmore, met on February
23, 1998 with counsel in attendance and reviewed a revised draft of the Merger
Agreement. The purpose of the meeting was to give final consideration as to
whether any other alternatives (e.g. continuing as an independent company for
the time being) might present a better value for the stockholders of the
Company, to consider the terms of the proposed draft Merger Agreement, to
receive and consider the advice of VFS with respect to the fairness of the
proposed transaction with Owosso and to determine whether or not to continue to
negotiate the contract. At the Board meeting, VFS summarized for the Board the
results of its analyses undertaken for purposes of rendering an opinion relating
to the proposed transaction with Owosso. Such analysis included a review of the
stock price history of the Company's Common Stock, a comparison of the Company
with other publicly traded companies, an analysis of the transaction in
comparison to selected other acquisition transactions in comparable industries.
The VFS presentation also included a discounted cash flow analysis for the
Company and a present value analysis of possible future stock prices of the
Company's Common Stock. These analyses are summarized elsewhere in this Proxy
Statement. See "--Opinion of Financial Advisor." VFS also rendered its opinion,
confirmed in writing as of February 23, 1998, that as of such date and subject
to the assumptions and limitations identified in the opinion, the transaction is
fair to the Company's stockholders from a financial point of view. See "--
Opinion of Financial Advisor."
The Board of Directors considered and discussed the existence of other
possible acquirers and estimated, in its best judgment based on available
information, that there was not a significant likelihood of receiving a
materially more favorable acquisition offer. The Board also concluded that the
Owosso proposal offered a better opportunity for enhancing stockholder value
than that offered by the continuation of the Company as an independent company
and that the proposed transaction was in the best interests of the Company's
stockholders. Accordingly, on February 23, 1997, after thorough discussion of
all factors that it deemed relevant to its decision, including those noted below
under "-- Recommendation of the Board of Directors of the Company and the
Board's Reasons for the Merger," the Board voted on a resolution to approve the
Merger Agreement. All directors voted in favor of the approval of the Merger
Agreement except for Mr. Pogmore, who did not attend the meeting. The Board
authorized the President to execute and deliver the Merger Agreement on behalf
of the Company and resolved to recommend that the stockholders of the Company
approve the Merger Agreement at a special meeting to be held with respect
thereto. After the close of the market on Friday, April 3, 1998, and based upon
updated meetings and teleconferences with individual Board members reconfirming
the final form of the Merger Agreement, the President executed and delivered the
final Merger Agreement on behalf of the Company. On Monday, April 6, 1998,
before the commencement of trading, the Company and Owosso jointly issued a
press release announcing the planned Merger.
13
<PAGE> 24
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY AND THE BOARD'S REASONS
FOR THE MERGER
The Board of Directors of the Company unanimously approved the Merger
and recommends that stockholders vote "FOR" approval and adoption of the
principal terms of the Merger. The Board believes that the Merger is fair to and
in the best interests of the stockholders of the Company. The Board considered
the terms and structure of the Merger and the terms and conditions of the Merger
Agreement and decided to approve the Merger and recommend unanimously that the
stockholders approve the principal terms of the Merger, in light of the
following factors:
(i) the Merger Agreement resulted from a comprehensive process that the
Board believes was conducted in such a manner as to result in the most
attractive alternative available to the stockholders of the Company (see "--
Background of the Merger");
(ii) the information presented by VFS at the February 23, 1998 meeting
of the Board and the written opinion of VFS dated February 23, 1998, to the
effect that the Merger is fair to the Company stockholders from a financial
point of view; (STOCKHOLDERS ARE URGED TO READ THE OPINION OF VFS IN ITS
ENTIRETY. THIS OPINION IS INCLUDED AS ANNEX B TO THIS PROXY STATEMENT.)
(iii) the short-term and long-term interests of the Company; the
possibility that such interests may be served by continued independence of the
Company; and the prospects of the Company and its shares on a going-concern
basis over the next several years;
(iv) the amount of consideration offered;
(v) the present and historical value of the Company's shares and the
premiums paid in other comparable transactions;
(vi) the likelihood and timing of consummation;
(vii) the risk of non-consummation;
(viii) the feasibility of the proposal, including proposed and actual
financing for the proposal and the consequences of that financing;
(ix) legal and regulatory matters and other considerations (including
necessary approvals); and
(x) the prospects for obtaining and methods of achieving a better
offer.
14
<PAGE> 25
The foregoing discussion of the information and factors considered by
the Board of Directors of the Company is not intended to be exhaustive. The
information and factors were considered by the Board in connection with its
review of the Merger Agreement and the proposed Merger. In view of the variety
of factors considered in connection with its evaluation of the Merger, the Board
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Board may have given
different weights to different factors.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT, DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF THE
COMPANY AND STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
The Company retained VFS to act as its financial advisor in connection
with the Merger, a transaction contemplated to enhance stockholder value. In
connection with such engagement, the Company requested that VFS render its
opinion as to the fairness to the Company's stockholders of the Merger
Consideration.
On February 23, 1998, in connection with the evaluation of the proposal
from Owosso by the Board of Directors, VFS rendered an opinion that, as of such
date, and subject to certain assumptions, factors and limitations set forth in
such written opinion as described below, the Merger Consideration to be received
by Company stockholders is fair to such stockholders from a financial point of
view.
THE FULL TEXT OF THE WRITTEN OPINION OF VFS, DATED FEBRUARY 23, 1998,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX B TO THIS
PROXY STATEMENT AND SHOULD BE READ IN ITS ENTIRETY FOR INFORMATION WITH RESPECT
TO THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS CONSIDERED BY VFS IN
RENDERING ITS OPINION. VFS'S OPINION WAS PREPARED FOR THE BOARD OF DIRECTORS OF
THE COMPANY AND ADDRESSES ONLY THE FAIRNESS OF THE MERGER CONSIDERATION TO THE
HOLDERS OF COMPANY COMMON STOCK. THE VFS OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH
RESPECT TO THE PROPOSED MERGER AND DOES NOT CONSTITUTE AN OPINION AS TO WHAT THE
VALUE OF COMPANY'S COMMON STOCK ACTUALLY WILL BE AT THE EFFECTIVE DATE OF THE
MERGER. THE SUMMARY OF THE OPINION OF VFS SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
The following summarizes the financial analyses and appraisal methods
used by VFS in providing its opinion to the Company.
15
<PAGE> 26
Stock Trading History. The Company's Common Stock (Symbol: RHMH) is
listed on the over-the-counter market, on the electronic bulletin board
(OTC-BB). VFS reviewed the history of the closing prices and trading volumes for
the shares of the Company's Common Stock. This examination showed that during
the twelve-month period from January 1, 1997 through December 31, 1997, the
Company's Common Stock had very little trading volume. During this twelve-month
period the month-end close/average prices of the Common Stock ranged from $6.00
to $2.88 per share. In addition, this examination showed that over the
eight-week period from November 3, 1997 to December 31, 1997, the month-end
close/average prices of the Common Stock ranged from $4.63 to $4.25 per share.
In the opinion of VFS, the lack of trading volume in the Company's
Common Stock makes this measure of market value unreliable. Therefore, several
other valuation methods were utilized by VFS to estimate the enterprise value of
the Company for comparison to the Merger Consideration.
Discounted Cash Flow. VFS analyzed the ongoing business of the Company
using discounted cash flow analysis to estimate the enterprise value of the
Company for comparison to the Merger Consideration.
Due to the historic volatility of the business, the Company's
management does not believe that accurate forecasts of operations can be made
beyond the period of one year. To determine the present value of future cash
flows for the Company without the benefit of long-range management forecasts,
VFS used historic operating results and a one-year forecast provided by the
management of Rhodes as a predictor for future operating results to develop a
discounted cash flow scenario.
VFS calculated an equity value for the Company based upon the present
value of the Company's seven-year stream of forecasted free cash flows and
terminal value. The terminal value was calculated as a perpetuity of the
estimated rate of return on equity capital.
In conducting its discounted cash flow analysis, VFS relied upon
certain assumptions relating to sales growth and operating margins of the
Company for the one-year forecast period provided by the Company's management.
For the seven-year forecast, VFS applied discount rates ranging from 16.0% to
19.0% to future free cash flows. This analysis resulted in a per share valuation
ranging from $10.10 to $12.51 for the Company's Common Stock.
Guideline Public Company Method. VFS reviewed and compared certain
actual and forecasted financial and operating information of the Company with
comparable information for other publicly traded companies in the same or
similar businesses. In searching for publicly held companies that manufacture
timing devices and photocontrols, VFS identified several Standard Industrial
Classification (SIC) codes that include companies which could be considered
similar in terms of manufacturing and distribution capabilities. The comparable
16
<PAGE> 27
publicly traded companies that VFS chose included: Badger Meter, Cosmo
Communications Corp., Electro-Sensors, Inc., Fossil, Inc., Laser Technology,
Inc., and Movado Group, Inc.
VFS developed various multiples using the comparable publicly traded
companies' financial results for the latest twelve months ending December 31,
1997, and their respective latest three fiscal years. The multiples included:
Total Invested Capital (the market value of common stock plus the market value
of preferred stock plus the market value of interest bearing debt) ("TIC") to
Earnings Before Interest and taxes (TIC to EBIT); TIC to Earnings Before
Interest, Taxes, Depreciation and Amortization (TIC to EBITDA); TIC to Gross
Cash Flow (TIC to GCF); and TIC to Net Income (TIC to NI). The median multiple
for each method was chosen after eliminating any outliers. The multiples were
then adjusted to reflect differences in size and other qualitative factors in
comparing the group of comparable companies with the Company. Based on this
analysis, VFS determined an enterprise equity value per share for the Company's
Common Stock of $13.92.
Adjusted Net Asset Value. Market evidence suggests that publicly traded stocks
of companies which experience a trend of poor earnings performance tend to trade
at prices closer to their net asset value. Adjusted net asset value is
calculated by determining the fair market values of assets and then deducting
book value of liabilities, costs of disposal, and any related tax consequences.
Accordingly, the market values of underlying assets, in a company which had been
underperforming its peers, provides investors with a potential source of value
should earnings not materialize.
VFS performed an adjusted net asset value analysis of the Company as of
the year ended December 31, 1997. VFS relied upon financial information
regarding the Company's assets and liabilities as supplied by the Company's
management. The information relied upon by VFS included an appraisal of the
Company's real property with a valuation date of December 18, 1997 performed by
CB Commercial/Whittier Partners, LP, a commercial real estate services firm.
VFS determined the adjusted net asset value of the Company's Common
Stock, as of December 31, 1997, to be $14.30 per share.
THE METHODS USED IN EVALUATING THE FAIRNESS OF THE MERGER AGREEMENT
WERE MADE SOLELY FOR PURPOSES OF THE FAIRNESS OPINION, AND ARE NOT MEANT TO
CONSTITUTE AN ACTUAL APPRAISAL OF THE COMPANY. SELECTING A PORTION OF THIS
FAIRNESS OPINION ANALYSIS OR OF THE SUMMARY SET FORTH ABOVE, WITHOUT CONSIDERING
THE ANALYSES AS A WHOLE, COULD LEAD TO AN INCOMPLETE UNDERSTANDING OF THE
UNDERLYING RATIONALE OF VFS'S FAIRNESS OPINION. IN FORMULATING ITS FAIRNESS
DETERMINATION, VFS CONSIDERED THE RESULTS OF ALL SUCH ANALYSES. THE ANALYSES
WERE PREPARED SOLELY FOR THE PURPOSES OF VFS'S OPINION PROVIDED TO THE COMPANY'S
BOARD OF DIRECTORS AS TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW, OF THE
MERGER CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY, PURSUANT
TO THE MERGER AGREEMENT. VFS'S ANALYSES DO NOT REPRESENT APPRAISALS OR
NECESSARILY REFLECT THE
17
<PAGE> 28
PRICES AT WHICH BUSINESSES OR SECURITIES ACTUALLY MAY BE SOLD. ANALYSES BASED
UPON FORECASTS OF FUTURE RESULTS ARE NOT NECESSARILY INDICATIVE OF ACTUAL FUTURE
RESULTS, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN SUGGESTED BY
SUCH ANALYSES.
VFS is a business valuation and financial advisory firm specializing in
the valuation of businesses and business interests in connection with mergers
and acquisitions, Employee Stock Ownership Plans (ESOPs), estate and gift tax
matters, and valuations for other purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with
respect to the Merger, stockholders of the Company should be aware that the
directors and executive officers of the Company have certain interests in the
Merger that may be substantial or in addition to the interests of stockholders
of the Company generally. The Board was aware of these interests and considered
them, among other factors, in approving the Merger Agreement. These interests
are summarized below.
Interests in Common Stock and Options. As of the Record Date, the
executive officers and directors of the Company owned an aggregate of 37,961
shares of Common Stock (including shares allocated to ESOP accounts). The
aggregate consideration which will be received in the Merger by the executive
officers and directors of the Company in respect of such shares is $550,814.
None of the executive officers and directors of the Company owns any stock
options.
Indemnification and Advancement of Expenses. The Merger Agreement
provides for certain arrangements with respect to the ongoing obligations of the
the Surviving Corporation to indemnify, and advance expenses on behalf of, the
present and former directors and executive officers of the Company and each
fiduciary under the Company's ESOP and other Benefit Plans, each acting in their
capacities as such, in respect of certain liabilities. See "The Merger Agreement
- -- Certain Covenants -- Officers' and Directors' Indemnification."
Interested Director. Director James W. Pogmore is presently President
of Cramer.
Employment Arrangements. Concurrent with the execution of the Merger
Agreement, Owosso offered to enter into an employment agreement with Joseph L.
Morelli to serve as President of the Surviving Corporation for a term of three
years following the Effective Time. Owosso's proposal provides for, among other
things, an aggregate annual salary of $110,000 and benefits comparable to those
made available to other senior officers of the Surviving Corporation. The
employment agreement is offered upon substantially the same economic terms as
Mr. Morelli's existing employment contract with the Company. Mr. Morelli has
reacted favorably to Owosso's proposal and presently intends to execute the
employment agreement at the Effective Time, however, there can be no assurance
that Mr. Morelli will
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ultimately accept employment with the Surviving Corporation. At closing, the
existing employment agreement with the Company will be terminated.
Owosso also has indicated to Allan D. Springer, Vice President -
Finance, and certain additional officers of the Company that it is interested in
having such officers continue their employment with the Surviving Corporation
after the Merger. And, with respect to Mr. Springer, to continue as Trustee of
the Company's ESOP if necessary. No details of these arrangements have been
finalized and there can be no assurance that any of such officers will
ultimately accept employment with the Surviving Corporation.
FINANCING THE MERGER
The total amount required to pay the Merger Consideration to the
Company's stockholders, refinance the Company's existing bank debt and pay
estimated fees, expenses and other transaction costs of Owosso and Cramer in
connection with the Merger will be approximately $4.3 million. Owosso intends to
borrow such amounts under its existing credit facilities.
ACCOUNTING TREATMENT
The Merger will be accounted for by Owosso as a "purchase" in
accordance with generally accepted accounting principles. Therefore, the
aggregate consideration paid by Owosso in connection with the Merger will be
allocated to the Company's assets and liabilities based upon their fair values,
with any excess being treated as goodwill. The assets and liabilities and
results of operations of the Company will be consolidated into the assets and
liabilities and results of operations of Owosso subsequent to the consummation
of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion, based on current law, of certain
of the expected federal income tax consequences applicable to stockholders who
receive cash in exchange for their shares pursuant to the Merger. This summary
discusses only certain tax consequences to United States persons (i.e., citizens
or residents of the United States and domestic corporations) who hold shares as
capital assets. It does not discuss the tax consequences to holders of options
issued by the Company, if any, nor does it discuss the tax consequences that
might be relevant to stockholders who acquired their shares through the exercise
of options or otherwise as compensation. In addition, it does not discuss the
tax consequences that might be relevant to stockholders entitled to special
treatment under the federal income tax law (such as Individual Retirement
Accounts and other deferred accounts, life insurance companies and tax exempt
organizations) or to stockholders who hold their shares in special circumstances
(such as stockholders who hold shares as part of a straddle or conversion
transaction).
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For federal income tax purposes, the Merger will be treated as a
taxable purchase of shares by Owosso from the stockholders. A stockholder will
recognize taxable gain or loss for federal income tax purposes equal to the
difference, if any, between the amount of cash received pursuant to the Merger
and such stockholder's tax basis in the shares surrendered in exchange therefor.
In general, such gain or loss will be capital gain or loss if such shares are
capital assets in the hands of such stockholder at the time of the exchange and
will be long-term capital gain or loss if, at the time of the exchange, such
stockholder's holding period for the shares is more than one year.
Under The Taxpayer Relief Act of 1997, net capital gains (excess of
long-term capital gains over short-term capital losses) of individuals are taxed
at a maximum federal income tax rate of 20%, provided that the shares have been
held for more than 18 months at the effective time of the Merger (28% if held
more than one year but not more than 18 months). Capital gains of corporations
are taxed at the same federal income tax rates as ordinary income. In general,
capital losses are deductible only against capital gains and are not available
to offset ordinary income. However, individual taxpayers are allowed to deduct a
limited amount of capital losses against ordinary income.
Under federal income tax backup withholding rules, the payment agent is
required to withhold and remit to the United States Treasury 31% of the gross
cash proceeds paid to a stockholder or other payee pursuant to the Merger,
unless an exception applies under the applicable law or regulations (such as a
Certificate of Foreign Status on Form W-8), or unless the stockholder or other
payee signs a Substitute Form W-9 that provides his or her taxpayer
identification number (employer identification number or social security number)
and certifies that such number is correct. Therefore, unless such an exception
exists and can be proven in a manner satisfactory to Owosso and the payment
agent, each stockholder should complete and sign the Substitute Form W-9 which
will be included as part of the letter of transmittal from the payment agent to
be used to surrender shares for cash. The exceptions provide that certain
stockholders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, however, he or she must submit a statement, signed under penalties of
perjury, attesting to his or her exempt status. Any amounts withheld will be
allowed as a credit against the stockholder's federal income tax liability, or
in general, refunded by the Internal Revenue Service ("IRS") assuming that the
appropriate procedures are followed.
The receipt of cash by the ESOP in the Merger will not be a taxable
transaction for the ESOP or any of the individual ESOP participants, unless a
participant chooses to withdraw any of such cash proceeds allocated to his or
her account. The cash received in the Merger for the shares of Common Stock held
by the ESOP will be allocated to the participants' accounts from which those
shares were taken. Cash proceeds will be allocated to the participants' accounts
as earnings of the ESOP.
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No ruling has been requested from the IRS as to any of the tax effects
to stockholders of the transactions discussed in this Proxy Statement, and no
opinion of counsel has or will be rendered to stockholders with respect to any
of the tax effects of the Merger or the other related transactions. The effects
set forth in this discussion are not binding on the IRS or the courts and no
assurance can be given that contrary positions will not be successfully asserted
by the IRS or adopted by a court if the issues are litigated.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO.
THUS, STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX AND FINANCIAL ADVISORS AS
TO FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO AS TO ANY
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES AND THE EFFECT OF ANY PROPOSED
CHANGES IN THE TAX LAWS.
REGULATORY APPROVALS
Certain aspects of the Merger may require notification to, and filings
with, certain federal, state or foreign governmental authorities.
CERTAIN CONSEQUENCES OF THE MERGER
Upon consummation of the Merger, the stockholders of the Company will
cease to have any ownership interest in the Company or other rights as
stockholders of the Company. Instead, each such stockholder (other than
stockholders who properly perfect appraisal rights in accordance with Section
262 of the DGCL) will receive, upon surrender of the certificate or certificates
representing shares of Common Stock, the Merger Consideration in exchange for
each share of Common Stock owned immediately prior to the Effective Time.
As a result of the Merger, Cramer will be merged with and into the
Company and the Company will become a wholly-owned subsidiary of Owosso.
Following consummation of the Merger, the Common Stock will be delisted from the
over-the-counter market, deregistered under the Exchange Act, and will no longer
be publicly traded.
APPRAISAL RIGHTS
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger Agreement will be entitled to have their shares of Common Stock appraised
by the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, as
determined by such court.
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THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY
BY THE FULL TEXT OF SECTION 262 OF THE DGCL WHICH IS REPRINTED IN ITS ENTIRETY
AS ANNEX C AND IS INCORPORATED HEREIN BY REFERENCE. ALL REFERENCES IN SECTION
262 OF THE DGCL AND IN THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE TO THE
RECORD HOLDER OF THE SHARES OF COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED.
Under Section 262, where a merger agreement is to be submitted for
approval and adoption at a meeting of stockholders, as in the case of the
Special Meeting, not less than 20 calendar days prior to the meeting, the
Company must notify each of the holders of Common Stock at the close of business
on the Record Date that such appraisal rights are available and include in each
such notice a copy of Section 262. This Proxy Statement constitutes such notice.
Any stockholder who wishes to exercise appraisal rights should review the
following discussion and Annex C carefully because failure to timely and
properly comply with the procedures specified in Section 262 will result in the
loss of appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights
must (a) not vote in favor of the Merger Agreement, and (b) deliver to the
Company, before the vote on the approval and adoption of the Merger Agreement at
the Special Meeting, a written demand for appraisal of such holder's shares of
Common Stock. Such demand will be sufficient if it reasonably informs the
Company of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against the
Merger Agreement will not constitute such a demand. In addition, a holder of
shares of Common Stock wishing to exercise appraisal rights must hold of record
such shares on the date the written demand for appraisal is made and must
continue to hold such shares through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL OF COMMON STOCK SHOULD BE SENT OR
DELIVERED TO M.H. RHODES, INC., 99 THOMPSON ROAD, AVON, CONNECTICUT 06001, ATTN:
CORPORATE SECRETARY, SO AS TO BE RECEIVED BEFORE THE VOTE ON THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
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If the shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the shares of Common Stock are owned of
record by more than one person, as in a joint tenancy or tenancy in common, the
demand should be executed by or on behalf of all joint owners. An authorized
agent, including one or more joint owners, may execute a demand for appraisal on
behalf of a holder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, the
agent is agent for such owner or owners. A record holder such as a broker who
holds Common Stock as nominee for several beneficial owners may exercise
appraisal rights with respect to the Common Stock held for one or more
beneficial owners while not exercising such rights with respect to the Common
Stock held for other beneficial owners; in such case, the written demand should
set forth the number of shares as to which appraisal is sought and where no
number of shares is expressly mentioned the demand will be presumed to cover all
Common Stock held in the name of the record owner.
Within ten calendar days after the Effective Time, the Surviving
Corporation in the Merger must send a notice as to the effectiveness of the
Merger to each person who has satisfied the appropriate provisions of Section
262 and who has not voted in favor of the Merger Agreement. Within 120 calendar
days after the Effective Time, the Company, or any stockholder entitled to
appraisal rights under Section 262 and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of all such stockholders. The
Company is not under any obligation, and has no present intention, to file a
petition with respect to the appraisal of the fair value of the shares of Common
Stock. Accordingly, it is the obligation of the stockholders to initiate all
necessary action to perfect their appraisal rights within the time prescribed in
Section 262.
Within 120 calendar days after the Effective Time, any stockholder of
record who has complied with the requirements for exercise of appraisal rights
will be entitled, upon written request, to receive from the Company a statement
setting forth the aggregate number of shares of Common Stock with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statements must be mailed within ten calendar days
after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the "fair value" of the shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares of Common
Stock as determined under Section 262 could be more than, the same as or less
than the $14.51 per share that they would otherwise receive if they did not seek
appraisal of their shares of Common Stock. The Delaware Supreme Court has stated
that "proof of value by any
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techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock have been appraised. The costs of the action may be
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court may also order that all or a portion of the expenses incurred by any
holder of shares of Common Stock in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares of Common Stock entitled to appraisal.
The Court may require stockholders who have demanded an appraisal and
who hold Common Stock represented by certificates to submit their certificates
of Common Stock to the Court for notation thereon of the pendency of the
appraisal proceedings. If any stockholder fails to comply with such direction,
the Court may dismiss the proceedings as to such stockholder.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
of Common Stock subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares of Common Stock as of
a date prior to the Effective Time).
If any stockholder who demands appraisal of shares under Section 262
fails to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the DGCL, the shares of Common Stock of such holder will be
converted into the right to receive $14.51 per share in accordance with the
Merger Agreement, without interest. A stockholder will fail to perfect, or
effectively lose, the right to appraisal if no petition for appraisal is filed
within 120 calendar days after the Effective Time. A stockholder may withdraw a
demand for appraisal by delivering to the Company a written withdrawal of the
demand for appraisal and acceptance of the Merger, except that any such attempt
to withdraw made more than 60 calendar days after the Effective Time will
require the written approval of the Company. Once a petition for appraisal has
been filed, such appraisal proceeding may not be dismissed as to any stockholder
without the approval of the Court.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH
EVENT A STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE
WITH RESPECT TO HIS OR HER APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER
AGREEMENT).
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
Merger Agreement, a copy of which is included as Annex A to this Proxy Statement
and incorporated herein by reference. All references to and summaries of the
Merger Agreement in this Proxy Statement are qualified in their entirety by
reference to the complete text of the Merger Agreement. All capitalized terms
used herein and not otherwise defined herein are used as defined in the Merger
Agreement. Stockholders are urged to review the Merger Agreement carefully and
in its entirety.
THE MERGER
In General. The Merger Agreement provides that, following the approval
and adoption of the Merger Agreement by the stockholders of the Company and the
satisfaction or waiver of the other conditions to the Merger, Cramer will be
merged with and into the Company, the separate existence of Cramer will cease
and the Company will be the Surviving Corporation. Following the Merger, the
Surviving Corporation will be a wholly-owned subsidiary of Owosso. As a result
of the Merger, all the rights, privileges, immunities, powers and franchises of
the Company and Cramer will vest in the Surviving Corporation and all
obligations, duties, debts and liabilities of the Company and Cramer will become
the obligations, duties, debts and liabilities of the Surviving Corporation.
Conversion of Securities. At the Effective Time, (a) each outstanding
share of Common Stock (other than shares held by the Company or any direct or
indirect wholly owned subsidiary of the Company, shares held by Owosso or any
direct or indirect wholly owned subsidiary of Owosso and shares held by the
stockholders, if any, who properly exercised their appraisal rights under
Delaware law), will be converted into the Merger Consideration, which is the
right to receive $14.51 per share, in cash, without interest and (b) each
outstanding share of common stock of Cramer will be converted into one fully
paid and nonassessable share of common stock of the Surviving Corporation. The
shares of Common Stock will no longer be listed or traded on the
over-the-counter market and the registration of the Common Stock under the
Exchange Act will be terminated. See "The Merger -- Certain Consequences of the
Merger."
Shares of Common Stock outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has delivered a written demand for appraisal of such
shares in accordance with Section 262 of the DGCL will not be converted into the
Merger Consideration, unless and until such holder fails to perfect his right to
appraisal and payment under the DGCL, whereupon such shares shall be treated as
if they had been converted as of the Effective Time into the Merger
Consideration.
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Effective Time. The Merger Agreement provides that, on or as promptly
as practicable following the satisfaction or waiver of all of the conditions to
the Merger, the parties will file a Certificate of Merger with the Secretary of
State of the State of Delaware, and the Merger will become effective upon such
filing or at such other time as is specified in the Certificate of Merger.
Exchange of Certificates. As promptly as practicable after the
Effective Time, Mellon Shareholders Services, L.L.C. (the "Payment Agent") will
mail to each holder of a certificate which immediately prior to the Effective
Time represented shares of Common Stock (a "Certificate") a letter of
transmittal and instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate to the Payment Agent, together with a duly executed letter of
transmittal and any other required documents, the holder of such Certificate
will receive the Merger Consideration. No interest will be paid or accrued on
the cash payable upon the surrender of the Certificates. After the Effective
Time, holders of Certificates will have no right to vote or to receive any
dividends or other distributions with respect to any shares of Common Stock,
other than any distributions payable to holders of record as of a date prior to
the Effective Time, and shall have no other rights other than as provided in the
Merger Agreement or by applicable law. Any cash that has been made available to
the Payment Agent and that has not been disbursed to holders of Certificates
within one (1) year after the Effective Time will be delivered to the Surviving
Corporation, upon demand, and thereafter any stockholders who have not complied
with the provisions of the Merger Agreement and the instructions set forth in
the letter of transmittal shall look only to the Surviving Corporation for
payment of the Merger Consideration. Until surrendered, each Certificate will
represent only the right to receive the Merger Consideration with respect to the
number of shares of Common Stock evidenced by such Certificate, without any
interest thereon. The Payment Agent will be entitled to deduct and withhold from
the Merger Consideration such amounts as may be required under the Internal
Revenue Code of 1986, as amended (the "Code"). Such withheld amounts shall be
treated as having been paid to the holder of the Certificates in respect of
which such deduction and withholding was made by the Payment Agent.
STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK CERTIFICATES
TO THE PAYMENT AGENT WITHOUT A LETTER OF TRANSMITTAL, AND SHOULD NOT RETURN
THEIR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
the Company, subject to certain exceptions, regarding the Company as to, among
other things: (i) due organization, existence, good standing, corporate power
and authority, and qualifications to do business; (ii) the authorization,
execution, and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby, and the validity and enforceability
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<PAGE> 37
thereof, and the absence of any violations, breaches or defaults which would
result from compliance by the Company with any provisions of the Merger
Agreement; (iii) capitalization, including the number of shares of Common Stock
outstanding, and the absence of derivative securities or rights other than
pertaining to the ESOP under the Code; (iv) the absence of consents and
approvals necessary for execution and delivery of the Merger Agreement and the
consummation of the Merger; (v) certain matters relating to property; (vi)
compliance with the Securities Act of 1933, as amended, and the Exchange Act in
connection with the Company Reports to the Commission; (vii) the financial
statements included in the Company Reports to the Commission; (viii) the absence
of undisclosed liabilities; (ix) certain tax matters; (x) the absence of pending
litigation or violation of any law which is reasonably likely to have a Material
Adverse Effect; (xi) certain employee benefit plan and ERISA matters; (xii)
insurance; (xiii) certain intellectual property matters; (xiv) certain labor
disputes; (xv) certain contracts; (xvi) the Company's minute books; (xvii)
product liability claims; (xviii) opinion of the financial advisor; (xix) bank
accounts; (xx) certain changes which would constitute a Material Adverse Effect,
and the Company's compliance with its ordinary course of business consistent
with past practice; (xxi) compensation arrangements; (xxii) certified copies of
the Company's certificate of incorporation and bylaws; (xxiii) condition of
tangible assets; (xxiv) accounts receivable; (xxv) certain environmental
matters; (xxvi) inventory; (xxvii) relationships with customers and suppliers;
(xxviii) transactions with affiliates of the Company; (xxix) capital
expenditures; (xxx) discontinued operations; and (xxxi) the veracity of
statements and representations by the Company in connection with the Merger.
The Merger Agreement also contains various representations and
warranties of Owosso and Cramer, subject to certain exceptions, with respect to
Owosso and Cramer as to, among other things: (i) the authorization, execution
and delivery of the Merger Agreement and consummation of the transactions
contemplated thereby, and the validity and enforceability thereof; (ii) the
absence of any violations of charter documents or applicable law which would
result from compliance with any provisions of the Merger Agreement; (iii)
investment intent; (iv) the absence of consents and approvals necessary for
consummation of the Merger; (v) the absence of certain claims of brokers; and
(vi) the veracity of information provided for inclusion in the Proxy Statement.
CERTAIN COVENANTS
Interim Operation of the Business. In the Merger Agreement, the Company
has agreed that, prior to the Effective Time, it will comply with certain
covenants regarding, inter alia, the conduct of the business of the Company.
Among other things, the Company has agreed that, except as contemplated by the
Merger Agreement, the Company will conduct its business only in the ordinary
course consistent with past practice and will use best efforts to preserve its
business organization intact and maintain its existing relations with customers,
suppliers, employees, and business associates.
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The Company has also agreed that, except as contemplated by the Merger
Agreement, the Company will, among other things: (a) not amend its certificate
of incorporation or by-laws; (b) not change its corporate name; (b) not pay or
agree to pay to any employee, officer or director of the Company, without the
consent of Owosso, compensation in excess of current levels; (c) not make
changes in the Company's management, without the consent of Owosso; (d) not
merge or consolidate the Company with another corporation or allow it to acquire
or agree to acquire or be acquired by another entity except as permitted by the
Merger Agreement; (e) not sell, transfer, or otherwise dispose of assets without
the prior written consent of Owosso, except in the ordinary course of business;
(f)(i) not create, incur, assume, or guarantee any indebtedness for money
borrowed arising out of or in connection with the Company's business except in
the ordinary course of business, (ii) not create of suffer to exist any Liens on
Company assets, except those in existence on the date of the Merger Agreement,
nor (iii) increase the amount of any indebtedness outstanding under any loans,
mortgages, or other borrowing arrangements in existence on the date of the
Merger Agreement arising out of or in connection with the Company's business;
(g) pay when due, in accordance with past practices, all of its accounts payable
and trade obligations; (h) maintain reasonable levels of inventory in accordance
with past practices; (i) maintain its facilities, assets and properties in good
condition, reasonable wear excepted; (j) maintain in full force and effect the
insurance in effect on the date of the Merger Agreement; (k) maintain in full
force and effect all Contracts and Permits necessary for operation of the
business in all material respects and in all places as such business is being
conducted on the date of the Merger Agreement, and renew such Permits which
become void, expired, terminated, canceled or withdrawn between the date of the
Merger Agreement and the Effective Time; (l) promptly advise Owosso of the
commencement of, or known threat to commence of, any suit, claim, action,
arbitration, legal or administrative proceeding, governmental investigation, or
tax audit against it; (m) not declare, set aside or pay any dividend or other
distribution, or redeem or repurchase shares of capital stock, except for
repurchases of securities from former participants of the ESOP, and to comply
with the diversification requirements under the applicable provisions of the
ESOP and the Code; and (n) not issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible or exchangeable for, or
derivative securities or rights of any kind to acquire, any shares of the
Company's capital stock, or split, combine or reclassify the outstanding Common
Stock.
Acquisition Proposals. Under the Merger Agreement, the Company has
agreed that neither it nor its officers and directors will (and the Company will
cause its employees, agents and representatives not to), directly or indirectly,
encourage, initiate or solicit any inquiries or the making of any proposal with
respect to a merger, consolidation, or similar transaction involving, or any
purchase of all or any significant portion of the assets of, or any equity
interest in, the Company (an "Acquisition Proposal"). The Merger Agreement
provides that, notwithstanding the foregoing, the Company may provide access and
furnish information concerning its business, properties or assets (including
confidential information and data) to any person relating to an Acquisition
Proposal, including participate in discussions and negotiations with such
person, if, in the opinion of the Board of Directors, after receipt of
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written advice from independent legal counsel to the Company, the failure to
provide such information or access or to engage in such discussions or
negotiations would result in a breach of their fiduciary duties to the Company's
stockholders under applicable law. The Company further agreed that it would, and
would cause its representatives to, immediately cease any activities,
discussions or negotiations with any parties conducted prior to the date of the
Merger Agreement with respect to any of the foregoing. The Company further
agreed to notify Owosso promptly if any such inquires or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be instituted or continued with, the Company, such
notice to include material terms communicated to the Company.
Meetings of the Company's Stockholders. Company has represented,
warranted and covenanted the veracity of the information provided by the Company
for inclusion in the Proxy Statement to be used in connection with the meeting
of stockholders considering the Merger Agreement.
Filings; Other Action. Under the Merger Agreement, the parties will
each promptly make their respective Regulatory Filings with respect to the
Merger; and use their best efforts to do or cause to be done all other necessary
actions to consummate the transactions contemplated by the Merger Agreement. The
Company shall also file with the Commission all reports required to be filed by
it under the securities laws, and when filed will not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to be stated therein, in light of the circumstances
under which they were made, not misleading. Prior to Closing, the Company has
agreed to deliver to Owosso the financial statements of the Company required to
be filed by Owosso pursuant to the Exchange Act, including therewith, an opinion
of the Company's auditors.
Access to Information. Under the Merger Agreement, prior to the
Effective Time the Company will afford to Owosso and its representatives
(including on-site observers) reasonable access to all of the Company's books,
records, contracts and assets, and full opportunity to discuss the Company's
business, affairs, and assets with its officers, employees, customers, suppliers
and independent accountants. During such period, the Company will furnish to
Owosso and its representatives copies of records and other documents with
respect to the affairs of the Company and such other information as Owosso may
reasonably request. In addition, promptly after the date of the Merger
Agreement, the Company will deliver to Owosso monthly balance sheet and income
and loss statements.
Owosso shall provide the Company with information concerning Owosso's
financing arrangements as well as other information reasonably requested by the
Company regarding Owosso's ability to consummate the transactions contemplated
by the Merger Agreement.
Best Efforts. Under the Merger Agreement, the parties have agreed to
use their best efforts to cause the Conditions to Closing to be satisfied on the
Effective Time.
29
<PAGE> 40
Employee Benefits. Pursuant to the Merger Agreement, between the date
of the Merger Agreement and the Effective Time, the Company will maintain in
full force and effect the Benefit Plans as they pertain to the Company's
employees or former employees. Except as required by the Code or the Merger
Agreement (with notice to Owosso), the Company may not adopt, terminate, amend,
extend or otherwise change any Benefit Plan without the prior written consent of
Owosso. In addition, except as required by the Merger Agreement or the written
terms of the Benefit Plans, the Company may not make, cause to be made, or agree
to make any contribution, award, or payment under any Benefit Plan.
Notice of Change. The Company will promptly notify Owosso of the
existence or happening of any fact, event or occurrence prior to the Effective
Time of which the Company or its representatives have knowledge which may alter
the accuracy or completeness of any representation or warranty contained in the
Merger Agreement.
Employee Stock Ownership Plan. The Company maintains the M.H. Rhodes
Company, Inc. Employee Stock Ownership Plan (the "ESOP"). The ESOP owns 46.4% or
91,355 shares of the Company's Common Stock (the "ESOP Shares"). As of December
31, 1997, 85,698 of the ESOP Shares have been allocated to the accounts of ESOP
participants (the "Participants"). The ESOP Shares were purchased with the
proceeds of a loan between the ESOP and the Company (the "ESOP Loan"). As part
of the merger negotiations, the Company has agreed that prior to the Effective
Time the Company and the Trustee of the Trust established under the ESOP (the
"ESOT") will amend the ESOP Loan and execute an Amended and Restated Replacement
Promissory Note (the "Replacement ESOT Note") reducing the principal balance of
the Promissory Note dated December 19, 1985 from the ESOT to the Company to
$188,000, and accelerating its maturity date to December 31, 1998.
Immediately preceding the Effective Time, the Company shall contribute
to the ESOP for the 1997 and/or 1998 plan years an amount sufficient to repay
the outstanding balance on the Replacement ESOT Note in full but only if the
Company and the Owosso conclude that such contribution (the "Tentative
Contribution") will be fully tax deductible under Section 404 of the Code and
that the allocation of such contribution to Participants' accounts will not
violate the limitations of Section 415 of the Code (the "Limitations"). As the
result of such contribution, all of the ESOP Shares will have been allocated to
Participants' accounts.
Immediately preceding the Effective Time, all Participants will become
fully vested in their account balances. Pursuant to federal tax laws and the
terms of the ESOP, Participants will have the right to vote their ESOP Shares on
the Merger through a pass-through voting procedure.
At the Effective Time, Owosso will purchase the ESOP Shares. Proceeds
received from the sale of the ESOP Shares will be paid to Participants' accounts
in proportion to the number of ESOP Shares held in each account.
30
<PAGE> 41
Subsequently, if the Tentative Contribution is made, the Surviving
Corporation will take such actions as may be necessary to terminate the Plan and
to distribute the balance of Participants' accounts to the Participants. At the
same time, the Surviving Corporation will take such actions as may be necessary
to terminate the membership of all members of the Committee which administers
the ESOP. If the Tentative Contribution can not be made without violating the
Limitations, the ESOP will not be terminated and the Owosso shall thereafter
make such contributions as soon following the Effective Time as is permissible
under the terms of the ESOP Loan and practicable without violating the
Limitations.
Owosso has covenanted that as soon as administratively feasible
following the Effective Time and consistent with the Limitations, it will cause
the Surviving Corporation to arrange for the orderly unwinding of the ESOP in
accordance with all applicable legal requirements. Without deviating from the
foregoing, the Company will (i) make application to the IRS for a determination
that the ESOP's termination does not adversely affect the ESOP's qualified
status under the Code, (ii) arrange for each Participant to receive his or her
entire interest in the ESOP, which receipt, at the election of each Participant,
will be either by direct payment to the Participant, by direct payment to an IRA
(or qualified Plan which receives rollovers) designated by the Participant, or
by direct rollover to a qualified Plan maintained by Owosso.
Confidentiality. Except as otherwise required by law, or as may be
necessary or appropriate to enforce Owosso's rights under the Merger Agreement,
Owosso shall retain in confidence, all Confidential Information obtained by it
pursuant to the investigations and requests made by Owosso and its
representatives in accordance with the Merger Agreement.
Purchase or Sale of Shares. Under the Merger Agreement, neither Owosso
nor Cramer or any affiliate of either thereof may make any open market purchase
or sale of shares of Common Stock or privately negotiate a purchase or sale of
such shares, or, except as contemplated by the Merger Agreement, otherwise in
any manner agree to make any proposal to acquire or dispose of, directly or
indirectly, any shares of Common Stock.
Officers' and Directors' Indemnification. The Merger Agreement provides
that, following the Effective Time, Owosso will cause the Surviving Corporation
to agree that all rights to indemnification and advancement of expenses by the
Company in favor of each person who is as of the date of the Merger Agreement,
or has been at any time prior to the date of the Merger Agreement, a director or
officer of the Company or fiduciary under the Company's ESOP and other Benefit
Plans (acting in such capacities) to the same extent and in the same manner as
is provided in the Certificate of Incorporation or By-laws of the Company, the
ESOP and other Benefit Plans as in effect on the date of the Merger Agreement,
with respect to matters occurring at or prior to the Effective Time, shall, upon
consummation of the Merger, continue in full force and effect at all times prior
to the Effective Time including, without limitation, matters arising out of or
pertaining to the Merger or the Merger Agreement and shall survive the Merger
and shall continue in full force and effect until the earlier of (a) their
current expiration date and (b) the date which is six (6) years from the
Effective Time.
31
<PAGE> 42
CERTAIN CONDITIONS TO THE MERGER
The obligations of Owosso and Cramer to effect the Merger are subject
to the following conditions: (a) the representations and warranties of the
Company contained in the Merger Agreement shall be true and correct in all
material respects both when made and as of the Effective Time as if made at and
as of such time; (b) the Company shall have performed all covenants and
agreements under the Merger Agreement required to be performed by it at or prior
to the Effective Time pursuant to the terms thereof; (c) counsel for the Company
shall have delivered a favorable opinion to Owosso as of the Effective Time; (d)
there shall be no litigation pending or threatened (or investigation in
connection therewith) as of the Effective Time seeking to prohibit or obtain
damages in connections with the transactions contemplated by the Merger
Agreement; (e) the grant of any consent or approval of any governmental agency
or third party necessary to the business or operations of the Company for the
consummation of the transactions contemplated by the Merger Agreement; (f) no
material damage to the assets, properties and business of the Company as a
result of various conditions including, fire, disaster, accident, labor dispute,
any action of governmental authority, embargo, riot, or act of God; (g) the
Company shall have effectuated all corporate action necessary to approve the
Merger Agreement and the transactions contemplated thereby; (h) the Merger
Agreement shall have been approved by holders of 60% of the outstanding shares
of Common Stock; (i) dissenting stockholders shall hold not more than 7.5% of
the shares of Common Stock outstanding as of the Effective Time; (j) the
expenses reasonably anticipated to remediate environmental matters of which the
Company may be liable shall not exceed $325,000; and (k) the existing employment
agreement with Joseph L. Morelli shall have been terminated and the Surviving
Corporation shall have entered into a new employment agreement with Mr. Morelli.
The obligation of the Company to effect the Merger is subject to the
following conditions: (a) the representations and warranties of Owosso contained
in the Merger Agreement shall be true and correct in all material respects both
when made and as of the Effective Time as if made at and as of such time; (b)
each of Owosso and Cramer shall have performed all covenants and agreements
under the Merger Agreement required to be performed by each of them at or prior
to the Effective Time pursuant to the terms thereof; (c) counsel for Owosso
shall have delivered their opinion to the Company as of the Effective Time; (d)
there shall be no litigation pending or threatened (or investigation in
connection therewith) as of the Effective Time seeking to prohibit or obtain
damages in connections with the transactions contemplated by the Merger
Agreement; (e) each of Owosso and Cramer shall have effectuated all corporate
action necessary to approve the Merger Agreement and the transactions
contemplated thereby; (f) the Merger Agreement shall have been approved by
holders of 60% of the outstanding shares of Common Stock; (g) Owosso shall have
caused a 401(k) Plan to be established for, or to be extended to, the Surviving
Corporation employees effective as of the Closing.
32
<PAGE> 43
TERMINATION OF THE MERGER AGREEMENT
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time, whether before or after stockholder approval thereof: (a)
by the mutual consent of Owosso and the Company; (b) by either the Company or
Owosso prior to the Effective Time: (ii) if the other party shall have
materially misstated any representation or been in material breach of any
warranty contained in the Merger Agreement; (iii) if the other party shall have
been in material breach of any covenant, undertaking or restriction contained in
the Merger Agreement and such misstatement or breach has not been cured within
30 days of notice of such breach or misstatement, or the Effective Time, and in
any event such other party shall not be in breach of such other party's
obligations under the Merger Agreement; (c) by either the Company or Owosso if
the Merger has not been consummated on or prior to July 31, 1998; except that no
party may terminate the Merger Agreement for this reason if such party is in
material default under the Merger Agreement; (d) by Owosso (i) provided that
Owosso is not in material default under the Merger Agreement, if all the
conditions precedent to the obligation of Owosso to close have not been met
prior to July 31, 1998; (ii) if the Board of Directors of the Company shall
withdraw or modify in any manner adverse to Owosso or Cramer its approval or
recommendation to the stockholders to approve the Merger or Merger Agreement, or
the Board, upon request of Owosso, fails to reaffirm such approval or
recommendation, or has resolved to do any of the foregoing; (e) by the Company
(i) provided that the Company is not in material default under the Merger
Agreement, if all the conditions precedent to the obligation of the Company to
close have not been met prior to July 31, 1998; (ii) prior to the Effective
Time, and before or after the approval of stockholders, if the Board of
Directors of the Company receives an unsolicited written offer at a higher
dollar value per share with respect to a merger, consolidation, or sale of all
or substantially all the assets of the Company, or if an unsolicited tender or
exchange offer for the shares of Common Stock at a higher dollar value per share
is commenced, and the Board accepts or recommends to stockholders such
transactions, but only after the Board receives an opinion from VFS that such
transaction is more favorable to stockholders from a financial point of view
than the Merger and a written opinion of counsel that approval, acceptance or
recommendation of such transaction is required by fiduciary obligations under
applicable law.
Effect of Termination and Abandonment. In the event the Merger
Agreement is terminated and the Merger abandoned as provided above, there will
be no liability on the part of Owosso, Cramer or the Company or their respective
directors or officers to any other party to the Merger Agreement.
Notwithstanding the foregoing, the termination rights described above in the
section "-- Termination" do not relieve any party from any liability for breach
of the Merger Agreement and any fee described below under the section "-- Fees
and Expenses."
If the Merger Agreement terminates for reasons other than that the
Board of Directors of the Company has withdrawn its approval or recommendation
to stockholders (or failed to reaffirm the same after requested by Owosso) or
the Company has accepted a higher offer,
33
<PAGE> 44
neither Owosso nor any affiliate of Owosso may acquire any capital stock of the
Company or any interest therein for a period of 12 months following the date of
such termination.
FEES AND EXPENSES
Except as otherwise contemplated by the Merger Agreement, all expenses
incurred in connection with the Merger Agreement and consummation of the Merger
will be paid by the party incurring such expenses.
If the Merger Agreement is terminated by Owosso because (A) (x) any
person, entity or group not stockholders of the Company on the date of the
Merger Agreement, other than Owosso or its subsidiaries or affiliates or any
group of which any of them is a member, (i) shall have beneficial ownership of
more than 35% or more of the outstanding shares of Common Stock or (ii) shall
have publicly proposed (1) any merger or consolidation with or acquisition of
all or substantially all of the assets of the Company or other similar business
combination involving the Company, (2) that any change be made in the
composition of the Board of Directors of the Company and such person, entity or
group shall file proxy materials with the Commission in respect of such proposal
or (3) the purchase of 50% or more of the total voting power of the Company,
including tender or exchange offer, and (y) the Merger Agreement is terminated
in accordance with its terms or (B) the Merger Agreement is terminated because
the Board of Directors of the Company has withdrawn its approval or
recommendation to stockholders (or failed to reaffirm after request of Owosso)
or the Company has accepted a higher offer, the Company must pay to Owosso the
sum of three hundred thousand dollars ($300,000).
AMENDMENT; WAIVER
The Merger Agreement may be amended by the parties thereto, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval by the stockholders of the Company of the matters presented in
connection with the Merger, but after any such approval no amendment will be
made without the approval of such stockholders if such amendment changes the
Merger Consideration or alters or changes any of the other terms or conditions
of the Merger Agreement if such alteration or change would materially adversely
affect the rights of such stockholders. The Merger Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
thereto. At any time prior to the Effective Time, the parties may (i) extend the
time for the performance of any of the obligations or other acts of the other
parties to the Merger Agreement, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained in the Merger
Agreement or in any document, certificate or writing delivered pursuant thereto
or (iii) waive compliance with any of the agreements or conditions of the other
parties thereto contained therein. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
34
<PAGE> 45
THE COMPANIES
THE COMPANY
The Company, which has been in business since 1930, manufactures
mechanical and electrical timers and photocontrols. The timers are used in
commercial cooking equipment, HVAC applications, and bio-medical devices that
require a set time interval with an opening and closing of an electrical switch.
The electronic photocontrols are devices that are inserted on the tops of street
and roadway lights. The Company also manufactures magnetic type photocontrols
and thermal type photocontrols. The Company's principal executive offices are
located at 99 Thompson Road, Avon, Connecticut 06001 and its telephone number is
(860) 673-3281.
For a more detailed description of the business and properties of the
Company, see the descriptions thereof set forth in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, which is incorporated herein
by reference. See "Incorporation of Certain Documents by Reference."
OWOSSO CORPORATION
Owosso, with headquarters in King of Prussia, Pennsylvania, is a
diversified manufacturer of products in defined niche markets in two business
segments: Engineered Component Products and Specialized Equipment. In the
Engineered Component Products segment, Owosso's operating subsidiaries
manufacture and sell electric motors, gear motors, and electromechanical timers
for non-automotive transportation, healthcare, welding, construction, heating
and air conditioning and other industrial applications; heat transfer coils for
non-automotive transportation, commercial refrigeration and other HVAC
applications; and replacement camshaft bearings, valve seats and shims for the
automotive after-market. In the Specialized Equipment segment, Owosso's
subsidiaries manufacture aluminum trailers and agricultural equipment. Owosso
has announced that it will be selling the agricultural equipment companies in
its Specialized Equipment segment. Owosso's principal executive offices are
located at 2200 Renaissance Boulevard, Suite 150, King of Prussia, Pennsylvania
19406 and its telephone number is (610) 275-4500.
CRAMER COMPANY
Cramer, located in Old Saybrook, Connecticut, manufactures
subfractional horsepower motors and electromechanical timers primarily for use
in residential and commercial appliances, business and capital equipment, and
heating and air conditioning systems. Owosso acquired Cramer in 1984, and Cramer
is a wholly-owned subsidiary of Owosso. Upon consummation of the Merger, Cramer
will be merged with and into the Company, with the Company continuing as the
Surviving Corporation. The Surviving Corporation will be a wholly-owned
subsidiary of Owosso. Cramer's principal executive offices are located at 139
35
<PAGE> 46
Mill Rock Road, East, Old Saybrook, Connecticut 06475 and its telephone number
is (860) 388-3574.
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company
for the periods indicated. The data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 and the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, which are incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
M. H. RHODES, INC. AND M. H. RHODES (CANADA) LIMITED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS(1)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE TWELVE MONTHS ENDED DECEMBER 31
ENDED MARCH 31
------------------------------ --------------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 2,533,853 $ 1,983,341 $ 8,493,936 $ 8,011,086 $ 8,081,871 $ 9,815,715 $ 10,304,525
Net income(loss) 20,258 51,608 264,968 (177,373) (895,488) 79,351 129,521
Basic earnings
(loss) per share .10 .25 1.35 (.88) (4.42) .38 .62
Cash dividends
paid per share .00 .00 .00 .00 .00 .00 .00
</TABLE>
(1) M. H. Rhodes (Canada) Limited Financial Statements have been translated
from Canadian to U.S. currency at applicable exchange rates.
M. H. RHODES, INC. AND M. H. RHODES (CANADA) LIMITED CONDENSED CONSOLIDATED
BALANCE SHEETS(1)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $5,010,581 $4,955,115 $5,106,392 $4,886,532 $5,346,957 $6,998,344 $6,709,115
Long term
obligations 544,284 771,792 615,629 826,537 397,378 1,286,956 1,067,983
</TABLE>
36
<PAGE> 47
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders
Equity 2,404,237 2,577,714 2,341,031 2,007,022 2,496,336 3,330,925 3,120,481
</TABLE>
(1) M. H. Rhodes (Canada) Limited Financial Statements have been translated
from Canadian to U.S. currency at applicable exchange rates.
MARKET PRICES OF COMMON STOCK
There is no generally recognized or established public trading market
for the Common Stock of the Company.
The following chart reflects no payment of dividends over the past two
years. The source of information for the 1997 range of bid prices and ask prices
was presented by the National Quotation Bureau, LLC. For 1996, the range of bid
prices was supplied by a brokerage firm that follows the stock of the Company
with no ask prices available. This information does not necessarily represent
actual transactions and may not reflect retail markups, markdowns, or
commissions.
<TABLE>
<CAPTION>
PRICES
------------------------------------------------------------
BID ASK
---------------- ------------------------------
High Low High Low Dividend
------- ------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
1998
First Quarter $ 4.875 $ 4.50 $ 8.25 $ 6.50 .00
1997
First Quarter $ 2 1/2 $ 2 1/4 $ 4 1/2 $ 4 1/2 .00
Second Quarter $ 2 1/4 $ 2 $ 4 1/4 $ 3 3/4 .00
Third Quarter $ 4 $ 2 $ 7 $ 3 .00
Fourth Quarter $ 4 1/2 $ 4 $ 8 1/4 $ 7 .00
1996
First Quarter $ 6 1/4 $ 5 1/4 Not Available Not Available .00
Second Quarter $ 6 1/4 $ 5 1/4 Not Available Not Available .00
Third Quarter $ 5 1/4 $ 4 3/4 Not Available Not Available .00
</TABLE>
37
<PAGE> 48
<TABLE>
<CAPTION>
PRICES
------------------------------------------------------------
BID ASK
---------------- ------------------------------
High Low High Low Dividend
------- ------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Fourth Quarter $ 3 3/4 $ 3 1/2 Not Available Not Available .00
</TABLE>
On April 3, 1998, the last trading day prior to the public announcement
of the execution of the Merger Agreement, the bid and ask prices of the Common
Stock, as reported by the National Quotation Bureau, LLC, were $5.00 and $8.25
per share, respectively. On May 26, 1998, the bid and ask prices of the Common
Stock, as reported by the National Quotation Bureau, LLC, were $11.75 and $13.00
per share, respectively.
Stockholders are urged to obtain current market quotations for the
Common Stock (Symbol: RHMH) prior to making any decision with respect to the
Merger.
On May 28, 1998, there were 196,736 shares of Common Stock outstanding
and approximately 660 record holders of the Company's Common Stock. The number
of record stockholders excludes individual participants in security position
listings.
Mellon Shareholders Services, L.L.C., 85 Challenger Road, Overpeck
Center, Ridgefield Park, N.J. 07660 is the Company's Stock Registrar and
Transfer Agent. Their telephone number is (800) 288-9591.
It had been the Company's policy prior to 1988 to pay an annual
dividend of $.10 per share. Pursuant to a loan agreement between the Company and
the Connecticut National Bank (k/n/a Fleet Bank) dated December 19, 1985, now
the Wilshire Credit Corporation, the Company has covenanted that it will not
declare or pay dividends exceeding in the aggregate 10% of its annual net
earnings after taxes. Due to this agreement no dividend was declared for 1996
(payable in 1997) and for 1997 (payable in 1998). The Company may or may not
declare future dividends depending on its earnings, financial conditions and
other factors. The Merger Agreement prohibits the Company from declaring,
setting aside, or paying dividends on the Common Stock.
CERTAIN PROJECTIONS OF FUTURE OPERATING RESULTS
The Company does not as a matter of course make public forecasts as to
its future financial performance and condition. However, in connection with its
discussions with Owosso, the Company furnished Owosso with certain data relating
to projected future operating results and financial condition. The projections
set forth below were included in the data provided by the Company to Owosso.
These projections were not prepared in compliance with the published guidelines
of the American Institute of Certified Public Accountants or the
38
<PAGE> 49
Commission regarding projections or financial forecasts and are included herein
only because such information was provided to Owosso. These projections
constitute forward-looking statements and were based upon numerous assumptions.
Although the Company believes that such assumptions were reasonable when made,
such assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond the
Company's control. Accordingly, there can be no assurance, and no representation
or warranty is made, that the actual results of operations and financial
position achieved by the Company would not vary materially from the results of
operations and financial condition set forth in these projections. For a list of
important factors that, in the view of the Company, could cause actual results
to differ materially from those set forth in these projections, see "Forward
Looking Statements." The projections set forth below have not been adjusted to
reflect the effects of the Merger and, in fact, assume that the merger and
related transactions have not occurred. The Company does not intend to update,
revise or correct such projections if they become inaccurate (even in the short
term).
M. H. RHODES, INC. AND M. H. RHODES (CANADA) LIMITED FORECASTED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEET(1)
<TABLE>
<CAPTION>
DECEMBER 31
1998
<S> <C>
Net sales $9,170,000
Net income(loss) 325,000
Basic earnings(loss) 1.68
per share
Total assets 4,839,000
Long term 391,000
obligations
Cash dividends paid .00
per share
</TABLE>
(1) Forecasted M. H. Rhodes (Canada) Limited Financial Statements have been
translated from Canadian to U.S. currency at applicable exchange rates.
The projections set forth above were prepared by the Company in
December 1997 in connection with the Company's annual profit planning process.
Forecasts of future financial performance and condition could differ materially
from the data set forth above if management were to prepare projections based
upon circumstances existing as of the date of this Proxy Statement. None of the
Company, Owosso, or Cramer intend or have any duty or obligation to publicly
disclose updates or revisions to any of the projections set forth above to
reflect
39
<PAGE> 50
circumstances existing or developments occurring after the preparation of such
projections or to reflect the occurrence of unanticipated events. The Company's
independent accountants have not examined or compiled the foregoing
forward-looking statements and accordingly do not provide any assurance with
respect to such statements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information with respect to the beneficial ownership of the Common
Stock of the Company as of May 28, 1998 by each person who is known by the
Company to own beneficially more than 5% of the Common Stock, by each director
of the Company and by all officers and directors as a group, is set forth in the
following table:
<TABLE>
<CAPTION>
TITLE OF CLASS NAME OF BENEFICIAL OWNER AMOUNT AND PERCENT OF
NATURE OF CLASS
BENEFICIAL
OWNERSHIP (1)
<S> <C> <C> <C>
Common Stock M.H. Rhodes, Inc. Employee 91,355 46.4
Stock Ownership Trust For
The Non-Bargaining Unit
Employee Group (2)
Common Stock A.J. Campanelli - -
Common Stock E.J. Doyle 2,025 1.0
Common Stock J.T. Mayerhofer - -
Common Stock J.L. Morelli 9,959 (3) 5.1
Common Stock J.W. Pogmore - -
Common Stock All Officers and Directors (3) 37,961 (3) 19.3
as a group
</TABLE>
(1) Record ownership unless otherwise indicated.
(2) Includes an aggregate of 34,436 shares allocated to the ESOP accounts
of the officers and directors of the Company as follows: J. Morelli
(9,959); H. Matles (10,613); A. Springer (7,628); S. Vanasse (6,236).
The mailing address of the ESOP is 99 Thompson Road, Avon, Connecticut
06001.
(3) Includes shares allocated to ESOP accounts respectively for Mr. Morelli
(9,959) and all other Officers and Directors as a group (24,477).
Excludes shares held in the name of Mr. Springer as trustee for the
ESOP who is also an officer of the Company.
40
<PAGE> 51
STOCKHOLDER PROPOSALS
The Company will hold a 1998 Annual Meeting only if the Merger is not
consummated. In the event of such a meeting, in order to have been considered
for inclusion in the Company's proxy materials for the 1998 Annual Meeting of
Stockholders, stockholder proposals must have been received at the Company's
principal executive offices in Avon, Connecticut before January 23, 1998.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements incorporated in this Proxy
Statement by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 have been audited by Riggs & Associates, LLP,
independent accountants, as stated in their report, which also is incorporated
herein by reference.
Representatives of Riggs & Associates, LLP will attend the Special
Meeting and will have an opportunity to make a statement and to respond to
appropriate questions from stockholders.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the Commission, accompanies this Proxy
Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company (File No.
0-1412) with the Commission under the Exchange Act, are incorporated herein by
reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
(c) The Company's Current Report on Form 8-K, dated April 17,
1998.
All documents filed with the Commission by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date any such
document is filed.
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<PAGE> 52
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part hereof. All information appearing in this Proxy Statement
is qualified in its entirety by the information and financial statements
(including the notes thereto) contained in the documents incorporated herein by
reference, except to the extent set forth in the immediately preceding sentence.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE
TO EACH PERSON TO WHOM A COPY OF THIS PROXY STATEMENT IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON, BY FIRST-CLASS MAIL OR OTHER EQUALLY
PROMPT MEANS WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, A COPY OF ANY
OR ALL OF THE DOCUMENTS THAT ARE INCORPORATED BY REFERENCE HEREIN (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN). REQUESTS SHOULD BE DIRECTED TO CORPORATE SECRETARY, M.H. RHODES, INC.,
99 THOMPSON ROAD, AVON, CONNECTICUT 06001 (TELEPHONE NUMBER (860) 673-3281). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE REQUESTED DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY JUNE 22, 1998, THE DATE WHICH IS FIVE (5) BUSINESS DAYS PRIOR TO THE
DATE OF THE COMPANY'S SPECIAL MEETING.
OTHER MATTERS
The Company is not aware of any other matters to be presented to the
meeting but if any other matters should properly come before the meeting, the
proxies will be voted by the persons named therein, in accordance with their
best judgment.
By Order of the Board of Directors
Sharon L. Vanasse
Corporate Secretary
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<PAGE> 53
M.H. RHODES, INC.
99 Thompson Road, Avon, Connecticut 06001 (860) 673-3281
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Special Meeting of Stockholders - June 29, 1998
The undersigned, as a stockholder of M.H. RHODES, INC. (the "Company"),
hereby appoints Joseph L. Morelli and Allan D. Springer or any one of them, the
true and lawful proxies and attorneys in fact of the undersigned, with full
power of substitution, to attend the Special Meeting of the Stockholders of the
Company to be held June 29, 1998, at 10:00 a.m. local time at the Company's
offices at 99 Thompson Road, Avon, Connecticut 06001 and any adjournments or
postponements thereof, and any of them to vote, as designated below, the number
of shares which the undersigned would be entitled to vote, as fully and with the
same effect as the undersigned might do if personally present, on the following
matters as set forth in the Proxy Statement and Notice dated June 1, 1998
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL 1 SET FORTH ON THE REVERSE SIDE, AND UPON ALL
OTHER MATTERS, THE PROXIES SHALL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[ SEE REVERSE ]
[ SIDE ]
[X] Please mark votes as shown in this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1,2 AND 3.
1. Proposal to approve and adopt an Agreement and Plan of Merger, dated as
of April 3, 1998, by and among M.H. Rhodes, Inc. (the "Company") ,
Owosso Corporation ("Owosso"), a Pennsylvania corporation, and Cramer
Company ("Cramer"), a Delaware corporation and a wholly-owned
subsidiary of Owosso, providing for the merger of Cramer with and into
the Company, with the Company continuing as the surviving corporation
and becoming a wholly-owned subsidiary of Owosso. Upon the consummation
of the merger, each share of Company common stock (other than
dissenters' shares and shares held in the Company's treasury) will be
converted into the right to receive $14.51 in cash.
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<PAGE> 54
[ ] For [ ] Against [ ] Abstain
2. To consider and vote upon a proposal to adjourn the Special Meeting to
permit further solicitation of proxies in the event there are not
sufficient votes at the time of the Special Meeting to approve and
adopt the Merger Agreement.
[ ] Approved [ ] Withheld
3. To transact such other business as may properly come before the Special
Meeting.
[ ] Approved [ ] Withheld
This Proxy is revocable and the undersigned reserves the right to
attend the meeting and vote in person. The undersigned hereby revokes any proxy
heretofore given in respect of the shares of the Company.
Please sign exactly as the name(s) appear on your Stock Certificate.
When attorney, executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by an
authorized officer. If a partnership, please sign in partnership name by an
authorized person. If more than one name is shown, as in the case of joint
tenancy, each party should sign.
THE BOARD OF DIRECTORS URGES THAT YOU FILL IN, SIGN AND DATE THE PROXY AND
RETURN IT PROMPTLY BY MAIL IN THE ENCLOSED ENVELOPE.
Signature:________________ Date:_______ Signature:________________ Date:_______
44
<PAGE> 55
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
OWOSSO CORPORATION
CRAMER COMPANY
AND
M. H. RHODES, INC.
DATED: April 3, 1998
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TABLE OF CONTENTS
Page
BACKGROUND...................................................................1
ARTICLE 1 - THE MERGER.......................................................1
1.1. The Merger.......................................................1
1.2. Closing..........................................................1
1.3. Merger Filings...................................................2
1.4. Filing of Merger Documents; Effective Time.......................2
1.5. The Articles of Incorporation....................................2
1.6. The Bylaws.......................................................2
1.7. Resignations.....................................................2
ARTICLE 2 - CONVERSION OR CANCELLATION OF SHARES IN THE MERGER...............2
2.1. Conversion or Cancellation of Shares.............................2
2.2. Payment for Shares...............................................3
2.3. Dissenters' Rights...............................................4
2.4. Transfer of Shares After the Effective Time......................4
ARTICLE 3 - REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE COMPANY....................................4
3.1. Organization, Power, Standing and Qualification..................4
3.2. Power and Authority..............................................5
3.3. Validity of Contemplated Transactions............................5
3.4. Capitalization of Company........................................5
3.5. Governmental Filings; No Violations..............................6
3.6. Title to Properties..............................................6
3.7. Real Property....................................................6
3.8. Company Reports; Financial Statements............................8
3.9. Absence of Undisclosed Liabilities...............................8
3.10. Certain Tax Matters..............................................9
3.11. Litigation; Compliance with Laws................................10
3.12. Employee Benefits...............................................10
3.13. Insurance.......................................................13
3.14. Proprietary Rights..............................................13
3.15. Labor Disputes..................................................13
3.16. Contracts.......................................................13
3.17. Minute Books....................................................14
3.18. Product Liability Claims........................................15
3.19. Fairness Opinion................................................15
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3.20. Bank Accounts..................................................15
3.21. No Changes.....................................................15
3.22. Compensation Arrangements......................................16
3.23. Copies of Articles and Bylaws..................................16
3.24. Condition of Tangible Assets...................................16
3.25. Accounts Receivable............................................16
3.26. Hazardous Substances...........................................17
3.27. Inventory......................................................17
3.28. Relationship With Customers and Suppliers......................17
3.29. Transactions with Affiliates...................................18
3.30. Capital Expenditures...........................................18
3.31. Discontinued Operations........................................18
3.32. Veracity of Statements.........................................18
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF BUYER AND CRAMER..............18
4.1. Power and Authority.............................................18
4.2. Conflict With Authority, Bylaws, etc............................19
4.3. Acquisition of Shares for Investment............................19
4.4. Governmental Filings; No Violations.............................19
4.5. Brokers and Finders.............................................19
4.6. Proxy Statement.................................................19
ARTICLE 5 - ACTIVITIES PRIOR TO CLOSING BY THE COMPANY......................19
5.1. Operation of Business.........................................19
5.1.1. Organizational Documents................................20
5.1.2. Corporate Name..........................................20
5.1.3. Compensation, Bonuses...................................20
5.1.4. Management..............................................20
5.1.5. Mergers, Etc............................................20
5.1.6. Disposition of Assets...................................20
5.1.7. Indebtedness............................................20
5.1.8. Payables................................................20
5.1.9. Inventory...............................................20
5.1.10. Maintenance of Assets..................................20
5.1.11. Insurance..............................................20
5.1.12. Contracts and Permits..................................21
5.1.13. Litigation, etc........................................21
5.1.14. Dividends or Other Distributions.......................21
5.1.15. Capital Stock..........................................21
5.2. Acquisition Proposals.........................................21
5.3. Meetings of the Company's Shareholders........................21
5.4. Filings; Other Action.........................................22
5.5. Access to Information.........................................22
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5.6. Best Efforts..................................................23
5.7. Benefit Plans.................................................23
5.7.1. Plan Changes............................................23
5.7.2. Contributions and Payments..............................23
5.8. Notice of Change..............................................23
5.9. Publicity.....................................................23
5.10. Rhodes ESOP...................................................24
ARTICLE 6 - ACTIVITIES PRIOR TO CLOSING BY BUYER............................24
6.1. Best Efforts....................................................24
6.2. Access to Information...........................................24
6.3. Confidentiality.................................................25
6.4. Purchase or Sale of Shares......................................25
ARTICLE 7 - CONDITIONS PRECEDENT TO CLOSING.................................25
7.1. Conditions to Obligation of Buyer to Close......................25
7.1.1. Representations and Warranties;
Compliance with Agreement...............................25
7.1.2. Opinion of Counsel for the Company......................26
7.1.3. Litigation Affecting Closing............................26
7.1.4. Required Consents and Regulatory Approvals..............26
7.1.5. No Material Damage to Business..........................26
7.1.6. Approval of Buyer; Corporate Matters....................26
7.1.7. Shareholder Approval....................................26
7.1.8. Dissenter's Rights......................................26
7.1.9. Environmental Issues....................................27
7.2. Conditions to Obligation of the Company to Close................27
7.2.1. Representations and Warranties..........................27
7.2.2. Opinion of Counsel of Buyer.............................27
7.2.3. Litigation Affecting Closing............................27
7.2.4. Approval of The Company; Corporate Matters..............28
7.2.5. Shareholder Approval....................................28
7.2.6. 401K Plan...............................................28
ARTICLE 8 - INDEMNIFICATION.................................................28
8.1. Officers and Directors Indemnification..........................28
ARTICLE 9 - TERMINATION.....................................................29
9.1. Termination.....................................................29
9.1.1. Termination by Mutual Consent...........................29
9.1.2. Prior to Effective Time.................................29
9.1.3. By Buyer................................................30
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9.1.4. By the Company..........................................30
9.1.5. By Either Party.........................................30
9.1.6. Withdrawal of Recommendation............................30
9.1.7. Higher Offer............................................30
9.2. Effect of Termination and Abandonment...........................30
9.3. No Purchase of Company Stock....................................30
ARTICLE 10 - MISCELLANEOUS..................................................31
10.1. Payment of Expenses..........................................31
10.2. Entire Agreement; Amendments.................................31
10.3. Headings.....................................................31
10.4. Gender; Number...............................................31
10.5. Exhibits and Schedules.......................................31
10.6. Severability.................................................31
10.7. Notices......................................................32
10.8. Waiver.......................................................33
10.9. Assignment...................................................33
10.10. Successors and Assigns.......................................33
10.11. Governing Law................................................33
10.12. No Benefit to Others.........................................33
10.13. Counterparts.................................................33
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made this 3rd
day of April, 1998, by and among OWOSSO CORPORATION, a Pennsylvania corporation
("Buyer"), CRAMER COMPANY, a Delaware corporation and wholly-owned subsidiary of
Buyer, ("Cramer") and M. H. RHODES, INC., a Delaware corporation (the "Company")
.
BACKGROUND
The Company is engaged in the business of manufacturing mechanical
timers, photo controls and parking meters (the "Business");
Each Board of Directors of Buyer, Cramer and the Company has
approved the acquisition of the Company by Buyer through the merger of Cramer
into the Company (the "Merger") pursuant to and subject to the terms and
conditions of this Agreement; and
The Board of Directors of the Company has determined that the Merger
is fair to and in the best interests of the holders of the Company's common
stock, par value $1.00 per share (the "Common Stock") and has resolved to
recommend the approval of the Merger by the shareholders of the Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants herein contained, and intending to be legally bound,
Buyer, Cramer and the Company hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.4), Cramer shall be merged with and
into the Company pursuant to the Merger and the separate corporate existence of
Cramer shall thereupon cease. The Company shall be the surviving corporation in
the Merger (sometimes hereinafter referred to as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Delaware, and the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in Sections 1.5 and 1.6. The Merger shall have the effects
specified in the General Business Corporation Law of the State of Delaware (the
"DGCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of the Company at 10:00 A.M. on the later of (A) June 30,
1998 or (B) the first business day on which the last to be fulfilled or waived
of the conditions set forth in Article 7 hereof shall be
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fulfilled or waived in accordance with this Agreement or (ii) at such other
place and time and/or on such other date as the Company and Buyer may agree.
1.3. Merger Filings. In connection with the Closing, the Company and
Cramer will cause the Certificate of Merger to be filed with the Secretary of
State of Delaware (the "Certificate of Merger").
1.4. Filing of Merger Documents; Effective Time. The Merger shall become
effective on the date on which the Certificate of Merger has been duly filed
with the Secretary of State of Delaware. The "Effective Time" refers to the time
at which the Delaware Certificate of Merger has been duly filed with the
Secretary of State of Delaware.
1.5. The Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall, at the Effective Time, be and read as set forth on
Exhibit A hereto and incorporated herein by this reference, until further
amended in accordance with the terms thereof and the DGCL.
1.6. The Bylaws. The Bylaws of the Surviving Corporation shall, at the
Effective Time, be and read as set forth on Exhibit B hereto, until further
amended in accordance with the terms thereof and the DGCL.
1.7. Resignations. On the Closing Date, the Company will make available to
Buyer the written resignations of all the directors and officers of the Company
effective as of the Effective Time, except for such officers and directors as
Buyer shall designate in writing. The Company shall use its best efforts at or
before the Effective Time to cause the nominees of Buyer to be elected
(effective the Effective Time) by the resigning directors in accordance with the
Bylaws of the Company.
ARTICLE 2
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
2.1. Conversion or Cancellation of Shares. The manner of converting or
canceling shares of stock of the Company and Cramer in the Merger shall be as
follows:
(a) At the Effective Time, each share of the Common Stock
issued and outstanding immediately prior to the Effective Time (a "Share"),
other than Common Stock held in the Company's treasury and Common Stock which is
held by shareholders perfecting dissenter's rights pursuant to the DGCL
("Dissenting Shareholders"), by virtue of the Merger and without any action on
the part of the holder thereof, shall be converted into the right to receive,
without interest, an amount in cash equal to $14.51 (the "Merger
Consideration"). All such Shares, by virtue of the Merger and without any action
on the part of the holders thereof, shall no longer be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such Shares shall thereafter cease to have any rights with
respect
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to such Shares, except the right to receive the Merger Consideration for such
Shares upon the surrender of such certificate in accordance with Section 2.2.
(b) At the Effective Time, each Share issued and held in the
Company's treasury at the Effective Time, shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
shall be canceled and retired without payment of any consideration therefor and
shall cease to exist.
(c) At the Effective Time, each share of common stock and each
share of preferred stock of Cramer issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of Cramer or the holders of such shares, be converted into, respectively,
one share of common stock or one share of preferred stock as the case may be, of
the Surviving Corporation.
(d) Shares that are held by Dissenting Shareholders shall be
entitled to such amount as is provided in the DGCL and shall not be converted
into or be exchangeable for the right to receive the Merger Consideration,
unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost his dissenter's right to appraisal and payment
under the DGCL.
2.2. Payment for Shares. Prior to the Effective Time, Buyer or Cramer
shall designate bank or trust company reasonably acceptable to the Company, to
act as Paying Agent in connection with the Merger (the "Paying Agent") and to
receive and disburse the Merger Consideration to which holders of Shares become
entitled pursuant to Section 2.1. At the Effective Time, Buyer or Cramer will
provide the Paying Agent with sufficient cash to allow the Merger Consideration
to be paid by the Paying Agent for each Share then entitled to receive the
Merger Consideration. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record (other than Dissenting Shareholders) of issued and
outstanding Shares a form (mutually agreed to by Buyer and the Company) of
letter of transmittal and instructions for use in effecting the surrender of the
certificates which, immediately prior to the Effective Time, represented any of
such Shares in exchange for payment therefor. Upon surrender to the Paying Agent
of such certificates, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, the Surviving
Corporation shall promptly cause the Paying Agent to pay to the persons entitled
thereto a check in the amount to which such persons are entitled, after giving
effect to any required tax withholdings. No interest will be paid or will accrue
on the amount payable upon the surrender of any such certificate. If payment is
to be made to a person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Surviving Corporation or the Paying Agent that such tax has been paid or is not
applicable. The Surviving Corporation shall pay all charges and expenses,
including those of the Paying Agent, in connection with the exchange of the
Merger Consideration for Shares. In the event any certificate representing
Shares shall have been lost,
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stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such certificate to be lost, stolen or destroyed, the Paying Agent will
issue in exchange for such lost, stolen or destroyed certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Article 2; provided, however, the person to whom the Merger Consideration
is paid shall, as a condition precedent to the payment thereof, give the
Surviving Corporation a bond in such sum as it may direct or otherwise indemnify
the Surviving Corporation in a manner satisfactory to it against any claim that
may be made against the Surviving Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed. Promptly following the first
anniversary of the Effective Time, the Paying Agent shall deliver to the
Surviving Corporation all cash held for payment as Merger Consideration and all
other documents in its possession relating to the transactions described in this
Agreement, and the Paying Agent's duties shall terminate. Thereafter each holder
of a certificate representing Shares may surrender such certificate to the
Surviving Corporation (subject to applicable abandoned property, escheat and
similar laws) and receive in exchange therefor the Merger Consideration in
respect thereof, without interest thereon.
2.3. Dissenters' Rights. If any Dissenting Shareholder shall be entitled
to be paid the "fair value" of his or her Shares, as provided in Section 262 of
the DGCL, the Company shall give Buyer notice thereof and Buyer shall have the
right to participate in all negotiations and proceedings with respect to any
such demands. Neither the Company nor the Surviving Corporation shall, except
with the prior written consent of Buyer, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for payment. If any
Dissenting Shareholder shall fail to perfect or shall have effectively withdrawn
or lost the right to dissent, the Shares held by such Dissenting Shareholder
shall thereupon be treated as though such Shares had been converted into the
Merger Consideration pursuant to Section 2.1.
2.4. Transfer of Shares After the Effective Time. No transfers of Shares
shall be made on the stock transfer books of the Surviving Corporation at or
after the Effective Time.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE COMPANY
The Company hereby represents and warrants to Buyer and Cramer that,
except as set forth in the numbered paragraph of the disclosure letter of even
date delivered by the Company to the Buyer in conjunction with execution of this
Agreement (the "Disclosure Letter") which paragraph corresponds to the
applicable section of this Article 3:
3.1. Organization, Power, Standing and Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, and has full corporate power and authority to
carry on its business as it is now being conducted and to own and operate the
properties and assets now owned and operated by it. The Company is duly
qualified to do business and is in good standing in all jurisdictions where the
failure to
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qualify or to be in good standing would have a material adverse effect upon its
financial condition, the conduct of its business or the ownership of its
property and assets (a "Material Adverse Effect"), such jurisdictions being
listed in Paragraph 3.1 of the Disclosure Letter. The Company does not have any
"subsidiaries" (which, for purposes of this Agreement, shall mean all
corporations in which the Company owns more than 50% of the issued and
outstanding capital stock). The Company does not own (i) any equity interest in
any corporation or other entity or (ii) marketable securities where the
Company's equity interest in any such entity exceeds 5% of the outstanding
equity of such entity on the date hereof.
3.2. Power and Authority. The Company has the power and authority to
execute, deliver and perform this Agreement and the other documents, instruments
and agreements contemplated herein (the "Collateral Documents") to which the
Company is a party and, subject only to approval of this Agreement by the
holders of sixty percent (60%) of the Shares, to consummate the transactions
contemplated by this Agreement and the Collateral Documents. Each of this
Agreement and the Collateral Documents is a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, moratorium, or similar laws
affecting the enforcement of creditors' rights generally.
3.3. Validity of Contemplated Transactions. The execution, delivery and
performance of this Agreement and the Collateral Documents and the consummation
of the transactions contemplated hereby and thereby do not and will not
contravene any provision of the Certificate of Incorporation or Bylaws of the
Company; nor subject to receipt of the Consents (as defined below) violate, be
in conflict with, or constitute a default under, cause the acceleration of any
payments pursuant to, or otherwise impair the good standing, validity or
effectiveness of any agreement, contract, indenture, lease, or mortgage to which
the Company is a party or by which the Company or any of its assets is bound; or
violate any provision of law, rule, regulation, order, permit, or license to
which the Company is subject. Paragraph 3.3 of the Disclosure Letter attached
hereto sets forth an accurate and complete list of any consents required to be
obtained in connection with any items identified in the preceding sentence,
prior to consummation of the transactions contemplated by this Agreement (the
"Consents").
3.4. Capitalization of Company. The Company's total authorized capital
stock consists of 400,000 shares of common stock, $1.00 par value, of which
196,736 shares are currently outstanding, validly issued, fully paid and
non-assessable and have not been issued in violation of any preemptive or
similar right. Except as set forth above in this Section 3.4 and in Paragraph
3.4 of the Disclosure Letter, there are no shares of capital stock of the
Company authorized, issued or outstanding and, except for the rights of ESOP (as
defined in Section 5.10 hereof) participants to diversify under Section 401(a)28
of the Internal Revenue Code of 1986, as amended (the "Code") and to exercise
"put" options under Section 409(h) of the Code, there are no preemptive rights
or any outstanding subscriptions, options, warrants, rights, convertible or
exchangeable securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company (all such outstanding subscriptions, options, warrants, rights,
securities, agreements and commitments being
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collectively called, the "Stock Rights"), and no Stock Rights have been issued
since 1987, except in connection with the ESOP.
3.5. Governmental Filings; No Violations. Other than the filings provided
for in Section 1.4 hereof, the filing identified on Section 7.1.9(b) and the
filings as required under the Securities Exchange Act of 1934 (as amended) (the
"Exchange Act" and such filings being called, collectively, the "Regulatory
Filings"), and except as set forth in Paragraph 3.5 of the Disclosure Letter, no
notices, reports or other filings are required to be made by the Company with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by the Company from, any governmental or regulatory
authorities of the United States or the several States in connection with the
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby.
3.6. Title to Properties. Except as set forth in Paragraph 3.6 of the
Disclosure Letter, the Company has good, valid and marketable title to all of
its properties and assets, real, personal and mixed, including all of the
properties and assets reflected on the most recent balance sheet which is part
of the Financial Statements (as defined in Section 3.8 hereof) and those
acquired since the Financial Statement Date (as defined in Section 3.9 hereof),
except in each case for properties and assets sold or otherwise disposed of in
the ordinary course of business, free and clear of all mortgages, liens,
pledges, security interests and other encumbrances (collectively "Liens"),
except (a) liens for current taxes not delinquent or being contested in good
faith by appropriate proceedings (which, in the latter case, are disclosed in
Paragraph 3.6 of the Disclosure Letter), (b) mechanics', workmen's,
materialmen's or other like liens arising in the ordinary course of business
with respect to obligations which are not due, and (c) liens securing the
repurchase of securities from ESOP participants under Section 409(h)(5) of the
Code (collectively, "Permitted Liens").
3.7. Real Property.
(a) Paragraph 3.7 of the Disclosure Letter accurately lists
all real property owned by the Company beneficially, or of record and contains a
brief description of all plants and structures located thereon. Except as set
forth in Paragraph 3.7 of the Disclosure Letter, (i) the Company is lawfully
seized and possessed of the real property, (ii) the Company has good and
marketable fee simple title to the real property, free and clear of all Liens
other than Permitted Liens (which Permitted Liens are disclosed in Paragraph 3.7
of the Disclosure Letter), (iii) the Company is in possession of the real
property, and (iv) there are no options, licenses, leases, rights of first
refusal, conditional sales agreements, or similar arrangements respecting any
such real property or improvements. The Company has appropriate rights of
ingress and egress with respect to the real property and any improvements
located thereon. None of the real property, the improvements or the use thereof
contravenes or violates any material building, zoning, land use, administrative,
occupational or safety and health law in any respect (except as permitted on the
basis of prior nonconforming use, waiver or variance, all of which permitted
uses that are known to the Company are set forth in Paragraph 3.7 of the
Disclosure Letter).
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(b) The Company has delivered to Buyer prior to the execution
of this Agreement true and complete copies of all deeds, leases, mortgages,
deeds of trust, certificates of occupancy, title insurance policies, title
reports, surveys and similar documents, and all amendments thereof, in the
Company's possession, with respect to the real property.
(c) There are no condemnation or appropriation proceedings
pending or, to the best knowledge of the Company, threatened against any of the
real property or the improvements.
(d) Except as disclosed in Paragraph 3.7 of the Disclosure
Letter, the improvements on any such real property are in good operating
condition (ordinary wear and tear excepted).
(e) Except as disclosed in Paragraph 3.7 of the Disclosure
Letter, since the Financial Statement Date, there has been no damage,
destruction or loss (whether or not covered by insurance), or any condemnation,
with respect to the real property.
(f) Except as disclosed in Paragraph 3.7 of the Disclosure
Letter, the Company has access to all utilities, including water and sewage,
necessary to operate its business in the normal course and there are no unpaid
assessments for the installation thereof or charges for making connection
thereto that have not been fully paid; and with respect to the real property,
all public utilities, including connection and permanent right to discharge
sanitary waste into the collector system of the appropriate sewer authority, are
installed and operating, and all installation and connection charges have been
paid in full.
(g) All curb cut and street opening licenses, permits or other
approvals required for vehicular access to and from the real property to any
adjoining public street have been obtained and paid for and are in full force
and effect.
(h) There are no outstanding notices of uncorrected violations
of the building, safety, plumbing, electrical, health, zoning or fire ordinances
of the city, county, state or municipality in which the real property is
located. The zoning and building laws and ordinances of the city, county, state
or municipality in which the real property is located are not violated in any
material respect by the existing structures.
(i) Paragraph 3.7 of the Disclosure Letter contains a true and
correct list of any and all management, service, supply, security, maintenance,
or similar contracts with respect to or affecting the real property.
(j) No portion of the real property or the improvements are
affected by any special assessments, whether or not a Lien thereon, which has
not been paid in full and there are no current installments of such assessments
which remain unpaid and no such real property will be assessed for any street
paving or curbing heretofore laid or any other public improvements heretofore
made. There are no pending, or to the Company's knowledge threatened,
assessments or similar charges that affect the real property; and there is no
proceeding pending or to the Company's
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knowledge, threatened for any increase of the assessed valuation of any portion
of the real property. No ordinance authorizing improvements, the cost of which
might be assessed against Buyer or any real property, is pending or
contemplated.
(k) Except as disclosed in Paragraph 3.7 of the Disclosure
Letter, the real property is not located within a special flood hazard area as
documented in the "Department of Housing and Urban Development, Federal
Insurance Administration Special Flood Hazard Area Maps."
3.8. Company Reports; Financial Statements. The Company has filed all
required forms, reports and documents with the Securities and Exchange
Commission ( the "SEC") with respect to all periods commencing on or after
January 1, 1992 (collectively, the "Company Reports"), all of which, when filed,
complied in all material respects with all applicable requirements of the
Securities Act of 1933 and the Exchange Act and the rules and regulations
thereunder. Accurate and complete copies of the Company Reports heretofore have
been made available to Buyer. As of their respective dates, the Company Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the Company Reports (including any related notes and
schedules) fairly presents the consolidated financial position of the Company
and its subsidiaries as of its date, and each of the consolidated statements of
income, of changes in shareholder equity and of cash flows included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) fairly presents the results of operations, retained earnings and
cash flows, as the case may be, of the Company and its subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which will not, individually or in the
aggregate, have a Material Adverse Effect), in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as may be noted therein (such balance sheets, income statements
and statements of change in financial condition, being referred to herein
collectively as the "Financial Statements").
3.9. Absence of Undisclosed Liabilities. Except as set forth in Paragraph
3.9 of the Disclosure Letter, the Company has no material liabilities or
obligations except for (i) those reflected or reserved against (which reserves
are adequate) in the Financial Statements, (ii) those incurred, consistent with
past business practices, reasonably and in the ordinary course of its business,
since the last audited date of the Financial Statements (the "Financial
Statement Date") and (iii) those which are specifically disclosed in this
Agreement or in the Disclosure Letter. There is no reasonable basis for the
assertion against the Company as of the Financial Statement Date of any material
liability not reflected or reserved against in the Company's balance sheet as of
such date or as disclosed by this Agreement or in the Disclosure Letter.
3.10. Certain Tax Matters.
(a) For any period ending on the date of or before the
Effective Time, the Company has duly and timely filed or will file all federal,
state, and local tax returns, declarations, and reports, estimates, information
returns and statements (collectively, "Returns") required to be
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filed or sent by it or on its behalf and all such Returns are or will be true,
correct and complete, true, correct and complete copies of which Returns have
been delivered to Buyer prior to the date hereof. The Company has paid in full
all Taxes (as hereinafter defined) and any penalties entered with respect
thereto, due and payable for any period ending on or before the Effective Time.
All Taxes have been paid, withheld, or reserved for or, to the extent that they
relate to periods on or prior to the Financial Statement Date, are reflected as
a liability on the Financial Statements. For these purposes, "Taxes" means all
federal, state, territorial, local, foreign and other net income, gross income,
gross receipts, sales, use, value added, ad valorem, transfer, franchise,
profits, license lease, service, use, withholding, payroll, employment,
unemployment insurance, workers compensation, social security, excise,
severance, stamp, business license, occupation, premium, property,
environmental, windfall profits, customs, duties, alternative minimum, estimated
or other taxes, fees, premiums, assessments or charges of any kind whatever
imposed or collected by any governmental entity or political subdivision
thereof.
(b) The Company's federal income tax liabilities, if any, have
never been audited by the Internal Revenue Service and have been satisfied for
all taxable years up to and including the taxable year ended December 31, 1997.
(c) There are no Liens for Taxes upon any of the Company's
assets, except Permitted Liens (provided that adequate reserves have been
provided therefor and are reflected in the Financial Statements) and no event
has occurred which with the passage of time or the giving of notice, or both,
could result in a Lien (other than Permitted Liens) for Taxes on any of the
Company's assets.
(d) Except as set forth in Paragraph 3.10 of the Disclosure
Letter, no deficiency for any Taxes has been proposed, asserted or assessed
against the Company which has not been resolved and paid in full.
(e) No waiver or comparable consent given by the Company
regarding the application of the statute of limitations with respect to any
Taxes or Returns is outstanding, nor, is any request for any such waiver or
consent pending. Except as set forth in Paragraph 3.10 of the Disclosure Letter
hereof (which shall set forth the nature of the proceeding, the type of return,
the deficiencies proposed or assessed and the amount thereof, and the taxable
year in question), no federal, state, local or foreign audit or other
administrative proceeding, inquiry or investigation or court proceeding is
presently pending or, to the best of the Company's knowledge, contemplated with
regard to any Taxes or Returns.
(f) The Company has not requested any extension of time within
which to file any Return, which Return has not since been filed.
(g) The Company is not a United States real property holding
corporation and has not been a United States real property holding corporation
(as defined in Section 897(c)(2) of the Code) during any period specified in
Section 897(c)(1)(A)(ii) of the Code.
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(h) The Company is not a party to any agreement providing for
the allocation or sharing of Taxes.
(i) The Company has not agreed to make, nor is it required to
make, any adjustment under Section 481(a) of the Code for any period ending
after the Effective Time by reason of a change in its accounting method or
otherwise.
(j) None of the assets of the Company is required to be
treated as owned by any other person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code.
(k) The Company is not a party to any venture, partnership,
contract or arrangement under which it could be treated as a partner, for
federal income tax purposes.
(l) The Company has no permanent establishment located in any
tax jurisdiction other than the United States and is not liable for the payment
of taxes levied by any such jurisdiction located outside the United States.
(m) The Company is not currently and has never been a member
of an affiliated group of corporations, within the meaning of Section 1504 of
the Code.
(n) The Company has not participated in (and shall not
participate in) an international boycott within the meaning of Section 999 of
the Code.
3.11. Litigation; Compliance with Laws. Except as set forth in Paragraph
3.11 of the Disclosure Letter, there is no suit, action, claim, arbitration,
administrative or legal or other proceeding, or governmental or other
investigation pending or, to the Company's knowledge, threatened, against or
affecting the Company, whether or not covered by insurance; nor does there exist
any failure to comply with, nor any default under, any law, ordinance,
requirement, regulation, or order applicable to the Company, nor any violation
of or default with respect to any order, writ, injunction, judgment, or decree
of any court or federal, state or local department, official, commission,
authority, board, bureau, agency, or other instrumentality issued or pending
against the Company which might have a Material Adverse Effect, or have a
material adverse effect on Buyer's purchase or ownership of the Shares. The
Company has obtained all permits, licenses, zoning variances, approvals, and
other authorization (collectively "Permits") necessary for the operation of its
business as presently operated. There have been no illegal kickbacks, bribes or
political contributions made by the Company.
3.12. Employee Benefits. Paragraph 3.12 of the Disclosure Letter lists all
deferred compensation, pension, profit sharing, stock option, stock purchase,
savings, group insurance and retirement plans, and all vacation pay, severance
pay, incentive compensation, consulting, bonus and other employee benefit or
fringe benefit plans or arrangement maintained by the Company (including health,
life insurance and other benefit plans maintained for retirees). Said plans,
including but not limited to all plans or programs that constitute "employee
benefit plans" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), are sometimes
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collectively referred to in this section as "Benefit Plans." Access to true and
complete copies of all Benefit Plans, including any insurance contracts under
which benefits are provided, as currently in effect has been provided to Buyer.
Buyer has also been provided with access to a true and complete copy of the
summary plan description, if any was required by ERISA to be prepared and
distributed to participants, for each Benefit Plan. Except as set forth in
Paragraph 3.12 of the Disclosure Letter :
(a) Except as set forth in Paragraph 3.12 of the Disclosure
Letter, the Company has no affiliates and has not at any time been a party to or
had any obligation under any pension plan or welfare benefit plan that is a
"Multiemployer Plan" within the meaning of section 4001(a)(3) of ERISA. With
respect to each such Multiemployer Plan identified in said Paragraph 3.12:
neither the Company nor any affiliate has incurred any withdrawal liability,
failed to make any required contributions when due, or given or received any
notice of withdrawal or alleged withdrawal, or of any intention to assert any
withdrawal liability; there has been no complete or partial withdrawal; there
has been no material change in contribution or contribution base units; and, if
there were any complete or partial withdrawal by the Company or any affiliate,
as of the date of the Effective Time, there would be no liability or obligation
imposed on or incurred by the Company or any affiliate. Paragraph 3.12 of the
Disclosure Letter sets forth, with respect to each multi-employer plan, for the
1997 plan year, the amount of any payment made and the amount of any payment to
be made or which is due; the number of contribution base units for which the
Company has an obligation to contribute; and any conditions to such
contribution.
(b) Each Benefit Plan that provides medical benefits has been
operated in compliance with all requirements of sections 601 through 608 of
ERISA and either (i) sections 162(i)(2) and (k) of the Internal Revenue Code of
1986 as amended (the "Code") and regulations thereunder (prior to 1989) or (ii)
section 4980B of the Code and regulations thereunder (after 1988), relating to
the continuation of coverage under certain circumstances in which coverage would
otherwise cease.
(c) Paragraph 3.12 of the Disclosure Letter discloses, and
separately indicates, each plan, fund or program maintained by the Company that
provides post-retirement medical benefits, post-retirement death benefits or
other post-retirement welfare benefits. A copy of any written description of
post-retirement welfare benefits that has been provided to employees has been
furnished to Buyer. A copy of each plan document, insurance contract or other
written instrument providing for post-retirement welfare benefits has been
provided to Buyer, together with a description of any advance funding
arrangement that has been established to fund post-retirement welfare benefits.
(d) All contributions to, and payment from the Benefit Plan
which may have been required to be made in accordance with the Benefit Plans
and, when applicable, section 302 of ERISA or section 412 of the Code, have been
timely made. All such contributions to the Benefit Plans, and all payments under
the Benefit Plans, except those to form a trust qualified under section 401(a)
of the Code, for any period ending before the Effective Time that are not yet,
but will be, required to be made are properly accrued and reflected on the
Financial Statements or are disclosed on Paragraph 3.12 of the Disclosure
Letter. Except as disclosed on Paragraph 3.12 of the Disclosure Letter, the
Company has funded or will fund each Benefit Plan in accordance with its
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terms through the Effective Time, including the payment of applicable premiums
on any insurance contract funding a Benefit Plan for coverage provided through
the Effective Time. Neither Company nor any affiliate has sponsored, maintained
or contributed to any defined benefit pension plan.
(e) Except for amendments to the written documents governing
the ESOP to comply with the requirements of the Uniformed Services Employment
and Reemployment Rights Act ("USERRA") and Small Business Job Protection Act
("SBJPA"), each Benefit Plan is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, including but not limited
to the satisfaction of all applicable reporting and disclosure requirements
under ERISA and the Code. The Company has filed or caused to be filed with the
Internal Revenue Service annual reports on Form 5500 or 5500C and 5500R, as
applicable, for each Benefit Plan for all years and periods for which such
reports were required. Each of the Benefits Plans has been administered at all
times, and in all material respects, in accordance with its terms except that in
any case in which any Benefit Plan is currently required to comply with a
provision of ERISA or of the Code, but is not yet required to be amended to
reflect such provision, it has been administered in accordance with such
provision.
(f) No "prohibited transaction," as defined in section 406 of
ERISA and section 4975 of the Code, has occurred in respect of any Benefit Plan
which could give rise to any material liability or tax under ERISA or the Code
on the part of the Company, and no civil or criminal action brought pursuant to
part 5 of Title I of ERISA is pending or is threatened in writing or orally
against any fiduciary of any such plan.
(g) Except as disclosed in Paragraph 3.12 of the Disclosure
Letter, all of the Benefit Plans which are pension benefit plans have received
determination letters from the IRS to the effect that such plans are qualified
and exempt from federal income taxes under sections 401(a) and 501(a),
respectively, of the Code, as amended through December 31, 1984; and no
determination letter with respect to any Benefit Plan has been revoked nor, to
the knowledge of the Company, has revocation been threatened, nor to the
knowledge of the Company has any Benefit Plan been amended since the date of its
most recent determination letter or application therefor in any request which
would adversely affect its qualification or materially increase its cost and no
Benefit Plan has been amended in a manner that would require security to be
provided in accordance with section 401(a)(29) of the Code.
(h) There have been no statements or communications made or
materials provided to any employee or former employee of the Company by any
person (including any affiliate or any employee, officer or director of any
affiliate) which provide for or could be construed as a contract or promise by
the Company or any affiliate to provide for any pension, welfare, or other
insurance-type benefits to any such employee or former employee, whether before
or after retirement, other than benefits under Benefit Plans set forth in
Paragraph 3.12 of the Disclosure Letter or otherwise disclosed in Paragraph 3.12
of the Disclosure Letter, nor under the form of employment contracts.
3.13. Insurance. All inventories, machinery, equipment, buildings,
improvements, and other tangible assets owned or leased by the Company are, and
between the date hereof and the Effective
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Time will be, insured against fire and casualty under the policies and in the
amounts and types of coverage set forth in Paragraph 3.13 of the Disclosure
Letter and such policies are, and between the date hereof and the Effective Time
will be, outstanding and duly in force and the premiums thereon fully paid when
and as the same are due and payable. Paragraph 3.13 of the Disclosure Letter is
a true and correct Schedule of all policies of fire, liability, and other forms
of insurance, excluding the Benefit Plans listed in Paragraph 3.12 of the
Disclosure Letter, pursuant to which the Company or any of its assets are
insured (whether or not held by the Company) or with respect to which the
Company directly or indirectly pays all or part of the premium.
3.14. Proprietary Rights. The Company owns, possesses, or lawfully uses
all patents, patent applications, trademarks, trade applications, service marks,
trade names, franchises, permits, copyrights, and similar intangible rights used
in its business (collectively, the "Patents and Trademarks"), each of which is
listed in Paragraph 3.14 of the Disclosure Letter, and those Patents and
Trademarks designated on Paragraph 3.14 of the Disclosure Letter are owned
exclusively by the Company, are valid and enforceable, and none infringe (nor
has any claim been made that there is any such infringement) the patents,
trademarks, service marks, trade names, copyrights or similar intangible rights
of others. Such franchises, licenses, permits, easements, rights and other
authorizations will not be adversely affected by the transaction contemplated by
this Agreement. The Company does not know of any claim or reasonable basis for
any claim that the Company is or may be infringing on or otherwise acting
adversely to the rights of any person under or in respect, of any patent,
trademark, service mark, trade name, copyright, license, franchise, permit, or
other intangible right. Except as set forth in Paragraph 3.14 of the Disclosure
Letter, the Company is not obligated or under any liability whatever to make any
payments by way of royalties, fees, or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, trade name, copyright, or other
intangible asset with respect to the use thereof, in connection with the conduct
of its business, or otherwise.
3.15. Labor Disputes. Except as set forth in Paragraph 3.15 of the
Disclosure Letter, the Company is not a party to any contract or other agreement
with any labor union and the Company is not experiencing or the subject of or
threatened by, any union organization campaign or any strike, slowdown,
picketing, work stoppage, or other labor disturbance by any labor union or group
of employees.
3.16. Contracts. Listed in Paragraph 3.16 of the Disclosure Letter are all
contracts to which the Company is a party ("Contracts") and which fall into the
following categories:
3.16.1. Contracts, separately or in aggregate, with any third party,
involving an amount in excess of $10,000;
3.16.2. Contracts for the purchase of goods from the Company;
3.16.3. Contracts for the purchase by the Company of materials and
supplies; or
3.16.4. Contracts with distributors, dealers, manufacturer's
representatives, sales agencies, other commissioned sales representatives of the
Company, or any advertising Contracts.
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All such Contracts in the above categories have been made in the ordinary course
of business. Except for the Contracts listed in Paragraph 3.16 of the Disclosure
Letter, the Company is not party to (a) any Contract not made in the ordinary
course of business; (b) any Contract that cannot be terminated within 10 days
after giving notice of termination without resulting in any material cost or
penalty to the Company; or (c) any (i) Contract with any labor union, (ii)
Contract for the employment of any officer or individual employee, (iii) profit
sharing, bonus, commission, stock option, pension, vacation pay, employee's
insurance, retirement plan or agreement, or other welfare plans or agreements,
(iv) agreement or indenture relating to the borrowing of money or to the
mortgaging, pledging or otherwise placing of a lien on its assets, (v) lease or
agreement under which it is lessee of or holds or operates any material
property, real or personal, owned by any other party, (vi) agreement containing
any provision or covenant prohibiting or limiting the ability of the Company or
Buyer to operate the Business in the manner currently operated by the Company
or, (vii) lease or agreement under which it is lessor of, or permits any third
party to hold or operate, any material property, real or personal, owned by it.
The Company has delivered to Buyer prior to the execution of this Agreement,
true and complete copies of such Contracts. The Company and each other party to
any of the aforesaid agreements has in all material respects performed all the
material obligations required to be performed by it to date and is not in
default under any such Contract. All Contracts are legal, valid and binding and
in full force and effect, and, to the best knowledge of the Company, no other
party thereto is in default thereunder. The Company is not a party to any
Contracts, including agreements not to compete, which could restrict or prohibit
Buyer's operations or Buyer's ability to expand its business in any manner. The
consummation of the transactions contemplated hereby will not affect the
validity or enforceability of any of the Contracts, will not constitute a
default under any of the Contracts and will not give rise to any right to
terminate such Contracts under any provisions thereof. The Company will take
such steps as may be necessary or proper to renew or revalidate any such
Contracts and Permits, which may become void, expired, terminated, canceled, or
withdrawn between the date hereof and the Effective Time.
3.17. Minute Books. The minute books of the Company, as previously made
available to Buyer and its representatives (and as updated to reflect all
matters and transactions involving the Company, other than this Agreement and
the transactions contemplated hereby), contain, in all material respects,
accurate and complete records of all meetings of and corporate actions or
written consents by the shareholders and Boards of Directors of the Company
through the date hereof. The Company has previously delivered to Buyer an
accurate and complete copy of resolutions of the Company's board of directors
approving this Agreement, the Merger and the transactions contemplated hereby,
and submitting this Agreement, the Merger and the transactions contemplated
hereby to the shareholders of the Company, along with their recommendation that
the shareholders of the Company approve the Merger.
3.18. Product Liability Claims. The Company has delivered to Buyer a
narrative of unresolved incidents, events and claims under all policies of
product liability insurance relating to the Company. The Company is an insured
under all policies of insurance relating to product liability listed in
Paragraph 3.18 of the Disclosure Letter for and against covered claims for
product liability based on events occurring prior to the Effective Time, which
insurance coverage will continue in effect after the Effective Time. The
above-described coverage is adequate considering the Company's claims history
and the industry taken as a whole.
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3.19. Fairness Opinion. Valuation & Financial Strategies LLC ("VFS") has
delivered to the Board of Directors of the Company, and not withdrawn or
modified in any material respect, its opinion that the Merger Consideration is
fair to the holders of Common Stock from a financial point of view, subject to
the qualifications and assumptions set forth in such opinion.
3.20. Bank Accounts. Paragraph 3.20 of the Disclosure Letter hereto lists
the names and addresses of every bank and other financial institution in which
the Company maintains an account (whether checking, savings or otherwise), lock
box or safe deposit box, and the account numbers and names of persons having
signing authority or other access thereto.
3.21. No Changes. Since the Financial Statement Date, and except as
disclosed in Paragraph 3.21 of the Disclosure Letter, there has not been:
3.21.1. Any materially adverse change in the financial or other
condition, assets, liabilities or business of the Company;
3.21.2. Any damage, destruction or loss (whether or not covered by
insurance) or any condemnation by governmental authorities which has or may
adversely affect the business, prospects or any property of the Company;
3.21.3. Any strike, lockout, labor trouble or any event or condition
of similar character adversely affecting the business or prospects of the
Company;
3.21.4. Any declaration, setting aside or payment of any dividend or
other distribution in respect of any of the Company's shares of stock, or any
direct or indirect redemption, purchase or other acquisition of any such shares
(except as may be required under the terms of the ESOP); or
3.21.5. Any increase in the compensation payable or to become
payable by the Company to any of its officers, employees or agents, or any known
payment or arrangement made to or with any thereof, other than salary reviews
and increases taking effect between January 1, 1998 and April 30, 1998, all of
which were consistent with the Company's past practices.
3.21.6. Any change by the Company in accounting principles,
practices or methods;
3.21.7. Any split, combination, reclassification, redemption,
purchase or other acquisition of any capital stock or other securities of the
Company; or any grant, or modification of any provision of any outstanding Stock
Right.
3.22. Compensation Arrangements. The Company has delivered to Buyer a
correct list showing the names (except for persons specifically excluded from
such list as stated thereon) and the employment commencement date of all
officers, employees and independent contractors performing services for the
Company in connection with its business and the rate of hourly, monthly or
annual compensation (as the case may be). Buyer has been provided access to
records reflecting amounts paid or to be paid to each such person in 1995, 1996
and 1997, any accrued sick leave or vacation and any bonus or similar
arrangement with any of them. Except as set forth in Paragraph 3.22 of the
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Disclosure Letter, with respect to each employment, consulting, or independent
contractor agreement or arrangement between the Company and any other person;
(i) the Company is not obligated to pay any severance pay; (ii) no payments
under such agreement would be "parachute payments", within the meaning of
section 280G of the Code; (iii) no person is entitled to retiree health benefits
that have not been reflected on the Company's financial statements; (iv) no
person is entitled to any deferred compensation except for any benefit under a
tax-qualified retirement plan under Section 401(a) of the Code; and (v) there is
no other liability for any post-employment compensation or benefits. There are
no unresolved claims or disputes with respect to any person's compensation or
benefits, whether or not already paid.
3.23. Copies of Articles and Bylaws. The Company's Certificate of
Incorporation (certified by the Secretary of State of the jurisdiction of
incorporation) and Bylaws (certified by the Secretary of the Company) to which
Buyer has been provided copies, are correct and remain in effect on the date of
this Agreement. There are no other material books and records of Company to
which Buyer has not been provided access.
3.24. Condition of Tangible Assets. Except as set forth in Paragraph 3.24
of the Disclosure Letter, all of the assets of the Company, including the real
property, are in good operating condition as necessary for the operation of the
business of the Company, and the operation and use of such property in the
Company's business conform in all material respects to all applicable laws,
ordinances, regulations, permits, licenses and certificates.
3.25. Accounts Receivable. Except to the extent of the reserve for bad
debts shown on the consolidated balance sheet of the Company as of the Financial
Statement Date, all of the accounts receivable of the Company constitute valid
receivables, have been incurred in the ordinary course of business, are fully
collectible in the stated amount, subject to the term of payment as shall have
been agreed upon between Company and each customer and as have been disclosed by
the Company to Buyer (which terms are in no case greater than 30 days), and are
not subject to any set-off or counterclaim. No part of such accounts receivable
is contingent upon performance by the Company of any obligation and no
agreements for deductions or discounts have been made with respect to any part
of such receivables.
3.26. Hazardous Substances. Except as listed in Paragraph 3.26 of the
Disclosure Letter: (i) none of the assets of the Company has been used for the
manufacture, storage, transportation, deposit, disposal, treatment, handling,
production, processing or recycling of toxic, dangerous or hazardous substances
nor is there any tank or facility for the storage of hazardous substances
located on or in the assets of the Company; (ii) there are no asbestos materials
on or in the assets of the Company creating, or likely to create, a hazardous
condition; (iii) there is not now nor has there been any activity on or in the
assets of the Company which would subject the Company or the Surviving
Corporation to liens, damages, penalties, injunctive relief or cleanup costs
under any federal, state or local law, or under any civil action respecting
hazardous substances; (iv) the Company has complied with each, and is not in
violation of any, federal, state or local law, statute, regulation, permit,
provision or ordinance, relating to the generation, handling, storage,
transportation, treatment or disposal of hazardous substances (the
"Environmental Laws"); and (v) the Company has obtained and complied with all
necessary permits and other approvals, including interim status under the
Reserve
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Conservation and Recovery Act, as amended ("RCRA"), necessary to store, treat,
dispose of and otherwise handle hazardous wastes and hazardous substances. No
portion of the assets of the Company constitutes any of the following
"environmentally sensitive areas": (1) a wetland or other "water of the United
States" for purposes of Section 404 of the Federal Clean Water Act, 33 U.S.C.
Section 1344, or any similar area regulated under any state law; (2) a 100-year
floodplain; or (3) a portion of the coastal zone for purposes of the federal
Coastal Zone Management Act, 16 U.S.C. Sections 1451-1464. The assets of
the Company are free from the presence of unacceptable levels of radon gas or
the presence of the radioactive decay products of radon. A "hazardous substance"
shall mean that term as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., as amended, and
dangerous, regulated toxic or hazardous substances, including without
limitation, petroleum products, or similar terms under any other applicable
state, federal or local law and any regulations thereunder.
3.27. Inventory. Except as set forth in Paragraph 3.27 of the Disclosure
Letter, all items of inventory are of a quality usable or salable in the
ordinary course of business within one (1) year from the date hereof. The value
at which the inventory is carried on the books and records of the Company
reflects the normal inventory valuation policy utilized by Company and is in
accordance with generally accepted accounting principles, consistently applied,
and is stated at the lower of cost or market. The Company does not hold any
items of inventory on consignment or have title to any items of inventory in the
possession of others.
3.28. Relationship With Customers and Suppliers. Paragraph 3.28 of the
Disclosure Letter contains an accurate list of the Company's ten (10) largest
customers by dollar volume. None of such customers has given the Company notice
terminating, canceling or threatening to terminate or cancel any contract or
relationship with the Company and The Company is not aware of any material
deterioration of any such relationship. None of the Company's suppliers for the
past two fiscal years has given the Company notice terminating, canceling or
threatening to terminate or cancel any contract or relationship with the Company
and The Company is not aware of any material deterioration of any such
relationship.
3.29. Transactions with Affiliates. No employee or affiliate of the
Company, nor any officer or director of the Company or any affiliate thereof,
(i) owns or has a material interest in any asset used by the Company in the
operation of the business of the Company, (ii) has any direct or indirect
interest of any nature whatsoever in any person which markets or provides the
same type of services as those which Buyer will provide by purchasing the
business of the Company, (iii) provides or causes to be provided any assets,
services or facilities used or held for use in connection with the business of
the Company.
3.30. Capital Expenditures. Except as set forth in Paragraph 3.30 of the
Disclosure Letter, no capital expenditures are required in connection with the
business of the Company or the assets owned by the Company in order for the
Company to operate the business of the Company in the manner in which it is
currently being operated.
3.31. Discontinued Operations. Except as set forth in Paragraph 3.31 of
the Disclosure Letter, the Company has terminated and disposed of all facilities
and/or operations formerly owned
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and/or conducted in any foreign country, including without limitation Mexico and
Canada (the "Former Foreign Operations") and currently conducts its operations
solely at and from its facilities in Avon, Connecticut. The Company terminated
the Former Foreign Operations in compliance with all applicable foreign laws,
statutes, rules and regulations, obtained in connection therewith all required
approvals, permits and authorities, and does not have any unsatisfied liability
or obligation of any nature in connection with any such Former Foreign
Operations.
3.32. Veracity of Statements. No representation or warranty by the Company
contained in this Agreement and no statement contained in any certificate,
Schedule or other instrument furnished to Buyer pursuant hereto or in connection
with the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state a material fact.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND CRAMER
Buyer and Cramer, jointly and severally, hereby represent and
warrant to the Company as follows:
4.1. Power and Authority. Each of Buyer and Cramer has full power and
authority to enter into this Agreement and the Collateral Documents to which
each is a party and to perform all of each's covenants and undertakings herein
and therein set forth; the execution and delivery of this Agreement and the
Collateral Documents to which Buyer and/or Cramer is a party, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of Buyer and Cramer; and each of
this Agreement and the Collateral Documents to which Buyer and/or Cramer is a
party is a valid and binding obligation of Buyer and/or Cramer, enforceable in
accordance with their terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting the
rights of creditors generally.
4.2. Conflict With Authority, Bylaws, etc. Neither the execution and
delivery of this Agreement and the Collateral Documents to which Buyer and/or
Cramer is a party, nor the consummation of the transactions contemplated hereby
and thereby in the manner herein provided will violate, be in conflict with,
constitute a default under, cause the acceleration of any payments pursuant to,
or otherwise impair the good standing, validity, and effectiveness of the
Articles or Certificate of Incorporation or Bylaws of Buyer or Cramer, any
lease, license, permit, authorization, or approval applicable to Buyer or
Cramer; or violate any provision of law, rule, regulation, order, or permit to
which Buyer or Cramer is subject.
4.3. Acquisition of Shares for Investment. Buyer will be acquiring
ownership of the Company for investment for its own account and not with a view
to the resale or distribution of any Company securities in violation of any
federal or state securities laws.
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4.4. Governmental Filings; No Violations. Other than Regulatory Filings,
no notices, reports or other filings are required to be made by Buyer or Cramer
with, nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by Buyer or Cramer from, any governmental and regulatory
authorities of the United States or the several States in connection with the
execution and delivery of this Agreement and Collateral Documents by Buyer and
Cramer and the consummation of the transactions contemplated hereby by Buyer and
Cramer.
4.5. Brokers and Finders. Neither Buyer nor Cramer, nor any of their
respective officers, directors or employees, has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated herein.
4.6. Proxy Statement. None of the information supplied in writing by Buyer
or any subsidiary of Buyer specifically for inclusion in the Proxy Statement (as
defined in Section 5.3), including all amendments and supplements thereto,
shall, in the case of the Proxy Statement, at the date the Proxy Statement (or
any amendment thereof or supplement thereto) is first mailed to shareholders and
at the time of the meeting of shareholders to vote on the matters covered
thereby, contain any untrue statement of a material fact, or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading.
ARTICLE 5
ACTIVITIES PRIOR TO CLOSING BY THE COMPANY
5.1. Operation of Business. Prior to the Effective Time, the Company shall
conduct its business only in the ordinary course and in connection therewith
and, to the extent consistent therewith, the Company shall use its best efforts
to preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees and business associates. Except as set
forth in Paragraph 5.1 of the Disclosure Letter, the Company shall:
5.1.1. Organizational Documents. Not amend its Certificate of
Incorporation or Bylaws, except as may be necessary to carry out this Agreement
or as required by law;
5.1.2. Corporate Name. Not change its corporate name or permit the
use thereof by any other person or entity;
5.1.3. Compensation, Bonuses. Not pay or agree to pay to any
employee, officer, or director of the Company, without the consent of Buyer,
compensation that is in excess of the current compensation level of such
employee, officer, or director;
5.1.4. Management. Not make any changes in the Company's management
without the consent of Buyer;
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5.1.5. Mergers, Etc. Not merge or consolidate the Company with any
other corporation or allow it to acquire or agree to acquire or be acquired by
any corporation, association, partnership, joint venture, or other entity except
pursuant to Section 5.2;
5.1.6. Disposition of Assets. Not sell, transfer, or otherwise
dispose of any assets of the Company without the prior written consent of Buyer,
except in the ordinary course of business or pursuant to Sections 5.2 and 5.10;
5.1.7. Indebtedness. Not create, incur, assume, or guarantee any
indebtedness for money borrowed arising out of or in connection with the
Company's business except in the ordinary course of business; create or suffer
to exist any Lien on any of the Company's assets, except those in existence on
the date hereof; or increase the amount of any indebtedness outstanding under
any loan agreement, mortgage, or other borrowing arrangement in existence on the
date hereof arising out of or in connection with the Company's business;
5.1.8. Payables. Pay when due, in accordance with past practices,
all of its accounts payable and trade obligations;
5.1.9. Inventory. Maintain reasonable levels of inventory in
accordance with past practice;
5.1.10. Maintenance of Assets. Maintain its facilities, assets, and
properties in good operating repair, order, and condition, reasonable wear and
tear excepted, and notify Buyer immediately upon any loss of, damage to, or
destruction of any of the Company's assets;
5.1.11. Insurance. Maintain in full force and effect insurance
coverage of the types and in the amounts set forth in Paragraphs 3.13 and 3.18
of the Disclosure Letter and apply the proceeds received under any insurance
policy or as a result of any loss or destruction of or damage to any of the
Company's assets to the repair or replacement of such assets;
5.1.12. Contracts and Permits. Maintain in full force and effect all
Contracts and Permits necessary for or related to the operation of the Company's
business in all material respects and in all places as such business is now
conducted and renew or revalidate any Permits which may become void, expired,
terminated, canceled or withdrawn between the date hereof and the Effective
Time;
5.1.13. Litigation, etc. Promptly advise Buyer in writing of the
commencement of, and of any known threat to commence any, suit, claim, action,
arbitration, legal or administrative proceeding, governmental investigation, or
tax audit against it; and
5.1.14. Dividends or Other Distributions. Not declare, set aside or
pay any dividend or other distribution in respect of its shares of capital
stock, or redeem, purchase or otherwise acquire any such shares of capital
stock, except for repurchases of securities from former participants of the ESOP
and to comply with the diversification exclusions under the applicable
provisions of the ESOP and the Code; and
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5.1.15. Capital Stock. Not issue sell, pledge, dispose of or
encumber any additional shares of, or securities convertible or exchangeable
for, or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of its capital stock or split, combine or reclassify the outstanding
Share.
5.2. Acquisition Proposals. Neither the Company nor any of its officers
and directors shall, and the Company will cause its employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by the Company) not to, directly or indirectly,
encourage, initiate or solicit any inquiries or the making of any proposal with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets of, or any equity
interest in, the Company (an "Acquisition Proposal") or, except to the extent
required for the discharge by the Board of Directors of its fiduciary duties as
advised by counsel in writing, engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise assist or facilitate
any effort or attempt by any person or entity (other than Buyer, or their
officers, directors, representatives, agents, affiliates or associates) to make
or implement an Acquisition Proposal. The Company will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing. The
Company will notify Buyer promptly if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be instituted or continued with, the Company, such
notice to include the material terms communicated to the Company.
5.3. Meetings of the Company's Shareholders. If required to consummate the
Merger, the Company will take all action necessary in accordance with applicable
law and its Certificate of Incorporation and Bylaws to convene a meeting of
holders of Shares as promptly as practicable to consider and vote upon the
approval of this Agreement and the Merger. Subject to fiduciary requirements of
applicable law as advised by counsel in writing, the Board of Directors of the
Company shall recommend such approval and the Company shall take all lawful
action to solicit such approval. The Company hereby represents, warrants and
covenants that the proxy or information statement with respect to such meeting
of shareholders (the "Proxy Statement"), at the date thereof and at the date of
such meeting, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, the foregoing shall not apply to the extent
that any such untrue statement of a material fact or omission to state a
material fact was made by the Company in reliance upon and in conformity with
written information concerning Buyer and Cramer furnished to the Company by
Buyer specifically for use in the Proxy Statement. The Proxy Statement shall not
be filed, and no amendment or supplement to the Proxy Statement will be made by
the Company, without consultation with Buyer and its counsel.
5.4. Filings; Other Action.
(a) Subject to the terms and conditions herein provided, the
Company and Buyer shall: (a) promptly make their respective filings and
thereafter make any other required submissions under any Regulatory Filings with
respect to the Merger; and (b) use their best efforts to
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promptly take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement as soon as practicable.
(b) Unless an exemption shall be expressly applicable to the
Company, or unless Buyer agree otherwise in writing, the Company will file with
the SEC all reports required to be filed by it pursuant to the rules and
regulations of the SEC. Such reports and other information shall comply in all
material respects with all of the requirements of the SEC rules and regulations
and, when filed, will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Buyer and its counsel, shall be given an opportunity to review
such filings prior to their being filed with the SEC.
(c) Prior to Closing, the Company agrees to deliver to Buyer
the financial statements of the Company which are required to be filed by Buyer
pursuant to Item 3-05 of Regulation S-X promulgated under the Exchange Act. Such
financial statements shall be accompanied by an unqualified opinion of the
Company's auditors, together with a consent of such auditors complying in with
Rule 436 under the Securities Act of 1933 permitting Buyer to file such opinion
with Buyer's Form 8-K under the Exchange Act.
5.5. Access to Information. As promptly as practical after the end of each
calendar month, the Company will deliver to Buyer a copy of The Company's
balance sheet and income and loss statements for each calendar month (the
"Monthly Statements"). Prior to the Effective Time, The Company will cooperate
fully with Buyer and shall provide Buyer and its accountants, counsel, and other
representatives, during normal business hours, full access to the books,
records, equipment, real estate, contracts, and other assets of the Company, and
full opportunity to discuss the Company's business, affairs, and assets with its
officers, employees, customers, suppliers and independent accountants, and
furnish to Buyer and its representatives copies of such documents, records, and
information with respect to the affairs of the Company as Buyer or its
representatives may reasonably request. In addition to the foregoing right of
access and information, Buyer may designate on-site observers of the business
and operations of the Company, which observers shall be permitted such access to
the Company's business and operations as Buyer may reasonably request and shall
be fully informed by it concerning all of its assets, operation, and business
affairs at such observer's reasonable request for due diligence purposes.
5.6. Best Efforts. Subject to the other provisions of this Agreement, The
Company will use its best efforts to cause the conditions listed in Section 7.1
hereof to be satisfied on the Effective Time.
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5.7. Benefit Plans. Between the date hereof and the Effective Time, the
Company shall maintain in full force and effect the Benefit Plans as they
pertain to the Company's employees or former employees and, in connection
therewith, except as set forth in Paragraph 5.7 of the Disclosure Letter:
5.7.1. Plan Changes. Except as may be required by law or as
may be necessary to continue the qualified status under Section 401 of the Code
or as required by Section 5.10 hereof, the Company shall not adopt, terminate,
amend, extend, or otherwise change any Benefit Plan without the prior written
consent of Buyer, and the Company shall give Buyer prior written notice of the
Company's intention to take any such action required by law or necessary to
continue the qualified status of any Benefit Plans as they pertain to the
Company's employees or its former employees; and
5.7.2. Contributions and Payments. The Company shall not make,
cause to be made, or agree to make any contribution, award, or payment under any
Benefit Plans as they pertain to the Company's employees or former employees,
except at the time and to the extent required by the written terms thereof, or
as required under Section 5.10 hereof, without the prior written consent of
Buyer.
5.8. Notice of Change. The Company will promptly notify Buyer of the
existence or happening of any fact, event or occurrence prior to the Effective
Time and of which the Company or any of the Company's employees, officers,
directors, stockholders, or other representatives has knowledge which may alter
the accuracy of completeness of any representation or warranty contained in
Article 3 of this Agreement.
5.9. Publicity. The initial press release relating to the transactions
contemplated hereby shall be a joint press release and thereafter the Company
and Buyer shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state governmental or
regulatory agency. The parties hereto shall not issue any such press release or
make any such public statement or filing prior to such consultation, except as
may be required by law.
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5.10. Rhodes ESOP.
(a) The Company maintains the M.H. Rhodes Company, Inc. Employee
Stock Ownership Plan ("the ESOP"). The ESOP owns 93,155 Shares (the "ESOP
Shares"). As of December 31, 1997, 83,916.53 of the ESOP Shares have been
allocated to ESOP participants' accounts. The balance of the ESOP Shares are
unallocated and held in the Unallocated Stock Account (as defined in the ESOP).
At the Effective Time, the ESOP Shares shall be converted into the right to
receive cash, as further set forth in Section 2.1(a).
(b) Prior to the Effective Time, the Company and the Trustee of the
Trust (the "ESOT") established under the ESOP will execute an Amended and
Restated Replacement Promissory Note dated as of January 1, 1998 (the
"Replacement ESOT Note") reducing the principal balance of the Promissory Note
dated December 19, 1985 (the "1985 ESOT Note") from the ESOT to the Company to
$188,000 and changing the maturity date of the 1985 ESOT Note to December 31,
1998. Prior to the Effective Time, the Company shall continue to pay (or accrue)
contributions to the ESOT to enable the ESOT to make the required monthly
payments under the Replacement Promissory Note. If not sooner paid, immediately
preceding the Effective Time, the Company shall contribute to the ESOP for the
1997 and/or 1998 plan years an amount sufficient to enable the ESOT to pay the
outstanding balance on the Replacement ESOT Note in full if, but only if, Buyer
and the Company conclude that such contribution (the "Tentative Contribution")
will be fully tax deductible under Section 404 of the Code for the year or years
with respect to which such contribution is made, and that the allocation of such
contribution to ESOP participants' accounts will not violate the limitations of
Section 415 of the Code for such year or years. If the Tentative Contribution
can be and is made without violating such limitations, the Company will
terminate the ESOP as of the Effective Time. If the Tentative Contribution can
not be made without violating one or both of such limitations, the ESOP shall
not be terminated and shall remain in effect after the Effective Time. In that
event, Buyer shall thereafter make such contributions to the ESOT in the maximum
amount permitted by law as shall allow Buyer to cause the ESOP to be terminated
as soon following the Effective Time as is permissible under the terms of the
ESOP Loan and practicable without violating the limits of Sections 404 and 415.
ARTICLE 6
ACTIVITIES PRIOR TO CLOSING BY BUYER
6.1. Best Efforts. Subject to the other conditions of this Agreement,
Buyer will use its best efforts to cause the conditions listed in Section 7.2
hereof to be satisfied on the Effective Time.
6.2. Access to Information. Buyer shall provide The Company with
information concerning Buyer's financing arrangements as well as other
information reasonably requested by The Company regarding Buyer's ability to
consummate the transactions contemplated herein, as may be. The Company shall
not disclose any such information to any other person or entity without the
prior written consent of Buyer.
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6.3. Confidentiality. Except as otherwise required by law, or as may be
necessary or appropriate to enforce Buyer's rights hereunder, Buyer shall retain
in confidence, and shall cause its advisors to retain in confidence, all
information obtained by it pursuant to investigations made by Buyer or its
advisors pursuant to Section 5.5 hereof (the "Confidential Information"). The
parties agree that the Confidential Information shall not include information
which (i) was or becomes generally available to the public other than as a
result of a disclosure by Buyer or its advisors, (ii) was or becomes available
to Buyer or its advisors on a non-confidential basis from a source other than
the Company or the Company's representatives, provided that such source is not
bound by a confidentiality agreement or (iii) was, or in the future is,
developed independently by Buyer or its advisors without reference to the
information furnished by the Company or the Company's representatives. The
parties understand and agree that all of the Confidential Information supplied
to Buyer or its advisors is provided on the understanding that such Confidential
Information remains the property of the Company and that all copies and
originals will be returned to the Company promptly upon its request after
termination of this Agreement pursuant to Article 14 hereof. This Section 6.3
shall terminate upon consummation of the transaction contemplated hereby.
6.4. Purchase or Sale of Shares. Neither Buyer nor Cramer or any affiliate
of either thereof shall make any open market purchase or sale of Shares or
privately negotiate a purchase or sale of Shares, or, except as contemplated by
this Agreement, otherwise in any manner agree or make any proposal to acquire or
dispose of, directly or indirectly, any Shares.
ARTICLE 7
CONDITIONS PRECEDENT TO CLOSING
7.1. Conditions to Obligation of Buyer to Close. The obligation of Buyer
to consummate the transaction contemplated under this Agreement on the Effective
Time shall be subject to the satisfaction or the waiver by Buyer of the
following conditions on or prior to the Effective Time:
7.1.1. Representations and Warranties; Compliance with Agreement.
The representations and warranties of the Company set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Effective Time as though made on and as of the Effective
Time, the Company shall have performed all covenants and agreements to be
performed by them under this Agreement on or prior to the Effective Time and the
Company shall have delivered to the Buyer a certificate to such effect, dated
the Effective Time, which certificate shall be in form and substance
satisfactory to Buyer and its counsel, it being agreed that inaccuracies in or
omissions from any representation or warranty of the Company (including any such
inaccuracies or omissions resulting from matters occurring or discovered between
the execution of this Agreement and the Effective Time), excluding the
representations and warranties contained in Section 3.26 hereof, shall be deemed
to be material only if such inaccuracies and omissions, in aggregate, have
resulted in or are reasonably likely to result in loss, damage, liability and
related expense of defense and remedy to the Company of more than $50,000;
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7.1.2. Opinion of Counsel for the Company. Messrs. Pepe & Hazard
LLP, counsel for the Company, shall have delivered to Buyer their favorable
opinion, dated as of the Effective Time and in the form set forth in Exhibit C;
7.1.3. Litigation Affecting Closing. At the Effective Time, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might result in any
such suit, action or proceeding shall be pending or threatened;
7.1.4. Required Consents and Regulatory Approvals. The parties
(other than the Company) to any other contract, commitment or agreement to which
the Company is a party, any governmental agency or body or any other person,
firm or corporation which owns or has authority to grant any franchise, license,
permit, easement, right or other authorization necessary for the business or
operations of the Company, and any governmental body or regulatory agency having
jurisdiction over Buyer or the Company, to the extent that their consent or
approval is required under the pertinent debt, lease, contract, commitment or
agreement or other document or instrument or under applicable laws, rules or
regulations for the consummation of the transaction contemplated hereby in the
manner herein provided, shall have granted such consent or approval, which shall
include all Consents.
7.1.5. No Material Damage to Business. The assets, properties and
business of the Company shall not have been and shall not be threatened to be
materially adversely affected in any way as a result of fire, explosion,
earthquake, disaster, accident, labor dispute, any action by any governmental
authority, flood, drought, embargo, riot, civil disturbance, uprising, activity
of armed forces or act of God; and
7.1.6. Approval of Buyer; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved by Buyer, in the exercise of its reasonable judgment, and Buyer or
its counsel shall have been furnished with certified copies, satisfactory in
form and substance to Buyer in the exercise of its reasonable judgment, of all
such corporate records of the Company, and of the proceedings of such persons
authorizing the execution, delivery and performance of this Agreement as Buyer
shall reasonably require.
7.1.7. Shareholder Approval. This Agreement shall have been duly
approved by the holders of 60% of the outstanding Shares in accordance with
applicable law and the Certificate of Incorporation and Bylaws of the Company.
7.1.8. Dissenter's Rights. Dissenting Shareholders shall hold not
more than seven and one-half percent (7.5%) of the Shares.
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7.1.9. Environmental Issues.
(a) The expenses reasonably anticipated to remediate the
environmental matters identified on Schedule 3.26 and any other matters relating
to Environmental Laws or Hazardous Substances, including any required filings
with federal or state agencies (including the Connecticut Transfer Act, CHWETA
Form III Filing and any investigation measures required in support thereof) in
respect of which the Company and/or the Surviving Corporation may be liable
shall not exceed $325,000.
(b) The parties agree and acknowledge that under the
Connecticut Hazardous Waste Establishment Transfer Act, Conn. Gen. Stat.
Sections 22a-134 et seq. ("CHWETA") the CHWETA Form III filing must be
signed by a "certifying party" prior to closing, and filed with the Connecticut
Department of Environmental Protection within ten days of the closing and that
the Surviving Corporation shall be the CHWETA "certifying party."
7.1.10. Employment Agreement.
The Company's existing employment agreement with Joseph L. Morelli
("Morelli") shall have been terminated without for the liability to the Company
and the Surviving Corporation shall have entered into a new employment agreement
with Morelli in the form hereto attached as Exhibit D.
7.2. Conditions to Obligation of the Company to Close. The obligation of
the Company to consummate the Merger at the Effective Time shall be subject to
the satisfaction of the following conditions on or prior to the Effective Time:
7.2.1. Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Effective Time as though made on and as
of the Effective Time, Buyer and Cramer shall have performed all covenants and
agreements to be performed by each of them under this Agreement on or prior to
the Effective Time, and Buyer shall have delivered to the Company a certificate
to such effect, dated the Effective Time, which certificate shall be in form and
substance satisfactory to the Company and its counsel;
7.2.2. Opinion of Counsel of Buyer. Messrs. Pepper Hamilton LLP,
counsel for Buyer, shall have delivered to the Company their opinion, dated as
of the Effective Time and in the form set forth in Exhibit E;
7.2.3. Litigation Affecting Closing. On the Effective Time, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transaction contemplated hereby, and no investigation that might eventuate in
any such suit, action or proceeding shall be pending or threatened; and
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7.2.4. Approval of the Company; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Effective Time by the Company, in the exercise of its
reasonable judgment, and the Company shall have been furnished with certified
copies, satisfactory in form and substance to the Company in the exercise of its
reasonable judgment, of all such records of Buyer and Cramer and of the
proceedings of Buyer and Cramer authorizing the execution, delivery and
performance of this Agreement as the Company shall reasonably require.
7.2.5. Shareholder Approval. This Agreement shall have been duly
approved by the holders of 60% of the outstanding Shares, in accordance with
applicable law and the Certificate of Incorporation and Bylaws of the Company.
7.2.6. 401K Plan. Buyer shall have caused a 401K Plan to be
established for or to be extended to the Surviving Corporation employees to be
effective as of the Closing.
ARTICLE 8
INDEMNIFICATION
8.1. Officers and Directors Indemnification.
8.1.1.The Company and Cramer agree, and Buyer shall cause the
Surviving Corporation to agree that all rights to indemnification and
advancement of expenses by the Company now existing in favor of each present and
former director and officer of the Company and each fiduciary under the
Company's ESOP and other Benefit Plans (acting in their capacities as directors
and/or officers of the Company, and/or as such fiduciaries, the "Indemnified
Parties") as provided in the Company's Certificate of Incorporation or Bylaws,
the ESOP and other Benefit Plans as in effect on the date hereof with respect to
matters occurring at or prior to the Effective Time, shall, upon consummation of
the Merger, continue in full force and effect at all times prior to the
Effective Time and shall survive the Merger and shall continue in full force and
effect until the earlier of (A) their current expiration date and (B) the date
which is six (6) years from the Effective Time; provided, however, in the event
any claim or claims are asserted or threatened within such period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims.
8.1.2.Any Indemnified Party wishing to claim indemnification under
this Section 8.1, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Surviving Corporation thereof, but the
failure to so notify shall not relieve the Surviving Corporation of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice the indemnifying party. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) the Surviving Corporation shall have the right to assume
the defense thereof and shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that if
the Surviving Corporation fails to
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assume such defense or counsel for the Surviving Corporation advises that there
are issues which raise conflicts of interest between the Surviving Corporation,
on the one hand, and the Indemnified Parties, on the other hand, the Indemnified
Parties may retain counsel satisfactory to them, and the Surviving Corporation
and shall pay all reasonable fees and expenses of one such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that the Surviving Corporation shall be obligated pursuant to this
paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in
any jurisdiction unless the use of one counsel for such Indemnified Parties
would present such counsel with a conflict of interest, in which case Purchaser
need only pay for separate counsel to the extent necessary to resolve such
conflict, (ii) the Indemnified Parties will cooperate in the defense of any such
matter and (iii) the Surviving Corporation shall not be liable for any
settlement effectuated without its prior written consent.
8.1.3.Notwithstanding anything contained in paragraph (b) of this
Section 8.1, the Surviving Corporation shall not have any obligation hereunder
to any Indemnified Party (w) if the indemnification of such Indemnified Party in
the manner contemplated hereby is prohibited by applicable law (provided,
however, that if such indemnification is limited by any law, such
indemnification obligation shall continue to the maximum extent permitted under
such laws, or (x) the conduct of the Indemnified Party relating to the matter
for which indemnification is sought involved bad faith or willful misconduct, or
(y) with respect to actions taken by any such Indemnified Party in its
individual capacity rather than in his capacity as an officer, director or
fiduciary including, without limitations, with respect to any matters relating,
directly or indirectly to the purchase, sale or trading of securities issued by
the Company, or (z) if such Indemnified Party shall have breached its obligation
to cooperate with the Surviving Corporation in the defense of any claim in
respect of which indemnification is sought. Each Indemnified Party's entitlement
to the indemnification provisions contained in this Section 8.1 shall be
contingent on such Indemnified Party acknowledging and agreeing in writing to
cooperate in the defense of any such claims in respect of which indemnification
is sought from the Surviving Corporation.
ARTICLE 9
TERMINATION
9.1. Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the approval
by holders of Shares:
9.1.1. Termination by Mutual Consent. By the mutual consent of Buyer
and the Company by action of their respective Boards of Directors.
9.1.2. Prior to Effective Time. By the Company or Buyer if the other
shall have (a) materially misstated any representation or been in material
breach of any warranty contained herein or (b) been in material breach of any
covenant, undertaking or restriction contained herein and such misstatement or
breach has not been cured by the earlier of (i) thirty (30) days after the
giving of notice to such party of such misstatement or breach or (ii) the
Effective Time, and in any event such other party shall not be in breach of such
other party's obligations hereunder;
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9.1.3. By Buyer. Provided that the Buyer is not in material default
hereunder, by Buyer if all of the conditions precedent set forth in Section 7.1
hereof have not been met prior to July 31, 1998;
9.1.4. By the Company. Provided that the Company is not in material
default hereunder, by the Company if all of the conditions precedent set forth
in Section 7.2 hereof have not been met prior to July 31, 1998; or
9.1.5. By Either Party. Provided that such party is not in material
default hereunder, by either party if the Closing does not occur on or before
July 31, 1998.
9.1.6. Withdrawal of Recommendation. By Buyer, if the Board of
Directors of the Company shall have withdrawn or modified in a manner adverse to
Buyer or Cramer its approval or recommendation of this Agreement or the Merger,
or the Board of Directors of the Company, upon request by Buyer, shall fail to
reaffirm such approval or recommendation, or shall have resolved to do any of
the foregoing.
9.1.7. Higher Offer. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
approval by holders of Shares, by action of the Board of Directors of the
Company, if the Board of Directors of the Company receives an unsolicited
written offer at a higher dollar value per Share with respect to a merger,
consolidation or sale of all or substantially all of the Company's assets, or if
an unsolicited tender or exchange offer for the Shares at a higher dollar value
per Share is commenced, and the Board of Directors of the Company determines to
accept such merger, consolidation or sale of all or substantially all of the
Company's assets or recommend that its stockholders accept such tender or
exchange offer, but only after receipt by the Board of Directors of (x) a
written opinion to such effect from VFS that such transaction is more favorable
to the shareholders from a financial point of view than the Merger and the
transactions contemplated hereby and (y) a written opinion of counsel that
approval, acceptance or recommendation of such transaction is required by
fiduciary obligations under applicable law.
9.2. Effect of Termination and Abandonment In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article 10, no
party hereto (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement, except as provided in
Sections 6.3 and 10.1 and except that nothing will relieve any party from
liability for any breach of this Agreement.
9.3. No Purchase of Company Stock Buyer agrees that of this Agreement
terminates for any reason other than pursuant to Section 9.1.6 or 9.1.7 hereof,
neither Buyer nor any affiliate of Buyer shall acquire any capital stock of the
Company or any interest therein for a period of twelve (12) months following the
date of such termination.
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ARTICLE 10
MISCELLANEOUS
10.1. Payment of Expenses.
(a) Except as set forth in subsection (b) below, whether or
not the Merger shall be consummated, each party hereto shall pay its own
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the Merger.
(b) If (A) (x) any person, entity or group not currently
shareholders of the Company (other than Buyer or any subsidiary or affiliate of
Buyer or any group including Buyer or any subsidiary or affiliate of Buyer) (i)
shall have become the beneficial owner of 35% or more of the outstanding Shares
or (ii) shall have publicly proposed (1) any merger or consolidation with or
acquisition of all or substantially all of the assets of the Company or other
similar business combination involving the Company, (2) that any change be made
in the composition of the Board of Directors of the Company and such person,
entity or group shall file proxy materials with the SEC in respect of such
proposal or (3) the purchase of 50% or more of the total voting power of the
Company, including by tender or exchange offer, and (y) this Agreement is
terminated in accordance with its terms or (B) this Agreement is terminated
pursuant to Section 9.1.6 or 9.1.7, then the Company shall pay Purchaser the sum
of three hundred thousand dollars ($300,000) in immediately available funds (the
"Fee").
10.2. Entire Agreement; Amendments. This Agreement constitutes the entire
understanding among the parties hereto with respect to the subject matter
contained herein and supersedes any prior understandings and agreements among
them respecting such subject matter. This Agreement may be amended,
supplemented, and terminated only by a written instrument duly executed by the
Company, Buyer and Cramer.
10.3. Headings. The headings in this Agreement are for convenience of
reference only and shall not affect its interpretation.
10.4. Gender; Number. Words of gender may be read as masculine, feminine,
or neuter, as required by context. Words of number may be read as singular or
plural, as required by context.
10.5. Exhibits and Schedules. Each Exhibit and Schedule referred to herein
is incorporated into this Agreement by such reference.
10.6. Severability. If any provision of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity, or unenforceability will
not affect any other provision hereof. This Agreement shall, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.
10.7. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given to the person if delivered personally or upon
sending a copy thereof by first class or
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express mail, postage prepaid, or by telegram (with messenger service
specified), or reputable courier services, charges prepaid, or by telecopier, to
such party's address (or to such party's telecopier or telephone number).
If to Buyer or Cramer, to:
Owosso Corporation
The Triad Building
2200 Renaissance Boulevard
Suite 150
King of Prussia, PA 19406
Attention: George B. Lemmon, Jr., President
Telecopy No.: (610) 275-5122
With a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103
Attention: Elam M. Hitchner, III, Esquire
Telecopy No.: (215) 981-4750
If to the Company to:
M. H. Rhodes, Inc.
99 Thompson Road
Avon, CT 06001
Attention: Joseph L. Morelli
Telecopy No.: (860) 673-8633
With a copy to:
Pepe & Hazard LLP
Goodwin Squire
Hartford, CT 06103
Attention: Walter W. Simmers
Telecopy No.: (860) 522-2796
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party hereto entitled to receive such notice.
10.8. Waiver. The failure of any party hereto to insist upon strict
performance of any of the terms or conditions of this Agreement will not
constitute a waiver of any of its rights hereunder.
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10.9. Assignment. This Agreement is not assignable.
10.10. Successors and Assigns. This Agreement binds, inures to the benefit
of, and is enforceable by the successors and assigns of the parties hereto, and
does not confer any rights on any other persons or entities.
10.11. Governing Law. This Agreement shall be construed and enforced in
accordance with the law of the State of Delaware.
10.12. No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their successors and assigns, and they shall not be construed
as conferring and are not intended to confer any rights on any other persons.
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10.13. Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when 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. The execution of this Agreement by any party hereto will not become
effective until counterparts hereof have been executed by all the parties
hereto. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
OWOSSO CORPORATION
By:____________________________
Title:
CRAMER COMPANY
By:____________________________
Title:
M. H. RHODES, INC.
By:____________________________
Title:
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ANNEX B
[VALUATION & FINANCIAL STRATEGIES, LLC LETTERHEAD]
February 23, 1998
Board of Directors
M.H. RHODES, INC.
99 Thompson Road
Avon, Connecticut 06001
Board of Directors:
The Board of Directors of M.H. Rhodes, Inc. ("Rhodes" or the "Company") has
requested that Valuation and Financial Strategies, LLC ("VFS") issue a fairness
opinion, as to the consideration to be received by Rhodes stockholders pursuant
to the proposed Agreement and Plan of Merger ("Agreement") presented by OWOSSO
Corporation, a Pennsylvania corporation ("OWOSSO" or "Buyer") and Cramer
Company, a Delaware corporation and wholly-owned subsidiary of Buyer, dated as
of January 1998. The fairness opinion is issued from a financial point of view
from the perspective of Rhodes shareholders.
Under the terms of the Agreement, each share of common stock, par value $1.00
per share, issued and outstanding immediately prior to the time at which the
Delaware Certificate of Merger has been duly filed with the Secretary of State
of Delaware, shall be converted into the right to receive, without interest, an
amount in cash equal to $14.51. Cramer Company will merge with and into Rhodes.
Upon the closing of the transaction, all outstanding shares of Rhodes will be
canceled and retired and shall cease to exist. The closing is scheduled to take
place on April 27, 1998 or such other date as set forth in the Agreement.
As part of our analysis of the fairness of the transaction, we considered the
following factors:
1. Terms of the Agreement;
2. Review and analysis of audited and internal financial statements provided
by Rhodes for the years ended December 31, 1993 through 1996; Rhodes 10-Qs
and 10-Ks filed with the Securities and Exchange Commission; and on
Rhodes' internally prepared financial statements for the fiscal year ended
December 31, 1997 and its management's projections for the fiscal year
ended December 31, 1998. We also reviewed appraisals
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Board of Directors
M.H. RHODES, INC.
February 23, 1998
Page 2
of Rhodes' real estate dated as of December 18, 1997, and machinery and
equipment dated as of March 13, 1995;
3. Review and analysis of Rhodes financial performance as compared with
publicly traded companies that we deemed to be comparable to Rhodes;
4. Current and historical market prices and trading activity for Rhodes
common stock;
5. An analysis of the terms and conditions of recent merger and acquisition
activity involving companies engaged in businesses that we determined to
be comparable to Rhodes;
6. Discussions with Rhodes' management regarding current and past operations
and financial condition of Rhodes.
Our opinion is given based on our assumption that the information that was
either publicly available, provided to us by Rhodes management, or otherwise
reviewed by us is accurate and complete.
This opinion is not intended to express a recommendation to any shareholder of
Rhodes as to whether to accept the consideration offered to the shareholders as
set forth in the Agreement.
Based upon our analysis of the terms of the proposed transaction, it is the
opinion of VFS that as of the date hereof, the transaction is fair to Rhodes
shareholders from a financial point of view.
Very truly yours,
VALUATION & FINANCIAL STRATEGIES, LLC
/s/ Charles E. Coyne
Charles E. Coyne, ASA
Principal
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ANNEX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
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a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as
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herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identify of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding
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the foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the
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pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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