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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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STIMSONITE CORPORATION
(Name of Subject Company)
STIMSONITE CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, par value $.01 per share
(Title of Class of Securities)
860832104
(CUSIP Number of Class of Securities)
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Robert E. Stutz
President and Chief Executive Officer
Stimsonite Corporation
6565 West Howard Street
Niles, Illinois 60714-3373
(847) 647-7717
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person Filing Statement)
With a copy to:
Timothy J. Melton, Esq.
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
(312) 782-3939
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Item 1. Security and Subject Company.
The name of the subject company is Stimsonite Corporation, a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 6565 West Howard Street, Niles, Illinois 60714-3373. The title
of the class of equity security to which this Schedule 14D-9 relates is the
common stock, par value $.01 per share, of the Company (the "Common Stock").
Item 2. Tender Offer of the Bidder.
This Schedule 14D-9 relates to a tender offer (the "Offer") by Vision
Acquisition Corporation, a Delaware corporation ("Merger Sub") and a wholly
owned subsidiary of Avery Dennison Corporation, a Delaware corporation
("Purchaser"), disclosed in a Tender Offer Schedule on Schedule 14D-1 dated
June 10, 1999 (the "Schedule 14D-1"), to purchase all outstanding shares of
the Common Stock (the "Shares") at a price of $14.75 per Share, net to the
selling stockholder in cash, without interest thereon (the "Offer
Consideration"), as set forth in the Agreement and Plan of Merger, dated as of
June 4, 1999 (the "Merger Agreement"), among Purchaser, Merger Sub and the
Company, which has been filed as Exhibit 99.1 to this Schedule 14D-9. The
Merger Agreement provides that, among other things, as soon as practicable
after the purchase of Shares pursuant to the Offer and the satisfaction of
other conditions set forth in the Merger Agreement and in accordance with the
relevant provisions of the General Corporation Law of the State of Delaware
(the "DGCL"), Purchaser will be merged with and into the Company (the
"Merger"). Pursuant to the Merger Agreement, each share of Common Stock then
issued and outstanding immediately prior to the effective time of the Merger
(the "Effective Time"), other than shares of Common Stock owned by the Company
or by Purchaser, Merger Sub or any other subsidiary of Purchaser and shares of
Common Stock that are held by holders of such shares who have properly
exercised appraisal rights, will be converted into the right to receive the
Offer Consideration, payable in cash to the holder thereof, without any
interest thereon.
All references in this Schedule 14D-9 to the Merger Agreement and to the
transactions contemplated thereby are qualified in their entirety by reference
to the Merger Agreement.
All information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Purchaser, Merger Sub or their affiliates, or actions or
events with respect to any of them, was provided by Purchaser or Merger Sub,
and the Company takes no responsibility for the accuracy or completeness of
such information or for any failure by such entities to disclose events or
circumstances that may have occurred and may affect the significance,
completeness or accuracy of any such information.
The principal executive offices of Purchaser and Merger Sub are located at
150 North Orange Grove Boulevard, Pasadena, California 91103.
Item 3. Identity and Background.
(a) The name and business address of the Company, which is the person filing
this Schedule 14D-9, are set forth in Item 1 above.
(b) Except as set forth in this Item 3 and Item 4, to the knowledge of the
Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings, or actual or potential conflicts of interest,
between the Company or any of its affiliates and (1) the Company, its
executive officers, directors or affiliates or (2) Purchaser, Merger Sub or
their respective executive officers, directors or affiliates.
Change in Control, Special Incentive Bonus and Employment Agreements
Change in Control Agreements. The Company has entered into Change in Control
Agreements, dated as of April 23, 1999 (the "Change in Control Agreements"),
with its seven executive officers (the "Officers"): Robert E. Stutz, President
and Chief Executive Officer; Michael A. Cherwin, Vice President--Human
Resources; Llewellyn C. Coffin, Vice President--Operations; Clifford S.
Deremo, Vice President--Sales and Marketing; Daniel L. Lang, Vice President--
International; Robert M. Pricone, Vice President--Technology; and Thomas C.
Ratchford, Vice President--Finance, Chief Financial Officer, Treasurer and
Secretary. The form of the Change in Control Agreement for Messrs. Stutz and
Ratchford has been filed as Exhibit 99.4 to this Schedule 14D-9;
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and the form of the Change in Control Agreement for all other Officers has
been filed as Exhibit 99.5 to this Schedule 14D-9. Each of those forms is
incorporated herein by reference. The following summary of the Change in
Control Agreements does not purport to be complete and is qualified in its
entirety by reference to Exhibits 99.4 and 99.5.
The Change in Control Agreements become operative upon a Change in Control.
"Change in Control," as defined in the Change in Control Agreements, means the
occurrence of any of the following:
(1) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
the combined voting power of the then outstanding securities entitled to
vote generally in the election of directors ("Voting Stock") of the
Company; provided, however, that the following acquisitions shall not
constitute a Change in Control: (a) any issuance of Voting Stock of the
Company directly from the Company that is approved by the Incumbent Board
(as defined in subparagraph (2) below), (b) any acquisition by the Company
of Voting Stock of the Company, (c) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary of the Company, (d) any
acquisition of Voting Stock of the Company by Quad-C, Inc. or any of its
affiliates or any of the limited partnerships managed by Quad-C, Inc. or
(e) any acquisition of Voting Stock of the Company by any Person pursuant
to a Business Combination (as defined in clause (3) below) that complies
with clauses (a), (b) and (c) of clause (3) below; or
(2) individuals who, as of April 23, 1999, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which such person is
named as a nominee for director, without objection to such nomination) will
be deemed to have been a member of the Incumbent Board, but excluding for
this purpose any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest (within the meaning
of Rule 14a-11 promulgated under the Exchange Act) with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Company's
Board of Directors; or
(3) consummation of a reorganization, merger or consolidation, a sale or
other disposition of all or substantially all of the assets of the Company,
or other transaction (any of the foregoing transactions being referred to
as a "Business Combination") unless, in each case, immediately following
such Business Combination, (a) all or substantially all of the individuals
and entities who were the beneficial owners of Voting Stock of the Company
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of the combined voting power of the then
outstanding shares of Voting Stock of the entity resulting from such
Business Combination (including, without limitation, an entity that, as a
result of such transaction, owns the Company or all or substantially all of
the Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions relative to each other as their
ownership, immediately prior to such Business Combination, of the Voting
Stock of the Company, (b) no Person (other than the Company, such entity
resulting from such Business Combination, any employee benefit plan (or
related trust) sponsored or maintained by the Company, any subsidiary of
the Company or such other entity resulting from such Business Combination
or Quad-C, Inc. or any of its affiliates or any of the limited partnerships
managed by Quad-C, Inc.) beneficially owns, directly or indirectly, 50% or
more of the combined voting power of the then outstanding shares of Voting
Stock of the entity resulting from such Business Combination and (c) at
least a majority of the members of the board of directors of the entity
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement or of the
action of the Company's Board of Directors providing for such Business
Combination.
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Under the Change in Control Agreements, the Company has agreed to employ
each Officer during the "Change in Control Severance Period," which is the
period commencing on the date of the first occurrence of a Change in Control
and continuing until the earlier of (1) 12 months or, in the case of Messrs.
Stutz and Ratchford, 18 months after the occurrence of the Change in Control
or (2) the Officer's death. An Officer will be entitled to benefits under his
Change in Control Agreement if his employment terminates or is terminated
during the Change in Control Severance Period for any reason other than his
death or permanent disability or Cause (as defined in the Change in Control
Agreements), or if the Officer terminates his employment during the Change in
Control Severance Period for any of the following reasons (each, a "Good
Reason"):
(1) (a) a significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company that the Officer held immediately prior to the
Change in Control, (b) a reduction in the Officer's Base Pay (defined as
the Officer's annual base salary in effect from time to time) received from
the Company, (c) the termination or denial of the Officer's right to
participate in any incentive compensation plan generally available to other
officers of the Company or (d) the termination or denial of the Officer's
rights to Employee Benefits (as defined in the Change in Control
Agreements) that, in the aggregate, are equivalent in type and scope to
those generally available to other officers of the Company, if not remedied
by the Company within 30 calendar days after receipt by the Company of
written notice from the Officer of any such change, reduction, termination
or denial, as the case may be;
(2) the Company relocates its principal executive offices (if such
offices are the principal location of the Officer's work), or requires the
Officer to have his principal location of work changed, to any location
that, in either case, is in excess of 30 miles from the location thereof
immediately prior to the Change in Control; or
(3) any material breach of the Change in Control Agreements by the
Company or any successor thereto that is not remedied by the Company within
30 calendar days after receipt by the Company of written notice from the
Officer of such breach.
The Change in Control Agreements provide for the following severance
benefits:
(1) for a period (the "Continuation Period") of 12 months or, in the case
of Messrs. Stutz and Ratchford, 18 months following the date of termination
(the "Termination Date") of an Officer's employment, the Officer will be
paid periodically (in accordance with the Company's payroll practices) the
sum of (a) his annual base salary (at the rate in effect on the Termination
Date) and (b) an annual incentive bonus in an amount equal to the amount of
such bonus that he earned in the fiscal year immediately preceding the year
in which the Termination Date occurs;
(2) during the Continuation Period, the Company will arrange to provide
the Officer with employee benefits that, in the aggregate, are equivalent
in type and scope to those generally available to officers of the Company
or its successors or assigns. If and to the extent that any such benefit is
not or cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any subsidiary, as the case may be, then the
Company will itself pay or provide for the payment of such employee
benefits (including a payment in the amount of any taxes applicable to any
such benefits) to the Officer and his dependents and beneficiaries;
(3) outplacement services by a firm selected by the Officer in an amount
not to exceed $10,000; and
(4) if an Officer becomes subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as a
result of his receipt of severance benefits under his Change in Control
Agreement or any other agreement or arrangement with the Company, the
Company shall pay the Officer an additional amount equal to the amount
necessary to put the Officer in the same net after-tax position that he
would have been in had he not been subject to the Section 4999 excise tax.
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If an Officer obtains other employment following his Termination Date, the
severance benefits described in clauses (1), (2) and (3) immediately above
will be provided only during the period beginning on his Termination Date and
ending on the later of (1) the date on which he commences such other
employment or (2) the six-month anniversary of his Termination Date.
The Change in Control Agreements also contain a covenant not to compete that
prohibits an Officer from certain participation in the business of any company
engaged in certain competitive activities without the prior written consent of
the Company for a period ending one year following termination in
circumstances where the Officer is entitled to receive benefits under his
Change in Control Agreement.
Special Incentive Bonus Agreements. The Company has also entered into
Special Incentive Bonus Agreements, dated as of April 23, 1999 ("Incentive
Bonus Agreements"), with Messrs. Stutz, Cherwin, Coffin, Deremo, Pricone and
Ratchford (the "Selected Officers"). The form of the Incentive Bonus
Agreements for Messrs. Stutz and Pricone has been filed as Exhibit 99.6 to
this Schedule 14D-9; the form of the Incentive Bonus Agreements for Messrs.
Deremo and Ratchford has been filed as Exhibit 99.7 to this Schedule 14D-9;
the form of the Incentive Bonus Agreements for Messrs. Cherwin and Coffin has
been filed as Exhibit 99.8 to this Schedule 14D-9, and each is incorporated
herein by reference. The following summary of the Incentive Bonus Agreements
does not purport to be complete and is qualified in its entirety by reference
to Exhibits 99.6, 99.7 and 99.8. The Incentive Bonus Agreements become
operative upon a Change in Control.
Under the Incentive Bonus Agreements, a Selected Officer will be entitled to
an Incentive Bonus (as defined below) if he is employed by the Company or a
subsidiary of the Company at the end of the period (the "Incentive Bonus
Severance Period") commencing on the first occurrence of a Change in Control
and continuing until the earlier of his death or six months after the
occurrence of the Change in Control, or if his employment terminates or is
terminated during the Incentive Bonus Severance Period for any reason other
than Cause, or if he terminates his employment during the Incentive Bonus
Severance Period for Good Reason. An "Incentive Bonus" means:
(1) in the case of Mr. Stutz or Mr. Pricone, an amount equal to the sum
of (a) $75,000 and (b) 0.75 percent of the portion (the "Incentive Bonus
Pool") of the Aggregate Equity Consideration (as defined below) that
exceeds $109,777,105;
(2) in the case of Mr. Deremo or Mr. Ratchford, an amount equal to the
sum of (a) $60,000 and (b) 0.60 percent of the Incentive Bonus Pool; or
(3) in the case of Mr. Cherwin or Mr. Coffin, an amount equal to the sum
of (a) $15,000 and (b) 0.15 percent of the Incentive Bonus Pool.
"Aggregate Equity Consideration" means the amount equal to the sum of (1) the
product of (a) 8,444,377 (the total number of shares of Common Stock
outstanding as of the date of the Merger Agreement) and (b) the Offer
Consideration and (2) the product of (a) the difference of (i) the Offer
Consideration minus (ii) the average exercise price of all unexercised options
to purchase shares of Common Stock (excluding options granted under the
Company's Stock Option Plan for Non-Employee Directors to the extent that such
options would be canceled by their terms without payment of any consideration,
but giving effect to the grant of any options that would become effective on
or before the consummation of the transactions contemplated by the Change in
Control) and (b) the total number of shares of Common Stock issuable upon the
exercise of such stock options.
The Incentive Bonus Agreements also provide that, if any Selected Officer
becomes subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code as the result of his receipt of benefits under his Incentive
Bonus Agreement or any other agreement or arrangement with the Company, the
Company will pay him an additional amount equal to the amount necessary to put
the Officer in the same net after-tax position that he would have been in had
he not been subject to the Section 4999 excise tax.
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Stutz Employment Agreement. Mr. Stutz entered into an Employment Agreement
with the Company as of March 22, 1997 (the "Stutz Employment Agreement"),
which was amended as of June 4, 1999. The Stutz Employment Agreement and the
amendment thereto dated as of June 4, 1999, have been filed as exhibits to
this Schedule 14D-9 and are incorporated herein by reference. The following
summary of the Stutz Employment Agreement, as amended, does not purport to be
complete and is qualified in its entirety by reference to Exhibits 99.9 and
99.10.
Section 10(c) of the Stutz Employment Agreement provided that Mr. Stutz was
to be granted an option to purchase 100,000 shares of Common Stock at an
exercise price of $9.00 per share on the first date (prior to his Termination
Date) on which the Common Stock has a closing price equal to or greater than
$9.00 per share for 30 consecutive trading days, and Section 10(d) of the
Stutz Employment Agreement provided that Mr. Stutz was to be granted an option
to purchase 100,000 shares of Common Stock at an exercise price of $11.00 per
share on the first date (prior to his Termination Date) on which the Common
Stock has a closing price equal to or greater than $11.00 per share for 30
consecutive trading days. The Stutz Employment Agreement was amended as of
June 4, 1999, to provide that:
(1) if the closing price of the Common Stock is equal to or greater than
$9.00 per share on the last trading day preceding the Effective Time (the
"Last Trading Day"), the option to be granted under Section 10(c) of the
Stutz Employment Agreement will be deemed to have been granted to Mr.
Stutz, and will be deemed fully vested and exercisable, immediately prior
to the Effective Time, regardless of whether the closing price the Common
Stock was equal to or greater than $9.00 per share on each of the 29
consecutive trading days immediately preceding the Last Trading Day; and
(2) if the closing price of the Common Stock is equal to or greater than
$11.00 per share on the Last Trading Day, the option to be granted under
Section 10(d) of the Stutz Employment Agreement will be deemed to have been
granted to Mr. Stutz, and will be deemed fully vested and exercisable,
immediately prior to the Effective Time, regardless of whether the closing
price the Common Stock was equal to or greater than $11.00 per share on
each of the 29 consecutive trading days immediately preceding the Last
Trading Day.
Merger Agreement
The following description of certain provisions of the Merger Agreement does
not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, which has been filed as Exhibit 99.1 to this Schedule
14D-9. Capitalized terms used but not otherwise defined herein are used herein
as defined in the Merger Agreement.
The Offer. Pursuant to the terms and conditions of the Merger Agreement,
Purchaser, Merger Sub and the Company are required to use their reasonable
best efforts to take or cause to be taken all action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by the Merger Agreement.
Notwithstanding any other term of the Merger Agreement, Merger Sub is not
required to accept for payment or pay for, subject to any applicable rules and
regulations of the Securities and Exchange Commission (the "SEC"), including
Rule 14e-1(c) of the Exchange Act, any shares of Common Stock not previously
accepted for payment or paid for and may terminate or amend the Offer as to
those shares of Common Stock unless (1) there has been validly tendered and
not withdrawn prior to the expiration of the Offer the number of shares of
Common Stock that represent at least a majority on a fully diluted basis of
the outstanding shares of Common Stock (collectively, the "Minimum Condition")
and (2) any waiting period under the HSR Act and any non-United States laws
regulating competition, investment, or exchange controls applicable to the
purchase of shares of Common Stock pursuant to the Offer has expired or
terminated. Furthermore, notwithstanding any other term of the Offer or the
Merger Agreement, Merger Sub is not required to accept for payment or, subject
to the preceding conditions, to pay for any shares of Common Stock not
previously accepted for payment or paid for, and may terminate or amend the
Offer if at any time on or after the date of the Merger Agreement and prior to
the expiration of the Offer, any of the following conditions exist or occur
and remain in effect:
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(a) any United States or state Governmental Entity enacts, issues,
promulgates, enforces, institutes or enters any statute, rule, regulation,
executive order, decree, injunction, action, application or claim or other
order that is in effect or pending (a "Claim") (i) challenging or
prohibiting the acquisition by Purchaser or Merger Sub of the shares of
Common Stock pursuant to the Merger Agreement, including the Offer or the
Merger, (ii) restraining or prohibiting the making or consummation of the
Merger Agreement, including the Offer or the Merger or the performance of
any of the other transactions contemplated by the Merger Agreement, (iii)
seeking to obtain from Purchaser or Merger Sub any damages that arise out
of the transactions contemplated by the Merger Agreement that could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect if those damages were assessed against the Company,
(iv) restraining or prohibiting, or limiting in any material respect, the
ownership or operation by Purchaser or Merger Sub of any material portion
of the business or assets of the Company and its subsidiaries taken as a
whole, (v) seeking to compel Purchaser or Merger Sub to dispose of or
forfeit material incidents of control of all or any material portion of the
business or assets of the Company and its subsidiaries taken as a whole,
(vi) imposing limitations on the ability of Purchaser, Merger Sub or any
other subsidiary of Purchaser effectively to exercise full rights of
ownership of the shares of Common Stock, including, without limitation, the
right to vote any shares of Common Stock acquired or owned by Purchaser or
Merger Sub on all matters properly presented to the Company's stockholders,
or (vii) seeking to require divestiture by Merger Sub or Purchaser of any
shares of Common Stock; or
(b) any statute, rule, regulation, judgment, order or injunction is
enacted, promulgated, entered, enforced or deemed applicable to the Offer,
the Merger or the Merger Agreement, or any other action is taken by any
government, Governmental Entity or court, domestic or foreign, other than
the routine application to the Offer or the Merger of waiting periods under
the HSR Act or any non-United States laws regulating competition,
antitrust, investment or exchange controls, that has, or has a substantial
likelihood of resulting in, any of the consequences referred to in
paragraph (a) above; or
(c)(i) the representations and warranties made by the Company in the
Merger Agreement are not true and correct as of the date of consummation of
the Offer as though made on and as of that date (other than representations
and warranties made as of a specified date, in which case those
representations and warranties must be true and correct in all material
respects on and as of the specified date) except for any breach or breaches
that, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect or (ii) the Company has breached or failed
to comply in any material respect with any of its obligations, covenants or
agreements under the Merger Agreement (other than those obligations,
covenants or agreements with regard to the treatment of outstanding
Options, with respect to which the Company will have performed in all
respects) and, with respect to any such failure that can be remedied, the
failure is not remedied within 20 business days after Purchaser has
furnished the Company with written notice of the failure; or
(d) there has occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange, any
other national securities exchange or the Nasdaq National Market, (ii) the
declaration of a banking moratorium or any mandatory suspension of payments
in respect of banks in the United States, (iii) the commencement of or
escalation of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (iv) any
limitation (whether or not mandatory) by any United States governmental
authority on the extension of credit by banks or other financial
institutions, (v) a change in general financial bank or capital market
conditions which materially and adversely affects the ability of financial
institutions in the United States to extend credit or syndicate loans or
(vi) in the case of any of the foregoing existing on the date of the Merger
Agreement, a material acceleration or worsening thereof; or
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(e) the Company's Board of Directors withdraws or modifies in a manner
adverse to Purchaser or Merger Sub (including by amendment of this Schedule
14D-9) its approval of the Merger Agreement and the transactions
contemplated thereby, or its recommendation that the holders of the shares
of Common Stock accept the Offer and tender all of their shares of Common
Stock to Merger Sub and approve the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, or the Company's
Board of Directors approves or recommends any Acquisition Proposal or
Superior Proposal; or
(f) the Merger Agreement is terminated in accordance with its terms; or
(g) there has occurred any events or states of fact that have had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
The foregoing conditions are for the sole benefit of Purchaser and Merger
Sub and may be asserted by Purchaser and Merger Sub regardless of the
circumstances (including any action or inaction by Purchaser) giving rise to
any such condition and, except for the Minimum Condition, may be waived by
Purchaser or Merger Sub, in whole or in part, at any time and from time to
time, in the sole discretion of Purchaser. The failure of Purchaser or Merger
Sub at any time to exercise any of the foregoing rights will not be deemed a
waiver of any such right, the waiver of such right with respect to any
particular facts or circumstances will not be deemed a waiver with respect to
any other facts or circumstances, and each such right will be deemed an
ongoing right that may be asserted at any time and from time to time.
If the Offer is terminated pursuant to the foregoing provisions, all
tendered shares of Common Stock not previously accepted for payment will be
returned by the paying agent to the tendering stockholders.
In the Merger Agreement, the Company has agreed that within five days of the
date that Merger Sub's offer documents are filed with the SEC, it will file
with the SEC and mail to its stockholders this Schedule 14D-9 containing the
recommendations of the Company's Board of Directors that the Company's
stockholders accept the Offer, tender all their shares of Common Stock to
Merger Sub and approve the Merger Agreement and the transactions contemplated
thereby.
The Merger. The Merger Agreement provides that, if all of the conditions to
the Merger have been fulfilled or waived and the Merger Agreement has not been
terminated, Merger Sub will be merged with and into the Company, and the
Company will continue as the surviving corporation in the Merger (the
"Surviving Corporation").
Each Share issued and outstanding immediately prior to the Effective Time
(other than Shares owned by the Company or any subsidiary of the Company or by
Purchaser, Merger Sub or any subsidiary of Purchaser, all of which will be
canceled, and Shares the holders of which have properly exercised appraisal
rights with respect thereto) will be converted into the right to receive
$14.75, payable in cash to the holder thereof, without any interest thereon
(the "Merger Consideration"). Each share of common stock of Merger Sub
outstanding immediately prior to the Effective Time will automatically be
converted into one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation.
The Merger Agreement provides that upon the purchase of the Shares pursuant
to the consummation of the Offer, Purchaser is entitled to designate such
number of directors, rounded up to the next whole number, as will give
Purchaser representation on the Company's Board of Directors equal to the
product of (1) the number of authorized directors on the Company's Board of
Directors (giving effect to the directors elected pursuant to this provision)
and (2) the percentage that the number of shares of Common Stock purchased by
Merger Sub or Purchaser or any of their affiliates bears to the aggregate
number of shares of Common Stock outstanding (the "Percentage"), and the
Company will, upon the request by Purchaser, promptly increase the size of its
Board of Directors and/or secure the resignations of the number of directors
as is necessary to enable Purchaser's designees to be elected to the Company's
Board of Directors and will cause Purchaser's designees to be so
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elected. Notwithstanding the foregoing, the parties to the Merger Agreement
will use their respective reasonable efforts to ensure that at least three of
the members of the Company's Board of Directors will at all times prior to the
Effective Time be Continuing Directors (as defined below). Following the
election or appointment of Purchaser's designees pursuant to this provision
and prior to the Effective Time, the approval of a majority of the directors
of the Company then in office who are not designated by Purchaser (the
"Continuing Directors") will be required to authorize (and such authorization
shall constitute the authorization of the Company's Board of Directors and no
other action on the part of the Company, including any action by any other
director of the Company, shall be required to authorize) any termination of
the Merger Agreement by the Company, any amendment of the Merger Agreement
requiring action by the Company's Board of Directors, any extension of time
for the performance of any of the obligations or other acts of Purchaser or
Merger Sub, and any waiver of compliance with any of the agreements or
conditions contained therein for the benefit of the Company.
Stock Options. The Merger Agreement provides that, at the Effective Time,
each holder of a then-outstanding option to purchase shares of Common Stock
under any plan, program or arrangement of the Company (collectively, the
"Stock Options Plans") whether or not then exercisable (individually, an
"Option" and collectively, the "Options"), will, in settlement thereof,
receive for each share of Common Stock subject to such Option an amount
(subject to any applicable withholding tax) in cash equal to the difference
between the Merger Consideration and the per share exercise price of such
Option to the extent such difference is a positive number (such amount, the
"Option Consideration").
Either prior to or as soon as practicable following the consummation of the
Offer, the Company's Board of Directors (or, if appropriate, any committee of
the Company's Board of Directors administering the Stock Option Plans) is
required to adopt such resolutions or take other such actions as are required
to cause any Options that are not exercisable as of the date of the Merger
Agreement to become exercisable at the Effective Time.
Recommendation. The Company represents and warrants in the Merger Agreement
that the Company's Board of Directors at a meeting duly called and held has
duly adopted resolutions (1) approving the Merger Agreement, the Offer and the
Merger, determining that the Merger is advisable and that the terms of the
Offer and Merger are fair to, and in the best interests of, the Company's
stockholders and recommending that the Company's stockholders accept the Offer
and tender all of their Shares to Merger Sub and approve the Merger Agreement
and the transactions contemplated thereby, including the Offer and the Merger,
(2) taking all action necessary to render Section 203 of the DCGL inapplicable
to the Offer, the Merger, the Merger Agreement, the Stockholder Tender
Agreement and any of the transactions contemplated thereby and (3) electing,
to the extent permitted by law, not to be subject to any "moratorium,"
"control share acquisition," "business combination," "fair price" or other
form of corporate antitakeover laws and regulations of any jurisdiction that
may purport to be applicable to the Merger Agreement or the Stockholder Tender
Agreement. The Company's Board of Directors will not withdraw, modify or amend
its recommendations described above in a manner adverse to Purchaser or Merger
Sub (or announce publicly its intention to do so) provided that the disclosure
of the receipt of an Acquisition Proposal (as defined below) and the fact that
the Board is considering such Acquisition Proposal or reviewing it with its
advisors will not by itself constitute such a withdrawal, modification or
amendment, except that the Company's Board of Directors will be permitted to
withdraw, amend or modify its recommendation (or publicly announce its
intention to do so) of the Merger Agreement or the Merger in a manner adverse
to Purchaser or approve or recommend or enter into an agreement with respect
to a Superior Proposal (as defined below) if the Company has complied with the
terms of the Merger Agreement. Any withdrawal, modification or amendment of
the recommendation of the Company's Board of Directors or any committee
thereof in any manner adverse to Purchaser or Merger Sub, however, may give
rise to certain termination rights on the part of Purchaser and Merger Sub
under the Merger Agreement and the right to receive certain termination fees
as set forth therein.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Purchaser and Merger Sub,
including but not limited to representations and warranties relating to the
Company's organization and qualification, authority to enter into the Merger
Agreement and consummate the transactions contemplated thereby, compliance
with applicable laws, capitalization, subsidiaries, no violation, required
consents and approvals, SEC filings (including financial statements), the
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documents supplied by the Company related to the Offer, the absence of certain
material adverse changes or events since December 31, 1998, taxes, employee
benefit plans, licenses and permits, environmental matters, title to assets,
labor matters, intellectual property, material agreements, the absence of
undisclosed liabilities, litigation, insurance and millennium compliance.
Purchaser and Merger Sub have also made customary representations and
warranties to the Company, including but not limited to representations and
warranties relating to Merger Sub's organization and qualification, authority
to enter into the Merger Agreement and consummate the transactions
contemplated thereby, documents supplied by Purchaser and Merger Sub related
to the Offer, required consents and approvals and the availability of
sufficient funds to perform their obligations under the Merger Agreement.
Interim Agreements of Purchaser, Merger Sub and the Company. Pursuant to the
Merger Agreement, unless Purchaser has consented in writing thereto, the
Company will, and will cause each of its subsidiaries to, (1) conduct its
operations according to its usual, regular and ordinary course of business
consistent with past practice; (2) use its reasonable best efforts to preserve
intact its business organizations, maintain in effect existing qualifications,
licenses, permits, approvals and other authorizations, keep available the
services of its officers and key employees and maintain satisfactory
relationships with those persons having business relationships with them; (3)
promptly upon the discovery thereof notify Purchaser of the existence of any
breach of any representation or warranty of the Company contained in the
Merger Agreement (or, in the case of any representation or warranty that makes
no reference to Material Adverse Effect (defined as materially adversely
affecting the assets, liabilities, business, results of operations or
condition (financial or otherwise) of the Company and its subsidiaries, taken
as a whole or adversely affecting or delaying the ability of the Company on
the one hand or Merger Sub and Purchaser on the other, to consummate the
transactions contemplated by the Merger Agreement or the Stockholder Tender
Agreement), any breach of such representation or warranty in any material
respect) or the occurrence of any event that would cause any representation or
warranty of the Company contained in the Merger Agreement no longer to be true
and correct (or, in the case of any representation or warranty that makes no
reference to Material Adverse Effect, to no longer be true and correct in any
material respect); (4) promptly deliver to Purchaser true and correct copies
of any report, statement or schedule filed with the SEC subsequent to the date
of the Merger Agreement; and (5) maintain its books of account and records in
its usual, regular and ordinary manner, consistent with past practices.
In addition, from the date of the Merger Agreement to the Effective Time,
unless Purchaser has consented in writing thereto, the Company will not, and
will not permit any of its subsidiaries to, (1) amend its certificate of
incorporation or bylaws or comparable governing instruments; (2) issue, sell,
pledge or register for issuance or sale any shares of capital stock or other
ownership interest in the Company (other than issuances of Shares in respect
of any exercise of Options outstanding on the date of the Merger Agreement) or
any of its subsidiaries, or any securities convertible into or exchangeable
for any such shares or ownership interest, or any rights, warrants or options
to acquire or with respect to any such shares of capital stock, ownership
interest, or convertible or exchangeable securities, or accelerate any right
to convert or exchange or acquire any securities of the Company (other than
Options) or any of its subsidiaries for any such shares or ownership interest;
(3) effect any stock split or conversion of any of its capital stock or
otherwise change its capitalization as it exists on the date of the Merger
Agreement, other than as set forth in the Merger Agreement; (4) directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital
stock or capital stock of any of its subsidiaries, other than as set forth in
the Merger Agreement; (5) sell, lease or otherwise dispose of or encumber any
of its assets or property (including capital stock of any of its
subsidiaries), mortgage, pledge or impose a lien or other encumbrance on any
of its material assets or property (including capital stock of subsidiaries)
except in the ordinary course of business; (6) acquire by merger, purchase or
any other manner, any material business or entity or otherwise acquire any
assets that are material to the Company and its subsidiaries taken as a whole,
except for purchases of inventory, supplies or capital expenditures in the
ordinary course of business consistent with past practice; (7) incur or assume
any long-term or short-term debt except for working capital purposes in the
ordinary course of business under the Company's existing credit facilities and
capital expenditures made in accordance with Company's previously adopted
capital budget; (8) assume, guarantee or otherwise become liable or
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responsible (whether directly, contingently or otherwise) for the obligations
of any other person except wholly owned subsidiaries of the Company; (9) make
or forgive any loans, advances or capital contributions to, or investments in,
any other person; (10) enter into any new employment, severance, consulting or
salary continuation agreements with any newly hired employees other than in
the ordinary course of business or enter into any of the foregoing with any
existing officers, directors or employees or grant any increases in
compensation or benefits to employees, except for regularly scheduled employee
raises, in the ordinary course of business consistent with the Company's past
practices or raises that, in the case of executive officers, have been
approved by the compensation committee of the Board of Directors prior to the
date of the Merger Agreement in the ordinary course of business consistent
with the committee's past practices; (11) adopt, amend in any material respect
(including any increase in the payment under) benefits or terminate any
employee benefit plan or arrangement; (12) make any material changes in the
type or amount of insurance coverage or permit any material insurance policy
naming the Company or any subsidiary as a beneficiary or a loss payee to be
canceled or terminated; (13) except as may be required by law or generally
acceptable accounting principles, change any material accounting principles or
practices used by the Company or its subsidiaries; (14) take any action to
cause the Shares to cease to be traded on the Nasdaq National Market prior to
the completion of the Offer or the Merger; (15) enter into any agreement to
which the Company or any of its subsidiaries is a party and (a) is outside of
the ordinary course of business of the Company or its subsidiaries, (b) a
customer of the Company or one of its subsidiaries is a party and either (i)
involves the payment or receipt by the Company or any of it subsidiaries,
subsequent to the date of the Merger Agreement, of more than $1,000,000 or
(ii) is not terminable without penalty by the Company or the subsidiary party
thereto on fewer than 365 days' notice or (c) except for customer contracts,
either (i) involves the payment or receipt by the Company or any of its
subsidiaries, subsequent to the date of the Merger Agreement, of more than
$500,000 or (ii) is not terminable without penalty by the Company or the
subsidiary party thereto on fewer than 180 days' notice, except as required or
permitted by clause (7) above or (16) below and except for agreements relating
to the purchase or sale of the Company's products (including, without
limitation, supply, purchase and shipping contracts) to be performed within 90
days; (16) enter into, terminate, fail to renew, or accelerate any license,
distributorship, dealer, sales representative, joint venture, credit or other
agreement if such action could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect; (17) fail to operate, maintain,
repair or otherwise preserve its material assets and properties consistent
with past practice; (18) fail to comply with all applicable filing, payment
and withholding obligations under all applicable federal, state, local or
foreign laws relating to taxes except where such failure to comply could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; (19) make any tax election or compromise any federal, state,
local or foreign income tax liability; (20) pay, discharge or settle any
claims, liabilities or objections (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
the foregoing in the ordinary course of business consistent with past
practice, or, if not in the ordinary course of business, the payment,
discharge or satisfaction of the foregoing that, individually and in the
aggregate, does not exceed $500,000; or (21) agree in writing or otherwise to
take any of the foregoing actions.
Other Agreements of Purchaser, Merger Sub and the Company. The Company has
agreed in the Merger Agreement that it will not, and will not authorize,
permit or cause any of its subsidiaries or any of the officers and directors
of it or its subsidiaries to, and will not authorize, permit or direct its and
its subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
subsidiaries) to, directly or indirectly, (1) initiate, solicit, or otherwise
encourage any inquiries or the making of any proposal or offer with respect to
a merger, reorganization, share exchange, tender offer, consolidation or
similar transaction involving, or any purchase of, 15% or more of the assets
or any equity securities of the Company or any of its subsidiaries (any such
proposal or offer, an "Acquisition Proposal") or (2) initiate or engage in any
negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person or entity relating to an Acquisition
Proposal, whether made before or after the date of the Merger Agreement, or
otherwise facilitate any effort or attempt to make or implement or consummate
an Acquisition Proposal. However, the foregoing does not prevent the Company
or its Board of Directors from (1) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal or (2): (a) providing
information in response to a request therefor by a person or entity who has
made an unsolicited
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bona fide written Acquisition Proposal if the Board of Directors receives from
the person or entity so requesting such information an executed
confidentiality agreement on terms substantially equivalent to those contained
in the confidentiality agreement between the Company and Purchaser; (b)
engaging in any negotiations or discussions with any person or entity who has
made an unsolicited bona fide written Acquisition Proposal; or (c)
recommending such an Acquisition Proposal to the stockholders of the Company,
if, and only to the extent that, (l) in each such case referred to in clause
(a), (b) or (c) above, the Board of Directors of the Company determines in
good faith after consultation with outside legal counsel and Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), the Company's financial
advisor, that such action is necessary in order for its members to comply with
their fiduciary duties under applicable law (the parties to the Merger
Agreement agreed that any action described in clause (a), (b) or (c) above
will be permitted to be taken regardless of whether it would be necessary
under applicable law, if it is taken only with respect to a Superior Proposal
(as defined below)) and (2) in each case referred to in clause (a), (b) or (c)
above, the Board of Directors of the Company determines in good faith (after
consultation with outside legal counsel and Merrill Lynch) that, if accepted,
such Acquisition Proposal is reasonably likely to be consummated, taking into
account all legal, financial and regulatory aspects of the proposal and the
person or entity making the proposal, and would provide for a higher per share
value to the stockholders of the Company, and is fully financed (or, based on
a good faith determination of the Board of Directors of the Company, is
readily financeable) (any such Acquisition Proposal meeting the foregoing
conditions, a "Superior Proposal"). The Company agreed to immediately cease
and cause to be terminated any activities, discussions or negotiations with
any parties conducted before the execution of the Merger Agreement with
respect to any of the foregoing. The Company agreed to notify Purchaser
immediately if any Acquisition Proposal or inquiries regarding a potential
Acquisition Proposal are received by, any information with respect to an
Acquisition Proposal or a potential Acquisition Proposal is requested from, or
any discussions or negotiations with respect to an Acquisition Proposal or a
potential Acquisition Proposal are sought to be initiated or continued with,
it or any of its representatives. This notice is required to indicate the name
of the person or entity involved and the material terms and conditions of any
Acquisition Proposal, and thereafter the Company is obligated to keep
Purchaser informed, on a current basis, of the status and terms of any
inquiries or Acquisition Proposals and the status of any negotiations or
discussions.
In the Merger Agreement, the parties agree that if necessary, the Company,
through its Board of Directors, will call a meeting of the stockholders for
the purpose of voting upon the Merger, will hold that meeting as soon as
practicable following the purchase of Shares pursuant to the Offer and, unless
the Board of Directors approves or recommends, or enters into an agreement
with respect to, a Superior Proposal (as defined and discussed above),
recommend to its stockholders the approval of the Merger Agreement and the
transactions contemplated thereby, including the Merger. The Company will use
its reasonable efforts to obtain the necessary approvals by its stockholders
for the Merger and take all other actions reasonably requested by Purchaser to
secure the vote of stockholders for approval of the Merger, the Merger
Agreement and the transactions contemplated thereby. At any such meeting, all
of the Shares then owned by Purchaser, Merger Sub and by any of Purchaser's
other subsidiaries or affiliates will be voted in favor of the Merger and the
Merger Agreement. Notwithstanding the foregoing, in the event that Merger Sub,
or any other direct or indirect subsidiary of Purchaser, acquires at least 90%
of the outstanding Shares, the Company, Purchaser and Merger Sub will take all
necessary and appropriate action to cause the Merger to become effective as
soon as practicable, and in any event within five business days after
expiration of the Offer, in accordance with Section 253 of the DGCL.
Subject to the last sentence of this paragraph, from and after the Effective
Time, Purchaser has agreed in the Merger Agreement to indemnify and hold
harmless, to the fullest extent permitted under the applicable law, each
person who is, or has been at any time prior to June 4, 1999 or who becomes
prior to the Effective Time, an officer, director or similar person of the
Company or any subsidiary against all losses, claims, damages, liabilities,
costs or expenses (including attorneys' fees), judgments, fines, penalties and
amounts paid in settlement in connection with any claims, actions, suits,
proceedings, arbitrations, investigations or audits arising before or after
the Effective Time out of or pertaining to acts or omissions, or alleged acts
or omissions, by them in their capacities as such, which acts or omissions
occurred prior to the Effective Time. The parties agreed that Purchaser will
have no obligations described in this paragraph, unless and until the
Surviving Corporation
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transfers outside of the ordinary course of business a material portion of its
assets, in a single transaction or in a series of transactions, and such
transfer materially and adversely affects the legal or financial ability of
the Surviving Corporation to satisfy its indemnification obligations under the
Merger Agreement.
Purchaser has also agreed in the Merger Agreement to cause the Surviving
Corporation to purchase a six-year pre-paid noncancellable directors and
officers insurance policy covering the directors in place at the time of the
Merger Agreement and all former directors, officers and similar persons of the
Company and its subsidiaries with respect to acts or failures to act prior to
the Effective Time, in a single aggregate amount over the six-year period
immediately following the Closing Date equal to the policy limit for the
Company's directors and officers insurance policy in place as of June 4, 1999
(the "Current Policy"). If such insurance is not obtainable at an annual cost
per covered year not in excess of 200% of the annual premium paid by the
Company for the Current Policy (the "Cap"), then Purchaser will cause the
Surviving Corporation to purchase policies providing at least the same
coverage as the Current Policy and containing terms and conditions no less
advantageous to the current and former directors, officers and similar persons
of the Company and its subsidiaries than the current policy with respect to
acts or failures to act prior to the Effective Time; provided, however, that
Purchaser and the Surviving Corporation will not be required to obtain
policies providing such coverage except to the extent that such coverage can
be provided at an annual cost of no greater than the Cap; and, if equivalent
coverage cannot be obtained, or can be obtained only by paying an annual
premium in excess of the Cap, Purchaser or the Surviving Corporation will only
be required to obtain as much coverage as can be obtained by paying an annual
premium equal to the Cap.
However, if after the Effective Time, Purchaser or the Surviving Corporation
or any of their respective successors or assigns (l) consolidates with or
merges into any other person and is not the continuing or surviving
corporation or entity of such consolidation or merger or (2) transfers all or
substantially all of its properties or assets to any person, then, in each
such case, proper provisions will be made so that successors and assigns of
Purchaser or the Surviving Corporation, as the case may be, will assume such
entity's obligations set forth in the two foregoing paragraphs. The provisions
of this paragraph and the two foregoing paragraphs are intended for the
benefit of and are enforceable by each person who was as of June 4, 1999 or
has been at any time prior to such date, or who becomes prior to the Effective
Time, an officer, director or similar person of the Company or any of its
subsidiaries.
Conditions to the Merger. The respective obligation of each party to effect
the Merger are subject to the satisfaction or waiver, where permissible, prior
to the Effective Time, of the following conditions:
(1) Merger Sub having accepted for payment and paid for all shares of
Common Stock validly tendered in the Offer and not withdrawn; provided,
however, that neither Purchaser nor Merger Sub may invoke this condition if
Merger Sub has failed in violation of the terms of the Merger Agreement or
the Offer to purchase shares so tendered and not withdrawn;
(2) The Merger Agreement having been adopted by the affirmative vote of
the holders of the requisite number of shares of capital stock of the
Company if such vote is required pursuant to the Company's certificate of
incorporation, the DGCL or other applicable law; provided, however, that
neither Purchaser nor Merger Sub may invoke this condition if either of
them or any of their respective affiliates have failed to vote the shares
of Common Stock held by it in favor of adoption of the Merger Agreement and
the Company may not invoke this condition if the Company has failed to
fulfill its obligations relating to stockholder approval and the related
proxy statement;
(3) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction, or other
legal restraint or prohibition, preventing, restraining or restricting the
consummation of the Merger being in effect; provided, however, that the
party invoking this condition must use its best efforts to have any such
order, injunction or restraint vacated; and
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(4) All necessary waiting periods under the HSR Act that are applicable
to the Merger having expired or been earlier terminated, and all other
necessary approvals from any other Governmental Entity that are applicable
to the Merger having been obtained.
Termination. The Merger Agreement provides that it may be terminated and the
Merger abandoned at any time prior to the Effective Time, notwithstanding
approval by the stockholders of the Company, but prior to the Effective Time,
(l) by mutual written consent of the Company and Purchaser; (2) by the
Company, if (a) Purchaser or Merger Sub have failed to commence the Offer
within five business days after the date of the Merger Agreement, (b)
Purchaser or Merger Sub have failed to comply with its payment obligations
under the Merger Agreement with respect to any shares of Common Stock accepted
for payment pursuant to the Offer or (c) any change to the Offer is made in
contravention of the provisions of Article 1 of the Merger Agreement; (3) by
Purchaser or the Company:
(a) if the Effective Time does not occur on or before December 4, 1999
(provided that this right to terminate the Merger Agreement is not
available to any party whose failure to fulfill any obligation under the
Merger Agreement was the cause of or resulted in the failure of the
Effective Time to occur on or before December 4, 1999);
(b) if, upon a vote at the stockholder meeting, or any adjournment
thereof, the adoption of the Merger Agreement by the stockholders of the
Company required by the DGCL has not been obtained (provided that this
right to terminate the Merger Agreement is not available to Purchaser if
Purchaser, Merger Sub or any of their affiliates failed to vote the shares
of Common Stock held by them in favor of adoption of the Merger Agreement,
and is not available to the Company if the Company failed to fulfill its
obligations under the Merger Agreement relating to stockholder approval and
the related proxy statement);
(c) if there is any statute, law, rule or regulation that makes
consummation of the Offer or the Merger illegal or prohibited or if any
court of competent jurisdiction or other Governmental Entity has issued an
order, judgment, decree or ruling, or taken any other action restraining,
enjoining or otherwise prohibiting the Offer or the Merger and such order,
judgment, decree, ruling or other action has become final and non-
appealable; or
(d) if the Offer terminates or expires on account of the failure of any
condition specified in Exhibit A of the Merger Agreement without Merger Sub
having purchased any shares of Common Stock pursuant to the Offer (provided
that this right to terminate the Merger Agreement is not available to any
party whose failure to fulfill any obligation under the Merger Agreement
was the cause of or resulted in the failure of those conditions);
(4) by Purchaser, prior to the consummation of the Offer, if (a) the Company's
Board of Directors withdraws, amends or modifies, its approval of the Merger
Agreement and the transactions contemplated thereby, or its recommendation
that the holders of the shares of Common Stock accept the Offer and tender all
of their shares of Common Stock to Merger Sub and approve the Merger Agreement
and the transactions contemplated thereby (or, in each case, publicly
announces its intention to do so) in a manner adverse to Purchaser or Merger
Sub or (b) the Company approves, recommends or enters into an agreement with
respect to, or consummates, an Acquisition Proposal; (5) by the Company, prior
to the consummation of the Offer, if the Company approves, recommends or
enters into an agreement providing for the Company to engage in a Superior
Proposal; provided, however, that the right to terminate the Merger Agreement
pursuant to this provision is not available if the Company has not provided
Purchaser and Merger Sub with at least five business days' prior written
notice of its intent to so terminate the Merger Agreement together with a
summary of the material terms and conditions of the Superior Proposal;
provided, further, however, that no termination is effective pursuant to this
provision unless concurrently with the termination, a Break-Up Fee is paid in
full by the Company as described and defined below; (6) by Purchaser, if any
of the conditions set forth in Exhibit A of the Merger Agreement have become
forever incapable of fulfillment and have not been waived by all applicable
parties; (7) by Purchaser, if the Company shall breach any of its
representations, warranties or obligations under the Merger Agreement and such
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breach has not been cured within the Company's "cure period" or waived, but
only if that breach, individually or together with all other such breaches,
would constitute failure of a condition contained in Exhibit A of the Merger
Agreement as of the date of termination; (8) by the Company, if Purchaser or
Merger Sub has materially breached any of its representations, warranties or
obligations under the Merger Agreement and that breach has not been cured or
waived or Purchaser or Merger Sub have not provided reasonable assurance that
such breach will be cured prior to the consummation of the Offer, but only if
such breach, individually or together with all other such breaches, is
reasonably likely to materially and adversely affect Purchaser's or Merger
Sub's ability to consummate the Offer or the Merger; or (9) by Purchaser,
prior to the consummation of the Offer, if the Stockholder Tender Agreement
(as defined under the caption "--Stockholder Tender Agreement") is not in full
force and effect or any Selling Stockholder (as defined under the caption "--
Stockholder Tender Agreement") has breached in any material respect any
representation, warranty or covenant contained in the Stockholder Tender
Agreement; provided, however, that the party seeking termination pursuant to
clause (6), (7) or (8) immediately above is not in material breach of any of
its representations, warranties, covenants or agreements contained in the
Merger Agreement.
Termination Fee and Expenses. The Company has agreed to pay Purchaser a
Break-Up Fee of $6,000,000 (less any expense amounts paid by the Company
pursuant to its expense reimbursement obligations described below) in the
event that the Merger Agreement is terminated by Purchaser pursuant to clause
(4) under the caption "--Termination," or by the Company pursuant to clause
(5) under the caption "--Termination."
Additionally, pursuant to the Merger Agreement, if all of the following
events have occurred:
(1) an Acquisition Proposal is commenced, publicly disclosed, publicly
proposed or otherwise communicated to the Company at any time on or after
the date of the Merger Agreement and prior to the consummation of the Offer
and either Purchaser or the Company terminates the Merger Agreement
pursuant to clause (3)(a) or (3)(d) under the caption "--Termination," or
Purchaser terminates the Merger Agreement pursuant to clause (7) under the
capition "--Termination"; and
(2) thereafter, within 12 months of the date of termination of the Merger
Agreement, the Company enters into a definitive agreement with respect to,
or consummates, any Acquisition Proposal described in clause (1)
immediately above (or any other Acquisition Proposal whether or not
described in clause (1) immediately above if the Acquisition Proposal is
made by any person or affiliate thereof who made any Acquisition Proposal
described in clause (1) immediately above),
then the Company shall pay to Purchaser an amount equal to the Break-Up Fee
concurrently with the execution of the relevant definitive agreement.
The parties also agreed that if the Merger Agreement is terminated by
Purchaser or the Company pursuant to clause (7) or (8) under the caption "--
Termination," respectively, the breaching party shall reimburse the other
party up to a maximum of $1,500,000 for all expenses incurred by the non-
breaching party in connection with its negotiation, execution, delivery and
performance of the Merger Agreement.
Stockholder Tender Agreement
Prior to the execution of the Merger Agreement, certain stockholders of the
Company (the "Selling Stockholders") have entered into the Stockholder Tender
Agreement, dated as of June 3, 1999 (the "Stockholder Tender Agreement"), with
Purchaser and Merger Sub. The Stockholder Tender Agreement has been filed as
Exhibit 99.2 to this Schedule 14D-9. The Selling Stockholders own an aggregate
of 1,701,666 Shares. Pursuant
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to the Stockholder Tender Agreement, each Selling Stockholder has agreed to
tender and sell all Shares owned by it to Merger Sub pursuant to and in
accordance with the terms of the Offer.
During the term of the Stockholder Tender Agreement, no Selling Stockholder
will (1) sell, transfer, pledge, encumber, assign or otherwise dispose of or
enter into any contract, option or other arrangement or understanding with
respect to the transfer by such Stockholder of, any of the Shares or offer any
interest in any Shares thereof to any person other than pursuant to the terms
of the Offer, the Merger or the Stockholder Tender Agreement, (2) enter into
any voting arrangement or understanding, whether by proxy, power of attorney,
voting agreement, voting trust or otherwise with respect to the Shares, or (3)
take any action that would make any representation or warranty of such Selling
Stockholder contained in the Stockholder Tender Agreement untrue or incorrect
in any material respect or have the effect of preventing or disabling such
Selling Stockholder from performing his or its obligations under the
Stockholder Tender Agreement.
During the term of the Stockholder Tender Agreement, each Selling
Stockholder agrees not to directly or indirectly, (1) initiate, solicit or
otherwise encourage any inquiries or the making of any proposal or offer with
respect to an Acquisition Proposal or (2) initiate or engage in any
negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person or entity relating to an Acquisition
Proposal, whether made before or after the date of the Stockholder Tender
Agreement, or otherwise facilitate any effort or attempt to make or implement
or consummate an Acquisition Proposal. If a Selling Stockholder receives any
proposal, discussion, negotiation or inquiry in respect of any Acquisition
Proposal, such Selling Stockholder agrees to immediately notify Purchaser of
such inquiry or proposal and the details thereof.
During the term of the Stockholder Tender Agreement, each Selling
Stockholder has agreed to vote all of his or its Shares at any meeting of the
stockholders of the Company, however called, (1) in favor of the Merger and
the Merger Agreement and the transactions contemplated thereby and (2) against
any action or agreement (other than the Merger Agreement or the transactions
contemplated thereby) that would impede, interfere with, delay, postpone or
attempt to discourage the Merger, the Offer or the other transactions
contemplated by the Merger Agreement and the Stockholder Tender Agreement,
including, but not limited to: (a) any Acquisition Proposal; (b) any action
that is likely to result in a breach in any respect of any representation,
warranty, covenant or any other obligation or agreement of the Company under
the Merger Agreement or result in any of the conditions of the Offer not being
fulfilled; (c) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
subsidiaries; (d) a sale, lease or transfer of a material amount of assets of
the Company or one of its subsidiaries, or a reorganization, recapitalization,
dissolution, winding up or liquidation of the Company or its subsidiaries; (e)
any change in the management or board of directors of the Company, except as
otherwise agreed to in writing by Purchaser; (f) any material change in the
present capitalization or dividend policy of the Company; or (g) any other
material change in the Company's corporate structure, business, certificate of
incorporation or bylaws.
The Stockholder Tender Agreement will terminate on the earlier of (1) the
date on which the Merger Agreement is terminated in accordance with its terms
and (2) the Effective Time.
Section 203 of the DGCL. Section 203 of the DGCL limits the ability of a
Delaware corporation to engage in business combinations with "interested
stockholders" (defined as any beneficial owner of 15% or more of the
outstanding voting stock of the corporation) unless, among other things, the
corporation's board of directors has given its prior approval to either the
business combination or the transaction which resulted in the stockholder's
becoming an "interested stockholder." On June 3, 1999, the Company's Board of
Directors approved the Merger Agreement and the transactions contemplated
thereby, including the Offer, the Merger and the Stockholder Tender Agreement
and all the transactions contemplated thereunder, for purposes of Section 203
of the DGCL, and, therefore, Section 203 of the DGCL is inapplicable to the
Merger.
Purpose of the Offer; the Merger; Plans for the Company. The purpose of the
Offer is for Purchaser, through Merger Sub, to acquire control of the Company
through Merger Sub's purchase of all of the outstanding
15
<PAGE>
Shares as a first step in consummating a business combination between
Purchaser and the Company. The purpose of the Merger is for Purchaser to
accomplish the business combination transaction.
Under the DGCL and the Company's certificate of incorporation, the approval
of the Company's Board of Directors, and the affirmative vote of the holders
of a majority of the outstanding Shares are required to approve and adopt the
Merger Agreement and the transactions contemplated thereby, including the
Merger. The Company's Board of Directors has approved the Offer, the
Stockholder Tender Agreement and the Merger and the Merger Agreement and the
transactions contemplated thereby for purposes of Section 203 of the DGCL, and
the only remaining required corporate action of the Company is the approval
and adoption of the Merger Agreement and the transactions contemplated thereby
by the affirmative vote of the holders of a majority of the outstanding
Shares. If the Minimum Condition is satisfied and Shares are purchased
pursuant to the Offer, Merger Sub will have sufficient voting power to cause
the approval and adoption of the Merger Agreement and the transactions
contemplated thereby without the affirmative vote of any other stockholder. If
Merger Sub, or any other direct or indirect subsidiary of Purchaser, acquires
at least 90 percent of the outstanding shares of Common Stock, the parties to
the Merger Agreement agreed to take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable, and in any event
within five business days, after the expiration of the Offer without a meeting
of stockholders of the Company, in accordance with Section 253 of the DGCL.
In the Merger Agreement, the Company has agreed to convene a meeting of its
stockholders as promptly as practicable after the consummation of the Offer
for the purpose of considering and taking action on the Merger Agreement and
the transactions contemplated thereby. Purchaser has agreed that it will cause
all Shares owned by Purchaser, the Merger Sub or any of their affiliates to be
voted in favor of the Merger Agreement and the transactions contemplated
thereby.
Appraisal Rights. Holders of the Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
whose Shares were not accepted for payment and paid for by Merger Sub in the
Offer will have certain rights pursuant to the provisions of Section 262 of
the DGCL to dissent and demand appraisal of their Shares. Under Section 262 of
the DGCL, dissenting stockholders who comply with the applicable statutory
procedures will be entitled to receive a judicial determination of the fair
value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) and to receive payment of such
fair value in cash, together with a fair rate of interest, if any. Any such
judicial determination of the fair value of the Shares could be based upon
factors other than, or in addition to, the price per Share to be paid in the
Merger or the market value of the Shares. The value so determined could be
more or less than the price per Share to be paid in the Merger.
Confidentiality Agreement. The Confidentiality Agreement, dated as of
February 19, 1999 (the "Confidentiality Agreement"), between the Company and
Purchaser contains customary provisions pursuant to which, among other
matters, Purchaser has agreed to keep confidential all information concerning
the Company furnished to it by the Company, to use such material solely in
connection with evaluating or consummating an acquisition of the Company by
Purchaser and, except with the prior written consent of the Company, not to
disclose the fact that discussions or negotiations have or are taking place
concerning a possible transaction involving the Company or the status thereof.
Without the prior written consent of the Company Board, Purchaser also agreed
not to, for two years after the date of the Confidentiality Agreement, (1)
acquire, offer to acquire or agree to acquire, directly or indirectly, by
purchase or otherwise, any voting securities of the Company or any subsidiary
thereof, or of any successor to or person in control of the Company, or any
assets of the Company or any subsidiary or division thereof or of any such
successor or controlling person; (2) make, or participate, directly or
indirectly, in any "solicitation" of "proxies" to vote (as such terms are used
in the rules of the SEC), or seek to advise or influence any person or entity
with respect to the voting of any voting securities of the Company; (3) make
any public announcement with respect to, or submit a proposal for, or offer of
any extraordinary transaction involving the Company or any of its securities
or assets; (4) form, join or in any way participate in a "group" as defined in
Section 13(d)(3) of the Exchange Act in connection with any of the foregoing;
(5) participate with or assist any other person in doing any of the foregoing;
or (6) request the Company or any of its Representatives (as defined in the
Confidentiality Agreement), directly or indirectly, to
16
<PAGE>
amend or waive any of the provisions described in the immediately preceding
clauses (1)-(5). The remaining provisions of the Confidentiality Agreement
(other than the provisions relating to the use and disclosure of confidential
information) terminated upon the execution of the Merger Agreement.
Item 4. The Solicitation or Recommendation.
Background
From July through September 1998, the Company and Purchaser had preliminary
discussions regarding a possible transaction involving the Company's optical
film business. These preliminary discussions never developed into negotiations
and were terminated in September 1998 when the parties decided not to pursue
such a transaction.
In early 1998, the Company's Board of Directors began to discuss its
concerns regarding the Company's stock price, which remained at relatively low
values despite the Company's increasing revenues and profits. These
discussions continued throughout 1998, and, at the Company's Board of
Directors meeting on October 22, 1998, a special committee of the Board of
Directors (the "Special Committee") was appointed to guide the Company's Board
of Directors in the process of exploring strategic alternatives for enhancing
stockholder value. The Company's Board of Directors requested that the Special
Committee recommend an investment banker to assist in this process. On
December 17, 1998, the Special Committee recommended Merrill Lynch to the
Company's Board of Directors to provide financial advisory services to the
Company.
A meeting of the Company's Board of Directors was held on February 11, 1999.
At this meeting, Jones, Day, Reavis & Pogue, the Company's outside counsel,
presented an overview of the directors' fiduciary duties and reminded the
directors of their responsibilities under applicable law. The Company's
management then provided the Company's Board of Directors with information
regarding the Company's current financial position, including a summary of the
Company's results for the 1998 fiscal year and the prospects for the Company's
operations and business, including the Company's business plan.
Representatives of Merrill Lynch then made a presentation to the Company's
Board of Directors regarding the strategic alternatives that might be
available to the Company.
After a discussion of the matters raised by these presentations, the
Company's Board of Directors directed the Special Committee, with the
assistance of Merrill Lynch, to explore alternative strategic proposals to
maximize the value of the Company for the stockholders including a possible
sale of the Company and to present the results of these activities to the
Company's Board of Directors at a later meeting. The Company's Board of
Directors authorized Merrill Lynch to solicit preliminary indications of
interest from potential parties that might be interested in a possible
business combination with, investment in or acquisition of the Company. After
this meeting, the Company issued a press release announcing that the Company
had engaged the services of Merrill Lynch as its financial advisor to assist
the Company in exploring strategic alternatives as a means for maximizing
stockholder value. Shortly thereafter, the Company's President and Chief
Executive Officer called two senior managers of Purchaser and inquired whether
Purchaser would be interested in exploring a possible transaction with the
Company. Purchaser indicated it would be interested in pursuing such a
transaction.
In response to the Company's Board of Directors' request, representatives of
Merrill Lynch contacted over 150 potential strategic or financial partners or
acquirors (including Purchaser) in mid-February 1999 regarding the possibility
of a business combination with, investment in or acquisition of the Company.
Based on these contacts, Merrill Lynch distributed to approximately 80 parties
a memorandum generally describing the Company's operations and containing
certain additional non-public information about the Company. Prior to
receiving the memorandum, each of the parties entered into a confidentiality
agreement with the Company. On March 8, 1999, representatives of Merrill Lynch
provided a letter to the parties who had expressed an interest in exploring a
possible transaction with the Company advising them that all preliminary
indications of interest must be submitted in writing by March 22, 1999 to
enable the Company to select a group of qualified parties to conduct more
detailed due diligence.
17
<PAGE>
As part of this process, on February 19, 1999, Purchaser and the Company
entered into the Confidentiality Agreement with respect to a possible
transaction. The Company and Merrill Lynch supplied Purchaser with the
descriptive memorandum that was sent to other prospective acquirors. On March
22, 1999, Purchaser informed representatives of Merrill Lynch of its
preliminary, non-binding indication of interest concerning the purchase of the
Company.
On March 23, 1999, the Special Committee held a meeting at which
representatives of Merrill Lynch reported to the Special Committee the results
of the request for preliminary indications of interest regarding the Company.
Twenty-seven potential acquirors, including Purchaser, submitted preliminary
indications of interest regarding the Company.
After review of these various proposals, following consultation with Merrill
Lynch, the Special Committee selected eight potential acquirors (including
Purchaser) that it believed represented the candidates most likely to submit a
final bid to acquire the Company at a price per share that would represent the
highest realizable value. Each of these parties received additional non-public
information about the Company.
Between April 5, 1999 and April 30, 1999, each of the eight selected parties
conducted additional due diligence reviews of the Company, including touring
the Company's facilities and conducting on-site interviews with members of the
Company's management. On April 16, 1999, five senior managers of Purchaser
attended a presentation at the Company's offices in Niles, Illinois and toured
the Company's facilities in Niles and Mount Prospect, Illinois.
On April 23, 1999, in connection with its press release indicating first
quarter results, the Company indicated that it had authorized Merrill Lynch to
provide confidential information to a selected group of potential buyers and
that such activities were ongoing.
On April 27, 1999, Merrill Lynch, at the direction of the Special Committee,
sent invitations to submit a written offer for the acquisition of the Company
to the selected interested parties. The invitation set May 18, 1999 as the
deadline for submitting final proposals.
Between April 23, 1999 and May 18, 1999, Purchaser conducted additional due
diligence of the Company, including conducting interviews with members of the
Company's management.
On May 18, 1999, four parties, including Purchaser, submitted proposals,
including proposed forms of a merger agreement, to Merrill Lynch. All of these
proposals provided that an affiliate of the respective offeree would offer to
acquire by tender offer all of the issued and outstanding Shares for cash,
followed by a merger in which the remaining stockholders would also receive an
amount in cash equal to the cash offered in the tender offer. Soon thereafter,
after discussions with the Special Committee, representatives of Merrill Lynch
contacted the submitting bidders to discuss the principal terms of the
proposals and invite them to submit revised bids to the Company. Because two
of the bidders indicated that they did not intend to increase their proposed
offer price and because these proposals were at a price per share below the
prices submitted by the other two bidders, these bidders were not encouraged
to submit a further bid to acquire the Company. Through a series of
conversations between representatives of Merrill Lynch and the two active
bidders over the following nine-day period, Purchaser and the competing bidder
each increased their respective bids and further clarified or modified the
terms of their original proposal. In addition, between May 18 and 26, 1999,
Purchaser continued its due diligence of the Company, including conducting
interviews with members of the Company's management. On May 26, 1999, after
further discussions with the Special Committee, representatives of Merrill
Lynch again contacted each bidder to confirm certain key terms of the
proposals. Representatives of Merrill Lynch, in consultation with the Special
Committee, informed both bidders that a Board of Directors meeting would be
held on May 28, 1999 to consider the Company's strategic alternatives,
including the proposals, and that both bidders were encouraged to submit their
final and best bids. Each bidder responded to this inquiry by proposing to
increase the offer price in their respective proposals. Purchaser's bid was
received in the late evening of May 27, 1999. Purchaser's proposal indicated
that Purchaser's bid would expire at 5:00 p.m. on May 28, 1999 unless the
Company entered into an agreement giving Purchaser seven days to negotiate
exclusively with the Company.
18
<PAGE>
The Company's Board of Directors met on May 28, 1999 to consider these
matters. Because Purchaser's final proposal represented the highest per share
consideration of any of the bids received and because it included fewer
contingencies than the other bid, the Company's Board of Directors authorized
the Company to enter into a letter agreement with Purchaser giving Purchaser
the exclusive right to negotiate with the Company and finalize its due
diligence by June 4, 1999.
Between May 28 and June 3, 1999, representatives of Purchaser, the Company
and its legal counsel and certain of the Company's significant stockholders
negotiated definitive documents relating to Purchaser's proposal.
Additionally, certain senior managers of Purchaser and representatives of
Purchaser's advisors had discussions with senior managers of the Company
relating to follow-up due diligence.
On June 2, 1999, Purchaser's Board of Directors approved the acquisition by
Purchaser of the Company for a purchase price of $14.75 per Share in cash and
the transactions contemplated by the Merger Agreement and the Stockholder
Tender Agreement.
The Company's Board of Directors met in the evening of June 3, 1999 and
thoroughly reviewed the proposals received as a result of the auction process.
At that meeting, Jones, Day, Reavis & Pogue reminded the Company's Board of
Directors of its fiduciary duties and its responsibilities under applicable
law. Jones, Day, Reavis & Pogue also summarized the terms of the proposed
Merger Agreement and Stockholder Tender Agreement (copies of which had
previously been delivered to the members of the Company's Board of Directors).
Representatives of Merrill Lynch then made a presentation regarding certain
financial analyses that had been performed in connection with its review of
the Offer and the Merger and following such presentation rendered its oral
opinion, subsequently confirmed in writing (the "Merrill Lynch Opinion"),
that, as of such date, and based upon and subject to the various
considerations set forth in that opinion, the consideration to be received by
the holders of the Shares pursuant to the Offer and the Merger is fair from a
financial point of view to such holders.
The Company's Board of Directors then thoroughly reviewed the fairness of
the price proposed by Purchaser. The Company's Board of Directors discussed
the likely timing of the transaction and the conditions to consummation of the
Offer and the other principal terms of the Merger Agreement and Stockholder
Tender Agreement.
Thereafter, all members of the Company's Board of Directors (with one member
absent) approved and adopted the Merger Agreement, approved the Offer, the
Merger, the Stockholder Tender Agreement and the transactions contemplated by
the Merger Agreement, determined that the Merger is advisable and that the
terms of the Offer, the Merger and the Merger Agreement were fair to and in
the best interests of the stockholders of the Company and recommended that the
stockholders of the Company accept the Offer and tender their Shares to Merger
Sub pursuant to the Offer.
On June 3, 1999, the Stockholder Tender Agreement was executed, and on June
4, 1999, the Merger Agreement was executed and the Offer was publicly
announced.
On June 10, 1999, Purchaser commenced the Offer.
Recommendation of Board. At its meeting held on June 3, 1999, as discussed
above, all members of the Company's Board of Directors present approved and
adopted the Merger Agreement, approved the Offer, the Merger, the Stockholder
Tender Agreement and the transactions contemplated by the Merger Agreement and
the Stockholder Tender Agreement, determined that the Merger is advisable and
that the terms of the Offer, the Merger and the Merger Agreement were fair to
and in the best interest of the stockholders of the Company and recommended
that the stockholders of the Company accept the Offer and tender their Shares
to Merger Sub pursuant to the Offer. In making its recommendations to the
stockholders of the Company with respect to the
19
<PAGE>
Offer and the Merger, the Company's Board of Directors considered a number of
factors, including the following:
Financial Condition, Results of Operations, Business and Prospects of the
Company. The Company's Board of Directors considered the financial
condition, results of operations, business and prospects of the Company,
including its prospects if it were to remain independent.
Other Potential Transactions. The Company's Board of Directors also
considered the results of the efforts by Merrill Lynch to conduct an active
search for potential acquirors of the Company, including the fact that
approximately 80 potential acquirors signed confidentiality agreements
with, and received non-public information about, the Company. In addition,
an active auction was conducted by the Company's Board of Directors with
the assistance of Merrill Lynch in a manner that the Company's Board of
Directors believed was calculated to receive the highest price to the
Company's stockholders. The Company's Board of Directors also noted that
Purchaser's proposal was not subject to financing conditions and that the
Merger Agreement would permit the Company to terminate the Merger Agreement
under certain limited circumstances to accept a superior proposal from a
third party (subject to payment of the $6,000,000 "break-up" fee).
Historical Stock Price Performance. The Company's Board of Directors
reviewed the historical stock price performance of the Company and noted
that the consideration to be received by the Company's stockholders
pursuant to the Offer and the Merger would represent a premium of 86% over
the closing price of the Common Stock on Nasdaq on February 11, 1999, the
day prior to the announcement that the Company's Board of Directors had
determined to explore potential strategic alternatives and a premium of 40%
over the closing price of the Common Stock on Nasdaq on June 3, 1999, the
day prior to the announcement of the Offer.
Financial Advisor's Presentation. The Company's Board of Directors took
into account the presentation of Merrill Lynch, as well as its oral
opinion, subsequently confirmed in writing as of June 3, 1999, to the
effect that, as of such date, and based upon and subject to the various
considerations set forth in that opinion, the consideration to be received
by the holders of the Shares pursuant to the Offer and the Merger is fair
from a financial point of view to such holders. A copy of the Merrill Lynch
Opinion is included as Annex B to this Schedule 14D-9 and is incorporated
herein by reference. Holders of Shares should read the Merrill Lynch
Opinion in its entirety for a description of the procedures followed,
assumptions and qualifications made, matters considered and limitations on
the review undertaken by Merrill Lynch.
Terms and Conditions of the Offer and the Merger. The Company's Board of
Directors also considered the terms and conditions of the Merger Agreement,
the Offer and the Merger. The Company's Board of Directors noted that the
transaction was being structured as a cash tender offer for all outstanding
Shares, followed promptly thereafter by a merger of Merger Sub with and
into the Company. The Company's Board of Directors noted the limited
conditions to Purchaser's obligations to consummate the transactions
contemplated by the Merger Agreement.
The foregoing discussion of the information and factors considered and given
weight by the Company's Board of Directors is not intended to be exhaustive. In
view of the variety of factors considered in connection with its evaluation of
the Merger Agreement, the Offer and the Merger, the Company's Board of
Directors 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 Company's Board of
Directors may have given different weights to different factors.
THE FULL TEXT OF THE MERRILL LYNCH OPINION IS ATTACHED HERETO AS ANNEX B.
STOCKHOLDERS ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY. SUCH
OPINION WAS PROVIDED FOR THE INFORMATION AND ASSISTANCE OF THE COMPANY'S BOARD
OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT AND IS DIRECTED ONLY TO THE FAIRNESS
20
<PAGE>
(FROM A FINANCIAL POINT OF VIEW) OF THE CONSIDERATION TO BE RECEIVED, PURSUANT
TO THE OFFER AND THE MERGER, TAKEN TOGETHER. SUCH OPINION DOES NOT CONSTITUTE
A RECOMMENDATION AS TO WHETHER OR NOT ANY STOCKHOLDER SHOULD TENDER HIS, HER
OR ITS SHARES IN THE OFFER OR HOW ANY STOCKHOLDER SHOULD VOTE, OR WHETHER SUCH
STOCKHOLDER SHOULD SEEK APPRAISAL RIGHTS, IN CONNECTION WITH THE MERGER.
Item 5. Persons Retained, Employed or to be Compensated.
Pursuant to a letter agreement (the "Merrill Lynch Letter Agreement") dated
February 11, 1999 the Company engaged Merrill Lynch on an exclusive basis as
its financial advisor with respect to the possible business combination (the
"Business Combination") of the Company and another party in one or a series of
transactions, including through (1) any merger, consolidation, reorganization
or other business combination pursuant to which the business of the Company
would be combined with that of one or more affiliated purchasers or one or
more persons formed by or affiliated with a purchaser, including, without
limitation, any joint venture, (2) the acquisition, directly or indirectly, by
one or more affiliated purchasers of more than 50% of the outstanding capital
stock of the Company at that time by way of a tender or exchange offer,
negotiated purchase or other means or (3) the acquisition, directly or
indirectly, by one more affiliated purchasers of substantially all of the
assets of, or of any right to all or a substantial portion of the revenues or
income of, the Company by way of a negotiated purchase, lease, license,
exchange, joint venture or other means. In exchange for the services provided,
the Company paid Merrill Lynch a non-refundable retainer of $50,000 upon the
execution of Merrill Lynch Letter Agreement. If, during the period Merrill
Lynch is retained by the Company or within 12 months thereafter, a Business
Combination is consummated or the Company enters into an agreement that
subsequently results in a Business Combination, the Company will pay Merrill
Lynch an additional fee in an amount equal to the sum of (1) 0.8% multiplied
by the sum of (a) the total number of outstanding shares of Common Stock
multiplied by the lesser of $12.50 or the applicable per share consideration
payable to the holders of Common Stock in the Business Combination (the "Per
Share Consideration"), (b) an amount equal to the aggregate net cash value of
each unexercised stock option (excluding the portion, if any, of the Per Share
Consideration in excess of $12.50) and (c) the amount of all indebtedness (net
of cash and option proceeds, if any) of the Company and its subsidiaries that
is assumed or acquired by a purchaser or retired or defeased in connection
with the applicable business combination plus (2) 5.0% multiplied by the sum
of (a) the total number of outstanding shares of Common Stock multiplied by
the amount, if any, by which the Per Share Consideration exceeds $12.50 and
(b) an amount equal to the aggregate net cash value of each unexercised stock
option attributable to the portion, if any, of the Per Share Consideration in
excess of $12.50, payable in cash upon the successful completion of such
Business Combination. The $50,000 retainer previously paid will be credited
against any such fee. In the event that the Offer is consummated at the Offer
Price, the aggregate fee payable to Merrill Lynch pursuant to the Merrill
Lynch Letter Agreement will be approximately $2.1 million. The Merrill Lynch
Letter Agreement also provides that the Company would reimburse Merrill Lynch
for reasonable out-of-pocket expenses. In addition, the Company agreed to
indemnify Merrill Lynch against certain liabilities, including liabilities
arising under the federal securities laws.
In the ordinary course of its business, Merrill Lynch may actively trade the
equity securities of the Company, as well as securities of Purchaser, for its
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to the stockholders of the Company on its behalf concerning
the Offer or the Merger.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) With the exception of the exercise by Jay R. Taylor, a director of
the Company, of an option to purchase 100,500 shares of Common Stock on May
4, 1999, during the past 60 days, no transaction in the Shares has been
effected by the Company or, to the Company's knowledge, by any executive
officer, director or affiliate of the Company.
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<PAGE>
(b) To the Company's knowledge and to the extent permitted by applicable
securities laws, rules or regulations, each of the Company's executive
officers and directors currently intends to tender all Shares over which
such executive officer or director has sole dispositive power pursuant to
the Offer. Certain of the Company's directors are parties to the
Stockholder Tender Agreement.
Item 7. Certain Negotiations and Transactions by the Subject Company.
(a) As described under Item 4 above, the Company has agreed in the Merger
Agreement not to engage in certain activities in connection with any
proposal to engage in a business combination with, or acquire an interest
in or assets of, the Company.
Except as described in this Schedule 14D-9, the Company does not
presently intend to undertake any negotiations in response to the Offer
which relate to or would result in (i) an extraordinary transaction, such
as a merger or reorganization, involving the Company or any of its
subsidiaries, (ii) a purchase, sale or transfer of a material amount of
assets by the Company or any of its subsidiaries, (iii) a tender offer for
or other acquisition of securities by or of the Company or (iv) any
material change in the present capitalization or dividend policy of the
Company.
(b) Except as described herein, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred
to in Item 7(a) above.
Item 8. Additional Information to be Furnished.
None.
Item 9. Material to be Filed as Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
99.1 Agreement and Plan of Merger, dated as of June 4, 1999, among Avery
Dennison Corporation, Vision Acquisition Corporation and Stimsonite
Corporation.
99.2 Tender and Stockholder Support Agreement, dated as of June 3, 1999,
by and among Avery Dennison Corporation and the stockholders of
Stimsonite Corporation set forth on the signature pages thereto.
99.3 Stockholder Indemnification Agreement, dated as of June 3, 1999, by
and among Stimsonite Corporation and the stockholders of Stimsonite
Corporation set forth in the signature page thereto.
99.4 Form of Change in Control Agreement between Stimsonite Corporation
and each of Thomas C. Ratchford and Robert E. Stutz.
99.5 Form of Change in Control Agreement between Stimsonite Corporation
and each of Michael A. Cherwin, Llewellyn C. Coffin, Clifford S.
Deremo, Daniel L. Lang and Robert M. Pricone.
99.6 Form of Special Incentive Bonus Agreement between Stimsonite
Corporation and each of Robert M. Pricone and Robert E. Stutz.
99.7 Form of Special Incentive Bonus Agreement between Stimsonite
Corporation and each of Clifford S. Deremo and Thomas C. Ratchford.
99.8 Form of Special Incentive Bonus Agreement between Stimsonite
Corporation and each of Michael A. Cherwin and Llewellyn C. Coffin.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
99.9 Employment Agreement, dated March 22, 1997, between Stimsonite
Corporation and Robert E. Stutz (incorporated by reference to
Exhibit 10.1 to Stimsonite Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (Commission File No. 0-
22978)).
99.10 Amendment, dated June 4, 1999, to Employment Agreement between
Stimsonite Corporation and Robert E. Stutz.
99.11 Stimsonite Corporation's Information Statement pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder (included as
Annex A to the Schedule 14D-9).
99.12 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated
June 3, 1999 (included as Annex B to the Schedule 14D-9).
99.13 Letter to Stockholders of Stimsonite Corporation, dated June 10,
1999 (included with the Schedule 14D-9 mailed to stockholders).
</TABLE>
23
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Schedule 14D-9 is true,
complete and correct.
STIMSONITE CORPORATION
/s/ Robert E. Stutz
By: _________________________________
Name:Robert E. Stutz
Title:President and Chief
Executive Officer
Dated: June 10, 1999
<PAGE>
ANNEX A
STIMSONITE CORPORATION
6565 WEST HOWARD STREET
NILES, ILLINOIS 60714
----------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED
NOT TO SEND THE COMPANY A PROXY.
----------------
This Information Statement is being mailed on or about June 10, 1999 as a
part of the Solicitation/Recommendation Statement on Schedule 14D-9 dated June
10, 1999 (the "Schedule 14D-9") of Stimsonite Corporation, a Delaware
corporation (the "Company"), to the holders of record of shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock"). You are
receiving this Information Statement in connection with the possible election
of persons designated by Avery Dennison Corporation, a Delaware corporation
("Purchaser"), to a majority of seats on the Board of Directors of the Company
(the "Board"). Capitalized terms used herein that are not otherwise defined
have the meanings assigned to those terms in the Schedule 14D-9.
On June 4, 1999, Purchaser, Vision Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Purchaser ("Merger Sub"), and the
Company entered into an Agreement and Plan of Merger (the "Merger Agreement")
setting forth the terms and conditions on which Purchaser commenced the Offer.
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
July 8, 1999, unless the Offer is extended.
The Merger Agreement requires the Company to use reasonable best efforts to
cause the directors designated by Purchaser (the "Purchaser Designees") to be
elected to the Board under the circumstances described therein following the
consummation of the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 14f-1 thereunder. You are
urged to read this Information Statement carefully. You are not, however,
required to take any action at this time.
The information contained in this Information Statement concerning Purchaser
and Merger Sub and the Purchaser Designees has been furnished to the Company
by Purchaser and Merger Sub, and the Company assumes no responsibility for the
accuracy or completeness of that information.
GENERAL INFORMATION CONCERNING THE COMPANY
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock has one vote. As of June 2, 1999,
there were 8,444,377 shares of Common Stock outstanding. The Board presently
consists of nine members. At each annual meeting of stockholders, directors
are elected for a term of one year or until their successors have been
elected.
A-1
<PAGE>
INFORMATION WITH RESPECT TO PURCHASER DESIGNEES
The Merger Agreement provides that, upon the purchase by Merger Sub of
shares of Common Stock pursuant to the consummation of the Offer, at the
election and request of Purchaser, Purchaser shall be entitled to designate
such number of directors (rounded up to the next whole number) on the Board
that gives Purchaser representation on the Board that equals the product of
(1) the total number of authorized directors on the Board (giving effect to
the election of any additional directors pursuant to the Merger Agreement) and
(2) the percentage that the number of shares of Common Stock purchased by
Purchaser or Merger Sub or any other affiliate of Purchaser bears to the
aggregate number of shares of Common Stock then outstanding. The Company shall
be obligated to promptly take all appropriate action necessary to cause the
Purchaser Designees to be so elected, including increasing the size of the
board or securing the resignations of incumbent directors, or both, subject to
compliance with Section 14(f) of the Exchange Act. Notwithstanding this
requirement, the parties to the Merger Agreement have agreed to use their
reasonable efforts to ensure that at least three of the members of the Board
shall at all times prior to the effective time of the merger contemplated by
the Merger Agreement be directors that were not designated by Purchaser.
Following the election or appointment of the Purchaser Designees and prior
to the Effective Time, the approval of a majority of the directors of the
Company then in office who are not designated by Purchaser shall be required
to authorize (and such authorization shall constitute the authorization of the
Board and no other action on the part of the Company, including any action by
any other director, shall be required to authorize) any termination of the
Merger Agreement by the Company, any amendment of the Merger Agreement
requiring action by the Board, any extension of time for the performance of
any of the obligations or other action of Purchaser or Merger Sub, and any
waiver of compliance with any of the agreements or conditions contained in the
Merger Agreement for the benefit of the Company.
Purchaser has informed the Company that it will choose the Purchaser
Designees from the persons listed below. Purchaser has informed the Company
that each of the persons listed below has consented to act as a director, if
so designated. Biographical information concerning each of the Purchaser
Designees is presented below.
<TABLE>
<CAPTION>
Material Occupations
Name Age Within the Past Five Years
---- --- --------------------------
<C> <C> <S>
Robert M. Calderoni 39 Mr. Calderoni has served as Senior Vice
President, Finance and Chief
Financial Officer of Purchaser since October
1997. From 1996 through
September 1997, Mr. Calderoni was Senior Vice
President, Finance of
Apple Computer, Inc. From 1994 to 1996, he was
Vice President, Finance
of IBM Storage Systems Division.
Philip M. Neal 58 Mr. Neal has served as President and Chief
Executive Officer of Purchaser
since May 1998. From December 1990 through April
1998, Mr. Neal
served as President and Chief Operating Officer
of Purchaser. He has been
a member of Purchaser's board of directors since
December 1990.
Richard P. Randall 51 Mr. Randall has served as Vice President,
Associate General Counsel and Assistant
Secretary of Purchaser since April 1998. From
March 1994 through March 1998, Mr. Randall was
Assistant General Counsel and Assistant
Secretary of Purchaser.
Wayne H. Smith 58 Mr. Smith has served as Vice President and
Treasurer of Purchaser
since June 1979.
Alan P. Tsuma 52 Mr. Tsuma has served as Vice President, Business
Development of
Purchaser since December 1995. From January 1986
through December
1995, Mr. Tsuma was Director, Business
Development of Purchaser.
Robert G. van Schoonenberg 52 Mr. van Schoonenberg has served as Senior Vice
President, General
Counsel and Secretary of Purchaser since 1996.
From 1981 to 1996,
Mr. van Schoonenberg served as Vice President,
General Counsel and
Secretary of Purchaser.
</TABLE>
A-2
<PAGE>
Purchaser has advised the Company that none of the Purchaser Designees has
(1) during the last five years been convicted in a criminal proceeding
(excluding traffic violations and similar misdemeanors) or was a party to a
civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of that proceeding was, or is, subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of those laws, (2) is currently a director of, or holds any position
with, the Company, (3) beneficially owns any securities (or rights to acquire
any securities of the Company) or (4) has been involved in any transaction
with the Company or any of its directors, executive officers or affiliates
that is required to be disclosed pursuant to the rules and regulations of the
Securities and Exchange Commission, except as may be disclosed herein or in
the Schedule 14D-9.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning each of the Company's current directors
and executive officers as of June 10, 1999 is as follows:
<TABLE>
<CAPTION>
Director
Name Since Age Position(s) Within the Company
---- -------- --- ------------------------------
<C> <C> <C> <S>
Terrence D. Daniels................ 1990 56 Director
Lawrence S. Eagleburger............ 1994 68 Director
Donald H. Haider................... 1994 57 Chairman of the Board and Director
Edward T. Harvey, Jr............... 1990 51 Director
Anthony R. Ignaczak................ 1993 35 Director
Richard J.M. Poulson............... 1994 60 Director
Samuel K. Skinner.................. 1998 61 Director
Robert E. Stutz.................... 1997 47 President, Chief Executive Officer
and Director
Jay R. Taylor...................... 1990 65 Director
Michael A. Cherwin................. -- 42 Vice President--Human Resources
Llewellyn C. Coffin................ -- 43 Vice President--Operations
Clifford S. Deremo................. -- 42 Vice President--Sales and
Marketing
Daniel L. Lang..................... -- 43 Vice President--International
Robert M. Pricone.................. -- 55 Vice President--Technology
Thomas C. Ratchford................ -- 50 Vice President--Finance, Chief
Financial Officer,
Treasurer and Secretary
</TABLE>
Directors
Terrence D. Daniels has served as a director since 1990 and served as
Chairman of the Board from 1990 to May 1997. Since 1990, Mr. Daniels has also
been the president of Quad-C (a structured investment firm). Prior thereto,
Mr. Daniels was a vice chairman of W. R. Grace & Co. (a manufacturer of
specialty chemical products and provider of products and services in the
health care industry) with overall responsibility for the specialty chemical,
health care, natural resource and corporate technical groups. Mr. Daniels is
also a director of IGI, Inc. and Collins & Aikman Floorcoverings, Inc.
Lawrence S. Eagleburger has served as a director since 1994. Since January
1993, Mr. Eagleburger has been senior foreign policy advisor for the law firm
of Baker, Donelson, Bearman & Caldwell. From 1992 to 1993, Mr. Eagleburger was
Secretary of State of the United States of America and from 1989 to 1992 was
Deputy Secretary of State of the United States. Mr. Eagleburger is also a
director of Halliburton Company, Phillips Petroleum Company, Universal
Corporation and COMSAT Corporation.
A-3
<PAGE>
Donald H. Haider has served as a director since 1994 and as Chairman of the
Board since May 1997. Since 1990, Mr. Haider has been a professor at the
Kellogg School of Northwestern University.
Edward T. Harvey, Jr. has served as a director since 1990. Mr. Harvey has
also served as Vice President of the Company (1990 to January 1995), Treasurer
of the Company (1990 to April 1993) and as Secretary of the Company (1990 to
October 1993). Since 1990, Mr. Harvey has also been a Vice President of Quad-
C. Prior to 1990, Mr. Harvey was a senior vice president of W. R. Grace & Co.
and was responsible for corporate development and acquisitions.
Anthony R. Ignaczak has served as a director since 1993. Mr. Ignaczak has
also been a Vice President of Quad-C since December 1993 and an employee of
Quad-C since 1992. He is also a director of Alliance Imaging, Inc.
Richard J.M. Poulson has served as a director since 1994. Since June 1998,
Mr. Poulson has been Executive Vice President and General Counsel of
Smithfield Foods, Inc. (a food processing and production company). From April
1995 through January 1998, Mr. Poulson was president and senior managing
director of The Appian Group (a private merchant and investment banking
partnership). From 1990 through January 1994, Mr. Poulson was a senior
corporate partner in the law firm of Hogan & Hartson.
Samuel K. Skinner has served as a director since October 1998. Since
September 1998, Mr. Skinner has been a partner in and co-chairman of the law
firm of Hopkins & Sutter. From February 1993 until his retirement in March
1998, he was President and a director of Commonwealth Edison Company. Prior
thereto, he served as Chief of Staff to the President of the United States and
as United States Secretary of Transportation. He is also a director of ANTEC
Corporation, Union Pacific Resources Group Inc., EVEREN Capital Corporation,
Midwest Express Holdings, Inc. and The LTV Corporation.
Robert E. Stutz has served as the President and Chief Executive Officer and
a director of the Company since March 1997. From 1991 to March 1997, Mr. Stutz
was Vice President and General Manager, Automotive Controls Division, of
Cherry Electrical Products, a Division of the Cherry Corporation (a designer,
manufacturer and marketer of custom electrical, electronic and semi-conductor
components in automotive, computer and consumer and commercial markets).
Jay R. Taylor has been a director of the Company since 1990 and served as
President and Chief Executive Officer of the Company from 1990 until March
1997. Prior to 1990, Mr. Taylor was vice president and general manager of the
Stimsonite Products Division of Amerace Corporation ("Amerace") (a
manufacturer of electrical utility, battery separator and traffic safety
products), from which the Company in 1990 purchased the majority of its
assets.
Executive Officers
Michael A. Cherwin has served as Vice President--Human Resources of the
Company since 1992.
Llewellyn C. Coffin has served as Vice President--Operations of the Company
since January 1998. From 1996 until December 1997, Mr. Coffin was Vice
President--Operations of TEC Incorporated (a manufacturer of construction
adhesives). From 1993 to 1996, Mr. Coffin was a facility manager for TEC
Incorporated.
Clifford S. Deremo has served as Vice President--Sales and Marketing of the
Company since February 1995. Prior to February 1995, Mr. Deremo served in
various positions with FMC Corporation (a diversified manufacturer of
chemicals, machinery and defense equipment). From 1992 to February 1995, Mr.
Deremo was the worldwide business manager for FMC Corporation's converting
equipment division.
Daniel L. Lang has served as Vice President--International of the Company
since January 1999. From 1996 to December 1998, Mr. Lang was President of
American Decal and Manufacturing Company ("American
A-4
<PAGE>
Decal") (a printing company). From March 1994 to December 1996, Mr. Lang was
executive Vice President of American Decal.
Robert M. Pricone has served as Vice President--Technology of the Company
since April 1993. Prior to April 1993, Mr. Pricone served as Vice President of
Research and Development of the Company.
Thomas C. Ratchford has served as Vice President--Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since October 1993.
Committees and Meetings of the Board
The Company has standing Audit, Compensation, Environmental Compliance,
Stock Repurchase Implementation and Stockholder Value Committees. The Company
does not have a nomination committee.
Audit Committee. The Audit Committee is currently comprised of Messrs.
Eagleburger, Harvey and Poulson. The functions of the Audit Committee are to
recommend annually to the Board the appointment of the independent public
accountants of the Company, discuss and review the scope and the fees of the
prospective annual audit, review the results thereof with the Company's
independent public accountants, review compliance with existing major
accounting and financial policies of the Company, review the adequacy of the
financial organization of the Company, review management's procedures and
policies relative to the adequacy of the Company's internal accounting
controls and compliance with federal and state laws relating to accounting
practices, and review and approve (with the concurrence of a majority of the
independent directors of the Company) transactions, if any, with affiliated
parties.
Compensation Committee. The Compensation Committee is currently comprised of
Messrs. Daniels, Haider and Poulson. The functions of the Compensation
Committee are to review and approve annual salaries and bonuses for all of the
Company's executive officers and other key management employees, review,
approve and recommend to the Board the terms and conditions of all employee
benefit plans or changes thereto and administer the Company's stock option and
incentive equity plans.
Environmental Compliance Committee. The Environmental Compliance Committee
is currently comprised of Messrs. Daniels, Haider and Taylor. The function of
the committee is to oversee compliance with applicable environmental
regulations.
Stock Repurchase Implementation Committee. The Stock Repurchase
Implementation Committee is currently comprised of Messrs. Haider, Harvey and
Taylor. The function of the committee is to oversee implementation of the
Company's stock repurchase program.
Stockholder Value Committee. The Stockholder Value Committee is currently
comprised of Messrs. Haider, Harvey, Ignaczak and Stutz. The function of the
committee is to consider and evaluate initiatives and alternatives that seek
to improve stockholder value.
During 1998, seven meetings of the Board were held, two meetings of the
Audit Committee were held, three meetings of the Compensation Committee were
held, two meetings of the Environmental Compliance Committee were held, two
meetings of the Stock Repurchase Implementation Committee were held and one
meeting of the Stockholder Value Committee was held. All directors other than
Mr. Eagleburger attended at least 75%, in the aggregate, of the number of
meetings of the Board and the committees of which they were members during
their periods of service as directors and committee members in 1998. Mr.
Eagleburger attended 67%, in the aggregate, of the number of meetings of the
Board and the committees of which he was a member during 1998.
A-5
<PAGE>
VOTING SECURITIES AND SECURITY OWNERSHIP BY
CERTAIN PERSONS AND MANAGEMENT
As of June 2, 1999, officers, directors and employees of the Company and its
subsidiaries had voting rights with respect to approximately 1,831,101 shares
of Common Stock, or 21.7% of the Common Stock then outstanding, exclusive of
shares of Common Stock owned outright by employees who are not executive
officers. Those voting rights arise from shares owned outright (in the case of
directors and officers), shares as to which the individual holder's beneficial
interest is limited to voting rights and shares owned by various employee
benefit plans under which the plan trustee receives instructions from plan
participants.
Principal Holders of Voting Securities
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 2, 1999 by (1) persons owning of
record or known to the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (2) each director, (3) each of the
Named Executive Officers (as defined under "Executive Compensation" below) and
(4) all incumbent directors and executive officers of the Company as a group.
All information with respect to beneficial ownership has been furnished by the
respective director, executive officer or stockholder, as the case may be, or
has been derived from documents filed with the Securities and Exchange
Commission. Unless otherwise indicated in a footnote, the address of each
beneficial owner of more than five percent of the Common Stock is 230 East
High Street, Charlottesville, Virginia 22902.
For purposes of the following table, a person is deemed to be a beneficial
owner if that person has the right to acquire beneficial ownership within 60
days. Any options that vest upon a change in control are treated as
exercisable within 60 days.
<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Name Owned (1) Beneficially Owned
- ---- ------------ ------------------
<S> <C> <C>
Zayucel Limited/Laurence Z.Y. and Celia Moh
(2)........................................... 1,479,281 17.5%
Terrence D. Daniels (3)........................ 1,177,956 13.9%
Quad-C Partners III, L.P. (4).................. 441,000 5.2%
Quad-C II, L.C. (5)............................ 441,000 5.2%
Quad-C Partners II, L.P. (4)................... 24,733 *
Quad-C XI, L.C. (6)............................ 24,733 *
Quaker Capital Management Corporation (7)...... 852,575 10.1%
Kestrel Investment Management Corporation (8).. 604,000 7.2%
Kalmar Investments Inc. (9).................... 548,750 6.5%
Reich & Tang Asset Management L.P. (10)........ 425,400 5.0%
Lawrence S. Eagleburger (11)................... 16,594 *
Donald H. Haider (12).......................... 24,356 *
Edward T. Harvey, Jr. (13)..................... 342,798 4.1%
Anthony R. Ignaczak (14)....................... 50,435 *
Richard J.M. Poulson (15)...................... 7,347 *
Samuel K. Skinner (16)......................... 1,947 *
Robert E. Stutz (17)........................... 425,000 4.8%
Jay R. Taylor (18)............................. 229,200 2.7%
Llewellyn C. Coffin (19)....................... 20,000 *
Clifford S. Deremo (20)........................ 37,000 *
Robert M. Pricone (21)......................... 64,850 *
Thomas C. Ratchford (22)....................... 60,500 *
All directors and executive officers as a group
(15 persons) (23)............................. 2,531,983 27.7%
</TABLE>
- --------
* Less than one percent.
A-6
<PAGE>
(1) Unless otherwise indicated in these footnotes or under "--Quad-C", each
stockholder has sole voting and investment power with respect to the
shares of Common Stock beneficially owned. All share amounts reflect
beneficial ownership determined pursuant to Rule 13d-3 under the
Exchange Act.
(2) Laurence Z.Y. and Celia Moh share voting and investment power with
respect to these shares of Common Stock, all of which are held by
Zayucel Limited. Mr. and Mrs. Moh disclaim beneficial ownership of these
shares of Common Stock. The address for Zayucel Limited is 301 Yu To
Sang Bldg., 37 Queens Road Central, Hong Kong, and the address for
Laurence Z.Y. and Celia Moh is 15 Bin Tong Park, Singapore 269796. Such
ownership information is based on a Form 5 (Annual Statement of Changes
in Beneficial Ownership) filed for 1996 by Laurence Z.Y. and Celia Moh
and the most recently filed Schedule 13G (filed for 1995) by Laurence
Z.Y. and Celia Moh.
(3) Includes 14,494 shares of Common Stock issuable upon the exercise of
stock options. Mr. Daniels is the direct beneficial owner of 697,729
shares of Common Stock (which includes 20,456 shares of Common Stock
directly owned by his child). Mr. Daniels is also the managing member of
Quad-C II, L.C. and, as such, may be deemed to beneficially own the
441,000 shares of Common Stock beneficially owned by Quad-C Partners
III, L.P. ("Quad-C Partners III"). Mr. Daniels is also the managing
member of Quad-C XI, L.C. and, as such, may be deemed to beneficially
own the 24,733 shares of Common Stock beneficially owned by Quad-C
Partners II, L.P. ("Quad-C Partners II"). See footnotes (5) and (6)
below and "--Quad-C." Mr. Daniels is a director of the Company. Mr.
Daniels disclaims beneficial ownership of the shares of Common Stock
held by each of Quad-C II, L.C. (including those shares held indirectly
by Quad-C Partners III) and Quad-C XI, L.C. (including those shares held
indirectly through Quad-C Partners II), except to the extent of Mr.
Daniels' interest in each of such entities.
(4) See "--Quad-C."
(5) Represents shares of Common Stock held by Quad-C Partners III. Quad-C
II, L.C. disclaims beneficial ownership of these shares of Common Stock
except to the extent of its interest in such entity. See "--Quad-C."
(6) Represents shares of Common Stock held by Quad-C Partners II. Quad-C XI,
L.C. disclaims beneficial ownership of these shares of Common Stock
except to the extent of its interest in such entity. See "--Quad-C."
(7) As reported in Amendment No. 3 to Schedule 13G, dated February 14, 1999,
Quaker Management Capital Corporation shares voting and dispositive
power over 613,775 of such shares of Common Stock. Quaker Management
Capital Corporation disclaims beneficial ownership of these shares of
Common Stock. Its address is The Arrott Building, 401 Wood Street, Suite
1300, Pittsburgh, Pennsylvania 15222-1824.
(8) As reported in a Schedule 13G, dated February 10, 1999, (a) Kestrel
Investment Management Corporation ("Kestrel") has sole voting power with
respect to 479,000 of such shares of Common Stock and (b) David J.
Steirman and Abbott J. Keller are deemed to be the beneficial owners of
such shares of Common Stock pursuant to their ownership interests in
Kestrel. The address for Kestrel and Messrs. Steirman and Keller is 411
Borel Avenue, Suite 403, San Mateo, California 94402.
(9) As reported in a Schedule 13G, dated August 27, 1997. The address for
Kalmar Investments Inc. is Barley Mill House, 3701 Kennett Pike,
Greenville, Delaware 19807.
(10) As reported in Amendment No. 1 to Schedule 13G, dated February 11, 1999.
Reich & Tang Asset Management L.P. shares voting and dispositive power
over all of such shares of Common Stock. Its address is 600 Fifth
Avenue, New York, New York 10020.
(11) Includes 16,494 shares of Common Stock issuable upon the exercise of
stock options. Mr. Eagleburger is a director of the Company.
(12) Includes 800 shares of Common Stock held in an IRA account for Mr.
Haider's spouse and 20,556 shares of Common Stock issuable upon the
exercise of stock options. Mr. Haider is Chairman of the Board and a
director of the Company.
A-7
<PAGE>
(13) Includes 14,494 shares of Common Stock issuable upon the exercise of
stock options. Mr. Harvey is a director of the Company.
(14) Includes 3,000 shares of Common Stock issuable upon the exercise of
stock options. Mr. Ignaczak is a director of the Company.
(15) Represents shares of Common Stock issuable upon the exercise of stock
options. Mr. Poulson is a director of the Company.
(16) Represents shares of Common Stock issuable upon the exercise of stock
options. Mr. Skinner is a director of the Company.
(17) Represents shares of Common Stock issuable upon the exercise of stock
options, including stock options that would be granted immediately prior
to the effective time of the merger contemplated by the Merger
Agreement. Mr. Stutz is a director of the Company and its President and
Chief Executive Officer.
(18) Includes 1,800 shares of Common Stock issuable upon the exercise of
stock options. Mr. Taylor is a director of the Company and its former
President and Chief Executive Officer.
(19) Represents shares of Common Stock issuable upon the exercise of stock
options. Mr. Coffin is the Company's Vice President--Operations.
(20) Represents shares of Common Stock issuable upon the exercise of stock
options. Mr. Deremo is the Company's Vice President--Sales and
Marketing.
(21) Includes 28,750 shares of Common Stock issuable upon the exercise of
stock options. Mr. Pricone is the Company's Vice President--Technology.
(22) Represents shares of Common Stock issuable upon the exercise of stock
options. Mr. Ratchford is the Company's Vice President--Finance, Chief
Financial Officer and Treasurer.
(23) Includes (a) an aggregate of 702,882 shares of Common Stock issuable
upon the exercise of stock options and (b) 800 shares of Common Stock
held in an IRA account as described in footnote (12) above. Also
includes shares with respect to which beneficial ownership is disclaimed
as described in footnote (2) above and under "--Quad-C."
Quad-C
Quad-C Partners III, Quad-C II, L.C., Quad-C Partners II, Quad-C XI, L.C.
and Mr. Daniels file a Schedule 13G as a group. Mr. Daniels is the managing
member of Quad-C II, L.C., which is the sole general partner of Quad-C
Partners III. As such, Mr. Daniels and Quad-C II, L.C. may be deemed to
beneficially own shares of Common Stock held by Quad-C Partners III. Mr.
Daniels is also the managing member of Quad-C XI, L.C., which is the sole
general partner of Quad-C Partners II. As such, Mr. Daniels and Quad-C XI,
L.C. may be deemed to beneficially own shares of Common Stock held by Quad-C
Partners II. Mr. Daniels disclaims beneficial ownership of the shares of
Common Stock held by each of Quad-C II, L.C. (including those shares held
indirectly through Quad-C Partners III) and Quad-C XI, L.C. (including those
shares held indirectly through Quad-C Partners II), except to the extent of
Mr. Daniels' interest in each of such entities.
A-8
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and holders of 10% or more of the outstanding
shares of Common Stock (collectively, "Reporting Persons") to file an initial
report of ownership (Form 3) and reports of changes of ownership (Forms 4 and
5) of Common Stock with the Securities and Exchange Commission. Such persons
are required to furnish the Company with copies of all Section 16(a) reports
that they file. Based solely upon a review of Section 16(a) reports furnished
to the Company for 1998 and written representations from Reporting Persons
that no other reports were required, the Company believes that all the
Reporting Persons complied with all applicable filing requirements for 1998.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides information relating to compensation for the
fiscal years ended December 31, 1998, 1997 and 1996 for the Company's chief
executive officer and the other four most highly compensated executive
officers of the Company whose total salary and bonus (as determined pursuant
to the rules and regulations promulgated by the Securities and Exchange
Commission) exceeded $100,000 (determined by reference to fiscal year 1998)
(collectively, the "Named Executive Officers"). The amounts shown include
compensation for services in all capacities provided to the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- ---------------------
Other Annual Securities Underlying All Other
Year Salary ($) Bonus ($) Compensation ($) Options/SARs (#)(1) Compensation ($)(2)
---- ---------- --------- ---------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Stutz (3)..... 1998 232,096 190,125 0 25,000 11,163
President and Chief 1997 277,404(4) 0 0 100,000 0
Executive Officer
Llewellyn C. Coffin (5). 1998 120,000 58,614 42,000(6) 20,000 0
Vice President--
Operations
Clifford S. Deremo...... 1998 132,370 80,699 0 20,000 8,156
Vice President-- 1997 123,211 5,000 0 0 7,618
Sales and Marketing 1996 121,269 0 0 12,778 5,950
Robert M. Pricone....... 1998 129,986 66,643 0 20,000 8,449
Vice President-- 1997 124,987 19,000 0 0 11,111
Technology 1996 123,971 0 0 13,500 11,034
Thomas C. Ratchford..... 1998 116,245 87,592 0 20,000 7,556
Vice President-- 1997 111,016 15,000 0 0 7,209
Finance, Chief 1996 109,869 0 0 11,278 7,141
Financial Officer
and Treasurer
</TABLE>
- --------
(1) These amounts represent the number of shares underlying stock options
granted during the indicated year. See "Stock Option/SAR Grants in Last
Fiscal Year." In February 1996, Messrs. Deremo, Pricone and Ratchford
were each granted a performance-based option to purchase 5,778, 5,624 and
5,778 shares of Common Stock, respectively. The maximum number of shares
was subject to reduction to 30% of the maximum number of shares if, by
December 31, 1996, 90% of the Company's targeted operating income was
achieved and subject to reduction to zero if, by December 31, 1996, less
than 90% of the Company's
A-9
<PAGE>
targeted operating income was achieved. The Company did not achieve 90% of
the targeted operating income for 1996 and, as a result, the number of
shares subject to each of these options was reduced to zero and all of the
options terminated in accordance with their terms on December 31, 1996.
(2) These amounts represent contributions to the Company's retirement plan in
connection with amounts earned during the indicated fiscal year.
(3) Mr. Stutz became President and Chief Executive Officer of the Company in
March 1997. Accordingly, compensation amounts are not given for 1996.
(4) Of this amount, $100,000 represents the minimum bonus for 1997 that the
Company was obligated to pay Mr. Stutz pursuant to his employment
agreement. See "--Employment Agreements."
(5) Mr. Coffin became a Vice President of the Company in January 1998.
Accordingly, compensation amounts are not given for 1997 or 1996.
(6) Represents payments to Mr. Coffin relating to relocation expenses.
Stock Option/SAR Grants in Last Fiscal Year
The table below provides information regarding stock options granted to the
Named Executive Officers during the fiscal year ended December 31, 1998. No
SARs were granted by the Company during 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percent of Total Annual Rates of Stock
Securities Options/SARs Price Appreciation for
Underlying Granted to Exercise or Option Term (1)
Options/SARs Employees in Base Price Expiration -----------------------
Granted (#) Fiscal Year (%) (per share)($) Date 5% 10%
------------ ---------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Stutz......... 25,000(2) 10.5 7.38 12/17/08 $116,031 $294,045
Llewellyn C. Coffin..... 10,000(3) 4.2 5.38 2/12/08 33,835 85,743
10,000(2) 4.2 7.38 12/17/08 46,412 117,618
Clifford S. Deremo...... 10,000(3) 4.2 5.38 2/12/08 33,835 85,743
10,000(2) 4.2 7.38 12/17/08 46,412 117,618
Robert M. Pricone....... 10,000(3) 4.2 5.38 2/12/08 33,835 85,743
10,000(2) 4.2 7.38 12/17/08 46,412 117,618
Thomas C. Ratchford..... 10,000(3) 4.2 5.38 2/12/08 33,835 85,745
10,000(2) 4.2 7.38 12/17/08 46,412 117,618
</TABLE>
- --------
(1) Based on a ten-year option term and annual compounding, the 5% and 10%
calculations are set forth in compliance with the rules and regulations
promulgated by the Securities and Exchange Commission. The appreciation
calculations are not necessarily indicative of future values of stock
options or of the Common Stock.
(2) The options will vest (a) in increments of one-third on each of December
17, 1999, 2000 and 2001 if the optionee remains continuously employed by
the Company and (b) 100% in the event of death, disability or a "change
in control" (which term has substantially the same meaning as such term
has under the Director Plan).
(3) The options will vest (a) in increments of one-third on each of February
12, 2000, 2001 and 2002 if the optionee remains continuously employed by
the Company and (b) 100% in the event of death, disability or a "change
in control" (which term has substantially the same meaning as such term
has under the Director Plan).
A-10
<PAGE>
Aggregated Option/SAR Exercises In Last Fiscal Year and Fiscal Year End
Option/SAR Values
None of the Named Executive Officers exercised stock options during 1998.
The following table sets forth information regarding the number and value of
unexercised stock options held by each of the Named Executive Officers as of
December 31, 1998. None of the Named Executive Officers held or holds SARs.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs at Fiscal
at Fiscal Year End (#) Year End ($)(1)
---------------------- ----------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
---------------------- ----------------------
<S> <C> <C>
Robert E. Stutz................... 66,000/59,000 66,000/34,000
Llewellyn C. Coffin............... 0/20,000 0/16,200
Clifford S. Deremo................ 12,333/24,667 0/16,200
Robert M. Pricone................. 4,083/24,667 9,748/16,200
Thomas C. Ratchford............... 28,083/32,417 11,288/19,963
</TABLE>
- --------
(1) Value is calculated by multiplying the number of shares of Common Stock
underlying the stock option by the difference between the closing price
of a share of Common Stock on December 31, 1998 as reported by The Nasdaq
Stock Market ("Nasdaq") ($7.00 per share) and the exercise price of the
stock option.
Supplemental Executive Retirement Plan
Mr. Taylor retired as President and Chief Executive Officer of the Company
in March 1997 at age 62. In connection with the acquisition of substantially
all of the assets of the Company from Amerace in 1990, the Company assumed
Amerace's obligations to Mr. Taylor under a Supplemental Executive Retirement
Plan (the "SERP") intended to provide retirement benefits supplementing those
provided under other plans. Subject to certain exceptions, upon retirement,
Mr. Taylor is entitled to receive for 15 years 50% of his final base salary,
which was $222,600 (the "Annual Benefit"). Mr. Taylor's Annual Benefit is
reduced by certain other retirement benefits received by him, including the
primary Social Security benefit and retirement benefits from certain other
benefits plans. The SERP also provides for payment of death benefits and long-
term disability benefits. To provide one source of funding for the Company's
obligations under the SERP, the Company maintains two whole life insurance
policies on Mr. Taylor's life. The Company is the owner of and beneficiary
under each insurance policy. During 1998, Mr. Taylor received $73,992 under
the SERP.
Compensation of Directors
The Company's directors who are not currently receiving compensation as
officers or employees of the Company are paid an annual retainer fee of
$20,000 and a fee of $750 for attending each meeting of the Board and each
meeting of any committee held on a day when the entire Board does not meet.
Directors are also reimbursed for expenses incurred in connection with their
attendance at Board and committee meetings.
Initial Options. Under the Amended and Restated Stock Option Plan for Non-
Employee Directors (the "Director Plan"), each person who first becomes a non-
employee director receives an option to purchase 2,000 shares of Common Stock
at an exercise price per share equal to the fair market value of a share of
Common Stock on such date. The options described in the preceding sentence are
hereinafter referred to as "Initial Options". Initial Options become
exercisable to the extent of 20% of the shares covered thereby after the
optionee has continuously served as a director through the next annual
stockholders' meeting immediately following such grant date, and to the extent
of an additional 20% of the shares covered thereby after the optionee
A-11
<PAGE>
has continuously served as a director through the next four successive annual
stockholders' meetings. Notwithstanding the foregoing, if an optionee dies or
becomes disabled, all Initial Options held by such optionee become immediately
exercisable in full to the extent the Initial Options would have been
exercisable had the optionee remained a director through the date of the
Company's next annual stockholders' meeting. To the extent exercisable, each
Initial Option is exercisable in whole or in part.
Elective Options. The Director Plan also permits each non-employee director
to make an election to receive all or any portion of his annual retainer for
the current year in the form of a stock option (a "One-Year Elective Option")
or to receive all or any portion of his annual retainer for the current year
and the next four successive years in the form of a stock option (a "Five-Year
Elective Option", and together with One-Year Elective Options, "Elective
Options"). An individual who becomes a director more than six months after any
annual stockholders' meeting is not entitled to make an election to receive
Elective Options for any portion of the retainer payable with respect to the
year in which he becomes a director. The grant of Elective Options is made
automatically on the first business day occurring six months after the date
the election is due. If a non-employee director ceases to be a director after
the date the election is due and prior to the date Elective Options are
granted, the Elective Option to such individual is not granted and any
retainer is paid in cash. The option price per share of each Elective Option
is equal to 20% of the market value of a share of Common Stock on the date of
grant. The total number of shares subject to an Elective Option equals the
number determined by dividing the amount of the retainer to be received in
Elective Options by the difference between the market value per share of the
Common Stock on the date of grant and the option price per share of the
Elective Option. No adjustment is made to an Elective Option to reflect a
director's cessation of service as a director or an increase in the amount of
the annual retainer paid by the Company to directors. Any such increase is
paid in cash.
Each One-Year Elective Option becomes exercisable to the extent of 100% of
the shares covered thereby after the optionee has continuously served as a
director through the date of the next annual stockholders' meeting immediately
following the date such optionee is elected a director and makes an election
to receive such option. Each Five-Year Elective Option becomes exercisable to
the extent of 20% of the shares covered thereby after the optionee has
continuously served as a director through the date of the next annual
stockholders' meeting immediately following the date such optionee is elected
a director and makes an election to receive such option and to the extent of
an additional 20% of the shares covered thereby after the optionee has
continuously served as a director through the date of the next four successive
annual stockholders' meetings. Notwithstanding the foregoing, if an optionee
dies or becomes disabled, all Elective Options held by such optionee become
immediately exercisable in full to the extent such Elective Options would have
been exercisable had the optionee remained a director through the date of the
Company's next annual stockholders' meeting.
Annual Options. Under the Director Plan, each non-employee director elected
at an annual stockholders' meeting automatically receives an option to
purchase 1,500 shares of Common Stock at an exercise price per share equal to
the market value of a share of Common Stock on such date ("Annual Options").
Annual Options become exercisable to the extent of 20% of the shares covered
thereby after the optionee has continuously served as a director through the
next annual stockholders' meeting immediately following such grant date, and
to the extent of an additional 20% of the shares covered thereby after the
optionee has continually served as a director through the next four successive
annual stockholders' meetings.
Change in Control. Upon a change in control, each Initial Option, Elective
Option and Annual Option (each, an "Option Right") that would become
exercisable through the Company's next annual stockholders' meeting following
a Change in Control becomes immediately exercisable in full. If any event or
series of events constituting a Change in Control is abandoned, the effect
thereof will be null and the exercisability of Option Rights will be governed
by the provisions of the Director Plan described above. The Director Plan
defines a "change in control" as the occurrence of any of the following
events: (1) execution by the Company of an agreement for the merger,
consolidation or reorganization into or with another corporation or other
legal person, unless as a result of such transaction not less than a majority
of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in the
aggregate
A-12
<PAGE>
by the holders of securities entitled to vote generally in the election of
directors of the Company ("Company Voting Stock") immediately prior to such
transaction; (2) execution by the Company of an agreement for the sale or
other transfer of all or substantially all of its assets to another
corporation or legal person, unless as a result of such transaction not less
than a majority of the combined voting power of the then-outstanding
securities of such corporation or legal person immediately after such
transaction is held in the aggregate by the holders of Voting Stock of the
Company immediately prior to such transaction; (3) a report is filed on
Schedule 13D or Schedule 14D-1 disclosing that any person other than Mr.
Daniels or any of his affiliates has or intends to become the beneficial owner
of a majority or more of the combined voting power of the then-outstanding
Company Voting Stock; (4) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the Directors
of the Company cease for any reason to constitute at least a majority thereof
(each Director first elected or first nominated for election by a vote of at
least two-thirds of the Directors then in office who were Directors of the
Company at the beginning of any such period being deemed to have been a
Director of the Company at the beginning of such period); or (5) the Company
adopts a plan for the liquidation or dissolution of the Company other than
pursuant to a merger, consolidation or reorganization that would not
constitute a change in control, as described in clause (1) above.
Consulting Agreement
The Company and Mr. Taylor are parties to a consulting agreement (the
"Consulting Agreement"). Pursuant to the Consulting Agreement, Mr. Taylor
agreed to provide the Company with consulting and advisory services and to
resign as the President and Chief Executive Officer of the Company and
terminate his employment agreement. The term of the Consulting Agreement began
on March 22, 1997 (the date on which Mr. Stutz became President and Chief
Executive Officer of the Company) and terminated on March 22, 1999; however,
the Company may retain Mr. Taylor to provide it with consulting and advisory
services in the future. Pursuant to the Consulting Agreement, the Company
agreed to pay Mr. Taylor annual consulting fees equal to the difference
between $222,600 less (1) any amounts actually paid to Mr. Taylor under the
SERP, (2) any amounts actually paid to Mr. Taylor under the Company's pension
plan and (3) any directors' retainer fees paid to Mr. Taylor as a member of
the Board of Directors. The terms of the Consulting Agreement also entitled
Mr. Taylor to participate in group health, disability, vision and dental
benefit plans provided by the Company to the same extent as are afforded to
executive officers of the Company. In addition, the Company agreed to modify
the vesting and termination provisions of Mr. Taylor's outstanding options to
purchase shares of Common Stock. Under the terms of the Consulting Agreement
and subject to certain exceptions, Mr. Taylor may not engage in business
activities competitive with the Company until March 22, 2000. The Company paid
Mr. Taylor $101,129 in 1998 pursuant to the Consulting Agreement.
Stutz Employment Agreement
Pursuant to an employment agreement between the Company and Mr. Stutz, Mr.
Stutz has agreed to serve as President and Chief Executive Officer of the
Company until March 22, 2000 at a minimum base salary of $225,000 or such
greater amount as determined by the Board of Directors (the "Regular Base
Salary") plus an annual bonus payable in accordance with the Company's
incentive compensation plan. The term of Mr. Stutz's employment agreement is
automatically renewed for one-year periods unless previously terminated. The
agreement also provides for the grant of stock options described in the
following paragraph. Mr. Stutz's employment agreement provides that if (1) the
Company terminates Mr. Stutz's employment, except for a termination for cause
or a termination resulting from Mr. Stutz's resignation, retirement, death or
disability or (2) Mr. Stutz resigns following a substantial breach of his
employment agreement by the Company (a "Termination Event"), Mr. Stutz is
entitled to receive certain termination benefits, which include (a) his
Regular Base Salary until the later of the first anniversary of termination or
the last day of the term of the employment agreement, (b) an amount equal to
the annual bonus, if any, paid on account of the most recently concluded
fiscal year, until the earlier to occur of the first anniversary of
termination or the last day of the term of the employment agreement, and (c)
continuation of his then-current level of life and health benefits and certain
outplacement benefits. Under the terms of Mr. Stutz's employment agreement and
subject to certain
A-13
<PAGE>
exceptions, Mr. Stutz may not engage in a business competitive with the
Company while he is employed by the Company and for a period of two years
thereafter, unless the Company fails to perform its obligations with respect
to payment of any post-termination amount to which Mr. Stutz is entitled.
The employment agreement between the Company and Mr. Stutz also provides
that Mr. Stutz is entitled to receive stock options to purchase up to 400,000
aggregate shares of Common Stock. Effective March 22, 1997, Mr. Stutz received
an option to purchase 100,000 shares of Common Stock at an exercise price of
$6.00. This stock option vested to the extent of 33% of the shares covered
thereby on March 22, 1998 and 1999, respectively, and will vest (1) to the
extent of 34% of the shares covered thereby on March 22, 2000 if Mr. Stutz
remains continuously employed through such date and (2) 100% on the date of a
Termination Event. On May 10, 1999, the first date on which the Common Stock
closed at or above $7.50 for the 30th consecutive trading day, Mr. Stutz
received a stock option to purchase 100,000 shares of Common Stock at an
exercise price of $7.50. This stock option will vest (a) to the extent of 33%,
33% and 34% of the shares covered thereby on the second, third and fourth
anniversaries, respectively, of the date of grant if Mr. Stutz remains
continuously employed through such dates. On the first date on which the
Common Stock closes at or above $9.00 for the 30th consecutive trading day and
(b) 100% on the date of a Termination Event, Mr. Stutz will receive a stock
option to purchase 100,000 shares of Common Stock, with an exercise price of
$9.00, that will vest to the extent of 33%, 33% and 34% of the shares covered
thereby on the third, fourth and fifth anniversaries, respectively, of the
date of grant if Mr. Stutz remains continuously employed through such dates.
On the first date on which the Common Stock closes at or above $11.00 for the
30th consecutive trading day, Mr. Stutz will receive a stock option to
purchase 100,000 shares of Common Stock, with an exercise price of $11.00,
that will vest to the extent of 33%, 33% and 34% of the shares covered thereby
on the third, fourth and fifth anniversaries, respectively, of the date of
grant if Mr. Stutz remains continuously employed through such dates. All stock
options contemplated by the employment agreement will vest fully (if
previously granted) if Mr. Stutz dies or becomes disabled or if a "change in
control" (defined substantially the same as in the Director Plan) occurs. All
stock options will terminate on the tenth anniversary of the date of grant
unless terminated earlier as provided therein.
Effective June 4, 1999, Mr. Stutz's employment agreement was amended to
provide that:
(1) if the closing price of the Common Stock is equal to or greater than
$9.00 per share on the last trading day preceding the effective time of the
merger contemplated by the Merger Agreement (the "Last Trading Day"), the
option to be granted under his employment agreement with an exercise price
of $9.00 per share shall be deemed to have been granted to Mr. Stutz, and
shall be deemed fully vested and exercisable, immediately prior to the
effective time of the merger contemplated by the Merger Agreement,
regardless of whether the closing price of the Common Stock was equal to or
greater than $9.00 per share on each of the 29 consecutive trading days
immediately preceding the Last Trading Day; and
(2) if the closing price of the Common Stock is equal to or greater than
$11.00 per share on the Last Trading Day, the option to be granted under
his employment agreement with an exercise price of $11.00 per share shall
be deemed to have been granted to Mr. Stutz, and shall be deemed fully
vested and exercisable, immediately prior to the effective time of the
merger contemplated by the Merger Agreement, regardless of whether the
closing price of the Common Stock was equal to or greater than $11.00 per
share on each of the 29 consecutive trading days immediately preceding the
Last Trading Day.
Other Employment Agreements
The Company and Mr. Pricone are parties to an employment agreement (the
"Pricone Agreement"). Pursuant to the Pricone Agreement, Mr. Pricone has
agreed to serve as an executive officer of the Company until August 23, 1999,
at a minimum base salary or such greater amount as determined by the Board of
Directors. The term of the Pricone Agreement is automatically renewed for six-
month periods unless previously terminated. The Pricone Agreement provides
that (1) if the Company terminates Mr. Pricone's employment prior to the end
of the employment term, except for a termination for cause or a termination
resulting from Mr. Pricone's resignation, death or disability, or (2) if Mr.
Pricone resigns following a substantial breach of the Pricone
A-14
<PAGE>
Agreement by the Company, Mr. Pricone is entitled to receive an amount not to
exceed 50% of his most recent salary and bonus. In addition, Mr. Pricone is
entitled to continue to participate in the Company's life and health plans
until the earlier of the last date of the benefits period set forth in the
Pricone Agreement or the date upon which he accepts other employment. Under
the terms of the Pricone Agreement and subject to certain exceptions, Mr.
Pricone may not engage in a business competitive with the Company while he is
employed by the Company and for a period of 18 months thereafter. As of
January 1, 1999, the Company's minimum base salary obligations for Mr. Pricone
were $133,037. The Company and Mr. Ratchford are parties to an employment
agreement that provides for terms substantially similar to the Pricone
Agreement. As of January 1, 1999, the Company's minimum base salary
obligations for Mr. Ratchford were $120,713.
Change in Control Agreements
Effective April 23, 1999, the Company entered into Change in Control
Agreements with each of the Named Executive Officers. The Change in Control
Agreements become operative upon a "change in control," which, for purposes of
the Change in Control Agreements, means the occurrence of any of the
following:
(1) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the securities entitled to vote
generally in the election of directors ("Voting Stock") of the Company
("Voting Stock"); provided, however, that for purposes of this clause (1),
the following acquisitions shall not constitute a change in control: (a)
any issuance of Voting Stock of the Company directly from the Company that
is approved by the Incumbent Board (as defined below), (b) any acquisition
by the Company of Voting Stock of the Company, (c) any acquisition of
Voting Stock of the Company by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary of the Company,
(d) any acquisition of Voting Stock of the Company by Quad-C, Inc. or any
of its affiliates or any of the limited partnerships managed by Quad-C,
Inc. or (e) any acquisition of Voting Stock by any Person pursuant to a
Business Combination (as defined in clause (3) below) that complies with
clauses (a), (b) and (c) of clause (3) below; or
(2) individuals who as of April 23, 1999 constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least two-thirds
of the directors then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent Board,
but excluding for this purpose any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
(within the meaning of Rule 14a-11 promulgated under the Exchange Act) with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(3) consummation of a reorganization, merger or consolidation, a sale or
other disposition of all or substantially all of the assets of the Company,
or other transaction (any of the foregoing transactions being referred to
as a "Business Combination") unless, in each case, immediately following
such Business Combination, (a) all or substantially all of the individuals
and entities who were the beneficial owners of Voting Stock of the Company
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of the combined voting power of the then
outstanding shares of Voting Stock of the entity resulting from such
Business Combination (including, without limitation, an entity that, as a
result of such transaction, owns the Company or all or substantially all of
the Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions relative to each other as their
ownership, immediately prior to such Business Combination, of Voting Stock
of the Company, (b) no Person (other than the Company, such entity
resulting from such Business Combination, any employee benefit plan (or
related trust) sponsored or maintained by the Company, any subsidiary of
the Company or
A-15
<PAGE>
such other entity resulting from such Business Combination or Quad-C, Inc.
or any of its affiliates or any of the limited partnerships managed by
Quad-C, Inc.) beneficially owns, directly or indirectly, 50% or more of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination and (c) at least a majority
of the members of the board of directors of the entity resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement or of the action of the Board providing
for such Business Combination.
Under the Change in Control Agreements, the Company has agreed to employ
each of the Named Executive Officers during the "Change in Control Severance
Period," which is the period commencing on the date of the first occurrence of
a change in control and continuing until the earlier of (1) 12 months or, in
the cases of Messrs. Stutz and Ratchford, 18 months after the occurrence of
the change in control or (2) the Named Executive Officer's death. A Named
Executive Officer will be entitled to benefits under his Change in Control
Agreement if his employment terminates or is terminated during his Change in
Control Severance Period for any reason other than his death or permanent
disability or "cause" (as defined in the Change in Control Agreements), or if
the Named Executive Officer terminates his employment during the Change in
Control Severance Period for any of the following reasons (each, a "Good
Reason"):
(1) (a) a significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company that the Named Executive Officer held immediately
prior to the change in control, (b) a reduction in the Named Executive
Officer's Base Pay (defined as the Named Executive Officer's annual base
salary in effect from time to time) received from the Company, (c) the
termination or denial of the Named Executive Officer's right to participate
in any incentive compensation plan generally available to other officers of
the Company or (d) the termination or denial of the Named Executive
Officer's rights to Employee Benefits (as defined in the Change in Control
Agreements) that, in the aggregate, are equivalent in type and scope to
those generally available to other officers of the Company, if not remedied
by the Company within 30 calendar days after receipt by the Company of
written notice from the Named Executive Officer of any such change,
reduction, termination or denial, as the case may be;
(2) the Company relocates its principal executive offices (if such
offices are the principal location of the Named Executive Officer's work),
or requires the Named Executive Officer to have his principal location of
work changed, to any location that, in either case, is in excess of 30
miles from the location thereof immediately prior to the change in control;
or
(3) any material breach of the Change in Control Agreements by the
Company or any successor thereto that is not remedied by the Company within
30 calendar days after receipt by the Company of written notice from the
Named Executive Officer of such breach.
The Change in Control Agreements provide for the following severance
benefits:
(1) for a period (the "Continuation Period") of 12 months (or, in the
cases of Messrs. Stutz and Ratchford, 18 months) following the date of
termination (the "Termination Date") of a Named Executive Officer's
employment, the Named Executive Officer shall be paid periodically (in
accordance with the Company's payroll practices) the sum of (a) his annual
base salary (at the rate in effect on the Termination Date) and (b) an
annual incentive bonus in an amount equal to the amount of such bonus that
he earned in the fiscal year immediately preceding the year in which the
Termination Date occurs;
(2) during the Continuation Period, the Company will arrange to provide
the Named Executive Officer with employee benefits that, in the aggregate,
are equivalent in type and scope to those generally available to officers
of the Company or its successors or assigns. If and to the extent that any
such benefit is not or cannot be paid or provided under any policy, plan,
program or arrangement of the Company or any subsidiary, as the case may
be, then the Company will itself pay or provide for the payment of such
employee benefits (including a payment in the amount of any taxes
applicable to any such benefits) to the Named Executive Officer and his
dependents and beneficiaries;
A-16
<PAGE>
(3) outplacement services by a firm selected by the Named Executive
Officer, in an amount not to exceed $10,000;
(4) if a Named Executive Officer becomes subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a result of his receipt of severance benefits under his
Change in Control Agreement or any other agreement or arrangement with the
Company, the Company shall pay the Named Executive Officer an additional
amount equal to the amount necessary to put the Named Executive Officer in
the same net after-tax position as he would have been had he not been
subject to the Section 4999 excise tax.
If a Named Executive Officer obtains other employment following his
Termination Date, the severance benefits described in clauses (1), (2) and (3)
of this paragraph shall be provided only during the period beginning on his
Termination Date and ending on the later of (a) the date on which he commences
such other employment or (b) the six-month anniversary of his Termination
Date.
Each Change in Control Agreement also contains a covenant not to compete
that prohibits each Named Executive Officer from certain participation in the
business of any company engaged in certain competitive activities without the
prior written consent of the Company for a period ending one year following
termination in circumstances where the Named Executive Officer is entitled to
receive severance benefits under his Change in Control Agreement.
Special Incentive Bonus Agreements
The Company has also entered into Special Incentive Bonus Agreements, dated
as of April 23, 1999 (the "Incentive Bonus Agreements"), with each of the
Named Executive Officers. The Incentive Bonus Agreements become operative upon
a "change in control" (which term has the same meaning as such term has under
the Change in Control Agreements).
Under the Incentive Bonus Agreements, each Named Executive Officer will be
entitled to an Incentive Bonus (as defined below) if he is employed by the
Company or a subsidiary of the Company at the end of the period (the
"Incentive Bonus Severance Period") commencing on the first occurrence of a
change in control and continuing until the earlier of his death or six months
after the occurrence of the change in control, or if his employment terminates
or is terminated during the Incentive Bonus Severance Period for any reason
other than "cause" (which term has the same meaning as such term has under the
Change in Control Agreements), or if the Named Executive Officer terminates
his employment during the Incentive Bonus Severance Period for Good Reason
(which term has the same meaning as such term has under the Change in Control
Agreements). An "Incentive Bonus" means:
(1) in the case of Mr. Stutz or Mr. Pricone, an amount equal to the sum of
(a) $75,000 and (b) 0.75 percent of the portion (the "Incentive Bonus
Pool") of the Aggregate Equity Consideration (as defined below) that
exceeds $109,777,105;
(2) in the case of Mr. Deremo or Mr. Ratchford, an amount equal to the sum
of (a) $60,000 and (b) 0.60 percent of the Incentive Bonus Pool; or
(3) in the case of Mr. Coffin, an amount equal to the sum of (a) $15,000
and (b) 0.15 percent of the Incentive Bonus Pool.
"Aggregate Equity Consideration" means the amount equal to the sum of (1) the
product of (a) 8,444,377 (the total number of shares of Common Stock
outstanding as of the date of the Merger Agreement) and (b) the Offer
Consideration and (2) the product of (a) the remainder of (i) the Offer
Consideration minus (ii) the average exercise price of all unexercised options
to purchase shares of Common Stock (excluding options granted under the
Director Plan to the extent that such options would be canceled by their terms
without payment of any consideration, but giving effect to the grant of any
options that would become effective on or before the consummation of the
transactions contemplated by the change in control) and (b) the total number
of shares of Common Stock issuable upon the exercise of such stock options.
A-17
<PAGE>
The Incentive Bonus Agreements also provide that, if any Named Executive
Officer becomes subject to the excise tax imposed by Section 4999 of the Code
as the result of his receipt of benefits under his Incentive Bonus Agreement
or any other agreement or arrangement with the Company, the Company will pay
him an additional amount equal to the amount necessary to put the Named
Executive Officer in the same net after-tax position that he would have been
in had he not been subject to the Section 4999 excise tax.
Compensation Committee Interlocks and Insider Participation
During 1998, Messrs. Daniels, Haider and Poulson served as members of the
Compensation Committee. Mr. Haider is Chairman of the Board of the Company.
Mr. Daniels is the majority stockholder, sole director and president of Quad-C
and determines the compensation to be paid to all officers of Quad-C,
including Messrs. Harvey and Ignaczak.
Compensation Committee Report On Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") was
comprised of Messrs. Daniels, Haider and Poulson during 1998. The Board of
Directors has delegated to the Committee the authority to determine the
compensation of the Company's executive officers and other key management
employees.
The Committee's primary objective is to ensure that the Company's
compensation policies attract, motivate and retain qualified managers in a
manner consistent with maximization of stockholder value. The Company's
compensation is structured philosophically on a "pay for performance"
foundation and thus recognizes the desirability of compensation directed
specifically to motivate and reward executive managers for achieving both
short-term and long-term performance objectives. Compensation is comprised of
three major components: base salary, incentive bonus and stock options.
Base Salary
Base salaries are determined in the context of an individual's
responsibilities and competitive benchmarking. Base salaries are reviewed
annually on employment anniversary dates and adjusted on the basis of
individual performance and competitive considerations. In making base salary
adjustments, the Committee considers an individual's performance, especially
the effective discharge of assigned responsibilities and the leadership and
motivation provided to subordinates.
During 1998, base salaries for executive officers were increased an average
of 4.9%. The dollar amounts contained in the table under "--Summary
Compensation Table" reflect a smaller percentage increase from 1997 to 1998
because the typical timing of annual base salary adjustments does not
correspond to the Company's fiscal year. In making salary decisions for 1998,
the Committee considered the effects of inflation and certain subjective
criteria, including competitive market conditions for executive compensation
and the Committee's evaluation of each executive officer's performance of his
duties since the officer's last evaluation.
Incentive Bonus Compensation
In 1998, the Company offered an annual incentive bonus compensation plan to
executive officers. Participants under the plan were generally entitled to an
annual incentive bonus based upon (1) the relationship of actual earnings per
share of Common Stock ("EPS") to budgeted EPS for the 1998 fiscal year and (2)
the individual's attainment of personal objectives established at the
beginning of the year. Under the 1998 incentive compensation plan, each
executive officer was assigned a "target" bonus that, depending on the
participant, was a fixed percentage of base salary (35% for all executive
officers other than Messrs. Stutz and Ratchford, both of whom were at 50%).
Approximately 75% of each participant's bonus was to be determined with
reference to the EPS component and the remaining 25% of the bonus was to be
determined with reference to personal goal attainment, both of which
components were subject to appropriate modification to reflect divisional
performance. Mr. Stutz's bonus, however, was to be determined solely by
reference to the EPS component. Personal goals generally specified attainment
of particular objectives or completion of certain projects which exceeded the
A-18
<PAGE>
routine management responsibilities for the participant. The actual bonus
payout could be more or less than the target bonus depending on whether the
Company's EPS were more or less than budgeted EPS and on whether the
participant's personal objectives were achieved.
No bonus was payable unless actual 1998 EPS equaled the Company's actual EPS
for the 1997 fiscal year. The Committee believes that the relatively heavy
weight assigned to attainment of EPS was appropriate in the light of the
priority of maximizing stockholder value and the desirability of emphasizing
teamwork in the management of the Company. In 1998, the Company's EPS exceeded
the Company's actual EPS for the 1997 fiscal year. The Committee also
determined that each executive officer whose bonus was to be determined in
part by reference to personal goal attainment had attained such goals.
Accordingly, the Committee awarded an aggregate of $521,978 in bonus payouts
to executive officers for 1998, including the bonus payouts to the Named
Executive Officers described above under "--Summary Compensation Table." The
Committee decided to award bonus payouts for 1998 in excess of each executive
officers "target" bonus because of the (1) degree to which the Company's
actual EPS for fiscal 1998 exceeded the Company's actual EPS for the 1997
fiscal year and (2) determination that each personal goal attainment component
had been reached.
Stock Option Grants
The Committee seeks to ensure that the executive officers of the Company
focus attention on long-term objectives, including maximization of value for
stockholders. The Committee believes that stock options are an appropriate
compensation tool to motivate and reward executive managers for long-term
performance. The Committee believes that the Common Stock price is an
appropriate index of long-term value creation by the management group. Stock
options are generally granted to each individual who becomes an executive
officer. These stock options have generally been granted pursuant to various
stock option plans maintained by the Company. See "--Stock Option/SAR Grants."
From time to time, the Committee grants stock options to key employees as an
incentive for long-term performance. On February 12, 1998, the Committee
granted an aggregate of 60,000 such options to the Company's executive
officers, other than Mr. Stutz. Because Mr. Stutz received an option to
purchase 100,000 shares of Common Stock in 1997, the Committee determined to
allocate the options granted in February 1998 among other members of
management. The individuals received options to purchase a specified number of
shares at $5.38 per share (the fair market value of such shares on the date of
grant). The options vest in three equal installments beginning February 12,
2000. On December 17, 1998, the Committee granted an aggregate of 85,000 such
options to the Company's executive officers, including Mr. Stutz. The
individuals received options to purchase a specified number of shares at $7.38
per share (the fair market value of such shares on the date of grant). The
options vest in three equal installments beginning December 17, 1999. Unless a
change in control occurs, in order for any portion of such grants to vest, the
recipient must remain continuously employed by the Company from the date of
the grant until the date such vesting occurs.
Compensation of Chief Executive Officer
The Company is obligated to pay Mr. Stutz a minimum base salary of $225,000
pursuant to his employment agreement. Effective March 1998, the Committee
increased Mr. Stutz's base salary by $9,000 (4%). When determining Mr. Stutz's
salary increase, the Committee considered the Company's performance in the
preceding twelve-month period compared to budgeted performance, competitive
market conditions for executive compensation and the Committee's subjective
evaluation of Mr. Stutz's performance of his duties as President and Chief
Executive Officer.
Mr. Stutz participated in the annual incentive bonus compensation plan and
his target bonus was 50% of his base salary. Consistent with the approach
described above regarding incentive bonuses, Mr. Stutz received a bonus payout
of $190,125 for 1998. Mr. Stutz also received an option to purchase 25,000
shares of Common Stock in December 1998 as an incentive for long-term
performance.
A-19
<PAGE>
Limitations on Deductibility
In 1993, changes were made to the federal corporate income tax law that
limit the ability of public companies to deduct compensation in excess of $1
million paid annually to each of the chief executive officer and the other
four most highly compensated executive officers. There are exemptions from
this limit, including compensation that is based on the attainment of
performance goals that are established by the Committee and approved by the
Company's stockholders. It is the Committee's policy to seek to qualify
executive compensation for deductibility where practicable and to the extent
that such policy is consistent with the Company's overall objectives in
attracting, motivating and retaining its executives. The Company believes
that, based upon current compensation levels, compensation paid in 1998 should
be fully deductible. Amounts paid and options granted under Mr. Stutz's
employment agreement, however, do not qualify for such exemptions from the $1
million limit and may affect the ability of the Company to deduct compensation
in future years.
COMPENSATION COMMITTEE MEMBERS DURING 1998
Terrence D. Daniels
Donald H. Haider
Richard J.M. Poulson
A-20
<PAGE>
Performance Graph
The following graph compares the percentage change in the Company's
cumulative return on its Common Stock with that of the Nasdaq-USA Index and
that of the Nasdaq-Non Financial Index at December 31, 1993, December 31,
1994, December 31, 1995, December 31, 1996, December 31, 1997 and December 31,
1998. The graph assumes a $100 investment at December 31, 1993 and
reinvestment of dividends.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stimsonite Corporation $100.00 $101.16 $ 88.37 $ 56.98 $ 47.09 $ 65.12
- -----------------------------------------------------------------------------------
Nasdaq-USA 100.00 97.75 138.26 170.01 208.58 293.21
- -----------------------------------------------------------------------------------
Nasdaq-Non Financial 100.00 96.16 134.03 162.84 191.05 279.82
- -----------------------------------------------------------------------------------
</TABLE>
A-21
<PAGE>
ANNEX B
[Letterhead of Merrill Lynch, Pierce, Fenner & Smith Incorporated]
June 3, 1999
Board of Directors
Stimsonite Corporation
6565 West Howard Street
Niles, IL 60714
Members of the Board of Directors:
Stimsonite Corporation (the "Company") and Avery Dennison Corporation (the
"Acquiror") and Vision Acquisition Corporation, a wholly owned subsidiary of
the Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger, dated as of June 4, 1999 (the "Agreement"), pursuant to which
(i) the Acquiror and the Acquisition Sub would commence a tender offer (the
"Tender Offer") to purchase all of the outstanding shares of common stock, par
value $.01 per share, of the Company (the "Company Shares") for $14.75 per
share, net to the seller in cash, without interest (the "Consideration"), and
(ii) following the Tender Offer, the Acquisition Sub would be merged with the
Company in a merger (the "Merger"), in which each Company Share not acquired in
the Tender Offer, other than Company Shares held in treasury or held by the
Acquiror or any affiliate of the Acquiror or as to which dissenter's rights
have been perfected, would be converted into the right to receive the
Consideration. The Tender Offer and the Merger, taken together, are referred to
as the "Transaction."
You have asked us whether, in our opinion, the Consideration to be received
by the holders of the Company Shares pursuant to the Transaction is fair from a
financial point of view to such holders.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning the matters described in clauses 1 and 2 above;
(4) Reviewed the historical market prices, trading activity and valuation
multiples for the Company Shares and compared them with those of
certain publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and compared them
with those of certain publicly traded companies that we deemed to be
relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
B-1
<PAGE>
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed a draft, dated as of June 3, 1999 P.M., of the Agreement; and
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all of the financial and other information supplied or
otherwise made available to us by the Company, discussed with or reviewed by
or for us, or publicly available, and we have not assumed any responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of any of the assets or liabilities of the Company or
been furnished with any such evaluation or appraisal. In addition, we have not
assumed any obligation to conduct any physical inspection of the properties or
facilities of the Company. With respect to the financial forecast information
furnished to or discussed with us by the Company, we have assumed that they
have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's management as to the expected future
financial performance of the Company. We have also assumed that the final form
of the Agreement will be substantially similar to the last draft reviewed by
us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have not, in the past, provided
financial advisory and financing services to the Company or the Acquiror. In
addition, in the ordinary course of our business, we may actively trade the
Company Shares, as well as securities of the Acquiror, for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company in connection with their consideration of the Transaction. Our opinion
does not address the merits of the underlying decision by the Company to
engage in the Transaction and does not constitute a recommendation to any
shareholder as to whether such shareholder should tender any Company Shares
pursuant to the Tender Offer or, if a shareholder vote is required, how such
shareholder should vote on the Merger or any matter related thereto.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Consideration to be received by the holders of the
Company Shares pursuant to the Transaction is fair from a financial point of
view to the holders of such shares.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner &
Smith Incorporated
_____________________________________
MERRILL LYNCH, PIERCE, FENNER &
SMITH
INCORPORATED
B-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
99.1 Agreement and Plan of Merger, dated as of June 4, 1999, among Avery
Dennison Corporation, Vision Acquisition Corporation and Stimsonite
Corporation.
99.2 Tender and Stockholder Support Agreement, dated as of June 3, 1999, by
and among Avery Dennison Corporation and the stockholders of
Stimsonite Corporation set forth on the signature pages thereto.
99.3 Stockholder Indemnification Agreement, dated as of June 3, 1999, by
and among Stimsonite Corporation and the stockholders of Stimsonite
Corporation set forth in the signature page thereto.
99.4 Form of Change in Control Agreement between Stimsonite Corporation and
each of Thomas C. Ratchford and Robert E. Stutz.
99.5 Form of Change in Control Agreement between Stimsonite Corporation and
each of Michael A. Cherwin, Llewellyn C. Coffin, Clifford S. Deremo,
Daniel L. Lang and Robert M. Pricone.
99.6 Form of Special Incentive Bonus Agreement between Stimsonite
Corporation and each of Robert M. Pricone and Robert E. Stutz.
99.7 Form of Special Incentive Bonus Agreement between Stimsonite
Corporation and each of Clifford S. Deremo and Thomas C. Ratchford.
99.8 Form of Special Incentive Bonus Agreement between Stimsonite
Corporation and each of Michael A. Cherwin and Llewellyn C. Coffin.
99.9 Employment Agreement, dated March 22, 1997, between Stimsonite
Corporation and Robert E. Stutz (incorporated by reference to Exhibit
10.1 to Stimsonite Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (Commission File No. 0-
22978)).
99.10 Amendment, dated June 4, 1999, to Employment Agreement between
Stimsonite Corporation and Robert E. Stutz.
99.11 Stimsonite Corporation's Information Statement pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder (included as Annex
A to the Schedule 14D-9).
99.12 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated
June 3, 1999 (included as Annex B to the Schedule 14D-9).
99.13 Letter to Stockholders of Stimsonite Corporation, dated June 10, 1999
(included with the Schedule 14D-9 mailed to stockholders).
</TABLE>
<PAGE>
EXHIBIT 99.1
CONFIDENTIAL
------------
---------------------------------
AGREEMENT AND PLAN OF MERGER
among
AVERY DENNISON CORPORATION
VISION ACQUISITION CORPORATION
and
STIMSONITE CORPORATION
Dated as of June 4, 1999
---------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. THE OFFER......................................................... 2
1.1. The Offer......................................................... 2
1.2. Actions by Purchaser and Merger Sub............................... 3
1.3. Actions by the Company............................................ 4
1.4. Directors......................................................... 6
ARTICLE 2. THE MERGER........................................................ 6
2.1. The Merger........................................................ 6
2.2. The Closing....................................................... 7
2.3. Effective Time.................................................... 7
2.4. Effects of the Merger............................................. 7
ARTICLE 3. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE
SURVIVING CORPORATION............................................. 7
3.1. Certificate of Incorporation...................................... 7
3.2. Bylaws............................................................ 7
ARTICLE 4. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION............... 7
4.1. Directors......................................................... 7
4.2. Officers.......................................................... 8
ARTICLE 5. EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB
AND THE COMPANY................................................... 8
5.1. Merger Sub Stock.................................................. 8
5.2. Company Securities................................................ 8
5.3. Exchange of Certificates Representing Shares of Common Stock......10
5.4. Merger Without Meeting of Stockholders............................12
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................12
6.1. Existence; Good Standing; Corporate Authority.....................12
6.2. Authorization, Validity and Effect of Agreements..................12
6.3. Compliance with Laws..............................................13
6.4. Capitalization....................................................13
6.5. Subsidiaries......................................................14
6.6. No Violation......................................................14
6.7. Company Reports; Offer Documents..................................15
6.8. Absence of Certain Changes........................................16
6.9. Taxes.............................................................17
6.10. Employee Benefit Plans............................................18
6.11. Brokers...........................................................19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
6.12. Licenses and Permits..............................................19
6.13. Environmental Compliance and Disclosure...........................20
6.14. Title to Assets...................................................20
6.15. Labor and Employment Matters......................................21
6.16. Intellectual Property.............................................21
6.17. Material Agreements...............................................22
6.18. No Undisclosed Liabilities........................................23
6.19. Litigation........................................................23
6.20. Insurance.........................................................23
6.21. Millennium Compliance.............................................23
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
MERGER SUB........................................................24
7.1. Existence; Good Standing; Corporate Authority.....................24
7.2. Authorization, Validity and Effect of Agreements..................24
7.3. Offer Documents...................................................24
7.4. No Violation......................................................25
7.5. Financing.........................................................25
7.6. Purchaser-Owned Shares of Common Stock............................26
7.7. Interim Operations of Merger Sub..................................26
ARTICLE 8. COVENANTS.........................................................26
8.1. Interim Operations................................................26
8.2. Company Stockholder Approval; Proxy Statement.....................28
8.3. Filings; Other Action.............................................29
8.4. Publicity.........................................................30
8.5. Further Action....................................................30
8.6. Insurance; Indemnity..............................................30
8.7. Restructuring of Merger...........................................32
8.8. Employee Benefit Plans............................................32
8.9. Acceleration of Outstanding Indebtedness..........................32
8.10. Access to Information.............................................33
8.11. No Solicitation...................................................33
ARTICLE 9. CONDITIONS........................................................34
9.1. Conditions to Each Party's Obligation to Effect the Merger........34
ARTICLE 10. TERMINATION; AMENDMENT; WAIVER..................................35
10.1. Termination.......................................................35
10.2. Effect of Termination.............................................37
10.3. Amendment.........................................................38
10.4. Extension; Waiver.................................................38
ARTICLE 11. GENERAL PROVISIONS..............................................38
11.1. Nonsurvival of Representations and Warranties....................38
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
11.2. Notices..........................................................39
11.3. Assignment; Binding Effect.......................................39
11.4. Entire Agreement.................................................39
11.5. Fees and Expenses................................................40
11.6. Governing Law....................................................40
11.7. Headings.........................................................40
11.8. Interpretation...................................................40
11.9. Severability.....................................................40
11.10. Enforcement of Agreement.........................................40
11.11. Counterparts.....................................................41
11.12. Obligation of Purchaser..........................................41
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June
---------
4, 1999, is made and entered into among Avery Dennison Corporation, a Delaware
corporation ("Purchaser"), Vision Acquisition Corporation, a Delaware
---------
corporation and a wholly owned subsidiary of Purchaser ("Merger Sub"), and
----------
Stimsonite Corporation, a Delaware corporation (the "Company").
-------
RECITALS
WHEREAS, the boards of directors of Purchaser, Merger Sub and the
Company each have determined that it would be advisable and is in the best
interests of their respective companies and stockholders for Purchaser to
acquire the Company on the terms and subject to the conditions set forth herein;
and
WHEREAS, to effectuate the acquisition, Purchaser and the Company each
desire that Purchaser cause Merger Sub to commence a cash tender offer to
purchase all, and in any event not less than a majority on a fully diluted
basis, of the outstanding shares of common stock, par value $0.01 per share (the
"Common Stock"), of the Company on the terms and subject to the conditions set
------------
forth in this Agreement; and
WHEREAS, concurrently with the execution hereof and in order to induce
Merger Sub and Purchaser to enter into this Agreement, Merger Sub and Purchaser
are entering into a Tender and Stockholder Support Agreement (the "Tender
------
Agreement") with Edward T. Harvey Jr., Jay R. Taylor, and Terrence D. Daniels
- ---------
and certain affiliates of Messrs. Harvey and Daniels (each a "Significant
-----------
Stockholder") under which each Significant Stockholder is, among other things,
- -----------
agreeing to tender all of such Significant Stockholder's shares of Common Stock
in the Offer upon the terms and conditions set forth therein; and
WHEREAS, the board of directors of the Company (the "Board of
--------
Directors" or the "Board") has approved the tender offer and recommends (subject
- --------- -----
to the limitations contained herein) that the Company's stockholders accept the
tender offer and tender their shares of Common Stock pursuant thereto; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection herewith;
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
<PAGE>
ARTICLE 1.
THE OFFER
1.1. The Offer.
---------
(a) Subject to the provisions of this Agreement and this Agreement not
having been terminated in accordance with Article 10 hereof, as promptly as
----------
practicable but in any event within five business days after the date hereof,
Merger Sub shall commence, within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations
------------
promulgated thereunder, an offer to purchase (the "Offer") all, and in any event
-----
not less than a majority on a fully diluted basis, of the outstanding shares of
Common Stock at a price of $14.75 per share of Common Stock, net to the seller
in cash, without interest (such price or any higher price paid pursuant to the
Offer, the "Offer Consideration"). Notwithstanding the foregoing, if between
-------------------
the date of this Agreement and the closing of the Offer the outstanding shares
of Common Stock shall have been changed into a different number of shares or a
different class by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Offer
Consideration shall be correspondingly adjusted on a per-share basis to reflect
such stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares. The obligation of Purchaser and Merger Sub
to commence the Offer and accept for payment, and pay for, any shares of Common
Stock tendered pursuant to the Offer shall be subject to the conditions set
forth in Exhibit A hereto and to the terms and conditions of this Agreement.
---------
Subject to the provisions of this Agreement, the Offer shall expire 20 business
days after the date of its commencement, unless this Agreement is terminated in
accordance with Article 10, in which case the Offer (whether or not previously
----------
extended in accordance with the terms hereof) shall expire on such date of
termination.
(b) Merger Sub expressly reserves the right to modify the terms of the
Offer and to waive any condition of the Offer, except that, without the prior
written consent of the Company, Merger Sub shall not (and Purchaser shall cause
Merger Sub not to) (i) waive the Minimum Condition (as defined in Exhibit A),
---------
(ii) reduce the number of shares of Common Stock subject to the Offer, (iii)
reduce the price per share of Common Stock to be paid pursuant to the Offer,
(iv) except as set forth below, extend the Offer, (v) change the form of
consideration payable in the Offer, (vi) amend or modify any term or condition
of the Offer (including the conditions set forth on Exhibit A) in any manner
---------
adverse to the holders of Common Stock or (vii) impose additional conditions to
the Offer other than such conditions required by applicable law. So long as
this Agreement is in effect and the conditions to the Offer have not been
satisfied or waived, Merger Sub may, without the consent of the Company, extend
(or shall extend at the request of the Company) the Offer for an aggregate
period of not more than 20 business days (for all such extensions) beyond the
originally scheduled expiration date of the Offer. So long as this Agreement is
in effect and the conditions to the Offer have been satisfied or waived, Merger
Sub may, without the consent of the Company, extend the Offer for an aggregate
period of not more than 20 business days (for all such extensions) beyond the
originally scheduled expiration date of the Offer, if the number of shares of
Common Stock that have been validly tendered and not withdrawn represent less
than 90% of the issued and outstanding shares of the Common Stock.
2
<PAGE>
Notwithstanding the foregoing, Merger Sub may, without the consent of the
Company, extend the Offer for any period required by any rule, regulation,
interpretation or position of the SEC or the staff thereof applicable to the
Offer. It is agreed that the conditions set forth in Exhibit A are for the sole
---------
benefit of Merger Sub and Purchaser and may be asserted by Merger Sub or
Purchaser, or may be waived in whole or in part by Merger Sub or Purchaser, in
their sole discretion. The failure by Merger Sub or Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time. Subject to the terms and conditions of the Offer and this
Agreement, Merger Sub shall accept for payment and pay for, in accordance with
the terms of the Offer, all shares of Common Stock validly tendered and not
withdrawn pursuant to the Offer as soon as practicable after the expiration of
the Offer.
(c) Purchaser shall provide or cause to be provided to Merger Sub on a
timely basis the funds necessary to purchase any shares of Common Stock that
Merger Sub becomes obligated to purchase pursuant to the Offer and shall be
liable on a direct and primary basis for the performance by Merger Sub or the
Surviving Corporation (as defined in Section 2.1), as the case may be, of its
-----------
obligations under this Agreement with respect to the payment of the Offer
Consideration, the Option Consideration (as defined in Section 5.2(d)) and the
--------------
Merger Consideration (as defined in Section 5.2(b)).
--------------
1.2. Actions by Purchaser and Merger Sub. As soon as reasonably practicable
-----------------------------------
following execution of this Agreement, but in no event later than five business
days from the date hereof, Purchaser and Merger Sub shall file with the
Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
---
Schedule 14D-1 with respect to the Offer, which shall contain an offer to
purchase and a related letter of transmittal and any other ancillary documents
pursuant to which the Offer shall be made (such Schedule 14D-1 and the documents
therein pursuant to which the Offer will be made, together with any supplements
or amendments thereto, the "Offer Document"). The Company and its counsel shall
--------------
be given a reasonable opportunity to review and comment upon the Offer Documents
prior to the filing thereof with the SEC. The Offer Documents shall comply as to
form in all material respects with the requirements of the Exchange Act, and, on
the date filed with the SEC and on the date first published, sent or given to
the Company's stockholders, the Offer Documents shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
that no representation is made by Purchaser or Merger Sub with respect to
information supplied in writing by the Company for inclusion in the Offer
Documents. Each of Purchaser, Merger Sub and the Company agrees promptly to
correct any information provided by it for use in the Offer Documents if and to
the extent such information shall have become false or misleading in any
material respect, and each of Purchaser, Merger Sub and the Company further
agrees to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of shares of Common
Stock, in each case as and to the extent required by applicable federal
securities laws. Purchaser and Merger Sub agree to provide the Company and its
counsel with any comments Purchaser, Merger Sub or their counsel may receive
from the SEC or its staff with respect to the Offer Documents promptly after
receipt of such comments.
3
<PAGE>
1.3. Actions by the Company.
----------------------
(a) The Company hereby approves of and consents to the Offer and represents
and warrants that the Board of Directors at a meeting duly called and held has
duly adopted resolutions (i) approving this Agreement, the Offer and the Merger
(as defined in Section 2.1), determining that the Merger is advisable and that
-----------
the terms of the Offer and Merger are fair to, and in the best interests of, the
Company's stockholders and recommending that the Company's stockholders accept
the Offer and tender all of their shares of Common Stock to Merger Sub and
approve this Agreement and the transactions contemplated hereby, including the
Offer and the Merger, (ii) taking all action necessary to render Section 203 of
the Delaware General Corporation Law, as amended (the "DGCL"), inapplicable to
----
the Offer, the Merger, this Agreement, the Tender Agreement and any of the
transactions contemplated hereby and thereby and (iii) electing, to the extent
permitted by law, not to be subject to any "moratorium," "control share
acquisition," "business combination," "fair price" or other form of corporate
antitakeover laws and regulations of any jurisdiction that may purport to be
applicable to this Agreement or the Tender Agreement. The Company further
represents and warrants that the Board of Directors has received the written
opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Financial
---------
Advisor") that the proposed consideration to be received by the holders of
- -------
shares of Common Stock pursuant to the Offer and the Merger is fair to such
holders from a financial point of view (the "Fairness Opinion"). Subject to the
----------------
last sentence of this Section 1.3(a), the Company hereby consents to the
inclusion in the Offer Documents of the recommendation of the Board of Directors
described in the first sentence of this Section 1.3(a). The Company hereby
--------------
represents and warrants that it has been authorized by the Financial Advisor to
permit the inclusion of the Fairness Opinion and references thereto, subject to
prior review and consent by the Financial Advisor (such consent not to be
unreasonably withheld) in the Offer Documents, the Schedule 14D-9 (as defined in
Section 1.3(b)) and the Proxy Statement (as defined in Section 8.2(b)). The
- -------------- -------------
Company has been advised by each of its directors and executive officers that
each such person intends to tender all shares of Common Stock owned by such
person pursuant to the Offer, except to the extent of any restrictions created
by Section 16(b) of the Exchange Act. The Board of Directors shall not
withdraw, modify or amend its recommendations described above in a manner
adverse to Purchaser (or announce publicly its intention to do so) provided that
the disclosure of the receipt of an Acquisition Proposal (as defined in Section
-------
8.11) and the fact that the Board of Directors is considering such Acquisition
- ----
Proposal or reviewing it with its advisors shall not by itself constitute such a
withdrawal, modification or amendment, except that the Board shall be permitted
to withdraw, amend or modify its recommendation (or publicly announce its
intention to do so) of this Agreement or the Merger in a manner adverse to
Purchaser or approve or recommend or enter into an agreement with respect to a
Superior Proposal (as defined in Section 8.11) if the Company has complied with
------------
the terms of Section 8.11 and Section 10.1(d).
------------ --------------
(b) The Company shall use its reasonable best efforts to file with the SEC,
concurrently with the filing of the Offer Documents with the SEC, and in any
event the Company shall file within five days thereafter, a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9")
--------------
containing the recommendations described in the first sentence of Section
-------
4
<PAGE>
1.3(a) (subject to the last sentence of Section 1.3(a) and shall mail the
- ------ --------------
Schedule 14D-9 to the stockholders of the Company. To the extent practicable,
the Company shall cooperate with Purchaser in mailing or otherwise disseminating
the Schedule 14D-9 with the appropriate Offer Documents to the Company's
stockholders. Purchaser and its counsel shall be given a reasonable opportunity
to review and comment upon the Schedule 14D-9 prior to the filing thereof with
the SEC. The Schedule 14D-9 shall comply as to form in all material respects
with the requirements of the Exchange Act and, on the date filed with the SEC
and on the date first published, sent or given to the Company's stockholders,
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that no representation is made by the Company with
respect to information supplied by Purchaser or Merger Sub for inclusion in the
Schedule 14D-9. Each of the Company, Purchaser and Merger Sub agrees promptly to
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to the holders of shares of Common Stock, in each case as and to
the extent required by applicable federal securities laws. The Company agrees to
provide Purchaser and Merger Sub and their counsel in writing with any comments
the Company or its counsel may receive from the SEC or its staff with respect to
the Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish promptly to Merger Sub mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of those
persons becoming record holders subsequent to such date, and to furnish copies
of other information in the Company's possession or control regarding the
beneficial owners of Common Stock, and shall furnish to Merger Sub such
information and assistance (including updated lists of stockholders, security
position listings and computer files) as Merger Sub may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of law, and except for such steps as are necessary to disseminate
the Offer Documents and any other documents necessary to consummate the Offer
and the Merger, Purchaser and Merger Sub and each of their affiliates and
associates shall hold in confidence the information contained in any of such
labels, lists and files, shall use such information only in connection with the
Offer and the Merger, and, if this Agreement is terminated, shall promptly
deliver to the Company all copies of such information then in their possession
or under their control.
(d) Subject to the terms and conditions of this Agreement, if there shall
occur a change in law or in a binding judicial interpretation of existing law
that would, in the absence of action by the Company or the Board, prevent Merger
Sub, were it to acquire a specified percentage of the shares of Common Stock
then outstanding, from adopting this Agreement by its affirmative vote as the
holder of a majority of shares of Common Stock and without the affirmative vote
of any other stockholder, the Company will use its best efforts to promptly take
or cause such action to be taken.
5
<PAGE>
1.4. Directors.
---------
(a) Upon the purchase of shares of Common Stock pursuant to the
consummation of the Offer, Purchaser shall be entitled to designate such number
of directors, rounded up to the next whole number, as will give Purchaser
representation on the Board of Directors equal to the product of (i) the number
of authorized directors on the Board of Directors (giving effect to the
directors elected pursuant to this Section 1.4) and (ii) the percentage that the
-----------
number of shares of Common Stock purchased by Merger Sub or Purchaser or any
affiliate thereof bears to the aggregate number of shares of Common Stock
outstanding (the "Percentage"), and the Company shall, upon the election and
----------
request by Purchaser, promptly increase the size of the Board of Directors
and/or secure the resignations of such number of directors as is necessary to
enable Purchaser's designees to be elected to the Board of Directors and shall
cause Purchaser's designees to be so elected. At the request of Purchaser, the
Company will cause such individuals designated by Purchaser to constitute the
same Percentage of (i) each committee of the Board, (ii) the board of directors
of each Subsidiary (as defined in Section 11.8) of the Company and (iii) the
------------
committees of each such board of directors. The Company's obligations to seek
to appoint designees to the Board of Directors shall be subject to Section 14(f)
of the Exchange Act. The Company shall promptly take all appropriate action
necessary to effect any such election and shall, subject to the next succeeding
sentence, include in the Schedule 14D-9 the information required by Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Purchaser will
supply to the Company in writing and be solely responsible for any information
with respect to itself and its nominees, directors and affiliates required by
Section 14(f) and Rule 14f-1. Notwithstanding the foregoing, the parties hereto
shall use their respective reasonable efforts to ensure that at least three of
the members of the Board of Directors shall at all times prior to the Effective
Time be Continuing Directors (as defined in Section 1.4(b)).
--------------
(b) Following the election or appointment of Purchaser's designees pursuant
to this Section 1.4 and prior to the Effective Time (as defined in Section 2.3),
----------- -----------
the approval of a majority of the directors of the Company then in office who
are not designated by Purchaser (the "Continuing Directors") shall be required
--------------------
to authorize (and such authorization shall constitute the authorization of the
Board of Directors and no other action on the part of the Company, including any
action by any other director of the Company, shall be required to authorize) any
termination of this Agreement by the Company, any amendment of this Agreement
requiring action by the Board of Directors, any extension of time for the
performance of any of the obligations or other acts of Purchaser or Merger Sub,
and any waiver of compliance with any of the agreements or conditions contained
herein for the benefit of the Company.
ARTICLE 2.
THE MERGER
2.1. Merger. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, Merger Sub shall be merged with and into the Company in
accordance with this Agreement and the applicable provisions of the DGCL, and
the separate corporate existence of
6
<PAGE>
Merger Sub shall thereupon cease (the "Merger"). The Company shall be the
------
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation").
- ---------------------
2.2. The Closing. Subject to the terms and conditions of this Agreement,
-----------
the closing of the Merger (the "Closing") shall take place at the offices of
Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago, Illinois 60601, at 10:00
a.m., local time, as soon as practicable following the satisfaction (or waiver
if permissible) of the conditions set forth in Article 9. The date on which the
---------
Closing occurs is hereinafter referred to as the "Closing Date."
------------
2.3. Effective Time. If all the conditions to the Merger set forth in
--------------
Article 9 shall have been fulfilled or waived in accordance herewith and this
- ---------
Agreement shall not have been terminated as provided in Article 10, the parties
hereto shall cause a certificate of merger meeting the requirements of Section
251 of the DGCL and any other appropriate documents to be properly executed and
filed in accordance with such Section 251 on the Closing Date (or on such other
date as Purchaser and the Company may agree). The Merger shall become effective
at the time of filing of the certificate of merger with the Secretary of State
of the State of Delaware in accordance with the DGCL or at such later time that
the parties hereto shall have agreed upon and designated in such filing as the
effective time of the Merger (the "Effective Time").
--------------
2.4. Effects of the Merger. The Merger shall have the effects set forth in
---------------------
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all property of the
Company and Merger Sub shall vest in the Surviving Corporation, and all
liabilities and obligations of the Company and Merger Sub shall become
liabilities and obligations of the Surviving Corporation.
ARTICLE 3.
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
3.1. Certificate of Incorporation. The certificate of incorporation of the
----------------------------
Company in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law and the terms thereof.
3.2. Bylaws. The bylaws of Merger Sub in effect immediately prior to the
------
Effective Time shall be the bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law, the terms thereof and the Surviving
Corporation's certificate of incorporation.
ARTICLE 4.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
4.1. Directors. The directors of Merger Sub immediately prior to the
---------
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time and until their
7
<PAGE>
successors are duly appointed or elected in accordance with applicable law and
the Surviving Corporation's certificate of incorporation and bylaws.
4.2. Officers. The officers of Merger Sub immediately prior to the
--------
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law and the Surviving Corporation's certificate of
incorporation and bylaws.
ARTICLE 5.
EFFECT OF THE MERGER ON SECURITIES
OF MERGER SUB AND THE COMPANY
5.1. Merger Sub Stock. At the Effective Time, each share of common stock,
----------------
par value $0.01 per share, of Merger Sub outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $0.01 per share,
of the Surviving Corporation.
5.2. Company Securities.
------------------
(a) Each share of Common Stock issued and outstanding immediately prior to
the Effective Time that is owned by the Company or any Subsidiary of the Company
or by Purchaser, Merger Sub or any other Subsidiary of Purchaser (other than
shares held in trust accounts, managed accounts, custodial accounts and the like
that are beneficially owned by third parties) shall automatically be canceled
and retired and shall cease to exist, and no cash or other consideration shall
be delivered or deliverable in exchange therefor.
(b) Each share of Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares of Common Stock to be canceled and retired
in accordance with Section 5.2(a) and any Dissenting Common Stock (as defined in
--------------
Section 5.2(c)) shall be converted into the right to receive the Offer
- --------------
Consideration, payable in cash to the holder thereof, without any interest
thereon (the "Merger Consideration"), in accordance with Section 5.3.
-------------------- ------------
Notwithstanding the foregoing, if between the date of this Agreement and the
Effective Time the outstanding shares of Common Stock shall have been changed
into a different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Merger Consideration shall be correspondingly adjusted
on a per-share basis to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(c) Notwithstanding any provision of this Agreement to the contrary, if
required by the DGCL but only to the extent required thereby, shares of Common
Stock that are issued and outstanding immediately prior to the Effective Time
and that are held by holders of such shares of Common Stock who have properly
exercised appraisal rights with respect thereto in accordance with Section 262
of the DGCL (the "Dissenting Common Stock") will not be exchangeable for the
-----------------------
right to receive the Merger Consideration, and holders of such shares of
Dissenting Common Stock will be entitled to receive payment of the appraised
value of such
8
<PAGE>
shares of Common Stock in accordance with the provisions of such Section 262
unless and until such holders fail to perfect or effectively withdraw or lose
their rights to appraisal and payment under the DGCL. If, after the Effective
Time, any such holder fails to perfect or effectively withdraws or loses such
right, such shares of Common Stock will thereupon be treated as if they had been
converted into and become exchangeable for, at the Effective Time, the right to
receive the Merger Consideration, without any interest thereon. The Company will
promptly give Purchaser notice of any demands received by the Company for
appraisals of shares of Common Stock. The Company shall not, except with the
prior written consent of Purchaser, make any payment with respect to any demands
for appraisal or settle any such demands.
(d) Subject to Section 5.3, at the Effective Time, each holder of a then-
-----------
outstanding option to purchase shares of Common Stock under any plan, program or
arrangement of the Company (collectively, the "Stock Option Plans") (true and
------------------
correct copies of which have been provided to Purchaser by the Company), whether
or not then exercisable (individually, an "Option" and collectively, the
------
"Options"), shall, in settlement thereof, receive for each share of Common Stock
- --------
subject to such Option an amount (subject to any applicable withholding tax) in
cash equal to the difference between the Merger Consideration and the per share
exercise price of such Option to the extent such difference is a positive number
(such amount being hereinafter referred to as the "Option Consideration").
--------------------
Payment for Options shall be made by the Company, subject to the terms and
conditions of this Agreement, as soon as practicable after consummation of the
Offer. Upon receipt of the Option Consideration therefor, each Option shall be
deemed canceled. The surrender of an Option to the Company in exchange for the
Option Consideration shall be deemed a release of any and all rights the holder
had or may have had in respect of such Option.
Either prior to or as soon as practicable following the consummation
of the Offer, the Board of Directors (or, if appropriate, any committee of the
Board of Directors administering the Stock Option Plans) shall adopt such
resolutions or take other such actions as are required to cause any Options that
are not exercisable as of the date hereof to become exercisable at the Effective
Time. All amounts payable pursuant to this Section 5.2(d) shall be subject to
--------------
any required withholding of taxes and shall be paid without interest:
(e) The Surviving Corporation's obligation to make the cash payment
described in Section 5.2(d): (i) shall be subject to obtaining from optionees
--------------
any necessary consents to the cancellation of the applicable Options, and
agreements from such optionees releasing any and all rights such optionees may
have in respect of the applicable Options; and (ii) shall not require any action
that violates any of the Stock Option Plans. Except as otherwise may be agreed
to by the parties, the Company shall take all necessary action prior to the
consummation of the Offer to assure that (x) the Stock Option Plans shall
terminate as of the Effective Time and the provisions in any other plan, program
or arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any Subsidiary thereof shall be
canceled as of the Effective Time and (y) at and after the Effective Time no
participant in the Stock Option Plans or other plans, programs or arrangements
shall have any right thereunder to acquire any equity securities of the Company,
the Surviving Corporation or any Subsidiary thereof and that all such plans will
be terminated.
9
<PAGE>
5.3. Exchange of Certificates Representing Shares of Common Stock.
------------------------------------------------------------
(a) Prior to the Effective Time, Purchaser shall appoint a commercial bank
or trust company having net capital of not less than $200 million, which shall
be reasonably satisfactory to the Company, to act as paying agent hereunder (the
"Paying Agent") for payment of the Merger Consideration upon surrender of a
------------
certificate or certificates (each, a "Certificate") representing such shares of
-----------
Common Stock. Prior to or concurrently with the Effective Time, Purchaser shall
cause Merger Sub or the Surviving Corporation, as the case may be, to provide
the Paying Agent with cash in amounts necessary to pay for all the shares of
Common Stock pursuant to Section 5.2(b). Such amounts shall hereinafter be
--------------
referred to as the "Exchange Fund."
-------------
(b) Promptly after the Effective Time, Purchaser shall cause the Paying
Agent to mail to each holder of record of shares of Common Stock (i) a letter of
transmittal that shall specify that delivery shall be effected, and risk of loss
and title to such Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and which letter shall be in such form and have
such other provisions as Purchaser may reasonably specify and (ii) instructions
for effecting the surrender of such Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate to the Paying Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be required
by the Paying Agent, the holder of such Certificate shall promptly receive in
exchange therefor the amount of cash into which shares of Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 5.2, and the shares represented by the Certificate so surrendered
-----------
shall forthwith be canceled. No interest will be paid or will accrue on the
cash payable upon surrender of any Certificate. In the event of a transfer of
ownership of Common Stock that is not registered in the transfer records of the
Company, payment may be made with respect to such Common Stock to such a
transferee if the Certificate representing such shares of Common Stock is
presented to the Paying Agent, accompanied by all documents reasonably required
to evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) As of the Effective Time, all shares of Common Stock (other than shares
of Common Stock to be canceled and retired in accordance with Section 5.2(a) and
--------------
any shares of Dissenting Common Stock) issued and outstanding immediately prior
to the Effective Time shall cease to be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of any such
shares shall cease to have any rights with respect thereto or arising therefrom
(including, without limitation, the right to vote), except the right to receive
the Merger Consideration, without interest, upon surrender of the Certificate
representing such shares in accordance with Section 5.3(b), and until so
--------------
surrendered, the Certificate representing such shares shall represent for all
purposes only the right to receive the Merger Consideration, without interest.
The Merger Consideration paid upon the surrender for exchange of Certificates in
accordance with the terms of this Section 5.3 shall be deemed to have been paid
-----------
in full satisfaction of all rights pertaining to the shares of Common Stock
theretofore represented by such Certificates.
10
<PAGE>
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged as provided in this Article 5.
---------
(e) The Paying Agent shall invest the Exchange Fund, as directed by
Purchaser, in (i) direct obligations of the United States of America, (ii)
obligations for which the full faith and credit of the United States of America
is pledged to provide for the payment of principal and interest, (iii)
commercial paper rated the highest quality by either Moody's Investors Services,
Inc. or Standard & Poor's Corporation or (iv) certificates of deposit, bank
repurchase agreements or bankers' acceptances of commercial banks with capital
exceeding $500 million. Any net earnings with respect to the Exchange Fund
shall be the property of and paid over to Purchaser as and when requested by
Purchaser; provided, however, that any such investment or any such payment of
-------- -------
earnings may not delay the receipt by holders of Certificates of any Merger
Consideration.
(f) Any portion of the Exchange Fund (including the proceeds of any
interest and other income received by the Paying Agent in respect of all such
funds) that remains unclaimed by the former stockholders of the Company one year
after the Effective Time shall be delivered to the Surviving Corporation. Any
former stockholders of the Company who have not theretofore complied with this
Article 5 shall thereafter look only to the Surviving Corporation for payment of
- ---------
any Merger Consideration that may be payable in respect of each share of Common
Stock such stockholder holds as determined pursuant to this Agreement, without
any interest thereon.
(g) None of Purchaser, the Company, the Surviving Corporation, the Paying
Agent or any other person shall be liable to any former holder of shares of
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(h) If any Certificate is lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the posting
by such person of a bond in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
(i) Except as otherwise provided herein or in the letter of transmittal
referred to in Section 5.3(b), Purchaser shall pay all charges and expenses (but
--------------
excluding income and withholding taxes), including those of the Paying Agent, in
connection with the exchange of the Merger Consideration for Certificates.
(j) Purchaser shall be entitled to deduct and withhold, or cause to be
deducted or withheld, from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Common Stock or Options such amounts as are
required to be deducted and withheld
11
<PAGE>
with respect to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provision of applicable state, local or
----
foreign tax law. To the extent that amounts are so deducted and withheld, such
deducted and withheld amounts shall be treated for all purposes of this
Agreement as having been paid to such holders in respect of which such deduction
and withholding was made.
5.4. Merger Without Meeting of Stockholders.
--------------------------------------
Notwithstanding the foregoing, if Merger Sub, or any other direct or
indirect subsidiary of Purchaser, shall acquire at least 90 percent of the
outstanding shares of Common Stock, the parties hereto shall take all necessary
and appropriate action to cause the Merger to become effective as soon as
practicable, and in any event within five business days, after the expiration of
the Offer without a meeting of stockholders of the Company, in accordance with
Section 253 of the DGCL.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections of the disclosure
letter, dated the date hereof, delivered by the Company to Purchaser (the
"Disclosure Letter"), the Company hereby represents and warrants to Purchaser
- ------------------
and Merger Sub as follows:
6.1. Existence; Good Standing; Corporate Authority. Each of the Company
---------------------------------------------
and its Subsidiaries is (a) duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and (b) is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States or the laws of
any foreign jurisdiction, if applicable, in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where the failure to be so qualified
or to be in good standing could not reasonably be expected to (i) materially
adversely affect the assets, liabilities, business, results of operations or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole or (ii) adversely affect or delay the ability of the Company on the one
hand, or Merger Sub and Purchaser on the other, to consummate the transactions
contemplated by this Agreement or the Tender Agreement (either of the foregoing
clauses (i) or (ii) being a "Material Adverse Effect"). Each of the Company and
-----------------------
its Subsidiaries has all requisite corporate power and authority to own, operate
and lease its properties and carry on its business as now conducted except where
the failure to have such power and authority could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. The Company
has heretofore made available to Purchaser true and correct copies of the
certificate of incorporation and bylaws or other governing instruments of the
Company and each of its Subsidiaries (as defined in Section 11.8) as currently
------------
in effect.
6.2. Authorization, Validity and Effect of Agreements. The Company has the
------------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby or executed in connection
herewith to which it is a party (the "Ancillary Documents") and subject, if
-------------------
required with respect to the consummation of the Merger,
12
<PAGE>
to the approval of holders of the Common Stock, to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors, and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement and the Ancillary
Documents or to consummate the transactions contemplated hereby and thereby
(other than the adoption of this Agreement by the holders of the Common Stock if
required by applicable law). This Agreement has been, and any Ancillary Document
at the time of execution will have been, duly and validly executed and delivered
by the Company, and (assuming this Agreement and such Ancillary Documents each
constitute a valid and binding obligation of Purchaser and Merger Sub)
constitutes and will constitute the valid and binding obligations of the
Company, enforceable in accordance with their respective terms. The Company has
taken all actions necessary to render the restrictions of Section 203 of the
DGCL to be inapplicable to the transactions contemplated by this Agreement and
the Tender Agreement, including without limitation the Offer and the Merger.
6.3. Compliance with Laws. Neither the Company nor any of its Subsidiaries
--------------------
is or has been in violation of any foreign, federal, state or local law,
statute, ordinance, rule, regulation, order, judgment, ruling or decree of any
foreign, federal, state or local judicial, legislative, executive,
administrative or regulatory body or authority or any court, arbitration, board
or tribunal ("Governmental Entity") applicable to the Company or any of its
-------------------
Subsidiaries or any of their respective properties or assets, except for
violations that could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
6.4. Capitalization. The authorized capital stock of the Company consists
--------------
of 15,000,000 shares of Common Stock. As of June 2, 1999, 8,444,377 shares of
Common Stock were issued and outstanding, (b) Options to purchase an aggregate
of 819,882 shares of Common Stock were outstanding, (c) 635,500 shares of Common
Stock held by the Company in its treasury and (d) no shares of capital stock of
the Company were held by the Company's Subsidiaries. The Company has no
outstanding bonds, debentures, notes or other obligations entitling the holders
thereof to vote (or that are convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matter.
Since June 2, 1999, the Company (i) has not issued any shares of Common Stock
other than upon the exercise of Options, (ii) has granted no Options to purchase
shares of Common Stock under the Stock Option Plans and (iii) has not split,
combined, converted or reclassified any of its shares of capital stock. All
issued and outstanding shares of Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth in this Section 6.4, there are no other shares of capital stock or voting
-----------
securities of the Company, and no existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments that obligate the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock of, or equity interests in, the
Company or any of its Subsidiaries. There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of the Company and there are no performance awards
outstanding under the Stock Option Plans or any other outstanding stock-related
awards. There are no voting trusts or other agreements or understandings to
which the Company or any of
13
<PAGE>
its Subsidiaries or, to the knowledge of the Company, any of the Company's
directors or executive officers is a party with respect to the voting of capital
stock of the Company or any of its Subsidiaries.
6.5. Subsidiaries. (a) The Company owns directly, or indirectly through a
------------
Subsidiary, all the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect directors or
others performing similar functions with respect to such Subsidiary) of each of
the Company's Subsidiaries, and (b) each of the outstanding shares of capital
stock (or other ownership interests having by their terms ordinary voting power
to elect directors or others performing similar functions with respect to such
Subsidiary) of each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and is owned directly or indirectly by the
Company free and clear of all liens, pledges, security interests, claims or
other encumbrances ("Encumbrances").
------------
6.6. No Violation. Neither the execution and delivery by the Company of
------------
this Agreement or any of the Ancillary Documents nor the consummation by the
Company of the transactions contemplated hereby or thereby will: (a) violate,
conflict with or result in a breach of any provisions of the certificate of
incorporation or bylaws of the Company; (b) violate, conflict with, result in a
breach of any provision of, constitute a default (or an event that, with notice
or lapse of time or both, would constitute a default) under, result in the
termination or in a right of termination of, accelerate the performance required
by or benefit obtainable under, result in the triggering of any payment, penalty
or other obligations pursuant to, result in the creation of any Encumbrance upon
any of the properties owned or used by the Company or its Subsidiaries under, or
result in there being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract or other obligation (financial or otherwise)
(each, a "Contract" and, collectively, "Contracts") to which the Company or any
-------- ---------
of its Subsidiaries is a party, or by which the Company or any of its
Subsidiaries or any of their respective properties is bound, except for any such
breach, default or right with respect to which requisite waivers or consents
have been obtained, or any of the foregoing matters that could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
(c) require any consent, approval or authorization of, license, permit or waiver
by, or declaration, filing or registration (collectively, "Consents") with, any
-------
Governmental Entity, including any such Consent under the laws of any foreign
jurisdiction, other than (i) the filings provided for in Section 2.3 and the
-----------
filings required under the Exchange Act and the Securities Act of 1933, as
amended (the "Securities Act") and (ii) the filing required under the
--------------
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
---
Act"), and any other applicable law governing antitrust or competition matters,
- ---
and any Consents required or permitted to be obtained pursuant to the laws of
any foreign jurisdiction relating to antitrust matters or competition ("Foreign
-------
Antitrust Laws") (collectively, "Other Antitrust Filings and Consents", together
- -------------- ------------------------------------
with the other filings described in clauses (i) and (ii) above, "Regulatory
----------
Filings" except for those Consents the failure of which to obtain or make could
- -------
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; (d) violate any laws applicable to the Company or any of its
Subsidiaries, except for violations that could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or (e)
subject the Company or (by reason of the
14
<PAGE>
Company's participation therein) the Offer or the Merger to any "moratorium,"
"control share acquisition," "business combination," "fair price" or other form
of corporate antitakeover laws and regulations.
6.7. Company Reports; Offer Documents.
--------------------------------
(a) The Company has previously made available to Purchaser and Merger Sub
true and complete copies of (i) its Annual Report on Form 10-K for each of the
fiscal years ended December 31, 1996, 1997 and 1998, filed by the Company with
the SEC, (ii) proxy statements relating to all of the Company's meetings of
stockholders held or scheduled to be held since December 31, 1996 and (iii) each
other registration statement, proxy or information statement, Quarterly Report
on Form 10-Q or Current Report on Form 8-K filed since December 31, 1996 by the
Company with the SEC (such items referenced in (i) through (iii), the "Company
-------
Reports"). Since December 31, 1996, the Company has complied in all material
- -------
respects with its SEC filing obligations under the Exchange Act and the
Securities Act. Since December 31, 1996, except as disclosed in a subsequent
Company Report, there has not occurred an event or circumstance that, but for
the passage of time, would be required to be disclosed in a Company Report.
Except as set forth in or amended by a subsequent Company Report, the financial
statements and related schedules and notes thereto of the Company contained in
the Company Reports (or incorporated therein by reference) were prepared in
accordance with generally accepted accounting principles (except in the case of
interim unaudited financial statements) applied on a consistent basis except as
noted therein, and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended, subject in the case of interim unaudited financial
statements to normal year-end audit adjustments, and, except as set forth in or
amended by a subsequent Company Report, such financial statements complied as to
form as of their respective dates in all material respects with applicable rules
and regulations of the SEC. Each Company Report was prepared in accordance with
the requirements of the Securities Act or the Exchange Act, as applicable, and
did not, as of the date of effectiveness in the case of a registration
statement, the date of mailing in the case of a proxy statement and the date of
filing in the case of other Company Reports, except as set forth in or amended
by a subsequent Company Report, 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 therein, in the light of the circumstances under which they
were made, not misleading.
(b) None of the Schedule 14D-9, any information statement filed by the
Company in connection with the Offer pursuant to Rule 14f-1 under the Exchange
Act (the "Information Statement"), any schedule required to be filed by the
---------------------
Company with the SEC or any amendment or supplement thereto, at the respective
times such documents are filed with the SEC and first published, sent or given
to the Company's stockholders, will contain any untrue statement of a material
fact or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading except that no
representation is made by the Company with respect to information supplied by
Purchaser or Merger Sub for inclusion in the Schedule 14D-9 or Information
Statement or any amendment or supplement to such information supplied by
15
<PAGE>
Purchaser or Merger Sub. None of the information supplied or to be supplied by
the Company for inclusion or incorporation by reference in the Offer Documents
will, at the date of filing with the SEC, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If, at any time prior
to the Effective Time, the Company shall obtain knowledge of any facts with
respect to itself, any of its officers or directors or any of its Subsidiaries
that would require the supplement or amendment to any of the foregoing documents
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or to comply with applicable laws, such
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the stockholders of the Company, and in the event Purchaser
shall advise the Company as to its obtaining knowledge of any facts that would
make it necessary to supplement or amend any of the foregoing documents, the
Company shall promptly amend or supplement such document, and such amendment or
supplement shall be promptly filed with the SEC, and as required by law
disseminated to the stockholders of the Company.
6.8. Absence of Certain Changes. During the period from December 31, 1998,
--------------------------
to and including the date of this Agreement, the Company and its Subsidiaries
have conducted their business in the ordinary course of such business consistent
with past practices, and there have not been (a) any events or states of fact
that could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect; (b) any declaration, setting aside or payment of any
dividend or other distribution with respect to its capital stock; (c) any
repurchase, redemption or any other acquisition by the Company or its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or its Subsidiaries; (d) any
material change in accounting principles, practices or methods; (e) any entry
into any employment agreement with, or any increase in the rate or terms
(including, without limitation, any acceleration of the right to receive
payment) of compensation payable or to become payable by the Company or any of
its Subsidiaries to, their respective directors, officers or employees, except
for regularly scheduled employee raises in the ordinary course of business
consistent with the Company's past practices or raises that, in the case of
executive officers, have been approved by the compensation committee of the
Board of Directors prior to the date hereof in the ordinary course of business
consistent with the committee's past practices; (f) any increase in the rate or
terms (including, without limitation, any acceleration of the right to receive
payment) of any bonus, insurance, pension or other employee benefit plan or
arrangement covering any such directors, officers or employees, except, in the
case of employees, increases occurring in the ordinary course of business
consistent with the Company's past practices; (g) any revaluation by the Company
or any of its Subsidiaries of any material amount of their assets, taken as a
whole, including, without limitation, write-downs of inventory or write-offs of
accounts receivable other than in the ordinary course of business consistent
with past practices; (h) any material adverse change in the business
relationship with any material customer, distributor or supplier of the Company
or its Subsidiaries; and (i) any action of the type described in Sections 8.1(a)
--------------
or 8.1(b) that had such action been taken after the date of this Agreement would
------
be in violation of any such Section.
16
<PAGE>
6.9. Taxes. The Company and each of its Subsidiaries have timely filed and
-----
will have timely filed on or prior to the Effective Time all Tax Returns (as
hereinafter defined) required to be filed by any of them. All such Tax Returns
are true, correct and complete. All Taxes (as hereinafter defined) of the
Company and its Subsidiaries that are shown as due on such Tax Returns, or are
otherwise due and payable, or are claimed or asserted by any taxing authority to
be due, have been paid or will have been paid on or before the Effective Time,
or adequate reserves (in conformity with generally accepted accounting
principles applied on a consistent basis and consistent with such entity's past
custom and practice) have been established therefor or will be established
therefor on or before the Effective Time, except for those Taxes being contested
in good faith and for which adequate reserves have been established in the
financial statements included in the Company Reports in accordance with
generally accepted accounting principles applied on a consistent basis and
consistent with such entity's past custom and practice. No deficiencies for
Taxes of the Company or any of its Subsidiaries have been claimed, proposed or
assessed by any taxing or other governmental authority that are not being
contested in good faith by the Company or a Subsidiary and for which adequate
reserves have not been established in the financial statements included in the
Company Reports in accordance with generally accepted accounting principles
applied on a consistent basis and consistent with past practice. There are no
pending or, to the best of the Company's and its Subsidiaries' knowledge,
threatened audits, investigations or claims for or relating to any liability in
respect of Taxes of the Company or its Subsidiaries, and there are no on-going
negotiations with any taxing or other governmental authority with respect to
Taxes of the Company or its Subsidiaries. No extension of a statute of
limitations relating to Taxes is in effect with respect to the Company or any of
its Subsidiaries. The Company and each Subsidiary have withheld and paid over to
the relevant taxing authority all Taxes required to have been withheld and paid
in connection with payments to employees, independent contractors, creditors,
stockholders or other third parties. The Company and its Subsidiaries are not
parties to or bound by any tax sharing, tax indemnity or tax allocation
agreement or other similar arrangement with any other person or entity. There
are no liens for Taxes (other than for Taxes not yet delinquent) upon the assets
of the Company or any of its Subsidiaries. The Company and its Subsidiaries have
never been members of an affiliated group of corporations within the meaning of
Section 1504 of the Code, with the exception of the common group for which the
Company is the common parent, nor has the Company or any of its Subsidiaries, or
any predecessor or affiliate of any of them, become liable (whether by contract,
as transferee or successor, by law or otherwise) for the Taxes of any other
person or entity under Treasury Regulation Section 1.1502-6 or any similar
provision of state, local or foreign law. The Company and its Subsidiaries have
not been "United States real property holding corporations" within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. For purposes of this Agreement, (i) "Tax"
---
(and, with correlative meaning, "Taxes") means any federal, state, local or
-----
foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty or other additions to Tax, imposed by any
Governmental Entity and (ii) "Tax Return" means any return, report or similar
----------
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
17
<PAGE>
6.10. Employee Benefit Plans.
----------------------
(a) Copies of all material employee benefit plans (including without
limitation all "employee benefit plans" as defined in Section 3(3) of ERISA)
which cover or have covered employees, former employees or directors of the
Company or any of its ERISA Affiliates (as hereinafter defined) or any person
treated by the Company or an ERISA Affiliate as an independent contractor for
tax purposes ("Independent Contractor") and all other plans, policies,
----------------------
arrangements and agreements providing material compensation, severance or other
benefits to any current or former employee, director or Independent Contractor
of the Company or any of its Subsidiaries (the "Company Benefit Plans") are
---------------------
listed on Schedule 6.10 attached hereto, and copies of all such Company Benefit
Plans and all Benefit Plan Related Documents (as hereinafter defined) have
previously been provided to Purchaser. To the extent applicable, the Company
Benefit Plans comply with the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Code and any other applicable
-----
law. None of any Company Benefit Plan, or any officer, employee, former
employee or director of the Company, any Subsidiary or any ERISA Affiliate, or
the Company or any of its Subsidiaries or ERISA Affiliates has incurred any
liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA
or has engaged in any transaction that is reasonably likely to result in any
such liability or penalty.
(b) Neither the Company nor any ERISA Affiliate has ever (i) maintained any
Company Benefit Plan which has been subject to Title IV of ERISA, (ii) been
required to contribute to, or otherwise incurred any liability in connection
with, any "multiemployer plan" as defined in Section 4001(a)(3) or Section 3(37)
of ERISA, (iii) except to the extent reflected in the financial statements (and
the notes thereto) attached to the Company's Annual Report filed on Form 10-K
for the fiscal year ended December 31, 1998, provided heath care or any other
non-pension benefits to any employees after their employment is terminated
(other than as required by Part 6 of Subtitle B of Title I of ERISA), or (iv)
maintained any Company Benefit Plan or other contract that individually or
collectively provides for the payment by the Company or any of its Subsidiaries
of any amount that is or could be an "excess parachute payment" pursuant to
Section 280G of the Code or that is not or would not be deductible under Section
162(a)(1) of the Code or Section 404 of the Code.
(c) Neither the execution and delivery of this Agreement by the Company nor
the consummation of the transactions contemplated hereby or any related
transactions will result in the acceleration or creation of any rights of any
person to benefits under any Company Benefit Plan (including, without
limitation, the acceleration of the vesting or exercisability of any stock
options, the acceleration of the vesting of any restricted stock, the
acceleration of the accrual or vesting of any benefits under any pension plan or
the acceleration or creation of any rights under any severance, parachute or
change in control agreement).
(d) There is no action, order, writ, injunction, judgment or decree
outstanding or claim (other than routine claims for benefits), suit, litigation,
proceeding, arbitral action, governmental audit or investigation relating to or
seeking benefits under any Company Benefit Plan that is pending, threatened or
anticipated against the Company, any ERISA Affiliate or any
18
<PAGE>
Company Benefit Plan. Neither the Company nor any ERISA Affiliate has any
announced plan or legally binding commitment to create any additional employee
benefit plans or agreements of the Company or any ERISA Affiliate or to amend or
modify any existing Company Benefit Plan.
(e) No event has occurred in connection with which the Company, any ERISA
Affiliate or any Company Benefit Plan, directly or indirectly, could be subject
to any material liability (i) under any statute, regulation or governmental
order relating to any Company Benefit Plan or (ii) pursuant to any obligation of
the Company or any ERISA Affiliate to indemnify any person against liability
incurred under any such statute, regulation or order as they relate to the
Company Benefit Plans.
(f) For purposes of this Agreement, "ERISA Affiliate" means any business or
entity that is a member of the same "controlled group of corporations" under
"common control" or an "affiliated service group" with an entity within the
meanings of Sections 414(b), (c) or (m) of the Code, or required to be
aggregated with the entity under Section 414(o) of the Code, or is under "common
control" with the entity, within the meaning of Section 4001(a)(14) of ERISA, or
any regulations promulgated or proposed under any of the foregoing Sections.
For purposes of this Agreement, "Benefit Plan Related Documents" means (i) each
------------------------------
Company Benefit Plan (and, if applicable, related trust agreements) which covers
or has covered current or former employees, directors or Independent Contractors
of the Company or any ERISA Affiliate and all amendments thereto, all material
written interpretations or descriptions thereof which have been distributed to
employees of the Company or its ERISA Affiliates and all annuity contracts or
other funding instruments with respect to a Company Benefit Plan, (ii) the most
recent determination or opinion letter issued by the Internal Revenue Service as
to qualification under Section 401(a) of the Code, or analogous ruling, if any,
required under foreign law for each applicable Company Benefit Plan, and (iii)
for the three most recent plan years, Annual Reports on Form 5500 Series (or
analogous periodic report, if any, required under foreign law) required to be
filed with any governmental agency for each applicable Company Benefit Plan.
6.11. Brokers. The Company has not entered into any contract, arrangement
-------
or understanding with any person or firm that may result in the obligation of
Purchaser or Merger Sub or the Company to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that the Company has retained the Financial Advisor, the
arrangements with which have been disclosed in writing to Purchaser prior to the
date hereof.
6.12. Licenses and Permits. The Company and its Subsidiaries have all
--------------------
necessary licenses, permits, certificates, approvals and authorizations
(collectively, "Permits") required to lawfully conduct their respective
businesses as presently conducted, except for those Permits the lack of which
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect and no Permit is subject to any outstanding order,
decree, judgment or stipulation that would be likely to affect such Permit,
where the effect of the foregoing could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
19
<PAGE>
6.13. Environmental Compliance and Disclosure. Except for any matters
---------------------------------------
that, individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect, (a) the Company and each of its Subsidiaries has been
and are now in compliance with all Environmental Laws in effect on the date
hereof; (b) the Company and each of its Subsidiaries have obtained, and are in
full compliance with, all material Permits required by applicable laws for the
use, storage, treatment, transportation, release, emission and disposal of raw
materials, byproducts, wastes and other substances used or produced by or
otherwise relating to the operations of any of them; (c) there is not now and
has not been any Hazardous Substance used, generated, treated, stored,
transported, disposed of, released, handled or otherwise existing on, under,
about, or emanating from, or to, any property owned, leased or operated by the
Company or any of its Subsidiaries which could impose liability or
responsibility on the Company or any of its Subsidiaries; (d) neither the
Company nor any of its Subsidiaries has received any written notice from any
governmental agency or third party of alleged actual or potential responsibility
for, or any inquiry or investigation regarding, any release or threatened
release of Hazardous Substances or alleged violation of, or non-compliance with,
any Environmental Law, nor are the Company and its Subsidiaries aware of any
information which might form the basis of any such notice; and (e) to the
knowledge of the Company, there is no site to which the Company or any of its
Subsidiaries have transported or arranged for the transport of Hazardous
Substances that is the subject of any environmental action. As used in this
Agreement, the term "Environmental Laws" means foreign, federal, state or local
------------------
laws, statutes, ordinances, regulations, rules, judgments, court orders, permits
and licenses that are applicable to the Company and in effect on the date of
this Agreement and (i) regulate or relate to the protection or clean up of the
environment; the use, treatment, storage, transportation, handling, disposal or
release of Hazardous Substances, the preservation or protection of waterways,
groundwater, drinking water, air, wildlife, plants or other natural resources;
or the health and safety of persons or property, including without limitation
protection of the health and safety of employees; or (ii) impose liability or
responsibility with respect to any of the foregoing. As used in this Agreement,
the term "Hazardous Substances" means any pollutant, chemical, substance and any
toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable
chemical, or chemical compound, or hazardous substance, material or waste,
whether solid, liquid or gas, that is subject to regulation, control or
remediation under any Environmental Laws.
6.14. Title to Assets.
---------------
(a) Except as set forth in the Company's audited balance sheet (including
any related notes thereto) for the fiscal year ended December 31, 1998 included
in the Company's Annual Report on Form 10-K for the fiscal year then ended (the
"1998 Balance Sheet"), the Company and each of its Subsidiaries have good and
------------------
marketable title to all of their real and personal properties and assets
reflected on the 1998 Balance Sheet or acquired after December 31, 1998 (other
than assets disposed of since December 31, 1998 in the ordinary course of
business consistent with past practice), in each case free and clear of all
title defects and Encumbrances, except for (i) Encumbrances that secure
indebtedness that is properly reflected in the 1998 Balance Sheet; (ii) liens
for Taxes accrued but not yet payable; (iii) liens arising as a matter of law in
the ordinary course of business with respect to obligations incurred after
December 31, 1998, provided that the obligations secured by such liens are not
delinquent; and (iv) such title
20
<PAGE>
defects or Encumbrances, if any, as individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries either own, or have valid leasehold interests in, all
properties and assets used by them in the conduct of their business except where
the absence of such ownership or leasehold interest could not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries owns any real property.
(b) Neither the Company nor any of its Subsidiaries has any legal
obligation, absolute or contingent, to any person to sell or otherwise dispose
(except in the ordinary course of business consistent with past practice) of any
of its assets with an individual value of $140,000 or an aggregate value in
excess of $1,400,000.
6.15. Labor and Employment Matters. Neither the Company nor any of its
----------------------------
Subsidiaries is a party to, or bound by, any collective bargaining agreement or
other Contract or understanding with a labor union or labor organization. Except
for such matters that could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect, there is no (a) unfair labor
practice, labor dispute (other than routine individual grievances) or labor
arbitration proceeding pending or, to the knowledge of the Company, threatened
against the Company or its Subsidiaries relating to their business, (b) to the
knowledge of the Company, activity or proceeding by a labor union or
representative thereof to organize any employees of the Company or any of its
Subsidiaries or (c) lockout, strike, slowdown, work stoppage or, to the
knowledge of the Company, threat thereof by or with respect to such employees.
6.16. Intellectual Property.
---------------------
(a) The Company Disclosure Letter sets forth a true and complete list and
description of (i) all United States and foreign patents, patent applications,
trademarks, trademark registrations and applications, trade names, service
marks, copyrights and applications therefor and trade secrets owned by the
Company and its Subsidiaries (the "Intellectual Property Rights") and (ii) all
----------------------------
United States and foreign patents, patents applications, trademarks, trademark
registrations and applications, trade names, service marks, copyrights and
applications therefor and trade secrets licensed to the Company or any of its
Subsidiaries (the "Licensed Rights").
---------------
(b) Except to the extent that the inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy) could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect:
21
<PAGE>
(i) (A) the Intellectual Property Rights are free and clear of any
Encumbrances, are not subject to any license (royalty bearing or royalty
free) and are not subject to any other arrangement requiring any payment to
any person nor the obligation to grant rights to any person in exchange;
(B) the Licensed Rights are free and clear of any Encumbrances, royalties
or other obligations; and (C) the Intellectual Property Rights and the
Licensed Rights are all those material rights necessary to the conduct of
the business of each of the Company and its Subsidiaries as presently
conducted.
(ii) To the knowledge of the Company, the validity of the Intellectual
Property Rights and title thereto, and the validity of the Licensed Rights,
(A) have not been questioned in any prior litigation; (B) are not being
questioned in any pending litigation; and (C) are not the subject or
subjects of any threatened or proposed litigation and is not involved in
any interference, reissue, challenge, reexamination, invalidation,
opposition proceeding or cancellation.
(iii) The business of the Company and its Subsidiaries, as presently
conducted, does not conflict with and has not been alleged to conflict with
any patents, trademarks, trade names, service marks, copyrights or other
intellectual property rights of others.
(iv) The consummation of the transactions contemplated hereby will not
result in the loss or impairment of any of the Intellectual Property Rights
or any of the Licensed Rights.
The Company does not know of any use by others of any of the
Intellectual Property Rights or the Licensed Rights material to the business of
the Company and its Subsidiaries as presently conducted.
(c) Each of the Company and its Subsidiaries owns, or possesses valid
license rights to, all computer software programs that are material to the
conduct of the business of the Company and its Subsidiaries, except to the
extent that the failure thereof, could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. There are no
infringement suits, actions or proceedings pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary with respect to any
software owned or licensed by the Company or any Subsidiary.
6.17. Material Agreements. Except as listed in the Exhibit Index to
-------------------
Company's Annual Report on Form 10-K for the fiscal year ending December 31,
1998 (the "1998 10-K") or any subsequently filed Company Report and except for
--------------
agreements made for the purpose of completing the transactions contemplated by
this Agreement, neither the Company nor any of its Subsidiaries is a party to,
or bound by, any Material Agreement of any kind to be performed in whole or in
part after the Effective Time. The term "Material Agreement" shall mean any
agreement to which the Company or any of its Subsidiaries is a party and (i) is
outside of the ordinary course of business of the Company or its Subsidiaries,
(ii) a customer of the Company or one of its Subsidiaries is a party and either
(1) involves the payment or receipt by the Company or any of its Subsidiaries,
subsequent to the date of this Agreement, of more than $1,000,000 or (2) is not
terminable without penalty by the Company or the Subsidiary party
22
<PAGE>
thereto on fewer than 365 days' notice or (iii) except for customer contracts,
either (A) involves the payment or receipt by the Company or any of its
Subsidiaries, subsequent to the date of this Agreement, of more than $500,000 or
(B) is not terminable without penalty by the Company or the Subsidiary party
thereto on fewer than 180 days' notice. Except for any such breaches or defaults
that could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, neither the Company nor any of its Subsidiaries is in
breach or default under, and there are no facts which with notice or the passage
of time would cause the Company to be in breach or default under, or give rise
to any right of termination, amendment, cancellation or acceleration of other
parties under, whether as a result of the consummation of the transactions
contemplated hereby or otherwise, any Material Agreement.
6.18. No Undisclosed Liabilities. Except as disclosed in the Company
--------------------------
Reports filed and publicly available prior to the date of this Agreement and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1998, the Company and
its Subsidiaries do not have any indebtedness, obligations or liabilities of any
kind (whether accrued, absolute, contingent or otherwise) (a) required by GAAP
to be reflected on a consolidated balance sheet of the Company and its
consolidated Subsidiaries or in the notes, exhibits or schedules thereto or (b)
which could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
6.19. Litigation. Except as described in the 1998 10-K, there is no action,
---------- ---------
suit or proceeding, claim, arbitration or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. Except as disclosed in the 1998 10-K,
there is no judgment, order, injunction or decree of any Governmental Entity
outstanding against the Company or any of its Subsidiaries that could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
6.20. Insurance. The Company and its Subsidiaries have insurance coverage
---------
with insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by extended
coverage, as is reasonably prudent, and each has public liability insurance,
insurance against claims for personal injury or death or property damage
occurring in connection with any activities of the Company or any of its
Subsidiaries or any properties owned, occupied or controlled by the Company or
any of its Subsidiaries, in such amount as is reasonably prudent.
6.21. Millennium Compliance. To the knowledge of the Company after due
---------------------
inquiry, all computer software used by the Company and/or any of its
Subsidiaries is capable (or will be capable by October 1, 1999) of operating
consistently after December 31, 1999 to accurately process data (including
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including leap year calculations, and is otherwise
currently "Year 2000 compliant," except where the failure to operate
consistently or be "Year 2000 compliant" could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company
has adopted and implemented a plan to investigate and correct
23
<PAGE>
any and all "Year 2000 problems" associated with the operation of the Company's
and its Subsidiaries' businesses and has provided to Purchaser a complete and
correct copy of such plan.
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Except as set forth in the corresponding sections of the disclosure
letter, dated the date hereof, delivered by Purchaser and Merger Sub to the
Company (the "Purchaser Disclosure Letter"), Purchaser and Merger Sub hereby
---------------------------
represent and warrant to the Company as follows:
7.1. Existence; Good Standing; Corporate Authority. Each of Purchaser and
---------------------------------------------
Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted, except where the failure to have
such power and authority would not materially adversely affect the ability of
Purchaser or Merger Sub to consummate the transactions contemplated by this
Agreement.
7.2. Authorization, Validity and Effect of Agreements. Each of Purchaser
------------------------------------------------
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and the Ancillary Documents and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Documents and the consummation by Purchaser and
Merger Sub of the transactions contemplated hereby and thereby have been duly
and validly authorized by the respective boards of directors of Purchaser and
Merger Sub and by Purchaser as the sole stockholder of Merger Sub and no other
corporate proceedings on the part of Purchaser or Merger Sub are necessary to
authorize this Agreement and the Ancillary Documents or to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and any
Ancillary Documents at the time of execution will have been, duly and validly
executed and delivered by Purchaser and Merger Sub, and (assuming this Agreement
and such Ancillary Documents each constitutes a valid and binding obligation of
the Company) constitutes and will constitute the valid and binding obligations
of each of Purchaser and Merger Sub, enforceable in accordance with their
respective terms.
7.3. Offer Documents. None of the Offer Documents, any schedule required to
---------------
be filed by Purchaser or Merger Sub with the SEC or any amendment or supplement
thereto will contain, at the respective times such documents are filed with the
SEC or first published, sent or given to the Company's stockholders, any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they are made, not misleading, except
that no representation is made by Purchaser or Merger Sub with respect to
information supplied by the Company for inclusion in the Offer Documents, any
schedule required to be filed with the SEC or any amendment or supplement. None
of the information supplied by Purchaser or Merger Sub for inclusion or
incorporation by reference in the Schedule 14D-9 will, at the date of filing
with the SEC, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light
24
<PAGE>
of the circumstances under which they were made, not misleading. If at any time
prior to the Effective Time either Purchaser or Merger Sub shall obtain
knowledge of any facts with respect to itself, any of its officers or directors
or any of its Subsidiaries that would require the supplement or amendment to any
of the foregoing documents in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or to comply
with applicable laws, such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the stockholders of the
Company, and in the event the Company shall advise Purchaser or Merger Sub as to
its obtaining knowledge of any facts that would make it necessary to supplement
or amend any of the foregoing documents, Purchaser or Merger Sub shall promptly
amend or supplement such document, and such amendment or supplement shall be
promptly filed with the SEC, and as required by law disseminated to the
stockholders of the Company.
7.4. No Violation. Neither the execution and delivery of this Agreement or
------------
any of the Ancillary Documents by Purchaser and Merger Sub nor the consummation
by them of the transactions contemplated hereby or thereby will (a) violate,
conflict with or result in any breach of any provision of the respective
certificates of incorporation or bylaws of Purchaser or Merger Sub; (b) violate,
conflict with, result in a breach of any provision of, constitute a default (or
an event that, with notice or lapse of time or both, would constitute a default)
under, result in the termination or in a right of termination of, accelerate the
performance required by or benefit obtainable under, result in the triggering of
any payment or other obligations pursuant to, result in the creation of any
Encumbrance upon any of the properties of Purchaser or Merger Sub under, or
result in there being declared void, voidable or without further binding effect,
any Contract to which Purchaser or Merger Sub is a party, or by which Purchaser
or Merger Sub or any of their respective properties is bound, except for any
such breach, default or right with respect to which requisite waivers or
consents have been, or prior to the Effective Time will be, obtained or any of
the foregoing matters that would not have a material adverse effect on the
ability of Purchaser or Merger Sub to consummate the transactions contemplated
hereby; (c) other than the Regulatory Filings, require any Consent of any
Governmental Entity, the lack of which would have a material adverse effect on
the ability of Purchaser or Merger Sub to consummate the transactions
contemplated hereby; or (d) violate any laws applicable to Purchaser or the
Merger Sub or any of their respective assets, except for violations that would
not have a material adverse effect on the ability of Purchaser or Merger Sub to
consummate the transactions contemplated hereby.
7.5. Financing. Purchaser and Merger Sub collectively have cash on hand or
---------
credit facilities with financially responsible third parties, or a combination
thereof, in an aggregate amount sufficient to enable Purchaser and Merger Sub to
timely perform their obligations hereunder, including to (a) pay in full (i) the
aggregate Merger Consideration and the aggregate Option Consideration and (ii)
all fees and expenses payable by Purchaser and Merger Sub in connection with
this Agreement and the transactions contemplated hereby and (b) satisfy and
discharge such of the Company's existing indebtedness as, pursuant to its terms,
will become due and payable prior to its stated maturity as a result of the
consummation of the transactions contemplated hereby. The source and any
commitments related thereto are set forth on the Purchaser Disclosure Letter. At
the consummation of the Offer and at the Effective Time,
25
<PAGE>
Purchaser will have, and will cause Merger Sub to have, funds available to it
sufficient to consummate the Offer and the Merger on the terms contemplated
hereby.
7.6. Purchaser-Owned Shares of Common Stock. As of the date of this
--------------------------------------
Agreement, Purchaser, Merger Sub and their respective Subsidiaries own, in the
aggregate, no shares of Common Stock.
7.7. Interim Operations of Merger Sub. Merger Sub was formed solely for the
--------------------------------
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
ARTICLE 8.
COVENANTS
8.1. Interim Operations.
------------------
(a) From and after the date of this Agreement to the Effective Time, unless
Purchaser has consented in writing thereto, the Company shall, and shall cause
each of its Subsidiaries to, (i) conduct its operations according to its usual,
regular and ordinary course of business consistent with past practice; (ii) use
its reasonable best efforts to preserve intact their business organizations,
maintain in effect all existing material qualifications, licenses, permits,
approvals and other authorizations referred to in Sections 6.1 and 6.12, keep
------------ ----
available the services of their officers and key employees and maintain
satisfactory relationships with those persons having business relationships with
them; (iii) promptly upon the discovery thereof notify Purchaser of the
existence of any breach of any representation or warranty contained herein (or,
in the case of any representation or warranty that makes no reference to
Material Adverse Effect, any breach of such representation or warranty in any
material respect) or the occurrence of any event that would cause any
representation or warranty contained herein no longer to be true and correct
(or, in the case of any representation or warranty that makes no reference to
Material Adverse Effect, to no longer be true and correct in any material
respect); (iv) promptly deliver to Purchaser true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of this
Agreement; and (v) maintain its books of account and records in its usual,
regular and ordinary manner, consistent with its past practices.
(b) From and after the date of this Agreement to the Effective Time, unless
Purchaser has consented in writing thereto, the Company shall not, and shall not
permit any of its Subsidiaries to, (i) amend its certificate of incorporation or
bylaws or comparable governing instruments; (ii) issue, sell, pledge or register
for issuance or sale any shares of capital stock or other ownership interest in
the Company (other than issuances of Common Stock in respect of any exercise of
Options outstanding on the date hereof) or any of the Subsidiaries, or any
securities convertible into or exchangeable for any such shares or ownership
interest, or any rights, warrants or options to acquire or with respect to any
such shares of capital stock, or ownership interest, or convertible or
exchangeable securities or accelerate any right to convert or exchange or
acquire any securities of the Company (other than Options pursuant to Section
-------
5.2(d)) or any of its Subsidiaries for any such shares or ownership interest;
- ------
(iii) effect
26
<PAGE>
any stock split or conversion of any of its capital stock or otherwise change
its capitalization as it exists on the date hereof, other than as set forth in
this Agreement; (iv) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of any of its
Subsidiaries, other than as set forth in this Agreement; (v) sell, lease or
otherwise dispose of any of its assets or property (including capital stock of
any of its Subsidiaries), mortgage, pledge or impose a lien or other encumbrance
on any of its material assets or property (including capital stock of any of its
Subsidiaries), except in the ordinary course of business; (vi) acquire by
merger, purchase or any other manner, any material business or entity or
otherwise acquire any assets that are material to the Company and its
Subsidiaries taken as a whole, except for purchases of inventory, supplies or
capital expenditures in the ordinary course of business consistent with past
practice; (vii) incur or assume any long-term or short-term debt, except for
working capital purposes in the ordinary course of business under the Company's
existing credit facilities and capital expenditures made in accordance with the
Company's previously adopted capital budget, copies of which have been provided
to Purchaser; (viii) assume, guarantee or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person except wholly owned Subsidiaries of the Company; (ix) make or forgive any
loans, advances or capital contributions to, or investments in, any other
person; (x) enter into any new employment, severance, consulting or salary
continuation agreements with any newly hired employees other than in the
ordinary course of business or enter into any of the foregoing with any existing
officers, directors or employees or grant any increases in compensation or
benefits to any officers, directors or employees except for regularly scheduled
employee raises in the ordinary course of business consistent with the Company's
past practices or raises that, in the case of executive officers, have been
approved by the compensation committee of the Board of Directors prior to the
date hereof in the ordinary course of business consistent with the committee's
past practices; (xi) adopt or amend in any material respect (including any
increase in the payment to or benefits under) or terminate any employee benefit
plan or arrangement; (xii) make any material changes in the type or amount of
their insurance coverage or permit any material insurance policy naming the
Company or any Subsidiary as a beneficiary or a loss payee to be canceled or
terminated; (xiii) except as may be required by law or generally accepted
accounting principles, change any material accounting principles or practices
used by the Company or its Subsidiaries; (xiv) take any action to cause the
Common Stock to cease to be traded on the Nasdaq National Market prior to the
completion of the Offer or the Merger; (xv) enter into a Material Agreement,
except as required or permitted by subsection (vii) or (xvi) of this Section
-------
8.1(b) and except for agreements relating to the purchase or sale of the
- ------
Company's products (including, without limitation, supply, purchase and shipping
contracts) to be performed within 90 days; (xvi) enter into, terminate, fail to
renew, or accelerate any license, distributorship, dealer, sales representative,
joint venture, credit or other agreement if such action could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
(xvii) fail to operate, maintain, repair or otherwise preserve its material
assets and properties consistent with past practice; (xviii) fail to comply with
all applicable filing, payment and withholding obligations under all applicable
federal, state, local or foreign laws relating to Taxes except where such
failure to comply could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; (xix) make any tax election or settle
or compromise any federal, state, local or foreign income tax liability; (xx)
pay, discharge, settle or satisfy any claims, liabilities or objections
(absolute, accrued, asserted or unasserted,
27
<PAGE>
contingent or otherwise), other than the payment, discharge or satisfaction of
the foregoing in the ordinary course of business consistent with past practice,
or, if not in the ordinary course of business, the payment, discharge or
satisfaction of the foregoing that, individually and in the aggregate, does not
exceed $500,000; or (xxi) agree in writing or otherwise to take any of the
foregoing actions.
8.2. Company Stockholder Approval; Proxy Statement.
---------------------------------------------
(a) If approval or action in respect of the Merger by the stockholders of
the Company is required by applicable law, the Company, through its Board of
Directors, shall (i) call a meeting of its stockholders (the "Stockholder
-----------
Meeting") for the purpose of voting upon the Merger, (ii) hold the Stockholder
- -------
Meeting as soon as practicable following the purchase of shares of Common Stock
pursuant to the Offer and (iii) unless the Board of Directors approves,
recommends or enters into an agreement with respect to a Superior Proposal in
accordance with Section 8.11(b), recommend to its stockholders the approval of
---------------
this Agreement and the transactions contemplated hereby, including the Merger.
The record date for the Stockholder Meeting shall be a date subsequent to the
date Purchaser or Merger Sub becomes a record holder of Common Stock purchased
pursuant to the Offer.
(b) If required by applicable law, the Company will, as soon as practicable
following the expiration of the Offer, prepare and file a preliminary Proxy
Statement (such proxy statement, and any amendments or supplements thereto, the
"Proxy Statement") or, if applicable, an Information Statement with the SEC with
---------------
respect to the Stockholder Meeting and will use reasonable efforts to respond to
any comments of the SEC or its staff and to cause the Proxy Statement to be
cleared by the SEC. The Proxy Statement shall include the recommendation of the
Board of Directors that the stockholders of the Company vote in favor of
approving the agreement of merger (in accordance with Section 251 of the DGCL)
contained in this Agreement and the determination of the Board of Directors that
this Agreement and the transactions contemplated hereby, including the Offer and
the Merger, are fair to, and in the best interests of, the stockholders of the
Company. The Company will notify Purchaser of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and will
supply Purchaser with copies of all correspondence between the Company or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement or the Merger. The Company shall give
Purchaser and its counsel the opportunity to review the Proxy Statement prior to
its being filed with the SEC and shall give Purchaser and its counsel the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company and
Purchaser agrees to use its best efforts, after consultation with the other
parties hereto, to respond promptly to all such comments of and requests by the
SEC. As promptly as practicable after the Proxy Statement has been cleared by
the SEC, the Company shall mail the Proxy Statement to the stockholders of the
Company. If at any time prior to the approval of this Agreement by the
Company's stockholders there shall occur any event that is required to be set
forth in an amendment or supplement to the Proxy Statement under applicable law,
the Company will prepare and mail to its stockholders such an amendment or
supplement.
28
<PAGE>
(c) The Company represents and warrants that any required Proxy Statement
will comply as to form in all material respects with the Exchange Act and, at
the respective times filed with the SEC and distributed to stockholders of the
Company, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
-------- -------
representation or warranty as to any information included in the Proxy Statement
that was provided by Purchaser or Merger Sub. Purchaser represents and warrants
that none of the information supplied by Purchaser or Merger Sub for inclusion
in the Proxy Statement will, at the respective times filed with the SEC and
distributed to stockholders of the Company, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) Subject to clause (iii) of Section 8.2(a), the Company shall use its
-------------
reasonable efforts to obtain the necessary approvals by its stockholders of the
Merger, this Agreement and the transactions contemplated hereby.
(e) Purchaser agrees to cause all shares of Common Stock purchased by
Merger Sub pursuant to the Offer and all other shares of Common Stock owned by
Purchaser, Merger Sub or any other subsidiary or affiliate of Purchaser to be
voted in favor of the approval of the Merger.
8.3. Filings; Other Action.
---------------------
Subject to the terms and conditions herein provided, the Company,
Purchaser and Merger Sub shall: (a) as promptly as practicable but in no event
later than 10 business days after the date hereof, make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Offer and, if applicable, the Merger, and request early
termination of the waiting period under the HSR Act; (b) cooperate and consult
with one another in, (i) determining which Regulatory Filings are required or,
in the case of Other Antitrust Filings and Consents, permitted to be made prior
to the Effective Time with, and which Consents are required or, in the case of
Other Antitrust Filings and Consents, permitted to be obtained prior to the
Effective Time from Governmental Entities or other third parties in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and determining which Consents are required to
transfer to the Surviving Corporation any Permits or registrations held on
behalf of the Company or any of its Subsidiaries by or in the name of
distributors, brokers or sales agents; (ii) promptly preparing all Regulatory
Filings and all other filings, submissions and presentations required or prudent
to obtain all Consents, including by providing to the other parties drafts of
such material reasonably in advance of the anticipated filing or submission
dates; (iii) promptly making all such Regulatory Filings and promptly seeking
all such Consents; (iv) defending against any lawsuit or proceeding, whether
judicial or administrative, challenging this Agreement or the consummation of
any of the transactions contemplated hereby; and (c) use their reasonable best
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this
29
<PAGE>
Agreement (including without limitation those actions described in the foregoing
(ii) through (iv)). Each of Purchaser and the Company shall use its best efforts
to contest any proceeding seeking a preliminary injunction or other legal
impediment to, and to resolve any objections as may be asserted by any
Governmental Entity with respect to, the Offer or the Merger under the HSR Act
or Foreign Antitrust Laws. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purpose of this Agreement, the
proper officers and directors of Purchaser and the Surviving Corporation shall
take all such necessary action.
8.4. Publicity. The initial press release relating to this Agreement shall
---------
be a joint press release and thereafter the Company and Purchaser shall consult
with each other before issuing any press release or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any Governmental Entity or with The Nasdaq Stock Market with
respect thereto.
8.5. Further Action. Each party hereto shall, subject to the fulfillment at
--------------
or before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger, including the
execution of any deeds, bills of sale, assignments, assurances and all such
other acts and things necessary, desirable or proper to carry out the purposes
of this Agreement. In addition to the foregoing, the Company and its
Subsidiaries shall deliver to Purchaser a certificate in form and substance
reasonably satisfactory to Purchaser, duly executed and acknowledged, certifying
facts that would exempt the transactions contemplated hereby from withholding
pursuant to the provisions of the Foreign Investment in Real Property Tax Act.
8.6. Insurance; Indemnity.
--------------------
(a) Purchaser will cause the Surviving Corporation to purchase a six year
pre-paid noncancellable directors and officers insurance policy covering the
current and all former directors, officers and similar persons of the Company
and its Subsidiaries, with respect to acts or failures to act prior to the
Effective Time, in a single aggregate amount over the six-year period
immediately following the Closing Date equal to the policy limit for the
Company's current directors and officers insurance policy as of the date hereof
(the "Current Policy"). If such insurance is obtainable at an annual cost per
--------------
covered year not in excess of 200% of the annual premium paid by the Company for
the Current Policy (the "Cap"), then Purchaser will cause the Surviving
---
Corporation to purchase policies providing (or Purchaser will modify its
existing policies to provide for) at least the same coverage as the Current
Policy and containing terms and conditions no less advantageous to the current
and former directors, officers and similar persons of the Company and its
Subsidiaries than the Current Policy with respect to acts or failures to act
prior to the Effective Time; provided, however, that Purchaser and the Surviving
-------- -------
Corporation shall not be required to obtain policies providing such coverage
except to the extent that such coverage can be provided at an annual cost of no
greater than the Cap; and, if equivalent coverage cannot be obtained, or can be
obtained only by paying an annual premium in excess of the Cap, Purchaser or the
Surviving Corporation shall only be required to obtain as much coverage as can
be obtained by paying an annual premium equal to the Cap.
30
<PAGE>
(b) Purchaser shall cause the Surviving Corporation to keep in effect in
its bylaws provisions for a period of not less than six years from the Effective
Time (or, in the case of matters occurring prior to the Effective Time that have
not been resolved prior to the sixth anniversary of the Effective Time, until
such matters are finally resolved) that provide for exculpation of director and
officer liability and indemnification (and advancement of expenses related
thereto) of the past and present officers and directors of the Company and its
Subsidiaries to the fullest extent permitted by the DGCL, which provisions shall
not be amended except as required by applicable law or except to make changes
permitted by law that would enhance the rights of past or present officers and
directors to indemnification or advancement of expenses.
(c) Subject to Section 8.6(f), from and after the Effective Time, Purchaser
--------------
shall indemnify and hold harmless, to the fullest extent permitted under
applicable law, each person who is, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer, director or
similar person of the Company or any Subsidiary, against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement (collectively, "Losses") in
------
connection with any claims, actions, suits, proceedings, arbitrations,
investigations or audits (collectively, "Litigation") arising before or after
----------
the Effective Time out of or pertaining to acts or omissions, or alleged acts or
omissions, by them in their capacities as such, which acts or omissions occurred
prior to the Effective Time. Without limiting the foregoing, Purchaser shall
periodically advance expenses as incurred with respect to the foregoing to the
fullest extent permitted under applicable law provided that the person to whom
the expenses are advanced provides an undertaking to repay such advance if it is
ultimately determined that such person is not entitled to indemnification.
(d) If, after the Effective Time, Purchaser or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties or assets to any person, then, in each such case, proper
provisions shall be made so that successors and assigns of Purchaser or the
Surviving Corporation, as the case may be, shall assume such entity's
obligations set forth in this Section 8.6. The provisions of this Section 8.6
----------- -----------
are intended for the benefit of and shall be enforceable by each person who is
now or has been at any time prior to the date of this Agreement, or who becomes
prior to the Effective Time, an officer, director or similar person of the
Company or any of its Subsidiaries.
(e) If any Litigation described in Section 8.6(c) (each, an "Action")
-------------- ------
arises or occurs, the Surviving Corporation shall control the defense of such
Action with counsel selected by the Surviving Corporation, which counsel shall
be reasonably acceptable to the party seeking indemnification pursuant to
Section 8.6(c) (each, an "Indemnified Party"), provided that the Indemnified
- -------------- -----------------
Party shall be permitted to participate in the defense of such Action through
counsel selected by the Indemnified Party, at the Indemnified Party's expense.
Notwithstanding the foregoing, if there is any actual or potential conflict
between the Surviving Corporation and any Indemnified Party or there are
additional defenses available to any Indemnified Party, such Indemnified Party
shall be permitted to participate in the defense of such Action with counsel
selected by the Indemnified Party, at the Surviving Corporation's expense;
provided, however,
- -------- -------
31
<PAGE>
that the Surviving Corporation shall not be obligated to pay the fees and
expenses of more than one counsel for any Indemnified Party in any single
Action. The Surviving Corporation shall not be liable for any settlement
effected without its written consent, which consent shall not unreasonably be
withheld.
(f) Purchaser shall have no obligations under Section 8.6(c), unless and
--------------
until the Surviving Corporation transfers outside of the ordinary course of
business a material portion of its assets, in a single transaction or in a
series of transactions, and such transfer materially and adversely affects the
legal or financial ability of the Surviving Corporation to satisfy its
indemnification obligations under this Section 8.6.
-----------
8.7. Restructuring of Merger. Upon the mutual agreement of Purchaser and
-----------------------
the Company, the Merger shall be restructured in the form of a forward
subsidiary merger of the Company with and into Merger Sub, with Merger Sub being
the surviving corporation, or as a merger of the Company with and into
Purchaser, with Purchaser being the surviving corporation. In such event, this
Agreement shall be deemed appropriately modified to reflect such form of merger.
8.8. Employee Benefit Plans.
----------------------
(a) From and after the Effective Time, the Surviving Corporation and its
respective Subsidiaries will honor, in accordance with their terms, all existing
employment, change in control and severance agreements between the Company or
any of its Subsidiaries and any current or former officer, director, consultant
or employee of the Company or any of its Subsidiaries ("Covered Employees") to
-----------------
the extent in effect on, and disclosed to Purchaser prior to, the date hereof
and all benefits or other amounts earned or accrued to the extent vested or that
become vested in the ordinary course through the Effective Time under all
employee benefit plans of the Company and any of its Subsidiaries, in each case
to the extent in effect on the date hereof.
(b) To the extent that Covered Employees are included in any benefit plan
of Purchaser or its subsidiaries, Purchaser agrees that the Covered Employees
shall receive credit under such plan for service prior to the Effective Time
with the Company and its Subsidiaries to the same extent such service was
counted under similar Company Benefit Plans for purposes of eligibility,
vesting, eligibility for retirement (but not for benefit accrual).
8.9. Acceleration of Outstanding Indebtedness. In the event any of the
----------------------------------------
Company's or any of its Subsidiaries' obligation for borrowed money outstanding
as of the date of this Agreement is accelerated or the Company or such
Subsidiary is otherwise required to repay or prepay any such obligation, in each
case, after the consummation of the Offer as a result of (a) the consummation of
any transaction contemplated hereby or (b) Purchaser's acquisition of shares of
Common Stock pursuant to this Agreement or otherwise, Purchaser agrees, within
two business days after notice thereof, to loan to the Company at no cost to the
Company an amount equal to the amount that the Company or any such Subsidiary is
required to so repay or prepay (including any related prepayment premiums or
penalties). The term of such loan shall be equal
32
<PAGE>
to the term of such accelerated obligation (prior to its acceleration) and the
Company and Purchaser shall enter into any agreement reasonably necessary to
evidence such agreement.
8.10. Access to Information. The Company shall, and shall cause each of its
Subsidiaries to, afford to Purchaser and to the officers, employees,
accountants, counsel, financial advisors and other representatives of Purchaser,
reasonable access during normal business hours during the period prior to the
Effective Time to all their respective properties, books, contracts,
commitments, personnel and records and, during such period, the Company shall,
and shall cause its respective Subsidiaries to, furnish promptly to the other
party (a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of federal
or state securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request. Except as
required by applicable laws, each of the parties hereto will hold, and will
cause its respective officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information in confidence to the extent required by, and in accordance with, the
provisions of that certain Confidentiality Agreement dated as of February 19,
1999 between Purchaser and the Company (the "Confidentiality Agreement").
-------------------------
8.11. No Solicitation.
---------------
(a) The Company shall not, and shall not authorize, permit or cause any of
its Subsidiaries or any of the officers and directors of it or its Subsidiaries
to, and shall not authorize, permit or direct its and its Subsidiaries'
employees, agents and representatives (including the Financial Advisor or any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) to, directly or indirectly, (i) initiate, solicit, or otherwise
encourage any inquiries or the making of any proposal or offer with respect to a
merger, reorganization, share exchange, tender offer, consolidation or similar
transaction involving, or any purchase of, 15% or more of the assets or any
equity securities of the Company or any of its Subsidiaries (any such proposal
or offer being hereinafter referred to as, an "Acquisition Proposal") or (ii)
--------------------
initiate or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person or entity
relating to an Acquisition Proposal, whether made before or after the date of
this Agreement, or otherwise facilitate any effort or attempt to make or
implement or consummate an Acquisition Proposal.
(b) Notwithstanding clause (a) above, nothing contained in this Agreement
shall prevent the Company or its Board of Directors from (i) complying with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal
or (ii): (x) providing information in response to a request therefor by a
person or entity who has made an unsolicited bona fide written Acquisition
Proposal if the Board of Directors receives from the person or entity so
requesting such information an executed confidentiality agreement on terms
substantially equivalent to those contained in the Confidentiality Agreement;
(y) engaging in any negotiations or discussions with any person or entity who
has made an unsolicited bona fide written Acquisition Proposal; or (z)
recommending such an Acquisition Proposal to the stockholders of the Company,
if, and only to the extent that, (i) in each such case referred to in clause
(x), (y) or (z) above, the Board of Directors of the Company determines in good
faith after consultation
33
<PAGE>
with outside legal counsel and the Financial Advisor that such action is
necessary in order for its members to comply with their fiduciary duties under
applicable law (the parties hereto acknowledge and agree that, so long as
Section 8.11(a) has been complied with in all respects, any such action
described in clauses (x), (y) or (z) above shall be permitted to be taken
regardless of whether it would be necessary under applicable law, if it is taken
only with respect to a Superior Proposal) and (ii) in each case referred to in
clause (x), (y) or (z) above, the Board of Directors of the Company determines
in good faith (after consultation with outside legal counsel and the Financial
Advisor) that, if accepted, such Acquisition Proposal is reasonably likely to be
consummated, taking into account all legal, financial and regulatory aspects of
the proposal and the person or entity making the proposal, and would provide for
a higher per share value to the stockholders of the Company, and is fully
financed (or, based on a good faith determination of the Board of Directors of
the Company, is readily financeable) (any such Acquisition Proposal meeting the
foregoing conditions being referred to herein as a "Superior Proposal"). The
-----------------
Company shall 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 agrees that it will take the
necessary steps to promptly inform the individuals or entities referred to in
the first sentence of Section 8.11(a) of the obligations undertaken in this
---------------
paragraph and in the Confidentiality Agreement. The Company also shall promptly
request each person or entity that has heretofore executed a confidentiality
agreement in connection with its consideration of an Acquisition Proposal to
return all confidential information heretofore furnished to such person or
entity by or on behalf of it or any of its Subsidiaries.
(c) The Company shall notify Purchaser immediately if any Acquisition
Proposal or inquiries regarding a potential Acquisition Proposal are received
by, any information with respect to an Acquisition Proposal or a potential
Acquisition Proposal is requested from, or any discussions or negotiations with
respect to an Acquisition Proposal or a potential Acquisition Proposal are
sought to be initiated or continued with, it or any of its representatives
indicating, in connection with such notice, the name of the person or entity
involved and the material terms and conditions of any such Acquisition Proposal,
and thereafter shall keep Purchaser informed, on a current basis, of the status
and terms of any such inquiries or Acquisition Proposals and the status of any
such negotiations or discussions.
ARTICLE 9.
CONDITIONS
9.1. Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) Merger Sub shall have accepted for payment and paid for all shares of
Common Stock validly tendered in the Offer and not withdrawn; provided, however,
-------- -------
that neither Purchaser nor Merger Sub may invoke this condition if Merger Sub
shall have failed in violation of the terms of this Agreement or the Offer to
purchase shares so tendered and not withdrawn.
34
<PAGE>
(b) This Agreement shall have been adopted by the affirmative vote of the
holders of the requisite number of shares of capital stock of the Company if
such vote is required pursuant to Company's certificate of incorporation, the
DGCL or other applicable law; provided, however, that neither Purchaser nor
-------- -------
Merger Sub may invoke this condition if either of them or any of their
respective affiliates shall have failed to vote the shares of Common Stock held
by it in favor of this Agreement and the Company may not invoke this condition
if the Company shall have failed to fulfill its obligations under Section 8.2.
-----------
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing, restraining or restricting the consummation
of the Merger shall be in effect; provided, however, that the party invoking
-------- -------
this condition shall use its best efforts to have any such order, injunction or
restraint vacated.
(d) All necessary waiting periods under the HSR Act that are applicable to
the Merger shall have expired or been earlier terminated, and all other
necessary approvals from any other Governmental Entity that are applicable to
the Merger shall have been obtained.
ARTICLE 10.
TERMINATION; AMENDMENT; WAIVER
10.1. Termination. This Agreement may be terminated and the Merger
-----------
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of the Company and Purchaser; or
(b) by the Company, if (i) Purchaser or Merger Sub shall have failed to
commence the Offer within five business days after the date of this Agreement,
(ii) Purchaser or Merger Sub shall have failed to comply with its payment
obligations under this Agreement with respect to any shares of Common Stock
accepted for payment pursuant to the Offer, or (iii) any change to the offer is
made in contravention of the provisions of Article 1; or
---------
(c) by Purchaser or the Company:
(i) if the Effective Time shall not have occurred on or before the
date which is six months from the date of this Agreement (provided that the
right to terminate this Agreement pursuant to this clause (i) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Effective
Time to occur on or before such date);
(ii) if, upon a vote at the Stockholder Meeting, or any adjournment
thereof, the adoption of this Agreement by the stockholders of the Company
required by the DGCL shall not have been obtained (provided that the right
to terminate this Agreement pursuant to this clause (ii) shall not be
available to Purchaser if Purchaser, Merger Sub or any of
35
<PAGE>
their affiliates shall have failed to vote the shares of Common Stock held
by them in favor of adoption of this Agreement, and shall not be available
to the Company, if the Company shall have failed to fulfill its obligations
under Section 8.2);
-----------
(iii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited or if
any court of competent jurisdiction or other Governmental Entity shall have
issued an order, judgment, decree or ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the Offer or the Merger and
such order, judgment, decree, ruling or other action shall have become
final and non-appealable; or
(iv) if the Offer terminates or expires on account of the failure of
any condition specified in Exhibit A without Merger Sub having purchased
---------
any shares of Common Stock thereunder (provided that the right to terminate
this Agreement pursuant to this clause (iv) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of any such condition); or
(d) by Purchaser, prior to the consummation of the Offer, if (i) the Board
of Directors of the Company withdraws, amends or modifies, its approval of this
Agreement and the transactions contemplated hereby, or its recommendation that
the holders of the shares of Common Stock accept the Offer and tender all of
their shares of Common Stock to Merger Sub and approve this Agreement and the
transactions contemplated hereby (or, in each case, publicly announces its
intention to do so) in a manner adverse to Purchaser or Merger Sub or (ii) the
Company approves, recommends or enters into an agreement with respect to, or
consummates, an Acquisition Proposal; or
(e) by the Company, prior to the consummation of the Offer, if the Company
approves, recommends or enters into an agreement providing for the Company to
engage in a Superior Proposal; provided, however, that the right to terminate
-------- -------
this Agreement pursuant to this Section 10.1(e) shall not be available if the
---------------
Company has not provided Purchaser and Merger Sub with at least five business
days' prior written notice of its intent to so terminate this Agreement together
with a summary of the material terms and conditions of the Superior Proposal;
provided, further, however, that no termination shall be effective pursuant to
- -------- ------- -------
this Section 10.1(e) unless concurrently with such termination, a Break-Up Fee
--------------
is paid in full by the Company in accordance with Section 10.2; or
------------
(f) by Purchaser, if any of the conditions set forth in Exhibit A shall
---------
have become forever incapable of fulfillment and shall not have been waived by
all applicable parties; or
(g) by Purchaser, if the Company shall breach any of its representations,
warranties or obligations hereunder and such breach shall not have been cured or
waived or the Company shall not have provided reasonable assurance that such
breach will be cured at least two business days prior to the consummation of the
Offer and such breach shall not have been cured by such time, but only if such
breach, individually or together with all other such breaches, would constitute
failure of a condition contained in Exhibit A as of the date of such
---------
termination; or
36
<PAGE>
(h) by the Company, if Purchaser or Merger Sub shall materially breach any
of its representations, warranties or obligations hereunder and such breach
shall not have been cured or waived or Purchaser or Merger Sub shall not have
provided reasonable assurance that such breach will be cured prior to the
consummation of the Offer, but only if such breach, individually or together
with all other such breaches, is reasonably likely to materially and adversely
affect Purchaser's or Merger Sub's ability to consummate the Offer or the
Merger; or
(i) by Purchaser, prior to the consummation of the Offer, if the Tender
Agreement shall not be in full force and effect or any Significant Stockholders
shall have breached in any material respect any representation, warranty or
covenant contained in the Tender Agreement; provided, however, that the party
-------- -------
seeking termination pursuant to clause (f), (g) or (h) hereof is not in material
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement.
10.2. Effect of Termination
---------------------
(a) If this Agreement is terminated and the Merger is abandoned pursuant to
Section 10.1, this Agreement, except for the provisions of Sections 1.3(c), 8.4,
- ------------ --------------- ---
and Article 11, shall terminate, without any liability (except as set forth
----------
below) on the part of any party or its affiliates, directors, officers or
stockholders. Nothing herein shall relieve any party from liability for any
intentional breach of this Agreement.
(b) The Company shall pay Purchaser a Break-Up Fee in the event that this
Agreement is terminated by Purchaser pursuant to Section 10.1(d) or by the
---------------
Company pursuant to Section 10.1(e).
--------------
(c) If all of the following events have occurred:
(i) an Acquisition Proposal is commenced, publicly disclosed, publicly
proposed or otherwise communicated to the Company at any time on or after
the date of this Agreement and prior to the consummation of the Offer and
either Purchaser or the Company terminates this Agreement pursuant to
Section 10.1(c)(i) or Section 10.1(c)(iv) or Purchaser terminates this
------------------ -------------------
Agreement pursuant to Section 10.1(g); and
---------------
(ii) thereafter, within 12 months of the date of termination of this
Agreement, the Company enters into a definitive agreement with respect to,
or consummates, any Acquisition Proposal described in clause (i) above (or
any other Acquisition Proposal whether or not described in clause (i) above
if such Acquisition Proposal is made by any Person (or Affiliate thereof)
who made any Acquisition Proposal described in clause (i) above),
then, the Company shall pay to Purchaser an amount equal to the Break-Up Fee
concurrently with the execution of the relevant definitive agreement.
37
<PAGE>
(d) If this Agreement is terminated by Purchaser pursuant to Section
10.1(g), the Company shall reimburse Purchaser up to a maximum of $1,500,000 for
all expenses incurred by Purchaser in connection with the negotiation,
execution, delivery and performance of this Agreement by Purchaser and Merger
Sub.
(e) If this Agreement is terminated by the Company pursuant to Section
10.1(h), Purchaser shall reimburse the Company up to a maximum of $1,500,000 for
all expenses incurred by the Company in connection with the negotiation,
execution, delivery and performance of this Agreement by the Company.
(f) The "Break-Up Fee" shall be $6,000,000, provided that, such amount will
------------ --------
be reduced by any amounts paid by the Company to Purchaser pursuant to Section
-------
10.2(d) above. In the event that the Break-Up Fee shall be payable under this
- -------
Agreement, the Company shall pay the Break-Up Fee to Purchaser by wire transfer
of immediately available funds to an account designated by Purchaser on the next
business day following the termination of this Agreement (or, in the case of a
termination pursuant to Section 10.1(e), prior to the effectiveness of such
---------------
termination).
10.3. Amendment. To the extent permitted by applicable law, this Agreement
---------
may be amended by action taken by or on behalf of the Boards of Directors of the
Company and Purchaser at any time before or after adoption of this Agreement by
the stockholders of the Company but, after any such stockholder approval, no
amendment shall be made that decreases the Merger Consideration or that
adversely affects the rights of the Company's stockholders hereunder without the
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
10.4. Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken by or on behalf of the boards of directors of
the Company (subject to Section 1.4) and Purchaser, may (a) extend the time for
-----------
the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (c) waive
compliance with any of the agreements or conditions contained herein, except
after adoption of this Agreement by the stockholders of the Company, for any
waiver that has the effect of decreasing the Merger Consideration or that
adversely affects the rights of the Company's stockholders hereunder without
approval of such stockholders. 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.
ARTICLE 11.
GENERAL PROVISIONS
11.1. Nonsurvival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
38
<PAGE>
11.2. Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
<TABLE>
<S> <C>
If to Purchaser or Merger Sub: If to the Company:
Avery Dennison Corporation Stimsonite Corporation
150 North Orange Grove Blvd. 6565 West Howard Street
Pasadena, California 91103 Niles, Illinois 60714
Facsimile: (626) 304-2071 Facsimile: (847) 647-0269
Attention: Robert G. van Schoonenberg Attention: Robert E. Stutz
With a copy to: With a copy to:
Latham & Watkins Jones, Day, Reavis & Pogue
633 West Fifth Street, Suite 4000 77 West Wacker Drive
Los Angeles, California 90071 Chicago, Illinois 60601
Facsimile: (213) 891-8763 Facsimile: (312) 782-8585
Attention: Michael W. Sturrock Attention: Timothy J. Melton
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3. Assignment; Binding Effect. Neither this Agreement nor any of the
--------------------------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that either Purchaser
-------- -------
or Merger Sub (or both) may assign its rights hereunder (including, without
limitation, the right to make the Offer or to purchase shares of Common Stock in
the Offer) to a wholly owned Subsidiary of Purchaser or Merger Sub but nothing
shall relieve the assignor from its obligations hereunder. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, except for
the provisions of Sections 8.6 and 8.8, nothing in this Agreement, expressed or
------------ ---
implied, is intended to confer on any person other than the parties hereto or
their respective heirs, successors, executors, administrators and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
11.4. Entire Agreement. This Agreement, the first three paragraphs of the
----------------
Confidentiality Agreement which are hereby adopted and made a part hereof, the
Disclosure Letter, the Purchaser Disclosure Letter, the Exhibit hereto, the
Ancillary Documents and any other documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto (it being understood that,
except for the first three paragraphs, all of the remaining provisions of the
Confidentiality Agreement will terminate upon execution of this Agreement).
39
<PAGE>
11.5. Fees and Expenses. Whether or not the Offer or Merger is consummated,
-----------------
all costs and expenses incurred in connection with the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses.
11.6. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws. Each of the Company, Purchaser and Merger Sub hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
federal and state courts located in Cook County, Illinois or to the jurisdiction
of the federal and state courts located in Los Angeles County, California for
any litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in such courts and agrees not to plead or claim in any such court
that such litigation brought therein has been brought in an inconvenient forum.
11.7. Headings. Headings of the Articles and Sections of this Agreement are
--------
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
11.8. Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." As used in this Agreement, (a) the words "Subsidiary," "affiliate"
and "associate" shall have the meanings ascribed thereto in Rule 12b-2 under the
Exchange Act, (b) "business day" means any day other than Saturday, Sunday or
any other day on which banks in the City of New York are required or permitted
to close and (c) "knowledge" means the actual knowledge of any executive officer
of the Company or Purchaser, as the case may be.
11.9. Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.10. Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any federal or state court
located in Cook County, Illinois or Los Angeles County, California, this being
in addition to any other remedy to which they are entitled at law or in equity.
The prevailing party in any judicial action
40
<PAGE>
shall be entitled to receive from the other party reimbursement for the
prevailing party's reasonable attorneys' fees and disbursements, and court
costs.
11.11. Counterparts. This Agreement may be executed by the parties hereto
------------
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
11.12. Obligation of Purchaser. Whenever this Agreement requires Merger Sub
-----------------------
to take any action, such requirement shall be deemed to include an undertaking
on the part of Purchaser to cause Merger Sub to take such action.
[signature page follows]
41
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused me same to be duly delivered on their behalf on the day and year first
written above.
PURCHASER:
---------
AVERY DENNISON CORPORATION
By: /s/ Robert G. van Schoonenberg
-------------------------------------
Name: Robert G. van Schoonenberg
Title: Senior Vice President, General
Counsel and Secretary
MERGER SUB:
----------
VISION ACQUISITION CORPORATION
By: /s/ Robert G. van Schoonenberg
-----------------------------------
Name: Robert G. van Schoonenberg
Title: President
S-1
<PAGE>
COMPANY:
-------
STIMSONITE CORPORATION
By: /s/ Robert E. Stutz
----------------------------------
Name: Robert E. Stutz
Title: President and Chief
Executive Officer
S-2
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings assigned to them in the Agreement and Plan of Merger, dated as
of June 4, 1999 (the "Merger Agreement"), among Purchaser, Merger Sub and
----------------
Stimsonite Corporation, a Delaware corporation.
Notwithstanding any other term of the Merger Agreement, Merger Sub
shall not be required to accept for payment or pay for, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) of the
Exchange Act, any shares of Common Stock not theretofore accepted for payment or
paid for and may terminate or amend the Offer as to such shares of Common Stock
unless (i) there shall have been validly tendered and not withdrawn prior to the
expiration of the Offer that number of shares of Common Stock which would
represent at least a majority on a fully diluted basis of the outstanding shares
of Common Stock on a fully diluted basis (collectively, the "Minimum Condition")
-----------------
and (ii) any waiting period under the HSR Act and any non-United States laws
regulating competition, antitrust, investment or exchange controls applicable to
the purchase of shares of Common Stock pursuant to the Offer shall have expired
or been terminated. Furthermore, notwithstanding any other term of the Offer or
the Merger Agreement, Merger Sub shall not be required to accept for payment or,
subject as aforesaid, to pay for any shares of Common Stock not theretofore
accepted for payment or paid for, and may terminate or amend the Offer if at any
time on or after the date of the Merger Agreement and prior to the expiration of
the Offer, any of the following conditions exist or shall occur and remain in
effect:
(a) any United States or state Governmental Entity shall have enacted,
issued, promulgated, enforced, instituted or entered any statute, rule,
regulation, executive order, decree, injunction, action, application or
claim or other order that is in effect or pending (a "Claim"), (i)
challenging or prohibiting the acquisition by Purchaser or Merger Sub of
the shares of Common Stock pursuant to the Merger Agreement, including the
Offer or the Merger, (ii) restraining or prohibiting the making or
consummation of the Merger Agreement, including the Offer or the Merger or
the performance of any of the other transactions contemplated by the Merger
Agreement, (iii) seeking to obtain from Purchaser or Merger Sub any damages
that arise out of the transactions contemplated by this Agreement and could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect if such damages were assessed against the Company,
(iv) restraining or prohibiting, or limiting in any material respect, the
ownership or operation by Purchaser or Merger Sub of any material portion
of the business or assets of the Company and its Subsidiaries taken as a
whole, (v) seeking to compel Purchaser or Merger Sub to dispose of or
forfeit material incidents of control of all or any material portion of the
business or assets of the Company or any of its Subsidiaries, (vi) imposing
limitations on the ability of Purchaser, Merger Sub or any other Subsidiary
of Purchaser effectively to exercise full rights of ownership of the shares
A-1
<PAGE>
of Common Stock, including, without limitation, the right to vote any
shares of Common Stock acquired or owned by Purchaser or Merger Sub on all
matters properly presented to the Company's stockholders, or (vii) seeking
to require divestiture by Merger Sub or Purchaser of any shares of Common
Stock; or
(b) there shall be any statute, rule, regulation, judgment, order
or injunction enacted, promulgated, entered, enforced or deemed applicable
to the Offer, the Merger or the Merger Agreement, or any other action shall
have been taken by any government, Governmental Entity or court, domestic
or foreign, other than the routine application to the Offer or the Merger
of waiting periods under the HSR Act or any non-United States laws
regulating competition, antitrust, investment or exchange controls, that
has, or has a substantial likelihood of resulting in, any of the
consequences referred to in paragraph (a) above; or
(c)(i) the representations and warranties made by the Company in the
Merger Agreement shall not be true and correct as of the date of
consummation of the Offer as though made on and as of that date (other than
representations and warranties made as of a specified date, in which case
such representations and warranties shall be true and correct in all
material respects on and as of such specified date) except for any breach
or breaches that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect or (ii) the Company shall have
breached or failed to comply in any material respect with any of its
obligations, covenants or agreements under the Merger Agreement (other than
those obligations, covenants or agreements under Section 5.2(e), with
--------------
respect to which the Company shall have performed in all respects) and,
with respect to any such failure that can be remedied, the failure is not
remedied within 20 business days after Purchaser has furnished the Company
with written notice of such failure; or
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
any other national securities exchange or the Nasdaq National Market, (ii)
the declaration of a banking moratorium or any mandatory suspension of
payments in respect of banks in the United States, (iii) the commencement
of or escalation of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States, (iv)
any limitation (whether or not mandatory) by any United States governmental
authority on the extension of credit by banks or other financial
institutions, (v) a change in general financial bank or capital market
conditions which materially and adversely affects the ability of financial
institutions in the United States to extend credit or syndicate loans, or
(vi) in the case of any of the foregoing existing on the date of the
Agreement, a material acceleration or worsening thereof; or
(e) the Company's Board of Directors shall have withdrawn or
modified in a manner adverse to Purchaser or Merger Sub (including by
amendment of the Schedule 14D-9) its approval of the Merger Agreement and
the transactions contemplated thereby,
A-2
<PAGE>
or its recommendation that the holders of the shares of Common Stock accept
the Offer and tender all of their shares of Common Stock to Merger Sub and
approve the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, or shall have approved or recommended
any Acquisition Proposal or Superior Proposal; or
(f) the Merger Agreement shall have been terminated in accordance
with its terms; or
(g) there shall have occurred any events or states of fact that
have had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
The foregoing conditions are for the sole benefit of Purchaser and
Merger Sub and may be asserted by Purchaser and Merger Sub regardless of the
circumstances (including any action or inaction by Purchaser) giving rise to any
such condition and, except for the Minimum Condition, may be waived by Purchaser
or Merger Sub, in whole or in part, at any time and from time to time, in the
sole discretion of Purchaser. The failure by Purchaser or Merger Sub at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, the waiver of such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances, and each such right will be deemed an ongoing right which may be
asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions,
all tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the Paying Agent to the tendering stockholders.
A-3
<PAGE>
EXHIBIT 99.2
TENDER AND STOCKHOLDER SUPPORT AGREEMENT
TENDER AND STOCKHOLDER SUPPORT AGREEMENT, dated as of June 3, 1999
(the "Agreement"), by and among Avery Dennison Corporation, a Delaware
---------
corporation ("Purchaser"), Vision Acquisition Corporation, a Delaware
---------
corporation and a wholly-owned subsidiary of Purchaser ("Merger Sub"), and the
----------
parties listed on Annex A hereto (each, a "Stockholder" and, collectively, the
------- -----------
"Stockholders").
- -------------
RECITALS
WHEREAS, Purchaser, Merger Sub and Stimsonite Corporation, a Delaware
corporation (the "Company"), propose to enter into an Agreement and Plan of
-------
Merger, dated as of June 4, 1999 (as the same may be amended or supplemented
from time to time, the "Merger Agreement"), which provides, among other things,
----------------
that Merger Sub will make a cash tender offer (the "Offer") for all of the
-----
outstanding capital stock of the Company and, after expiration of the Offer,
will merge with and into the Company (the "Merger"), in each case upon the terms
------
and subject to the conditions in the Merger Agreement (with all capitalized
terms used but not defined herein having the meanings set forth in the Merger
Agreement);
WHEREAS, each Stockholder owns the number of shares of common stock,
par value $0.01 per share, of the Company (the "Common Stock") set forth
------------
opposite his or its name on Annex A hereto (such shares of Common Stock,
-------
together with any other shares of capital stock of the Company acquired (whether
beneficially or of record) by such Stockholder after the date hereof and during
the term of this Agreement, including any shares acquired by means of purchase,
dividend or distribution, or issued upon the exercise of any warrants or
options, and the conversion of any convertible securities or otherwise being
collectively referred to herein as, the "Subject Shares");
--------------
WHEREAS, as a condition to the willingness of Purchaser and Merger Sub
to enter into the Merger Agreement and make the Offer, Purchaser has required
that each Stockholder agree and, in order to induce Purchaser and Merger Sub to
enter into the Merger Agreement, each Stockholder has agreed, to enter into this
Agreement.
NOW, THEREFORE, to induce Purchaser and Merger Sub to enter into, and
in consideration of their entering into, the Merger Agreement, and in
consideration of the premises and the representations, warranties and agreements
contained herein, the parties agree as follows:
1. Representations and Warranties of Each Stockholder. Each
--------------------------------------------------
Stockholder hereby, severally and not jointly, represents and warrants to
Purchaser and Merger Sub as of the date hereof in respect of himself or itself
as follows:
(a) Organization. To the extent applicable, such Stockholder is
------------
a corporation, partnership or limited liability company, duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization.
<PAGE>
(b) Authority. Such Stockholder has the legal capacity and all
---------
requisite power and authority to execute and deliver this Agreement and to
perform his or its obligations and consummate the transactions contemplated
hereby. To the extent applicable, the execution, delivery and performance
by such Stockholder of this Agreement and the consummation by him or it of
the transactions contemplated hereby have been duly and validly authorized
by such Stockholder (or its Board of Directors or similar governing body,
as applicable) and no other action or proceedings on the part of such
Stockholder are necessary to authorize the execution and delivery by him or
it of this Agreement and the consummation by him or it of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder, and constitutes a valid and binding
obligation of the Stockholder enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
(c) The Subject Shares. Except as set forth on Annex A hereto,
------------------ -------
the Stockholder is the record and beneficial owner of, and has good and
marketable title to, the Subject Shares set forth opposite his or its name
on Annex A hereto, free and clear of any and all Encumbrances. The
-------
Stockholder does not own, of record or beneficially, any shares of capital
stock of the Company (or rights to acquire any such shares) other than the
Subject Shares set forth opposite his or its name on Annex A hereto.
-------
Except as set forth on Annex A hereto, the Stockholder has the sole right
-------
to vote, sole power of disposition, sole power to issue instructions with
respect to the matters set forth in Sections 3, 4 and 5 hereof, sole power
of conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of such Stockholder's Subject Shares, with no material
limitations, qualification or restrictions on such rights, subject to
applicable federal securities laws and the terms of this Agreement. The
Subject Shares are duly authorized, validly issued, fully paid, non-
assessable and free of preemptive rights.
(d) No Conflicts. Except for (i) the filings provided for in
------------
Section 2.3 of the Merger Agreement and the filings required under the
Exchange Act and the Securities Act, (ii) the filings required under the
HSR Act, and any other applicable law governing antitrust or competition
matters, and any Consents required or permitted to be obtained pursuant to
the laws of any Foreign Antitrust Laws, (iii) the applicable requirements
of state securities, takeover or Blue Sky laws, and (iv) such
notifications, filings, authorizing actions, orders and approvals as may be
required under other laws, (A) no material filing with, and no material
permit, authorization, consent or approval of, any state, federal or
foreign public body or authority is necessary for the execution of this
Agreement by such Stockholder and the consummation by such Stockholder of
the transactions contemplated hereby, (B) the execution and delivery of
this Agreement by such Stockholder do not, and the consummation by him or
it of the transactions contemplated hereby and compliance with the terms
hereof will not, conflict with, or result in any violation of, or breach or
default (with or without notice or lapse of time or
2
<PAGE>
both) under (1) any provisions of the organizational documents of such
Stockholder, (2) any provision of any material trust, loan or credit
agreement, note, bond, mortgage, indenture, guarantee, lease, license,
contract or other agreement to which he or it is a party or by which he or
it is bound, or (3) any material franchise, judgment, order, writ,
injunction, notice, decree, statute, law, ordinance, rule or regulation
applicable to the Stockholder or his or its property or assets, and (C) the
execution and delivery of this Agreement by the Stockholder do not, and the
consummation by him or it of the transactions contemplated hereby will not,
violate any material laws applicable to such Stockholder.
2. Representations and Warranties of Purchaser and Merger Sub. Each
----------------------------------------------------------
of Purchaser and Merger Sub hereby, jointly and severally, represents and
warrants to each Stockholder as of the date hereof as follows:
(a) Organization. Each of Purchaser and Merger Sub is a
------------
corporation duly incorporated, validly existing and in good standing under
the laws of Delaware.
(b) Authority. Each of Purchaser and Merger Sub has the
---------
requisite corporate power and authority to execute and deliver this
Agreement and to perform its respective obligations and consummate the
transactions contemplated hereby. The execution, delivery and performance
by Purchaser and Merger Sub of this Agreement and the consummation by them
of the transactions contemplated hereby, have been duly and validly
authorized by the Board of Directors of Purchaser and Merger Sub and no
other corporate or other action or proceedings on the part of Purchaser and
Merger Sub are necessary to authorize the execution and delivery by them of
this Agreement and the consummation by them of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Purchaser and Merger Sub, and constitutes a valid and binding
obligation of Purchaser and Merger Sub enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing.
(c) No Conflicts. Except for (i) the filings provided for in
------------
Section 2.3 of the Merger Agreement and the filings required under the
Exchange Act and the Securities Act, (ii) the filings required under the
HSR Act, and any other applicable law governing antitrust or competition
matters, and any Consents required or permitted to be obtained pursuant to
the laws of any Foreign Antitrust Laws, (iii) the applicable requirements
of state securities, takeover or Blue Sky laws, and (iv) such
notifications, filings, authorizing actions, orders and approvals as may be
required under other laws, (A) no material filing with, and no material
permit, authorization, consent or approval of, any state, federal or
foreign public body or authority is necessary for the execution of this
Agreement by Purchaser and Merger Sub and the consummation by Purchaser and
Merger Sub of the transactions contemplated hereby, (B) the execution and
delivery of this Agreement by Purchaser and Merger Sub do not, and the
consummation by them of
3
<PAGE>
the transactions contemplated hereby and compliance with the terms hereof
will not, conflict with, or result in any violation of, or breach or
default (with or without notice or lapse of time or both) under (1) the
certificate of incorporation or bylaws of Purchaser or Merger Sub, (2) any
provision of any trust, loan or credit agreement, note, bond, mortgage,
indenture, guarantee, lease, license, contract or other agreement to which
Purchaser or Merger Sub is a party or by which it is bound, or (3) any
franchise, judgment, order, writ, injunction, notice, decree, statute, law,
ordinance, rule or regulation applicable to Purchaser or Merger Sub or
their respective properties or assets, and (C) the execution and delivery
of this Agreement by Purchaser and Merger Sub do not, and the consummation
by them of the transactions contemplated hereby will not, violate any laws
applicable to Purchaser or Merger Sub, except in the case of clauses
(B)(2), (B)(3) and (C) above, for any such conflicts, violations, breaches
or defaults that would not have a material adverse effect on the ability of
Purchaser or Merger Sub to consummate the transactions contemplated hereby.
3. Tender of Subject Shares.
------------------------
(a) Purchaser and Merger Sub jointly and severally agree subject
to the conditions of the Offer set forth in Exhibit A to the Merger
Agreement and the other terms and conditions of the Merger Agreement, that
(i) Merger Sub will commence the Offer within five Business Days after
Purchaser and the Company issue a public announcement of the execution of
the Merger Agreement and (ii) Merger Sub will accept for payment, purchase
and pay for, in accordance with the terms of the Offer and the Merger
Agreement, all shares of Common Stock tendered pursuant to the Offer.
(b) Each Stockholder agrees (i) to tender the Subject Shares
into the Offer promptly, and in any event no later than the fifth Business
Day following the commencement of the Offer, or, if any Stockholder has not
received the Offer Documents by such time, within two Business Days
following receipt of such documents but in any event prior to the date of
expiration of such Offer, in each case, free and clear of any Encumbrances
except those arising from this Agreement and (ii) not to withdraw any
Subject Shares so tendered. If any Stockholder acquires Subject Shares
after the date hereof, such Stockholder shall tender (or cause the record
holder to tender) such Subject Shares on or before such fifth Business Day
or, if later, on or before the second Business Day after such acquisition.
Each Stockholder acknowledges and agrees that Purchaser's and Merger Sub's
obligation to accept for payment and pay for the Subject Shares in the
Offer is subject to the terms and conditions of the Offer.
(c) Subject to Section 3(a)(ii), each Stockholder will receive
the same Offer Consideration received by other stockholders of the Company
in the Offer with respect to Subject Shares tendered by him or it in the
Offer. In the event that, notwithstanding the provisions of the first
sentence of Section 3(b), any Subject Shares are for any reason withdrawn
from the Offer, such Subject Shares will remain subject to the terms of
this Agreement.
4
<PAGE>
(d) Each Stockholder hereby agrees to permit Purchaser to
publish and disclose in the Offer Documents and, if approval of the
stockholders of the Company is required under applicable law, the Proxy
Statement (including all documents and schedules filed with the SEC), his
or its identity and ownership of Common Stock and the nature of such
Stockholder's commitments, arrangements and understandings under this
Agreement.
4. Agreement to Vote. Each Stockholder, severally and not jointly,
-----------------
agrees that:
(a) At any meeting of stockholders of the Company called to vote
upon the Merger Agreement and the transactions contemplated thereby,
however called, or at any adjournment thereof or in connection with any
written consent of the holders of Common Stock or in any other
circumstances upon which a vote, consent or other approval with respect to
the Merger Agreement and the transactions contemplated thereby is sought,
the Stockholder shall be present (in person or by proxy) and shall vote (or
cause to be voted) all Subject Shares then held of record or beneficially
owned by such Stockholder in favor of the Merger and the Merger Agreement
and the transactions contemplated thereby.
(b) At any meeting of stockholders of the Company, however
called, or at any adjournment thereof or in connection with any written
consent of the holders of Common Stock or in any other circumstances upon
which a vote, consent or other approval is sought, the Stockholder shall
vote (or cause to be voted) all Subject Shares then held of record or
beneficially owned by such Stockholder against any action or agreement
(other than the Merger Agreement or the transactions contemplated thereby)
that would impede, interfere with, delay, postpone or attempt to discourage
the Merger, the Offer or the other transactions contemplated by this
Agreement and the Merger Agreement, including, but not limited to: (i) any
Acquisition Proposal; (ii) any action that is likely to result in a breach
in any respect of any representation, warranty, covenant or any other
obligation or agreement of the Company under the Merger Agreement or result
in any of the conditions set forth in Exhibit A to the Merger Agreement not
being fulfilled; (iii) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company
and its Subsidiaries; (iv) a sale, lease or transfer of a material amount
of assets of the Company and its Subsidiaries or a reorganization,
recapitalization, dissolution, winding up or liquidation of the Company and
its Subsidiaries; (v) any change in the management or board of directors of
the Company, except as otherwise agreed to in writing by Purchaser; (vi)
any material change in the present capitalization or dividend policy of the
Company; or (vii) any other material change in the Company's corporate
structure, business, certificate of incorporation or by-laws.
(c) Each of the Stockholders hereby irrevocably grants to, and
appoints Robert G. van Schoonenberg and Alan P. Tsuma, or either of them,
in their respective capacities as officers or directors of Purchaser, and
any individual who shall
5
<PAGE>
hereafter succeed to any such office or directorship of Purchaser, and each
of them individually, such Stockholder's proxy and attorney-in-fact (with
full power of substitution), for and in the name, place and stead of such
Stockholder, to vote the Subject Shares in favor of the Merger, the Merger
Agreement and the transactions contemplated thereby, against any
Acquisition Proposal and as otherwise contemplated by this Section 4. Each
of the Stockholders represents that any proxies heretofore given in respect
of the Subject Shares are not irrevocable, and that any such proxies are
hereby revoked.
(d) Each of the Stockholders understands and acknowledges that
Purchaser and Merger Sub are entering into the Merger Agreement in reliance
upon each of the Stockholders' execution and delivery of this Agreement.
Each of the Stockholders hereby affirms that the irrevocable proxy set
forth in this Section 4 is given in connection with the execution of the
Merger Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of the Stockholders under this Agreement. Each
of the Stockholders hereby further affirms that the irrevocable proxy is
coupled with an interest. Such irrevocable proxy is executed and intended
to be irrevocable in accordance with the provisions of Section 212(e) of
the Delaware General Corporation Law.
5. Restriction on Transfer. Each Stockholder agrees not (a) to sell,
-----------------------
transfer, pledge, encumber, assign or otherwise dispose of (collectively,
"Transfer"), or enter into any contract, option or other arrangement or
- ---------
understanding with respect to the Transfer by such Stockholder of, any of the
Subject Shares or offer any interest in any thereof to any Person other than
pursuant to the terms of the Offer, the Merger or this Agreement, (b) to enter
into any voting arrangement or understanding, whether by proxy, power of
attorney, voting agreement, voting trust or otherwise with respect to the
Subject Shares, or (c) take any action that would make any representation or
warranty of such Stockholder contained herein untrue or incorrect in any
material respect or have the effect of preventing or disabling such Stockholder
from performing its obligations under this Agreement.
6. No Solicitation of Acquisition Proposals. Each Stockholder shall
----------------------------------------
not, and shall not authorize, permit or cause any of its employees, agents and
representatives (including the Financial Advisor or any investment banker,
attorney or accountant retained by the Company or any of its Subsidiaries) to,
directly or indirectly, (i) initiate, solicit, or otherwise encourage any
inquiries or the making of any proposal or offer with respect to an Acquisition
Proposal or (ii) initiate or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person or entity relating to an Acquisition Proposal, whether made before or
after the date of this Agreement, or otherwise facilitate any effort or attempt
to make or implement or consummate an Acquisition Proposal. Each Stockholder
shall immediately communicate to Purchaser, to the same extent as is required by
the Company pursuant to Section 8.11(c) of the Merger Agreement, the terms, and
other information concerning, any proposal, discussion, negotiation or inquiry
and the identity of the party making such proposal or inquiry which such
Stockholder may receive in respect of any such Acquisition Proposal. Any action
taken or omitted to be taken by the Company or any member of the Board of
Directors of the Company, including any action taken by the Stockholder in such
6
<PAGE>
Stockholder's capacity as a director or officer of the Company, in accordance
with Section 8.11(b) of the Merger Agreement shall be deemed not to violate this
Section 6.
7. Further Assurances. Upon the terms and subject to the conditions
------------------
hereof, each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. Without limiting the foregoing, each party hereto will, from
time to time and without further consideration, execute and deliver, or cause to
be executed and delivered, such additional or further consents, documents and
other instruments and shall take all such other action as any other party may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement, including (a) vesting good title to the Subject
Shares in Merger Sub and (b) using its reasonable best efforts to make promptly
all regulatory filings and applications, including, without limitation, under
the HSR Act, and to obtain all licenses, permits, consents, approvals,
authorizations, qualification and orders of governmental authorities and parties
to contracts as are necessary for the consummation of the transactions
contemplated by this Agreement. Without in any way limiting the foregoing, the
relevant Stockholder shall, as soon as practicable but in no event later than
the date on which such Stockholder is obligated to tender his or its Subject
Shares pursuant to Section 3(b), obtain the release of the Encumbrances set
forth on Annex A hereto.
-------
8. Termination. Except for Section 10 (and Sections 7 and 11 through
-----------
15 to the extent they relate thereto), which shall terminate in accordance with
the terms set forth therein, this Agreement, and all obligations, agreements and
waivers hereunder, will terminate and be of no further force and effect on the
earlier of: (a) the date the Merger Agreement is terminated in accordance with
its terms; and (b) the Effective Time; provided, however, that nothing herein
-------- -------
shall relieve any party from liability for any breach hereof.
9. Waiver of Appraisal and Dissenter's Rights. Each Stockholder
------------------------------------------
waives and agrees not to exercise any rights of appraisal or rights to dissent
from the Merger that such Stockholder may have with respect to such
Stockholder's Subject Shares.
10. Stockholder Capacity. No person executing this Agreement who is
--------------------
or becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his capacity as such director or officer.
Each Stockholder signs solely in its capacity as the record holder and
beneficial owner of such Stockholder's Subject Shares and nothing herein shall
limit or affect any actions taken by any Stockholder in his capacity as an
officer or director of the Company to the extent specifically permitted by the
Merger Agreement. This Section shall survive termination of this Agreement.
11. Purchaser Guarantee. Purchaser hereby guarantees the due
-------------------
performance of any and all obligations and liabilities of Merger Sub under or
arising out of this Agreement and the transactions contemplated hereby.
7
<PAGE>
12. Enforcement. The parties agree that irreparable damage would
------------
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to the remedy of
specific performance of such provisions and to an injunction or injunctions
and/or such other equitable relief as may be necessary to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any federal or state court located in Cook County, Illinois or Los
Angeles County, California, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(a) consents to submit such party to the personal jurisdiction of any federal or
state court located in Cook County, Illinois or Los Angeles County, California
in the event any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (b) agrees that such party will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, (c) agrees that such party will not bring any action relating to
this Agreement or the transactions contemplated hereby in any court other than a
federal or state court sitting in Cook County, Illinois or Los Angeles County,
California and (d) waives any right to trial by jury with respect to any claim
or proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
13. Stop Transfer Order; Legend. In furtherance of this Agreement,
---------------------------
concurrently herewith, each Stockholder shall, and hereby does authorize the
Company's counsel to, notify the Company's transfer agent that there is a stop
transfer order with respect to all of the Subject Shares (and that this
Agreement places limits on the voting and transfer of such shares). If
requested by Purchaser, each Stockholder agrees as promptly as is reasonably
practicable to apply a legend to all certificates representing the Subject
Shares referring to any and all rights granted to Purchaser by this Agreement;
provided that, no such legend shall restrict the transfer of the Subject Shares
- --------
if such transfer is made pursuant to the Offer.
14. Adjustments to Prevent Dilution, Etc. In the event of a stock
------------------------------------
dividend or distribution, or any change in the Company's Common Stock by reason
of any stock dividend, split-up, reclassification, recapitalization,
combination, exchange of shares or the like, the term "Subject Shares" shall be
deemed to refer to and include the Subject Shares as well as all such stock
dividends and distributions and any shares into which or for which any or all of
the Subject Shares may be changed or exchanged. In such event, the amount to be
paid per share by Purchaser shall be proportionately adjusted.
15. General Provisions.
------------------
(a) Amendments. This Agreement may not be modified, altered,
----------
supplemented or amended except by an instrument in writing signed by each
of the parties hereto.
(b) Notice. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally or
sent by overnight courier (providing proof of delivery) to Purchaser or
Merger Sub in accordance with Section 11.2 of the Merger Agreement and to
the Stockholders at their respective addresses set forth in
8
<PAGE>
Annex A hereto (or to such other address as any party may have furnished to
-------
the other parties in writing in accordance herewith).
(c) Interpretation. When a reference is made in this Agreement
--------------
to Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that each party need not sign the same counterpart.
(e) Entire Agreement; No Third-Party Beneficiaries. This
-----------------------------------------------
Agreement (including, without limitation, the documents and instruments
referred to herein), (i) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and (ii) is not intended
to confer upon any person or entity other than the parties hereto any
rights or remedies hereunder.
(f) Binding Agreement. This Agreement and the obligations
-----------------
hereunder shall attach to the Subject Shares and shall be binding upon the
parties and any person or entity to which legal or beneficial ownership of
the Subject Shares shall pass, whether by operation of law or otherwise,
including, without limitation, any Stockholder's administrators or
successors. Notwithstanding any transfer of Subject Shares, the transferor
shall remain liable for the performance of all obligations of the
transferor under this Agreement.
(g) Governing Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of Delaware, without
reference to the conflict of laws principles thereof.
(h) Costs and Expenses. All costs and expenses incurred in
------------------
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses.
(i) Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise without the prior written consent of
Stockholder or Merger Sub and Purchaser, as the case may be, provided that
--------
Merger Sub or Purchaser may assign, in its respective sole discretion, its
rights and obligations hereunder to any direct or indirect subsidiary of
Purchaser.
(j) Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement will be interpreted in such manner as to
be effective and valid under applicable law but if any provision or portion
of any provision of this
9
<PAGE>
Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction such invalidity,
illegality or unenforceability will not affect any other provision or
portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never
been contained herein.
(k) Multiple Stockholders. All representations, warranties,
---------------------
covenants and agreements of the Stockholders in this Agreement are several
and not joint, and solely relate to matters involving the subject
Stockholder and not the other Stockholders.
[Signature Pages Follow]
10
<PAGE>
IN WITNESS WHEREOF, Purchaser, Merger Sub and each Stockholder have
caused this Agreement to be signed by their respective officer thereunto duly
authorized as of the date first written above.
PURCHASER:
---------
AVERY DENNISON CORPORATION
By: /s/ Robert G. van Schoonenberg
_________________________________________
Name: Robert G. van Schoonenberg
Title: Senior Vice President, General
Counsel and Secretary
MERGER SUB:
----------
VISION ACQUISITION CORPORATION
By: /s/ Robert G. van Schoonenberg
________________________________________
Name: Robert G. van Schoonenberg
Title: President
S-1
<PAGE>
STOCKHOLDERS:
------------
EDWARD T. HARVEY, JR.
By: /s/ Edward T. Harvey, Jr.
----------------------------------------
Name: Edward T. Harvey, Jr.
JAY R. TAYLOR
By: /s/ Jay R. Taylor
----------------------------------------
Name: Jay R. Taylor
TERRENCE D. DANIELS
By: /s/ Terrence D. Daniels
----------------------------------------
Name: Terrence D. Daniels
QUAD-C PARTNERS II, L.P.
By: QUAD-C XI, L.C.
Its General Partner
By: /s/ Edward T. Harvey, Jr.
----------------------------------------
Name: Edward T. Harvey, Jr.
Title: Vice President
QUAD-C PARTNERS III, L.P.
By: QUAD-C II, L.C.
Its General Partner
By: /s/ Edward T. Harvey, Jr.
----------------------------------------
Name: Edward T. Harvey, Jr.
Title: Vice President
S-2
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
Stockholder Shares Held
- ----------- -----------
<S> <C>
Terrence D. Daniels 680,229/1/
Edward T. Harvey, Jr. 328,304/2/
Jay R. Taylor 227,400/3/
Quad-C Partners II, L.P. 24,733/4/
Quad-C Partners III, L.P. 441,000/5/
</TABLE>
- ---------------------------
/1/ 1,855 of these shares are held in a cash account by Terrence D. Daniels
and Catherine J. Rotolo TTEE Quad-C, Inc. 401(k) Plan U/A DTD 06/05/90 FBO
Terrence D. Daniels (Account #RI-7261-9371), a self-directed IRA account
(Schwab One Trust Account) at Schwab Institutional; 644,418 of these
shares are held by Terrence D. Daniels in a safekeeping account at Morgan
Guaranty Trust Company; 31,000 of these shares are held in the Terrence D.
Daniels IRA/Rollover Account #70116 at Morgan Guaranty Trust Company; and
20,456 of these shares are held in safekeeping accounts at Morgan Guaranty
Trust Company by Terrence D. Daniels A/C/F Christopher C. Daniels UGMA.
Mr. Daniels intends to gift approximately $500,000 worth (based on the
then current market price) of these shares to the University of Virginia
prior to the consummation of the Offer, subject to UVA's prior written (a)
acknowledgment that such shares are subject to this Agreement and (b)
agreement to be bound by the obligations of Mr. Daniels under this
Agreement. Does not include 17,500 shares held by Mr. Daniels that are
subject to a currently exercisable option held by Catherine J. Rotolo, who
has indicated that she intends to exercise the option prior to the
consummation of the Offer and tender the option shares into the Offer. Mr.
Daniels also holds currently outstanding options to purchase 14,494
shares.
/2/ 145,677 of these shares are held in a cash account, and 161,127 of these
shares are held in a margin account (no margin debt currently
outstanding), at BancBoston Robertson Stephens (Account #34378921); 18,000
of these shares are held in a cash account at Fidelity Investments
(Account #138-066427), a self-directed rollover IRA account with Fidelity
Management Trust Co. as custodian; and 3,500 of these shares are held in a
cash account by Terrence D. Daniels and Catherine J. Rotolo TTEE Quad-C,
Inc. 401(k) Plan U/A DTD 06/05/90 FBO Edward T. Harvey (Account #RI-7261-
9374), a self-directed IRA account (Schwab One Trust Account) at Schwab
Institutional. Mr. Harvey also holds currently outstanding options to
purchase 14,494 shares.
/3/ 100,500 of these shares have been pledged to Merrill Lynch to secure
certain indebtedness. Mr. Taylor also holds currently outstanding options
to purchase 1,800 shares.
/4/ Quad-C XI, L.C., the general partner of Quad-C Partners II, L.P., has
voting and investment power with respect to these shares. Terrence D.
Daniels is the Manager and President, and Edward T. Harvey, Jr. is a
member and Vice President, of Quad-C XI, L.C.
/5/ Quad-C II, L.C., the general partner of Quad-C Partners III, L.P., has
voting and investment power with respect to these shares. Terrence D.
Daniels is the Manager and President, and Edward T. Harvey, Jr. is a
member and Vice President, of Quad-C II, L.C.
A-1
<PAGE>
EXHIBIT 99.3
------------
STOCKHOLDER INDEMNIFICATION AGREEMENT
This STOCKHOLDER INDEMNIFICATION AGREEMENT (this "Agreement"), dated
as of June 3, 1999, is by and among Stimsonite Corporation, a Delaware
corporation (the "Company"), on the one hand and the stockholders of the Company
set forth on the signature pages hereto (each, a "Stockholder" and,
collectively, the "Stockholders"), on the other hand.
RECITALS:
WHEREAS, concurrently herewith, Avery Dennison Corporation, a Delaware
corporation ("Purchaser"), Vision Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Purchaser, and the Company are
entering into an Agreement and Plan of Merger (the "Merger Agreement,"
capitalized terms used without definition herein having the meanings ascribed
thereto in the Merger Agreement); and
WHEREAS, the board of directors of the Company has determined that it
would be advisable and in the best interests of its stockholders for Purchaser
to acquire the Company on the terms and subject to the conditions set forth in
the Merger Agreement; and
WHEREAS, as a condition to entering into the Merger Agreement,
Purchaser has required that the Stockholders agree, and the Stockholders have
agreed, to enter into the Tender Agreement, under which each Stockholder is,
among other things, agreeing to tender all of such Stockholder's shares of
Common Stock in the Offer upon the terms and conditions set forth in the Merger
Agreement; and
WHEREAS, the Company, in order to induce each of the Stockholders to
enter into the Tender Agreement, has agreed to provide the Stockholders with the
benefits contemplated by this Agreement; and
WHEREAS, as a result of the provision of such benefits each of the
Stockholders has agreed to enter into the Tender Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Covered Act" means any breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted by a
Stockholder or any of the foregoing alleged by any claimant or any claim against
such Stockholder solely by reason of him or it, in each case, being a party to
the Tender Agreement.
"Excluded Claim" means Losses or Expenses in connection with any
claim:
<PAGE>
(i) Based upon or attributable to a Stockholder gaining any personal
profit or advantage to which such Stockholder is not entitled; or
(ii) For the return by a Stockholder of any remuneration paid to such
Stockholder that is illegal; or
(iii) For an accounting of profits made from the purchase or sale by a
Stockholder of securities of the Company within the meaning of Section 16 of the
Securities Exchange Act of 1934 or similar provisions of any state law; or
(iv) Resulting from a Stockholder's fraudulent, dishonest or willful
misconduct; or
(v) The payment of which by the Company under this Agreement is not
permitted by applicable law; or
(vi) Resulting from an intentional breach of the Tender Agreement by a
Stockholder.
"Expenses" means any reasonable expenses incurred by any Stockholder
as a result of a claim or claims made against him or it for Covered Acts
including, without limitation, counsel fees and costs of investigative, judicial
or administrative proceedings or appeals, but shall not include fines or
penalties; provided, however, that Expenses shall not include expenses that
would have been incurred by such Stockholder in the absence of this Agreement in
connection with such Stockholder's tender of such Stockholder's shares of Common
Stock in the Offer or the exchange of such shares in the Merger.
"Loss" means any amount which any Stockholder is legally obligated to
pay as a result of a claim or claims made against him or it for Covered Acts,
including, without limitation, damages and judgments and sums paid in settlement
of a claim or claims, but shall not include fines or penalties.
2. Indemnification. The Company shall indemnify each of the Stockholders
and hold each of them harmless from any and all Losses and Expenses subject, in
each case, to the further provisions of this Agreement.
3. Excluded Coverage. The Company shall have no obligation to indemnify
any Stockholder for and hold him or it harmless from any Loss or Expense that
has been determined, by final adjudication by a court of competent jurisdiction,
to constitute an Excluded Claim.
4. Indemnification Procedures.
(a) Promptly after receipt by any Stockholder of notice of the
commencement of or the threat of commencement of any action, suit or proceeding,
such Stockholder shall, if indemnification with respect thereto may be sought
from the Company under this Agreement, notify the Company of the commencement
thereof.
2
<PAGE>
(b) The Company shall be obligated to pay the Expenses of any such
action, suit or proceeding in advance of the final disposition thereof and the
Company, if appropriate, shall be entitled to assume the defense of such action,
suit or proceeding, with counsel reasonably satisfactory to each of the
Stockholders party to such action, suit or proceeding, upon the delivery to such
Stockholders of written notice of its election so to do. After delivery of such
notice, the Company will not be liable to any Stockholder under this Agreement
for any legal or other Expenses subsequently incurred by such Stockholder in
connection with such defense other than reasonable Expenses of investigation;
provided, however, that each Stockholder shall have the right to employ his or
its own counsel in any such action, suit or proceeding but the fees and expenses
of such counsel incurred after delivery of notice from the Company of its
assumption of such defense shall be at such Stockholder's expense; provided
further that if (i) the employment of counsel by such Stockholder has been
previously authorized by the Company, (ii) such Stockholder shall have
reasonably concluded that there may be a conflict of interest between the
Company and such Stockholder in the conduct of any such defense or (iii) the
Company shall not have employed counsel to assume the defense of such action,
the fees and expenses of counsel shall be at the expense of the Company.
(c) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within 60 days of any
Stockholder's written request therefor unless a determination shall have been
made by a court in a final adjudication from which there is no further right of
appeal that the claims giving rise to such Stockholder's request are Excluded
Claims or otherwise not payable under this Agreement, provided, however, that
all payments on account of the Company's obligations under Paragraph 4(b) of
this Agreement prior to the final disposition of any action, suit or proceeding
shall be made within 20 days of any Stockholder's written request therefor and
such obligation shall not be subject to any such determination but shall be
subject to Paragraph 4(d) of this Agreement.
(d) Each of the Stockholders agrees, severally and not jointly, that
he or it will reimburse the Company for all Losses and Expenses paid by the
Company in connection with any action, suit or proceeding against such
Stockholder in the event and only to the extent that a determination shall have
been made by a court in a final adjudication from which there is no further
right of appeal that the Stockholder is not entitled to be indemnified by the
Company for such Losses or Expenses because the claim is an Excluded Claim or
because such Stockholder is otherwise not entitled to payment under this
Agreement.
5. Settlement. The Company shall have no obligation to indemnify any
Stockholder under this Agreement for any amounts paid in settlement of any
action, suit or proceeding effected without the Company's prior written consent.
The Company shall not settle any claim in any manner which would impose any
fine, penalty or other obligation on any Stockholder without such Stockholder's
written consent. Neither the Company nor any Stockholder shall unreasonably
withhold their consent to any proposed settlement.
6. Rights Not Exclusive. The rights provided hereunder shall not be
deemed exclusive of any other rights to which the Stockholders may be entitled
under any bylaw, agreement, vote of stockholders or of directors or otherwise,
and shall continue after the Stockholders cease to be stockholders of the
Company.
3
<PAGE>
7. Enforcement.
(a) The Stockholders' right to indemnification shall be enforceable by
any such Stockholder only in the state courts of the State of Delaware and shall
be enforceable notwithstanding any adverse determination, other than a
determination made by a court in a final adjudication from which there is no
further right of appeal. In any such action, if a prior adverse determination
has been made, the burden of proving that indemnification is required under this
Agreement shall be on the Stockholder against whom such determination has been
made. The Company shall have the burden of proving that indemnification is not
required under this Agreement if no prior adverse determination shall have been
made.
(b) In the event that any action is instituted by any Stockholder
under this Agreement, or to enforce or interpret any of the terms of this
Agreement, such Stockholder shall be entitled to be paid all court costs and
expenses, including reasonable fees and expenses of such Stockholder's counsel,
incurred by such Stockholder with respect to such action, unless the court
determines that each of the material assertions made by such Stockholder as a
basis for such action were not made in good faith or were frivolous.
8. Severability. In the event that any provision of this Agreement is
determined by a court to require the Company to do or to fail to do an act which
is in violation of applicable law, such provision shall be limited or modified
in its application to the minimum extent necessary to avoid a violation of law,
and, as so limited or modified, such provision and the balance of this Agreement
shall be enforceable in accordance with their terms.
9. Choice of Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
regard to the conflict of laws provisions thereof.
10. Consent to Jurisdiction. The Company and the Stockholders each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
11. Successor and Assigns. This Agreement shall be (a) binding upon all
successors and assigns of the Company (including any transferee of all or
substantially all of its assets and any successor by merger or otherwise by
operation of law) and (b) shall be binding on and inure to the benefit of the
successors, assigns, heirs, personal representatives and estate of each of the
Stockholders.
12. Amendment. No amendment, modification, termination or cancellation of
this Agreement shall be effective unless made in a writing signed by each of the
parties hereto.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Stimsonite Corporation
By: /s/ Thomas C. Ratchford
-----------------------------------
Name: Thomas C. Ratchford
Title: Secretary
Quad-C Partners II, L.P.
By its general partner:
Quad-C XI, L.C.
By: /s/ Edward T. Harvey, Jr.
-----------------------------------
Name: Edward T. Harvey, Jr.
Title: Vice President
Quad-C Partners III, L.P.
By its general partner:
Quad-C II, L.C.
By: /s/ Edward T. Harvey, Jr.
-----------------------------------
Name: Edward T. Harvey, Jr.
Title: Vice President
/s/ Terrence D. Daniels
--------------------------------------
Terrence D. Daniels
/s/ Edward T. Harvey, Jr.
--------------------------------------
Edward T. Harvey, Jr.
/s/ Jay R. Taylor
--------------------------------------
Jay R. Taylor
5
<PAGE>
EXHIBIT 99.4
------------
FORM OF
-------
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS CHANGE IN CONTROL AGREEMENT (this "Agreement"), dated as of April 23,
1999, is made and entered by and between Stimsonite Corporation, a Delaware
corporation (the "Company"), and ______________ (the "Executive").
WITNESSETH:
----------
WHEREAS, the Executive is a senior executive of the Company and has made
and is expected to continue to make major contributions to the short- and long-
term profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly held
companies, the possibility of a Change in Control (as defined below) exists;
WHEREAS, the Company desires to assure itself of both present and future
continuity of management and desires to establish certain minimum severance
benefits for certain of its senior executives, including the Executive,
applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary rate as in effect
from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means any of the following events which the Board of Directors
has determined, in good faith, has occurred and which has not been remedied (to
the fullest extent possible) by the Executive within ten (10) days after notice
thereof by the Company: (i) Executive's continual or deliberate neglect of the
performance of his material duties; (ii) Executive's failure to devote
substantially all of his working time to the business of the Company and its
subsidiaries; (iii)
<PAGE>
Executive's engaging willfully in misconduct in connection with the performance
of any of his duties, including, without limitation, the misappropriation of
funds or securing or attempting to secure personally any profit in connection
with any transaction entered into on behalf of the Company or its subsidiaries;
(iv) Executive's willful breach of any confidentiality or nondisclosure
agreements with the Company (including this Agreement) or Executive's violation,
in any material respect, of any code or standard of behavior generally
applicable to employees or executive employees of the Company; (v) Executive's
active disloyalty to the Company, including, without limitation, willfully
aiding a competitor or improperly disclosing confidential information; or (vi)
Executive's engaging in conduct which may reasonably result in material injury
to the reputation of the Company, including commission of a felony,
embezzlement, bankruptcy, insolvency, or general assignment for the benefit of
creditors.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the Board then in office at a
meeting of the Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith opinion
of the Board, the Executive had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail. Nothing herein will
limit the right of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(d) "Change in Control" means the occurrence during the Term of any of the
following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the combined voting power of the then
outstanding Voting Stock of the Company; provided, however, that for
purposes of this Section 1(d)(i), the following acquisitions shall not
constitute a Change in Control: (A) any issuance of Voting Stock of the
Company directly from the Company that is approved by the Incumbent Board
(as defined in Section 1(d)(ii), below), (B) any acquisition by the Company
of Voting Stock of the Company, (C) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition of Voting
Stock of the Company by Quad-C, Inc. or any of its affiliates or any of the
limited partnerships managed by Quad-C, Inc. or (E) any acquisition of
Voting Stock of the Company by any Person pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of Section
1(d)(iii), below; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a Director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least two-thirds
of the Directors then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
2
<PAGE>
initial assumption of office occurs as a result of an actual or threatened
election contest (within the meaning of Rule 14a-11 of the Exchange Act)
with respect to the election or removal of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
relative to each other as their ownership, immediately prior to such
Business Combination, of the Voting Stock of the Company, (B) no Person
(other than the Company, such entity resulting from such Business
Combination, any employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity resulting from
such Business Combination or Quad-C, Inc. or any of its affiliates or any
of the limited partnerships managed by Quad-C, Inc.) beneficially owns,
directly or indirectly, 50% or more of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from such
Business Combination and (C) at least a majority of the members of the
Board of Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for such Business
Combination.
(e) "Competitive Activity" means the Executive's participation or
engagement, directly or indirectly, for himself or on behalf of or in
conjunction with any person, partnership, corporation or other entity, whether
as an employee, agent, investor or otherwise, in any business activities (a
"Competitive Activity") if such activity constitutes the manufacturing,
production, sale or provision of products or services that are similar to, or
competitive with, products or services then being manufactured, produced, sold
or provided by the Company or any of its subsidiaries or which the Company (at
any time prior to the Termination Date) planned to manufacture, produce, sell or
provide; provided, however, that the Executive may maintain and/or undertake
purely passive investments on behalf of himself, his immediate family or any
trust on behalf of himself or his immediate family in companies engaged in a
Competitive Activity so long as the aggregate interest represented by such
investments does not exceed 1% of any class of the outstanding publicly traded
debt or equity securities of any company engaged in a Competitive Activity.
(f) "Employee Benefits" means any life, disability, group health and dental
benefit plans; provided, however, that Employee Benefits shall not include
contributions made by the Company to any retirement plan, pension plan or profit
sharing plan for the benefit of the Executive in connection with amounts earned
by the Executive.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Executive Employment Agreement" means the Employment Agreement dated
as of September 7, 1993 between the Company and the Executive.
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(i) "Incentive Pay" means an annual incentive bonus payable in addition to
Base Pay in accordance with the Company's annual incentive compensation plan as
in effect immediately prior to the Termination Date; provided, however, that
Incentive Pay shall not include any amounts paid or payable under the Stimsonite
Special Incentive Bonus Plan.
(j) "Severance Period" means the period of time commencing on the date of
the first occurrence of a Change in Control and continuing until the earlier of
(i) 18 months after the occurrence of the Change in Control or (ii) the
Executive's death.
(k) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(l) "Term" means the period commencing as of the date hereof and expiring
as of the expiration of the Severance Period; subject to the last sentence of
Section 7, if (i) prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company or (ii) no Change of Control occurs
prior to the first anniversary hereof, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately terminate
and be of no further effect. For purposes of this Section 1(l), the Executive
shall not be deemed to have ceased to be an employee of the Company by reason of
the transfer of Executive's employment between the Company and any Subsidiary,
or among any Subsidiaries.
(m) "Termination Date" means the date on which the Executive's employment
is terminated (the effective date of which shall be the date of termination, or
such other date that may be specified by the Executive if the termination is
pursuant to Section 3(b)).
(n) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at any time during
the Term, without further action, this Agreement shall become immediately
operative, including without limitation, the last sentence of Section 7
notwithstanding that the Term may have theretofore expired.
3. Termination Following a Change in Control. (a) In the event of the
occurrence of a Change in Control, the Executive's employment may be terminated
by the Company or a Subsidiary during the Severance Period and the Executive
shall be entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the meaning
of, and begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
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If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
hereof.
(b) In the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company and any Subsidiary during the
Severance Period with the right to severance compensation as provided in Section
4 upon the occurrence of one or more of the following events (regardless of
whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Executive held immediately prior to the
Change in Control, (B) a reduction in the Executive's Base Pay received
from the Company, (C) the termination or denial of the Executive's right to
participate in any incentive compensation plan generally available to other
officers of the Company or (D) the termination or denial of the Executive's
rights to Employee Benefits in the aggregate equivalent in type and scope
to those generally available to other officers of the Company, any of which
is not remedied by the Company within 30 calendar days after receipt by the
Company of written notice from the Executive of such change, reduction,
termination or denial, as the case may be;
(ii) The Company relocates its principal executive offices (if such
offices are the principal location of Executive's work), or requires the
Executive to have his principal location of work changed, to any location
that, in either case, is in excess of 30 miles from the location thereof
immediately prior to the Change in Control; or
(iii) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 30 calendar days after receipt
by the Company of written notice from the Executive of such breach.
(c) Termination by the Company pursuant to Section 3(a) or by the Executive
pursuant to Section 3(b) will not affect any rights that the Executive may have
pursuant to the Executive Employment Agreement to the extent, and solely to the
extent, the rights under the Executive Employment Agreement are more beneficial
to Executive than those provided pursuant to this Agreement without regard to
any reduction in rights that would be effected pursuant to Section 12 of the
Executive Employment Agreement; provided, however, that in no event shall
Executive be entitled to any rights under the Executive Employment Agreement to
the extent such equivalent rights are provided hereunder.
4. Severance Compensation. (a) If, following the occurrence of a Change
in Control, the Company terminates the Executive's employment during the
Severance Period other than pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii),
or if the Executive terminates his employment pursuant to Section 3(b), the
Company will pay to the Executive the amounts described in Annex A and will
continue to provide to the Executive the benefits described in Annex A for the
periods described therein; provided, however, that in the event that the
Executive obtains other employment, whether full or part time, after the
Termination Date, the Executive shall forthwith notify the Company and the
Company's obligation to provide the Executive with the termination benefits
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described in Annex A shall cease effective as of the later of the commencement
date of such other employment or the six-month anniversary of the Termination
Date.
(b) Without limiting the rights of the Executive at law or in equity, if
the Company fails to make any payment or provide any benefit required to be made
or provided hereunder on a timely basis, the Company will pay interest on the
amount or value thereof at an annualized rate of interest equal to the so-called
composite "prime rate" as quoted from time to time during the relevant period in
the Midwest Edition of The Wall Street Journal, plus 1%. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be effective
on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the contrary, the
parties' respective rights and obligations under this Section 4 and under
Sections 5 and 6 and the last sentence of Section 7 will survive any termination
or expiration of this Agreement or the termination of the Executive's employment
following a Change in Control for any reason whatsoever.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company, any Person whose actions result in a Change of
Control or any affiliate of the Company or such Person, to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock options, stock appreciation right or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties that
are incurred by the Executive with respect to such tax or taxes (such tax or
taxes, together with any such interest and penalties, are hereinafter referred
collectively to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations required
to be made under this Section 5, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers LLP or such other certified public accounting firm as may
be agreed to by the Company and the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive or
the Company that there has been a Payment, or such earlier time as is requested
by the Company and the Executive. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon
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the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time for the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 5(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30 day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
including interest and penalties with respect thereto imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income
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with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Competitive Activity; Confidentiality; Nonsolicitation. (a) During
the Term and for a period ending one year following the Termination Date, if the
Executive shall have received or shall be receiving benefits under Section 4,
the Executive shall not, without the prior written consent of the Company,
engage in any Competitive Activity.
(b) During the Term, the Company agrees that it will disclose to Executive
its confidential or proprietary information (as defined in this Section 6(b)) to
the extent necessary for Executive to carry out his obligations to the Company.
The Executive hereby covenants and agrees that he will not, without the prior
written consent of the Company, during the Term or thereafter disclose to any
person not employed by the Company, or use in connection with engaging in
competition with the Company, any confidential or proprietary information of the
Company. For purposes of this Agreement, the term "confidential or proprietary
information" will include all information of any nature and in any form that is
owned by the Company and that is not publicly available (other than by
Executive's breach of this Section 6(b)) or generally known to persons engaged
in businesses similar or related to those of the Company. Confidential or
proprietary information will include, without limitation, the Company's
financial matters, customers, employees, industry contracts, strategic business
plans, product development (or other proprietary product data), marketing plans,
and all other secrets and all other information of a confidential or proprietary
nature. For purposes of the preceding two sentences, the term "Company" will
also include any Subsidiary (collectively, the "Restricted Group"). The
foregoing obligations imposed by this Section 6(b) will not apply (i) during the
Term, in the course of the business of and for the benefit of the Company, (ii)
if such confidential or proprietary information will have become, through no
fault of the Executive, generally known to the public or (iii) if the Executive
is required by law to make disclosure (after giving the Company notice and an
opportunity to contest such requirement).
(c) The Executive hereby covenants and agrees that during the Term and for
one year thereafter Executive will not, without the prior written consent of the
Company on behalf of Executive or on behalf of any person, firm or company,
directly or indirectly, attempt to influence,
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persuade or induce, or assist any other person in so persuading or inducing, any
employee of the Restricted Group to give up, or to not commence, employment or a
business relationship with the Restricted Group.
7. Employment Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any Subsidiary
prior to or following any Change in Control. Anything in this Agreement to the
contrary notwithstanding, if a Change in Control occurs and not more than 180
days prior to the date on which the Change in Control occurs, the Executive's
employment with the Company is terminated by the Company, such termination of
employment shall be deemed to be a termination of employment after a Change in
Control for purposes of this Agreement if the Executive shall have reasonably
demonstrated that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose directly in connection with or in anticipation
of a Change in Control.
8. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
9. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 9(a) and 9(b). Without limiting the generality or effect of the
foregoing, the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any attempted assignment
or transfer contrary to this Section 9(c), the Company shall have no liability
to pay any amount so attempted to be assigned, transferred or delegated.
10. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by
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electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier service
such as FedEx, UPS, or DHL, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
11. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
12. Arbitration; Governing Law. Any dispute between the parties under
this Agreement shall be resolved (except as provided below) through informal
arbitration by an arbitrator selected under the rules of the American
Arbitration Association (located in Chicago, Illinois) and the arbitration shall
be conducted in that location under the rules of said Association. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change its provisions. The arbitrator shall permit
reasonable pre-hearing discovery of facts, to the extent necessary to establish
a claim or a defense to a claim, subject to supervision by the arbitrator. The
determination of the arbitrator shall be conclusive and binding upon the parties
and judgment upon the same may be entered in any court having jurisdiction
thereof. The arbitrator shall give written notice to the parties stating his or
their determination and shall furnish to each party a signed copy of such
determination. The expense of arbitration shall be borne equally by the
Executive and the Company or as the arbitrator shall otherwise equitably
determine.
Notwithstanding the foregoing, the Company shall not be required to seek or
participate in arbitration regarding any breach of the Executive's agreements
contained in Section 6, but may pursue its remedies for such breach in a court
of competent jurisdiction in Chicago, Illinois. Any arbitration or action
pursuant to this Section 12 will be governed by and construed in accordance with
the substantive laws of the State of Illinois, without giving effect to the
principles of conflict of laws of such State.
13. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
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[signature page follows]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
STIMSONITE CORPORATION
_______________________________________
By:____________________________________
Title:_________________________________
_______________________________________
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Annex A
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Notwithstanding anything set forth below to the contrary, in the event the
Executive obtains other employment, whether full or part time, after the
Termination Date, the Company's obligations to provide the Executive with the
termination benefits described herein shall cease effective as of the later of
the commencement date of such other employment or the six-month anniversary of
the Termination Date (the "Early Termination Date").
(1) For the earlier of (i) the 18-month period following the
Termination Date or (ii) the Early Termination Date (the "Continuation
Period"), the Executive shall be paid periodically, in accordance with the
Company's payroll practices, the sum of (A) Base Pay (at the rate in effect
on the Termination Date) plus (B) Incentive Pay (in an amount equal to the
Incentive Pay earned in the fiscal year immediately preceding the year in
which the termination occurred).
(2) For the Continuation Period, the Company will arrange to provide
the Executive with Employee Benefits that, in the aggregate, are equivalent
in the type and scope to those generally available to officers of the
Company or its successors or assigns. If and to the extent that any benefit
described in this Paragraph 2 is not or cannot be paid or provided under
any policy, plan, program or arrangement of the Company or any Subsidiary,
as the case may be, then the Company will itself pay or provide for the
payment to the Executive, his dependents and beneficiaries, of such
Employee Benefits along with, in the case of any benefit described in this
Paragraph 2 that is subject to tax because it is not or cannot be paid or
provided under any such policy, plan, program or arrangement of the Company
or any Subsidiary, an additional amount such that after payment by the
Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes.
Notwithstanding the foregoing, or any other provision of the Agreement, for
purposes of determining the period of continuation coverage to which the
Executive or any of his dependents is entitled pursuant to Section 4980B of
the Code (or any successor provision thereto) under the Company's medical,
dental and other group health plans, or successor plans, the Executive's
"qualifying event" shall be the termination of the Continuation Period and
the Executive shall be considered to have remained actively employed on a
full-time basis through that date.
(3) Outplacement services by a firm selected by the Executive, at the
expense of the Company in an amount not to exceed $10,000.00.
A-1
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EXHIBIT 99.5
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FORM OF
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CHANGE IN CONTROL AGREEMENT
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THIS CHANGE IN CONTROL AGREEMENT (this "Agreement"), dated as of April 23,
1999, is made and entered by and between Stimsonite Corporation, a Delaware
corporation (the "Company"), and _________________ (the "Executive").
WITNESSETH:
----------
WHEREAS, the Executive is a senior executive of the Company and has made
and is expected to continue to make major contributions to the short- and long-
term profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly held
companies, the possibility of a Change in Control (as defined below) exists;
WHEREAS, the Company desires to assure itself of both present and future
continuity of management and desires to establish certain minimum severance
benefits for certain of its senior executives, including the Executive,
applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary rate as in effect
from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means any of the following events which the Board of Directors
has determined, in good faith, has occurred and which has not been remedied (to
the fullest extent possible) by the Executive within ten (10) days after notice
thereof by the Company: (i) Executive's continual or deliberate neglect of the
performance of his material duties; (ii) Executive's failure to devote
substantially all of his working time to the business of the Company and its
subsidiaries; (iii)
<PAGE>
Executive's engaging willfully in misconduct in connection with the performance
of any of his duties, including, without limitation, the misappropriation of
funds or securing or attempting to secure personally any profit in connection
with any transaction entered into on behalf of the Company or its subsidiaries;
(iv) Executive's willful breach of any confidentiality or nondisclosure
agreements with the Company (including this Agreement) or Executive's violation,
in any material respect, of any code or standard of behavior generally
applicable to employees or executive employees of the Company; (v) Executive's
active disloyalty to the Company, including, without limitation, willfully
aiding a competitor or improperly disclosing confidential information; or (vi)
Executive's engaging in conduct which may reasonably result in material injury
to the reputation of the Company, including commission of a felony,
embezzlement, bankruptcy, insolvency, or general assignment for the benefit of
creditors.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the Board then in office at a
meeting of the Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith opinion
of the Board, the Executive had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail. Nothing herein will
limit the right of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(d) "Change in Control" means the occurrence during the Term of any of the
following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the combined voting power of the then
outstanding Voting Stock of the Company; provided, however, that for
purposes of this Section 1(d)(i), the following acquisitions shall not
constitute a Change in Control: (A) any issuance of Voting Stock of the
Company directly from the Company that is approved by the Incumbent Board
(as defined in Section 1(d)(ii), below), (B) any acquisition by the Company
of Voting Stock of the Company, (C) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition of Voting
Stock of the Company by Quad-C, Inc. or any of its affiliates or any of the
limited partnerships managed by Quad-C, Inc. or (E) any acquisition of
Voting Stock of the Company by any Person pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of Section
1(d)(iii), below; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a Director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least two-thirds
of the Directors then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
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initial assumption of office occurs as a result of an actual or threatened
election contest (within the meaning of Rule 14a-11 of the Exchange Act)
with respect to the election or removal of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
relative to each other as their ownership, immediately prior to such
Business Combination, of the Voting Stock of the Company, (B) no Person
(other than the Company, such entity resulting from such Business
Combination, any employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity resulting from
such Business Combination or Quad-C, Inc. or any of its affiliates or any
of the limited partnerships managed by Quad-C, Inc.) beneficially owns,
directly or indirectly, 50% or more of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from such
Business Combination and (C) at least a majority of the members of the
Board of Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for such Business
Combination.
(e) "Competitive Activity" means the Executive's participation or
engagement, directly or indirectly, for himself or on behalf of or in
conjunction with any person, partnership, corporation or other entity, whether
as an employee, agent, investor or otherwise, in any business activities (a
"Competitive Activity") if such activity constitutes the manufacturing,
production, sale or provision of products or services that are similar to, or
competitive with, products or services then being manufactured, produced, sold
or provided by the Company or any of its subsidiaries or which the Company (at
any time prior to the Termination Date) planned to manufacture, produce, sell or
provide; provided, however, that the Executive may maintain and/or undertake
purely passive investments on behalf of himself, his immediate family or any
trust on behalf of himself or his immediate family in companies engaged in a
Competitive Activity so long as the aggregate interest represented by such
investments does not exceed 1% of any class of the outstanding publicly traded
debt or equity securities of any company engaged in a Competitive Activity.
(f) "Employee Benefits" means any life, disability, group health and dental
benefit plans; provided, however, that Employee Benefits shall not include
contributions made by the Company to any retirement plan, pension plan or profit
sharing plan for the benefit of the Executive in connection with amounts earned
by the Executive.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Executive Employment Agreement" means the Employment Agreement dated
as of August 20, 1990 between the Company and the Executive.
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(i) "Incentive Pay" means an annual incentive bonus payable in addition to
Base Pay in accordance with the Company's annual incentive compensation plan as
in effect immediately prior to the Termination Date; provided, however, that
Incentive Pay shall not include any amounts paid or payable under the Stimsonite
Special Incentive Bonus Plan.
(j) "Severance Period" means the period of time commencing on the date of
the first occurrence of a Change in Control and continuing until the earlier of
(i) 12 months after the occurrence of the Change in Control or (ii) the
Executive's death.
(k) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(l) "Term" means the period commencing as of the date hereof and expiring
as of the expiration of the Severance Period; subject to the last sentence of
Section 7, if (i) prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company or (ii) no Change of Control occurs
prior to the first anniversary hereof, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately terminate
and be of no further effect. For purposes of this Section 1(l), the Executive
shall not be deemed to have ceased to be an employee of the Company by reason of
the transfer of Executive's employment between the Company and any Subsidiary,
or among any Subsidiaries.
(m) "Termination Date" means the date on which the Executive's employment
is terminated (the effective date of which shall be the date of termination, or
such other date that may be specified by the Executive if the termination is
pursuant to Section 3(b)).
(n) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at any time during
the Term, without further action, this Agreement shall become immediately
operative, including without limitation, the last sentence of Section 7
notwithstanding that the Term may have theretofore expired.
3. Termination Following a Change in Control. (a) In the event of the
occurrence of a Change in Control, the Executive's employment may be terminated
by the Company or a Subsidiary during the Severance Period and the Executive
shall be entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the meaning
of, and begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
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If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
hereof.
(b) In the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company and any Subsidiary during the
Severance Period with the right to severance compensation as provided in Section
4 upon the occurrence of one or more of the following events (regardless of
whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Executive held immediately prior to the
Change in Control, (B) a reduction in the Executive's Base Pay received
from the Company, (C) the termination or denial of the Executive's right to
participate in any incentive compensation plan generally available to other
officers of the Company or (D) the termination or denial of the Executive's
rights to Employee Benefits in the aggregate equivalent in type and scope
to those generally available to other officers of the Company, any of which
is not remedied by the Company within 30 calendar days after receipt by the
Company of written notice from the Executive of such change, reduction,
termination or denial, as the case may be;
(ii) The Company relocates its principal executive offices (if such
offices are the principal location of Executive's work), or requires the
Executive to have his principal location of work changed, to any location
that, in either case, is in excess of 30 miles from the location thereof
immediately prior to the Change in Control; or
(iii) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 30 calendar days after receipt
by the Company of written notice from the Executive of such breach.
(c) Termination by the Company pursuant to Section 3(a) or by the Executive
pursuant to Section 3(b) will not affect any rights that the Executive may have
pursuant to the Executive Employment Agreement to the extent, and solely to the
extent, the rights under the Executive Employment Agreement are more beneficial
to Executive than those provided pursuant to this Agreement without regard to
any reduction in rights that would be effected pursuant to Section 12 of the
Executive Employment Agreement; provided, however, that in no event shall
Executive be entitled to any rights under the Executive Employment Agreement to
the extent such equivalent rights are provided hereunder.
4. Severance Compensation. (a) If, following the occurrence of a Change
in Control, the Company terminates the Executive's employment during the
Severance Period other than pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii),
or if the Executive terminates his employment pursuant to Section 3(b), the
Company will pay to the Executive the amounts described in Annex A and will
continue to provide to the Executive the benefits described in Annex A for the
periods described therein; provided, however, that in the event that the
Executive obtains other employment, whether full or part time, after the
Termination Date, the Executive shall forthwith notify the Company and the
Company's obligation to provide the Executive with the termination benefits
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described in Annex A shall cease effective as of the later of the commencement
date of such other employment or the six-month anniversary of the Termination
Date.
(b) Without limiting the rights of the Executive at law or in equity, if
the Company fails to make any payment or provide any benefit required to be made
or provided hereunder on a timely basis, the Company will pay interest on the
amount or value thereof at an annualized rate of interest equal to the so-called
composite "prime rate" as quoted from time to time during the relevant period in
the Midwest Edition of The Wall Street Journal, plus 1%. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be effective
on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the contrary, the
parties' respective rights and obligations under this Section 4 and under
Sections 5 and 6 and the last sentence of Section 7 will survive any termination
or expiration of this Agreement or the termination of the Executive's employment
following a Change in Control for any reason whatsoever.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company, any Person whose actions result in a Change of
Control or any affiliate of the Company or such Person, to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock options, stock appreciation right or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties that
are incurred by the Executive with respect to such tax or taxes (such tax or
taxes, together with any such interest and penalties, are hereinafter referred
collectively to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations required
to be made under this Section 5, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers LLP or such other certified public accounting firm as may
be agreed to by the Company and the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive or
the Company that there has been a Payment, or such earlier time as is requested
by the Company and the Executive. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon
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the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time for the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 5(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30 day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
including interest and penalties with respect thereto imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income
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with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Competitive Activity; Confidentiality; Nonsolicitation. (a) During
the Term and for a period ending one year following the Termination Date, if the
Executive shall have received or shall be receiving benefits under Section 4,
the Executive shall not, without the prior written consent of the Company,
engage in any Competitive Activity.
(b) During the Term, the Company agrees that it will disclose to Executive
its confidential or proprietary information (as defined in this Section 6(b)) to
the extent necessary for Executive to carry out his obligations to the Company.
The Executive hereby covenants and agrees that he will not, without the prior
written consent of the Company, during the Term or thereafter disclose to any
person not employed by the Company, or use in connection with engaging in
competition with the Company, any confidential or proprietary information of the
Company. For purposes of this Agreement, the term "confidential or proprietary
information" will include all information of any nature and in any form that is
owned by the Company and that is not publicly available (other than by
Executive's breach of this Section 6(b)) or generally known to persons engaged
in businesses similar or related to those of the Company. Confidential or
proprietary information will include, without limitation, the Company's
financial matters, customers, employees, industry contracts, strategic business
plans, product development (or other proprietary product data), marketing plans,
and all other secrets and all other information of a confidential or proprietary
nature. For purposes of the preceding two sentences, the term "Company" will
also include any Subsidiary (collectively, the "Restricted Group"). The
foregoing obligations imposed by this Section 6(b) will not apply (i) during the
Term, in the course of the business of and for the benefit of the Company, (ii)
if such confidential or proprietary information will have become, through no
fault of the Executive, generally known to the public or (iii) if the Executive
is required by law to make disclosure (after giving the Company notice and an
opportunity to contest such requirement).
(c) The Executive hereby covenants and agrees that during the Term and for
one year thereafter Executive will not, without the prior written consent of the
Company on behalf of Executive or on behalf of any person, firm or company,
directly or indirectly, attempt to influence,
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persuade or induce, or assist any other person in so persuading or inducing, any
employee of the Restricted Group to give up, or to not commence, employment or a
business relationship with the Restricted Group.
7. Employment Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any Subsidiary
prior to or following any Change in Control. Anything in this Agreement to the
contrary notwithstanding, if a Change in Control occurs and not more than 180
days prior to the date on which the Change in Control occurs, the Executive's
employment with the Company is terminated by the Company, such termination of
employment shall be deemed to be a termination of employment after a Change in
Control for purposes of this Agreement if the Executive shall have reasonably
demonstrated that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose directly in connection with or in anticipation
of a Change in Control.
8. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
9. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 9(a) and 9(b). Without limiting the generality or effect of the
foregoing, the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any attempted assignment
or transfer contrary to this Section 9(c), the Company shall have no liability
to pay any amount so attempted to be assigned, transferred or delegated.
10. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by
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electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier service
such as FedEx, UPS, or DHL, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
11. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
12. Arbitration; Governing Law. Any dispute between the parties under
this Agreement shall be resolved (except as provided below) through informal
arbitration by an arbitrator selected under the rules of the American
Arbitration Association (located in Chicago, Illinois) and the arbitration shall
be conducted in that location under the rules of said Association. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change its provisions. The arbitrator shall permit
reasonable pre-hearing discovery of facts, to the extent necessary to establish
a claim or a defense to a claim, subject to supervision by the arbitrator. The
determination of the arbitrator shall be conclusive and binding upon the parties
and judgment upon the same may be entered in any court having jurisdiction
thereof. The arbitrator shall give written notice to the parties stating his or
their determination and shall furnish to each party a signed copy of such
determination. The expense of arbitration shall be borne equally by the
Executive and the Company or as the arbitrator shall otherwise equitably
determine.
Notwithstanding the foregoing, the Company shall not be required to seek or
participate in arbitration regarding any breach of the Executive's agreements
contained in Section 6, but may pursue its remedies for such breach in a court
of competent jurisdiction in Chicago, Illinois. Any arbitration or action
pursuant to this Section 12 will be governed by and construed in accordance with
the substantive laws of the State of Illinois, without giving effect to the
principles of conflict of laws of such State.
13. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
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[signature page follows]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
STIMSONITE CORPORATION
_______________________________________
By:____________________________________
Title:_________________________________
_______________________________________
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Annex A
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Notwithstanding anything set forth below to the contrary, in the event the
Executive obtains other employment, whether full or part time, after the
Termination Date, the Company's obligations to provide the Executive with the
termination benefits described herein shall cease effective as of the later of
the commencement date of such other employment or the six-month anniversary of
the Termination Date (the "Early Termination Date").
(1) For the earlier of (i) the 12-month period following the
Termination Date or (ii) the Early Termination Date (the "Continuation
Period"), the Executive shall be paid periodically, in accordance with the
Company's payroll practices, the sum of (A) Base Pay (at the rate in effect
on the Termination Date) plus (B) Incentive Pay (in an amount equal to the
Incentive Pay earned in the fiscal year immediately preceding the year in
which the termination occurred).
(2) For the Continuation Period, the Company will arrange to provide
the Executive with Employee Benefits that, in the aggregate, are equivalent
in the type and scope to those generally available to officers of the
Company or its successors or assigns. If and to the extent that any benefit
described in this Paragraph 2 is not or cannot be paid or provided under
any policy, plan, program or arrangement of the Company or any Subsidiary,
as the case may be, then the Company will itself pay or provide for the
payment to the Executive, his dependents and beneficiaries, of such
Employee Benefits along with, in the case of any benefit described in this
Paragraph 2 that is subject to tax because it is not or cannot be paid or
provided under any such policy, plan, program or arrangement of the Company
or any Subsidiary, an additional amount such that after payment by the
Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes.
Notwithstanding the foregoing, or any other provision of the Agreement, for
purposes of determining the period of continuation coverage to which the
Executive or any of his dependents is entitled pursuant to Section 4980B of
the Code (or any successor provision thereto) under the Company's medical,
dental and other group health plans, or successor plans, the Executive's
"qualifying event" shall be the termination of the Continuation Period and
the Executive shall be considered to have remained actively employed on a
full-time basis through that date.
(3) Outplacement services by a firm selected by the Executive, at the
expense of the Company in an amount not to exceed $10,000.00.
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EXHIBIT 99.6
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SPECIAL INCENTIVE BONUS AGREEMENT
---------------------------------
THIS SPECIAL INCENTIVE BONUS AGREEMENT (this "Agreement"), dated as of
April 23, 1999, is made and entered by and between Stimsonite Corporation, a
Delaware corporation (the "Company"), and _______________ (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company is considering, among other things, a sale of control
of the Company;
WHEREAS, the Executive is a senior executive of the Company and has made
and is expected to continue to make major contributions in connection with the
potential sale of the Company;
WHEREAS, the Company wishes to provide additional inducement to the
Executive to cooperate in the sale process in an effort to maximize the price
for the stockholders in the event the Company is sold; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the employ of the Company in the event of a
change of control of the Company occurs.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means any of the following events which the Board of Directors
has determined, in good faith, has occurred and which has not been remedied (to
the fullest extent possible) by the Executive within ten (10) days after notice
thereof by the Company: (i) Executive's continual or deliberate neglect of the
performance of his material duties; (ii) Executive's failure to devote
substantially all of his working time to the business of the Company and its
subsidiaries; (iii) Executive's engaging willfully in misconduct in connection
with the performance of any of his duties, including, without limitation, the
misappropriation of funds or securing or attempting to secure personally any
profit in connection with any transaction entered into on behalf of the Company
or its subsidiaries; (iv) Executive's willful breach of any confidentiality or
nondisclosure agreements with the Company (including this Agreement) or
Executive's violation, in any material respect, of any code or standard of
behavior generally applicable to employees or executive employees of the
Company; (v) Executive's active disloyalty to the Company, including, without
limitation, willfully aiding a competitor or improperly disclosing confidential
information; or (vi) Executive's engaging in conduct which may reasonably result
in material injury to the reputation of
<PAGE>
the Company, including commission of a felony, embezzlement, bankruptcy,
insolvency, or general assignment for the benefit of creditors.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the Board then in office at a
meeting of the Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith opinion
of the Board, the Executive had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail. Nothing herein will
limit the right of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of any of the
following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the combined voting power of the then
outstanding Voting Stock of the Company; provided, however, that for
purposes of this Section 1(c)(i), the following acquisitions shall not
constitute a Change in Control: (A) any issuance of Voting Stock of the
Company directly from the Company that is approved by the Incumbent Board
(as defined in Section 1(c)(ii), below), (B) any acquisition by the Company
of Voting Stock of the Company, (C) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition of Voting
Stock of the Company by Quad-C, Inc. or any of its affiliates or any of the
limited partnerships managed by Quad-C, Inc. or (E) any acquisition of
Voting Stock of the Company by any Person pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of Section
1(c)(iii), below; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a Director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least two-thirds
of the Directors then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest (within the meaning of Rule 14a-11 of the Exchange Act) with
respect to the election or removal of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
2
<PAGE>
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
relative to each other as their ownership, immediately prior to such
Business Combination, of the Voting Stock of the Company, (B) no Person
(other than the Company, such entity resulting from such Business
Combination, any employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity resulting from
such Business Combination or Quad-C, Inc. or any of its affiliates or any
of the limited partnerships managed by Quad-C, Inc.) beneficially owns,
directly or indirectly, 50% or more of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from such
Business Combination and (C) at least a majority of the members of the
Board of Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for such Business
Combination.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(e) "Severance Period" means the period of time commencing on the date of
the first occurrence of a Change in Control and continuing until the earlier of
(i) six months after the occurrence of the Change in Control or (ii) the
Executive's death.
(f) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(g) "Term" means the period commencing as of the date hereof and expiring
as of the expiration of the Severance Period; subject to the last sentence of
Section 6, if (i) prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company or (ii) no Change of Control occurs
prior to the first anniversary hereof, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately terminate
and be of no further effect. For purposes of this Section 1(g), the Executive
shall not be deemed to have ceased to be an employee of the Company by reason of
the transfer of Executive's employment between the Company and any Subsidiary,
or among any Subsidiaries.
(h) "Termination Date" means the date on which the Executive's employment
is terminated (the effective date of which shall be the date of termination, or
such other date that may be specified by the Executive if the termination is
pursuant to Section 3(b)).
(i) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at any time during
the Term, without further action, this Agreement shall become immediately
operative, including without limitation, the last sentence of Section 6
notwithstanding that the Term may have theretofore expired.
3
<PAGE>
3. Termination Following a Change in Control. (a) If, during the
Severance Period, the Executive's employment is terminated by the Company or any
Subsidiary other than for cause, the Executive will be entitled to the benefits
provided by Section 4 hereof.
(b) In the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company and any Subsidiary during the
Severance Period with the right to severance compensation as provided in Section
4 upon the occurrence of one or more of the following events (regardless of
whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Executive held immediately prior to the
Change in Control, (B) a reduction in the Executive's Base Pay received
from the Company, (C) the termination or denial of the Executive's right to
participate in any incentive compensation plan generally available to other
officers of the Company or (D) the termination or denial of the Executive's
rights to Employee Benefits in the aggregate equivalent in type and scope
to those generally available to other officers of the Company, any of which
is not remedied by the Company within 30 calendar days after receipt by the
Company of written notice from the Executive of such change, reduction,
termination or denial, as the case may be;
(ii) The Company relocates its principal executive offices (if such
offices are the principal location of Executive's work), or requires the
Executive to have his principal location of work changed, to any location
that, in either case, is in excess of 30 miles from the location thereof
immediately prior to the Change in Control; or
(iii) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 30 calendar days after receipt
by the Company of written notice from the Executive of such breach.
4. Severance Compensation. (a) If, following the occurrence of a Change
in Control, (i) the Company terminates the Executive's employment during the
Severance Period other than for Cause, (ii) the Executive dies, (iii) the
Executive becomes permanently disabled within the meaning of, and begins
actually to receive disability benefits pursuant to, the long-term disability
plan in effect for, or applicable to, Executive immediately prior to the Change
in Control, (iv) the Executive terminates his employment pursuant to Section
3(b) or (v) the Executive is employed by the Company or a Subsidiary of the
Company at the conclusion of the Severance Period, the Company will pay to the
Executive the amounts described in Annex A within ten business days of the
earliest to occur of any of the above-described events.
(b) Without limiting the rights of the Executive at law or in equity, if
the Company fails to make any payment or provide any benefit required to be made
or provided hereunder on a timely basis, the Company will pay interest on the
amount or value thereof at an annualized rate of interest equal to the so-called
composite "prime rate" as quoted from time to time during the relevant period in
the Midwest Edition of The Wall Street Journal, plus 1%. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be effective
on and as of the date of such change.
4
<PAGE>
(c) Notwithstanding any provision of this Agreement to the contrary, the
parties' respective rights and obligations under this Section 4 and under
Section 5 and the last sentence of Section 6 will survive any termination or
expiration of this Agreement or the termination of the Executive's employment
following a Change in Control for any reason whatsoever.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company, any Person whose actions result in a Change of
Control or any affiliate of the Company or such Person, to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock options, stock appreciation right or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties that
are incurred by the Executive with respect to such tax or taxes (such tax or
taxes, together with any such interest and penalties, are hereinafter referred
collectively to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations required
to be made under this Section 5, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers LLP or such other certified public accounting firm as may
be agreed to by the Company and the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive or
the Company that there has been a Payment, or such earlier time as is requested
by the Company and the Executive. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time for the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 5(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up
5
<PAGE>
Payment. Such notification shall be given as soon as practicable but no later
than ten business days after the Executive is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30 day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
including interest and penalties with respect thereto imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c))
6
<PAGE>
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 5(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
6. Employment Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any Subsidiary
prior to or following any Change in Control. Anything in this Agreement to the
contrary notwithstanding, if a Change in Control occurs and not more than 180
days prior to the date on which the Change in Control occurs, the Executive's
employment with the Company is terminated by the Company, such termination of
employment shall be deemed to be a termination of employment after a Change in
Control for purposes of this Agreement if the Executive shall have reasonably
demonstrated that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose directly in connection with or in anticipation
of a Change in Control.
7. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
8. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 8(a) and 8(b). Without limiting the generality or effect of the
foregoing, the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any
7
<PAGE>
attempted assignment or transfer contrary to this Section 8(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
9. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS or
DHL, addressed to the Company (to the attention of the Secretary of the Company)
at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
10. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
11. Arbitration; Governing Law. Any dispute between the parties under
this Agreement shall be resolved (except as provided below) through informal
arbitration by an arbitrator selected under the rules of the American
Arbitration Association (located in Chicago, Illinois) and the arbitration shall
be conducted in that location under the rules of said Association. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change its provisions. The arbitrator shall permit
reasonable pre-hearing discovery of facts, to the extent necessary to establish
a claim or a defense to a claim, subject to supervision by the arbitrator. The
determination of the arbitrator shall be conclusive and binding upon the parties
and judgment upon the same may be entered in any court having jurisdiction
thereof. The arbitrator shall give written notice to the parties stating his or
their determination and shall furnish to each party a signed copy of such
determination. The expense of arbitration shall be borne equally by the
Executive and the Company or as the arbitrator shall otherwise equitably
determine.
12. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
STIMSONITE CORPORATION
_______________________________________
By:____________________________________
Title:_________________________________
_______________________________________
9
<PAGE>
Annex A
-------
Payments made under this Agreement, if any, will be based on the value of all
consideration paid to holders of equity securities of the Company on account of
any transaction or series of related transactions resulting in a Change of
Control (the "Aggregate Equity Consideration") and no such amounts will be
payable under this Agreement unless the Aggregate Equity Consideration is at
least equal to $109,777,105. The Aggregate Equity Consideration shall be
computed by multiplying the total number of outstanding shares of common stock
of the Company as of the date of the definitive agreement relating to any such
Change of Control by the per share stock consideration to be paid to the holders
of the Company's common stock pursuant to such definitive agreement and adding
to such amount the difference between such per share consideration and the
average exercise price of all then unexercised stock options (other than options
granted under the Stock Option Plan for Non-Employee Directors to the extent
such options would be cancelled by their terms without payment of any
consideration) multiplied by the total number of shares which could be acquired
upon the exercise of such stock options. The following matrix reflects the
amount of any payments to be made to the Executive pursuant to this Agreement.
Aggregate Equity Incentive Change in Control
Consideration Bonus Amount
---------------------- ---------------------------
Equal to or greater than $109,777,105
but not greater than $137,569,882 $75,000 plus 0.75% of the portion of
the Aggregate Equity Consideration
which exceeds $109,777,105
Greater than $137,569,882 $75,000 plus 1.5% of the portion of
the Aggregate Equity Consideration
which exceeds $109,777,105
A-1
<PAGE>
EXHIBIT 99.7
------------
SPECIAL INCENTIVE BONUS AGREEMENT
---------------------------------
THIS SPECIAL INCENTIVE BONUS AGREEMENT (this "Agreement"), dated as of
April 23, 1999, is made and entered by and between Stimsonite Corporation, a
Delaware corporation (the "Company"), and ___________________ (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company is considering, among other things, a sale of control
of the Company;
WHEREAS, the Executive is a senior executive of the Company and has made
and is expected to continue to make major contributions in connection with the
potential sale of the Company;
WHEREAS, the Company wishes to provide additional inducement to the
Executive to cooperate in the sale process in an effort to maximize the price
for the stockholders in the event the Company is sold; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the employ of the Company in the event of a
change of control of the Company occurs.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means any of the following events which the Board of Directors
has determined, in good faith, has occurred and which has not been remedied (to
the fullest extent possible) by the Executive within ten (10) days after notice
thereof by the Company: (i) Executive's continual or deliberate neglect of the
performance of his material duties; (ii) Executive's failure to devote
substantially all of his working time to the business of the Company and its
subsidiaries; (iii) Executive's engaging willfully in misconduct in connection
with the performance of any of his duties, including, without limitation, the
misappropriation of funds or securing or attempting to secure personally any
profit in connection with any transaction entered into on behalf of the Company
or its subsidiaries; (iv) Executive's willful breach of any confidentiality or
nondisclosure agreements with the Company (including this Agreement) or
Executive's violation, in any material respect, of any code or standard of
behavior generally applicable to employees or executive employees of the
Company; (v) Executive's active disloyalty to the Company, including, without
limitation, willfully aiding a competitor or improperly disclosing confidential
information; or (vi) Executive's engaging in conduct which may reasonably result
in material injury to the reputation of
<PAGE>
the Company, including commission of a felony, embezzlement, bankruptcy,
insolvency, or general assignment for the benefit of creditors.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the Board then in office at a
meeting of the Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith opinion
of the Board, the Executive had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail. Nothing herein will
limit the right of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of any of the
following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the combined voting power of the then
outstanding Voting Stock of the Company; provided, however, that for
purposes of this Section 1(c)(i), the following acquisitions shall not
constitute a Change in Control: (A) any issuance of Voting Stock of the
Company directly from the Company that is approved by the Incumbent Board
(as defined in Section 1(c)(ii), below), (B) any acquisition by the Company
of Voting Stock of the Company, (C) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition of Voting
Stock of the Company by Quad-C, Inc. or any of its affiliates or any of the
limited partnerships managed by Quad-C, Inc. or (E) any acquisition of
Voting Stock of the Company by any Person pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of Section
1(c)(iii), below; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a Director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least two-thirds
of the Directors then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest (within the meaning of Rule 14a-11 of the Exchange Act) with
respect to the election or removal of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
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<PAGE>
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
relative to each other as their ownership, immediately prior to such
Business Combination, of the Voting Stock of the Company, (B) no Person
(other than the Company, such entity resulting from such Business
Combination, any employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity resulting from
such Business Combination or Quad-C, Inc. or any of its affiliates or any
of the limited partnerships managed by Quad-C, Inc.) beneficially owns,
directly or indirectly, 50% or more of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from such
Business Combination and (C) at least a majority of the members of the
Board of Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for such Business
Combination.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(e) "Severance Period" means the period of time commencing on the date of
the first occurrence of a Change in Control and continuing until the earlier of
(i) six months after the occurrence of the Change in Control or (ii) the
Executive's death.
(f) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(g) "Term" means the period commencing as of the date hereof and expiring
as of the expiration of the Severance Period; subject to the last sentence of
Section 6, if (i) prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company or (ii) no Change of Control occurs
prior to the first anniversary hereof, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately terminate
and be of no further effect. For purposes of this Section 1(g), the Executive
shall not be deemed to have ceased to be an employee of the Company by reason of
the transfer of Executive's employment between the Company and any Subsidiary,
or among any Subsidiaries.
(h) "Termination Date" means the date on which the Executive's employment
is terminated (the effective date of which shall be the date of termination, or
such other date that may be specified by the Executive if the termination is
pursuant to Section 3(b)).
(i) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at any time during
the Term, without further action, this Agreement shall become immediately
operative, including without limitation, the last sentence of Section 6
notwithstanding that the Term may have theretofore expired.
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<PAGE>
3. Termination Following a Change in Control. (a) If, during the
Severance Period, the Executive's employment is terminated by the Company or any
Subsidiary other than for cause, the Executive will be entitled to the benefits
provided by Section 4 hereof.
(b) In the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company and any Subsidiary during the
Severance Period with the right to severance compensation as provided in Section
4 upon the occurrence of one or more of the following events (regardless of
whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Executive held immediately prior to the
Change in Control, (B) a reduction in the Executive's Base Pay received
from the Company, (C) the termination or denial of the Executive's right to
participate in any incentive compensation plan generally available to other
officers of the Company or (D) the termination or denial of the Executive's
rights to Employee Benefits in the aggregate equivalent in type and scope
to those generally available to other officers of the Company, any of which
is not remedied by the Company within 30 calendar days after receipt by the
Company of written notice from the Executive of such change, reduction,
termination or denial, as the case may be;
(ii) The Company relocates its principal executive offices (if such
offices are the principal location of Executive's work), or requires the
Executive to have his principal location of work changed, to any location
that, in either case, is in excess of 30 miles from the location thereof
immediately prior to the Change in Control; or
(iii) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 30 calendar days after receipt
by the Company of written notice from the Executive of such breach.
4. Severance Compensation. (a) If, following the occurrence of a Change
in Control, (i) the Company terminates the Executive's employment during the
Severance Period other than for Cause, (ii) the Executive dies, (iii) the
Executive becomes permanently disabled within the meaning of, and begins
actually to receive disability benefits pursuant to, the long-term disability
plan in effect for, or applicable to, Executive immediately prior to the Change
in Control, (iv) the Executive terminates his employment pursuant to Section
3(b) or (v) the Executive is employed by the Company or a Subsidiary of the
Company at the conclusion of the Severance Period, the Company will pay to the
Executive the amounts described in Annex A within ten business days of the
earliest to occur of any of the above-described events.
(b) Without limiting the rights of the Executive at law or in equity, if
the Company fails to make any payment or provide any benefit required to be made
or provided hereunder on a timely basis, the Company will pay interest on the
amount or value thereof at an annualized rate of interest equal to the so-called
composite "prime rate" as quoted from time to time during the relevant period in
the Midwest Edition of The Wall Street Journal, plus 1%. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be effective
on and as of the date of such change.
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(c) Notwithstanding any provision of this Agreement to the contrary, the
parties' respective rights and obligations under this Section 4 and under
Section 5 and the last sentence of Section 6 will survive any termination or
expiration of this Agreement or the termination of the Executive's employment
following a Change in Control for any reason whatsoever.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company, any Person whose actions result in a Change of
Control or any affiliate of the Company or such Person, to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock options, stock appreciation right or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties that
are incurred by the Executive with respect to such tax or taxes (such tax or
taxes, together with any such interest and penalties, are hereinafter referred
collectively to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations required
to be made under this Section 5, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers LLP or such other certified public accounting firm as may
be agreed to by the Company and the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive or
the Company that there has been a Payment, or such earlier time as is requested
by the Company and the Executive. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time for the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 5(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up
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<PAGE>
Payment. Such notification shall be given as soon as practicable but no later
than ten business days after the Executive is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30 day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
including interest and penalties with respect thereto imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c))
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<PAGE>
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 5(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
6. Employment Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any Subsidiary
prior to or following any Change in Control. Anything in this Agreement to the
contrary notwithstanding, if a Change in Control occurs and not more than 180
days prior to the date on which the Change in Control occurs, the Executive's
employment with the Company is terminated by the Company, such termination of
employment shall be deemed to be a termination of employment after a Change in
Control for purposes of this Agreement if the Executive shall have reasonably
demonstrated that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose directly in connection with or in anticipation
of a Change in Control.
7. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
8. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 8(a) and 8(b). Without limiting the generality or effect of the
foregoing, the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any
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<PAGE>
attempted assignment or transfer contrary to this Section 8(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
9. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS or
DHL, addressed to the Company (to the attention of the Secretary of the Company)
at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
10. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
11. Arbitration; Governing Law. Any dispute between the parties under
this Agreement shall be resolved (except as provided below) through informal
arbitration by an arbitrator selected under the rules of the American
Arbitration Association (located in Chicago, Illinois) and the arbitration shall
be conducted in that location under the rules of said Association. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change its provisions. The arbitrator shall permit
reasonable pre-hearing discovery of facts, to the extent necessary to establish
a claim or a defense to a claim, subject to supervision by the arbitrator. The
determination of the arbitrator shall be conclusive and binding upon the parties
and judgment upon the same may be entered in any court having jurisdiction
thereof. The arbitrator shall give written notice to the parties stating his or
their determination and shall furnish to each party a signed copy of such
determination. The expense of arbitration shall be borne equally by the
Executive and the Company or as the arbitrator shall otherwise equitably
determine.
12. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
STIMSONITE CORPORATION
_______________________________________
By:____________________________________
Title:_________________________________
_______________________________________
9
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Annex A
-------
Payments made under this Agreement, if any, will be based on the value of all
consideration paid to holders of equity securities of the Company on account of
any transaction or series of related transactions resulting in a Change of
Control (the "Aggregate Equity Consideration") and no such amounts will be
payable under this Agreement unless the Aggregate Equity Consideration is at
least equal to $109,777,105. The Aggregate Equity Consideration shall be
computed by multiplying the total number of outstanding shares of common stock
of the Company as of the date of the definitive agreement relating to any such
Change of Control by the per share stock consideration to be paid to the holders
of the Company's common stock pursuant to such definitive agreement and adding
such amount the difference between such per share consideration and the average
exercise price of all then unexercised stock options (other than options granted
under the Stock Option Plan for Non-Employee Directors to the extent such
options would be cancelled by their terms without payment of any consideration)
multiplied by the total number of shares which could be acquired upon the
exercise of such stock options. The following matrix reflects the amount of any
payments to be made to the Executive pursuant to this Agreement.
Aggregate Equity Incentive Change in Control
Consideration Bonus Amount
---------------------- ---------------------------
Equal to or greater than $109,777,105
but not greater than $137,569,882 $60,000 plus 0.60% of the portion of
the Aggregate Equity Consideration
which exceeds $109,777,105
Greater than $137,569,882 $60,000 plus 1.2% of the portion of
the Aggregate Equity Consideration
which exceeds $109,777,105
A-1
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EXHIBIT 99.8
------------
SPECIAL INCENTIVE BONUS AGREEMENT
---------------------------------
THIS SPECIAL INCENTIVE BONUS AGREEMENT (this "Agreement"), dated as of
April 23, 1999, is made and entered by and between Stimsonite Corporation, a
Delaware corporation (the "Company"), and __________________ (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company is considering, among other things, a sale of control
of the Company;
WHEREAS, the Executive is a senior executive of the Company and has made
and is expected to continue to make major contributions in connection with the
potential sale of the Company;
WHEREAS, the Company wishes to provide additional inducement to the
Executive to cooperate in the sale process in an effort to maximize the price
for the stockholders in the event the Company is sold; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the employ of the Company in the event of a
change of control of the Company occurs.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means any of the following events which the Board of Directors
has determined, in good faith, has occurred and which has not been remedied (to
the fullest extent possible) by the Executive within ten (10) days after notice
thereof by the Company: (i) Executive's continual or deliberate neglect of the
performance of his material duties; (ii) Executive's failure to devote
substantially all of his working time to the business of the Company and its
subsidiaries; (iii) Executive's engaging willfully in misconduct in connection
with the performance of any of his duties, including, without limitation, the
misappropriation of funds or securing or attempting to secure personally any
profit in connection with any transaction entered into on behalf of the Company
or its subsidiaries; (iv) Executive's willful breach of any confidentiality or
nondisclosure agreements with the Company (including this Agreement) or
Executive's violation, in any material respect, of any code or standard of
behavior generally applicable to employees or executive employees of the
Company; (v) Executive's active disloyalty to the Company, including, without
limitation, willfully aiding a competitor or improperly disclosing confidential
information; or (vi) Executive's engaging in conduct which may reasonably result
in material injury to the reputation of
<PAGE>
the Company, including commission of a felony, embezzlement, bankruptcy,
insolvency, or general assignment for the benefit of creditors.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the Board then in office at a
meeting of the Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith opinion
of the Board, the Executive had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail. Nothing herein will
limit the right of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of any of the
following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the combined voting power of the then
outstanding Voting Stock of the Company; provided, however, that for
purposes of this Section 1(c)(i), the following acquisitions shall not
constitute a Change in Control: (A) any issuance of Voting Stock of the
Company directly from the Company that is approved by the Incumbent Board
(as defined in Section 1(c)(ii), below), (B) any acquisition by the Company
of Voting Stock of the Company, (C) any acquisition of Voting Stock of the
Company by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition of Voting
Stock of the Company by Quad-C, Inc. or any of its affiliates or any of the
limited partnerships managed by Quad-C, Inc. or (E) any acquisition of
Voting Stock of the Company by any Person pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of Section
1(c)(iii), below; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a Director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least two-thirds
of the Directors then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest (within the meaning of Rule 14a-11 of the Exchange Act) with
respect to the election or removal of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
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owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
relative to each other as their ownership, immediately prior to such
Business Combination, of the Voting Stock of the Company, (B) no Person
(other than the Company, such entity resulting from such Business
Combination, any employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity resulting from
such Business Combination or Quad-C, Inc. or any of its affiliates or any
of the limited partnerships managed by Quad-C, Inc.) beneficially owns,
directly or indirectly, 50% or more of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from such
Business Combination and (C) at least a majority of the members of the
Board of Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for such Business
Combination.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(e) "Severance Period" means the period of time commencing on the date of
the first occurrence of a Change in Control and continuing until the earlier of
(i) six months after the occurrence of the Change in Control or (ii) the
Executive's death.
(f) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(g) "Term" means the period commencing as of the date hereof and expiring
as of the expiration of the Severance Period; subject to the last sentence of
Section 6, if (i) prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company or (ii) no Change of Control occurs
prior to the first anniversary hereof, thereupon without further action the Term
shall be deemed to have expired and this Agreement will immediately terminate
and be of no further effect. For purposes of this Section 1(g), the Executive
shall not be deemed to have ceased to be an employee of the Company by reason of
the transfer of Executive's employment between the Company and any Subsidiary,
or among any Subsidiaries.
(h) "Termination Date" means the date on which the Executive's employment
is terminated (the effective date of which shall be the date of termination, or
such other date that may be specified by the Executive if the termination is
pursuant to Section 3(b)).
(i) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at any time during
the Term, without further action, this Agreement shall become immediately
operative, including without limitation, the last sentence of Section 6
notwithstanding that the Term may have theretofore expired.
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<PAGE>
3. Termination Following a Change in Control. (a) If, during the
Severance Period, the Executive's employment is terminated by the Company or any
Subsidiary other than for cause, the Executive will be entitled to the benefits
provided by Section 4 hereof.
(b) In the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company and any Subsidiary during the
Severance Period with the right to severance compensation as provided in Section
4 upon the occurrence of one or more of the following events (regardless of
whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Executive held immediately prior to the
Change in Control, (B) a reduction in the Executive's Base Pay received
from the Company, (C) the termination or denial of the Executive's right to
participate in any incentive compensation plan generally available to other
officers of the Company or (D) the termination or denial of the Executive's
rights to Employee Benefits in the aggregate equivalent in type and scope
to those generally available to other officers of the Company, any of which
is not remedied by the Company within 30 calendar days after receipt by the
Company of written notice from the Executive of such change, reduction,
termination or denial, as the case may be;
(ii) The Company relocates its principal executive offices (if such
offices are the principal location of Executive's work), or requires the
Executive to have his principal location of work changed, to any location
that, in either case, is in excess of 30 miles from the location thereof
immediately prior to the Change in Control; or
(iii) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 30 calendar days after receipt
by the Company of written notice from the Executive of such breach.
4. Severance Compensation. (a) If, following the occurrence of a Change
in Control, (i) the Company terminates the Executive's employment during the
Severance Period other than for Cause, (ii) the Executive dies, (iii) the
Executive becomes permanently disabled within the meaning of, and begins
actually to receive disability benefits pursuant to, the long-term disability
plan in effect for, or applicable to, Executive immediately prior to the Change
in Control, (iv) the Executive terminates his employment pursuant to Section
3(b) or (v) the Executive is employed by the Company or a Subsidiary of the
Company at the conclusion of the Severance Period, the Company will pay to the
Executive the amounts described in Annex A within ten business days of the
earliest to occur of any of the above-described events.
(b) Without limiting the rights of the Executive at law or in equity, if
the Company fails to make any payment or provide any benefit required to be made
or provided hereunder on a timely basis, the Company will pay interest on the
amount or value thereof at an annualized rate of interest equal to the so-called
composite "prime rate" as quoted from time to time during the relevant period in
the Midwest Edition of The Wall Street Journal, plus 1%. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be effective
on and as of the date of such change.
4
<PAGE>
(c) Notwithstanding any provision of this Agreement to the contrary, the
parties' respective rights and obligations under this Section 4 and under
Section 5 and the last sentence of Section 6 will survive any termination or
expiration of this Agreement or the termination of the Executive's employment
following a Change in Control for any reason whatsoever.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company, any Person whose actions result in a Change of
Control or any affiliate of the Company or such Person, to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock options, stock appreciation right or similar right, or the
lapse or termination of any restriction on the vesting or exercisability of any
of the foregoing, but determined without regard to any additional payments
required under this Section 5) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties that
are incurred by the Executive with respect to such tax or taxes (such tax or
taxes, together with any such interest and penalties, are hereinafter referred
collectively to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment or payments (collectively, "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed on the Payments.
(b) Subject to the provisions of Section 5(c), all determinations required
to be made under this Section 5, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers LLP or such other certified public accounting firm as may
be agreed to by the Company and the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive or
the Company that there has been a Payment, or such earlier time as is requested
by the Company and the Executive. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time for the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 5(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up
5
<PAGE>
Payment. Such notification shall be given as soon as practicable but no later
than ten business days after the Executive is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30 day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
including interest and penalties with respect thereto imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(c))
6
<PAGE>
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 5(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
6. Employment Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any Subsidiary
prior to or following any Change in Control. Anything in this Agreement to the
contrary notwithstanding, if a Change in Control occurs and not more than 180
days prior to the date on which the Change in Control occurs, the Executive's
employment with the Company is terminated by the Company, such termination of
employment shall be deemed to be a termination of employment after a Change in
Control for purposes of this Agreement if the Executive shall have reasonably
demonstrated that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose directly in connection with or in anticipation
of a Change in Control.
7. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
8. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 8(a) and 8(b). Without limiting the generality or effect of the
foregoing, the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any
7
<PAGE>
attempted assignment or transfer contrary to this Section 8(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
9. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS or
DHL, addressed to the Company (to the attention of the Secretary of the Company)
at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
10. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
11. Arbitration; Governing Law. Any dispute between the parties under
this Agreement shall be resolved (except as provided below) through informal
arbitration by an arbitrator selected under the rules of the American
Arbitration Association (located in Chicago, Illinois) and the arbitration shall
be conducted in that location under the rules of said Association. The
arbitrator shall have the right only to interpret and apply the provisions of
this Agreement and may not change its provisions. The arbitrator shall permit
reasonable pre-hearing discovery of facts, to the extent necessary to establish
a claim or a defense to a claim, subject to supervision by the arbitrator. The
determination of the arbitrator shall be conclusive and binding upon the parties
and judgment upon the same may be entered in any court having jurisdiction
thereof. The arbitrator shall give written notice to the parties stating his or
their determination and shall furnish to each party a signed copy of such
determination. The expense of arbitration shall be borne equally by the
Executive and the Company or as the arbitrator shall otherwise equitably
determine.
12. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
STIMSONITE CORPORATION
_______________________________________
By:____________________________________
Title:_________________________________
_______________________________________
9
<PAGE>
Annex A
-------
Payments made under this Agreement, if any, will be based on the value of all
consideration paid to holders of equity securities of the Company on account of
any transaction or series of related transactions resulting in a Change of
Control (the "Aggregate Equity Consideration") and no such amounts will be
payable under this Agreement unless the Aggregate Equity Consideration is at
least equal to $109,777,105. The Aggregate Equity Consideration shall be
computed by multiplying the total number of outstanding shares of common stock
of the Company as of the date of the definitive agreement relating to any such
Change of Control by the per share stock consideration to be paid to the holders
of the Company's common stock pursuant to such definitive agreement and adding
to such amount the difference between such per share consideration and the
average exercise price of all then unexercised stock options (other than options
granted under the Stock Option Plan for Non-Employee Directors to the extent
such options would be cancelled by their terms without payment of any
consideration) multiplied by the total number of shares which could be acquired
upon the exercise of such stock options. The following matrix reflects the
amount of any payments to be made to the Executive pursuant to this Agreement.
Aggregate Equity Incentive Change in Control
Consideration Bonus Amount
---------------------- ---------------------------
Equal to or greater than $109,777,105
but not greater than $137,569,882 $15,000 plus 0.15% of the portion of
the Aggregate Equity Consideration
which exceeds $109,777,105
Greater than $137,569,882 $15,000 plus 0.30% of the portion of
the Aggregate Equity Consideration
which exceeds $109,777,105
A-1
<PAGE>
EXHIBIT 99.10
-------------
AMENDMENT
to
EMPLOYMENT AGREEMENT
This "Amendment" to the Employment Agreement dated as of March 22,
1997 ("Agreement"), between Stimsonite Corporation, a Delaware corporation
("Company"), and Robert E. Stutz ("Executive"), is made and entered into as of
the 4th day of June 1999.
WHEREAS, the Company has entered into an Agreement and Plan of Merger
dated as of June 4, 1999 ("Merger Agreement"), with Avery Dennison Corporation,
a Delaware corporation ("ADC"), and Vision Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of ADC, which constitutes a Change in
Control (as defined in Section 9(a) of each of the forms of Nonqualified Stock
Option Agreement attached as Exhibit C and Exhibit D to the Agreement); and
WHEREAS, in consideration of Executive's substantial contributions to
the Company during the past two years and in the light of the Change in Control,
the Company desires to amend and restate the provisions of Section 10(c) and
Section 10(d) of the Agreement to provide the Executive with the opportunity to
realize the benefits of the stock options to be granted to the Executive
thereunder; and
WHEREAS, in recognition of the fact that inconsistencies exist between
the provisions of Section 12 of the Agreement and Section 5 of the Change in
Control Agreement between the Company and the Executive dated as of April 23,
1999 ("Change in Control Agreement"), the Company and the Executive desire to
amend Section 12 of the Agreement to provide that, to the extent that there are
inconsistencies between any of the provisions of Section 12 of the Agreement and
any of the provisions of Section 5 of the Change in Control Agreement, the
provisions of Section 5 of the Change in Control Agreement shall control for so
long as the Change in Control Agreement shall be in effect.
NOW, THEREFORE, the Company and Executive hereby agree as follows:
1. Section 10(c) of the Agreement is amended and restated to
hereafter read in its entirety as follows:
(c) On the first date (before the Termination Date) on which the
Common Stock has a closing price equal to or greater than $9.00 per
share for a 30th consecutive trading day, Executive will receive a
stock option to purchase 100,000 shares of Common Stock at an exercise
price per share of $9.00 and with such additional terms as are set
forth in the form of non-qualified stock option agreement attached to
this Agreement as Exhibit C; provided, however, if the closing price
of the Common Stock is equal to or greater than $9.00 per share on the
last trading day preceding the Effective Time (as defined in the
Agreement and Plan of Merger
<PAGE>
("ADC"), and Vision Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of ADC) ("Last Trading Day"), such stock
option shall be deemed to have been granted to Executive, and shall be
deemed fully vested and exercisable, immediately prior to the
Effective Time, regardless of whether the closing price the Common
Stock was equal to or greater than $9.00 per share on each of the 29
consecutive trading days immediately preceding the Last Trading Day,
provided that (i) the Effective Time occurs before the Termination
Date and (ii) such stock option has not been previously granted
pursuant to the foregoing provisions of this Section 10(c). If the
Merger Agreement shall be terminated prior to the Effective Time, the
provisions of both of the provisos to the immediately preceding
sentence shall be null and void and of no further force or effect.
2. Section 10(d) of the Agreement is amended and restated to
hereafter read in its entirety as follows:
(d) On the first date (before the Termination Date) on which the
Common Stock has a closing price equal to or greater than $11.00 per
share for a 30th consecutive trading day, Executive will receive a
stock option to purchase 100,000 shares of Common Stock at an exercise
price per share of $11.00 and with such additional terms as are set
forth in the form of non-qualified stock option agreement attached to
this Agreement as Exhibit D; provided, however, if the closing price
of the Common Stock is equal to or greater than $11.00 per share on
the Last Trading Day, such stock option shall be deemed to have been
granted to Executive, and shall be deemed fully vested and
exercisable, immediately prior to the Effective Time, regardless of
whether the closing price the Common Stock was equal to or greater
than $11.00 per share on each of the 29 consecutive trading days
immediately preceding the Last Trading Day, provided that (i) the
Effective Time occurs before the Termination Date and (ii) such stock
option has not been previously granted pursuant to the foregoing
provisions of this Section 10(d). If the Merger Agreement shall be
terminated prior to the Effective Time, the provisions of both of the
provisos to the immediately preceding sentence shall be null and void
and of no further force or effect.
3. Section 12 of the Agreement is amended to include a new
subsection (d), which shall read in its entirety as follows:
(d) To the extent that there shall be any inconsistency between
any of the provisions of this Section 12 and any of the provisions of
Section 5 of the Change in Control Agreement between the Company and
Executive dated as of April 23,
2
<PAGE>
1999 ("Change in Control Agreement"), the provisions of Section 5 of
the Change in Control Agreement shall control for so long as the
Change in Control Agreement shall be in effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
STIMSONITE CORPORATION
By /s/ Donald H. Haider
-----------------------------------
Donald H. Haider
Chairman of the Board
EXECUTIVE
/s/ Robert E. Stutz
---------------------------------------
Robert E. Stutz
3
<PAGE>
STIMSONITE CORPORATION
6565 West Howard Street
Niles, Illinois 60714
June 10, 1999
Dear Stockholder:
I am pleased to inform you that Stimsonite Corporation has entered into a
merger agreement with Avery Dennison Corporation. As contemplated by that
agreement, Vision Acquisition Corporation, a wholly owned subsidiary of Avery
Dennison, has commenced a cash tender offer to purchase all of the outstanding
shares of Stimsonite common stock for $14.75 per share in cash. The tender
offer is conditioned upon, among other things, at least a majority of
Stimsonite's shares outstanding on a fully diluted basis being validly
tendered and not withdrawn. If the Avery Dennison subsidiary purchases the
shares in the tender offer, the tender offer will be followed by a merger, in
which each share of Stimsonite common stock not purchased in the tender offer
will be converted into the right to receive $14.75 per share in cash, without
interest. Stockholders owning or having options to acquire approximately 20%
of the outstanding shares of Stimsonite common stock have agreed to tender
their shares in the tender offer.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE AVERY DENNISON OFFER AND
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF STIMSONITE AND ITS
STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE AVERY DENNISON OFFER
AND TENDER THEIR SHARES PURSUANT TO IT.
In arriving at its recommendation, your Board of Directors gave careful
consideration to the factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 that is being filed
today with the Securities and Exchange Commission. Among other things, the
Board considered the opinion of its financial advisor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, that, as of the date of that opinion, the
consideration to be received by the holders of shares of Stimsonite common
stock in the tender offer and merger is fair from a financial point of view to
those holders.
In addition to the attached Schedule 14D-9, also enclosed are materials
prepared by Avery Dennison, including the Offer to Purchase, dated June 10,
1999, together with related materials, including a Letter of Transmittal to be
used for tendering your shares in the tender offer. These documents state the
terms and conditions of the tender offer and the merger and provide
instructions as to how to tender your Stimsonite shares. I urge you to read
these documents carefully in making your decision with respect to tendering
your shares pursuant to the tender offer.
Finally, I want to take this opportunity to thank you, our stockholders, for
your continued support.
On behalf of the Board of Directors,
Robert E. Stutz
President, Chief Executive Officer
and Director
