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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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ERO, INC.
(NAME OF SUBJECT COMPANY)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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268911104 (COMMON STOCK)
(CUSIP NUMBER OF CLASS OF SECURITIES)
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D. RICHARD RYAN, JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ERO, INC.
585 SLAWIN COURT
MOUNT PROSPECT, ILLINOIS 60056
(847) 803-9200
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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COPY TO:
H. KURT VON MOLTKE
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
(312) 861-2000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is ERO, Inc., a Delaware corporation (the
"Company"), and the address of the principal executive office of the Company is
585 Slawin Court, Mount Prospect, Illinois 60056. The title of the class of
equity securities to which this statement relates is the common stock, par value
$0.01 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a cash tender offer by HC Acquisition Corp., a
Delaware corporation (the "Purchaser") and a direct wholly owned subsidiary of
Hedstrom Corporation, a Delaware corporation ("Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") dated April 17, 1997,
to purchase all outstanding Shares at $11.25 per Share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated April 17, 1997 (the "Offer to Purchase") and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer").
The Offer is being made by the Purchaser pursuant to an Agreement and Plan
of Merger, dated as of April 10, 1997, among the Company, the Purchaser, and
Parent (the "Merger Agreement"). The Merger Agreement provides, among other
things, for the commencement of the Offer by Purchaser and further provides
that, following the consummation of the Offer and subject to the satisfaction or
waiver of certain conditions, Purchaser will be merged with and into the Company
(the "Merger"), with the Company surviving the Merger (the "Surviving
Corporation"). In the Merger, each issued and outstanding Share (excluding
Shares directly or indirectly owned by the Company or by Parent, Purchaser or
any other subsidiary of Parent and Shares owned by stockholders of the Company
who shall not have voted in favor of the Merger or consented thereto in writing
and who shall have demanded properly appraisal for such Shares under Delaware
law) will be converted at the effective time of the Merger (the "Effective
Time") into the right to receive the per Share amount actually paid in the
Offer, in cash, without any interest thereon (the "Merger Consideration"), less
any required withholding taxes. Certain terms and conditions of the Merger
Agreement are described below in Item 3. A copy of the Merger Agreement is
attached hereto as Exhibit 1 and is incorporated herein by reference.
In connection with the execution of the Merger Agreement, the Purchaser and
Parent entered into a Stockholders Agreement, dated as of April 10, 1997 (the
"Stockholders Agreement"), with Golder, Thoma, Cressey Fund III Limited
Partnership (the "Stockholder"), pursuant to which, among other things, the
Stockholder has agreed with the Purchaser to tender into the Offer all 3,940,000
outstanding Shares beneficially owned by it, representing approximately 33.6% of
the outstanding Shares calculated on a fully-diluted basis, and not withdraw
them, except under limited circumstances. Certain terms and conditions of the
Stockholders Agreement are described below in Item 3. A copy of the Stockholders
Agreement is attached hereto as Exhibit 2 and is incorporated herein by
reference.
Based on the information in the Offer to Purchase, the principal executive
offices of the Purchaser are located at 300 Corporate Center Drive, Suite 100,
Coraopolis, Pennsylvania 15108.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above which information is incorporated
herein by reference.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its directors and executive officers are
described in the Company's Information Statement dated April 17, 1997 under
"Directors and Executive Officers of the Company," "Executive Compensation,"
"Performance Graph," and "Security Ownership." The Information Statement is
attached hereto as Schedule I, filed as Exhibit 3 to this Schedule 14D-9 and
incorporated herein by reference. In addition, certain contracts, agreements,
arrangements and understandings relating to the Company and/or the Company's
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directors and executive officers are contained in the Merger Agreement and are
described below under "The Merger Agreement."
Director Liability and Indemnification. Under the Delaware General
Corporation Law ("DGCL"), a corporation has the power to indemnify any director
or officer against expenses, judgments, fines, and settlements incurred in a
proceeding, other than an action by or in the right of the corporation, if the
person acted in good faith and in a manner that the person reasonably believed
to be in the best interests of the corporation or not opposed to the best
interests of the corporation, and, in the case of a criminal proceeding, had no
reason to believe the conduct of the person was unlawful. In the case of an
action by or in the right of the corporation, the corporation has the power to
indemnify any officer or director against expenses incurred in defending or
settling the action if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation; provided, however, that no indemnification may be made when a
person is adjudged liable to the corporation, unless a court determines such
person is entitled to indemnity for expenses, and then such indemnification may
be made only to the extent such court shall determine. The DGCL requires that to
the extent an officer or director of a corporation is successful on the merits
or otherwise in defense of any third-party or derivative proceeding, or in
defense of any claim, issue, or matter therein, the corporation must indemnify
the officer or director against expenses incurred in connection therewith.
Under the DGCL, a corporation may adopt a provision in its certificate of
incorporation that eliminates or limits the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that such provision may not eliminate or
limit director monetary liability for: (i) breaches of the director's duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of laws;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) transactions in which the director received an improper
personal benefit. The Company's Certificate of Incorporation includes such a
provision.
The Company's By-Laws provide that the Company will, to the fullest extent
permitted by the DGCL, indemnify all persons whom it has the power to indemnify
against all of the costs, expenses, and liabilities incurred by them by reason
of having been officers or directors of the Company, or any subsidiary of the
Company or any other corporation for which such persons acted as officer or
director at the request of the Company.
The Merger Agreement also contains covenants that will require the
Surviving Corporation to maintain the Company's current director and officer
liability coverage (or replacement insurance with similar coverage) for a period
of six years after the Effective Time. See "The Merger Agreement --
Indemnification" and "The Merger Agreement -- Directors' and Officers'
Insurance."
(2) Arrangements with the Purchaser or its Affiliates.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement. Such summary is
qualified in its entirety by reference to the text of the Merger Agreement, a
copy of which is filed as Exhibit 1 hereto and is incorporated herein by
reference.
The Offer. The Merger Agreement provides for the commencement of the Offer,
in connection with which the Purchaser has expressly reserved the right to amend
or modify the terms of the Offer and to waive certain conditions of the Offer;
however, without the prior written consent of the Company, Purchaser has agreed
not to (i) decrease the Offer Price or the form of consideration therefor or
decrease the number of Shares sought pursuant to the Offer, (ii) amend or waive
the condition that there shall be validly tendered and not withdrawn prior to
the time the Offer expires a number of Shares which constitutes at least a
majority of the Shares outstanding on a fully-diluted basis on the date of
purchase ("on a fully-diluted basis" having the following meaning, as of any
date: the number of Shares outstanding, together with Shares which the Company
may be required to issue pursuant to options, warrants, or other obligations
outstanding on that
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date), (iii) extend the expiration date of the Offer (except the Purchaser may
extend the expiration date of the Offer (a) as required by any rule, regulation
or interpretation of the United States Securities and Exchange Commission (the
"Commission"), (b) for such periods as Purchaser may reasonably deem necessary
(but not to a date later than the 60th calendar day after the date of
commencement) in the event that any condition to the Offer is not satisfied), or
(c) for one or more times for an aggregate period of up to 15 days (not to
exceed 60 calendar days from the date of commencement) for any reason other than
those specified in the immediately preceding clause (a) or clause (b)) or (iv)
change any condition or impose additional conditions to the Offer or amend any
term of the Offer in any manner adverse to holders of Shares; provided, however,
that, except as set forth above, Purchaser may waive any other condition to the
Offer in its sole discretion; and provided further, that the Offer (i) may be
extended in connection with an increase in the consideration to be paid pursuant
to the Offer so as to comply with applicable rules and regulations of the
Commission and (ii) will, for one time only, be automatically extended for a
period which ends on the 15th business day from the date the Company shall have
received an Acquisition Proposal (as defined below) in the event the Company
shall receive such Acquisition Proposal less than ten business days prior to the
expiration of the Offer. Assuming the prior satisfaction or waiver of the
conditions to the Offer, Purchaser has agreed to accept for payment, and pay
for, in accordance with the terms of the Offer, all Shares validly tendered and
not withdrawn pursuant to the Offer as soon as practicable after the expiration
date thereof.
Board Representation. The Merger Agreement provides that promptly upon the
purchase by Parent or any of its subsidiaries of such number of Shares which
represents a majority of the outstanding Shares on a fully-diluted basis, and
from time to time thereafter, Parent shall be entitled to designate such number
of directors, rounded up to the next whole number (but in no event more than one
less than the total number of directors on the Board of the Company) as will
give Parent, subject to compliance with Section 14(f) of the Securities Exchange
Act of 1934 (the "Exchange Act"), representation on the Board equal to the
product of (x) the number of directors on the Board (giving effect to any
increase in the number of directors pursuant to the Merger Agreement) and (y)
the percentage that such number of Shares so purchased bears to the aggregate
number of Shares outstanding (such number being the "Board Percentage"). The
Company has agreed, upon request of Parent and subject to applicable law, to
promptly satisfy the Board Percentage by increasing the size of the Board or
using its best efforts to secure the resignations of such number of directors as
is necessary to enable Parent's designees to be elected to the Board and to
cause Parent's designees promptly to be so elected; provided, that no such
action shall be taken which would result in there being, prior to the
consummation of the Merger, less than two directors of the Company that are not
affiliated with Parent. At the request of Parent, the Company has agreed to
take, at the Company's expense, all lawful action necessary to effect any such
election, including, without limitation, mailing to its stockholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, unless such information has previously been provided to
the Company's stockholders in this Schedule 14D-9. Parent is to 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) of
the Exchange Act and Rule 14f-1 thereunder. Following the election or
appointment of Parent's designees pursuant to the Merger Agreement and prior to
the Effective Time of the Merger, any amendment or termination of the Merger
Agreement, extension for the performance or waiver of the obligations or other
acts of Parent or Purchaser or waiver of the Company's rights thereunder shall
require the concurrence of a majority of the directors of the Company then in
office who are Continuing Directors. The term "Continuing Directors" means (i)
each member of the Board on the date of the Merger Agreement who voted to
approve the Merger Agreement and (ii) any successor to any Continuing Director
that was recommended to succeed such Continuing Director by a majority of the
Continuing Directors then on the Board.
Consideration to be Paid in the Merger. The Merger Agreement provides that
upon the terms and subject to the conditions set forth in the Merger Agreement
and in accordance with the DGCL, Purchaser will be merged with and into the
Company. In the Merger, at the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any of the Shares, the
Purchaser, or the Company, each Share issued and outstanding immediately prior
to the Effective Time (excluding Shares owned directly or indirectly by (i) the
Company or by Parent, Purchaser, or any other subsidiary of Parent and (ii)
stockholders of the Company who shall not have voted in favor of the Merger or
consented thereto in writing and who shall have
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demanded properly appraisal for such Shares under Delaware law (such Shares to
be referred to as "Dissenting Shares")) shall be converted into the right to
receive the actual amount per Share in cash paid to holders in the Offer,
without any interest thereon, less any required withholding taxes. Each share of
the capital stock of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
Preparation of the Proxy Statement; Merger Without a Company Stockholders
Meeting. The Merger Agreement provides that in the event that Parent or any
Subsidiary of Parent shall acquire at least a majority of the outstanding Shares
(on a fully diluted basis) in the Offer or otherwise, the Parent, Purchaser, and
the Company have agreed, at the request of the Purchaser, to take all necessary
and appropriate action to cause the Merger to become effective, as soon as
practicable after the expiration of the Offer, in accordance with Section 251 of
the DGCL. Such action shall include the prompt preparation and distribution of a
proxy statement (if required by applicable law) relating to a meeting of
Stockholders approving the Merger (such proxy statement as amended or
supplemented from time to time referred to herein as the "Proxy Statement"). The
Company has agreed to use all commercially reasonable efforts to cause the Proxy
Statement to be mailed to the Company's Stockholders at the earliest practicable
date. Notwithstanding the foregoing, the Merger Agreement provides that in the
event that Parent or any subsidiary of Parent acquires at least 90% of the
outstanding Shares in the Offer, the Merger may be effected without a meeting of
the Stockholders in accordance with Section 253 of the DGCL.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties hereto. These include
representations and warranties by the Company with respect to corporate
existence and power, capital structure, corporate authorization,
noncontravention, consents and approvals, Commission filings, information
supplied, compliance with applicable laws, litigation, taxes, pension and
benefit plans and ERISA, absence of certain changes or events, absence of
undisclosed material liabilities, opinion of financial advisor, vote required,
labor matters, intangible property, environmental matters, real property, board
recommendation, material contracts, related party transactions, indebtedness,
liens, and other matters.
Parent and Purchaser have also made certain representations and warranties
with respect to corporate existence and power, corporate authorization, consent
and approvals, noncontravention, information supplied, board recommendation,
financing, and other matters.
Conduct of Business Pending the Merger. The Company has agreed as to the
Company and its subsidiaries that during the period from the date of the Merger
Agreement to the Effective Time, except as otherwise provided in the Merger
Agreement or consented to by Parent, each of the Company and its subsidiaries
will conduct its business in the usual, regular, and ordinary course of business
in substantially the same manner as conducted prior to the date of the Merger
Agreement and shall use all reasonable efforts to preserve intact its business
organization, keep available the services of its current officers and employees
and preserve relationships with customers, suppliers and others having business
dealings with it. The Company has further agreed that it shall not nor shall it
permit any of its subsidiaries to: (i) declare or pay any dividends on or make
any other distributions in respect of any of its capital stock; (ii) split,
combine, or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; (iii) repurchase or otherwise
acquire any shares of its capital stock, except (A) as contemplated by Section
3.5 of the Merger Agreement with respect to certain outstanding options and (B)
as required by the terms of its securities outstanding or any employee benefit
plan in effect on the date of the Merger Agreement; (iv) grant any options,
warrants, or rights to purchase Shares; (v) except as contemplated by Section
3.5 of the Merger Agreement with respect to certain outstanding options, amend
the terms of or reprice any option or amend the terms of any of the Stock Option
Plans; (vi) issue, deliver or sell, or authorize or propose to issue, deliver or
sell, any shares of its capital stock, any Company voting debt or any securities
convertible into, or any rights, warrants, or options to acquire, any such
shares, Company voting debt, or convertible securities, other than issuances of
Shares upon the exercise of options or warrants that are outstanding on the date
of the Merger Agreement; (vii) as to the Company only, make or propose to make
any changes in its Certificate of Incorporation or By-laws; (viii) merge or
consolidate with, or acquire any equity
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interest in, any corporation, partnership, association, or other business
organization, or enter into an agreement with respect thereto; (ix) acquire or
agree to acquire any assets of any corporation, partnership, association, or
other business organization or division thereof, except for the purchase of
inventory and supplies in the ordinary course of business or the acquisition by
the Company or any subsidiary thereof of equity interests in any customer or
supplier of the Company in satisfaction of outstanding claims against such party
in bankruptcy proceedings consistent with past practice; (x) sell, lease,
encumber or otherwise dispose of, or agree to sell, lease (whether such lease is
an operation or capital lease), encumber, or otherwise dispose of, any of its
assets (including, without limitation, any capital stock or other ownership
interest of any subsidiary of the Company) except for sales of inventory or
sales or returns of obsolete or surplus equipment in the ordinary course of
business consistent with past practice; (xi) authorize, recommend, propose, or
announce an intention to adopt a plan of complete or partial liquidation or
dissolution of the Company or any of its subsidiaries; (xii) except as expressly
permitted by the terms of the Merger Agreement, knowingly or intentionally take
or agree or commit to take any action that is reasonably likely to result in any
of the Company's representations or warranties contained in the Merger Agreement
being untrue in any material respects or any of the Company's covenants
contained in the Merger Agreement or any of the conditions to the Merger not
being satisfied in all material respects; (xiii) without the prior written
consent of Parent, (A) grant any increases in the compensation of any of its
directors, officers, or key employees, (B) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or contemplated to
be paid prior to the Effective Time by any of the existing benefit plans or
employee arrangements as in effect on the date of the Merger Agreement to any
such director, officer or key employee, whether past or present, (C) enter into
any new, or materially amend any existing, employment, severance, or termination
agreement with any such director, officer, or key employee, or (D) except as may
be required by law, become obligated under any new employee benefit plan or
employee arrangement, which was not in existence on the date of the Merger
Agreement, or amend any such plan or arrangement in existence on the date of the
Merger Agreement if such amendment would have the effect of materially enhancing
any benefits thereunder; (xiv) without the prior written consent of Parent
(which shall not be unreasonably withheld), assume or incur any indebtedness for
borrowed money or guarantee any such indebtedness, issue or sell any debt
securities or warrants or rights to acquire any debt securities of the Company
or any of its subsidiaries or guarantee any debt securities of others, or enter
into any lease (whether such lease is an operating or a capital lease) or create
any mortgages, liens, security interests or other encumbrances on the property
of the Company or any of its subsidiaries in connection with any indebtedness
thereof, or enter into any "keep well" or other agreement or arrangement to
maintain the financial condition of another person except for indebtedness
incurred by the Company from time to time for working capital purposes in the
ordinary course of business under the Second Amended and Restated Credit
Agreement, dated as of December 14, 1995, by and among the Company, the
financial institutions party thereto and the First National Bank of Chicago, as
agent, indebtedness incurred to fund capital expenditures permitted under
Section 5.1(n) of the Merger Agreement and entering into leases for personal
property in the ordinary course of business consistent with past practice; (xv)
without the prior written consent of Parent (which shall not be unreasonably
withheld), (A) enter into any contracts involving aggregate annual payments in
excess of $250,000, except for license agreements entered into in the ordinary
course of the Company's business consistent with past practice or (B) modify,
rescind, terminate, waive, release or otherwise amend in any material respect
any of the terms or provisions of any material contract in any manner that is
material and adverse to the Company or the respective subsidiary of the Company
party thereto; (xvi) take any action, other than in the ordinary course of
business consistent with past practice or as required by the Commission or by
law, with respect to accounting policies, procedures, and practices; or (xvii)
incur any capital expenditures in excess of $100,000 except as permitted by the
Merger Agreement.
Parent has agreed as to Parent and Purchaser and its subsidiaries that
during the period from the date of the Merger Agreement to the Effective time,
Parent will not knowingly or intentionally take or agree or commit to take, nor
will it permit Purchaser or any of the subsidiaries of Parent to take or agree
or commit to take, any action to prohibit or prevent the financing sources of
Parent and Purchaser from providing the debt and equity financing contemplated
by the Financing Commitments.
Other Agreements. The Company, Parent, and Purchaser have agreed to use
their respective commercially reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things
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necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement subject to approval of the Company's stockholders, including
cooperating fully with the other party, including by provision of information
and making of all necessary filings in connection with, among other things,
approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder (the "HSR Act"). The Company has agreed
to cooperate with Parent's and Purchaser's efforts to secure the financing
contemplated by the Financing Commitments, such cooperation to include providing
such information to Parent's and Purchaser's financing sources as Parent or
Purchaser may reasonably request and making available senior officers and such
other employees of the Company as Parent and Purchaser may reasonably request to
assist in preparing offering documents and marketing materials and to
participate in any marketing and sales efforts relating to the Financing
Commitments as reasonably requested by Parent consistent with their other
business obligations; provided that the Company shall incur no liability as a
result of participation by any officer or employee in such financing efforts.
Parent and the Company have also made certain agreements regarding publicity,
access to information, confidentiality and the continuation of employee
benefits. The Company has further agreed to use its reasonable efforts to assist
Parent, at Parent's expense, in obtaining any consent from third parties
necessary to allow the Company to continue operating its business as presently
conducted as a result of the consummation of the Offer and the Merger.
No Solicitation. The Merger Agreement provides that from and after the date
of the Merger Agreement until the termination thereof, neither the Company or
any of its subsidiaries, nor any of their respective officers, directors,
representatives, agents, or affiliates (including, without limitation, any
investment banker, attorney, or accountant retained by the Company or any of its
subsidiaries) (such officers, directors, employees, representatives, agents,
affiliates, investment bankers, attorneys, and accountants being collectively
referred to as "Representatives"), will, and the Company will use its reasonable
best efforts to cause the employees of the Company and its subsidiaries not to,
directly or indirectly, initiate, solicit, or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal (as defined below), or enter
into or maintain or continue discussions or negotiate with any person or entity
in furtherance of such inquiries or for the purpose of obtaining an Acquisition
Proposal or agree to or endorse any Acquisition Proposal, and neither the
Company nor any of its subsidiaries will authorize or permit any of its
Representatives to take any such action, and the Company shall notify Parent
orally (within one business day) and in writing (as promptly as practicable) of
all of the relevant details relating to, and all material aspects of, all
inquiries and proposals which it or any of its subsidiaries or any of their
respective Representatives may receive relating to any of such matters and, if
such inquiry or proposal is in writing, the Company shall deliver to Parent a
copy of such inquiry or proposal as promptly as practicable; provided, however,
that the Board is not prohibited from (i) furnishing information to, or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited written bona fide Acquisition Proposal (provided that such person or
entity has the necessary funds or commitments to provide the funds to effect
such Acquisition Proposal; provided further, however, that the Company shall
have two business days from the date it receives such Acquisition Proposal to
determine whether such person or entity has such funds or commitments) if, and
only to the extent that, (A) the Board, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), determines in good faith that such action is
advisable for the Board to comply with its fiduciary duties to Stockholders
under applicable law, (B) prior to taking such action, the Company (x) provides
reasonable prior notice to Parent to the effect that it is taking such action
and (y) receives from such person or entity an executed confidentiality
agreement in reasonably customary form, and (C) the Company shall, to the extent
consistent with the Board's fiduciary duties to Stockholders under applicable
law, promptly and continuously advise Parent as to all of the relevant details
relating to, and all material aspects of, any such discussions or negotiations;
(ii) failing to make or reaffirm, withdrawing, adversely modifying or taking a
public position materially inconsistent with its recommendation to the
Stockholders to approve the Merger Agreement (which may include making any
statement required by Rule 14e-2 under the Exchange Act) and the transactions
contemplated thereby, including the Merger, and to accept the Offer and tender
their Shares pursuant thereto, if there exists an Acquisition Proposal and the
Board, after consultation with and based upon
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the advice of independent legal counsel (who may be the Company's regularly
engaged independent counsel), determines in good faith that such action is
advisable for the Board to comply with its fiduciary duties to Stockholders
under applicable law; or (iii) making a "stop-look-and-listen" communication
with respect to an Acquisition Proposal, the Offer or the Merger Agreement of
the nature contemplated in, and otherwise in compliance with, Rule 14d-9 under
the Exchange Act as a result of receiving an Acquisition Proposal. The term
"Acquisition Proposal" means any of the following transactions (other than the
transactions among the Company, Parent, and Purchaser contemplated in the Merger
Agreement) involving the Company or any of its subsidiaries: (i) any merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 10% or more of the assets (computed based on the fair
market value of such assets as determined by the Board of Directors of the
Company in good faith) of the Company and its subsidiaries, taken as a whole, in
a single transaction or series of transactions; (iii) any tender offer or
exchange offer for 10% or more of the outstanding shares of capital stock of the
Company or the filing of a registration statement under the Securities Act in
connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
Fees and Expenses. Except as provided below, the Merger Agreement provides
that all costs and expenses in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expense, except as otherwise provided in the Merger Agreement and except with
respect to claims for damages incurred as a result of the breach of the Merger
Agreement. In addition, the Company has agreed to pay Parent a fee in
immediately available funds equal to $3,000,000 upon the termination of the
Merger Agreement in accordance with the terms thereof if any of the following
events occurs (each, a "Trigger Event"): (i) the Board shall have (A) withdrawn
or adversely modified, or taken a public position materially inconsistent with
its approval or recommendation of the Offer, the Merger or the Merger Agreement,
or (B) in the event an Acquisition Proposal has been made to the Company prior
to the expiration of the Offer, the Company shall have failed to publicly
reaffirm its approval or recommendation of the Offer, the Merger, the Merger
Agreement and the Stockholders Agreement on or before the earlier to occur of
(1) the tenth business day following the date on which such Acquisition Proposal
shall have been made or (2) the third business day prior to the latest possible
expiration date of the Offer, provided, that making a "stop-look-and-listen"
communication with respect to an Acquisition Proposal, the Offer or the Merger
Agreement of the nature contemplated in, and otherwise in compliance with, Rule
14d-9 under the Exchange Act as a result of receiving an Acquisition Proposal,
shall not, by itself, constitute a Trigger Event, or (ii) an Acquisition
Proposal has been recommended or accepted by the Company or the Company shall
have entered into an agreement (other than a confidentiality agreement as
contemplated by the Merger Agreement) with respect to an Acquisition Proposal.
The Parent has agreed to pay to the Company a fee in immediately available funds
equal to $3,000,000 upon the termination of the Merger Agreement in accordance
with the terms thereof in the event that the Offer expires or is withdrawn,
abandoned or terminated if the sole reason for such expiration, withdrawal,
abandonment or termination is that the debt financing sources for Parent and
Purchaser shall not have provided the applicable debt financing to Parent and
Purchaser pursuant to the Financing Commitments. Any amounts payable pursuant to
the foregoing that are not paid when due shall bear interest at the prime rate
from the date due through and including the date paid.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligation of each party to effect the Merger is subject to the satisfaction
prior to the Closing Date (as defined in the Merger Agreement) of the following
conditions: (i) the Merger Agreement and the Merger shall have been approved and
adopted by the affirmative vote of the holders of a majority of the outstanding
Shares entitled to vote thereon if such vote is required by applicable law;
provided that Parent and Purchaser shall vote all Shares purchased pursuant to
the Offer or the Stockholders Agreement in favor of the Merger; (ii) the waiting
period (and any extension thereof) applicable to the Merger under the HSR Act
shall have been terminated or shall have expired, and no restrictive order or
other requirements shall have been placed on the Company, Parent, Purchaser, or
the Surviving Corporation in connection therewith; (iii) 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 the consummation of the Merger shall be in effect; provided, however,
that
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<PAGE> 9
prior to invoking the condition, each party shall use all commercially
reasonable efforts to have any such decree, ruling, injunction or order vacated;
(iv) no statute, rule, order, decree or regulation shall have been enacted or
promulgated by any government or governmental agency or authority which
prohibits the consummation of the Merger; and (v) Purchaser shall have accepted
for payment and paid for the Shares tendered in the Offer such that, after such
acceptance and payment, Parent and its affiliates shall own, at consummation of
the Offer, a majority of the outstanding Shares on a fully diluted basis;
provided that this condition shall be deemed to have been satisfied if Purchaser
fails to accept for payment and pay for Shares pursuant to the Offer in
violation of the term and conditions of the Offer. The obligation of Parent and
Purchaser to consummate the Merger are subject to the following additional
conditions: (i) Parent and Purchaser shall have received the debt and equity
financing contemplated by the Merger Agreement on terms substantially as
outlined in the Financing Commitments, and (ii) no more than ten percent (10%)
of the Shares outstanding immediately prior to the Effective Time shall be
Dissenting Shares. Holders of Shares should carefully review the Schedule 14D-1
for a discussion of the commitment letters obtained by Parent for the financing
of the Offer and the Merger, and the terms and conditions of such financing.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or Parent, by (a) mutual written consent of the
Company and Parent or by mutual action of their respective Board of Directors;
(b) either the Company or Parent, (i) so long as such party is not then in
material breach of its obligations under the Merger Agreement, if there has been
a breach of any representation, warranty, covenant or agreement (determined
without giving effect to any "Material Adverse Effect," "materiality" or similar
qualification contained therein) on the part of the other set forth in the
Merger Agreement, which breach (other than a breach of any covenant or agreement
set forth in Article I, Section 4.2(e) or Section 5.1(e) of the Merger
Agreement) has not been cured within ten calendar days following receipt by the
breaching party of notice of such breach, unless such breach could not,
individually or in the aggregate with other breaches, be reasonably expected to
(1) have a "Material Adverse Effect" (defined as any events, changes or effects
with respect to any person which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the business,
results of operations or financial conditions of such party and its subsidiaries
taken as a whole, except for certain matters with respect to the Company) on the
Company or (2) materially adversely affect the ability of the parties thereto to
consummate the transactions contemplated thereby, or (ii) if any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and non-appealable; (c)
either the Company or Parent, so long as such party is not then in material
breach of its obligations under the Merger Agreement, if the Merger shall not
have been consummated on or before the 135th calendar day following the
consummation of the Offer; provided, that such right to terminate the Merger
Agreement under this clause shall not be available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date; (d)
Parent, in the event that a Trigger Event has occurred prior to the consummation
of the Offer (see "Fees and Expenses" above); (e) Parent, in the event an
Acquisition Proposal has been made to the Company prior to the expiration of the
Offer and the Company shall fail to publicly reaffirm its approval or
recommendation of the Offer, the Merger and the Merger Agreement on or before
the earlier to occur of (i) the tenth business day following the date on which
such Acquisition Proposal shall have been made or (ii) the third business day
prior to the latest possible expiration date of the Offer under the Merger
Agreement; (f) either the Company or Parent, if the Offer terminates, is
withdrawn, abandoned, or expires by reason of the failure to satisfy any of the
conditions described in Exhibit A to the Merger Agreement; (g) the Company, if
the Offer shall have expired or shall have been withdrawn, abandoned, or
terminated without any Shares being purchased by Purchaser thereunder on or
prior to the 60th calendar day after the date of commencement of the Offer; (h)
the Company, if (1) the Board of Directors of the Company shall fail to make or
reaffirm, withdraw, adversely modify or take a public position materially
inconsistent with its recommendation that the Stockholders approve the Merger
Agreement and the Merger and accept the Offer and tender their Shares pursuant
thereto if there exists an Acquisition Proposal and the Board of Directors of
the Company, after consultation with and based upon the advice of independent
legal counsel (who may be the Company's regularly engaged independent counsel),
determines in good faith that such action is advisable
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<PAGE> 10
for the Board of Directors of the Company to comply with its fiduciary duties to
holders of Shares under applicable law, and (2) the Company shall have paid a
termination fee to Parent or Parent's designee in the amount of $3,000,000,
provided, however, that if the excess of (A) the sum of (x) the average balance
of the Company's cash on hand for the ten day period preceding the date the
Company seeks to terminate this Agreement under this clause (h) plus (y) the
average available capacity under the Company Credit Agreement over the ten day
period preceding the date the Company wishes to terminate the Merger Agreement
under this clause (h) over (B) $2,000,000 (such excess being referred to as the
"Available Cash"), is less than $3,000,000, then in lieu of having paid the
$3,000,000 termination fee, the Company shall have (A) paid the entire amount of
the Available Cash to Parent or Parent's designee and (B) delivered to Parent a
written commitment by the Company (in a form satisfactory to Parent),
unconditionally guaranteed by a financially responsible and reputable entity (as
determined by Parent in its sole discretion), acknowledging the Company's
obligation to pay the difference between the $3,000,000 termination fee and the
amount of Available Cash paid by the Company to Parent or Parent's designee in
connection with the termination of the Merger Agreement (together with interest
at the prime rate accruing from the date on which payment of the termination fee
contemplated by this clause (h) would have been due and payable) on the earlier
of (A) such date as the Company shall have additional Available Cash sufficient
to pay such difference, (B) the closing of the tender offer relating to the
Acquisition Proposal with respect to which the Company terminated the Merger
Agreement (the "Competing Offer"), (C) the expiration of the Competing Offer, or
(D) the date which is 60 calendar days after the date on which the Offer was
commenced; and (i) the Company, if Purchaser shall not have commenced the Offer
within ten business days after the execution and delivery of the Merger
Agreement by Parent and Purchaser. In the event of termination of the Merger
Agreement by either the Company or Parent as provided therein, the Merger
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Purchaser, or the Company, or their respective
affiliates, officers, directors, or shareholders, except (i) the Confidentiality
Agreement, dated as of December 10, 1996, by and between Parent and the Company
shall apply with respect to information furnished thereunder or under the Merger
Agreement and any other activities contemplated by the Confidentiality
Agreement; (ii) all costs and expenses in connection with the Merger Agreement
and the transactions contemplated thereby shall be paid as set forth in the
"Fees and Expenses" section of this Schedule 14D-9; and (iii) that no such
termination shall relieve any party from liability for a material breach of the
Merger Agreement. In addition, in the event that the Merger Agreement is validly
terminated, Parent and Purchaser have agreed that, immediately following such
termination (and, in the event Parent is entitled to be paid a fee in connection
with such termination, immediately following receipt by Parent of such fees),
Parent and Purchaser shall terminate the Offer and not purchase any Shares
pursuant to the Offer or otherwise, and Parent has further agreed that following
such termination, it shall continue to be bound by all of the terms and
conditions contained in the Confidentiality Agreement.
Indemnification. The Merger Agreement provides that the Company shall, and
from and after the Effective Time, the Surviving Corporation shall, indemnify,
defend, and hold harmless each person who was at the date of the Merger
Agreement, or had been at any time prior to the date of the Merger Agreement or
who becomes prior to the Effective Time, an officer, director, employee or agent
of the Company (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities or
judgments or amounts paid in settlement with the approval of the indemnifying
party (which approval shall not be unreasonably withheld) of or in connection
with any threatened or actual claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part on, or arising in
whole or in part out of the fact that such person is or was a director, officer,
employee or agent of the Company or any of its subsidiaries whether pertaining
to any matter existing or occurring at or prior to the Effective Time or any
acts or omissions occurring or existing at or prior to the Effective Time and
whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities"), including all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining to the
Merger Agreement or the transactions contemplated thereby, in each case, to the
full extent a corporation is permitted under the DGCL to indemnify its own
directors or officers, as the case may be, and the Company and the Surviving
Corporation, as the case may be, shall pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law. All rights to
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<PAGE> 11
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of not less than
six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Indemnified Liabilities asserted or made
within such period shall continue until the disposition of such Indemnified
Liabilities.
Parent and Purchaser have also agreed to unconditionally waive and release
the Indemnified Parties from and have agreed to indemnify, defend and hold
harmless the Indemnified Parties from and against any and all claims, demands,
causes of action, liabilities, costs or expenses, whether arising under
contract, statute, common law or otherwise, with respect to environmental
matters (including, without limitation, any of the foregoing arising under
CERCLA or other environmental laws).
Directors' and Officers' Insurance. For a period of six years after the
Effective Time, the Surviving Corporation shall cause to be maintained in effect
the current policies of directors' and officers' liability insurance maintained
by the Company and its subsidiaries (provided that Parent may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in any material respect to the
Indemnified Parties) with respect to matters arising before and acts or
omissions occurring or existing at or prior to the Effective Time including the
transactions contemplated by the Merger Agreement, provided that Parent shall
not be required to pay an annual premium for such insurance in excess of 200% of
the last annual premium paid by the Company prior to the date of the Merger
Agreement, but in such case shall purchase as much coverage as possible for such
amount.
Amendment. Subject to applicable law, the Merger Agreement may be amended,
modified, or supplemented only by written agreement of Parent, Purchaser, and
the Company at any time prior to the Effective Date with respect to any of the
terms contained therein; provided, however, that after the consummation of the
Offer, no term or condition contained in the Merger Agreement shall be amended
or modified in any manner adverse to the holders of the Company Common Stock
(including, without limitation, by reducing the amount of or changing the form
of the Merger Consideration).
Timing. The Merger Agreement provides that the closing of the Merger shall
occur on the second business day after satisfaction and/or waiver of the
conditions set forth in the Merger Agreement (or as soon as practicable
thereafter following satisfaction or waiver of such conditions). The Merger
shall become effective upon such filing or at such time thereafter as may be
provided in the certificate of merger to be filed with the Secretary of State of
the State of Delaware, as provided in the DGCL, on the date of the closing of
the Merger or as soon as practicable thereafter.
The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Parent has agreed to cause
the Merger to be consummated on the terms set forth above, there can be no
assurance as to the timing of the Merger.
OTHER AGREEMENTS
Confidentiality, Agreements. On December 10, 1996, Parent and the Company
entered into a Confidentiality Agreement (the "Confidentiality Agreement")
pursuant to which the Company has agreed to supply certain information to Parent
and Parent has agreed to treat such information as confidential and to use such
information solely in connection with the evaluation of a possible transaction
with the Company. Parent has agreed that until December 10, 1997, it would not,
among other things, take any action that would cause or facilitate the
acquisition by any person, including Parent or its affiliates, of any securities
or assets of, or a merger or business combination with, the Company. The
foregoing is a summary of the Confidentiality Agreement. Such summary is
qualified in its entirety by reference to the text of the Confidentiality
Agreement, a copy of which is filed as Exhibit 4 hereto, and is incorporated
herein by reference.
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The Stockholders Agreement
The following is a summary of the material terms of the Stockholders
Agreement. This summary is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the full
text thereof which is incorporated herein by reference and a copy of which is
filed as Exhibit 2 hereto.
Tender of Shares. Simultaneously with the execution of the Merger
Agreement, Parent, Purchaser and the Stockholder entered into the Stockholders
Agreement. Upon the terms and subject to the conditions of such agreement, the
Stockholder has agreed to (i) validly tender and not to withdraw pursuant to and
in accordance with the terms of the Offer, not later than the fifth business day
after commencement of the Offer, the Shares owned beneficially by it and (ii)
permit Parent and Purchaser to publish and disclose its identity and ownership
of Shares and the nature of its commitments, arrangements and understandings
under the Stockholders Agreement in the documents relating to the Offer and, if
stockholder approval for the Merger is required, in the Proxy Statement relating
thereto (including all documents and schedules filed with the Commission).
Voting. The Stockholder has agreed that during the period commencing on the
date of the Stockholders Agreement and continuing until the first to occur of
the Effective Time, the termination of the Stockholders Agreement or the
termination of the Merger Agreement in accordance with its terms, at any meeting
of the Stockholders, however called, the Stockholder shall vote (or cause to be
voted) the Shares held of record or beneficially owned by the Stockholder (i) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof, and each of the other actions
contemplated by the Merger Agreement and the Stockholders Agreement and any
actions required in furtherance thereof; (ii) against any action or agreement
that would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or the Stockholders Agreement; and (iii) except as otherwise agreed to
in writing in advance by Parent, against the following actions (other than the
Merger and the transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its subsidiaries; (B) a sale,
lease or transfer of a material amount of assets of the Company or its
subsidiaries, or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries; (C)(1) any change in a majority of the
persons who constitute the board of directors of the Company; (2) any change in
the present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or By-Laws; (3) any other material change in the
Company's corporate structure or business; or (4) any other action which, in the
case of each of the matters referred to in clauses (c)(1), (2), or (3), is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially adversely affect the Merger and the transactions
contemplated by the Stockholders Agreement and the Merger Agreement. The
Stockholder has further agreed not to enter into any agreement or understanding
with any person or entity the effect of which would be inconsistent or violative
of the provisions and agreements described above. In addition, the Stockholder
has granted to Parent a proxy to vote the Shares of the Stockholder in
accordance with the provisions and agreements described above and revoked any
proxy previously granted by the Stockholder with respect to Shares owned by it.
Representations, Warranties, Covenants and Other Agreements. In connection
with the Stockholders Agreement, the Stockholder has made certain customary
representations, warranties and covenants, including with respect to (i) its
ownership of the Shares and its rights and powers with respect thereto, (ii) its
authority to enter into and perform its obligations under the Stockholders
Agreement, (iii) noncontravention and enforceability, (iv) absence of conflicts,
(v) the absence of liens and encumbrances on and in respect of its Shares, (vi)
restrictions on the transfer of its Shares and the granting of proxies with
respect thereto, (vii) the solicitation of Acquisition Proposals, and (viii) the
waiver of its appraisal rights.
In addition, each of Parent and the Purchaser has made certain customary
representations, warranties and covenants, including with respect to (i) its
authority to enter into and perform its obligations under the Stockholders
Agreement and the Merger Agreement, (ii) noncontravention and enforceability,
(iii) absence of conflicts, and (iv) the delivery to the Company true and
complete copies of the Financing Commitments.
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Termination. Other than as provided therein, the Stockholders Agreement
terminates by its terms upon the termination of the Merger Agreement by Parent
or the Company. The Stockholder also has the absolute right, exercisable in its
sole discretion, to terminate the Stockholders Agreement if the Merger Agreement
is amended in any respect in a manner that is adverse to the Stockholder or if
the Offer is terminated, withdrawn, abandoned, expires or is modified in any
manner that is adverse to the Stockholder.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors.
The Board of Directors has unanimously approved the Merger Agreement and
the transactions contemplated thereby and recommends that the stockholders of
the Company tender their Shares pursuant to the Offer.
(b) Background; Reasons for the Recommendation.
Set forth below is a description of the background of the Offer, including
a brief description of the material contacts between Parent and its affiliates
and the Company and its affiliates regarding the transactions described herein.
On August 13, 1996, representatives from Parent met with representatives
from the Company to discuss a possible business combination.
In late August 1996, representatives of the Company met with
representatives of Parent's financial advisors, HM2/Management Partners, L.P.
("HM2"), an affiliate of Hicks, Muse, Tate & Furst, Inc. ("Hicks, Muse").
During September 1996, the Company received inquiries from several
interested parties regarding a possible business combination. In order to assist
the Board of the Company in evaluating such inquiries, on October 1, 1996, the
Company retained Dean Witter Reynolds Inc. ("Dean Witter").
During October and November 1996, representatives from the Company met with
various parties.
On January 13, 1997, representatives of the Company met with
representatives of Parent and HM2.
During late February and early March 1997, representatives from the Company
met with representatives of Parent and Hicks, Muse on several occasions.
Negotiations among the Company, Parent, and their respective
representatives continued through April 10, 1997 with respect to various
matters, including the economic terms of the Merger, and the legal and financial
advisors of Parent completed their due diligence review of the Company and
representatives of the Company and Parent negotiated the Merger Agreement and
the details of the transactions contemplated thereby. On April 10, 1997, the
parties reached agreement on the final terms of the Merger Agreement and the
related transactions contemplated thereunder.
The Board of Directors of the Company held a meeting on April 10, 1997 to
discuss the proposed Offer and Merger, the Merger Agreement, and the related
transactions contemplated thereunder. After reviewing the transaction with the
Company's legal and financial advisors and hearing the presentation of Dean
Witter, the Company's financial advisor, the Board of Directors discussed the
proposed Offer and Merger and all transactions contemplated thereby. The Board
of Directors unanimously approved the Offer, the Merger, and the Merger
Agreement, recommended that the stockholders of the Company tender their Shares
pursuant to the Offer, and executed and delivered the Merger Agreement late in
the evening on April 10, 1997.
The Board of Directors of Parent also held a meeting on April 10, 1997 at
which the Board of Directors of Purchaser unanimously approved the Offer, the
Merger, the Merger Agreement, the Financing Commitments and the transactions
contemplated by each of the foregoing.
Late in the evening of April 10, 1997, Hicks Muse Equity Fund II, L.P.
delivered its commitment to purchase up to $40 million of Holding's common
equity, Credit Suisse First Boston Corporation delivered each of the other
Financing Commitments, and Parent delivered copies of the Financing Commitments
to
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<PAGE> 14
representatives of the Company. Following delivery of the Financing Commitments,
the Merger Agreement was executed and delivered by Parent, Purchaser and the
Company.
On April 11, 1997, the first business day following the execution and
delivery of the Merger Agreement, each of Parent and the Company issued a press
release announcing the execution and delivery of the Merger Agreement.
On April 17, 1997, Parent commenced the Offer.
A copy of the press release of the Company announcing the execution of the
Merger Agreement is attached hereto as Exhibit 5 and is incorporated herein by
reference. A copy of a letter to stockholders of the Company, which accompanies
this Schedule 14D-9, is attached hereto as Exhibit 6 and is incorporated herein
by reference.
In reaching its conclusion and recommendation described above, the Board of
Directors considered a number of factors, including the following:
(1) The financial condition and results of operations of the Company,
including the relatively high amount of indebtedness currently outstanding.
(2) The projected financial condition, results of operations,
prospects and strategic objectives of the Company, as well as the risks
involved in achieving those prospects and objectives in the children's
leisure products industry with the current economic and market conditions.
(3) The relationship of the Offer Price to the historical market
prices of the shares of Common Stock.
(4) Discussions described above in this Item 4(b) with other parties
as to possible transactions.
(5) The Board's view, after consultation with management and Dean
Witter, regarding the likelihood of the existence of other viable buyers on
terms as favorable as those in the Offer and Merger.
(6) The availability of appraisal rights under Section 262 of the DGCL
for Dissenting Shares.
(7) The terms and conditions of the Merger Agreement and the course of
the negotiations resulting in the execution thereof (including the terms of
the Merger Agreement that permit the Company's Board of Directors, in the
exercise of its fiduciary duties, to furnish information to or enter into
discussions or negotiations with any third party (subject to verification
of financing) that requests such information or initiates such discussions
or negotiations, pursuant to appropriate confidentiality agreements, in
connection with any proposal or offer for a tender or exchange offer, a
merger, consolidation or other business combination involving the Company
or any proposal to acquire in any manner a substantial equity interest in,
or a substantial portion of the assets of, the Company (although the
Company is not permitted by the Merger Agreement to initiate, solicit or
encourage any such third party proposal or offer or initiate discussions or
negotiations regarding the same), and under certain circumstances to
terminate the Merger Agreement).
(8) The likelihood that the proposed acquisition would be consummated,
including the likelihood of satisfaction of the regulatory approvals
required pursuant to, and the other conditions to, the Offer and the Merger
contained in the Merger Agreement, the experience, reputation and financial
condition of the Parent and Hicks, Muse and the risks to the Company if the
acquisition were not consummated.
(9) The requirement by Parent, as a condition to a transaction, that
the Stockholder enter into a binding agreement for the tender of their
Shares into the Offer; the stated desire of the Stockholder to proceed with
the Merger, and the decision of the Stockholder to enter into the
Stockholders Agreement.
(10) The recommendation of the Company's management with respect to
the proposed transaction.
(11) Presentations to the Board of Directors by Dean Witter, which
included valuation analyses of the Company, and the opinion of Dean Witter
to the effect that, as of the date of its opinion and based
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<PAGE> 15
upon and subject to certain matters stated therein, the cash consideration
to be paid for the Shares in the Offer and the Merger was fair, from a
financial point of view, to such holders. The full text of Dean Witter's
written opinion, which sets forth the assumptions made, matters considered,
and limitations on the review undertaken by Dean Witter, is attached hereto
as Exhibit 7 and is incorporated herein by reference. HOLDERS OF SHARES ARE
URGED TO READ THE OPINION OF DEAN WITTER CAREFULLY IN ITS ENTIRETY;
(12) The fact that the $11.25 per Share to be paid pursuant to the
Offer represents a premium over the trading prices of the Shares since July
1994;
(13) The provisions of the Merger Agreement that require the Company
to pay the Purchaser a termination fee of $3,000,000 under certain
circumstances as described above under "Merger Agreement -- Fees and
Expenses"; and
(14) The structure of the transaction, including the fact that the
Offer will permit stockholders to receive cash for their Shares and the
terms and conditions of the Financing Commitment Letters.
The Board of Directors did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Board of
Directors viewed their position and recommendations as being based on the
totality of the information presented to and considered by them.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED.
Dean Witter has been retained by the Board of Directors to act as a
financial advisor to the Company with respect to the Offer and the Merger.
Pursuant to an engagement letter with Dean Witter, the Company has agreed to pay
Dean Witter (a) a non-refundable retainer fee of $75,000 for its services,
one-half of which was paid upon the execution of the engagement letter and the
remainder of which was paid on January 1, 1997, (b) a fee of $200,000 upon
delivery by Dean Witter to the Company of its written opinion as to the
consideration to be received by holders of Shares pursuant to the Offer and the
Merger and (c) a fee equal to 1% of the Aggregate Value (as defined in the
letter agreement) paid in connection with the Offer and Merger (less the amounts
paid pursuant to clauses (a) and (b)). No portion of the fee payable pursuant to
clause (b) was contingent upon the consummation of the Offer or the Merger or
the conclusions reached in the opinion. The Company has also agreed to reimburse
Dean Witter for its reasonable out-of-pocket expenses (up to $15,000), and to
indemnify Dean Witter and certain related parties against certain liabilities,
including liabilities under the federal securities laws. Dean Witter has
provided certain financial advisory and investment banking services to the
Company in the past, for which services Dean Witter has received customary
compensation.
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 security holders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth in Item 3(b) (the provisions of which are hereby
incorporated by reference) and the immediately following sentence, no
transactions in the Shares have been effected during the past 60 days by the
Company or, to the best of the Company's knowledge, by any executive officer,
director, affiliate, or subsidiary of the Company. On February 18, 1997, Michael
S. Pace, Senior Vice President of ERO Industries, Inc., sold 2,000 Shares at
$9.00 per Share, and on February 21, 1997, Richard F. Schaub, Jr., President of
Priss Prints, Inc., purchased 1,000 Shares at $9.25 per Share.
(b) To the best of the Company's knowledge, each executive officer and
director of the Company who holds Options intends, at the Effective Time, to
cancel and settle such Options in consideration for an amount equal to the
difference between $11.25 per Share underlying such Option and the per Share
exercise price of such Option in accordance with the terms and conditions of
Section 3.5 of the Merger Agreement, a copy of which is attached hereto as
Exhibit 1 and is incorporated herein by reference. To the best of the Company's
knowledge, all of the executive officers, directors, and affiliates of the
Company currently intends to tender,
14
<PAGE> 16
pursuant to the Offer, all Shares over which such person exercises complete
discretionary power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth above or in Items 3(b) and 4(b) (the provisions of
which are hereby incorporated herein by reference), the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale, or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described above or in Items 3(b) or 4 above (the provisions
of which are hereby incorporated herein by reference), there are no
transactions, Board of Directors' 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.
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of the Company
other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of April 10, 1997, by
and among ERO, Inc., Hedstrom Corporation, and HC
Acquisition Corp.
Exhibit 2 Stockholders Agreement, dated as of April 10, 1997, by and
among Hedstrom Corporation, HC Acquisition Corp., and
Golder, Thoma, Cressey Fund III Limited Partnership.
Exhibit 3 The Company's Information Statement pursuant to Section
14(f) of the Securities Exchange Act of 1934, as amended and
Rule 14f-1 thereunder (Schedule I to the Company's Schedule
14D-9).*
Exhibit 4 Confidentiality Agreement, dated as of December 10, 1996, by
and between ERO, Inc. and Hedstrom Corporation.
Exhibit 5 Press Release issued by ERO, Inc. on April 10, 1997.
Exhibit 6 Form of Letter to Stockholders dated April 17, 1997.*
Exhibit 7 Opinion of Dean Witter Reynolds Inc. dated April 10, 1997.*
</TABLE>
- -------------------------
* Included in copies mailed to stockholders.
15
<PAGE> 17
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
ERO, INC.
By: /s/ D. RICHARD RYAN, JR.
------------------------------------
D. Richard Ryan, Jr.
Chairman, President and Chief
Executive Officer
Dated: April 17, 1997
16
<PAGE> 1
EXHIBIT 1
AGREEMENT AND
PLAN OF MERGER
AMONG
HEDSTROM CORPORATION,
HC ACQUISITION CORP.
AND
ERO, INC.
dated as of April 10, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER
1.1 The Offer 2
1.2 Offer Documents 3
1.3 Company Actions 4
1.4 Directors 5
ARTICLE II
THE MERGER
2.1 The Merger 6
2.2 Closing 7
2.3 Effective Time of the Merger 7
2.4 Effects of the Merger 7
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock 8
3.2 Conversion of Securities 8
3.3 Payment for Shares 9
3.4 Stock Transfer Books 11
3.5 Stock Option Plans 11
3.6 Dissenting Shares 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company 12
4.2 Representations and Warranties of Parent and Sub 31
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
i
<PAGE> 3
Page
5.1 Covenants of the Company 34
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of the Proxy Statement; Company
Stockholders Meeting; Merger without a Company
Stockholders Meeting 40
6.2 Access to Information 40
6.3 [Intentionally Omitted] 41
6.4 Fees and Expenses 41
6.5 Brokers or Finders 42
6.6 Indemnification; Directors' and Officers' Insurance 42
6.7 Commercially Reasonable Efforts 44
6.8 Conduct of Business of Sub 45
6.9 Publicity 45
6.10 Withholding Rights 46
6.11 Continuation of Employee Benefits 46
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect 47
the Merger
7.2 Conditions to Obligation of Parent and Sub 48
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination 48
8.2 Effect of Termination 50
8.3 Amendment 51
8.4 Extension; Waiver 51
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements 51
ii
<PAGE> 4
9.2 Notices 52
9.3 Interpretation 53
9.4 Counterparts 53
9.5 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership 53
9.6 Governing Law 54
9.7 Assignment 54
iii
<PAGE> 5
GLOSSARY OF DEFINED TERMS
Term: Page:
Agreement 1
Acquisition Proposal 37
Benefit Plans 21
Board Percentage 6
CERCLA 25
Certificate of Merger 7
Certificates 10
Closing 7
Closing Date 7
Code 21
Company 1
Company Common Stock 1
Company Intangible Property 25
Company Litigation 19
Company Order 19
Company Permits 18
Company SEC Documents 17
Company Stockholder Approval 17
Company Voting Debt 13
Confidentiality Agreement 41
Constituent Corporations 7
Continuing Directors 6
DGCL 4
Dissenting Shares 12
Effective Time 7
Employee Arrangements 21
Environmental Costs and Liabilities 25
Environmental Law 25
Exchange Act 2
Financial Advisor 4
Financing Commitments 34
GAAP 17
Gains and Transfer Taxes 16
Governmental Entity 16
Hazardous Material 26
iv
<PAGE> 6
Term: Page:
HSR Act 16
Indebtedness 30
Indemnified Liabilities 42
Indemnified Parties 42
Injunction 47
IRSA 26
Laws 15
Material Adverse Effect 13
Material Contracts 29
Merger 1
Merger Consideration 8
Offer 2
Offer Consideration 2
Offer Documents 3
On a fully-diluted basis 2
Option Consideration 11
Options 11
OSHA 26
Parent 1
Paying Agent 9
Payment Fund 9
Preferred Stock 13
Proxy Statement 16
Real Property Leases 28
Release 26
Remedial Action 26
Representatives 35
Schedule 14D-1 3
Schedule 14D-9 4
SEC 2
Securities Act 17
Shares 1
Stock Option Plans 11
Stockholders Agreement 1
Sub 1
Subsidiary 8
Surviving Corporation 7
Tax Returns 21
Taxes 21
v
<PAGE> 7
Term: Page:
Trigger Event 41
Violation 15
WARN Act 24
vi
<PAGE> 8
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 10, 1997 (the
"Agreement"), is made and entered into by and among Hedstrom Corporation, a
Delaware corporation ("Parent"), HC Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and ERO, Inc., a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have unanimously approved the acquisition of the Company by Parent, by means of
the merger (the "Merger") of Sub with and into the Company, upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, to effectuate the acquisition, Parent and the Company each desire
that Sub commence a cash tender offer to purchase all of the outstanding shares
of common stock, par value $0.01 per share, of the Company ("Shares" or
"Company Common Stock") upon the terms and subject to the conditions set forth
in this Agreement and the Offer Documents (as defined in Section 1.2), and the
Board of Directors of the Company has unanimously approved such Offer (as
defined in Section 1.1) and agreed to recommend to the stockholders of the
Company that they accept the Offer and tender their Company Common Stock
pursuant thereto; and
WHEREAS, Parent and Sub are unwilling to enter into this Agreement (and
effect the transactions contemplated hereby) unless, contemporaneously with the
execution and delivery hereof, certain beneficial and record holders of the
Company Common Stock enter into agreements (collectively, the "Stockholders
Agreement") providing for certain matters with respect to their Shares
(including the tender of their Shares and certain other actions relating to the
Offer) and the other transactions contemplated by this Agreement, and, in order
to induce Parent and Sub to enter into this Agreement, the Company has approved
the execution and delivery by Parent and such stockholders of the
<PAGE> 9
Stockholders Agreement, and such stockholders have agreed to execute and
deliver the Stockholders Agreement; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in
connection with the Offer and the Merger and also to prescribe various
conditions to the consummation thereof;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound,
hereby agree as follows:
ARTICLE I
THE OFFER
1.1 The Offer. (a) Provided that none of the events set forth in Exhibit
A hereto shall have occurred and be continuing, as promptly as practicable (but
in any event not later than five business days after the public announcement of
the execution and delivery of this Agreement), Sub shall commence (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), an offer to purchase (the "Offer") all outstanding
shares of the Company Common Stock at a price of $11.25 per share, net to the
seller in cash (the "Offer Consideration"). The obligation of Parent and Sub
to commence the Offer, consummate the Offer, accept for payment and to pay for
shares of Company Common Stock validly tendered in the Offer and not withdrawn
shall be subject only to those conditions set forth in Exhibit A hereto.
(b) Parent and Sub expressly reserve the right to amend or modify the
terms of the Offer, except that, without the prior written consent of the
Company, Sub shall not (and Parent shall not cause Sub to): (i) decrease the
Offer Consideration, change the form of the Offer Consideration or decrease the
number of Shares sought pursuant to the Offer, (ii) amend or waive the
2
<PAGE> 10
condition that there shall be validly tendered and not withdrawn prior to the
time the Offer expires a number of shares of Company Common Stock which
constitutes a majority of the Shares outstanding on a fully-diluted basis on
the date of purchase ("on a fully-diluted basis" having the following meaning,
as of any date: the number of shares of Company Common Stock outstanding,
together with Shares which the Company may be required, now or in the future,
to issue pursuant to options, warrants or other rights or obligations
outstanding at that date), (iii) extend the expiration date of the Offer
(except that Sub may extend the expiration date of the Offer (a) as required by
any rule, regulation or interpretation of the United States Securities and
Exchange Commission (the "SEC"), (b) for such periods as Sub may reasonably
deem necessary (but not to a date later than the 60th calendar day after the
date of commencement) in the event that any condition to the Offer is not
satisfied, or (c) for one or more times for an aggregate period of up to 15
days (not to exceed 60 calendar days from the date of commencement) for any
reason other than those specified in the immediately preceding clause (a) or
clause (b)), or (iv) change any condition or impose additional conditions to
the Offer or amend any term of the Offer in any manner adverse to holders of
shares of Company Common Stock; provided, however, that, except as set forth
above, Sub may waive any other condition to the Offer in its sole discretion;
and provided further, that the Offer (i) may be extended in connection with an
increase in the consideration to be paid pursuant to the Offer so as to comply
with applicable rules and regulations of the SEC, and (ii) will, for one time
only, be automatically extended for a period which ends on the 15th business
day from the date the Company shall have received an Acquisition Proposal (as
hereinafter defined) in the event the Company shall receive such Acquisition
Proposal less than ten business days prior to the expiration of the Offer.
Assuming the prior satisfaction or waiver of the conditions to the Offer, Sub
shall accept for payment, and pay for, in accordance with the terms of the
Offer, all shares of Company Common Stock validly tendered and not withdrawn
pursuant to the Offer as soon as practicable after the expiration date thereof.
3
<PAGE> 11
1.2 Offer Documents. As soon as practicable on the date of commencement
of the Offer, Parent and Sub shall file or cause to be filed with the SEC a
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to
the Offer which shall contain the offer to purchase, related letter of
transmittal and other ancillary Offer documents and instruments pursuant to
which the Offer will be made (collectively with any supplements or amendments
thereto, the "Offer Documents"). The Offer Documents (i) shall contain (or
shall be amended in a timely manner to contain) all information which is
required to be included therein in accordance with the Exchange Act and the
rules and regulations thereunder and any other applicable law and (ii) shall
conform in all material respects with the requirements of the Exchange Act and
any other applicable law. Notwithstanding the foregoing, no agreement or
representation hereby is made or shall be made by Parent or Sub with respect to
information supplied by the Company expressly for inclusion in, or with respect
to Company information derived from the Company's public SEC filings that is
included or incorporated by reference in, the Offer Documents. Parent, Sub and
the Company each agree promptly to correct any information provided by them for
use in the Offer Documents if and to the extent that it shall have become false
or misleading in any material respect and Sub further agrees to take all
lawful action necessary to cause the Offer Documents as so corrected to be
filed promptly with the SEC and to be disseminated to holders of Company Common
Stock, in each case as and to the extent required by applicable law. In
conducting the Offer, Parent and Sub shall comply in all material respects with
the Exchange Act and any other applicable law. The Company and its counsel
shall be given reasonable opportunity to review and comment on the Offer
Documents and any amendments or supplements thereto prior to the filing thereof
with the SEC. To the extent practicable, the Company and its counsel shall
also be given reasonable opportunity to review and comment on correspondence
with the SEC concerning the Offer Documents prior to the delivery thereof to
the SEC.
1.3 Company Actions. The Company hereby consents to the Offer and the
Merger and represents that (a) its Board of
4
<PAGE> 12
Directors (at a meeting duly called and held) has unanimously (i) determined
that each of this Agreement, the Offer and the Merger are fair to and in the
best interests of the stockholders of the Company, (ii) approved the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby, including the Offer and the
Merger, and such approval constitutes approval of the foregoing for purposes of
Section 203 of the Delaware General Corporation Law, as amended (the "DGCL"),
and for purposes of Article Nine of the Company's Amended and Restated
Certificate of Incorporation, (iii) resolved to recommend (x) acceptance of the
Offer, (y) approval and adoption of this Agreement (if required) and (z)
approval of the Merger, by the holders of Company Common Stock, and (b) Dean
Witter Reynolds Inc. (the "Financial Advisor") has delivered to the Board of
Directors of the Company its written opinion that, as of such date and based
upon and subject to the matters set forth therein, the Offer Consideration to
be received by the holders of Company Common Stock (other than Parent, Sub and
any other Subsidiary of Parent) in the Offer is fair, from a financial point of
view, to such holders. The Company acknowledges and agrees that the Board of
Directors of the Company may not withdraw, modify or amend its approval or
recommendation of the Offer, this Agreement, the Stockholders Agreement or the
Merger except in accordance with Section 5.1(e)(ii). The Company hereby
consents to the inclusion in the Offer Documents of the recommendation referred
to in this Section 1.3. The Company hereby agrees to file with the SEC,
simultaneously with the filing by Parent and Sub of the Schedule 14D-1 (or
promptly after such filing), a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto, the
"Schedule 14D-9") containing such recommendations of the Board of Directors of
the Company in favor of the Offer and the Merger and otherwise complying with
Rule 14d-9 under the Exchange Act. The Schedule 14D-9 shall comply in all
material respects with the Exchange Act and any other applicable law and shall
contain (or shall be amended in a timely manner to contain) all information
that is required to be included therein in accordance with the Exchange Act and
the rules and regulations promulgated thereunder
5
<PAGE> 13
and any other applicable law. Notwithstanding the foregoing, no agreement or
representation hereby is made or shall be made by the Company with respect to
Parent, Sub or any other Subsidiary of Parent. The Company, Parent and Sub
each agree promptly to correct any information provided by them for use in the
Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect and the Company further agrees to take all
lawful action necessary to cause the Schedule 14D-9 as so corrected to be
promptly filed with the SEC and disseminated to the holders of Company Common
Stock, in each case as and to the extent required by applicable law. Parent,
Sub and their counsel shall be given an opportunity to review and comment on
the Schedule 14D-9 and any amendments thereto prior to the filing thereof with
the SEC. To the extent practicable, Parent, Sub and their counsel shall also
be given reasonable opportunity to review and comment on correspondence with
the SEC concerning the Schedule 14D-9 prior to the delivery thereof to the SEC.
In connection with the Offer, the Company shall promptly furnish, or cause its
transfer agent to furnish, Parent with mailing labels, security position
listings and all available listings or computer files containing the names and
addresses of the record holders of the Company Common Stock as of the latest
practicable date and shall furnish, or cause its transfer agent to furnish,
Parent with such information and assistance (including updated lists of
stockholders, mailing labels and lists of security positions) as Parent or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of Company Common Stock. Subject to the requirements of
applicable law, and except for such actions as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer and
the Merger, Parent and Sub and each of their affiliates, associates, partners,
employees, agents and advisors shall hold in confidence the information
contained in such labels and lists, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement is terminated
for any reason, shall deliver promptly to the Company all copies of such
information then in their possession or control.
6
<PAGE> 14
1.4 Directors. (a) Upon the purchase pursuant to the Offer by Sub of
such number of shares of Company Common Stock which represents a majority of
the outstanding shares of Company Common Stock (on a fully diluted basis), and
from time to time thereafter, Parent shall be entitled to designate such number
of directors, rounded up to the next whole number (but in no event more than
one less than the total number of directors on the Board of Directors of the
Company) as will give Parent, subject to compliance with Section 14(f) of the
Exchange Act, representation on the Board of Directors of the Company equal to
the product of (x) the number of directors on the Board of Directors of the
Company (giving effect to any increase in the number of directors pursuant to
this Section 1.4) and (y) the percentage that such number of Shares so
purchased bears to the aggregate number of Shares outstanding (such number
being, the "Board Percentage"), and the Company shall, upon request by Parent
and subject to applicable law, promptly satisfy the Board Percentage by (i)
increasing the size of the Board of Directors of the Company or (ii) using its
best efforts to secure the resignations of such number of directors as is
necessary to enable Parent's designees to be elected to the Board of Directors
of the Company and shall cause Parent's designees promptly to be so elected,
provided that no such action shall be taken which would result in there being,
prior to the consummation of the Merger, less than two directors of the Company
that are not affiliated with Parent. At the request of Parent, the Company
shall take, at the Company's expense, all lawful action necessary to effect any
such election, including, without limitation, mailing to its stockholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, unless such information has previously been provided to
the Company's stockholders in the Schedule 14D-9. Parent 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)
of the Exchange Act and Rule 14f-1 thereunder.
(b) Following the election or appointment of Parent's designees
pursuant to this Section 1.4 and prior to the Effective
7
<PAGE> 15
Time of the Merger, any amendment or termination of this Agreement, extension
for the performance or waiver of the obligations or other acts of Parent or Sub
or waiver of the Company's rights thereunder shall require the concurrence of a
majority of directors of the Company then in office who are Continuing
Directors. The term "Continuing Director" shall mean (i) each member of the
board of directors on the date hereof who voted to approve this Agreement and
(ii) any successor to any Continuing Director that was recommended to succeed
such Continuing Director by a majority of the Continuing Directors then on the
board of directors.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, Sub shall be merged with and
into the Company at the Effective Time. At the Effective Time, the separate
corporate existence of Sub shall cease, and the Company shall continue as the
surviving corporation and a direct wholly owned subsidiary of Parent (Sub and
the Company are sometimes hereinafter referred to as "Constituent Corporations"
and, as the context requires, the Company is sometimes hereinafter referred to
as the "Surviving Corporation"), and shall continue under the name "ERO, Inc.".
2.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") shall take place at
10:00 a.m., New York time, on the second business day after satisfaction and/or
waiver of all of the conditions set forth in Article VII (the "Closing Date"),
at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New
York 10153, unless another date, time or place is agreed to in writing by the
parties hereto.
8
<PAGE> 16
2.3 Effective Time of the Merger. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") with the Secretary
of State of the State of Delaware, as provided in the DGCL, as soon as
practicable on or after the Closing Date. The Merger shall become effective
upon such filing or at such time thereafter as is provided in the Certificate
of Merger as the Company and Sub shall agree (the "Effective Time").
2.4 Effects of the Merger. (a) The Merger shall have the effects as set
forth in the applicable provisions of the DGCL.
(b) The directors of Sub and the officers of the Company immediately prior
to the Effective Time shall, from and after the Effective Time, be the initial
directors and officers of the Surviving Corporation until their successors have
been duly elected or appointed and qualified, or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
(c) The Certificate of Incorporation of the Company shall be amended and
restated in its entirety as set forth on Exhibit B hereto, and, from and after
the Effective Time, such amended and restated Certificate of Incorporation
shall be the Certificate of Incorporation of the Surviving Corporation, until
duly amended in accordance with the terms thereof and the DGCL.
(d) The Bylaws of the Company shall be amended and restated in their
entirety as set forth on Exhibit C hereto and, from and after the Effective
Time, such amended and restated Bylaws shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by applicable law, the
Certificate of Incorporation or the Bylaws.
9
<PAGE> 17
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and become one fully paid and nonassessable share of Common Stock, par value
$0.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share of
Company Common Stock and all other shares of capital stock of the Company that
are owned by the Company and all shares of Company Common Stock and other
shares of capital stock of the Company owned by Parent or Sub shall be canceled
and retired and shall cease to exist and no consideration shall be delivered or
deliverable in exchange therefor.
3.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or the holders of
any of the shares thereof:
(a)(i) Subject to the other provisions of this Section 3.2, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (excluding shares owned, directly or indirectly, by the Company or by
Parent, Sub or any other Subsidiary of Parent and Dissenting Shares (as defined
in Section 3.6)) shall be converted into the right to receive the per share
amount actually paid in the Offer, payable to the holder thereof in cash,
without any interest thereon (the amount so paid in the Offer, in cash, is
herein referred to as the "Merger Consideration"), upon surrender and exchange
of the Certificate (as defined in Section 3.3)
10
<PAGE> 18
representing such share of Company Common Stock. As used in this Agreement,
the word "Subsidiary", with respect to any party, means any corporation,
partnership, joint venture or other organization, whether incorporated or
unincorporated, of which: (i) such party or any other Subsidiary of such party
is a general partner; (ii) voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation, partnership, joint venture or other organization is held by such
party or by any one or more of its Subsidiaries, or by such party and any one
or more of its Subsidiaries; or (iii) at least 25% of the equity, other
securities or other interests is, directly or indirectly, owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
any one or more of its Subsidiaries.
(ii) All such shares of Company Common Stock, when converted as
provided in Section 3.2(a)(i), no longer shall be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
Certificate previously evidencing such Shares shall thereafter represent only
the right to receive the Merger Consideration. The holders of Certificates
previously evidencing Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to the Company Common Stock except
as otherwise provided herein or by law and, upon the surrender of Certificates
in accordance with the provisions of Section 3.3, shall only represent the right
to receive for their Shares, the Merger Consideration, without any interest
thereon.
3.3 Payment for Shares. (a) Paying Agent. Prior to the Effective Time,
Parent shall appoint a United States bank or trust company reasonably
acceptable to the Company to act as paying agent (the "Paying Agent") for the
payment of the Merger Consideration, and Parent shall cause the Surviving
Corporation to deposit with the Paying Agent in a separate fund established for
the benefit of the holders of shares of Company Common Stock, for payment in
accordance with this Article III, through the Paying Agent (the "Payment
Fund"), immediately available funds in
11
<PAGE> 19
amounts necessary to make the payments pursuant to Section 3.2(a)(i) and this
Section 3.3 to holders (other than the Company or Parent, Sub or any other
Subsidiary of Parent, or holders of Dissenting Shares). The Paying Agent
shall, pursuant to irrevocable instructions, pay the Merger Consideration out
of the Payment Fund.
If for any reason (including losses) the Payment Fund is inadequate to pay
the amounts to which holders of shares of Company Common Stock shall be
entitled under this Section 3.3, Parent shall take all steps necessary to
enable or cause the Surviving Corporation to deposit in trust additional cash
with the Paying Agent sufficient to make all payments required under this
Agreement, and Parent and the Surviving Corporation shall in any event be
liable for payment thereof. The Payment Fund shall not be used for any purpose
except as expressly provided in this Agreement.
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall instruct the Paying Agent to
mail to each holder of record (other than the Company or Parent, Sub or any
other Subsidiary of Parent) of a Certificate or Certificates which, immediately
prior to the Effective Time, evidenced outstanding shares of Company Common
Stock (the "Certificates"), (i) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Paying Agent, and shall be in such form and have such other provisions as the
Surviving Corporation reasonably may specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for payment of the
Merger Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent together with such letter of transmittal, duly executed, and such
other customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in respect thereof cash
in an amount equal to the product of (x) the number of shares of Company Common
Stock represented by such Certificate and (y) the Merger Consideration,
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and the Certificate so surrendered shall forthwith be canceled. No interest
shall be paid or accrued on the Merger Consideration payable upon the surrender
of any Certificate. If payment is to be made to a person other than the person
in whose name the surrendered Certificate is registered, it shall be a
condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
surrendered Certificate or established to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 3.3(b), each
Certificate (other than Certificates representing Shares owned by the Company
or Parent, Sub or any other Subsidiary of Parent) shall be deemed at any time
after the Effective Time to represent for all purposes only the right to
receive the Merger Consideration.
(c) Termination of Payment Fund; Interest. Any portion of the Payment
Fund which remains undistributed to the holders of Company Common Stock for 270
days after the Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any holders of Company Common Stock who have not theretofore
complied with this Article III and the instructions set forth in the letter of
transmittal mailed to such holder after the Effective Time shall thereafter
look only to the Surviving Corporation for payment of the Merger Consideration
to which they are entitled. All interest accrued in respect of the Payment Fund
shall inure to the benefit of and be paid to the Surviving Corporation.
(d) No Liability. None of Parent, the Company or the Surviving
Corporation shall be liable to any holder of shares of Company Common Stock for
any cash from the Payment Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
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3.4 Stock Transfer Books. At the Effective Time, the stock transfer books
of the Company shall be closed and there shall be no further registration of
transfers of shares of Company Common Stock thereafter on the records of the
Company. On or after the Effective Time, any certificates presented to the
Paying Agent or Parent for any reason, except notation thereon that a
stockholder has elected to exercise his rights to appraisal pursuant to the
DGCL, shall be converted into the Merger Consideration as provided in this
Article III.
3.5 Stock Option Plans. At the Effective Time, each holder of a then
outstanding option to purchase Shares under any of the Company's 1988 Key
Employee Stock Option Plan, 1992 Key Employee Stock Option Plan and 1992
Directors' Stock Option Plan (collectively, the "Stock Option Plans"), or
otherwise set forth on Schedule 4.1(b), whether or not then exercisable or
vested (collectively, the "Options"), shall, in cancellation and settlement
thereof, receive for each Share subject to such Option an amount (subject to
any applicable withholding tax) in cash equal to the difference between the
amount per share actually paid in the Offer 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"); provided,
however, that with respect to any person subject to Section 16(a) of the
Exchange Act, any such amount shall be paid as soon as practicable after the
first date payment can be made without liability to such person under Section
16(b) of the Exchange Act. Upon receipt of the Option Consideration, the
Option shall be 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. Prior to the
expiration of the Offer, the Company shall use its reasonable efforts to obtain
all necessary consents or releases from holders of Options under the Stock
be reasonably necessary to give effect to the transactions contemplated by this
Section 3.5. 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
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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. Prior to the
expiration of the Offer, the Company shall use its reasonable efforts to take
all action necessary (including causing the Board of Directors of the Company
to take such actions as are allowed by the Stock Option Plans) to (i) ensure
that, following the Effective Time, no participant in the Stock Option Plans or
any other plans, programs or arrangements shall have any right thereunder to
acquire equity securities of the Company, the Surviving Corporation or any
Subsidiary thereof and (ii) terminate all such plans, programs and arrangements.
3.6 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly appraisal for such shares in accordance with
Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration.
Such stockholders instead shall be entitled to receive payment of the appraised
value of such shares of Company Common Stock held by them in accordance with
the provisions of such Section 262 of the DGCL, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or otherwise lost their rights to appraisal of such shares
of Company Common Stock under such Section 262 of the DGCL shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, the
Merger Consideration upon surrender in the manner provided in Section 3.3, of
the Certificate or Certificates that, immediately prior to the Effective Time,
evidenced such shares of Company Common Stock.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows:
(a) Organization, Standing and Power. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and is duly qualified to do
business as a foreign corporation and in good standing to conduct business in
each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify could not
reasonably be expected to (i) have a Material Adverse Effect (as defined below)
with respect to the Company or (ii) materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement. The
Company has heretofore made available to Parent complete and correct copies of
its and its Subsidiaries' respective Certificates of Incorporation and Bylaws.
All Subsidiaries of the Company and their respective jurisdictions of
incorporation or organization are identified on Schedule 4.1(a). As used in
this Agreement: a "Material Adverse Effect" shall mean, with respect to any
party, any events, changes or effects which, individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the business,
results of operations or financial condition of such party and its
Subsidiaries, taken as a whole; provided, however, that the matters disclosed
on Exhibit D hereto shall not be considered in determining whether one or more
events, changes or effects could reasonably be expected to have a Material
Adverse Effect on the Company.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 Shares and 9,947,700 shares of
preferred stock, par value $.01
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per share (the "Preferred Stock"). As of the date hereof: (i) 10,274,300
Shares are issued and outstanding; (ii) no shares of Preferred Stock are issued
and outstanding; and (iii) 1,458,000 Shares are reserved for issuance pursuant
to Options outstanding under the Stock Option Plans. Except for the issuance
of Shares pursuant to the exercise of outstanding Options, there are no
employment, executive termination or similar agreements providing for the
issuance of Shares. As of the date hereof, 120,000 Shares are held by the
Company and no Shares are held by Subsidiaries of the Company. No bonds,
debentures, notes or other instruments or evidence of indebtedness having the
right to vote (or convertible into, or exercisable or exchangeable for,
securities having the right to vote) on any matters on which the Company
stockholders may vote ("Company Voting Debt") were issued or outstanding. All
outstanding Shares are validly issued, fully paid and nonassessable and are not
subject to preemptive or other similar rights. Except as set forth on Schedule
4.1(b), all outstanding shares of capital stock of the Subsidiaries of the
Company are owned by the Company or a direct or indirect Subsidiary of the
Company, free and clear of all liens, charges, encumbrances, claims and options
of any nature. Except as set forth in this Section 4.1(b), there are
outstanding: (i) no shares of capital stock, Company Voting Debt or other
voting securities of the Company; (ii) no securities of the Company or any
Subsidiary of the Company convertible into, or exchangeable or exercisable for,
shares of capital stock, Company Voting Debt or other voting securities of the
Company or any Subsidiary of the Company; and (iii) no options, warrants,
calls, rights (including preemptive rights), commitments or agreements to which
the Company or any Subsidiary of the Company is a party or by which it is
bound, in any case obligating the Company or any Subsidiary of the Company to
issue, deliver, sell, purchase, redeem or acquire, or cause to be issued,
delivered, sold, purchased, redeemed or acquired, additional shares of capital
stock or any Company Voting Debt or other voting securities of the Company or
of any Subsidiary of the Company, or obligating the Company or any Subsidiary
of the Company to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. Except as set forth on
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<PAGE> 25
Schedule 4.1(b), since December 31, 1996, the Company has not (i) granted any
options, warrants or rights to purchase shares of Company Common Stock or (ii)
amended or repriced any Option or any of the Stock Option Plans. Set forth on
Schedule 4.1(b) is a list of all outstanding options, warrants and rights to
purchase shares of Company Common Stock and the exercise prices relating
thereto. Except as disclosed in the Company SEC Documents (as defined below),
there are not as of the date hereof and there will not be at the Effective Time
any stockholder agreements, voting trusts or other agreements or understandings
to which the Company is a party or by which it is bound relating to the voting
of any shares of the capital stock of the Company which will limit in any way
the solicitation of proxies by or on behalf of the Company from, or the casting
of votes by, the stockholders of the Company with respect to the Merger. There
are no restrictions on the Company to vote the stock of any of its Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power and authority to
enter into this Agreement and, subject to the Company Stockholder Approval (as
defined in Section 4.1(c)(iii)), to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, if required with respect
to consummation of the Merger, to the Company Stockholder Approval. This
Agreement has been duly executed and delivered by the Company and, subject, if
required with respect to consummation of the Merger, to the Company Stockholder
Approval, and assuming that this Agreement constitutes the valid and binding
agreement of Parent and Sub, constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms and conditions except that the
enforcement hereof may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
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<PAGE> 26
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
(ii) Except as set forth on Schedule 4.1(c)(ii), the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by the Company will not conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration (including pursuant to
any put right) of any obligation or the loss of a material benefit under, or the
creation of a lien, pledge, security interest or other encumbrance on assets or
property, or right of first refusal with respect to any asset or property (any
such conflict, violation, default, right of termination, cancellation or
acceleration, loss, creation or right of first refusal, a "Violation"), pursuant
to, (A) any provision of the Certificate of Incorporation or Bylaws of the
Company or any of its Subsidiaries or (B) except as to which requisite waivers
or consents have been obtained and assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in paragraph
(iii) of this Section 4.1(c) are duly and timely obtained or made and, if
required, the Company Stockholder Approval has been obtained, result in any
Violation of (1) any loan or credit agreement, note, mortgage, deed of trust,
indenture, lease, Benefit Plan (as defined in Section 4.1(i)), Company Permit
(as defined in Section 4.1(f)), or any other agreement, obligation, instrument,
concession, franchise, or license or (2) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or their respective properties or assets (collectively, "Laws"),
except in the case of clause (1) and (2) for any Violations that, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company. The Board of Directors of the Company has taken all
actions necessary under the Company's Amended and Restated Certificate of
Incorporation, including approving the transactions contemplated by this
Agreement, to ensure that Section 1 of Article Nine of the Company's Amended and
Restated Certificate of Incorporation does not, and will not, apply to the
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transactions contemplated in this Agreement. The Board of Directors of the
Company has taken all actions necessary under the DGCL, including approving the
transactions contemplated by this Agreement and the Stockholders Agreement, to
ensure that Section 203 of the DGCL does not, and will not, apply to the
transactions contemplated in this Agreement or the Stockholders Agreement.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity"), is required by or with respect to
the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except for: (A) the filing of a
pre-merger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the applicable waiting period
thereunder; (B) the filing with the SEC of (x) a proxy statement (if required by
applicable law) in definitive form relating to a meeting of the holders of
Company Common Stock to approve the Merger (such proxy statement as amended or
supplemented from time to time being hereinafter referred to as the "Proxy
Statement"), (y) the Schedule 14D-9 in connection with the Offer, and (z) such
reports under and such other compliance with the Exchange Act and the rules and
regulations thereunder as may be required in connection with this Agreement and
the transactions contemplated hereby; (C) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company
does business; (D) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws; (E) such filings and
approvals as may be required by any foreign pre-merger notification, securities,
corporate or other law, rule or regulation (including the Investment Canada
Act); (F) such filings in connection with any state or local tax which is
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attributable to the beneficial ownership of the Company's or its Subsidiaries'
real property, if any (collectively, the "Gains and Transfer Taxes"); (G) such
other filings and consents as may be required under any environmental, health
or safety law or regulation pertaining to any notification, disclosure or
required approval necessitated by the Merger or the transactions contemplated
by this Agreement; (H) the approval of this Agreement and the Merger by the
holders of a majority of the outstanding Shares ("Company Stockholder
Approval") and (I) such other consents, approvals, orders, authorizations,
registrations, declarations, filings, notices or permits the failure of which
to be obtained or made could not reasonably be expected to have a Material
Adverse Effect on the Company.
(d) SEC Documents. The Company has made available to Parent a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since January 1, 1995 and
prior to the date of this Agreement (the "Company SEC Documents"), which are
all the documents (other than preliminary material) that the Company was
required to file with the SEC since such date. As of their respective dates,
the Company SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Company SEC Documents, and none
of the Company SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Except as disclosed on Schedule 4.1(d), the
financial statements of the Company included in the Company SEC Documents
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly
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present in accordance with applicable requirements of GAAP (subject, in the
case of the unaudited statements, to normal, recurring adjustments, which will
not be material, either individually or in the aggregate) the consolidated
financial position of the Company and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the
consolidated cash flows of the Company and its consolidated Subsidiaries for
the periods presented therein.
(e) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by
reference in (i) any of the Offer Documents will, at the time the Offer
Documents are first published, sent or given to holders of Company Common
Stock, and at any time they are amended or supplemented, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, and (ii) the Proxy
Statement will, on the date it is first mailed to the holders of the Company
Common Stock or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If, at any time prior
to the expiration of the Offer or the Effective Time, any event with respect to
the Company or any of its Subsidiaries, or with respect to other information
supplied by the Company specifically for inclusion in the Offer Documents or
the Proxy Statement, shall occur which is required to be described in an
amendment of, or a supplement to, the Offer Documents or the Proxy Statement,
as the case may be, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. The Proxy Statement, insofar
as it relates to the Company or its Subsidiaries or other information supplied
by the Company specifically for inclusion therein will comply as to form, in
all material respects, with the provisions of the Exchange Act or the rules and
regulations thereunder. Notwithstanding the foregoing, the Company makes no
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representation or warranty with respect to (i) the information supplied or to
be supplied by Parent or Sub for inclusion in the Offer Documents or the
Proxy Statement or (ii) except as provided in the immediately following
sentence, any projections, forward-looking statements or similar information
provided to Parent or Sub that is not of a historical nature. The budget
prepared by the Company and attached to Schedule 4.1(e) hereto was prepared in
good faith based upon reasonable assumptions.
(f) Compliance with Applicable Laws. The Company and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders, franchises and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except where the failure
to hold any such Company Permits could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company. The
Company and its Subsidiaries are in compliance with the terms of the Company
Permits, except where the failure to be in compliance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
on the Company. A list of the material Company Permits is set forth on
Schedule 4.1(f). Except as disclosed in Schedule 4.1(f), the businesses of the
Company and its Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity except for any such
violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company. As of the date of
this Agreement, no investigation or review by any Governmental Entity with
respect to the Company or any of its Subsidiaries is pending or, to the
knowledge of the Company, has been threatened which could reasonably be
expected to have a Material Adverse Effect on the Company.
(g) Litigation. Except as set forth on Schedule 4.1(g), there is no suit,
action or proceeding pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary of the Company ("Company Litigation"),
nor is there any material judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company
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or any Subsidiary of the Company ("Company Order"). In addition, except as
expressly set forth on Schedule 4.1(g) as having such effect, none of the
claims and judgments pending, or to the knowledge of the Company, threatened
pursuant to all Company Litigation and Company Orders, could, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company.
(h) Taxes. Except as set forth on Schedule 4.1(h) hereto:
(i) All Tax Returns required to be filed by or with respect to the
Company and each of its Subsidiaries have been duly and timely filed
(taking into account all valid extensions of filing dates), except where
the failure to file such Tax Returns would not have a Material Adverse
Effect on the Company, and all such Tax Returns are true, correct and
complete in all material respects. The Company and each of its
Subsidiaries has duly and timely paid (or there has been paid on its
behalf) all Taxes that are due, except to the extent that the failure to
pay such Taxes would not have a Material Adverse Effect the Company and
except for Taxes being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in the Company's
audited financial statements for the year ended December 31, 1996 in
accordance with generally accepted accounting principles. With respect
to any period for which Taxes are not yet due with respect to the Company
or any Subsidiary, the Company and each of its Subsidiaries has made due
and sufficient current accruals for such Taxes in accordance with GAAP in
the most recent financial statements contained in the Company SEC
Documents. The Company and each of its Subsidiaries has made (or there
has been made on its behalf) all required estimated Tax payments
sufficient to avoid any material underpayment penalties. The Company and
each of its Subsidiaries has withheld and paid all material Taxes
required by all applicable laws to be withheld or paid in
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connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(ii) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitation applicable to any claim for,
or the period for the collection or assessment of, material Taxes due from
or with respect to the Company or any of its Subsidiaries for any taxable
period. No audit or other proceeding by any court, governmental or
regulatory authority, or similar person is pending or, to the knowledge of
the Company, threatened in regard to any material Taxes due from or with
respect to the Company or any of the Subsidiaries or any material Tax
Return filed by or with respect to the Company or any Subsidiary other
than normal and routine audits by nonfederal governmental authorities.
Neither the Company nor any Subsidiary of the Company has received notice
that any assessment of Taxes is proposed against the Company or any of its
Subsidiaries or any of their assets which, if ultimately paid by the
Company or any Subsidiary of the Company would have a Material Adverse
Effect on the Company.
(iii) No consent to the application of Section 341(f)(2) of the
Code (or any predecessor provision) has been made or filed by or with
respect to the Company or any of its Subsidiaries or any of their assets.
None of the Company or any of its Subsidiaries has agreed to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method, and there is
no application pending with any taxing authority requesting permission for
any changes in any accounting method of the Company or any of its
Subsidiaries which, in each respective case, will or would reasonably
cause the Company or any of is Subsidiaries to include any material
adjustment in taxable income for any taxable period (or portion thereof)
ending after the Closing Date.
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(iv) None of the Company or any of its Subsidiaries is a party to,
is bound by, or has any obligation under, any Tax sharing agreement, Tax
allocation agreement or similar contract other than any agreement to which
the Company and its Subsidiaries are the sole parties.
(v) There is no contract, agreement, plan or arrangement covering
any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company or any
of its Subsidiaries by reason of Section 280G of the Code.
(vi) The term "Code" shall mean the Internal Revenue Code of 1986,
as amended. The term "Taxes" shall mean all taxes, charges, fees, levies,
or other similar assessments or liabilities, including without limitation
(a) income, gross receipts, ad valorem, premium, excise, real property,
personal property, sales, use, transfer, withholding, employment, payroll,
and franchise taxes imposed by the United States of America, or by any
state, local, or foreign government, or any subdivision, agency, or other
similar person of the United States or any such government; and (b) any
interest, fines, penalties, assessments, or additions to taxes resulting
from, attributable to, or incurred in connection with any Tax or any
contest, dispute, or refund thereof. The term "Tax Returns" shall mean
any report, return, or statement required to be supplied to a taxing
authority in connection with Taxes.
(i) Pension And Benefit Plans; ERISA.
(i) Schedule 4.1(i)(i) sets forth a complete and correct list
of:
(A) all "employee benefit plans", as defined in Section
3(3) of ERISA, maintained by the Company or any of its
Subsidiaries to which Company or any of its Subsidiaries
has any obligation or
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liability, contingent or otherwise ("Benefit Plans"); and
(B) all employment or consulting agreements, and all bonus or
other incentive compensation, deferred compensation, salary
continuation, disability, stock award, stock option, stock
purchase or other material employee benefit policies or
arrangements which the Company or any of its Subsidiaries
maintains or to which the Company or any of its Subsidiaries
has any obligation or liability (contingent or otherwise)
(the "Employee Arrangements").
(ii) With respect to each Benefit Plan and Employee Arrangement, a
complete and correct copy of each of the following documents (if
applicable) has been made available to Purchaser: (i) the most recent plan
and related trust documents, and all amendments thereto; (ii) the most
recent summary plan description, and all related summaries of material
modifications thereto; (iii) the most recent Form 5500 (including
schedules and attachments); (iv) the most recent IRS determination letter;
and (v) the most recent actuarial reports.
(iii) To the Company's knowledge, the Company and its Subsidiaries
do not currently have and have not during the preceding six years had any
obligation or liability (contingent or otherwise) under Title IV of ERISA.
(iv) The Benefit Plans and their related trusts intended to qualify
under Sections 401(a) and 501(a) of the Code, respectively, are qualified
under such sections.
(v) All contributions or other payments required to have been made
by the Company or any of its Subsidiaries to or under any Benefit Plan or
Employee Arrangement by applicable law or the terms of such Benefit Plan
or Employee Arrangement (or any agreement relating thereto) have been
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timely and properly made or are properly accrued on the Company's audited
financial statements for the year ended December 31, 1996 in accordance
with generally accepted accounting principles.
(vi) The Benefit Plans and Employee Arrangements have been
maintained and administered in all material respects in accordance with
their terms and applicable laws.
(vii) Except as disclosed in Schedule 4.1(i)(vii), there are no
pending or, to the best knowledge of the Company, threatened actions,
claims or proceedings against or relating to any Benefit Plan or Employee
Arrangement other than routine benefit claims by persons entitled to
benefits thereunder and other than actions, claims or proceedings which,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect on the Company.
(viii) Except as disclosed in Schedule 4.1(i)(viii), the Company
and its Subsidiaries do not maintain or have an obligation to contribute
to retiree life or retiree health plans which provide for continuing
benefits or coverage for current or former officers, directors or
employees of the Company or any of its Subsidiaries except (i) as may be
required under Part 6 of Title I of ERISA) and at the sole expense of the
participant or the participant's beneficiary or (ii) a medical expense
reimbursement account plan pursuant to Section 125 of the Code.
(j) Absence of Certain Changes or Events. Except as set forth
on Exhibit D or Schedule 4.1(j) or as contemplated by this Agreement, since
December 31, 1996, the business of the Company and its Subsidiaries has been
carried on only in the ordinary and usual course and no event or events has or
have occurred that (either individually or in the aggregate) has had, or
reasonably could be expected to have, a Material Adverse Effect on the Company.
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(k) No Undisclosed Material Liabilities. Except as specifically and
individually set forth on Schedule 4.1(k) or the other schedules hereto
(specific reference to which shall be made on Schedule 4.1(k)), there are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, that are
material to the Company and its Subsidiaries considered as a whole other than:
(i) liabilities reflected on the Company's audited financial statements
(together with the related notes thereto) filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (as filed with the
SEC); and (ii) liabilities under this Agreement.
(l) Opinion of Financial Advisor. The Company has received the opinion of
the Financial Advisor dated April 10, 1997, to the effect that, as of the date
thereof, the Offer Consideration to be received by the holders of Company
Common Stock in the Offer and the Merger Consideration to be received by the
holders of Company Common Stock in the Merger is fair from a financial point of
view to such holders, a signed, true and complete copy of which opinion shall
be delivered to Parent, and such opinion has not been withdrawn or modified.
True and complete copies of all agreements and understandings between the
Company or any of its affiliates and the Financial Advisor relating to the
transactions contemplated by this Agreement are attached hereto as Schedule
4.1(l).
(m) Vote Required. In the event that Section 253 of the DGCL is
inapplicable and unavailable to effectuate the Merger, the affirmative vote of
the holders of a majority of the outstanding shares of Company Common Stock is
the only vote of the holders of any class or series of the Company's capital
stock necessary (under applicable law or otherwise) to approve the Merger and
this Agreement and the transactions contemplated hereby.
(n) Labor Matters. Except to the extent as such could not reasonably be
expected to have a Material Adverse Effect on the Company or as set forth on
Schedule 4.1(n):
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(i) Neither the Company nor any of its Subsidiaries is a party to
any labor or collective bargaining agreement, and no employees of Company
or any of its Subsidiaries are represented by any labor organization.
Within the preceding three years, there have been no representation or
certification proceedings, or petitions seeking a representation
proceeding, pending or, to the knowledge of the Company, threatened to be
brought or filed with the National Labor Relations Board or any other
labor relations tribunal or authority. Within the preceding three years,
to the knowledge of Company, there have been no organizing activities
involving Company or any of its Subsidiaries with respect to any group of
employees of Company or any of its Subsidiaries.
(ii) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor
disputes pending or, to the knowledge of the Company, threatened against
or involving Company or any of its Subsidiaries. There are no unfair
labor practice charges, grievances or complaints pending or, to the
knowledge of Company, threatened by or on behalf of any employee or group
of employees of Company or any of its Subsidiaries.
(iii) There are no complaints, charges or claims against Company or
any of its Subsidiaries pending or, to the knowledge of Company,
threatened to be brought or filed with any governmental authority,
arbitrator or court based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment of any
individual by Company or any of its Subsidiaries.
(iv) Each of the Company and its Subsidiaries is in material
compliance with all laws, regulations and orders relating to the
employment of labor, including all such laws, regulations and orders
relating to wages, hours, collective bargaining, discrimination, civil
rights, safety and health, workers' compensation and the collection and
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payment of withholding and/or social security taxes and any similar tax.
(v) Since July 31, 1996, there has been no "mass layoff" or "plant
closing" (as defined by the Worker Adjustment Retraining and Notification
Act of 1988, as amended ("WARN Act") with respect to the Company or any of
its Subsidiaries.
(o) Intangible Property. Each of the Company and its Subsidiaries
owns or has a right to use each trademark, trade name, patent, service mark,
brand mark, brand name, computer program, database, industrial design and
copyright owned or used in connection with the operation of its businesses,
including any registrations thereof and pending applications therefor, and each
license or other contract relating thereto (collectively, the "Company
Intangible Property"), free and clear of any and all liens, claims or
encumbrances, except where the failure to own or have a right to use such
property could not reasonably be expected to have a Material Adverse Effect on
the Company. To the Company's knowledge, Schedule 4.1(o) hereto sets forth a
complete list of the Company Intangible Property. Except to the extent that
such could not reasonably be expected to have a Material Adverse Effect on the
Company, the use of the Company Intangible Property by the Company or its
Subsidiaries does not conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trademark, trade
name, patent, service mark, brand mark, brand name, computer program, database,
industrial design, copyright or any pending application therefor of any other
person.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Costs and Liabilities" means any and all
losses, liabilities, obligations, damages,
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fines, penalties, judgments, actions, claims, costs and expenses
(including, without limitation, fees, disbursements and expenses of
legal counsel, experts, engineers and consultants and the reasonable
costs of investigation and feasibility studies and the reasonable
costs to clean up, remove, treat, or in any other way address any
Hazardous Materials) arising with respect to any violation of or
liability arising pursuant to or under any Environmental Law.
(B) "Environmental Law" means any applicable law regulating or
prohibiting Releases of Hazardous Materials into any part of the
natural environment, or pertaining to the protection of natural
resources, the environment and public and employee health and
safety from Hazardous Materials including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the
Clean Air Act (33 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 7401 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
Section 136 et seq.), and the Occupational Safety and Health Act
(29 U.S.C. Section 651 et seq.) ("OSHA") and the regulations
promulgated pursuant thereto, and any such applicable state or
local statutes, including, without limitation, the Industrial Site
Recovery Act ("IRSA"), and the regulations promulgated pursuant
thereto, as such laws have been and may be amended or supplemented
through the Closing Date;
(C) "Hazardous Material" means any substance, material or
waste which is regulated with respect to its toxic or otherwise
hazardous character by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries
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conducts business, or the United States, including, without
limitation, any material or substance which is defined as a
"hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any
provision of Environmental Law and shall also include, without
limitation, petroleum, petroleum products, asbestos, polychlorinated
biphenyls and radioactive materials;
(D) "Release" means any release, spill, effluent, emission,
leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching, or migration into the environment; and
(E) "Remedial Action" means all actions, including, without
limitation, any capital expenditures, required by a governmental
entity or required under any Environmental Law, or voluntarily
undertaken to (I) clean up, remove, treat, or in any other way
ameliorate or address any Hazardous Materials or other substance in
the environment; (II) prevent the Release or threat of Release, or
minimize the further Release of any Hazardous Material so it does
not endanger or threaten to endanger the public health or welfare
or the environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (IV) bring the applicable party into
compliance with any Environmental Law.
(ii) Except as set forth on Schedule 4.1(p) hereto: (A) The
operations of the Company and its Subsidiaries have been and, as of
the Closing Date, will be, in compliance in all respects with all
Environmental Laws except for any such noncompliance which could
not reasonably be expected to result in a Material Adverse Effect
on the Company;
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(B) The Company and its Subsidiaries have obtained and will,
as of the Closing Date, maintain all permits required under
applicable Environmental Laws for the continued operations of their
respective businesses, except such permits the lack of which would
not materially impair the ability of the Company and its
Subsidiaries to continue operations;
(C) The Company and its Subsidiaries are not subject to any
outstanding material written orders from, or material written
agreements with, any Governmental Entity or other person respecting
(A) violations or liability pursuant to Environmental Laws, (B)
Remedial Action or (C) any Release or threatened Release of a
Hazardous Material;
(D) The Company and its Subsidiaries have not received any
written communication alleging, with respect to any such party, the
material violation of or material liability under any Environmental
Law, which violation or liability is outstanding;
(E) Neither the Company nor any of its Subsidiaries has any
contingent liability in connection with the Release of any
Hazardous Material into the environment (whether on-site or
off-site) which would be reasonably likely to result in the Company
and its Subsidiaries incurring Environmental Costs and Liabilities
which could reasonably be expected to result in a Material Adverse
Effect on the Company;
(F) The operations of the Company or its Subsidiaries do not
involve the transportation, treatment, storage or disposal of
hazardous waste, as defined and regulated under permit requirements
set forth in 40 C.F.R. Parts 260-270 (in effect as of the date of
this Agreement) or any state equivalent;
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(G) To the knowledge of the Company, there is not now nor has
there been in the past, on or in any property of the Company or its
Subsidiaries any of the following: (A) any underground storage
tanks or surface impoundments containing Hazardous Materials, (B)
any asbestos-containing materials, or (C) any polychlorinated
biphenyls in regulated quantities; and
(H) No judicial or administrative proceedings or governmental
investigations are pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries alleging
the violation of or seeking to impose liability pursuant to any
Environmental Law, except for any such proceedings or
investigations that could not reasonably be expected to result in a
Material Adverse Effect on the Company.
(iii) This Section 4.1(p) sets forth the sole and exclusive
representations and warranties of the Company relating to
Environmental Matters, including, without limitation, any matters
arising under Environmental Laws.
(q) Real Property.
(i) Schedule 4.1(q)(i) sets forth all of the real property owned
in fee by the Company and its Subsidiaries. Each of the Company and its
Subsidiaries has good and marketable title to each parcel of real property owned
by it free and clear of all mortgages, pledges, liens, encumbrances and security
interests, except (1) those described in the Company SEC Documents, (2) those
reflected or reserved against in the audited balance sheet of the Company dated
as of December 31, 1996, and (3) to the extent that such could not reasonably be
expected to have a Material Adverse Effect on the Company, (A) taxes and general
and special assessments not in default and payable without penalty and interest,
(B) mechanics and similar statutory liens arising or incurred in the ordinary
course
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of business for amounts that are not delinquent, (C) any zoning,
building, and land use regulation imposed by any Governmental Entity, and
(D) any covenant, restriction, or easement expressly set forth in the
title documents governing such real property filed with the appropriate
Governmental Entity.
(ii) Schedule 4.1(q)(ii) sets forth each lease, sublease or other
agreement (collectively, the "Real Property Leases") under which the
Company or any of its Subsidiaries uses or occupies or has the right to
use or occupy, now or in the future, any real property. Each Real
Property Lease is valid, binding and in full force and effect, all rent
and other sums and charges payable by the Company and its Subsidiaries as
tenants thereunder are current, no termination event or condition or
uncured default of a material nature on the part of the Company or any
Subsidiary of the Company exists under any Real Property
Lease. Each of the Company and its Subsidiaries has a good and valid
leasehold interest in each parcel of real property leased by it free and
clear of all mortgages, pledges, liens, encumbrances and security
interests, except (i) those disclosed in the Company's SEC Documents,
(ii) those reflected or reserved against in the balance sheet of the
Company dated as of December 31, 1996, (iii) taxes and general and
special assessments not in default and payable without penalty and
interest and (iv) those which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
the Company.
(r) Board Recommendation. As of the date hereof, the Board of
Directors of the Company, at a meeting duly called and held, has by the vote of
those directors present (who constituted 100% of the directors then in office)
(i) determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, taken together, are fair to and in the best
interests of the stockholders of the Company and has approved the same, and (ii)
resolved to recommend that the holders of the shares of Company Common Stock
approve this Agreement and the
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transactions contemplated herein, including the Merger (if required), and
accept the Offer and tender their shares of Company Common Stock pursuant
thereto.
(s) Material Contracts. The Company has made available to Parent (i) true
and complete copies of all written contracts, agreements, commitments,
arrangements, leases (including with respect to personal property), policies
and other instruments to which it or any of its Subsidiaries is a party or by
which it or any such Subsidiary is bound which (A) require payments to be made
in excess of $250,000 per year for goods and/or services, (B) require payments
to be made in excess of $100,000 with respect to any licenses granted to the
Company or any of its Subsidiaries, or (C) do not by their terms expire and are
not subject to termination within 60 days from the date of the execution and
delivery thereof (collectively, "Material Contracts"), and (ii) a written
description of each Material Contract of which the Company is aware that has
not been reduced to writing; provided, however, that blanket purchase orders or
similar arrangements shall not be considered Material Contracts for purposes of
this Agreement. Each of the Material Contracts is listed on Schedule 4.1(s).
Neither the Company nor any of its Subsidiaries is, or has received any written
notice that any other party is, in default in any respect under any such
Material Contract, except for those defaults which could not, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company; and, to the Company's knowledge,
there has not occurred any event or events that with the lapse of time or the
giving of notice or both would constitute such a material default, except for
those defaults which could not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect with respect to the
Company.
(t) Related Party Transactions. Except as set forth on Schedule 4.1(t) or
as disclosed in the Company SEC Documents, no director, officer, "affiliate" or
"associate" (as such terms are defined in Rule 12b-2 under the Exchange Act) of
the Company or any of its Subsidiaries (i) has borrowed any monies from or
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<PAGE> 45
has outstanding any indebtedness or other similar obligations to the Company or
any of its Subsidiaries, or (ii) is otherwise a party to any contract,
arrangement or understanding with the Company or any of its Subsidiaries.
(u) Indebtedness. Except as set forth on Schedule 4.1(u) hereto or in
the Company's audited financial statements as of December 31, 1996, on the date
hereof neither the Company nor any of its Subsidiaries has any outstanding
indebtedness for borrowed money or representing the deferred purchase price of
property or services or similar liabilities or obligations, including any
guarantee in respect thereof ("Indebtedness"), or is a party to any agreement,
arrangement or understanding providing for the creation, incurrence or
assumption thereof.
(v) Liens. Neither the Company nor any of its Subsidiaries has granted,
created, or suffered to exist with respect to any of its assets, any mortgage,
pledge, charge, hypothecation, collateral assignment, lien (statutory or
otherwise), encumbrance or security agreement of any kind or nature whatsoever,
except (1) those described in the Company SEC Documents, (2) those reflected or
reserved against in the audited balance sheet of the Company dated as of
December 31, 1996, and (3) to the extent that such could not reasonably be
expected to have a Material Adverse Effect on the Company, (A) taxes and
general and special assessments not in default and payable without penalty and
interest, (B) mechanics and similar statutory liens arising or incurred in the
ordinary course of business for amounts that are not delinquent, (C) any
zoning, building, and land use regulation imposed by any Governmental Entity,
and (D) any covenant, restriction, or easement expressly set forth in the title
documents governing real property of the Company or any of its Subsidiaries and
filed with the appropriate Governmental Entity.
(w) Customers and Suppliers. Schedule 4.1(w) sets forth (a) a list of the
ten largest customers of the Company and its Subsidiaries based on sales during
the fiscal year ended
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December 31, 1996, showing the approximate total sales to each such customer
during such fiscal year and (b) a list of the ten largest suppliers of the
Company and its Subsidiaries based on purchases during the fiscal year ended
December 31, 1996, showing the approximate total purchases from each such
supplier during such fiscal year. Except as described on Schedule 4.1(w), to
the Company's knowledge there has not been any adverse change in the business
relationship of the Company or any Subsidiary of the Company with any customer
or supplier named in Schedule 4.1(w) which could reasonably be expected to have
a Material Adverse Change on the Company.
4.2 Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified to do business as a foreign
corporation and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify could not have a Material Adverse
Effect with respect to Parent. Parent and Sub have heretofore made available
to the Company complete and correct copies of their respective Certificates of
Incorporation and Bylaws.
(b) Authority; No Violations; Consents and Approvals.
(i) Each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and
Sub. This Agreement has been duly
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executed and delivered by each of Parent and Sub and assuming this
Agreement constitutes the valid and binding agreement of the Company,
constitutes a valid and binding obligation of Parent and Sub enforceable
in accordance with its terms and conditions except that the enforcement
hereof may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by each of Parent
and Sub will not result in any Violation pursuant to any provision of the
respective Articles or Certificates of Incorporation or Bylaws of Parent
or Sub or, except as to which requisite waivers or consents have been
obtained and assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in paragraph (iii) of this
Section 4.2(b) are duly and timely obtained or made, and, if required,
the Company Stockholder Approval has been obtained, result in any
Violation of any loan or credit agreement, note, mortgage, indenture,
lease, or other agreement, obligation, instrument, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Sub or their respective properties or
assets, which could have a Material Adverse Effect with respect to
Parent.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Entity, is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by each of
Parent and Sub or the consummation by each of Parent or Sub of the
transactions contemplated hereby, except for: (A) filings under the HSR
Act; (B) the filing with the SEC of (x) the
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Schedule 14D-1 in connection with the commencement and consummation of
the Offer and (y) such reports under and such other compliance with the
Exchange Act and the rules and regulations thereunder, as may be required
in connection with this Agreement and the transactions contemplated
hereby; (C) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware; (D) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws;
(E) such filings and approvals as may be required by any foreign
pre-merger notification, securities, corporate or other law, rule or
regulation; (F) such filings in connection with any Gains and Transfer
Taxes; and (G) such other such filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to
any notification, disclosure or required approval necessitated by the
Merger or the transactions contemplated by this Agreement.
(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in (i) the
Schedule 14D-9 will, at the time the Schedule 14D-9 is filed with the SEC, and
at any time it is amended or supplemented, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, and (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the Effective Time, any event with respect
to Parent or Sub, or with respect to information supplied by Parent or Sub for
inclusion in the Schedule 14D-9 or the Proxy Statement, shall occur which is
required to be described in an amendment of, or a supplement to, any of such
documents, such event shall be so described to the Company.
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(d) Board Recommendation. The Board of Directors of the Parent, at a
meeting duly called and held, has by the vote of those directors present
determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, taken together, are fair to and in the best
interests of Parent and has approved the same.
(e) Financing. Parent and Sub have delivered to the Company a true and
complete copy of (i) a letter of commitment obtained by Parent from Credit
Suisse First Boston to provide debt financing for the transactions contemplated
hereby pursuant to a senior credit facility; (ii) a letter of commitment
obtained by Parent from Credit Suisse First Boston with respect to senior
subordinated debt financing for the transactions contemplated hereby pursuant
to the sale by Parent of senior subordinated notes; (iii) a letter of
commitment obtained by Hedstrom Holdings, Inc., the sole stockholder of Parent
("Holdings"), from Credit Suisse First Boston with respect to senior debt
financing for the transactions contemplated hereby pursuant to the sale by
Holdings of senior notes; and (iv) from Hicks Muse Equity Fund II, L.P. to
provide certain equity financing pursuant to the sale by Holdings of shares of
its common stock (collectively, the "Financing Commitments"). Executed copies
of the Financing Commitments are attached hereto as Exhibit 4.2(e). Assuming
that the financing contemplated by the Financing Commitments is consummated in
accordance with the terms thereof, the funds to be borrowed and/or provided
thereunder by Parent and Holdings will provide sufficient funds to pay the
Offer Consideration, the Merger Consideration and all related fees and
expenses. As of the date of this Agreement, Parent is not aware of any facts
or circumstances that create a reasonable basis for Parent to believe that
Parent and Holdings will not be able to obtain financing in accordance with the
terms of the Financing Commitments. Parent agrees to promptly notify the
Company if the statements in the immediately preceding sentence are no longer
true and correct. Parent and Sub agree with the Company that they will not
waive, release, modify, rescind, terminate or otherwise amend any of the
material terms or conditions in the
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commitment letters referred to in this Section 4.2(e), without the prior
written consent of the Company.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees as to the
Company and its Subsidiaries that (except as expressly contemplated or
permitted by this Agreement, or to the extent that Parent shall otherwise
consent in writing):
(a) Ordinary Course. Each of the Company and its Subsidiaries shall carry
on its businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and shall use all reasonable efforts to
preserve intact its present business organization, keep available the services
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it.
(b) Dividends; Changes in Stock. The Company shall not, nor shall it
permit any of its Subsidiaries to: (i) declare or pay any dividends on or make
other distributions in respect of any of its capital stock; (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; or (iii) repurchase or otherwise acquire, or
permit any Subsidiary to purchase or otherwise acquire, any shares of its
capital stock, except (A) as contemplated by Section 3.5 of this Agreement and
(B) as required by the terms of its securities outstanding or any employee
benefit plan in effect on the date hereof.
(c) Issuance of Securities. The Company shall not, nor shall it permit
any of its Subsidiaries to, (i) grant any options, warrants or rights, to
purchase shares of Company Common
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Stock, (ii) except as contemplated by Section 3.5 of this Agreement, amend the
terms of or reprice any Option or amend the terms of any of the Stock Option
Plans, or (iii) issue, deliver or sell, or authorize or propose to issue,
deliver or sell, any shares of its capital stock of any class or series, any
Company Voting Debt or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, Company Voting Debt or convertible
securities, other than the issuance of Shares upon the exercise of Options or
Warrants that are outstanding on the date hereof.
(d) Governing Documents. The Company shall not amend or propose to amend
its Certificate of Incorporation or Bylaws.
(e) No Solicitation. From and after the date hereof until the termination
of this Agreement, neither the Company or any of its Subsidiaries, nor any of
their respective officers, directors, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries) (such officers, directors,
employees, representatives, agents, affiliates, investment bankers, attorneys
and accountants being referred to herein, collectively, as "Representatives"),
will, and the Company will use its reasonable best efforts to cause the
employees of the Company and its Subsidiaries not to, directly or indirectly,
initiate, solicit or encourage (including by way of furnishing information or
assistance), or take any other action to facilitate, any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal (as defined below), or enter into or maintain or
continue discussions or negotiate with any person or entity in furtherance of
such inquiries or for the purpose of obtaining an Acquisition Proposal, or
agree to or endorse any Acquisition Proposal, and neither the Company nor any
of its Subsidiaries will authorize or permit any of its Representatives to take
any such action, and the Company shall notify Parent orally (within one
business day) and in writing (as promptly as practicable) of all of the
relevant details relating to, and all material aspects of, all inquiries and
proposals which it or any
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of its Subsidiaries or any of their respective Representatives may receive
relating to any of such matters and, if such inquiry or proposal is in writing,
the Company shall deliver to Parent a copy of such inquiry or proposal as
promptly as practicable; provided, however, that nothing contained in this
Section 5.1(e) shall prohibit the Board of Directors of the Company from:
(i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited
written, bona fide Acquisition Proposal (provided that such person or
entity has the necessary funds or commitments to provide the funds to
effect such Acquisition Proposal; provided further, however, that the
Company shall have two business days from the date it receives such
Acquisition Proposal to determine whether such person or entity has such
funds or commitments) if, and only to the extent that, (A) the Board of
Directors of the Company, after consultation with and based upon the
advice of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), determines in good faith that such
action is advisable for the Board of Directors of the Company to comply
with its fiduciary duties to stockholders under applicable law, (B) prior
to taking such action, the Company (x) provides reasonable prior notice
to Parent to the effect that it is taking such action and (y) receives
from such person or entity an executed confidentiality agreement in
reasonably customary form, and (C) the Company shall , to the extent
consistent with the Board of Directors fiduciary duties to stockholders
under applicable law, promptly and continuously advise Parent as to all
of the relevant details relating to, and all material aspects, of any
such discussions or negotiations;
(ii) failing to make or reaffirm, withdrawing, adversely modifying
or taking a public position materially inconsistent with its
recommendation referred to in Section 4.1(r) (which may include making
any statement required by Rule 14e-2 under the Exchange Act) if there
exists an Acquisition Proposal and the Board of Directors of
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the Company, after consultation with and based upon the advice of
independent legal counsel (who may be the Company's regularly engaged
independent counsel), determines in good faith that such action is
advisable for the Board of Directors of the Company to comply with its
fiduciary duties to holders of Shares under applicable law; or
(iii) making a "stop-look-and-listen" communication with respect to
an Acquisition Proposal, the Offer or this Agreement of the nature
contemplated in, and otherwise in compliance with, Rule 14d-9 under the
Exchange Act as a result of receiving an Acquisition Proposal.
For purposes of this Agreement, "Acquisition Proposal" shall mean any of the
following (other than the transactions among the Company, Parent and Sub
contemplated hereunder) involving the Company or any of its Subsidiaries: (i)
any merger, consolidation, share exchange, recapitalization, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 10% or more of the assets
(computed based on the fair market value of such assets as determined by the
Board of Directors of the Company in good faith) of the Company and its
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(f) No Acquisitions. The Company shall not, nor shall it permit
any of its Subsidiaries to: (i) merge or consolidate with, or acquire any
equity interest in, any corporation, partnership, association or other business
organization, or enter into an agreement with respect thereto or (ii) acquire or
agree to acquire any assets of any corporation, partnership, association or
other business organization or division thereof, except for the purchase of
inventory and supplies in the ordinary
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course of business or the acquisition by the Company or any Subsidiary of
equity interests in any customer or supplier of the Company in satisfaction of
outstanding claims against such party in bankruptcy proceedings consistent
with past practice.
(g) No Dispositions. Other than sales of inventory or sales or
returns of obselete or surplus equipment in the ordinary course of business
consistent with past practice, the Company shall not, nor shall it permit any of
its Subsidiaries to, sell, lease, encumber or otherwise dispose of, or agree to
sell, lease (whether such lease is an operating or capital lease), encumber or
otherwise dispose of, any of its assets (including, without limitation, any
capital stock or other ownership interest of any Subsidiary of the Company).
(h) Governmental Filings. The Company shall promptly provide Parent
(or its counsel) with copies of all filings made by the Company with the SEC or
any other state or federal Governmental Entity in connection with this Agreement
and the transactions contemplated hereby.
(i) No Dissolution, Etc. The Company shall not authorize,
recommend, propose or announce an intention to adopt a plan of complete or
partial liquidation or dissolution of the Company or any of its Subsidiaries.
(j) Other Actions.
(i) Except as expressly permitted by the terms of this
Agreement, the Company will not knowingly or intentionally take or agree or
commit to take, nor will it permit any of its Subsidiaries to take or agree or
commit to take, any action that is reasonably likely to result in any of the
Company's representations or warranties hereunder being untrue in any material
respect or in any of the Company's covenants hereunder or any of the conditions
to the Merger not being satisfied in all material respects.
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(ii) Parent will not knowingly or intentionally take or agree or
commit to take, nor will it permit Holdings or any of the Subsidiaries of
Parent to take or agree or commit to take, any action to prohibit or
prevent the financing sources of Parent and Holdings from providing the
debt and equity financing contemplated by the Financing Commitments.
(k) Certain Employee Matters. The Company and its Subsidiaries
shall not (without the prior written consent of Parent): (i) grant any
increases in the compensation of any of its directors, officers or key
employees; (ii) pay or agree to pay any pension, retirement allowance or other
employee benefit not required or contemplated to be paid prior to the Effective
Time by any of the existing Benefit Plans or Employee Arrangements as in effect
on the date hereof to any such director, officer or key employee, whether past
or present; (iii) enter into any new, or materially amend any existing,
employment or severance or termination agreement with any such director, officer
or key employee; or (iv) except as may be required to comply with applicable
law, become obligated under any new Benefit Plan or Employee Arrangement, which
was not in existence on the date hereof, or amend any such plan or arrangement
in existence on the date hereof if such amendment would have the effect of
materially enhancing any benefits thereunder.
(l) Indebtedness; Agreements.
(i) Except for indebtedness incurred by the Company from time
to time for working capital purposes in the ordinary course of business
under that certain Second Amended and Restated Credit Agreement, dated as
of December 14, 1995 among the Company, the financial institutions party
thereto and the First National Bank of Chicago, as agent (the "Company
Credit Agreement"), indebtedness incurred to fund capital expenditures
permitted under Section 5.1(n) of this Agreement and entering into leases
for personal property in the ordinary course of business consistent with
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past practice, the Company shall not, nor shall the Company permit any of
its Subsidiaries to, without the prior written consent of Parent (which
shall not be unreasonably withheld), assume or incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire any debt securities of
the Company or any of its Subsidiaries or guarantee any debt securities
of others or enter into any lease (whether such lease is an operating or
capital lease) or create any mortgages, liens, security interests or
other encumbrances on the property of the Company or any of its
Subsidiaries in connection with any indebtedness thereof, or enter into
any "keep well" or other agreement or arrangement to maintain the
financial condition of another person.
(ii) Without the prior written consent of Parent (which shall not be
unreasonably withheld), the Company shall not, nor shall the Company
permit any of its Subsidiaries to, (A) enter into any contracts involving
aggregate annual payments in excess of $250,000, except for license
agreements entered into in the ordinary course of the Company's business
consistent with past practice, or (b) modify, rescind, terminate, waive,
release or otherwise amend in any material respect any of the terms or
provisions of any Material Contract in any manner that is material and
adverse to the Company or the respective Subsidiary of the Company party
thereto.
(m) Accounting. The Company shall not take any action, other than in
the ordinary course of business, consistent with past practice or as required by
the SEC or by law, with respect to accounting policies, procedures and
practices.
(n) Capital Expenditures. Except for the capital expenditures set
forth on Schedule 5.1(n), the Company and its Subsidiaries shall not incur any
capital expenditures in excess of $100,000.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of the Proxy Statement; Company Stockholders Meeting;
Merger without a Company Stockholders Meeting.
(a) The Company and Parent will, as soon as practicable following the
acceptance for payment of and payment for shares of the Company Common Stock by
Sub in the Offer, prepare and file the Proxy Statement with the SEC. The
Company will use all commercially reasonable efforts to respond to all SEC
comments with respect to the Proxy Statement and to cause the Proxy Statement
to be mailed to the Company's stockholders at the earliest practicable date.
(b) The Company will, as soon as practicable following the acceptance for
payment of and payment for shares of the Company Common Stock by Sub in the
Offer, duly call, give notice of, convene and hold a meeting of the Company's
stockholders for the purpose of approving this Agreement and the transactions
contemplated hereby. At such stockholders meeting, Parent shall cause all of
the shares of Company Common Stock then owned by Parent and Sub to be voted in
favor of the Merger.
(c) Notwithstanding the foregoing clauses (a) and (b), in the event that
Parent and Sub shall acquire at least 90% of the outstanding shares of Company
Common Stock in the Offer, the parties hereto agree, at the request of Sub, to
take all necessary and appropriate action to cause the Merger to become
effective, as soon as practicable after the expiration of the Offer, without a
meeting of stockholders of the Company, in accordance with Section 253 of the
DGCL.
(d) Sub shall promptly submit this Agreement and the transactions
contemplated hereby for approval and adoption by Parent, as its sole
stockholder, by written consent.
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6.2 Access to Information. Upon reasonable notice, each of the Company or
Parent, as the case may be, shall (and shall cause each of its Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other party (including, in the case of Parent and Sub,
potential financing sources and their employees, accountants, counsel and other
representatives), access, during normal business hours during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, such party shall (and shall cause each of its
Subsidiaries to) furnish promptly to the other party, (a) a copy of each
report, schedule, registration statement and other document filed or received
by it during such period pursuant to SEC requirements and (b) all other
information concerning its business, properties and personnel as such other
party may reasonably request. The Confidentiality Agreement, dated as of
December 10, 1996, between Parent and the Company (the "Confidentiality
Agreement") shall apply with respect to information furnished thereunder or
hereunder and any other activities contemplated thereby.
6.3 [Intentionally Omitted].
6.4 Fees and Expenses. (a) Except as otherwise provided in this Section
6.4 and except with respect to claims for damages incurred as a result of the
breach of this Agreement, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
(b) The Company agrees to pay Parent or Parent's designee a fee in
immediately available funds equal to $3,000,000 upon the termination of this
Agreement under Section 8.1(d) or Section 8.1(e), if any of the events set
forth in either clause (i) or clause (ii) below occurs (each, a "Trigger
Event"):
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(i) the Board of Directors of the Company shall have (A) withdrawn
or adversely modified, or taken a public position materially inconsistent
with, its approval or recommendation of the Offer, the Merger, this
Agreement or the Stockholders Agreement, or (B) failed to reaffirm its
approval or recommendation of the Offer, the Merger and this Agreement
under the circumstances set forth in Section 8.1(e); provided that a
Company action permitted by Section 5.1(e)(iii) hereof shall not, by
itself, constitute a Trigger Event; or
(ii) an Acquisition Proposal has been recommended or accepted by the
Company or the Company shall have entered into an agreement (other than a
confidentiality agreement as contemplated by Section 5.1(e)) with respect
to an Acquisition Proposal.
(c) Parent agrees to pay to the Company a fee in immediately
available funds equal to $3,000,000 upon the termination of this Agreement under
Section 8.1(f) in the event that the Offer expires or is withdrawn, abandoned or
terminated if the sole reason for such expiration, withdrawal, abandonment or
termination is the failure of the condition described in item (iii) on Exhibit A
hereto.
(d) Any amounts due under this Section 6.4 that are not paid when
due shall bear interest at the prime rate from the date due through and
including the date paid.
6.5 Brokers or Finders. (a) The Company represents, as to itself,
its Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finders fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except the Financial Advisor,
whose fees and expenses will be paid by the Company in accordance with the
Company's agreements with such firm (copies of which have been delivered by the
Company to Parent prior to the date of this Agreement).
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(b) Parent represents, as to itself, its Subsidiaries and its affiliates,
that no agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's or finders fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement, except for Hicks, Muse, Tate & Furst
Incorporated, whose fees and expenses will be paid by Parent in accordance with
the Parent's agreements with such firm (copies of which have been made
available to the Company prior to the date of this Agreement).
6.6 Indemnification; Directors' and Officers' Insurance. (a) The Company
shall, and from and after the Effective Time, the Surviving Corporation shall,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer, director, employee or agent of the Company or any of its
Subsidiaries(the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out
of the fact that such person is or was a director, officer, employee or agent
of the Company or any of its Subsidiaries whether pertaining to any matter
existing or occurring at or prior to the Effective Time or any acts or
omissions occurring or existing at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers as the case may be (and the Company and the Surviving Corporation, as
the case may be, shall pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full
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extent permitted by law). Without limiting the foregoing, in the event any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time), (i)
the Indemnified Parties may retain the Company's regularly engaged independent
legal counsel or counsel satisfactory to them and reasonably satisfactory to
the Company (or them and reasonably satisfactory to the Surviving Corporation
after the Effective Time) and the Company (or after the Effective Time, the
Surviving Corporation) shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; and (ii) the Company (or after the Effective Time, the Surviving
Corporation) will use all reasonable best efforts to assist in the vigorous
defense of any such matter, provided that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its prior
written consent which consent shall not unreasonably be withheld. Any
Indemnified Party wishing to claim indemnification under this Section 6.6, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify the Company (or after the Effective Time, the Surviving Corporation)
(but the failure so to notify shall not relieve a party from any liability
which it may have under this Section 6.6 except to the extent such failure
materially prejudices such party's position with respect to such claims), and
shall deliver to the Company (or after the Effective Time, the Surviving
Corporation) the undertaking contemplated by Section 145(e) of the DGCL. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties in which case such additional counsel as
may be required (as shall be reasonably determined by the Indemnified Parties
and the Company or the Surviving Corporation, as the case may be) may be
retained by the Indemnified Parties at the cost and expense of the Company (or
Surviving Corporation). The Company and Sub agree that the foregoing rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in
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favor of the Indemnified Parties with respect to matters occurring through the
Effective Time, shall survive the Merger and shall continue in full force and
effect for a period of not less than six years from the Effective Time;
provided, however, that all rights to indemnification in respect of any
Indemnified Liabilities asserted or made within such period shall continue
until the disposition of such Indemnified Liabilities. Furthermore, the
provisions with respect to indemnification set forth in the certificate of
incorporation of the Surviving Corporation shall not be amended for a period of
six years following the Effective Time if such amendment would materially and
adversely affect the rights thereunder of individuals who at any time prior to
the Effective Time were directors, officers, employees or agents of the Company
in respect of actions or omissions occurring at or prior to the Effective Time.
(b) Parent and Sub hereby unconditionally waive and release the
Indemnified Parties from and agrees to indemnify, defend and hold harmless the
Indemnified Parties from and against any and all claims, demands, causes of
action, liabilities, costs or expenses, whether arising under contract,
statute, common law or otherwise, with respect to environmental matters
(including without limitation any of the foregoing arising under CERCLA or any
other Environmental Laws).
(c) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries (provided that Parent may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions which are no less
advantageous in any material respect to the Indemnified Parties) with respect
to matters arising before and acts or omissions occurring or existing at or
prior to the Effective Time including the transactions contemplated by this
Agreement, provided that Parent shall not be required to pay an annual premium
for such insurance in excess of 200% of the last annual premium paid by the
Company prior to the date hereof, but in such case shall purchase as much
coverage as possible for
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such amount. The last annual premium paid by the Company was $85,000.
(d) The provisions of this Section 6.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his heirs and his
personal representatives and shall be binding on all successors and assigns of
Sub, the Company and the Surviving Corporation.
6.7 Commercially Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable, under applicable
laws and regulations or otherwise, to consummate and make effective the
transactions contemplated by this Agreement and the Stockholders Agreement,
subject, as applicable, to the Company Stockholder Approval, including
cooperating fully with the other party, including by provision of information
and making of all necessary filings in connection with, among other things,
approvals under the HSR Act. The Company will use its reasonable efforts to
assist Parent, at Parent's expense, in obtaining any consent from third
parties necessary to allow the Company to continue operating its business as
presently conducted as a result of the consummation of the transactions
contemplated hereby. In case at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Agreement or
to vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities and franchises of either of the Constituent
Corporations, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Without limiting the generality of the
foregoing, the Company agrees to cooperate with Parent's and Sub's efforts to
secure the financing contemplated by the Financing Commitments, such
cooperation to include providing such information to Parent's and Sub's
financing sources as Parent or Sub may reasonably request and making available
to such financing sources senior officers and such other employees of the
Company as Parent and Sub may reasonably request to assist in the preparation
of one or more offering documents and other appropriate marketing materials and
to otherwise participate in such marketing and sales efforts relating to the
Financing Commitments as Parent and Sub may
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reasonably request upon reasonable notice and consistent with such officers'
and employees' other business responsibilities to the Company; provided, that
the Company shall incur no liability hereunder as a result of any
participation by any officer or employee in such financing efforts.
6.8 Conduct of Business of Sub. During the period of time from the date
of this Agreement to the Effective Time, Sub shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement.
6.9 Publicity. The parties will consult with each other and will mutually
agree upon any press release or public announcement pertaining to the Offer and
the Merger and shall not issue any such press release or make any such public
announcement prior to such consultation and agreement, except as may be
required by applicable law, in which case the party proposing to issue such
press release or make such public announcement shall use reasonable efforts to
consult in good faith with the other party before issuing any such press
release or making any such public announcement.
6.10 Withholding Rights. Sub and the Surviving Corporation, as
applicable, shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as Sub or the Surviving Corporation, as applicable,
is required to deduct and withhold with respect to the making of such payment
under the Code or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Sub or the Surviving Corporation, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by Sub or the Surviving
Corporation, as applicable.
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6.11 Continuation of Employee Benefits. Until at least December 31, 1997,
Parent shall maintain or cause to be maintained employee benefits and programs
for retirees, directors, officers and employees of the Company and its
Subsidiaries that are no less favorable in the aggregate than those set forth
on Schedule 4.1(i) taking into account that the Company will be a private
company without stock options and the like; provided, however, that Parent
shall not be obligated to continue (i) the Company's Nonqualified Deferred
Compensation Plan and the Company agrees that it shall cause such plan to be
terminated prior to the consummation of the Offer or (ii) any individual
employment agreement. On or after January 1, 1998, the retirees, directors,
officers and employees of the Company and its Subsidiaries shall be eligible
for employee benefits, plans and programs (including but not limited to
incentive compensation, deferred compensation, pension, life insurance,
medical, profit sharing (including 401(k)), severance salary continuation and
fringe benefits) which are no less favorable in the aggregate than those
generally available to similarly situated retirees, directors, officers and
employees of the Parent and its significant Subsidiaries. For purposes of
eligibility to participate in and vesting in all benefits provided to retirees,
directors, officers and employees, the retirees, directors, officers and
employees of the Company and its Subsidiaries will be credited with their years
of service with prior employers to the extent service with prior employers is
taken into account under plans of the Company. Upon termination of any medical
plan of the Company, individuals who were directors, officers or employees of
the Company or its Subsidiaries at the Effective Time shall become eligible to
participate in the medical plan of Parent, provided that no condition that was
eligible for coverage under any medical plan of the Company at the time of such
termination shall be excluded from coverage under the medical plan of Parent as
a pre-existing condition. Amounts paid before the Effective Time by retirees,
directors, officers and employees of the Company under any medical plans of the
Company shall after the Effective Time be taken into account in applying
deductible and out-of-pocket limits applicable under the medical plan of Parent
provided as of
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the Effective Time to the same extent as if such amounts had
been paid under such medical plan of Parent.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 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 prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the holders of a majority of
the outstanding Shares entitled to vote thereon if such vote is required by
applicable law; provided that the Parent and Sub shall vote all Shares
purchased pursuant to the Offer or the Stockholders Agreement in favor of the
Merger.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired,
and no restrictive order or other requirements shall have been placed on the
Company, Parent, Sub or the Surviving Corporation in connection therewith.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall use
all commercially reasonable efforts to have any such decree, ruling, injunction
or order vacated.
(d) Statutes. No statute, rule, order, decree or regulation shall have
been enacted or promulgated by any government or governmental agency or
authority which prohibits the consummation of the Merger.
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(e) Payment for Shares. Sub shall have accepted for payment and paid for
the shares of Company Common Stock tendered in the Offer such that, after such
acceptance and payment, Parent and its affiliates shall own, at consummation of
the Offer, a majority of the outstanding shares of the Company Common Stock on
a fully diluted basis; provided that this condition shall be deemed to have
been satisfied if Sub fails to accept for payment and pay for Shares pursuant
to the Offer in violation of the terms and conditions of the Offer.
7.2 Conditions to Obligation of Parent and Sub. The obligations of Parent
and Sub to effect the Merger shall be subject to the satisfaction prior to the
Closing Date of the following conditions, any or all of which may be waived in
whole or in part by Parent and Sub:
(a) Financing. Holdings and Parent shall have received the debt and
equity financing for the transactions contemplated hereby on terms
substantially as outlined in the Financing Commitments.
(b) Dissenting Shares. No more than ten percent (10%) of the shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
be Dissenting Shares.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or by Parent:
(a) by mutual written consent of the Company and Parent, or by mutual
action of their respective Boards of Directors;
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(b) by either the Company or Parent (i) if any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the Offer or the Merger shall have become final and non-appealable, or (ii)
so long as such party is not then in material breach of its obligations
hereunder, if there has been a breach of any representation, warranty, covenant
or agreement (determined without giving effect to any "Material Adverse
Effect", "materiality" or similar qualifications contained therein) on the part
of the other set forth in this Agreement which breach (other than a breach of
any covenant or agreement set forth in Article I, Section 4.2(e) or Section
5.1(e)) has not been cured within ten calendar days following receipt by the
breaching party of notice of such breach, unless such breach could not,
individually or in the aggregate with other breaches, be reasonably expected to
(A) have a Material Adverse Effect on the Company or (B) materially adversely
affect the ability of the parties hereto to consummate the transactions
contemplated hereby;
(c) by either the Company or Parent, so long as such party is not then in
material breach of its obligations hereunder, if the Merger shall not have been
consummated on or before the 135th calendar day following the consummation of
the Offer; provided, that the right to terminate this Agreement under this
Section 8.1(c) 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 Merger to occur on or before such date;
(d) by Parent in the event that a Trigger Event has occurred under Section
6.4(b) prior to the consummation of the Offer;
(e) by Parent in the event an Acquisition Proposal has been made to the
Company prior to the expiration of the Offer and the Company shall fail to
publicly reaffirm its approval or recommendation of the Offer, the Merger, this
Agreement and the Stockholders Agreement on or before the earlier to occur of
(i) the tenth business day following the date on which such
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Acquisition Proposal shall have been made or (ii) the third business day prior
to the latest possible expiration date of the Offer hereunder;
(f) by either the Company or Parent, if the Offer terminates, is
withdrawn, abandoned or expires by reason of the failure to satisfy any
condition set forth in Exhibit A hereto;
(g) by the Company, if the Offer shall have expired or shall have been
withdrawn, abandoned or terminated without any shares of Company Common Stock
being purchased by Sub thereunder on or prior to the 60th calendar day after
the date of commencement of the Offer pursuant to Section 1.2 hereof;
(h) by the Company, if (i) the Board of Directors of the Company shall
take any of the actions permitted by Section 5.1(e)(ii) of this Agreement and
(ii) the Company shall have paid a termination fee to Parent or Parent's
designee in the amount of $3,000,000; provided, however, that if the excess of
(A) the sum of (1) the average balance of the Company's cash on hand for the
ten day period preceding the date the Company seeks to terminate this Agreement
under this paragraph (h) plus (2) the average available capacity under the
Company Credit Agreement (as defined in Section 5.1(l)) over the ten day period
preceding the date the Company wishes to terminate this Agreement under this
paragraph (h) over (B) $2,000,000 (such excess being referred to hereinafter as
the "Available Cash"), is less than $3,000,000, then in lieu of having paid the
$3,000,000 termination fee, the Company shall have (x) paid the entire amount
of the Available Cash to Parent or Parent's designee and (y) delivered to
Parent a written commitment by the Company (in a form satisfactory to Parent),
unconditionally guaranteed by a financially responsible and reputable entity
(as determined by Parent in its sole discretion), acknowledging the Company's
obligation to pay the difference between the $3,000,000 termination fee and the
amount of Available Cash paid by the Company to Parent or Parent's designee in
connection with the termination of this Agreement (together with interest at
the prime rate accruing from the date on which payment of the termination fee
contemplated by this
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paragraph (h) would have been due and payable) on the earlier of (i) such date
as the Company shall have additional Available Cash sufficient to pay such
difference, (ii) the closing of the tender offer relating to the Acquisition
Proposal with respect to which the Company terminated this Agreement (the
"Competing Offer"), (iii) the expiration of the Competing Offer, or (iv) the
date which is 60 calendar days after the date on which the Offer was commenced;
or
(i) by the Company if Sub shall not have commenced the Offer within 10
business days after the execution and delivery of this Agreement by Parent and
Sub.
8.2 Effect of Termination. In the event of termination of this Agreement
by either the Company or Parent as provided in Section 8.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on
the part of Parent, Sub or the Company or their respective affiliates,
officers, directors or shareholders except (i) with respect to this Section
8.2, the second sentence of Section 6.2, and Section 6.4, and (ii) that no such
termination shall relieve any party from liability for a material breach
hereof. In addition, in the event that this Agreement is validly terminated,
Parent and Sub agree that, immediately following such termination (and, in the
event Parent is entitled to be paid a fee in connection with such termination
pursuant to Section 6.4(b) or Section 8.1(h) hereof, immediately following
receipt by Parent of such fee) Parent and Sub shall terminate the Offer and not
purchase any Shares pursuant to the Offer or otherwise, and Parent further
agrees that following such termination, it shall continue to be bound by all of
the terms and conditions contained in the Confidentiality Agreement dated
December 10, 1996 between Parent and the Company.
8.3 Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of Parent, Sub and the
Company at any time prior to the Effective Date with respect to any of the
terms contained herein; provided, however, that, after the consummation
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of the Offer, no term or condition contained in this Agreement shall be amended
or modified in any manner adverse to the holders of the Company Common Stock
(including, without limitation, by reducing the amount of or changing the form
of the Merger Consideration).
8.4 Extension; Waiver. Subject to Section 1.4(b), at any time prior to
the Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed: (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto; (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto; and
(iii) waive compliance with any of the agreements or conditions contained
herein; provided, however, that, after the consummation of the Offer, no term
or condition contained in this Agreement shall be amended, modified or waived
in any manner adverse to the holders of the Company Common Stock. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party. The failure of any party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the acceptance for payment
of, and the payment for the Shares by Sub in the Offer or the expiration of the
Offer. None of the covenants and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the covenants and agreements contained in Article III, Section
6.6 and Section 6.11 hereof and any other covenant or agreement that
contemplates performance after the Effective Date. The
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<PAGE> 72
Confidentiality Agreement shall survive the execution and delivery of this
Agreement, and the provisions of the Confidentiality Agreement shall apply to
all information and material delivered by any party hereunder.
9.2 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed
to be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder:
(a) if to Parent or Sub, to:
Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
Attn: David Crowley
Telephone: (412) 269-9530
Telecopy: (412) 269-9655
with copies to:
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Attn: Alan B. Menkes
Telephone: (212) 424-1400
Telecopy: (212) 424-1450
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attn: Lawrence D. Stuart, Jr.
Telephone: (214) 740-7300
Telecopy: (214) 740-7313
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<PAGE> 73
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attn: Glenn D. West
Telephone: (214) 746-7738
Telecopy: (214) 746-7777
(b) if to the Company, to:
ERO, Inc.
585 Slawin Court
Mount Prospect, Illinois
Attn: Mark Renfree
Telephone: (847) 803-9200
Telecopy: (847) 803-1971
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: H. Kurt von Moltke
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
9.3 Interpretation. When a reference is made in this Agreement to
Articles or Sections, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The table of contents, glossary of
defined terms and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the word "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". The phrase "made available" in this Agreement shall mean
that the information referred to has been made available if requested by the
party to whom such information is to be made available.
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<PAGE> 74
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.
This Agreement (together with the Confidentiality Agreement, the Stockholders
Agreement and any other documents and instruments referred to herein)
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, except as provided in Section 6.6, is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.
9.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
9.7 Assignment. 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, except that Sub may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder (i) to any newly-formed
direct wholly-owned Subsidiary of Parent or Sub or (ii) in the form of a
collateral assignment to any institutional lender who provides funds to
Purchaser for the consummation of the transactions contemplated hereby.
Subject to the preceding sentence, this Agreement will be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
[Remainder of page intentionally left blank]
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<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
PARENT:
HEDSTROM CORPORATION
By:_____________________________
Name:___________________________
Title:__________________________
SUB:
HC ACQUISITION CORP.
By:_____________________________
Name:___________________________
Title:__________________________
COMPANY:
ERO, INC.
By:_____________________________
Name:___________________________
Title:__________________________
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<PAGE> 76
EXHIBIT A
The capitalized terms used in this Exhibit A shall have the respective
meanings given to such terms in the Agreement and Plan of Merger, dated as of
April 10, 1997 (the "Merger Agreement"), by and among Hedstrom Corporation, a
Delaware corporation ("Parent"), HC Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Parent ("Sub"), and ERO, Inc., a Delaware
corporation (the "Company"), to which this Exhibit A is attached.
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Sub shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered Shares promptly
after expiration or termination of the Offer), to pay for any Shares tendered,
and may postpone the acceptance for payment or, subject to the restriction
referred to above, payment for any Shares tendered, and may amend or terminate
the Offer (whether or not any Shares have theretofore been purchased or paid
for), if (i) there have not been validly tendered and not withdrawn prior to
the time the Offer shall otherwise expire a number of Shares which constitutes
a majority of the Shares outstanding on a fully-diluted basis on the date of
purchase ("on a fully-diluted basis" having the following meaning, as of any
date: the number of Shares outstanding, together with Shares the Company may
be required, now or in the future, to issue pursuant to options, warrants, or
other obligations outstanding at that date); (ii) any applicable waiting
periods under the HSR Act shall not have expired or been terminated prior to
the expiration of the Offer; (iii) the debt financing sources for Parent and
Holdings shall not have provided the applicable debt financing to Parent and
Holdings pursuant to the Financing Commitments; or (iv) at any time on or after
the date of the Merger Agreement and before
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acceptance for payment of, or payment for, such Shares any of the following
events shall have occurred:
(A) there shall be pending, as of the expiration of the Offer or at
any time thereafter, any litigation that seeks to (1) challenge the
acquisition by Parent, Sub or any of their respective affiliates or
Subsidiaries of Shares
pursuant to the Offer or restrain, prohibit or delay the making or
consummation of the Offer or the Merger, (2) make the purchase of or
payment for some or all of the Shares pursuant to the Offer or the Merger
illegal, (3) impose limitations on the ability of Parent, Sub, or any of
their respective affiliates or Subsidiaries effectively to acquire or
hold, or to require Parent, Sub, the Company or any of their respective
affiliates or Subsidiaries to dispose of or hold separate, any material
portion of their assets or business, (4) impose material limitations on
the ability of Parent, Sub, the Company or any of their respective
affiliates or Subsidiaries to continue to conduct, own or operate, as
heretofore conducted, owned or operated, all or any material portion of
their businesses or assets; (5) impose or result in material limitations
on the ability of Parent, Sub or any of their respective affiliates or
Subsidiaries to exercise full rights of ownership of the Shares purchased
by them, including, without limitation, the right to vote the Shares
purchased by them on all matters properly presented to the stockholders
of the Company; or (6) prohibit or restrict in a material manner the
financing of the Offer;
(B) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, any Law, or there shall
have been issued any decree, order or injunction, that results in any of
the consequences referred to in subsection (A) above;
(C) except as set forth on Exhibit D or Schedule 4.1(j) to the
Merger Agreement, any event or events shall have occurred that,
individually or in the aggregate, could
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reasonably be expected to have a Material Adverse Effect on the Company;
(D) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States for a
period in excess of 48 hours, (2) the declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States,
(3) the commencement of a war, armed hostilities or other international
or national calamity, directly or indirectly involving the United States,
(4) any limitations (whether or not mandatory) imposed by any
governmental authority on the nature or extension of credit
or further extension of credit by banks or other lending institutions, or
(5) in the case of clauses (3) and (4) of this paragraph (D), a material
acceleration or worsening thereof;
(E) the representations and warranties of the Company contained in
the Merger Agreement (without giving effect to any "Material Adverse
Effect", "materiality" or similar qualifications contained therein) shall
not be true and correct in all respects as of the date of consummation of
the Offer as though made on and as of such date except (1) for changes
specifically permitted by the Merger Agreement, (2) that those
representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and (3)
for breaches or inaccuracies which, individually or in the aggregate,
could not reasonably be expected to (a) have a Material Adverse Effect on
the Company or (b) materially adversely affect the ability of the parties
hereto to consummate the transactions contemplated hereby;
(F) the obligations of the Company contained in the Merger
Agreement (without giving effect to any "Material Adverse Effect",
"materiality" or similar qualifications contained therein) to be
performed at or prior to the
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consummation of the Offer shall not have been performed or complied with
in all respects by the Company prior to the consummation of the Offer
except for failures to perform or comply which, individually or in the
aggregate, could not reasonably be expected to (a) have a Material Adverse
Effect on the Company or (b) materially adversely affect the ability of
the parties hereto to consummate the transactions contemplated hereby;
(G) the Merger Agreement shall have been terminated in accordance
with its terms;
(H) prior to the purchase of Shares pursuant to the Offer, an
Acquisition Proposal for the Company exists and the Board shall have
withdrawn or materially modified or changed (including by amendment of
the Schedule 14D-9) in a manner adverse to Sub its recommendation of the
Offer, the Merger Agreement or the Merger; or
(I) it shall have been publicly disclosed or Parent or Sub shall
have otherwise learned that any person, entity or "group" (as defined in
Section 13(d)(3) of the Exchange Act, other than Parent or its affiliates
or Subsidiaries, or any group of which any of such persons or entities is
a member, or any party to the Stockholders Agreement, shall have acquired
beneficial ownership (determined pursuant to Rule 13d-3 promulgated under
the Exchange Act) of more than 20% of any class or series of capital stock
of the Company (including, without limitation, the Shares), through the
acquisition of stock, the formation of a group or otherwise, or shall have
been granted an option, right or warrant (conditional or otherwise) to
acquire beneficial ownership of more than 20% of any class or series of
capital stock of the Company (including, without limitation, the Shares).
The foregoing conditions are for the sole benefit of Sub and its
affiliates and may be asserted by Sub regardless of the circumstances
(including, without limitation, any action or inaction by Sub or any of its
affiliates) giving rise to any such
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condition or may be waived by Sub, in whole or in part, from time to time in
its sole discretion, except as otherwise provided in the Agreement. The
failure by Sub 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 and may be asserted at any time and from time to time. Any
determination by Sub concerning any of the events described herein shall be
final and binding.
A-5
<PAGE> 81
EXHIBIT B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TARGET
(A Delaware Corporation)
FIRST: The name of the Corporation is "_________________".
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in
any and all lawful acts and activity for which corporations may be organized
under the General Corporation Law of Delaware. The Corporation will have
perpetual existence.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 1,000 shares, par value $0.01 per share,
designated Common Stock.
FIFTH: Directors of the Corporation need not be elected by written ballot
unless the bylaws of the Corporation otherwise provide.
SIXTH: The directors of the Corporation shall have the power to adopt,
amend, and repeal the bylaws of the Corporation.
SEVENTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the
<PAGE> 82
Corporation as of the time it is authorized, approved, or ratified by the board
of directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the board of directors or of a committee which authorizes the contract or
transaction.
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the General Corporation Law of Delaware, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director or officer who is elected
and accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this
Article Eighth is in effect. Any repeal or amendment of this Article Eighth
shall be prospective only and shall not limit the rights of any such director
or officer or the obligations of the Corporation with respect to any claim
arising from or related to the services of such director or officer in any of
the foregoing capacities prior to any such repeal or amendment to this Article
Eighth. Such right shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the General Corporation Law
of Delaware, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses
of prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under the
General Corporation Law of Delaware, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its board of directors or any committee thereof, independent legal counsel, or
stockholders) to have made its determination prior to the commencement of such
action that indemnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor an actual determination by the
Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) that such indemnification or
advancement is not permissible shall be a defense to the action or create a
presumption that such indemnification or advancement is not permissible. In
the event of the death of any person having a right of indemnification under
the foregoing provisions, such right shall inure to the benefit of his or her
heirs, executors, administrators, and personal representatives. The rights
conferred above shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, bylaw, resolution of stockholders
or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
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As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or amendment of this Article Ninth by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article Ninth, a director shall not be liable to the
Corporation or its stockholders to such further extent as permitted by any law
hereafter enacted, including without limitation any subsequent amendment to the
General Corporation Law of Delaware.
TENTH: The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law of Delaware.
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<PAGE> 84
EXHIBIT C
AMENDED AND RESTATED
BYLAWS
OF
TARGET
A Delaware Corporation
<PAGE> 85
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent 1
1.2 Other Offices 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting 1
2.2 Special Meeting 2
2.3 Place of Meetings 2
2.4 Notice 2
2.5 Voting List 2
2.6 Quorum 3
2.7 Required Vote; Withdrawal of Quorum 3
2.8 Method of Voting; Proxies 3
2.9 Record Date 4
2.10 Conduct of Meeting 5
2.11 Inspectors 5
ARTICLE THREE: DIRECTORS
3.1 Management 6
3.2 Number; Qualification; Election; Term 6
3.3 Change in Number 6
3.4 Removal 6
3.5 Vacancies 7
3.6 Meetings of Directors 7
3.7 First Meeting 7
3.8 Election of Officers 7
3.9 Regular Meetings 7
3.10 Special Meetings 8
3.11 Notice 8
3.12 Quorum; Majority Vote 8
3.13 Procedure 8
3.14 Presumption of Assent 8
3.15 Compensation 9
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<PAGE> 86
ARTICLE FOUR: COMMITTEES
4.1 Designation 9
4.2 Number; Qualification; Term 9
4.3 Authority 9
4.4 Committee Changes 9
4.5 Alternate Members of Committees 9
4.6 Regular Meetings 10
4.7 Special Meetings 10
4.8 Quorum; Majority Vote 10
4.9 Minutes 10
4.10 Compensation 10
4.11 Responsibility 10
ARTICLE FIVE: NOTICE
5.1 Method 11
5.2 Waiver 11
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office 11
6.2 Removal 12
6.3 Vacancies 12
6.4 Authority 12
6.5 Compensation 12
6.6 Chairman of the Board 12
6.7 President 12
6.8 Vice Presidents 12
6.9 Treasurer 13
6.10 Assistant Treasurers 13
6.11 Secretary 13
6.12 Assistant Secretaries 13
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ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares 14
7.2 Replacement of Lost or Destroyed Certificates 14
7.3 Transfer of Shares 14
7.4 Registered Stockholders 14
7.5 Regulations 15
7.6 Legends 15
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends 15
8.2 Reserves 15
8.3 Books and Records 15
8.4 Fiscal Year 15
8.5 Seal 16
8.6 Resignations 16
8.7 Securities of Other Corporations 16
8.8 Telephone Meetings 16
8.9 Action Without a Meeting 16
8.10 Invalid Provisions 17
8.11 Mortgages, etc. 17
8.12 Headings 18
8.13 References 18
8.14 Amendments 18
iii
<PAGE> 88
AMENDED AND RESTATED
BYLAWS
OF
TARGET
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation (as amended to the date hereof, the "Certificate
of Incorporation") of Target, a Delaware corporation (the "Corporation"). In
the event of a direct conflict between the provisions of these bylaws and the
mandatory provisions of the Delaware General Corporation Law or the provisions
of the Certificate of Incorporation of the Corporation, such provisions of the
Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State
of the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of
directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of
<PAGE> 89
notice of such meeting. At such meeting, the stockholders shall elect
directors and transact such other business as may properly be brought before
the meeting.
2.2 Special Meeting. A special meeting of the stockholders may be called
at any time by the Chairman of the Board, the President, the board of
directors, and shall be called by the President or the Secretary at the request
in writing of the stockholders of record of not less than ten percent of all
shares entitled to vote at such meeting or as otherwise provided by the
certificate of incorporation of the Corporation. A special meeting shall be
held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the meeting or in a duly
executed waiver of notice of such meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting or in a duly executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within
or without the State of Delaware designated in the notice of the meeting or a
duly executed waiver of notice of such meeting. Meetings of stockholders shall
be held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time of
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than
ten nor more than 60 days before the date of the meeting, either personally or
by mail, by or at the direction of the President, the Secretary, or the officer
or person(s) calling the meeting, to each stockholder of record entitled to
vote at such meeting. If such notice is to be sent by mail, it shall be
directed to such stockholder at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, in which
case it shall be directed to him at such other address. Notice of any meeting
of stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
2.5 Voting List. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer
appointed by him or through a transfer agent appointed by the board of
directors, shall prepare a complete list of stockholders entitled to vote
thereat, arranged in alphabetical order and showing the address of each
stockholder and number of shares
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registered in the name of each stockholder. For a period of ten days prior to
such meeting, such list shall be kept on file at a place within the city where
the meeting is to be held, which place shall be specified in the notice of
meeting or a duly executed waiver of notice of such meeting or, if not so
specified, at the place where the meeting is to be held and shall be open to
examination by any stockholder during ordinary business hours. Such list shall
be produced at such meeting and kept at the meeting at all times during such
meeting and may be inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares entitled
to vote on a matter, present in person or by proxy, shall constitute a quorum
at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these bylaws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders,
the stockholders entitled to vote thereat who are present, in person or by
proxy, or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other
than announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide
any question brought before such meeting, unless the question is one on which,
by express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each
such proxy shall be filed with the Secretary of the Corporation before or at
the time of the meeting. No proxy shall be valid after
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three years from the date of its execution, unless otherwise provided in the
proxy. If no date is stated in a proxy, such proxy shall be presumed to have
been executed on the date of the meeting at which it is to be voted. Each
proxy shall be revocable unless expressly provided therein to be irrevocable
and coupled with an interest sufficient in law to support an irrevocable power
or unless otherwise made irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion, or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, for any such determination of stockholders,
such date in any case to be not more than 60 days and not less than ten days
prior to such meeting nor more than 60 days prior to any other action. If no
record date is fixed:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by law or these bylaws, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered
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to the Corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered
office in the State of Delaware, principal place of business, or such officer
or agent shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of directors and
prior action by the board of directors is required by law or these bylaws, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
day on which the board of directors adopts the resolution taking such prior
action.
2.10 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders.
The Secretary shall keep the records of each meeting of stockholders. In the
absence or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or
non-acting officer under these bylaws or by some person appointed by the
meeting.
2.11 Inspectors. The board of directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots, or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request, or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as an inspector
of an election of directors. Inspectors need not be stockholders.
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ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of directors which
shall constitute the entire board of directors shall be not less than one. The
first board of directors shall consist of the number of directors named in the
certificate of incorporation of the Corporation or, if no directors are so
named, shall consist of the number of directors elected by the incorporator(s)
at an organizational meeting or by unanimous written consent in lieu thereof.
Thereafter, within the limits above specified, the number of directors which
shall constitute the entire board of directors shall be determined by
resolution of the board of directors or by resolution of the stockholders at
the annual meeting thereof or at a special meeting thereof called for that
purpose. Except as otherwise required by law, the certificate of incorporation
of the Corporation, or these bylaws, the directors shall be elected at an
annual meeting of stockholders at which a quorum is present. Directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote on the election of directors. Each
director so chosen shall hold office until the first annual meeting of
stockholders held after his election and until his successor is elected and
qualified or, if earlier, until his death, resignation, or removal from office.
None of the directors need be a stockholder of the Corporation or a resident
of the State of Delaware. Each director must have attained the age of
majority.
3.3 Change in Number. No decrease in the number of directors constituting
the entire board of directors shall have the effect of shortening the term of
any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these by-laws, at any meeting of
stockholders called expressly for that purpose, any director or the entire
board of directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote on the election of
directors; provided, however, that so long as stockholders have the right to
cumulate votes in the election of directors pursuant to the certificate of
incorporation of the Corporation, if less than the entire board of directors is
to be removed, no one of the directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
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3.5 Vacancies. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by the sole
remaining director, and each director so chosen shall hold office until the
first annual meeting of stockholders held after his election and until his
successor is elected and qualified or, if earlier, until his death,
resignation, or removal from office. If there are no directors in office, an
election of directors may be held in the manner provided by statute. If, at
the time of filling any vacancy or any newly-created directorship, the
directors then in office shall constitute less than a majority of the whole
board of directors (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly-created directorships or to replace
the directors chosen by the directors then in office. Except as otherwise
provided in these bylaws, when one or more directors shall resign from the
board of directors, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have the power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in these bylaws with respect to the filling of
other vacancies.
3.6 Meetings of Directors. The directors may hold their meetings and may
have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.7 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 Election of Officers. At the first meeting of the board of directors
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors shall be
held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall
not be required.
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3.10 Special Meetings. Special meetings of the board of directors shall be
held whenever called by the Chairman of the Board, the President, or any
director.
3.11 Notice. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the
meeting, submit a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors, a
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to
time without further notice. Unless the act of a greater number is required by
law, the certificate of incorporation of the Corporation, or these bylaws, the
act of a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of
the Corporation shall act as the secretary of each meeting of the board of
directors unless the board of directors appoints another person to act as
secretary of the meeting. The board of directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
3.14 Presumption of Assent. A director of the Corporation who is present
at the meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by
certified
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or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
3.15 Compensation. The board of directors shall have the authority to fix
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire
board of directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
board of directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation as
a committee member or as a director, or (iii) his removal as a committee member
or as a director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The board of directors may designate
one or more directors as alternate members of any committee. Any such
alternate member may replace any absent or disqualified member at any meeting
of the committee. If no alternate committee members have been so appointed to
a committee or each such alternate committee member is absent or disqualified,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
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4.6 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least two days before such special meeting. Neither the business to
be transacted at, nor the purpose of, any special meeting of any committee need
be specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a
meeting of any committee, a majority of the members present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present. The act of a majority of the members
present at any meeting at which a quorum is in attendance shall be the act of a
committee, unless the act of a greater number is required by law, the
certificate of incorporation of the Corporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request
of the board of directors. The minutes of the proceedings of each committee
shall be delivered to the Secretary of the Corporation for placement in the
minute books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the delegation
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
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ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of the
Corporation, or these bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may
be given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation,
or (b) by any other method permitted by law (including but not limited to
overnight courier service, telegram, telex, or telefax). Any notice required
or permitted to be given by mail shall be deemed to be delivered and given at
the time when the same is deposited in the United States mail as aforesaid.
Any notice required or permitted to be given by overnight courier service shall
be deemed to be delivered and given at the time delivered to such service with
all charges prepaid and addressed as aforesaid. Any notice required or
permitted to be given by telegram, telex, or telefax shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation shall
be a President, a Secretary, and such other officers as the board of directors
may from time to time elect or appoint, including a Chairman of the Board, one
or more Vice Presidents (with each Vice President to have such descriptive
title, if any, as the board of directors shall determine), and a Treasurer.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified, until his death, or until he shall resign or shall
have been removed in the manner hereinafter provided. Any two or more offices
may be held by the same person. None of the officers need be a stockholder or
a director of the Corporation or a resident of the State of Delaware.
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6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall
be fixed from time to time by the board of directors; provided, however, that
the board of directors may delegate the power to determine the compensation of
any officer and agent (other than the officer to whom such power is delegated)
to the Chairman of the Board or the President.
6.6 Chairman of the Board. The Chairman of the Board, if elected by the
board of directors, shall have such powers and duties as may be prescribed by
the board of directors. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 President. The President shall be the chief executive officer of the
Corporation and, subject to the board of directors, he shall have general
executive charge, management, and control of the properties and operations of
the Corporation in the ordinary course of its business, with all such powers
with respect to such properties and operations as may be reasonably incident to
such responsibilities. If the board of directors has not elected a Chairman of
the Board or in the absence or inability to act of the Chairman of the Board,
the President shall exercise all of the powers and discharge all of the duties
of the Chairman of the Board. As between the Corporation and third parties,
any action taken by the President in the performance of the duties of the
Chairman of the Board shall be conclusive evidence that there is no Chairman of
the Board or that the Chairman of the Board is absent or unable to act.
6.8 Vice Presidents. Each Vice President shall have such powers and
duties as may be assigned to him by the board of directors, the Chairman of the
Board, or the President, and (in order of their seniority as determined by the
board of directors or, in the absence of such determination, as determined by
the length of time they have held the office of Vice President) shall exercise
the powers of the President during that officer's absence or inability to act.
As
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between the Corporation and third parties, any action taken by a Vice President
in the performance of the duties of the President shall be conclusive evidence
of the absence or inability to act of the President at the time such action was
taken.
6.9 Treasurer. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as
may be prescribed by the board of directors, the Chairman of the Board, or the
President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have such powers
and duties as may be assigned to him by the board of directors, the Chairman of
the Board, or the President. The Assistant Treasurers (in the order of their
seniority as determined by the board of directors or, in the absence of such a
determination, as determined by the length of time they have held the office of
Assistant Treasurer) shall exercise the powers of the Treasurer during that
officer's absence or inability to act.
6.11 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with
the Chairman of the Board or the President all certificates for shares of stock
of the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which
shall at all reasonable times be open to inspection by any director upon
application at the office of the Corporation during business hours. He shall
in general perform all duties incident to the office of the Secretary, subject
to the control of the board of directors, the Chairman of the Board, and the
President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
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ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or
the President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all
signatures on the certificate may be a facsimile and may be sealed with the
seal of the Corporation or a facsimile thereof. If any officer, transfer
agent, or registrar who has signed, or whose facsimile signature has been
placed upon, a certificate has ceased to be such officer, transfer agent, or
registrar before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue. The certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of directors
may direct a new certificate or certificates to be issued in place of a
certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond with a
surety or sureties satisfactory to the Corporation in such sum as it may direct
as indemnity against any claim, or expense resulting from a claim, that may be
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
<PAGE> 102
7.5 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and authority to
provide that certificates representing shares of stock bear such legends as the
board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and
payment shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out of funds
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide
for contingencies, to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify
or abolish any such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall be the calendar year.
8.5 Seal. The seal of the Corporation shall be such as from time to time
may be approved by the board of directors.
<PAGE> 103
8.6 Resignations. Any director, committee member, or officer may resign
by so stating at any meeting of the board of directors or by giving written
notice to the board of directors, the Chairman of the Board, the President, or
the Secretary. Such resignation shall take effect at the time specified
therein or, if no time is specified therein, immediately upon its receipt.
Unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy,
or consent with respect to any such securities.
8.8 Telephone Meetings. Stockholders (acting for themselves or through a
proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting
of the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which the holders of all shares entitled to vote thereon were present and
voted and shall be delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in
the manner required by this Section 8.9(a) to the Corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent
<PAGE> 104
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office, principal place of business, or such officer or agent shall be by hand
or by certified or registered mail, return receipt requested.
(b) Unless otherwise restricted by the certificate of incorporation of the
Corporation or by these bylaws, any action required or permitted to be taken at
a meeting of the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by all the directors or all
the committee members, as the case may be, entitled to vote with respect to the
subject matter thereof, and such consent shall have the same force and effect
as a vote of such directors or committee members, as the case may be, and may
be stated as such in any certificate or document filed with the Secretary of
State of the State of Delaware or in any certificate delivered to any person.
Such consent or consents shall be filed with the minutes of proceedings of the
board or committee, as the case may be.
8.10 Invalid Provisions. If any part of these bylaws shall be held invalid
or inoperative for any reason, the remaining parts, so far as it is possible
and reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust, mortgage, or
other instrument executed by the Corporation through its duly authorized
officer or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
8.12 Headings. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments. These bylaws may be altered, amended, or repealed or new
bylaws may be adopted by the stockholders or by the board of directors at any
regular meeting of the stockholders or the board of directors or at any special
meeting of the stockholders or the board of directors if notice of such
alteration, amendment, repeal, or adoption of new bylaws be contained in the
notice of such special meeting.
<PAGE> 105
The undersigned, the Secretary of the Corporation, hereby certifies that
the foregoing bylaws were adopted by the stockholders of the Corporation as of
__________, 1997.
______________________________
______________, Secretary
<PAGE> 1
EXHIBIT 2
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT, dated as of April 10, 1997, is made and
entered into by Hedstrom Corporation, a Delaware corporation ("Parent"), HC
Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary
of Parent ("Sub"), and Golder, Thoma, Cressey Fund III Limited Partnership (the
"Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Parent, Sub and ERO, Inc., a Delaware
corporation (the "Company"), are entering into an Agreement and Plan of Merger
(as such agreement may hereafter be amended from time to time, the "Merger
Agreement"; capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Merger Agreement), pursuant to which Sub will
be merged with and into the Company (the "Merger");
WHEREAS, in furtherance of the Merger, Parent and the Company desire that,
as soon as practicable (and not later than five business days) after the
execution and delivery of the Merger Agreement, Sub commence a cash tender
offer to purchase any and all outstanding shares of Company Common Stock (as
defined in Section 1), including all of the Shares (as defined in Section 2)
owned beneficially by the Stockholder; and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholder agree, and the Stockholder
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
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1. Definitions. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of
the same securities by the same holder, securities Beneficially Owned by a
Person shall include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "group" as within the meanings of Section
13(d)(3) of the Exchange Act.
(b) "Company Common Stock" shall mean at any time the common stock, $.01
par value, of the Company.
(c) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
2. Tender of Shares.
(a) The Stockholder hereby agrees to validly tender (and not to withdraw)
pursuant to and in accordance with the terms of the Offer, not later than the
fifth business day after commencement of the Offer pursuant to Section 1.1 of
the Merger Agreement and Rule 14d-2 under the Exchange Act, the number of
shares of Company Common Stock set forth opposite the Stockholder's name on
Schedule I hereto (the "Existing Shares", and together with any shares of
Company Common Stock acquired by the Stockholder after the date hereof and
prior to the termination of this Agreement whether upon the exercise of
options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution or
otherwise, the "Shares"), Beneficially Owned by him or it. The Stockholder
shall satisfy its obligations hereunder to the extent that it tenders or causes
to be tendered Shares which it Beneficially Owns and over which it has the
legal and unconditional right to dispose of. The
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<PAGE> 3
Stockholder hereby acknowledges and agrees that Sub's obligation to accept for
payment and pay for Shares in the Offer, including the Shares Beneficially
Owned by the Stockholder, is subject to the terms and conditions of the Offer.
(b) The Stockholder hereby agrees to permit Parent and Sub to publish and
disclose in the Offer Documents and, if Company Stockholder Approval is
required under applicable law, the Proxy Statement (including all documents and
schedules filed with the SEC) his or its identity and ownership of Company
Common Stock and the nature of his or its commitments, arrangements and
understandings under this Agreement.
3. Provisions Concerning Company Common Stock.
(a) The Stockholder hereby agrees that during the period commencing on the
date hereof and continuing until the first to occur of the Effective Time, the
termination of this Agreement or termination of the Merger Agreement in
accordance with its terms, at any meeting of the holders of Company Common
Stock, however called, the Stockholder shall vote (or cause to be voted) the
Shares held of record or Beneficially Owned by the Stockholder, whether issued,
heretofore owned or hereafter acquired, (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
of the terms thereof and each of the other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance thereof
and hereof; (ii) against any action or agreement that would result in a breach
in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or this
Agreement; and (iii) except as otherwise agreed to in writing in advance by
Parent, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or its Subsidiaries; (B) a sale, lease or
transfer of a material amount of assets of the Company or its Subsidiaries, or
a reorganization, recapitalization, dissolution or liquidation of the Company
or its Subsidiaries; (C) (1) any change in a
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majority of the persons who constitute the board of directors of the Company;
(2) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (3) any other material
change in the Company's corporate structure or business; or (4) any other
action which, in the case of each of the matters referred to in clauses C (1),
(2), (3) or (4), is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, or materially adversely affect the Merger and
the transactions contemplated by this Agreement and the Merger Agreement, and
during such period the Stockholder shall not enter into any agreement or
understanding with any person or entity the effect of which would be
inconsistent or violative of the provisions and agreements contained in this
Section 3.
(b) The Stockholder hereby grants to Parent a proxy to vote the Shares of
the Stockholder as indicated in Section 3(a). The Stockholder intends such
proxy to be irrevocable and coupled with an interest and will take such further
action or execute such other instruments as may be necessary to effectuate the
intent of this proxy and hereby revokes any proxy previously granted by the
Stockholder with respect to such Shares.
4. Other Covenants, Representations and Warranties. (A) The Stockholder
hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. The Stockholder is either (i) the record and
Beneficial Owner of, or (ii) the Beneficial Owner but not the record holder of,
the number of Shares set forth opposite the Stockholder's name on Schedule I
hereto. On the date hereof, except for such Shares that may be deemed to be
Beneficially Owned by the Stockholder as a result of that certain Voting
Agreement, dated as of July 15, 1988, by and among the Company, the Stockholder
and the other parties thereto, as amended, the Existing Shares set forth
opposite the Stockholder's name on Schedule I hereto constitute all of the
Shares owned of record or Beneficially Owned by the Stockholder. The
Stockholder has sole voting power and sole power to issue instructions with
respect to the matters set forth in Sections 2 and 3 hereof, sole
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<PAGE> 5
power of disposition, 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 the Existing Shares set forth
opposite the Stockholder's name on Schedule I hereto, with no material
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. The Stockholder has the legal capacity,
power and authority to enter into and perform all of the Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by the Stockholder will not violate any other agreement to which
the Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement or voting trust. This Agreement has been duly and
validly executed and delivered by the Stockholder and constitutes a valid and
binding agreement of the Stockholder, enforceable against the Stockholder in
accordance with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which the Stockholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by the Stockholder of the transactions contemplated hereby.
(c) No Conflicts. Except for filings under the HSR Act, if applicable,
and the filings required under the Merger Areement (A) no filing with, and no
permit, authorization, consent or approval of, any state or federal public body
or authority is necessary for the execution of this Agreement by the
Stockholder and the consummation by the Stockholder of the transactions
contemplated hereby, except where the failure to obtain such consent, permit,
authorization, approval or filing would not interfere with the Stockholder's
ability to perform its obligations hereunder, and (B) none of the execution and
delivery of this Agreement by the Stockholder, the consummation by the
Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall (1) conflict with or result
in any breach of any applicable organizational documents applicable to the
Stockholder, (2) result in a violation or breach of, or constitute (with or
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<PAGE> 6
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to which
the Stockholder is a party or by which such Stockholder or any of the
Stockholder's properties or assets may be bound, or (3) violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to the Stockholder or any of the Stockholder's properties or assets,
in each such case except to the extent that any conflict, breach, default or
violation would not interfere with the ability of the Stockholder to perform
its obligations hereunder.
(d) No Encumbrances. Except as required by Section 2 and for the proxy
granted under Section 3(b), the Stockholder's Shares and the certificates
representing such Shares are now, and at all times during the term hereof will
be, held by the Stockholder, or by a nominee or custodian for the benefit of
the Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever.
(e) No Solicitation. The Stockholder shall, in its capacity as such,
comply with the terms of Section 5.1(e) of the Merger Agreement.
(f) Restriction on Transfer, Proxies and Non-Interference. Except as
required by Section 2 or Section 3(b), at any time during the period beginning
on the date hereof and ending upon the earlier to occur of the Effective Time
or the termination of this Agreement, the Stockholder shall not, directly or
indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other disposition
of, any or all of the Stockholder's Shares or any interest therein; (ii) grant
any proxies or powers of attorney,
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<PAGE> 7
deposit any Shares into a voting trust or enter into a voting agreement with
respect to any Shares; or (iii) take any action that could reasonably be
expected to have the effect of preventing or disabling the Stockholder from
performing the Stockholder's obligations under this Agreement.
(g) Waiver of Appraisal Rights. The Stockholder hereby waives any rights
of appraisal or rights to dissent from the Merger that the Stockholder may
have.
(h) Reliance by Parent. The Stockholder understands and acknowledges that
Parent is entering into, and causing Sub to enter into, the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
(i) Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
(B) Parent and Sub hereby represent and warrant to Stockholder as follows:
(a) Power; Binding Agreement. Each of Parent and Sub has the legal
capacity, power and authority to enter into and perform all of its obligations
under this Agreement and the Merger Agreement. The execution, delivery and
performance of this Agreement and the Merger Agreement by Parent and Sub will
not violate any other agreement to which Parent or Sub is a party. This
Agreement and the Merger Agreement has been duly and validly executed and
delivered by each of Parent and Sub and constitutes a valid and binding
agreement of Parent and Sub enforceable against each of them in accordance with
its terms.
(b) No Conflicts. Except for filings under the HSR Act, if applicable,
and the filings required under the Merger Areement (A) no filing with, and no
permit, authorization, consent or approval of, any state or federal public body
or
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<PAGE> 8
authority is necessary for the execution of this Agreement and the Merger
Agreement by Parent or Sub and the consummation by Parent or Sub of the
transactions contemplated hereby, except where the failure to obtain such
consent, permit, authorization, approval or filing would not interfere with
Parent or Sub's ability to perform its obligations hereunder, and (B) none of
the execution and delivery of this Agreement and the Merger Agreement by Parent
or Sub, the consummation by Parent or Sub of the transactions contemplated
hereby or compliance by Parent or Sub with any of the provisions hereof shall
(1) conflict with or result in any breach of any applicable organizational
documents applicable to Parent or Sub, (2) result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which Parent or Sub is a party or by which Parent or Sub or any of
Parent's or Sub's properties or assets may be bound, or (3) violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to Parent or Sub or any of its properties or assets, in each such
case except to the extent that any conflict, breach, default or violation would
not interfere with the ability of Parent or Sub to perform its obligations
hereunder.
(c) Financing. Parent and Sub have delivered to the Company a true and
complete copy of (i) a letter of commitment obtained by Parent from Credit
Suisse First Boston to provide debt financing for the transactions contemplated
hereby pursuant to a senior credit facility; (ii) a letter of commitment
obtained by Parent from Credit Suisse First Boston with respect to senior
subordinated debt financing for the transactions contemplated hereby pursuant
to the sale by Parent of senior subordinated notes; (iii) a letter of
commitment obtained by Hedstrom Holdings, Inc., the sole stockholder of Parent
("Holdings"), from Credit Suisse First Boston with respect to senior debt
financing for the transactions contemplated hereby pursuant to the sale by
Holdings of senior notes; and (iv) from Hicks Muse Equity Fund
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II, L.P. to provide certain equity financing pursuant to the sale by Holdings
of shares of its common stock (collectively, the "Financing Commitments").
Assuming that the financing contemplated by the Financing Commitments is
consummated in accordance with the terms thereof, the funds to be borrowed
and/or provided thereunder by Parent and Holdings will provide sufficient funds
to pay the Offer Consideration, the Merger Consideration and all related fees
and expenses. As of the date of this Agreement, Parent is not aware of any
facts or circumstances that create a reasonable basis for Parent to believe
that Parent and Holdings will not be able to obtain financing in accordance
with the terms of the Financing Commitments.
5. Stop Transfer. The Stockholder agrees with, and covenants to, Parent
that, except with respect to the tender of the Stockholder's Shares into the
Offer, the Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Stockholder's Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
In the event of a stock dividend or distribution, or any change in the Company
Common Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or the like, the term "Shares" shall be deemed
to refer to and include the Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all of the Shares
may be changed or exchanged.
6. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
termination of the Merger Agreement in accordance with its terms by Parent or
the Company. Notwithstanding anything contained herein to the contrary, the
Stockholder shall have the absolute right, exercisable in its sole discretion,
to terminate this Agreement if the Merger Agreement is amended in any respect
in a manner that is adverse to the Stockholder or if the Offer is terminated,
withdrawn,
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abandoned, expires or is modified in any manner that is adverse to the
Stockholder.
7. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. The Stockholder
signs solely in his or her capacity as the record and beneficial owner of, or
the trustee of a trust whose beneficiaries are the beneficial owners of, the
Stockholder's Shares.
8. Confidentiality. The Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be
dependent upon confidentiality with respect to the matters referred to herein.
In this connection, pending public disclosure thereof, the Stockholder hereby
agrees not to disclose or discuss such matters with anyone not a party to this
Agreement (other than the Stockholder's counsel and advisors, if any) without
the prior written consent of Parent, except for filings required pursuant to
the Exchange Act and the rules and regulations thereunder or disclosures the
Stockholder's counsel advises are necessary in order to fulfill the
Stockholder's obligations imposed by law, in which event the Stockholder shall
give notice of such disclosure to Parent as promptly as practicable so as to
enable Parent to seek a protective order from a court of competent jurisdiction
with respect thereto.
9. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
(b) Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
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without limitation, the Stockholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall
remain liable for the performance of all obligations under this Agreement of
the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto;
provided that Schedule I hereto may be supplemented by Parent by adding the
name and other relevant information concerning any stockholder of the Company
who agrees to be bound by the terms of this Agreement without the agreement of
any other party hereto, and thereafter such added stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram,
telex or telecopy, or by mail (registered or certified mail, postage prepaid,
return receipt requested) or by any courier service, such as Federal Express,
providing proof of delivery. All communications hereunder shall be delivered
to the respective parties at the following addresses:
If to Stockholder: At the addresses set forth on Schedule I hereto
If to Parent: Hedstrom Corporation
300 Corporate Center Drive, Suite 110
Coraopolis, Pennsylvania 15108
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Telecopy: (412) 269-9655
Attn: David Crowley
copies to: Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Telecopy: (214) 740-7313
Attention: Lawrence D. Stuart, Jr.
Hicks, Muse, Tate & Furst Incorporated
1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Telecopy: (212) 424-1450
Attn: Alan B. Menkes
Weil, Gotshal & Manges
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Telecopy: (214) 746-7777
Attention: Glenn D. West
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) 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 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.
12
<PAGE> 13
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy or
to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
(l) Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising
13
<PAGE> 14
in connection with this Agreement, and agrees that any such action, suit or
proceeding shall be brought only in such court (and waives any objection
based on forum non conveniens or any other objection to venue therein);
provided, however, that such consent to jurisdiction is solely for the purpose
referred to in this paragraph (l) and shall not be deemed to be a general
submission to the jurisdiction of said Court or in the State of Delaware other
than for such purposes. Each party hereto hereby waives any right to a trial
by jury in connection with any such action, suit or proceeding.
(m) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
(o) Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the acceptance
for payment of, and the payment for the Shares by Sub in the Offer or the
expiration of the Offer.
14
<PAGE> 15
IN WITNESS WHEREOF, Parent and the Stockholder have caused this Agreement
to be duly executed as of the day and year first above written.
HEDSTROM CORPORATION
By:_______________________________
HC ACQUISITION CORP.
BY:_______________________________
STOCKHOLDER:
GOLDER, THOMA, CRESSEY FUND III
LIMITED PARTNERSHIP
By: GOLDER, THOMA, CRESSEY &
RAUNER, L.P., its General
Partner
By: _______________________
Name:
Title: General Partner
AGREED TO AND ACKNOWLEDGED
(with respect to Section 5):
ERO, INC.
15
<PAGE> 16
By: __________________________
Name:
Title:
16
<PAGE> 17
SCHEDULE 1 TO
STOCKHOLDERS AGREEMENT
Name and Address of Stockholder Number of Shares
Owned
1. Golder, Thoma, Cressey 3,940,000
Fund III Limited Partnership
c/o Golder, Thoma, Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, Illinois 60606
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: H. Kurt von Moltke
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
17
<PAGE> 1
EXHIBIT 3
ERO, INC.
585 SLAWIN COURT
MOUNT PROSPECT, ILLINOIS 60056
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF
THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about April 17, 1997 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of ERO, Inc., a Delaware corporation (the "Company"), to
holders of record of shares of Common Stock, par value $.01 per share, of the
Company (the "Shares") at the close of business on or about April 11, 1997. You
are receiving this Information Statement in connection with the possible
election or appointment of persons designated by HC Acquisition Corp., a
Delaware corporation (the "Purchaser"), to a majority of the seats on the Board
of Directors of the Company.
On April 10, 1997, the Company, the Purchaser and Hedstrom Corporation, a
Delaware corporation (the "Parent"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") in accordance with the terms and subject to the
conditions of which (i) the Parent will cause the Purchaser to commence a tender
offer (the "Offer") for all outstanding Shares at a price of $11.25 per Share,
net to the seller in cash, and (ii) the Purchaser will be merged with and into
the Company (the "Merger"). As a result of the Offer and the Merger, the Company
will become a wholly owned subsidiary of the Parent.
The Merger Agreement requires the Company to use all reasonable efforts to
cause the Purchaser's designees to be elected or appointed to the Board of
Directors of the Company under the circumstances described therein. This
Information Statement is required by Section 14(f) of the Securities Exchange
Act of 1934, as amended, and Rule 14f-1 promulgated thereunder. See "RIGHT TO
DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with the matters herein
discussed. Capitalized terms used herein and not otherwise defined herein have
the meanings set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
April 17, 1997. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on June 2, 1997, unless the Offer is extended.
The information contained in this Information Statement concerning the
Parent, the Purchaser and the Purchaser's designees for the Company's Board of
Directors (the "Purchaser Designees") has been furnished to the Company by the
Parent and the Purchaser, and the Company assumes no responsibility for the
accuracy or completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement, promptly following the purchase by and
payment for Shares by the Purchaser pursuant to the terms, and subject to the
conditions of the Offer, the Purchaser will be entitled to designate such number
of directors as will give the Purchaser representation on the Board of Directors
of the Company equal to the product of (x) the number of directors on the Board
(giving effect to any increase in the number of directors pursuant to the Merger
Agreement) and (y) the percentage that such number of shares so purchased bears
to the aggregate number of shares outstanding. The Merger Agreement requires
that the Company will, upon request by and at the option of the Parent, either
increase the size of the Board of Directors and/or secure the resignation of
current directors to enable the Purchaser Designees to be elected or appointed
to the Board of Directors and to constitute a majority of the Company's Board of
Directors. The
I-1
<PAGE> 2
Board of Directors of the Company currently consists of six members. The Board
of Directors of the Company expects that several directors will resign from the
Board following the consummation of the Offer or, if necessary, the Board will
increase the size of the Board by resolutions to satisfy this requirement. The
Purchaser Designees may assume office at any time following the purchase by the
Purchaser of Shares pursuant to the terms, and subject to the conditions of the
Offer, which purchase cannot be earlier than June 2, 1997.
None of the Purchaser Designees (a) is currently a director of, or holds
any position with, the Company, (b) has a familial relationship with any of the
directors or executive officers of the Company or (c) to the best knowledge of
the Purchaser, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by the Purchaser that,
to the best of the Purchaser's knowledge, none of the Purchaser Designees has
been involved in any transactions with the Company or any of its directors,
executive officers or affiliates which are 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.
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the Purchaser's directors and executive officers listed below.
The Purchaser has informed the Company that each of the Purchaser Designees has
consented to act as a director, if so designated. The names of the Purchaser
Designees, their ages as of April 16, 1997, and certain other information about
them are set forth below. All of the Purchaser Designees are executive officers
and directors of the Purchaser and the business address of each such executive
officer and director is 300 Corporate Center Drive, Suite 100, Coraopolis,
Pennsylvania 15108. Unless otherwise indicated below, each occupation set forth
opposite an individual's name refers to employment with the Parent.
<TABLE>
<CAPTION>
NAME OF THE PURCHASER DESIGNEE AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
------------------------------ --- -----------------------------------------------
<S> <C> <C>
John R. Muse...................... (45) Chairman of the Board, Parent (1995-present); Managing
Director and Principal, Hicks Muse (1989-present)
Arnold E. Ditri................... (60) Director and President, Parent (1995-present); Chairman
of Board, Parent (1991-1995)
Robert H. Elman................... (57) Director, Parent (1995-present); Chairman of the Board,
DESA International, Inc. (1985-present)
Alan B. Menkes.................... (37) Director and Vice President, Parent (1995-present);
Managing Director and Principal, Hicks Muse (April
1996-present); The Carlyle Group (1988-1992)
</TABLE>
DIRECTORS OF THE COMPANY
The Board of Directors is currently comprised of six directors divided into
three classes. The term of each class expires in different years.
The following sets forth information as to each director, including age, as
of April 17, 1997, principal occupation and employment during the past five
years, directorships in other publicly held companies, membership on committees
of the Board of Directors and period of service as a director of the
Corporation.
D. Richard Ryan, Jr., 57, joined the Corporation in 1993, was elected to
the Board of Directors in 1994 and currently serves as Chairman, President and
Chief Executive Officer. Prior to joining the Corporation, Mr. Ryan was
President and Chief Executive Officer of Dansk International Designs, Ltd. from
November of 1985 through August of 1991, President and Chief Executive Officer
of Marley Holdings, Inc. from 1981 through 1985 and President of General
Housewares Corp.'s Cookware Group from 1974 through 1981.
Robert J. Lipsig, 54, has served as a director of the Corporation since
1988 and was Chairman from 1992 through April of 1994. Mr. Lipsig has been a
Principal of Core Financial Corporation, a private investment and business
development firm, since April of 1994. Mr. Lipsig joined the Corporation as
Senior Vice President in 1978 and served as the Corporation's President from
1985 through October of 1993. Mr. Lipsig is also a director of Elek-Tek, Inc.
Mr. Lipsig also serves on the Corporation's Compensation Committee.
Arthur S. Nicholas, 67, has served as a director of the Corporation since
1988. Mr. Nicholas served as President of Nicholas, Feder & Jaffe, an investment
firm, from 1987 to 1992 and is currently President of The Antech Group, a
private investment and business development firm. Mr. Nicholas also serves on
the Corporation's Audit and Compensation Committees.
I-2
<PAGE> 3
Thomas M. Gasner, 51, joined the Corporation in 1981 and currently serves
as Executive Vice President of Operations where his responsibilities include
production, inventory control and purchasing. Mr. Gasner has been a member of
the Board of Directors since 1988.
Bruce V. Rauner, 41, has served as a director of the Corporation since
1988. Mr. Rauner has been a Principal of Golder, Thoma, Cressey, Rauner, Inc.,
an investment firm, since 1984. Mr. Rauner is also a general partner of Golder,
Thoma, Cressey & Rauner, L.P., which is the general partner of GTC Fund III, the
Corporation's largest stockholder. Mr. Rauner is also a director of CORE Staff,
Inc., Coinmach Laundry Corporation, Polymer Group, Inc. and Lason Systems, Inc.,
Mr. Rauner also serves on the Corporation's Compensation and Audit Committees.
Lee M. Mitchell, 54, has served as a director of the Corporation since
October of 1996. Mr. Mitchell has been a principal of Golder, Thoma, Cressey,
Rauner, Inc., an investment firm, since May of 1994. From May of 1992 through
May of 1994, Mr. Mitchell served as a director of numerous corporations. Mr.
Mitchell was President and Chief Executive Officer of The Field Corporation
until May of 1992. Mr. Mitchell is also a director of American Medserve Corp.,
Washington National Corporation and Paging Network, Inc.
There are no family relationships among the foregoing persons.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held five meetings (exclusive of committee meetings)
during the preceding fiscal year. The Board of Directors has established the
following committees, the functions and current members of which are noted
below. Each current director, except Mr. Rauner who did not attend two meetings
and Mr. Mitchell who was not appointed to the Board of Directors until October
17, 1996, attended 75% or more of the number of meetings held during the
preceding fiscal year of the Board of Directors and any committees on which such
director served.
Compensation Committee. The Compensation Committee of the Board of
Directors consists of Messrs. Lipsig, Nicholas and Rauner. The Compensation
Committee reviews and makes recommendations to the Board of Directors regarding
salaries, compensation and benefits of executive officers and key employees of
the Corporation and grants options to purchase Common Stock of the Corporation.
The Compensation Committee met twice during the preceding fiscal year.
Audit Committee. The Audit Committee of the Board of Directors consists of
Messrs. Nicholas and Rauner. The Audit Committee, among other duties, reviews
the internal and external financial reporting of the Corporation, reviews the
scope of the independent audit and considers comments by the auditors regarding
internal controls and accounting procedures and management's response to those
comments. The Audit Committee met once during the preceding fiscal year.
The Corporation does not have a nominating committee.
COMPENSATION OF DIRECTORS
Management directors are not entitled to receive any fees for their service
on the Board of Directors. Nonmanagement directors are eligible to receive
grants of options to purchase shares of Common Stock pursuant to the
Corporation's 1992 Directors' Stock Option Plan and are also reimbursed for
out-of-pocket expenses incurred in connection with attending meetings. In
addition, all non-management directors received $1,000 per meeting attended for
service on the Board of Directors during 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Corporation's officers, directors and persons who
beneficially own more than ten percent of a registered class of the
Corporation's equity securities to file reports of securities ownership and
changes in such ownership with the Securities and Exchange Commission (the
"SEC"). Officers, directors and greater than ten-percent beneficial owners also
are required by rules promulgated by the SEC to furnish the Corporation with
copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Corporation, or written representations that no Form 5 filings were required,
the Corporation believes that during the period from
I-3
<PAGE> 4
January 1, 1996 through December 31, 1996 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with except that Barry J. Ryan, President of ERO
Industries, Inc., filed two Form 4s late.
SECURITY OWNERSHIP
The following information with respect to the outstanding shares of Common
Stock beneficially owned by each director and nominee for director of the
Corporation, the chief executive officer and the four other most highly
compensated executive officers, all beneficial owners of more than five percent
of the Common Stock known by the Corporation and the directors and executive
officers as a group is furnished as of March 3, 1997, except as described below.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
NUMBER OF PERCENT
NAME SHARES(1) OF CLASS(2)
---- --------- -----------
<S> <C> <C>
GTC Fund III(3,4)........................................... 3,940,000 38.4%
D. Richard Ryan, Jr.(5)..................................... 180,000 1.8
Barry J. Ryan(5)............................................ 10,000 *
Richard F. Schaub, Jr.(5)................................... 1,000 *
Kenneth E. Litvack(5)....................................... 3,000 *
Amos Sochaczevski(5)........................................ -- --
Bruce V. Rauner(4,6)........................................ 3,968,337 38.7
Thomas M. Gasner(4,5)....................................... 283,500 2.8
Robert J. Lipsig(4,5)....................................... 202,100 2.0
Arthur S. Nicholas(4,5)..................................... 38,670 *
Lee M. Mitchell(7).......................................... -- --
T. Rowe Price Associates, Inc.(8)........................... 1,223,800 11.9
Putnam Investments, Inc.(9)................................. 765,100 7.5
Heartland Advisors Inc.(10)................................. 541,500 5.3
All directors and executive officers as a group (11
persons)(11).............................................. 4,686,607 45.7
</TABLE>
- -------------------------
(1) Each holder has sole voting and investment power with respect to the shares
listed unless otherwise indicated.
(2) Percentages less than one percent are denoted by an asterisk.
(3) All such shares are held by GTC Fund III, of which Golder, Thoma, Cressey &
Rauner, L.P., is the general partner. The address for GTC Fund III is c/o
Golder, Thoma, Cressey, Rauner, Inc., 6100 Sears Tower, Chicago, Illinois
60606-6402.
(4) All of these parties have entered into an agreement providing for the
election of directors. Each such party disclaims beneficial ownership of
the shares of Common Stock owned by each other party.
(5) The address for these individuals is c/o ERO, Inc., 585 Slawin Court, Mount
Prospect, Illinois 60056.
(6) Includes 3,940,000 shares held by GTC Fund III, of which Golder, Thoma,
Cressey & Rauner, L.P. is the general partner. Mr. Rauner is a general
partner of Golder, Thoma, Cressey & Rauner, L.P., but disclaims beneficial
ownership of such shares. The address for Mr. Rauner is c/o Golder, Thoma,
Cressey, Rauner, Inc., 6100 Sears Tower, Chicago, Illinois 60606-6-402.
(7) The address for Mr. Mitchell is c/o Golder, Thoma, Cressey, Rauner, Inc.,
6100 Sears Tower, Chicago, Illinois 60606-6402.
(8) The information set forth herein is based solely on a Form 13G filed by
such entity for the year ended December 31, 1996. The address for such
entity, as so reported, was 100 E. Pratt Street, Baltimore, MD 21202.
(9) The information set forth herein is based solely on a Form 13G filed by
such entity for the year ended December 31, 1996. The address for such
entity, as so reported, was One Post Office Square, Boston, MA 02109.
(10) The information set forth herein is based solely on a Form 13G filed by
such entity for the year ended December 31, 1996. The address for such
entity, as so reported, was 790 N. Milwaukee St., Milwaukee, WI 53202.
(11) Includes shares held by GTC Fund III.
I-4
<PAGE> 5
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table specifies the components of the
Corporation's chief executive officer and four other most highly compensated
executive officers (the "named executive officers") compensation packages for
the years ended December 31, 1996, December 31, 1995 and December 31, 1994. The
Corporation does not maintain any long-term compensation plans.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- -------------------------------- ALL OTHER
SALARY BONUS STOCK RESTRICTED STOCK COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) OPTIONS(#)(3) AWARDS($) ($)(4)
--------------------------- ---- ------ ------ ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
D. Richard Ryan, Jr. ............. 1996 $250,000 -- -- -- 1,350
(Chairman, President and 1995 250,000 25,000 -- -- 1,350
Chief Executive Officer) 1994 247,763 375,000 -- -- 110,044
Barry J. Ryan(5).................. 1996 116,242 16,000 125,000 -- 99,207
(President of ERO Industries,
Inc.) 1995 -- -- -- -- --
1994 -- -- -- -- --
Richard F. Schaub, Jr.(6)......... 1996 120,000 62,500 -- -- 93
(President of Priss Prints, Inc.) 1995 120,000 -- 12,500 -- 6,741
1994 25,384 35,000 30,000 -- 20
Kenneth E. Litvack(7)............. 1996 140,000 -- -- -- 810
(President of Impact, Inc.) 1995 143,860 -- 7,500 -- 807
1994 129,051 227,000 40,000 -- 388
Amos Sochaczevski(8).............. 1996 147,000 -- 30,000 -- --
(President of Amav 1995 37,000 -- -- -- --
Industries, Inc.) 1994 -- -- -- -- --
</TABLE>
- -------------------------
(1) Includes the following amounts deferred by Messrs. D. Ryan, Schaub and
Litvack, respectively, pursuant to the Company's 401(k) plan for the
following fiscal years: 1996, $9,135, $6,139 and $5,115; 1995, $9,240, $0
and $6,993; and 1994, $0, $0 and $5,308.
(2) Amounts include bonuses accrued during each year but paid shortly
thereafter.
(3) All stock option grants were made pursuant to the Corporation's 1992 Key
Employee Stock Option Plan.
(4) Represents premiums paid by the Corporation under a group term life
insurance plan, the reimbursement of Mr. D. Ryan's relocation expenses in
1994, the reimbursement of Mr. Schaub's relocation expenses in 1995 and the
reimbursement of Mr. B. Ryan's relocation expenses in 1996.
(5) Mr. B. Ryan was named President of ERO Industries, Inc. effective May 1,
1996.
(6) Mr. Schaub was named President of Priss Prints, Inc. effective October 10,
1994.
(7) Impact, Inc. ("Impact") was acquired by the Corporation effective January 1,
1994. Mr. Litvack was named President of Impact on February 11, 1994.
(8) Amav Industries, Inc. ("Amav") was acquired by the Corporation effective
October 1, 1995.
I-5
<PAGE> 6
The following tables disclose, for the named executive officers,
information regarding stock options granted or exercised during, or held at the
end of, 1996.
OPTION GRANT TABLE
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE
OF STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS GRANTED OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE PRICE ---------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) EXPIRATION DATE 5%($)(1) 10%($)(1)
---- ---------- --------------- -------------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
D. Richard Ryan, Jr.... -- -- -- -- -- --
Barry J. Ryan.......... 125,000 39.4% $6.375 Aug. 21, 2006 $502,031 $1,267,031
Richard F. Schaub,
Jr. ................. -- -- -- -- -- --
Kenneth E. Litvack..... -- -- -- -- -- --
Amos Sochaczevski...... 30,000 9.5% $5.750 Feb. 7, 2006 $108,675 $ 274,295
</TABLE>
- -------------------------
(1) Amounts reflect certain assumed rates of appreciation set forth in the SEC's
executive compensation disclosure rules. Actual gains, if any, on stock
option exercises depend on future performance of the Common Stock and
overall stock market conditions. No assurance can be made that the amounts
reflected in these columns will be achieved.
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FY-END(#) FY-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(1) REALIZED($)(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ----------- -------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
D. Richard Ryan, Jr. .... -- -- -- 540,000 -- $1,425,600
Barry J. Ryan............ -- -- 125,000 -- $296,875 --
Richard F. Schaub,
Jr. ................... -- -- 28,000 14,500 $ 7,250 $ 29,000
Kenneth E. Litvack....... -- -- 30,000 17,500 $ 48,000 $ 25,750
Amos Sochaczevski........ -- -- 30,000 -- $ 90,000 --
</TABLE>
- -------------------------
(1) None of the options which were granted to the named executives, as described
in footnote 3 to the Summary Compensation Table, has been exercised.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to employment agreements (the "Employment Agreements") dated
December 14, 1995, the Corporation agreed to employ Amos Sochaczevski as
President of Amav Industries Ltd. ("Amav"), a wholly owned subsidiary of the
Corporation, and Avi Sochaczevski as Executive Vice President of Amav for a
period of two years with automatic one year renewals unless either party
provides written notice to the other party of his or its intention not to renew
(a) at least 120 days prior to the end of the initial two year term or (b) at
least 90 days prior to the end of any renewal term. The Employment Agreements
provide each party with an annual salary of C$200,000. In addition, both parties
are bound by a non-competition clause for a period of five years from the date
of the agreement.
The Corporation has entered into an employment agreement with Kenneth E.
Litvack which guarantees Mr. Litvack a minimum annual salary of $130,000 through
December 31, 1998. In addition, the agreement
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<PAGE> 7
includes a non-competition clause for a period of two years following Mr.
Litvack's termination from the Corporation.
Barry J. Ryan has entered into an agreement with the Corporation pursuant
to which he is guaranteed an annual minimum bonus of $16,000 through 1998. In
addition, if he is terminated prior to May 1, 1999, he is entitled to severance
amounting to one year of base salary. Finally, the Corporation agreed to
reimburse Mr. Ryan for certain costs incurred during his relocation.
Named Executive Officers have deferred compensation and receive benefits
under the Corporation's Nonqualified Deferred Compensation Plan (the "Plan").
Beginning in 1997, Executives are allowed to defer up to 20% of their annualized
base salary (less any contributions to the Corporation's 401(k) plan). In
addition, the Corporation matches 50% of the Executive's contribution to the
Plan up to 3% of the Executive's Salary (less the Corporation's contribution to
the 401(k) plan). This contribution vests immediately.
The Corporation has not entered into written employment contracts with any
of its other executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Corporation's Compensation Committee are Messrs. Lipsig,
Nicholas and Rauner. Mr. Rauner, a director of the Corporation, is also a
general partner of Golder, Thoma, Cressey & Rauner, L.P. Golder, Thoma, Cressey
& Rauner, L.P. is the general partner of GTC Fund III, which owns 38.4% of the
Corporation's Common Stock. No officers of the Corporation serve on the
Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
pleased to present its report on executive compensation. The Committee reviews
and makes recommendations to the Board of Directors regarding salaries,
compensation and benefits of executive officers and key employees of the
Corporation and grants options to purchase Common Stock of the Corporation. This
Committee report documents the components of the Corporation's executive officer
compensation programs and describes the bases upon which compensation will be
determined by the Committee with respect to the executive officers of the
Corporation, including the executive officers that are named in the compensation
tables (the "Named Executives").
This Committee report shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Exchange Act, except to the
extent that the Corporation specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Compensation Philosophy. The compensation philosophy of the Corporation is
to endeavor to directly link executive compensation to continuous improvements
in corporate performance and increases in shareholder value. The Committee has
adopted the following objectives as guidelines for compensation decisions.
- Display a willingness to pay levels of compensation that are necessary to
attract and retain highly qualified executives.
- Be willing to compensate executive officers in recognition of superior
individual performance, new responsibilities or new positions within the
Corporation.
- Take into account historical levels of executive compensation and the
overall competitiveness of the market for high quality executive talent.
- Implement a balance between short- and long-term compensation to
complement the Corporation's annual and long-term business objectives and
strategy and encourage executive performance in furtherance of the
fulfillment of those objectives.
- Provide variable compensation opportunities based on the performance of
the Corporation, encourage stock ownership by executives and align
executive remuneration with the interests of stockholders.
Compensation Program Components. The Committee regularly reviews the
Corporation's compensation program to ensure that pay levels and incentive
opportunities are competitive with the market and reflect the
I-7
<PAGE> 8
performance of the Corporation. The particular elements of the compensation
program for executive officers are further explained below.
Base Salary. The Corporation's base pay levels are largely determined by
evaluating the responsibilities of the position held and the experience of the
individual and by comparing the salary scale with companies of similar size and
complexity. Actual base salaries are kept within a competitive salary range for
each position that is established through job evaluation and market comparisons
and approved by the Committee as reasonable and necessary. D. Richard Ryan,
Jr.'s salary has been set at $250,000 per year, a level which is equal to his
salary last year and comparable to salaries paid for executives holding
positions with comparable responsibilities.
Annual Incentives. The 1996 Incentive Compensation Plan (the "1996
Incentive Compensation Plan") provides for the granting of cash awards to
certain salaried employees (including the Named Executives) of the Corporation,
approved for participation by the Committee. The objective of the 1996 Incentive
Compensation Plan is to enhance management's contribution to stockholder returns
through increased stock prices by providing competitive levels of compensation
for the attainment of financial objectives. In particular, the 1996 Incentive
Compensation Plan aims to focus corporate behavior on consistent and steady
earnings growth by examining such performance indicators as (A) a comparison of
actual earnings before interest, taxes, depreciation and amortization ("EBITDA")
to budgeted EBITDA or (B) a comparison of actual sales to budgeted sales.
Targeted awards for the Corporation's employees under the 1996 Incentive
Compensation Plan are intended to be consistent with targeted awards of
companies of similar size and complexity. Actual awards, however, are subject to
decrease or increase on the basis of the Corporation's performance. As a result
of the Corporation's performance in 1996, the amounts presented in the Executive
Compensation table were payable under the 1996 Incentive Compensation Plan. The
Compensation Committee approved a similar program for 1997.
Stock Option Program. The Committee strongly believes that by providing
those persons who have substantial responsibility over the management and growth
of the Corporation with an opportunity to increase their ownership of the
Corporation's stock, the interests of stockholders and executives will be
closely aligned. Therefore, the Corporation's key employees (including the Named
Executives) are eligible to receive either incentive stock options or
nonqualified stock options as the Committee may determine from time to time,
giving them the right to purchase shares of the Corporation's Common Stock at an
exercise price equal to 100% of the fair market value of such Common Stock at
the date of grant. The number of stock options granted to executive officers is
based on competitive practices. Currently, the Corporation does not intend to
grant any additional stock options to any Named Executive in the next year,
except in recognition of new responsibilities or positions.
Certain Tax Considerations. Recently enacted Section 162(m) of the Code
generally limits the corporate tax deduction for compensation paid to the Named
Executives to $1,000,000 in any given taxable year, unless certain requirements
are met. The Compensation Committee has carefully considered the impact of this
new tax code provision. The Committee currently intends to structure
compensation plans for the Named Executives as necessary in order to maximize
the Corporation's corporate tax deduction without limiting the Corporation's
ability to attract and retain qualified executives.
Summary. After its review of all existing programs, the Committee continues
to believe that the total compensation program for executives of the Corporation
is focused on increasing values for stockholders and enhancing corporate
performance. The Committee currently believes that the compensation of executive
officers is properly tied to stock appreciation through the 1992 Key Employee
Stock Option Plan and through the options granted to Mr. D. Ryan when he joined
the Corporation. The Committee believes that executive compensation levels at
the Corporation are competitive with the compensation programs provided by other
corporations with which the Corporation competes. The foregoing report has been
approved by all members of the Committee.
COMPENSATION COMMITTEE
Robert J. Lipsig
Arthur S. Nicholas
Bruce V. Rauner
I-8
<PAGE> 9
PERFORMANCE GRAPH
The following graph compares the Corporation's cumulative total stockholder
return since the Common Stock became publicly traded on April 7, 1992 with the
Nasdaq National Market Index and with a peer group comprised of the following
companies, Acclaim Entertainment, Inc., Empire of Carolina, Inc., Equity
Marketing, Inc., Galoob Toys, Inc., Hasbro, Inc., Mattel, Inc., Russ Berrie and
Company, Inc., The Ohio Art Company, Safety 1st, Inc., Toy Biz, Inc., Tyco Toys,
Inc., and Yes! Entertainment Corporation.(1) The Corporation selected the
aforementioned companies to align its peer group with that used by analysts
covering the industry.
COMPARISON OF TOTAL RETURN*
ERO, INC., NASDAQ NATIONAL MARKET INDEX AND PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ NATIONAL
(FISCAL YEAR COVERED) ERO, INC. PEER GROUP MARKET INDEX
<S> <C> <C> <C>
APRIL 7, 1992 100.00 100.00 100.00
DECEMBER 31, 1992 61.19 116.24 106.08
DECEMBER 31, 1993 43.28 129.77 127.25
DECEMBER 31, 1994 49.25 119.80 133.60
DECEMBER 31, 1995 35.82 150.82 173.29
DECEMBER 31, 1996 52.24 172.67 215.34
</TABLE>
- -------------------------
(1) This peer group is identical to the peer group referenced in the
Corporation's 1997 Proxy Statement.
* Total Return assumes reinvestment of dividends.
I-9
<PAGE> 1
EXHIBIT 4
[DEAN WITTER REYNOLDS INC. LETTERHEAD]
December 10, 1996
Hedstrom Corp.
300 Corporate Center Drive
Suite 100
Coraopolis, PA 15108
Attn: Mr. Arnold Ditri
Gentlemen:
In connection with your consideration of a possible transaction involving
Hedstrom Corporation ("you") and ERO, Inc., a Delaware corporation
(collectively with its subsidiaries, the "Company"), you have requested certain
oral and written information concerning the Company from officers, directors,
employees and/or agents of the Company (all such information collectively
referred to as the "Evaluation Material"). In consideration of furnishing you
with the Evaluation Material the Company requests your agreement to the
following (it being understood that you are also agreeing to cause all of your
affiliates to comply with the provisions hereof):
1. Except as hereinafter set forth, the Evaluation Material for a period
of two years from the date of this agreement will be used only by you
and solely for the purpose of evaluating or implementing the possible
transaction with the Company, which may include the acquisition of all
of the Common Stock or all of the assets of the Company (the
"Transaction"), and not in any way directly or indirectly detrimental
to the Company and such information will be kept confidential by you
and your advisors and not disclosed to any third parties, except that
you may disclose the Evaluation Material or portions thereof to those
of your directors, officers, employees, advisors, lenders and
representatives of your advisors (the persons to whom such disclosure
is permissible being collectively called "Representatives") who need
to know such information for the purpose of evaluating the Transaction
(it being understood that, before disclosing the Evaluation Material
or any portion thereof to such Representatives, those Representatives
will be informed of the confidential nature of the Evaluation Material
and will agree to be bound by this agreement and not to disclose the
information to any other individual or entity). A failure by your
Representatives to abide by the terms of this agreement will be deemed
a breach of the agreement by you and you agree to be responsible for
any breach of this agreement by your Representatives, provided that your
affiliates and their Representatives shall not be deemed your
Representatives unless (but solely to the extent that) you have
furnished Evaluation Material to them. Evaluation Material may also be
disclosed to any management firm which assists you in evaluating or
implementing a transaction. Notwithstanding anything to the contrary
in this letter, you shall not be responsible for any breach by any
person (including any such management firm) that
<PAGE> 2
DEAN WITTER REYNOLDS INC.
has, with the Company's reasonable consent, entered into a separate
confidentiality agreement with the Company (either directly or
through its Representatives). In the event that you or any or your
Representatives become legally compelled (by deposition, interrogatory,
request for documents, subpoena, civil investigative demand, judicial,
governmental or similar process) to disclose any of the Evaluation
Material, you shall provide the Company with prompt prior written
notice of such requirement, which notice shall be given prior to
disclosing any of the Evaluation material so that the Company may seek
a protective order or other appropriate remedy. You or your
representative shall not be liable for disclosure pursuant to such
requests or requirement made in accordance with the terms of this
Agreement. In the event that such protective order or other remedy is
not obtained, you agree to furnish only that portion of the Evaluation
Material which you are advised by counsel is legally required to be
furnished and to exercise best efforts to obtain assurance that
confidential treatment will be afforded such Evaluation Material.
2. The term "Evaluation Material" does not include any information which
(i) at the time of disclosure or thereafter is generally available to
and known by the public (other than as a result of a disclosure
directly or indirectly by you or your Representatives in violation of
this agreement), (ii) was available to you or your Representatives on a
nonconfidential basis from a source other than the Company or its
advisors, provided that such source is not and was not bound by a
confidentiality agreement with the Company or (iii) has been
independently acquired or developed by you or your Representatives
without violating any of your obligations under this agreement.
3. If the Transaction is not consummated by you or if the Company so
requests, you promptly will return to the Company all copies of the
Evaluation Material in your possession or in the possession of your
Representatives, and you will destroy all copies of any analyses,
compilations, studies or other documents prepared by you or for your
use containing or reflecting any Evaluation Material.
4. Without the prior written consent of the Company, neither you nor your
Representatives will disclose to any person (i) the fact that any
investigations, discussions or negotiations are taking place concerning
the Transaction, (ii) that you have requested or received Evaluation
Material from the company or (iii) any of the terms, conditions or
other facts with respect to any Transaction, including the status
thereof. The term "person" in this agreement will be interpreted
broadly to include, without limitation, any corporation, company,
partnership or individual.
5. Until two years from the date of this agreement, you agree not to
initiate or maintain contact (except for contacts made in the ordinary
course of business consistent with past practice) with any officer,
director, member of management, employee or agent of the Company
regarding its business, operation, prospects or finances, or to solicit
the employment of any such individual, except after first requesting
and receiving the permission of the Company, provided, however, that
this agreement shall not prohibit any advertisement or general
solicitation (or employment as a result thereof) that is not
specifically targeted at such persons nor shall it prohibit the
solicitation or employment of any such person who is not employed by
the Company on the date you first solicit such person
<PAGE> 3
DEAN WITTER REYNOLDS INC.
Hedstrom Corp.
December 10, 1996
Page 3
6. You understand and acknowledge that the Company is not making any
representation or warranty, express or implied, as to the accuracy or
completeness of the Evaluation Material, and none of the Company or any
of its respective officers, directors, employees, stockholders, owners,
affiliates, agents or representatives will have any liability to you or
any other person resulting from your use of the Evaluation Material.
7. You also agree that unless and until a definitive contract or contracts
covering the Transaction shall have been executed and delivered, there
shall not be any legal obligation whatsoever on the Company to
facilitate, cooperate with you or any other party with respect to, or
participate in, any Transaction by virtue of this agreement or any
other written or oral expression with respect to such Transaction
except, in the case of this agreement, for the matters specifically
agreed to herein.
8. You agree that until the expiration of one year from the date of this
agreement, neither you (including any person or entity directly or
indirectly, through one or more intermediaries, controlling you or
controlled by you or under common control with you) nor your
Representatives shall, nor shall you permit any of your "associates"
or "affiliates" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the "Exchange Act")) to, acting alone
or as part of any group except pursuant to the possible transaction
described in this agreement (a) in any manner acquire, agree to acquire
or make any proposal or offer to acquire, directly or indirectly, any
securities or property of the Company, (b) except at the specific
written request of the Company, propose to enter into, directly or
indirectly, any merger or business combination involving the Company or
to purchase, directly or indirectly, a material portion of the assets
of the Company, (c) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" or become a
"participant" in any "election contest" (as such terms are defined or
used in the proxy rules of the Securities and Exchange commission) with
respect to the Company, or execute or solicit any written consents in
lieu of a meeting of holders of the Company's voting securities or any
class thereof, or otherwise seek to advise or influence any person with
respect to the voting of, any voting securities of the Company,
including by public announcement or written statement broadly
disseminated, (d) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any voting securities of the Company except with respect to
securities owned on December 10, 1996, (e) otherwise act, alone or in
concert with others, to seek to control or influence the management,
Board of Directors or policies or affairs of the Company, (f) disclose
any intention, plan or arrangement inconsistent with the foregoing or
(g) advise, assist or encourage any other persons in connection with
any of the foregoing. You also agree during such period not to (i)
request the Company (or its directors, officers, employees' or agents),
directly or indirectly, to amend or waive any provision of this
paragraph (including this sentence) unless another party has made a
proposal inconsistent with the foregoing, or (ii) take any action which
might require you or the Company to make a public announcement
regarding the possibility of any Transaction or any other business
combination or merger with the Company, without the consent of a duly
authorized representative of the Company.
<PAGE> 4
DEAN WITTER REYNOLDS INC.
Hedstrom Corp.
December 10, 1996
Page 4
9. You agree that, in the event of any breach of the provisions of
this agreement, the Company shall be entitled to seek equitable
relief upon proper showing, including injunction and specific
performance, in addition to all other remedies available to the Company
at law or in equity.
It is further understood and agreed that no failure or delay by the
Company in exercising any right, power or privilege hereunder will
operate as a waiver thereof, nor will any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise
of any right, power or privilege hereunder.
This agreement is for the benefit of the Company, and will be governed by
and construed in accordance with the internal laws of the State of Delaware.
Your obligations under this agreement will expire on the earlier of two years
from the date of this agreement or the closing of the possible transaction by
you or any of your affiliates.
If you agree with the foregoing, please sign and return two copies of this
letter, which will constitute our agreement with respect to the subject matter
of this letter.
Very truly yours,
DEAN WITTER REYNOLDS INC.
As authorized Agent on behalf of ERO, Inc.
By:/s/ Russell K. Mayerfeld
--------------------------
Name: Russell K. Mayerfeld
Title: Managing Director
CONFIRMED AND AGREED
as of the date written above:
Hedstrom Corp.
By:/s/ A.E. Ditri
------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 5
(PRESS RELEASE)
April 11, 1997
ERO, INC. AND HEDSTROM CORPORATION
ENTER INTO DEFINITIVE MERGER AGREEMENT
--------------------------------------
Mount Prospect, IL (PRNewswire) -- ERO, Inc. (NASDAQ: EROI) and Hedstrom
Corporation announced today that they have entered into a definitive merger
agreement. The agreement calls for Hedstrom to acquire ERO, a leading
consolidator and marketer of children's leisure products.
Under the merger agreement, Hedstrom will promptly commence a cash tender offer
for all of the outstanding shares of ERO common stock for $11.25 per share.
ERO has approximately 11.7 million fully diluted shares outstanding. Including
funded debt, the transaction is valued at approximately $203 million.
D. Richard Ryan, Jr., Chairman, President and CEO of ERO stated, "We clearly
think this transaction is in the best interest of ERO shareholders. The merger
also represents a great opportunity for both companies to become a more
important factor in children's leisure products. ERO has been growing about
20% per year over the last three years by acquiring businesses with dominant
positions in their respective markets. Adding ERO's slumber, back-to-school,
arts & crafts, water sports and children's room decor business to Hedstrom's
play balls and outdoor play equipment businesses should create an even stronger
company, better able to serve its customers and provide now opportunities for
employees."
1
<PAGE> 2
ERO's largest investor, the private equity fund of Golder, Thoma, Cressey,
Rauner, Inc., holds approximately 38 percent of the total outstanding shares of
the Company and has agreed to tender its shares into the tender offer.
Hedstrom's controlling shareholder is Hicks, Muse, Tate & Furst, Inc. The
Boards of Directors of both ERO and Hedstrom have give approval to the
acquisition and the Board of ERO recommends that ERO stockholders accept
Hedstrom's cash tender offer.
Consummation of the acquisition is contingent upon the tender of a majority of
ERO's outstanding shares on a fully diluted basis, the expiration or
termination of any applicable waiting periods under the federal
Hart-Scott-Rodino Antitrust Act, the funding of committed debt financing which
has been obtained by Hedstrom, and other customary conditions.
As a result of this transaction, ERO also announced that it was postponing its
Annual Meeting of Stockholders that had been previously scheduled for April 17,
1997.
ERO has grown significantly through acquisitions in the last five years. The
company now is a leading marketer of children's leisure products in multiple
market segments through its four operating subsidiaries. ERO Industries sells
licensed Slumber Shoppe and children's water sports products through sporting
goods and toy channels. Amav Industries sells its art, craft and activity
products in toy and craft departments. Impact sells licensed and branded
back-to-school products to stationery buyers. Priss Prints markets a range of
children's room decor products through juvenile, paint and wallpaper and
domestic departments.
Contact: Mark D. Renfree
Chief Financial Officer
847/803-9200 ext. 315
2
<PAGE> 1
EXHIBIT 6
585 Slawin Court
Mount Prospect, Illinois 60656
(847) 803-9200
April 17, 1997
To Our Stockholders:
On behalf of the Board of Directors of ERO, Inc. (the "Company"), we are
pleased to inform you that on April 10, 1997, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Hedstrom Corporation
and HC Acquisition Corp. (the "Purchaser"). Pursuant to the Merger Agreement,
the Purchaser has today commenced a cash tender offer (the "Offer") to purchase
all of the issued and outstanding shares of Common Stock of the Company (the
"Shares") at $11.25 net per Share in cash (the "Offer Consideration").
Pursuant to the terms and conditions of the Merger Agreement, the Offer
will be followed by a merger of the Company and the Purchaser whereby each Share
will be converted into the right to receive the actual amount per Share in cash
paid to holders in the Offer.
THE COMPANY'S BOARD OF DIRECTORS HAS APPROVED THE OFFER AND MERGER AND HAS
UNANIMOUSLY DETERMINED THAT THE OFFER AND MERGER ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY TENDER THEIR SHARES
PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including the
written opinion dated April 10, 1997 of Dean Witter Reynolds Inc., the Company's
financial advisor, to the effect that, as of such date and based upon and
subject to certain matters stated therein, the cash consideration to be paid for
the Shares in the Offer and Merger is fair, from a financial point of view, to
such holders. The Schedule 14D-9 contains other important information relating
to the Offer, and you are encouraged to read the Schedule 14D-9 carefully.
In addition to the attached Schedule 14D-9, enclosed also is the Offer to
Purchase dated April 17, 1997, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer. These
documents state the terms and conditions of the Offer and provide instructions
on how to tender your Shares. We urge you to read these documents carefully in
making your decisions with respect to tendering your Shares pursuant to the
Offer.
On behalf of the Board of Directors,
D. Richard Ryan, Jr.
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 7
DEAN WITTER REYNOLDS INC.
6000 SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 984-4321
April 10, 1997
Board of Directors
ERO, Inc.
585 Slawin Court
Mt. Prospect, Illinois 60056
Gentlemen:
ERO, Inc., a Delaware corporation ("ERO"), and Hedstrom Corporation, a Delaware
corporation ("Hedstrom"), contemplate entering into an acquisition agreement
(the "Acquisition Agreement"), dated as of the date hereof, providing for the
acquisition by Newco, a wholly owned subsidiary of Hedstrom through a tender
offer ("Tender Offer") and subsequent merger ("Merger") pursuant to which the
holders (the "Public Shareholders") of the issued and outstanding shares of
common stock (the "Common Shares") of ERO would receive $11.25 per share in cash
(the "Cash Consideration"). Golder, Thoma, Cressey Fund III Limited Partnership
owns 3,940,000 shares or approximately 38% of the Common Shares and has entered
into an agreement ("Stockholders Agreement") pursuant to which it has agreed to
tender its shares into the Tender Offer.
You have requested Dean Witter Reynolds Inc.'s opinion ("Dean Witter"), as
investment bankers, as to the fairness, from a financial point of view, of the
Cash Consideration, taken as a whole, to the Public Shareholders.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed the Acquisition Agreement and the Stockholders Agreement;
(2) reviewed the Annual Report on Form 10-K and related publicly available
financial information of ERO for the two most recent fiscal years
ended December 31, 1995 and 1996, the Quarterly Reports on Form 10-Q
of ERO for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, and the definitive Proxy Statement on Form 14A,
dated March 10, 1997;
(3) reviewed ERO management's financial model of the income statement and
certain cash flow items for calendar year 1997, and balance sheet for
calendar year ended December 31, 1997 created as the 1997 budget;
<PAGE> 2
DEAN WITTER REYNOLDS INC.
ERO, Inc. Board of Directors
April 10, 1997
Page 2
(4) reviewed the current Analyst estimates of earnings per share for
fiscal year 1997 and 1998, and current Analyst estimates of average
annual industry growth rates for earnings per share for calendar years
1999 through 2002;
(5) conducted discussions with the Chief Executive Officer and Chief
Financial Officer of ERO concerning the past and current business,
operations, assets, present financial condition and future prospects
of ERO;
(6) reviewed the historical reported market prices and trading activity
for ERO's Common Shares;
(7) compared certain financial information, operating statistics, and
trading multiples relating to ERO with published financial
information, operating statistics, and trading multiples relating to
selected public companies that we deemed to be most comparable to ERO;
(8) compared the proposed Cash Consideration with the financial terms, to
the extent publicly available, of selected other acquisitions that we
deemed to be relevant;
(9) reviewed certain other information, including publicly available
information relating to the business, earnings, cash flow, assets and
prospects of ERO; and
(10) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information supplied to us by ERO, or
that is publicly available, and we have not independently verified such
information. We also have relied upon the management of ERO, as to the
reasonableness and achievability of their financial results projected for fiscal
year 1997. We have not been requested to make, and we have not made, an
independent appraisal or evaluation of the assets, properties, facilities or
labilities of ERO, and we have not been furnished with any such appraisal or
evaluation.
It should be noted that this opinion necessarily is based upon prevailing market
conditions and other circumstances and conditions as they exist and can be
evaluated at this time, and does not represent our opinion as to what the actual
value of the Common Shares will be after the date hereof.
<PAGE> 3
DEAN WITTER REYNOLDS INC.
ERO, Inc. Board of Directors
April 10, 1997
Page 3
We have acted as financial advisor to the Board of Directors of ERO in
connection with this transaction and will receive a fee for our services, a
portion of which is contingent upon the consummation of the transaction and
delivery of this opinion.
On the basis of, and subject to the foregoing and other matters that we
consider pertinent, we are of the opinion that as of the date hereof the Cash
Consideration to be paid for the Common Shares in the Tender Offer and the
Merger, is fair, from a financial point of view, to the Public Shareholders.
Very truly yours,
/s/ DEAN WITTER REYNOLDS
------------------------------------------------------
DEAN WITTER REYNOLDS INC.
