<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from .......... to ..........
Commission File No. 1-12394
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DETROIT DIESEL CORPORATION
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-2772023
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13400 OUTER DRIVE WEST, DETROIT, MICHIGAN 48239-4001
------------------------------------------------------------
(Address of principal executive offices, including zip code)
313-592-5000
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
COMMON STOCK $0.01 PAR VALUE 24,699,566 SHARES
---------------------------- -----------------
Class Outstanding at August 1, 1997
This report contains 56 pages. The exhibit index is on page 17.
<PAGE> 2
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1997 and 1996 3
Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Independent Accountants' Report 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 14
ITEM 5. OTHER INFORMATION. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURE 16
EXHIBIT INDEX 17
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DETROIT DIESEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net revenues $ 557.4 $ 491.3 $ 1,077.1 $ 970.1
Cost of sales 431.4 378.6 828.9 745.2
------- ------- --------- -------
Gross profit 126.0 112.7 248.2 224.9
Expenses:
Selling and administrative 86.3 69.4 169.6 141.1
Research and development 23.8 27.0 49.3 51.5
Interest 3.4 2.6 6.6 5.4
Special charge (Note 7) - 38.3 - 38.3
------- ------- --------- -------
Total 113.5 137.3 225.5 236.3
Income (loss) before income taxes and
minority interests 12.5 (24.6) 22.7 (11.4)
Provision (Credit) for income taxes 5.1 (8.6) 8.9 (4.0)
Minority interests - .2 - .5
------- ------- --------- -------
Net income (loss) $ 7.4 ($16.2) $ 13.8 ($7.9)
======= ======= ========= =======
Primary net income (loss) per share (Note 5) $ .30 ($0.66) $ .56 ($0.32)
======= ======= ========= =======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
3
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DETROIT DIESEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DEC 31,
1997 1996
---- ----
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9.5 $ 3.0
Receivables, net of allowances of $3.8 and $6.1, respectively 316.5 293.1
Inventories 285.1 292.1
Prepaid expenses, deferred charges and other current assets 14.0 19.8
Deferred tax assets 52.7 56.4
--------- ---------
TOTAL CURRENT ASSETS 677.8 664.4
PROPERTY, PLANT AND EQUIPMENT:
Net of accumulated depreciation of $138.9 and $125.3, respectively 289.8 281.5
DEFERRED TAX ASSETS 24.5 26.0
INTANGIBLE ASSETS, NET 90.5 103.9
OTHER ASSETS 35.3 36.8
--------- ---------
TOTAL ASSETS $ 1,117.9 $ 1,112.6
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 24.3 $ 16.6
Accounts payable 310.5 279.9
Accrued expenses 175.9 179.8
Current portion of long-term debt and capital leases 7.9 9.8
--------- ---------
TOTAL CURRENT LIABILITIES 518.6 486.1
LONG-TERM DEBT AND CAPITAL LEASES 67.0 92.6
OTHER LIABILITES 170.3 165.2
DEFERRED TAX LIABILITIES 23.2 35.4
DEFERRED INCOME 6.2 6.5
MINORITY INTERESTS .6 5.6
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS EQUITY:
Preferred stock, par value $0.01 per share, no shares issued - -
Common stock, par value $0.01 per share, 24.7 million shares issued .2 .2
Additional paid-in capital 217.8 217.8
Retained earnings 122.7 108.9
Additional minimum pension liability (2.5) (2.5)
Currency translation adjustment (6.1) (3.0)
Deferred compensation on restricted stock (.1) (.2)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 332.0 321.2
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,117.9 $ 1,112.6
========= =========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
4
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DETROIT DIESEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 13.8 $ (7.9)
Net income (loss)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization 18.5 16.3
Changes in assets and liabilites which provided (used) cash:
Accounts and notes receivable (29.2) (18.2)
Inventories 3.3 (17.3)
Prepaid expenses, deferred charges and other current assets 5.6 (2.5)
Deferred taxes (4.8) (6.9)
Accounts payable 39.4 7.6
Accrued expenses and other liabilities 5.3 (1.5)
Other assets 6.1 1.0
------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 58.0 (29.4)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (33.8) (32.7)
Proceeds from sale of property, plant and equipment (.3) 1.1
Investments in and advances to affiliates (2.5) (.2)
Acquisition of subsidiaries (1.8) -
Proceeds from sale of subsidiaries 4.7 -
------- --------
NET CASH USED IN INVESTING ACTIVITIES (33.7) (31.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) notes payable 7.9 (4.4)
Net (payments on) proceeds from long-term debt (25.8) 65.4
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (17.9) 61.0
EFFECT OF EXCHANGE RATE CHAGES ON CASH AND CASH EQUIVALENTS .1 (.1)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6.5 (.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3.0 5.1
------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 9.5 $ 4.8
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6.5 $ 5.5
======= ========
Income Taxes $ 1.5 $ 6.2
======= ========
Noncash investing and financing activities:
Issuance of debt to acquire subsidiary $ 7.2
=======
Capital lease obligations incurred $ 2.3
========
Contribution of assets to joint venture $ .5
========
Issuance of deferred stock $ .4
========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
5
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DETROIT DIESEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS.
The accompanying unaudited consolidated financial statements have been
prepared by management and, in the opinion of management, contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position of Detroit Diesel Corporation and its
majority-owned subsidiaries ("Detroit Diesel", "DDC" or the "Company") as of
June 30, 1997 and the results of its operations for the three and six month
periods ended June 30, 1997 and 1996 and its cash flows for the six month
periods ended June 30, 1997 and 1996.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Company's 1996 Annual Report to Stockholders. The results of operations for
the three and six month periods ended June 30, 1997 will not necessarily be
indicative of the operating results for the full year.
NOTE 2 - CASH AND CASH EQUIVALENTS.
Cash equivalents represent short-term deposits with financial institutions
that have maturities of generally less than 90 days. At June 30, 1997, cash
and cash equivalents include approximately $4.1 million which is restricted for
specific capital expenditures in Brazil.
NOTE 3 - INVENTORIES.
At June 30, 1997 and December 31, 1996, inventories (principally using the
first-in, first-out method) consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
($ in millions) 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Productive $ 155.7 $ 161.1
Service parts 91.3 89.8
Remanufactured parts 32.8 34.7
Non-productive 5.3 6.5
-------- -------
$ 285.1 $ 292.1
======== =======
The components of productive inventory are:
Material 50% 48%
Work in process 23% 24%
Finished product 27% 28%
</TABLE>
NOTE 4 - INTANGIBLE ASSETS. Intangible assets include goodwill of $68.5 million
and $80.0 million at June 30, 1997 and December 31, 1996, respectively.
Accumulated amortization of intangible assets as of June 30, 1997 and December
31, 1996 was $16.2 million and $13.9 million, respectively.
6
<PAGE> 7
DETROIT DIESEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NET INCOME (LOSS) PER SHARE.
Primary net income per share for the three and six month periods ended
June 30, 1997 was computed by dividing net income by the weighted average
number of common shares outstanding (24,699,566) plus the weighted average
dilutive effect of the Company's incentive stock options (40,687 and 13,964)
determined using the treasury stock method.
Primary net loss per share for the three and six month periods ended June
30, 1996 was computed by dividing net income by the weighted average number of
common shares outstanding (24,697,316) plus the weighted average dilutive
effect of the Company's incentive stock options (301 and 317) determined using
the treasury stock method.
In April 1997, Detroit Diesel Corporation issued 267,500 incentive stock
options. These options carry an exercise price of $17 per share and vest
equally over a four year period. In accordance with Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based Compensation," the
Company has elected to continue the application of Accounting Principles Board
Opinion No. 25 which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. If the company measured compensation cost
based on the fair value of the equity instrument awarded, earnings per share
would have been $0.29 and $0.55 for the three months and six months ended June
30, 1997.
NOTE 6 - COMMITMENTS AND CONTINGENCIES.
The Company is contingently liable for letters of credit and guarantees to
banks aggregating approximately $38.8 million as of June 30, 1997.
NOTE 7 - SPECIAL CHARGE.
During the three month period ended June 30, 1996, the Company recorded a
special charge of $38.3 million for product coverage expenses and to reduce the
value of an investment in Mexico to its estimated fair value.
NOTE 8 - SUBSEQUENT EVENT.
On July 8, 1997, Detroit Diesel Corporation and Outboard Marine
Corporation signed a definitive agreement and plan of merger under which a
subsidiary of Detroit Diesel Corporation will acquire Outboard Marine
Corporation ("OMC"). On July 15, 1997, OMC Acquisition Corp., a wholly-owned
subsidiary of the Company, initiated a cash tender offer to purchase 13,842,619
shares of common stock of OMC at a price of $16.00 per share. The tender offer
is scheduled to close on August 11, 1997 unless extended in accordance with the
terms of the offer. In the event the tender offer is consummated, the second
part of the transaction will be the merger of the Company's subsidiary into OMC
pursuant to which the outstanding shares of common stock of OMC will be
exchanged for an aggregate of 4,000,000 shares of common stock of the Company
plus a variable amount of cash based on the closing price of the Company's
common stock. In the merger, each share of then issued and outstanding OMC
common stock (the "Exchanged Common Shares"), shall be converted into the right
to receive (1) a fractional
7
<PAGE> 8
share of Detroit Diesel common stock equal to 4,000,000 divided by the number of
Exchanged Common Shares (the "Exchange Ratio") plus (2) a cash payment equal to
(i) $16.00 minus (ii) the product of the Exchange Ratio times $25.00, plus (3)
in the event the average closing price on the New York Stock Exchange for
Detroit Diesel common stock for the 20 consecutive trading days ending on the
fifth trading day prior to the closing date of the merger (the "DDC Closing Date
Price") is less than $25.00, then an additional cash payment equal to the
product of the Exchange Ratio multiplied by the lesser of (i) $25.00 minus the
DDC Closing Date Price or (ii) $6.00.
Assuming the issuance of no additional shares of common stock by OMC prior
to the merger, at the effective time of the merger, the holders of the
6,362,896 Exchanged Common Shares of OMC common stock would receive a
combination of 4,000,000 shares of Detroit Diesel common stock and cash.
Assuming a $25.00 DDC Closing Date Price, OMC shareholders in the merger would
thus receive $16.00 of value per OMC share, which value is comprised of 0.6286
shares of Detroit Diesel common stock for each share of OMC common stock and
$0.28 in cash.
The above conversion formula provides that should the DDC Closing Date
Price be less than $25.00, additional cash consideration will be paid to the
holders of the Exchanged Common Shares to maintain the total $16.00 per share
value subject to a minimum value of $19.00 per share of DDC common stock. If
the DDC Closing Date Price exceeds $25.00 per share of DDC common stock, the
Exchange Ratio would remain the same.
Additional details are available in the tender offer documents filed by
the Company with the Securities and Exchange Commission in connection with this
transaction.
On August 11, 1997, OMC exercised its right under the terms of the merger
agreement between DDC and OMC to request DDC to extend its tender offer until
August 25, 1997. OMC also announced on that date that it was reviewing an
alternative tender offer proposal by Greenmarine Acquisition Corp. commenced on
August 8, 1997.
8
<PAGE> 9
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
Detroit Diesel Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Detroit Diesel Corporation and subsidiaries (the "Company") as of June 30,
1997, and the related condensed consolidated statements of operations and cash
flows for the three-month and six-month periods ended June 30, 1997 and 1996,
included in the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997. These consolidated financial statements are the responsibility of
Company's management. We were furnished with the report of other accountants on
their review of the interim financial information of VM Motori S.p.A. (a
consolidated subsidiary) whose total revenues constituted 14% and 13% of
consolidated total revenues for the respective three-month and six-month periods
ended June 30, 1996,
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is an expression of an opinion regarding the consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review and the report of other accountants, we are not aware of
any material modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended (not presented herein); and in our
report dated February 3, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the condensed consolidated balance sheet at December 31, 1996 included in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which such information has been derived.
/s/ Deloitte & Touche LLP
Detroit, Michigan
July 21, 1997
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The percentage relationships between net revenues and other elements of
the Company's Consolidated Statements of Operations for the comparative
reporting periods were:
<TABLE>
<Caption
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.4% 77.1% 77.0% 76.8%
------ ------ ------ ------
Gross profit 22.6% 22.9% 23.0% 23.2%
Expenses:
Selling and administrative 15.5% 14.1% 15.7% 14.5%
Research and development 4.3% 5.5% 4.6% 5.3%
Interest .6% .5% .6% .6%
Special charge - 7.8% - 4.0%
------ ------ ------ ------
Total 20.4% 27.9% 20.9% 24.4%
Income (loss) before income taxes 2.2% (5.0%) 2.1% (1.2%)
Provision (credit) for income taxes .9% (1.7%) .8% (.4%)
------ ------ ------ ------
Net income (loss) 1.3% (3.3%) 1.3% (.8%)
====== ====== ====== ======
</TABLE>
The Company's net revenues for each of its markets were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(In millions) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
On-Highway Truck $ 243 $ 190 $ 462 $ 384
Construction & Industrial 86 92 163 179
Automotive 70 55 141 107
Coach & Bus 63 53 120 104
Power Generation 37 33 73 64
Marine 36 44 71 82
Military 22 24 47 50
----- ----- ------ -----
Total $ 557 $ 491 $1,077 $ 970
===== ===== ====== =====
</TABLE>
10
<PAGE> 11
THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996
NET REVENUES. Net revenues for the three months ended June 30, 1997 were
$557.4 million, an increase of $66.1 million, or 13% from $491.3 million for
the comparable period of 1996. Net revenues for the six months ended June 30,
1997 were $1,077.1 million, an increase of $107 million, or 11%, from $970.1
million for the comparable period of 1996.
The increase in net revenues reflects an increase in unit sales of 33% and
28% for the three months and six months ended June 30, 1997, respectively, over
the comparable periods of 1996. The increase in unit sales reflects the
improvement in the North American on-highway heavy duty truck market in which
Company revenues increased 28% for the three months and 20% for the six months
ended June 30, 1997 versus the same periods for 1996, along with growth in the
Company's heavy duty truck market share. The Company's growth in this market
is evidenced by the May 1997 AAMA data which shows Detroit Diesel achieving a
YTD 30.3% penetration versus 26.3% at the end of 1996.
The increase in net revenues also reflects the strength of the Company's
automotive market in which sales have increased 27% for the three months and
32% for the six months ended June 30, 1997, as strong demand with existing OEM
customers paced the increases. Coach and bus market revenues also increased
19% and 15% for the three and six months ended June 30, 1997 compared to the
same periods in 1996 as shipments of two-cycle products and Series 60
on-highway coach units were strong.
These increases were somewhat offset by decreases in the construction &
industrial, marine and military markets. Decreases in the construction &
industrial market and the marine market are related to a change in product mix
while the decreases in the military market are due to changes in U.S. defense
spending awards, partially offset by remanufacturing and international
activities.
GROSS PROFIT. Gross profit for the three months ended June 30, 1997 was
$126.0 million, or 22.6% of net revenues, versus $112.7 million, or 22.9% of
net revenues for the three months ended June 30, 1996. Gross profit for the
six months ended June 30, 1997 was $248.2 million, or 23.0% of net revenues,
versus $224.9 million, or 23.2% of net revenues for the comparable period of
1996. Gross profit as a percent of net revenues has decreased during 1997
reflecting a combination of new product introductions during the period and
sales mix, combined with the competitive pricing environment in which the
Company operates.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the three months ended June 30, 1997 were $86.3 million, or 15.5% of net
revenues, compared to $69.4 million, or 14.1% of net revenues for the
corresponding period of 1996. For the six months ended June 30, 1997, selling
and administrative expenses were $169.6 million, or 15.7% of net revenues,
compared to $141.1 million, or 14.5% of net revenues for the comparable period
of 1996. The increase in selling and administrative expenses is due to higher
accruals and other selling expenses in support of increased sales volume,
combined with expenses associated with new product releases.
11
<PAGE> 12
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of
$23.8 million for the three months and $49.3 million for the six months ended
June 30, 1997 were $3.2 million and $2.2 million lower than the comparable
periods of 1996. The decreases versus the prior periods are due to the timing
of research and development activities. The Company expects research and
development to be approximately 5% of net revenues in 1997.
SPECIAL CHARGE. During the second quarter of 1996, the Company recorded a
special charge of $36.3 million for product coverage expenses associated with
variability in component machining affecting a limited number of engines used
in specific duty cycles. Additionally, the Company reduced the carrying value
of an investment in Mexico by $ 2 million to its estimated fair value.
INTEREST EXPENSE. Interest expense of $3.4 million for the three months
and $6.6 million for the six months ended June 30, 1997 reflect higher debt
levels during 1997 associated with increased business volumes during the first
six months of 1997 versus the first six months of 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes is reported
during the interim reporting periods on the basis of the Company's estimated
annual effective tax rate for the taxable jurisdictions in which the Company
operates. The Company's effective annual tax rate for 1997 is estimated to be
39%.
NET INCOME/LOSS. Net income for the three months ended June 30, 1997 was
$7.4 million, versus a net loss of $16.2 million for the comparable period of
1996. Net income for the six months ended June 30, 1997 was $13.8 million
versus a net loss of $7.9 million for the comparable period of 1996.
Excluding the special charge, net income would have been $8.7 million and $17.0
million for the three and six month periods ended June 30, 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity have been cash
provided by operations and bank borrowings under various revolving lines of
credit and bank notes, including the Company's $300 million revolving line of
credit, of which approximately $259.3 million was available as of June 30,
1997. The Company's subsidiary, VM Motori S.p.A. ("VM"), has an additional $54
million in unsecured, short term lines of credit with several banks in Italy,
of which approximately $44 million was available at June 30, 1997.
In connection with the Company's proposed acquisition of OMC, the Company
is in the process of replacing its current credit facility. The new facility
will be used to finance the acquisition and to provide the Company with cash to
meet its on-going cash requirements. The Company expects to obtain $800
million in credit facilities, comprised of a $350 million six-year revolver
and a $450 million six-year term loan.
Cash provided by operations for the six months ended June 30, 1997 was
$58.0 million, reflecting the Company's net income for the period, adjusted
for non-cash items, and changes in working capital.
12
<PAGE> 13
Capital expenditures were $33.8 million and $32.7 million for the first
six months of 1997 and 1996, respectively, and were used to upgrade machinery
and tooling, enhance facilities, introduce the Series 2000 and Series 4000
engines and develop a production facility in Brazil.
The Company is subject to risks of changes in foreign currency exchange
rates due to its operations located outside of the United States, particularly
in Italy, Mexico and Brazil where the Company has subsidiary activities.
During the first half of 1997, the decrease in value of the Italian Lira
compared to the U.S. dollar resulted in unfavorable translation adjustments
relating to the Company's investment in VM.
The Company expects that it will be able to satisfy on-going cash
requirements (including capital expenditures for environmental compliance and
other projects), for the next 12 months and thereafter, with cash flow from
operations, supplemented, if necessary, by borrowings under its revolving lines
of credit.
PROSPECTIVE INFORMATION
The Company expects the North American heavy-duty truck market to remain a
significant part of its business and to be at or near 1996 levels. The overall
strength of this market and the requirements to compete in this market will
impact the Company's performance during the remainder of 1997. Management
expects that all of its markets, particularly the North American heavy-duty
truck market, will experience continued price competition.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." This statement is
effective for financial statements issued after December 15, 1997. The
statement requires companies to present earnings per share on the face of the
income statement in two categories called "Basic" and "Diluted" and requires
restatement of all periods presented. The Company will adopt Statement No. 128
during the fourth quarter of 1997 and does not anticipate the adoption will
have a material impact.
The Financial Accounting Standards Board has also issued SFAS Nos. 130 and
131. Statement No. 130, "Reporting Comprehensive Income", and No. 131,
"Disclosures about Segments of an Enterprise and Related Information", are
effective for fiscal years beginning after December 15, 1997. Statement No.
130 requires companies to report a separate statement of comprehensive income
in addition to the statement of operations. The provisions of this statement
will impact the Company due to currency translation adjustments and other
components of the Company's stockholders' equity section, which change from
period to period, to be included in the separate statement of Comprehensive
Income.
Statement No. 131 requires companies to report certain information about
their operating segments, products and services, geographic areas in which they
operate and major customers. The Company will adopt the provisions of
Statement Nos. 130 and 131 in the first quarter of 1998.
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<PAGE> 14
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995
This document may include projections, forecasts and other forward-looking
statements about the Company, the industry in which it competes and the markets
it serves. The achievement of such projections, forecasts and other
forward-looking statements is subject to certain risks and uncertainties, fully
detailed in the "Cautionary Statement for purposes of 'Safe Harbor' under the
Private Securities Act of 1995" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, which is on file with the Securities and
Exchange Commission.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is presently involved in certain claims and litigation arising
in the ordinary course of business, including claims relating to the use of and
performance of the Company's products. The Company does not believe that the
resolution of any of these matters will have a material adverse effect on the
Company's results of operations or financial position.
Cummins Engine Company, Inc., a competitor of the Company, filed a lawsuit
on June 6, 1997 in the U. S. District Court, Southern District of Indiana
(Indianapolis Division) claiming that the Company infringes on a Cummins patent
which discloses a method and device to generate information and software to
calibrate electronic engine control modules, which in turn, govern the
operations of electronically controlled engines. The Company has filed a
motion to obtain a more detailed statement on the basis of this infringement
claim. The Company believes it does not infringe the patent, that it has
meritorious defenses to the claim, and that the proceedings will not have a
material adverse impact on the financial position or results of operations of
the Company.
ITEM 5. OTHER INFORMATION.
On July 8, 1997, Detroit Diesel Corporation and Outboard Marine
Corporation signed a definitive agreement and plan of merger under which a
subsidiary of Detroit Diesel Corporation will acquire Outboard Marine
Corporation ("OMC"). On July 15, 1997, OMC Acquisition Corp., a wholly-owned
subsidiary of the Company, initiated a cash tender offer to purchase 13,842,619
shares of common stock of OMC at a price of $16.00 per share. The tender offer
is scheduled to close on August 11, 1997 unless extended in accordance with the
terms of the offer. In the event the tender offer is consummated, the second
part of the transaction will be the merger of the Company's subsidiary into OMC
pursuant to which the outstanding shares of common stock of OMC will be
exchanged for an aggregate of 4,000,000 shares of common stock of the Company
plus a variable amount of cash based on the closing price of the Company's
common stock. In the merger, each share of then issued and outstanding OMC
common stock (the "Exchanged Common Shares"), shall be converted into the right
to receive (1) a fractional share of Detroit Diesel common stock equal to
4,000,000 divided by the number of Exchanged
14
<PAGE> 15
Common Shares (the "Exchange Ratio") plus (2) a cash payment equal to (i) $16.00
minus (ii) the product of the Exchange Ratio times $25.00, plus (3) in the event
the average closing price on the New York Stock Exchange for Detroit Diesel
common stock for the 20 consecutive trading days ending on the fifth trading day
prior to the closing date of the merger (the "DDC Closing Date Price") is less
than $25.00, then an additional cash payment equal to the product of the
Exchange Ratio multiplied by the lesser of (i) $25.00 minus the DDC Closing Date
Price or (ii) $6.00.
Assuming the issuance of no additional shares of common stock by OMC prior
to the merger, at the effective time of the merger, the holders of the
6,362,896 Exchanged Common Shares of OMC common stock would receive a
combination of 4,000,000 shares of Detroit Diesel common stock and cash.
Assuming a $25.00 DDC Closing Date Price, OMC shareholders in the merger would
thus receive $16.00 of value per OMC share, which value is comprised of 0.6286
shares of Detroit Diesel common stock for each share of OMC common stock and
$0.28 in cash.
The above conversion formula provides that should the DDC Closing Date
Price be less than $25.00, additional cash consideration will be paid to the
holders of the Exchanged Common Shares to maintain the total $16.00 per share
value subject to a minimum value of $19.00 per share of DDC common stock. If
the DDC Closing Date Price exceeds $25.00 per share of DDC common stock, the
Exchange Ratio would remain the same.
Additional details are available in the tender offer documents filed by
the Company with the Securities and Exchange Commission in connection with this
transaction.
On August 11, 1997, OMC exercised its right under the terms of the merger
agreement between DDC and OMC to request DDC to extend its tender offer until
August 25, 1997. OMC also announced on that date that it was reviewing an
alternative tender offer proposal by Greenmarine Acquisition Corp. commenced on
August 8, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
11 Statement Re: Computation of Per Share Earnings
15 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
(b) The Company was not required to file a Form 8-K during the three months
ended June 30, 1997.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DETROIT DIESEL CORPORATION
Date: August 14, 1997 By: /s/ J. Randall Lawrence
-----------------------
J. Randall Lawrence
Its: Senior Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
16
<PAGE> 17
EXHIBIT INDEX
The following constitutes the exhibits to the Quarterly Report on Form
10-Q of the Company for the three and six months ended June 30, 1997:
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ------
2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession 18
11 Statement Re: Computation of Per Share Earnings 54
15 Letter Re: Unaudited Interim Financial Information 55
27 Financial Data Schedule 56
17
<PAGE> 1
EXHIBIT 2
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
DETROIT DIESEL CORPORATION,
OMC ACQUISITION CORP.
AND
OUTBOARD MARINE CORPORATION
DATED AS OF JULY 8, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 The Offer................................................... 1
1.1. The Offer................................................... 1
1.2. Actions By Purchaser and Merger Sub......................... 2
1.3. Actions by the Company...................................... 2
1.4. Directors................................................... 4
ARTICLE 2 The Merger.................................................. 4
2.1. The Merger.................................................. 4
2.2. The Closing................................................. 4
2.3. Effective Time.............................................. 4
ARTICLE 3 Certificate of Incorporation and Bylaws of the Surviving 5
Corporation.................................................
3.1. Certificate of Incorporation................................ 5
3.2. Bylaws...................................................... 5
ARTICLE 4 Directors and Officers of the Surviving Corporation......... 5
4.1. Directors................................................... 5
4.2. Officers.................................................... 5
ARTICLE 5 Effect of the Merger on Securities of Merger Sub and the 5
Company.....................................................
5.1. Merger Sub Stock............................................ 5
5.2. Company Securities.......................................... 5
5.3. Exchange of Certificates Representing Common Stock.......... 6
5.4. Adjustment of Merger Consideration.......................... 8
5.5. Dissenting Company Shareholders............................. 8
ARTICLE 6 Representations and Warranties of the Company............... 8
6.1. Existence; Good Standing; Corporate Authority............... 8
6.2. Authorization, Validity and Effect of Agreements............ 8
6.3. Compliance with Laws........................................ 9
6.4. Capitalization.............................................. 9
6.5. Subsidiaries................................................ 9
6.6. No Violation................................................ 10
6.7. Company Reports; Offer Documents............................ 10
6.8. Absence of Certain Changes.................................. 11
6.9. Taxes....................................................... 12
6.10. Litigation.................................................. 12
6.11. Employee Benefit Plans...................................... 12
6.12. Employment Relations and Agreements......................... 13
6.13. Contracts................................................... 13
6.14. Environmental Laws and Regulations.......................... 13
6.15. Brokers..................................................... 14
6.16. Opinion of Financial Advisor................................ 14
6.17. No Restrictions on the Offer or the Merger.................. 14
6.18. Intellectual Property....................................... 14
ARTICLE 7 Representations and Warranties of Purchaser and Merger 15
Sub.........................................................
7.1. Existence; Good Standing; Corporate Authority............... 15
7.2. Authorization, Validity and Effect of Agreements............ 15
7.3. Offer Documents............................................. 15
7.4. No Violation................................................ 16
7.5. Financing................................................... 16
7.6. Merger Sub.................................................. 16
7.7. Compliance with Laws........................................ 16
7.8. Capitalization.............................................. 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
7.9. Purchaser Reports........................................... 17
7.10. Absence of Certain Changes.................................. 18
7.11. Taxes....................................................... 18
7.12. Litigation.................................................. 18
7.13. Employee Benefit Plans...................................... 18
7.14. Contracts................................................... 19
7.15. Environmental Laws and Regulations.......................... 19
ARTICLE 8 Covenants................................................... 19
8.1. No Solicitation............................................. 19
8.2. Interim Operations of the Company........................... 20
8.2A. Interim Operations of Purchaser and Merger Sub.............. 21
8.3. Company Shareholder Approval; Proxy Statement............... 23
8.4. Filings; Other Action....................................... 24
8.5. Publicity................................................... 24
8.6. Further Action.............................................. 24
8.7. Insurance; Indemnity........................................ 24
8.8. Restructuring of Merger..................................... 26
8.9. Employee Benefit Plans...................................... 26
8.10. Acceleration of Outstanding Indebtedness.................... 26
8.11. Real Property Transfer Taxes................................ 26
ARTICLE 9 Conditions.................................................. 26
9.1. Conditions to Each Party's Obligation to Effect the 26
Merger......................................................
ARTICLE 10 Termination; Amendment; Waiver.............................. 27
10.1. Termination................................................. 27
10.2. Effect of Termination....................................... 27
10.3. Amendment................................................... 28
10.4. Extension; Waiver........................................... 28
ARTICLE 11 General Provisions.......................................... 28
11.1. Nonsurvival of Representations and Warranties............... 28
11.2. Notices..................................................... 28
11.3. Assignment; Binding Effect.................................. 29
11.4. Entire Agreement............................................ 29
11.5. Fees and Expenses........................................... 29
11.6. Governing Law............................................... 29
11.7. Headings.................................................... 29
11.8. Interpretation.............................................. 29
11.9. Severability................................................ 30
11.10. Enforcement of Agreement.................................... 30
11.11. Counterparts................................................ 30
11.12. Obligation of Purchaser..................................... 30
11.13. Certain Definitions......................................... 30
</TABLE>
EXHIBIT
EXHIBIT A Conditions of the Offer
ii
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 8, 1997,
among Detroit Diesel Corporation, a Delaware corporation ("Purchaser"), OMC
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Purchaser ("Merger Sub"), and Outboard Marine Corporation, a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Purchaser and the Company each have
determined that it is in the best interests of their respective companies and
shareholders for Purchaser to acquire the Company upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection herewith;
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE OFFER
1.1. THE OFFER.
(a) Subject to the provisions of this Agreement and this Agreement not
having been terminated in accordance with Article 10 hereof, as promptly as
practicable but in any event within five business days after the first public
announcement of this Agreement, Merger Sub shall commence, within the meaning of
Rule 14d-2 under the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder (the "Exchange Act"), an offer to
purchase 13,842,619 shares of common stock, par value $.15 per share (the
"Common Stock") of the Company at a price of $16.00 per share of Common Stock,
net to the seller in cash (the "Offer"). The obligation of Merger Sub to
commence the Offer and accept for payment, and pay for, any shares of Common
Stock tendered pursuant to the Offer shall be subject to the conditions set
forth in Exhibit A hereto and to the terms and conditions of this Agreement and
no such payment shall be made until after calculation of proration. If proration
of tendered shares is required, the shares purchased from each shareholder
tendering shares will be determined by multiplying 13,842,619 by a fraction, the
numerator of which is the number of shares tendered by such shareholder and the
denominator of which is the number of shares tendered by all tendering
shareholders. Subject to the provisions of this Agreement, the Offer shall
expire 20 business days after the date of its commencement, unless this
Agreement is terminated in accordance with Article 10, in which case the Offer
(whether or not previously extended in accordance with the terms hereof) shall
expire on such date of termination.
(b) Merger Sub expressly reserves the right to modify the terms of the
Offer and to waive any condition of the Offer, except that, without the prior
written consent of the Company, Merger Sub shall not (i) waive the Minimum
Condition (as defined in Exhibit A), (ii) reduce the number of shares of Common
Stock subject to the Offer, (iii) reduce the price per share of Common Stock to
be paid pursuant to the Offer, (iv) change the form of consideration payable in
the Offer, (v) amend or modify any term or condition of the Offer (including the
conditions set forth on Exhibit A) in any manner adverse to the holders of
Common Stock or (vi) impose additional conditions to the Offer other than such
conditions required by applicable Law (as hereinafter defined). So long as this
Agreement is in effect and all the conditions to the Offer have not been
satisfied or waived, at the request of the Company, Merger Sub shall extend the
Offer for an aggregate period of not more than 10 business days (for all
extensions requested by the Company) beyond the originally scheduled expiration
date of the Offer. Notwithstanding the foregoing, so long as this Agreement is
in effect, Merger Sub may, without the consent of the Company, extend the Offer
(i) if at the then scheduled expiration date of the Offer any of the conditions
to Merger Sub's obligation to accept for payment and pay for shares of Common
Stock shall not be satisfied or waived, until such time as such conditions are
satisfied or
1
<PAGE> 5
waived; (ii) for any period required by any rule, regulation, interpretation or
position of the SEC or the staff applicable to the Offer; and (iii) up to 10
days following the satisfaction of all the conditions in Exhibit A; provided,
however, that in no event shall Purchaser extend the Offer for more than 20 days
in the aggregate without the consent of the Company. Subject to the terms and
conditions of the Offer and this Agreement, Merger Sub shall accept for payment
and pay for, in accordance with the terms of the Offer, 13,842,619 shares of
Common Stock, on a fully diluted basis, to the extent validly tendered and not
withdrawn pursuant to the Offer as soon as practicable after the expiration of
the Offer.
1.2. ACTIONS BY PURCHASER AND MERGER SUB.
(a) As soon as reasonably practicable following execution of this
Agreement, but in no event later than five business days from the date hereof,
Purchaser and Merger Sub shall file with the Securities and Exchange Commission
(the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer, which shall contain an offer to purchase and a related letter of
transmittal and any other ancillary documents pursuant to which the Offer shall
be made (such Schedule 14D-1 and the documents therein pursuant to which the
Offer will be made, together with any supplements or amendments thereto, the
"Offer Documents"). The Company and its counsel shall be given a reasonable
opportunity to review and comment upon the Offer Documents prior to the filing
thereof with the SEC. The Offer Documents shall comply as to form in all
material respects with the requirements of the Exchange Act, and, on the date
filed with the SEC and on the date first published, sent or given to the
Company's shareholders, the Offer Documents shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
that no representation is made by Purchaser or Merger Sub with respect to
information supplied in writing by the Company specifically for inclusion in the
Offer Documents. Each of Purchaser, Merger Sub and the Company agrees promptly
to correct any information provided by it for use in the Offer Documents if and
to the extent such information shall have become false or misleading in any
material respect, and each of Purchaser, Merger Sub and the Company further
agrees to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of shares of Common
Stock, in each case as and to the extent required by applicable federal
securities laws. Purchaser and Merger Sub agree to provide the Company and its
counsel in writing with any comments Purchaser, Merger Sub or their counsel may
receive from the SEC or its staff with respect to the Offer Documents promptly
after receipt of such comments.
(b) Purchaser shall provide or cause to be provided to Merger Sub all the
funds necessary to purchase any shares of Common Stock that Merger Sub becomes
obligated to purchase pursuant to the Offer.
1.3. ACTIONS BY THE COMPANY.
(a) The Company hereby approves of and consents to the Offer and represents
and warrants that the Board of Directors of the Company (the "Board of
Directors" or the "Board") at a meeting duly called and held has duly adopted
resolutions (i) approving this Agreement, the Offer and the Merger (as
hereinafter defined), determining that the Merger is advisable and that the
terms of the Offer and Merger are fair to, and in the best interests of, the
Company's shareholders and recommending that the Company's shareholders accept
the Offer and approve the Merger and this Agreement, and (ii) taking all action
necessary to render Section 203 of the Delaware General Corporation Law (the
"DGCL"), Article Eighteenth of the Company's Restated Certificate of
Incorporation and the provisions of the Rights Agreement, dated as of April 24,
1996, between the Company and First Chicago Trust Company of New York
inapplicable to the Offer, the Merger, this Agreement and any of the
transactions contemplated hereby. The Company further represents and warrants
that the Board of Directors has received the written opinion of Salomon Brothers
Inc (the "Financial Advisor") that the proposed consideration to be received by
the holders of shares of Common Stock pursuant to the Offer and the Merger is
fair to such holders from a financial point of view (the "Fairness Opinion").
The Company hereby consents to the inclusion in the Offer Documents, subject to
prior review and consent by the Company, of the recommendation of the Board of
Directors described in the first sentence of this Section 1.3(a). The Company
hereby represents and warrants that it has been authorized by the Financial
Advisor to permit the inclusion of the Fairness Opinion, and, subject to the
reasonable approval of the
2
<PAGE> 6
Financial Advisor, the inclusion of references to such Fairness Opinion, in the
Offer Documents, the Schedule 14D-9 (as hereinafter defined) and the Proxy
Statement (as hereinafter defined). The Company has been advised by each of its
directors and executive officers that each such person intends to tender all
shares of Common Stock owned by such person pursuant to the Offer, except to the
extent of any restrictions created by Section 16(b) of the Exchange Act. If the
Board of Directors determines based on the advice of counsel that its fiduciary
duties require it to withdraw, modify or amend its recommendations described
above, such withdrawal, amendment or modification shall not constitute a breach
of this Agreement but shall have the effects specified herein.
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to
time, the "Schedule 14D-9") containing the recommendations described in the
first sentence of Section 1.3(a) (subject to the last sentence of Section
1.3(a)) and shall mail the Schedule 14D-9 to the shareholders of the Company. To
the extent practicable, the Company shall cooperate with Purchaser in mailing or
otherwise disseminating the Schedule 14D-9 with the appropriate Offer Documents
to the Company's shareholders. Purchaser and its counsel shall be given a
reasonable opportunity to review and comment upon the Schedule 14D-9 prior to
the filing thereof with the SEC. The Schedule 14D-9 shall comply as to form in
all material respects with the requirements of the Exchange Act and, on the date
filed with the SEC and on the date first published, sent or given to the
Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Purchaser or Merger Sub for inclusion in the Schedule 14D-9. Each of the
Company, Purchaser and Merger Sub agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 if and to the extent such
information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and to be disseminated to the
holders of shares of Common Stock, in each case as and to the extent required by
applicable federal securities laws. The Company agrees to provide Purchaser and
Merger Sub and their counsel in writing with any comments the Company or its
counsel may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to assist Merger Sub in compiling mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of those
persons becoming record holders subsequent to such date, and to furnish copies
of other information in the Company's possession or control regarding the
beneficial owners of Common Stock, and shall furnish to Merger Sub such
information and assistance (including updated lists of shareholders, security
position listings and computer files) as Merger Sub may reasonably request in
communicating the Offer to the Company's shareholders. Subject to the
requirements of law, and except for such steps as are necessary to disseminate
the Offer Documents and any other documents necessary to consummate the Offer
and the Merger, Purchaser and Merger Sub and each of their affiliates and
associates shall hold in confidence the information contained in any of such
labels, lists and files, shall use such information only in connection with the
Offer and the Merger, and, if this Agreement is terminated, shall promptly
deliver to the Company all copies of such information then in their possession
or under their control.
(d) Subject to the terms and conditions of this Agreement, if there shall
occur a change in law or in a binding judicial interpretation of existing law
which would, in the absence of action by the Company or the Board, prevent the
Merger Sub, were it to acquire a specified percentage of the shares of Common
Stock then outstanding, from approving and adopting this Agreement by its
affirmative vote as the holder of 67% of the issued and outstanding shares of
Common Stock and without the affirmative vote of any other shareholder, the
Company will use its best efforts to promptly take or cause such action to be
taken, or, at the election of the Purchaser prior to consummation of the Offer,
this Agreement shall terminate.
3
<PAGE> 7
1.4. DIRECTORS.
(a) Upon the purchase of shares of Common Stock pursuant to the
consummation of the Offer, Purchaser shall be entitled to designate such number
of directors, rounded up to the next whole number, as will give Purchaser
representation on the Board of Directors equal to the product of (i) the number
of directors on the Board of Directors and (ii) the percentage that the number
of shares of Common Stock purchased by Merger Sub or Purchaser or any affiliate
thereof bears to the aggregate number of shares of Common Stock outstanding (the
"Percentage"), and the Company shall, upon request by Purchaser, promptly
increase the size of the Board of Directors or exercise its reasonable efforts
to secure the resignations of such number of directors as is necessary to enable
Purchaser's designees to be elected to the Board of Directors and shall cause
Purchaser's designees to be so elected. At the request of Purchaser, the Company
will use its reasonable efforts to cause such individuals designated by
Purchaser to constitute the same Percentage of (i) each committee of the Board,
(ii) the board of directors of each Subsidiary (as hereinafter defined) and
(iii) the committees of each such board of directors. The Company's obligations
to seek to appoint designees to the Board of Directors shall be subject to
Section 14(f) of the Exchange Act. The Company shall take all reasonably
appropriate action necessary to effect any such election and shall, subject to
the next succeeding sentence, include in the Schedule 14D-9 the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder. Purchaser will supply to the Company in writing and be solely
responsible for any information with respect to itself and its nominees,
directors and affiliates required by Section 14(f) and Rule 14f-1.
Notwithstanding the foregoing, the parties hereto shall use their respective
reasonable efforts to ensure that at least three of the members of the Board of
Directors shall at all times prior to the Effective Time (as hereinafter
defined) be Continuing Directors (as hereinafter defined).
(b) Following the election or appointment of Purchaser's designees pursuant
to this Section 1.4 and prior to the Effective Time, the approval of a majority
of the directors of the Company then in office who are not designated by
Purchaser (the "Continuing Directors") shall be required to authorize (and such
authorization shall constitute the authorization of the Board of Directors and
no other action on the part of the Company, including any action by any other
director of the Company, shall be required to authorize) any termination of this
Agreement by the Company, any amendment of this Agreement requiring action by
the Board of Directors, any extension of time for the performance of any of the
obligations or other acts of Purchaser or Merger Sub, and any waiver of
compliance with any of the agreements or conditions contained herein for the
benefit of the Company.
ARTICLE 2
THE MERGER
2.1. THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, Merger Sub shall be merged with and into the Company in
accordance with this Agreement and the applicable provisions of the DGCL, and
the separate corporate existence of Merger Sub shall thereupon cease (the
"Merger"). The Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"). The Merger
shall have the effects specified in the DGCL.
2.2. THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Detroit Diesel Corporation, 13400 Outer Drive, West, Detroit, Michigan
48239-4001, as soon as practicable following the satisfaction (or waiver if
permissible) of the conditions set forth in Article 9. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
2.3. EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article 9 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware
4
<PAGE> 8
in accordance with the DGCL or at such later time which the parties hereto shall
have agreed upon and designated in such filing as the effective time of the
Merger (the "Effective Time").
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
3.1. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Merger Sub in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law and the terms thereof.
3.2. BYLAWS. The Bylaws of Merger Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law, the terms thereof and the Surviving
Corporation's Certificate of Incorporation.
ARTICLE 4
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
4.1. DIRECTORS. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law and the Surviving Corporation's Certificate of
Incorporation and Bylaws.
4.2. OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law and the Surviving Corporation's Certificate of
Incorporation and Bylaws.
ARTICLE 5
EFFECT OF THE MERGER ON SECURITIES
OF MERGER SUB AND THE COMPANY
5.1. MERGER SUB STOCK. At the Effective Time, each share of common stock,
$0.01 par value per share, of Merger Sub outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock, $0.01 par value per share,
of the Surviving Corporation.
5.2. COMPANY SECURITIES.
(a) At the Effective Time, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of Common
Stock owned by Purchaser or Merger Sub or held by the Company, all of which
shall be cancelled, and other than shares of Dissenting Common Stock (as
hereinafter defined)) (the "Exchanged Common Shares") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive (1) 4,000,000 divided by the number of Exchanged
Common Shares (the "Exchange Ratio") shares of fully paid and nonassessable
common shares of Purchaser ("Purchaser Common Shares") plus (2) a cash payment
equal to (i) $16.00 minus (ii) the product of the Exchange Ratio times $25, plus
(3) in the event the average closing price on the New York Stock Exchange for
Purchaser Common Shares for the 20 consecutive trading days ending on the fifth
trading day prior to the Closing Date (the "Closing Date Market Price") is less
than $25.00, then an additional cash payment equal to the product of the
Exchange Ratio multiplied by the lesser of (i) $25.00 minus the Closing Date
Market Price or (ii) $6.00 (the "Merger Consideration").
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all shares of Common Stock shall cease to
be outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of shares of Common Stock (other than Merger Sub, Purchaser and the
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Company) shall thereafter cease to have any rights with respect to such shares
of Common Stock, except the right to receive, without interest, the Merger
Consideration in accordance with Section 5.3 upon the surrender of a certificate
or certificates (a "Certificate") representing such shares of Common Stock.
(c) Each share of Common Stock issued and held in the Company's treasury at
the Effective Time shall, by virtue of the Merger, cease to be outstanding and
shall be cancelled and retired without payment of any consideration therefor.
(d) The Company shall use reasonable efforts to ensure that all outstanding
stock options (individually, an "Option" and, collectively, the "Options"),
performance share awards (individually, a "Performance Share" and, collectively,
the "Performance Shares") and phantom restricted stock awards (individually, a
"Phantom Restricted Stock Award" and, collectively, the "Phantom Restricted
Stock Awards") heretofore granted under any plan, program or arrangement of the
Company (collectively, the "Incentive Equity Plans") that are outstanding
immediately prior to the Effective Time shall be acquired by the Company at the
Effective Time for cash payments by the Company as follows:
(i) With respect to Options, an amount equal to (A) the excess, if
any, of (1) (I) for all option holders who are not officers or directors of
the Company for purposes of Section 16 of the Exchange Act, the cash value
of 33% of the per share Merger Consideration payable with respect to the
Common Stock plus $10.72, and (II) for all option holders who are officers
or directors of the Company for purposes of Section 16 of the Exchange Act,
the greater of (x) the cash value of 33% of the per share Merger
Consideration payable with respect to the Common Stock plus $10.72 or (y)
the highest closing price of the Common Stock on the New York Stock
Exchange during the 180-day period preceding the date on which the
purchases of shares of Common Stock pursuant to the Offer is consummated
over (2) the exercise price per share of Common Stock subject to the
Option, multiplied by (B) the number of shares of Common Stock for which
the Option shall not have theretofore been exercised;
(ii) With respect to Performance Shares, an amount equal to the
product of (A) (1) the number of Performance Shares covered by the award
multiplied by (2) a fraction, the numerator of which is the number of days
that shall have then elapsed in the applicable three-year performance cycle
and the denominator of which is 1,095, and (B) the "Payment Value" (as
defined in the Company's 1994 LongTerm Incentive Plan or Executive Equity
Incentive Plan, as the case may be) specified in the agreement evidencing
the subject Performance Share award; and
(iii) With respect to Phantom Restricted Stock Awards, an amount equal
to (A) (I) the number of Phantom Restricted Stock Awards covered by the
award multiplied by (II) the cash value of 33% of the per share Merger
Consideration payable with respect to the Common Stock plus $10.72 plus (B)
the cash value of dividend equivalents credited to the Phantom Restricted
Stock Awards covered by the award.
Either prior to or as soon as practicable following the consummation of the
Offer, the Board of Directors (or, if appropriate, the Compensation Committee of
the Board of Directors) shall adopt such resolutions or take other such actions
as are required to cause any Options that are not exercisable as of the date
hereof to become exercisable, to cause any Performance Share awards (prorated in
accordance with clause (ii)(A) of this Section 5.2(d)) that are not payable as
of the date hereof to become payable, and to cause any Phantom Restricted Stock
Awards (and dividend equivalents credited to the shares of phantom restricted
stock covered thereby) that are not payable, as of the date hereof to become
payable at the Effective Time. All amounts payable pursuant to this Section
5.2(d) shall be subject to any required withholding of taxes and shall be paid
without interest.
5.3. EXCHANGE OF CERTIFICATES REPRESENTING COMMON STOCK.
(a) Prior to the Effective Time, Purchaser shall appoint a commercial bank
or trust company having net capital of not less than $200 million, or such other
party reasonably satisfactory to the Company, to act as paying agent hereunder
for payment or exchange of the Merger Consideration upon surrender of
Certificates (the "Paying Agent"). Purchaser shall cause the Surviving
Corporation to provide the Paying Agent with cash in amounts necessary to pay
for and certificates necessary for the exchange of Purchaser Common Shares for
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all the shares of Common Stock pursuant to Section 5.2(a) and, in connection
with the Options, Performance Shares and Phantom Restricted Stock Awards
pursuant to Section 5.2(d), as and when such amounts are needed by the Paying
Agent. Such amounts and certificates shall hereinafter be referred to as the
"Exchange Fund."
(b) Promptly after the Effective Time, Purchaser shall cause the Paying
Agent to mail to each holder of record of shares of Common Stock (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to such Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and which letter shall be in such form and have
such other provisions as Purchaser may reasonably specify and (ii) instructions
for effecting the surrender of such Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate to the Paying Agent together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may reasonably be required by
the Paying Agent, the holder of such Certificate shall promptly receive in
exchange therefor the Merger Consideration payable with respect to the shares of
Common Stock represented by such Certificate pursuant to this Agreement plus any
cash payment owed with respect to fractional shares of Purchaser Common Shares
and the shares represented by the Certificate so surrendered shall forthwith be
cancelled. Notwithstanding the foregoing, no certificates or scrip representing
fractional Purchaser Common Shares will be issued upon the surrender for
exchange of Certificates, and each holder of a fractional Purchaser Common Share
shall be paid, upon surrender of such Certificate, an amount in cash equal to
the product obtained by multiplying (i) such fractional interest to which such
holder (after taking into account all fractional Purchaser Common Shares then
held by such holder) would otherwise be entitled by (ii) the Closing Date Market
Price. As promptly as practicable after the determination of the amount of cash,
if any, to be paid to holders of fractional Purchaser Common Shares, the Paying
Agent shall so notify the Surviving Corporation, and the Surviving Corporation
shall cause the Paying Agent to forward payment to such holders of fractional
Purchaser Common Shares. No interest will be paid or will accrue on the cash
payable upon surrender of any Certificate. In the event of a transfer of
ownership of Common Stock which is not registered in the transfer records of the
Company, payment may be made with respect to such Common Stock to such a
transferee if the Certificate representing such shares of Common Stock is
presented to the Paying Agent, accompanied by all documents reasonably required
to evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged as provided in this Article 5.
(d) Any portion of the Exchange Fund (including the proceeds of any
interest and other income received by the Paying Agent in respect of all such
funds) that remains unclaimed by the former shareholders of the Company one year
after the Effective Time shall be delivered to the Surviving Corporation. Any
former shareholders of the Company who have not theretofore complied with this
Article 5 shall thereafter look only to the Surviving Corporation for payment of
any Merger Consideration that may be payable in respect of each share of Common
Stock such shareholder holds as determined pursuant to this Agreement, without
any interest thereon.
(e) None of Purchaser, the Company, the Surviving Corporation, the Paying
Agent or any other person shall be liable to any former holder of shares of
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(f) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation, the
posting by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Paying Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
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(g) Except as otherwise provided herein, Purchaser shall pay all charges
and expenses, including those of the Paying Agent, in connection with the
exchange of the Merger Consideration for Certificates.
5.4. ADJUSTMENT OF MERGER CONSIDERATION. If, subsequent to the date of this
Agreement but prior to the Effective Time, the outstanding shares of Common
Stock or Purchaser Common Shares shall have been changed into a different number
of shares or a different class as a result of a stock split, reverse stock
split, stock dividend, distribution (other than normal cash dividends as
provided in this Agreement), subdivision, reclassification, split, combination,
exchange, recapitalization or other similar transaction, the Merger
Consideration shall be appropriately adjusted.
5.5. DISSENTING COMPANY SHAREHOLDERS. Notwithstanding any provision of this
Agreement to the contrary, if required by the DGCL but only to the extent
required thereby, shares of Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of Common Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "Dissenting Common
Stock") will not be exchangeable for the right to receive the Merger
Consideration, and holders of such shares of Dissenting Common Stock will be
entitled to receive payment of the appraised value of such shares of Common
Stock in accordance with the provisions of such Section 262 unless and until
such holders fail to perfect or effectively withdraw or lose their rights to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
shares of Common Stock will thereupon be treated as if they had been converted
into and to have become exchangeable for, at the Effective Time, the right to
receive the Merger Consideration, without any interest thereon. The Company will
give Purchaser notice of any demands received by the Company for appraisals of
shares of Common Stock. The Company shall not, except with the prior written
consent of Purchaser, make any payment with respect to any demands for appraisal
or settle any such demands.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections of the disclosure letter,
dated the date hereof, delivered by the Company to Purchaser (the "Disclosure
Letter"), the Company hereby represents and warrants to Purchaser and Merger Sub
as follows:
6.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each of the Company and
its Subsidiaries is (i) a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation and (ii) is
duly licensed or qualified to do business as a foreign corporation and is in
good standing under the laws of any other state of the United States or the laws
of any foreign jurisdiction, if applicable, in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where the failure to be so qualified
or to be in good standing would not have a material adverse effect on the
business, results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole or on the ability of the Company to consummate
the transactions contemplated by this Agreement (a "Material Adverse Effect").
Each of the Company and its Subsidiaries has all requisite corporate power and
authority to own, operate and lease its properties and carry on its business as
now conducted except where the failure to have such power and authority would
not have a Material Adverse Effect. The Company has heretofore made available to
Purchaser true and correct copies of the Certificate of Incorporation and Bylaws
of the Company and each of its Subsidiaries as currently in effect.
6.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby or executed in connection
herewith (the "Ancillary Documents") and subject, if required with respect to
the consummation of the Merger, to the approval of holders of the Common Stock,
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Ancillary Documents by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors, and no
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other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the Ancillary Documents or to consummate the
transactions contemplated hereby and thereby (other than the approval of this
Agreement and the Merger by the holders of the Common Stock). This Agreement has
been, and any Ancillary Document at the time of execution will have been, duly
and validly executed and delivered by the Company, and (assuming this Agreement
and such Ancillary Documents each constitutes a valid and binding obligation of
Purchaser and Merger Sub) constitutes and will constitute the valid and binding
obligations of the Company, and the Agreement is enforceable in accordance with
its terms (subject to the approval of this Agreement and the Merger by the
holders of the Common Stock).
6.3. COMPLIANCE WITH LAWS. Except as set forth in the Disclosure Letter,
neither the Company nor any of its Subsidiaries is in violation of, and the
consummation of the transactions contemplated by this Agreement will not result
in any violation of, any foreign, federal, state or local law, statute,
ordinance, rule, regulation, order, judgment, ruling or decree ("Laws") of any
foreign, federal, state or local judicial, legislative, executive,
administrative or regulatory body or authority or any court, arbitration, board
or tribunal ("Governmental Entity") applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, except for
violations which would not have a Material Adverse Effect, which compliance
includes, but is not limited to, the possession by the Company and its
Subsidiaries of all licenses, permits and other governmental authorizations
required under applicable Laws and compliance with the terms and conditions
thereof (collectively, "Permits"), except where the failure of the Company or
its Subsidiaries to possess such licenses, permits and authorizations, or comply
with the terms and conditions thereof, would not, individually or in the
aggregate, have a Material Adverse Effect. The completion of the transactions
contemplated by this Agreement will not result in the lapse or termination of
any Permits, other than such lapse or termination which would not have a
Material Adverse Effect.
6.4. CAPITALIZATION. The authorized capital stock of the Company consists
of 90,000,000 shares of Common Stock and 3,000,000 shares of preferred stock,
$10.00 par value ("Preferred Stock"). As of June 30, 1997, (a) 20,205,515 shares
of Common Stock were issued and outstanding, (b) Options to purchase an
aggregate of 1,426,725 shares of Common Stock were outstanding, (c) 129,716
shares of Common Stock were held by the Company in its treasury, and (d) no
shares of capital stock of the Company were held by the Company's Subsidiaries.
The Company has no outstanding bonds, debentures, notes or other obligations
entitling the holders thereof to vote (or which are convertible into or
exercisable for securities having the right to vote) with the shareholders of
the Company on any matter. Since June 30, 1997, the Company (i) has not issued
any shares of Common Stock, other than upon the exercise of Options, or
Preferred Stock, (ii) has granted no Options to purchase shares of Common Stock
under the Incentive Equity Plans and (iii) has not split, combined, converted or
reclassified any of its shares of capital stock. All issued and outstanding
shares of Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in this Section
6.4 or in the Disclosure Letter, there are no other shares of capital stock or
voting securities of the Company, and no existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock of, or equity interests in, the
Company or any of its Subsidiaries. Except as provided under the Incentive
Equity Plans, there are no equity equivalents, interests in the ownership or
earnings of the Company or its Subsidiaries, or similar rights authorized,
issued or outstanding similar to those under Incentive Equity Plans. Except as
set forth in the Disclosure Letter, there are no outstanding obligations of the
Company or any Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company and there are no performance awards
outstanding under the Incentive Equity Plan or any other outstanding
stock-related awards. There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries or, to the
knowledge of the Company, any of the Company's directors or executive officers
is a party with respect to the voting of capital stock of the Company or any of
its Subsidiaries.
6.5. SUBSIDIARIES. Except as set forth in the Disclosure Letter, (i) the
Company owns, directly or indirectly through a Subsidiary, all the outstanding
shares of capital stock (or other ownership interests having by their terms
ordinary voting power to elect directors or others performing similar functions
with respect to such Subsidiary) of each of the Company's Subsidiaries (except
for director qualifying and similar shares),
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and (ii) each of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect directors or
others performing similar functions with respect to such Subsidiary) of each of
the Company's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and (except for director qualifying and similar shares) is owned,
directly or indirectly, by the Company free and clear of all liens, pledges,
security interests, claims or other encumbrances ("Encumbrances").
6.6. NO VIOLATION. Except as set forth in the Disclosure Letter, neither
the execution and delivery by the Company of this Agreement or any of the
Ancillary Documents nor the consummation by the Company of the transactions
contemplated hereby or thereby will: (i) violate, conflict with or result in a
breach of any provisions of the Certificate of Incorporation or Bylaws of the
Company or comparable governing instruments of any of its Subsidiaries; (ii)
violate, conflict with, result in a breach of any provision of, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit obtainable
under, result in the triggering of any payment, penalty or other obligations
pursuant to, result in the creation of any Encumbrance upon any of the
properties of the Company or its Subsidiaries under, or result in there being
declared void, voidable, or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture or other
obligation for borrowed money to which the Company or any of its Subsidiaries is
a party, or by which the Company or any of its Subsidiaries or any of their
respective properties is bound (each, a "Contract" and, collectively,
"Contracts"), except for any such breach, default or right with respect to which
requisite waivers or consents have been, or prior to the Effective Time will be,
obtained or any of the foregoing matters which would not have a Material Adverse
Effect; (iii) require any consent, approval or authorization of, license, permit
or waiver by, or declaration, filing or registration (collectively, "Consents")
with, any Governmental Entity, including any such Consent under the Laws of any
foreign jurisdiction, other than (x) the filings provided for in Section 2.3 and
the filings required under the Exchange Act and the Securities Act of 1933, as
amended (the "Securities Act"), and (y) the filing required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the filing
required under the Exon-Florio Amendment to the Defense Production Act of 1950
("Exon-Florio Amendment"), and any Consents required or permitted to be obtained
pursuant to the Laws of any foreign jurisdiction relating to antitrust matters
or competition ("Foreign Antitrust Laws") (collectively, "Other Antitrust
Filings and Consents," and, together with the other filings described in clauses
(x) and (y) above, "Regulatory Filings"), except for those Consents the failure
of which to obtain or make would not, individually or in the aggregate, have a
Material Adverse Effect; or (iv) violate any Laws applicable to the Company or
any of its Subsidiaries, except for violations which would not, individually or
in the aggregate, have a Material Adverse Effect.
6.7. COMPANY REPORTS; OFFER DOCUMENTS.
(a) The Company has delivered or otherwise made available to Purchaser each
registration statement, report, proxy statement or information statement (as
defined under the Exchange Act) filed by it since September 30, 1994, each in
the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "Company Reports"). As of their respective dates, the Company
Reports (i) complied as to form in all material respects with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, taken as a whole and in the light
of the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
is true and complete in all material respects and fairly presents the
consolidated financial position of the Company and its Subsidiaries as of its
respective date, and each of the consolidated statements of income, retained
earnings and cash flows of the Company included in or incorporated by reference
into the Company Reports (including any related notes and schedules) is true and
complete in all material respects and fairly presents the results of operations,
retained earnings or cash flows, as the case may be, of the Company and its
Subsidiaries for the periods set forth therein in accordance with United States
generally accepted accounting principles, consistently applied during the
periods involved, except as may be noted therein. Except as disclosed in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, or
the Company's audited financial statements included in the Company's
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Annual Report on Form 10-K for the year ended September 30, 1996 neither the
Company nor its Subsidiaries has any material liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on, or reserved against in, a balance sheet of the
Company or in the notes thereto, prepared in accordance with generally accepted
accounting principles consistently applied, except liabilities and obligations
arising in the ordinary course of business since March 31, 1997 and except for
liabilities or obligations that would not constitute a Material Adverse Effect.
The Company has heretofore made available or promptly will make available to
Purchaser a complete and correct copy of any amendments or modifications, which
have not yet been filed with the SEC, to agreements, documents or other
instruments which previously have been filed by the Company with the SEC as
exhibits to the Company Reports.
(b) None of the Schedule 14D-9, any information statement filed by the
Company in connection with the Offer (the "Information Statement"), any schedule
required to be filed by the Company with the SEC and any amendment or supplement
thereto, at the respective times such documents are filed with the SEC or first
published, sent or given to the Company's shareholders, will contain any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading except that
no representation is made by the Company with respect to information supplied by
Purchaser or Merger Sub for inclusion in the Schedule 14D-9 or Information
Statement or any amendment or supplement. None of the information supplied or to
be supplied by the Company expressly for inclusion or incorporation by reference
in the Offer Documents will, at the date of filing with the SEC or first
publication, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. If, at any time prior to the Effective Time, the Company
shall obtain knowledge of any facts with respect to itself, any of its officers
and directors or any of its Subsidiaries that would require the supplement or
amendment to any of the foregoing documents in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or to comply with applicable Laws, such amendment or supplement
shall be promptly filed with the SEC and, as required by Law, disseminated to
the shareholders of the Company, and in the event Purchaser shall advise the
Company as to its obtaining knowledge of any facts that would make it necessary
to supplement or amend any of the foregoing documents, the Company shall
promptly amend or supplement such document as required and distribute the same
to its shareholders.
(c) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by Purchaser in connection with the issuance
of Purchaser Common Shares in the Merger (such S-4, and all amendments and
supplements thereto, the "S-4") will, at the time the S-4 is filed with the SEC
and at the time it becomes effective under the Securities Act, 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 not misleading,
and (ii) the joint proxy statement/prospectus included in the S-4 (such proxy
statement, and all amendments and supplements thereto, the "Proxy Statement")
will, at the date of mailing to shareholders and at the times of the meetings of
shareholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The Proxy
Statement (except for such portions thereof that relate only to Purchaser) will
comply as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations of the SEC thereunder.
6.8. ABSENCE OF CERTAIN CHANGES. Except as set forth in the Company Reports
or the Disclosure Letter, during the period from September 30, 1996 through the
date of this Agreement, the Company and its Subsidiaries have conducted their
business in the ordinary course of such business consistent with past practices,
and there have not been (i) any events or states of fact which individually, or
in the aggregate, would have a Material Adverse Effect; (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
its capital stock other than the regular quarterly dividend declared and paid in
the first three quarters of fiscal 1997; (iii) any repurchase, redemption or any
other acquisition by the Company or its Subsidiaries of any outstanding shares
of capital stock or other securities of, or other ownership interests in,
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the Company or its Subsidiaries; (iv) any material change in accounting
principles, practices or methods; (v) any entry into any employment agreement
with, or any material increase in the rate or terms (including, without
limitation, any acceleration of the right to receive payment) of compensation
payable or to become payable by the Company or any of its Subsidiaries to, their
respective directors, officers or employees, except for increases occurring in
the ordinary course of business in accordance with their customary practices and
employment agreements entered into in the ordinary course of business; (vi) any
material increase in the rate or terms (including, without limitation, any
acceleration of the right to receive payment) of any bonus, insurance, pension
or other employee benefit plan or arrangement covering any such directors,
officers or employees, except increases occurring in the ordinary course of
business in accordance with its customary practices; (vii) any revaluation by
the Company or any of its Subsidiaries of any material amount of their assets,
taken as a whole, including, without limitation, write-downs of inventory or
write-offs of accounts receivable other than in the ordinary course of business
consistent with past practices and (viii) any amendment or change to the
Certificate of Incorporation or Bylaws or comparable governing instruments of
the Company or any of its Subsidiaries.
6.9. TAXES. Except as set forth in the Disclosure Letter, the Company and
each of its Subsidiaries have timely filed all material Tax Returns required to
be filed by any of them. All such Tax Returns are true, correct and complete,
except for such instances, if any, which would not, individually or in the
aggregate, have a Material Adverse Effect. All Taxes of the Company and its
Subsidiaries which are (i) shown as due on such Returns, (ii) otherwise due and
payable or (iii) claimed or asserted by any taxing authority to be due, have
been paid, except for those Taxes being contested in good faith and for which
adequate reserves have been established in the financial statements included in
the Company Reports in accordance with generally accepted accounting principles,
consistently applied. There are no proposed or, to the knowledge of the Company,
threatened Tax claims or assessments which, if upheld, would, individually or in
the aggregate, have a Material Adverse Effect. Except as set forth in the
Disclosure Letter, the Company and each Subsidiary have withheld and paid over
to the relevant taxing authority all Taxes required to have been withheld and
paid in connection with payments to employees, independent contractors,
creditors, shareholders or other third parties, except where the failure to
withhold and pay would not, individually or in the aggregate, have a Material
Adverse Effect. For purposes of this Agreement, (a) "Tax" (and, with correlative
meaning, "Taxes") means any federal, state, local or foreign income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
premium, withholding, alternative or added minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any Governmental Entity, and (b) "Tax Return" means any
return, report or similar statement required to be filed with respect to any Tax
(including any attached schedules), including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
6.10. LITIGATION. As of the date of this Agreement, except as disclosed in
the Disclosure Letter, there are no actions, suits, or proceedings pending
against the Company or its Subsidiaries or, to the knowledge of the Company,
threatened against the Company or its Subsidiaries at law or in equity, or
before or by any federal or state commission, board, bureau, agency,
instrumentality or any arbitrator or arbitration, tribunal, that, if decided
adversely, individually or in the aggregate would have a Material Adverse
Effect.
6.11. EMPLOYEE BENEFIT PLANS.
(a) Except as disclosed in the Disclosure Letter, the Company has complied
with and performed all contractual obligations and all obligations under
applicable federal, state, and local laws, rules and regulations (domestic and
foreign) required to be performed by it under or with respect to any of the
Company Benefit Plans (as hereinafter defined) or any related trust agreement or
insurance contract, other than where the failure to so comply or perform will
not have a Material Adverse Effect. All contributions and other payments
required to be made by the Company to any Company Benefit Plan or Multi-Employer
Plan (as hereinafter defined), prior to the date hereof have been made, other
than where the failure to so contribute or make payments will not have a
Material Adverse Effect. Except as disclosed in the Disclosure Letter, there is
no claim, dispute, grievance, charge, complaint, restraining or injunctive
order, litigation, or proceeding pending, or, to the Company's knowledge,
threatened (other than routine claims for benefits) against or relating to any
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Company Benefit Plan or against the assets of any Company Benefit Plan, which
will have, individually or in the aggregate, a Material Adverse Effect.
(b) Neither the Company nor its Subsidiaries has incurred, nor has any
event occurred which has imposed or is reasonably likely to impose, upon the
Company any withdrawal liability (partial or complete) in respect of any
multi-employer plan (within the meaning of Section 3(37) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("Multi-Employer
Plan"), which withdrawal liability has not been satisfied or discharged in full
or which, either individually or in the aggregate, will cause a Material Adverse
Effect.
(c) (i) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life
insurance, severance, separation or other employee benefit plan, practice,
policy or arrangement of any kind, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA and (ii) "Company
Benefit Plan" means any employee pension benefit plan and any Plan, other than a
Multi-Employer Plan, established by the Company or to which the Company
contributes or has contributed (including any such Plans not now maintained by
the Company or to which the Company does not now contribute, but with respect to
which the Company has or may have any liability).
6.12. EMPLOYMENT RELATIONS AND AGREEMENTS. (a) Except as disclosed in the
Disclosure Letter or as would not constitute a Material Adverse Effect, as of
the date of this Agreement, (i) no unfair labor practice complaint against the
Company or any of its Subsidiaries is pending before the National Labor
Relations Board; (ii) there is no, and has not been during the last three years,
any labor strike, slowdown or stoppage actually pending which may interfere with
the business activities of the Company or its Subsidiaries; (iii) no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and no claim therefore has been asserted; and (iv) no collective
bargaining agreement is currently being negotiated by the Company or any of its
Subsidiaries.
(b) Except as disclosed in the Disclosure Letter, to the knowledge of the
Company, neither the Company nor its Subsidiaries has any employment agreement
with any other person that could have a Material Adverse Effect.
(c) There are no work stoppages or any actual or, to the Company's
knowledge, threatened termination or modification of the business relationships
of the Company or any of its Subsidiaries with any of their customers or
suppliers, that would have a Material Adverse Effect, except to the extent
commencing after the public announcement of, and arising out of or relating to,
the transactions contemplated hereby.
6.13. CONTRACTS. Except as set forth in the Company Reports or disclosed in
the Disclosure Letter, neither the Company nor its Subsidiaries is a party to or
bound by (i) any "material contract" (as such term is defined in Item 601(b)(10)
of Regulation S-K of the SEC), or (ii) any non-competition agreement or other
agreement which purports to limit in any material respect the manner in which,
or the location in which, all or any material portion of the business of the
Company and its Subsidiaries is conducted (all contracts of the type described
in clauses (i) and (ii) being referred to herein as "Material Contracts"). Each
Material Contract is valid and binding on the Company (or, to the extent a
Subsidiary of the Company is a party, such Subsidiary) and is in full force and
effect, and the Company and each of its Subsidiaries have in all material
respects performed all obligations required to be performed by them to date
under each Material Contract, except where noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect. The Company does not know
of, and has not received notice of, any violation or default under (nor, to the
knowledge of the Company, does there exist any condition which with the passage
of time or the giving of notice or both would result in such a violation or
default under) any Material Contract, which default would have a Material
Adverse Effect.
6.14. ENVIRONMENTAL LAWS AND REGULATIONS. (a) As of the date of this
Agreement, except as disclosed in the Company Reports or the Disclosure Letter,
(i) neither the Company nor any of its Subsidiaries has received written notice
of, or, to the knowledge of the Company, is the subject of, any action, cause of
action,
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<PAGE> 17
claim, investigation, demand or notice by any person or entity alleging
liability under or non-compliance with any Law relating to pollution or
protection of human health or the environment (including without limitation
ambient air, surface water, ground water, land surface or surface strata) (an
"Environmental Claim") that individually or in the aggregate would have a
Material Adverse Effect; and (ii) to the knowledge of the Company, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.
(b) As of the date of this Agreement, except as disclosed in the Company
Reports or the Disclosure Letter, there are no Environmental Claims which
individually or in the aggregate would have a Material Adverse Effect that are
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or, to the knowledge of the Company, against any person
or entity whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
(c) As of the date of this Agreement, except as disclosed in the Company
Reports or the Disclosure Letter, there has been no spill, discharge, leak,
emission, injection, disposal, escape, dumping or release of any kind by the
Company or its Subsidiaries on, beneath or above the real property owned by the
Company or any of its Subsidiaries, or the real property leased, used, or in
which any other interest is maintained by the Company and its Subsidiaries at
the Effective Time or, to the knowledge of the Company, previously owned by,
used by or leased to the Company or any Subsidiary (collectively, the
"Property") or into the environment surrounding the Property of any pollutants,
contaminants, hazardous substances, hazardous chemicals, toxic substances,
hazardous wastes, infectious wastes, radioactive materials, petroleum (including
crude oil or any fraction thereof), asbestos fibers or solid wastes
(collectively, "Hazardous Materials"), including but not limited to those
defined in any Law and all regulations promulgated under each and all amendments
thereof, or any other federal, state or local environmental law, ordinance,
regulations, rule or order, except such of the foregoing occurrences as do not
have a Material Adverse Effect.
6.15. BROKERS. The Company has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
Purchaser or the Company to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that the Company has retained the Financial Advisor and Merrill Lynch
Pierce Fenner & Smith Incorporated, the arrangements with which have been
disclosed in writing to Purchaser prior to the date hereof.
6.16. OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
the Financial Advisor, to the effect that, as of the date hereof, the Merger
Consideration to be received by the holders of Common Stock pursuant to the
Offer and the Merger is fair to such shareholders from a financial point of
view.
6.17. NO RESTRICTIONS ON THE OFFER OR THE MERGER. No provision of the
Certificate of Incorporation, Bylaws or other governing instruments of the
Company or any of its Subsidiaries (i) imposes restrictions materially adversely
affecting (or materially delaying) the consummation of the Offer or the Merger
or (ii) would, as a result of the Offer, the Merger, the transactions
contemplated hereby or the acquisitions of securities of the Company or the
Surviving Corporation by Purchaser or Merger Sub (A) restrict or impair the
ability of Purchaser to vote, or otherwise to exercise the rights of a
shareholder with respect to, securities of the Company or the Surviving
Corporation and their Subsidiaries that may be acquired or controlled by
Purchaser or (B) entitle any person, entity, or group to acquire securities of
the Company or the Surviving Corporation on a basis not available to Purchaser.
Except as set forth in the Disclosure Letter, the Company is not a party to any
plan or agreement pursuant to which payments are required or acceleration of
benefits are required to be paid to any employee or former employee of the
Company upon a "change in control" of the Company as a result of the
consummation of the transactions contemplated hereby. The approval and adoption
of the Merger requires the affirmative vote of two-thirds of the outstanding
shares of Common Stock.
6.18. INTELLECTUAL PROPERTY. Each of the Company and its Subsidiaries is
the owner of, or a licensee under a valid license for, all items of intellectual
property that are material to its business. Except as disclosed in the
Disclosure Letter or as would not result in a Material Adverse Effect, there are
no claims pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened challenging that the Company or any of
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its Subsidiaries is in violation of the intellectual property rights of any
third party nor, to the Company's knowledge, are there any infringements by
others of any of the rights owned by or licensed to the Company or any of its
Subsidiaries.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Except as set forth in the corresponding sections of the disclosure letter,
dated the date hereof, delivered by Purchaser to the Company (the "Purchaser
Disclosure Letter"), Purchaser and Merger Sub hereby represent and warrant to
the Company as follows:
7.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each of Purchaser and
Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted, except where the failure to have
such power and authority would not have a materially adverse effect on the
business, results of operations or financial condition of Purchaser or on the
ability of Purchaser or Merger Sub to consummate the transactions contemplated
by this Agreement (a "Purchaser Material Adverse Effect").
7.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Each of Purchaser
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and the Ancillary Documents and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Documents and the consummation by Purchaser and
Merger Sub of the transactions contemplated hereby and thereby have been duly
and validly authorized by the respective Boards of Directors of Purchaser and
Merger Sub and by Purchaser as the sole shareholder of Merger Sub and no other
corporate proceedings on the part of Purchaser or Merger Sub are necessary to
authorize this Agreement and the Ancillary Documents or to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and any
Ancillary Documents at the time of execution will have been, duly and validly
executed and delivered by Purchaser and Merger Sub, and (assuming this Agreement
and such Ancillary Documents each constitutes a valid and binding obligation of
the Company) constitutes and will constitute the valid and binding obligations
of each of Purchaser and Merger Sub, and the Agreement is enforceable in
accordance with its terms.
7.3. OFFER DOCUMENTS.
(a) None of the Offer Documents, any schedule required to be filed by
Purchaser or Merger Sub with the SEC or any amendment or supplement thereto will
contain, at the respective times such documents are filed with the SEC or first
published, sent or given to the Company's shareholders, any untrue statement of
a material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading, except that no
representation is made by Purchaser or Merger Sub with respect to information
supplied by the Company specifically for inclusion in the Offer Documents or the
Information Statement, any schedule required to be filed with the SEC or any
amendment or supplement. None of the information supplied or to be supplied by
Purchaser or Merger Sub for inclusion or incorporation by reference in the
Schedule 14D-9 will, at the date of filing with the SEC or first publication,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time either Purchaser or
Merger Sub shall obtain knowledge of any facts with respect to itself, any of
its officers and directors or any of its Subsidiaries that would require the
supplement or amendment to any of the foregoing documents in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or to comply with applicable Laws, such amendment or
supplement shall be promptly filed with the SEC and, as required by Law,
disseminated to the shareholders of the Company, and in the event the Company
shall advise Purchaser or Merger Sub as to its obtaining knowledge of any facts
that would make it necessary to supplement or amend any of the foregoing
documents, Purchaser
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or Merger Sub shall promptly amend or supplement such document as required and
distribute the same to the shareholders of the Company.
(b) None of the information supplied or to be supplied by Purchaser for
inclusion or incorporation by reference in (i) the S-4 will, at the time the S-4
is filed with the SEC and becomes effective under the Securities Act, 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 not
misleading and (ii) the Proxy Statement will, at the date of mailing to
shareholders and at the times of the meetings of shareholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement (except for such portions
thereof that relate only to the Company) will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC thereunder, and the S-4 (except for such portions thereof that relate
only to the Company) will comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations of the SEC
thereunder.
7.4. NO VIOLATION. Neither the execution and delivery of this Agreement or
any of the Ancillary Documents by Purchaser and Merger Sub nor the consummation
by them of the transactions contemplated hereby or thereby will (i) violate,
conflict with or result in any breach of any provision of the respective
Certificates of Incorporation or Bylaws of Purchaser or any of its Subsidiaries;
(ii) violate, conflict with, result in a breach of any provision of, constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit obtainable
under, result in the triggering of any payment or other obligations pursuant to,
result in the creation of any Encumbrance upon any of the properties of
Purchaser or Merger Sub under, or result in there being declared void, voidable,
or without further binding effect, any Contract to which Purchaser or Merger Sub
is a party, or by which Purchaser or Merger Sub or any of their respective
properties is bound, except for any such breach, default or right with respect
to which requisite waivers or consents have been, or prior to the Effective Time
will be, obtained or any of the foregoing matters which would not have a
Purchaser Material Adverse Effect; (iii) other than the Regulatory Filings,
require any Consent of any Governmental Entity, the lack of which would have a
Purchaser Material Adverse Effect; or (iv) violate any Laws applicable to
Purchaser or the Merger Sub or any of their respective assets, except for
violations which would not, individually or in the aggregate, have a Purchaser
Material Adverse Effect.
7.5. FINANCING. On the date hereof, Purchaser has access to funds
sufficient to consummate the Offer and the Merger on the terms contemplated
hereby. The source and any commitments related thereto are set forth in the
Purchaser Disclosure Letter. At the consummation of the Offer and at the
Effective Time, Purchaser will have, and will cause Merger Sub to have, funds
available to it sufficient to consummate the Offer and the Merger on the terms
contemplated hereby.
7.6. MERGER SUB. Merger Sub was formed solely for the purpose of engaging
in the transactions contemplated hereby. Except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated hereby, Merger Sub has not incurred any obligations or
liabilities or engaged in any business or activities of any type or kind
whatsoever or entered into any agreements or arrangements with any Person.
7.7. COMPLIANCE WITH LAWS. Except as set forth in the Purchaser Disclosure
Letter, Purchaser is not in violation of, and the consummation of the
transactions contemplated by this Agreement will not result in any violation of,
any Laws of any Governmental Entity applicable to Purchaser or any of its
Subsidiaries or any of their respective properties or assets, except for
violations which would not have a Purchaser Material Adverse Effect, which
compliance includes, but is not limited to, the possession by the Purchaser and
its Subsidiaries of all Permits and compliance with the terms and conditions
thereof, except where the failure of Purchaser or its Subsidiaries to possess
such licenses, permits and authorizations, or comply with the terms and
conditions thereof, would not, individually or in the aggregate, have a
Purchaser Material Adverse Effect. The completion of the transactions
contemplated by this Agreement will not result in the lapse or termination of
any Permits, other than such lapse or termination which would not have a
Purchaser Material Adverse Effect.
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7.8. CAPITALIZATION. The authorized capital stock of Purchaser consists of
40,000,000 shares of Purchaser Common Stock and 10,000,000 shares of preferred
stock, $0.01 par value ("Purchaser Preferred Stock"). As of May 1, 1997, (a)
24,698,816 shares of Purchaser Common Stock were issued and outstanding, (b)
options to purchase an aggregate of 907,500 shares of Purchaser Common Stock
were outstanding, (c) no shares of Purchaser Common Stock were held by Purchaser
in its treasury, (d) no shares of capital stock of Purchaser were held by
Purchaser's Subsidiaries and (e) no shares of Purchaser Preferred Stock are
outstanding. Purchaser has no outstanding bonds, debentures, notes or other
obligations entitling the holders thereof to vote (or which are convertible into
or exercisable for securities having the right to vote) with the shareholders of
Purchaser on any matter. Since May 1, 1997, Purchaser (i) has not issued any
shares of Purchaser Common Stock, other than upon the exercise of options, or
Purchaser Preferred Stock, and (ii) has not split, combined, converted or
reclassified any of its shares of capital stock. All issued and outstanding
shares of Purchaser Common Stock are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. Except as set forth in this
Section 7.8 or in the Purchaser Disclosure Letter, there are no other shares of
capital stock or voting securities of Purchaser, and no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate Purchaser or any of its Subsidiaries to
issue, transfer or sell any shares of capital stock of, or equity interests in,
Purchaser or any of its Subsidiaries. Except for the options to acquire
Purchaser Common Stock described in this Section 7.8, there are no equity
equivalents, interests in the ownership or earnings of the Purchaser or its
Subsidiaries, or similar rights authorized, issued or outstanding similar to
those granted by the Company under Incentive Equity Plans. Except as set forth
in the Disclosure Letter, there are no outstanding obligations of Purchaser or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Purchaser and there are no outstanding stock-related awards.
Except as set forth in the Purchaser Disclosure Letter, there are no voting
trusts or other agreements or understandings to which Purchaser or any of its
Subsidiaries or, to the knowledge of Purchaser, any of Purchaser's directors or
executive officers is a party with respect to the voting of capital stock of
Purchaser or any of its Subsidiaries.
7.9. PURCHASER REPORTS. Purchaser has delivered or otherwise made available
to the Company each registration statement, report, proxy statement or
information statement (as defined under the Exchange Act) filed by it since
January 1, 1994, each in the form (including exhibits and any amendments
thereto) filed with the SEC (collectively, the "Purchaser Reports"). As of their
respective dates, the Purchaser Reports (i) complied as to form in all material
respects with the applicable requirements of the Securities Act, the Exchange
Act, and the rules and regulations thereunder and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, taken as a
whole and in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Purchaser included in or
incorporated by reference into the Purchaser Reports (including the related
notes and schedules) is true and complete in all material respects and fairly
presents the consolidated financial position of Purchaser and its Subsidiaries
as of its respective date, and each of the consolidated statements of income,
retained earnings and cash flows of Purchaser included in or incorporated by
reference into the Purchaser Reports (including any related notes and schedules)
is true and complete in all material respects and fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of Purchaser
and its Subsidiaries for the periods set forth therein in accordance with United
States generally accepted accounting principles, consistently applied during the
periods involved, except as may be noted therein. Except as disclosed in the
Purchaser's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
and Purchaser's audited financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 1996, neither Purchaser nor its
Subsidiaries has any material liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on, or reserved against in, a balance sheet of Purchaser or in the
notes thereto, prepared in accordance with generally accepted accounting
principles consistently applied, except liabilities and obligations arising in
the ordinary course of business since March 31, 1997 and except for liabilities
or obligations that would not constitute a Material Adverse Effect. Purchaser
has heretofore made available or promptly will make available to the Company a
complete and correct copy of any amendments or modifications, which have not yet
been filed with the SEC, to agreements, documents or other instruments which
previously have been filed by Purchaser with the SEC as exhibits to the
Purchaser Reports.
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7.10. ABSENCE OF CERTAIN CHANGES. Except as set forth in the Purchaser
Reports or the Purchaser Disclosure Letter, during the period from December 31,
1996 through the date of this Agreement, Purchaser and its Subsidiaries have
conducted their business in the ordinary course of such business consistent with
past practices, and there have not been (i) any events or states of fact which
individually, or in the aggregate, would have a Purchaser Material Adverse
Effect; (ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock; (iii) any repurchase, redemption
or any other acquisition by Purchaser or its Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
Purchaser or its Subsidiaries; (iv) any material change in accounting
principles, practices or methods; (v) any entry into any employment agreement
with, or any material increase in the rate or terms (including, without
limitation, any acceleration of the right to receive payment) of compensation
payable or to become payable by Purchaser or any of its Subsidiaries to, their
respective directors, officers or employees, except for increases occurring in
the ordinary course of business in accordance with their customary practices and
employment agreements entered into in the ordinary course of business; (vi) any
material increase in the rate or terms (including, without limitation, any
acceleration of the right to receive payment) of any bonus, insurance, pension
or other employee benefit plan or arrangement covering any such directors,
officers or employees, except increases occurring in the ordinary course of
business in accordance with its customary practices; (vii) any revaluation by
Purchaser or any of its Subsidiaries of any material amount of their assets,
taken as a whole, including, without limitation, write-downs of inventory or
write-offs of accounts receivable other than in the ordinary course of business
consistent with past practices and (viii) any amendment or change to the
Certificate of Incorporation or Bylaws or comparable governing instruments of
Purchaser or any of its Subsidiaries.
7.11. TAXES. Except as set forth in the Purchaser Disclosure Letter,
Purchaser and each of its Subsidiaries have timely filed all material Tax
Returns required to be filed by any of them. All such Tax Returns are true,
correct and complete, except for such instances, if any, which would not,
individually or in the aggregate, have a Purchaser Material Adverse Effect. All
Taxes of Purchaser and its Subsidiaries which are (i) shown as due on such
Returns, (ii) otherwise due and payable or (iii) claimed or asserted by any
taxing authority to be due, have been paid, except for those Taxes being
contested in good faith and for which adequate reserves have been established in
the financial statements included in the Purchaser Reports in accordance with
generally accepted accounting principles, consistently applied. There are no
proposed or to the knowledge, of Purchaser, threatened Tax claims or assessments
which, if upheld, would, individually or in the aggregate, have a Purchaser
Material Adverse Effect. Except as set forth in the Purchaser Disclosure Letter,
Purchaser and each Subsidiary have withheld and paid over to the relevant taxing
authority all Taxes required to have been withheld and paid in connection with
payments to employees, independent contractors, creditors, shareholders or other
third parties, except where the failure to withhold and pay would not,
individually or in the aggregate, have a Purchaser Material Adverse Effect.
7.12. LITIGATION. Except as disclosed in the Purchaser Disclosure Letter,
there are no actions, suits, or proceedings pending against Purchaser or its
Subsidiaries or, to the knowledge of the Purchaser, threatened against the
Purchaser or its Subsidiaries at law or in equity, or before or by any federal
or state commission, board, bureau, agency, instrumentality or any arbitrator or
arbitration, tribunal, that, if decided adversely, individually or in the
aggregate, would have a Purchaser Material Adverse Effect, or is reasonably
expected to prevent or materially delay the consummation of the transactions
contemplated hereby.
7.13. EMPLOYEE BENEFIT PLANS.
(a) Except as disclosed in the Purchaser Disclosure Letter, Purchaser has
complied with and performed all contractual obligations and all obligations
under applicable federal, state, and local laws, rules and regulations (domestic
and foreign) required to be performed by it under or with respect to any of the
Purchaser Benefit Plans (as defined below) or any related trust agreement or
insurance contract, other than where the failure to so comply or perform will
not have a Purchaser Material Adverse Effect. All contributions and other
payments required to be made by Purchaser to any Purchaser Benefit Plan or
Multi-Employer Plan, prior to the date hereof have been made, other than where
the failure to so contribute or make payments will not have a Purchaser Material
Adverse Effect. Except as disclosed in the Purchaser Disclosure Letter, there is
no claim, dispute, grievance, charge, complaint, restraining or injunctive
order, litigation, or proceeding
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pending, or, to Purchaser's knowledge, threatened (other than routine claims for
benefits) against or relating to any Purchaser Benefit Plan or against the
assets of any Purchaser Benefit Plan, which will have, individually or in the
aggregate, a Purchaser Material Adverse Effect.
(b) Neither Purchaser nor its Subsidiaries has incurred, nor has any event
occurred which has imposed or is reasonably likely to impose upon Purchaser, any
withdrawal liability (partial or complete) in respect of any Multi-Employer
Plan, which withdrawal liability has not been satisfied or discharged in full or
which, either individually or in the aggregate, will cause a Purchaser Material
Adverse Effect.
(c) "Purchaser Benefit Plan" means any employee pension benefit plan and
any Plan, other than a Multi-Employer Plan, established by Purchaser or to which
Purchaser contributes or has contributed (including any such Plans not now
maintained by Purchaser or to which the Purchaser does not now contribute, but
with respect to which Purchaser has or may have any liability).
7.14. CONTRACTS. Except as set forth in the Purchaser Reports or disclosed
in the Purchaser Disclosure Letter, neither Purchaser nor its Subsidiaries is a
party to or bound by any Material Contract. Each Material Contract is valid and
binding on Purchaser (or, to the extent a Purchaser Subsidiary is a party, such
Subsidiary) and is in full force and effect, and Purchaser and each of its
Subsidiaries have in all material respects performed all obligations required to
be performed by them to date under each Material Contract, except where
noncompliance, individually or in the aggregate, would not have a Purchaser
Material Adverse Effect. Purchaser does not know of, and has not received notice
of, any violation or default under (nor, to the knowledge of Purchaser, does
there exist any condition which with the passage of time or the giving of notice
or both would result in such a violation or default under) any Material
Contract, which default would have a Purchaser Material Adverse Effect.
7.15. ENVIRONMENTAL LAWS AND REGULATIONS. (a) Except as disclosed in the
Purchaser Reports or the Disclosure Letter, (i) neither Purchaser nor any of its
Subsidiaries has received written notice of, or, to the knowledge of Purchaser,
is the subject of, any Environmental Claim that individually or in the aggregate
would have a Purchaser Material Adverse Effect; and (ii) to the knowledge of
Purchaser, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
(b) Except as disclosed in the Purchaser Reports or the Purchaser
Disclosure Letter, there are no Environmental Claims which individually or in
the aggregate would have a Purchaser Material Adverse Effect that are pending
or, or the knowledge of Purchaser, threatened against Purchaser or any of its
Subsidiaries or, to the knowledge of Purchaser, against any person or entity
whose liability for any Environmental Claim Purchaser or any of its Subsidiaries
has or may have retained or assumed either contractually or by operation of law.
(c) Except as disclosed in the Purchaser Reports or the Purchaser
Disclosure Letter, there has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind by Purchaser or its
Subsidiaries on, beneath or above the real property owned by Purchaser or any of
its Subsidiaries, or the real property leased, used, or in which any other
interest is maintained by Purchaser and its Subsidiaries at the Effective Time
or, to the knowledge of Purchaser, previously owned by, used by or leased to
Purchaser or any Subsidiary (collectively, the "Purchaser Property") or into the
environment surrounding the Purchaser Property of any Hazardous Materials,
including but not limited to those defined in any Law and all regulations
promulgated under each and all amendments thereof, or any other federal, state
or local environmental law, ordinance, regulations, rule or order, except such
of the foregoing occurrences as do not have a Purchaser Material Adverse Effect.
ARTICLE 8
COVENANTS
8.1. NO SOLICITATION. From and after the date of this Agreement and prior
to the Effective Time, except as provided below, the Company agrees (a) that
neither the Company nor its Subsidiaries shall, and the Company shall direct and
use its best efforts to cause its officers, directors, employees, agents and
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representatives (including, without limitation, any investment banker, attorney,
or accountant retained by it or any of its Subsidiaries) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including without limitation, any
proposal or offer to its shareholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company or
any of its Subsidiaries (any such proposal or offer being hereinafter referred
to as an "Alternative Proposal") or engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person relating to an Alternative Proposal, or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
Section 8.1; and (c) that it will notify Purchaser promptly if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with it, including the identity of the other party and the terms of its
proposal; provided however, that nothing contained in this Section 8.1 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 bona fide proposal in writing, to acquire the Company
pursuant to a merger, consolidation, share exchange, purchase of a substantial
portion of the assets, business combination or other similar transaction, if,
and only to the extent that, (A) the Board of Directors determines in good
faith, and after consultation with outside counsel and the Financial Advisor,
that such action is required for the Board of Directors to comply with its
fiduciary duties to shareholders imposed by law, (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, the Company provides written notice to Purchaser to the effect that
it is furnishing information to, or entering into discussions or negotiations
with, such person or entity, and (C) the Company keeps Purchaser informed of the
status (not the terms) of any such discussions or negotiations; and (ii) to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Alternative Proposal. Subject to Article 10, nothing in this
Section 8.1 shall (x) permit the Company to terminate this Agreement, (y) permit
the Company to enter into any agreement with respect to an Alternative Proposal
during the term of this Agreement, or (z) affect any other obligation of any
party under this Agreement. The Company shall enter into a confidentiality
agreement with any third party permitted by this Section 8.1, on terms which
shall not be more favorable to, or less restrictive on, such third party as the
terms applicable to Purchaser set forth in the letter agreement dated as of
April 14, 1997, between the Company and Purchaser (the "Confidentiality
Agreement") relating to the confidential treatment of Confidential Information
(as defined therein).
8.2. INTERIM OPERATIONS OF THE COMPANY.
(a) From the date of this Agreement to the Effective Time, unless Purchaser
has consented in writing thereto, the Company shall, and shall cause each of its
Subsidiaries to, (i) conduct its operations according to its usual, regular and
ordinary course of business consistent with past practice; (ii) use its
reasonable efforts to preserve intact its business organizations and goodwill,
maintain in effect all existing qualifications, licenses, permits, approvals and
other authorizations referred to in Section 6.3 (other than those the lapse of
which would not have, individually or in the aggregate, a Material Adverse
Effect), keep available the services of its officers and employees and maintain
satisfactory relationships with those persons having business relationships with
them; (iii) promptly upon the discovery thereof notify Purchaser of the
existence of any breach of any representation or warranty of the Company
contained herein (or, in the case of any representation or warranty that makes
no reference to Material Adverse Effect, any breach of such representation or
warranty in any material respect) or the occurrence of any event that would
cause any representation or warranty of the Company contained herein no longer
to be true and correct (or, in the case of any representation or warranty that
makes no reference to Material Adverse Effect, to be no longer be true and
correct in any material respect); and (iv) promptly deliver to Purchaser true
and correct copies of any report, statement or schedule filed with the SEC
subsequent to the date of this Agreement.
(b) From and after the date of this Agreement to the Effective Time, unless
Purchaser has consented in writing thereto, the Company shall not, and shall not
permit any of its Subsidiaries to, (i) amend its
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Certificate of Incorporation or Bylaws or comparable governing instruments or
the Rights Agreement dated as of April 24, 1996, as amended by Amendment No. 1
dated July 8, 1997, between the Company and First Chicago Trust Company of New
York; (ii) authorize for issuance, issue, sell, pledge or register for issuance
or sale any shares of its capital stock or other ownership interest in the
Company (other than issuances of Common Stock in respect of any exercise of
Options outstanding on the date hereof) or any of the Subsidiaries, or any
securities convertible into or exchangeable for any such shares or ownership
interest, or any rights (other than rights related to shares of Common Stock
issued upon the exercise of Options, which entitle the holders of shares of
Common Stock to purchase shares of Series A Junior Participating Preferred Stock
upon the occurrence of certain events), warrants or options to acquire or with
respect to any such shares of capital stock, ownership interest, or convertible
or exchangeable securities; or accelerate any right to convert or exchange or
acquire any securities of the Company (other than Options pursuant to Section
5.2(d)) or any of its Subsidiaries for any such shares or ownership interest;
(iii) effect any stock split or conversion of any of its capital stock or
otherwise change its capitalization as it exists on the date hereof, other than
as set forth in this Agreement; (iv) except as contemplated by this Agreement,
directly or indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its Subsidiaries, or declare, pay or
set aside any dividend or other distribution (whether in cash, stock or property
or any combination thereof) in respect of its capital stock, other than
dividends or distributions to the Company or a Subsidiary wholly-owned by the
Company; (v) sell, lease, mortgage, pledge or otherwise dispose of or encumber
any of its assets (including capital stock of Subsidiaries), except in the
ordinary course of business consistent with past practice; (vi) acquire by
merger, purchase or any other manner, any material business or entity or
otherwise acquire any assets that are material to the Company and its
Subsidiaries taken as a whole, except for purchases of inventory, supplies or
capital equipment in the ordinary course of business consistent with past
practice; (vii) incur or assume any long-term or short-term debt in excess of
$10 million, except for working capital purposes in the ordinary course of
business under the Company's existing credit facilities; (viii) assume,
guarantee or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except wholly
owned Subsidiaries of the Company; (ix) make or forgive any loans, advances or
capital contributions to, or investments in, any other Person; (x) waive or
amend any term or condition of any confidentiality or "standstill" agreement to
which the Company is a party; (xi) enter into any new employment, severance,
consulting or salary continuation agreements with any newly hired employees
other than in the ordinary course of business consistent with past practice or
enter into any of the foregoing with any existing officers, directors or
employees or grant any increases in compensation or benefits to employees, other
than increases in the ordinary course of business consistent with past practice;
(xii) enter into, adopt, amend in any material respect or terminate any employee
benefit plan or arrangement (other than the termination of the Company's
non-employee director equity compensation plan and the termination of the
Company's employee stock purchase plan); (xiii) enter into, amend in any
material respect or terminate any employment agreement or severance agreement
entered into between the Company and its executive officers or waive any
material right of the Company thereunder; (xiv) make any material changes in the
type or amount of their insurance coverage or permit any material insurance
policy naming the Company or any Subsidiary as a beneficiary or a loss payee to
be cancelled or terminated other than in the ordinary course of business
consistent with past practice; (xv) make any tax election or, except as may be
required by law or generally acceptable accounting principles, change any
material accounting principles or practices used by the Company or its
Subsidiaries; (xvi) take, or fail to take, any action to cause the Common Stock
to be delisted from the New York Stock Exchange prior to the completion of the
Offer or the Merger; (xvii) settle or compromise any claims or litigation
involving payments by the Company or any of its Subsidiaries of more than
$250,000 in any single instance or related instances, or that otherwise are
material; (xviii) enter into any intellectual property license pursuant to which
the Company licenses any of its intellectual property or sublicenses any of its
intellectual property; (xvix) enter into any lease or amend any lease of real
property involving the payment by the Company of $250,000 or more; or (xx) agree
in writing or otherwise to take any of the foregoing actions.
8.2A. INTERIM OPERATIONS OF PURCHASER AND MERGER SUB.
(a) From the date of this Agreement to the Effective Time, unless the
Company has consented in writing thereto, each of Purchaser and Merger Sub
shall, and shall cause each of its Subsidiaries to,
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(i) conduct its operations according to its usual, regular and ordinary course
of business consistent with past practice; (ii) use its reasonable efforts to
preserve intact its business organizations, maintain in effect all existing
material qualifications, licenses, permits, approvals and other authorizations
(other then those the lapse of which would not have, individually or in the
aggregate, a Purchaser Material Adverse Effect), keep available the services of
their officers and employees and maintain satisfactory relationships with those
persons having business relationships with them; (iii) promptly upon the
discovery thereof notify the Company of the existence of any breach of any
representation or warranty of Purchaser or Merger Sub contained herein (or, in
the case of any representation or warranty that makes no reference to Purchaser
Material Adverse Effect, any breach of such representation or warranty in any
material respect) or the occurrence of any event that would cause any
representation or warranty of Purchaser or Merger Sub contained herein no longer
to be true and correct (or, in the case of any representation or warranty that
makes no reference to Purchaser Material Adverse Effect, to no longer be true
and correct in any material respect); and (iv) promptly deliver to the Company
true and correct copies of any report, statement or schedule filed with the SEC
subsequent to the date of this Agreement.
(b) From and after the date of this Agreement to the Effective Time, unless
the Company has consented in writing thereto, neither Purchaser nor Merger Sub
shall, and neither shall permit any of their Significant Subsidiaries to, (i)
amend its Certificate of Incorporation or Bylaws or comparable governing
instruments; (ii) authorize for issuance, issue, sell, pledge or register for
issuance or sale any shares of its capital stock or other ownership interest in
the Purchaser (other than issuances of Purchaser Common Stock in respect of any
exercise of options outstanding on the date hereof, issuances necessary to
complete the transactions contemplated by this Agreement and issuances disclosed
in the Company Reports), the Merger Sub or any of their respective Significant
Subsidiaries, or any securities convertible into or exchangeable for any such
shares or ownership interest, or any rights, warrants or options to acquire or
with respect to any such shares of capital stock, ownership interest, or
convertible or exchangeable securities; or accelerate any right to convert or
exchange or acquire any securities of Purchaser, Merger Sub or any of their
respective Significant Subsidiaries for any such shares or ownership interest,
except for the issuance of any financial instruments in connection with the
Offer and the Merger and the financing thereof; (iii) effect any stock split or
conversion of any of its capital stock or otherwise change its capitalization as
it exists on the date hereof, other than as set forth in this Agreement; (iv)
directly or indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its Significant Subsidiaries other than
as set forth in this Agreement, or declare, pay or set aside any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, other than dividends or distributions
to the Purchaser or any Significant Subsidiary wholly-owned by the Purchaser;
(v) sell, lease or otherwise dispose of any of its assets (including capital
stock of its Significant Subsidiaries), except in the ordinary course of
business; (vi) acquire by merger, purchase or any other manner, any material
business or entity or otherwise acquire any assets that are material to
Purchaser, Merger Sub and their Significant Subsidiaries taken as a whole,
except for purchases of inventory, supplies or capital equipment in the ordinary
course of business consistent with past practice; (vii) incur or assume any
long-term or short-term debt in excess of $50 million, except for working
capital purposes in any amount in the ordinary course of business under
Purchaser's existing credit facilities and except as may be required to
consummate the Offer and the Merger; (viii) assume, guarantee or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except Subsidiaries of Purchaser, except in
the ordinary course of business consistent with past practice; (ix) make or
forgive any loans, advances or capital contributions to, or investments in, any
other person, other than consistent with past practices, to or in any
Subsidiary, and other than by Detroit Diesel Capital Corporation or Detroit
Diesel Credit Corporation in the ordinary course of their respective businesses
consistent with past practices; (x) waive or amend any term or condition of any
confidentiality or "standstill" agreement to which Purchaser or Merger Sub is a
party; (xi) adopt or amend in any material respect or terminate any employee
benefit plan or arrangement; (xii) amend in any material respect or terminate
any employment agreement or severance agreement entered into between Purchaser
and its executive officers or waive any material right of Purchaser thereunder,
except in the ordinary course of business consistent with past practice; (xiii)
make any material changes in the type or amount of their insurance coverage or
permit any material insurance policy naming Purchaser or any of its Subsidiaries
as a beneficiary or a loss payee to be cancelled or terminated other
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than in the ordinary course of business; (xiv) except as may be required by law
or generally acceptable accounting principles, change any material accounting
principles or practices used by Purchaser or its Significant Subsidiaries; (xv)
take any action to cause the Purchaser Common Shares to be delisted from the New
York Stock Exchange; or (xvi) agree in writing or otherwise to take any of the
foregoing actions.
8.3. COMPANY SHAREHOLDER APPROVAL; PROXY STATEMENT.
(a) The Company, through its Board of Directors, shall (i) call a meeting
of its shareholders (the "Shareholders Meeting") for the purpose of voting upon
the Merger, (ii) hold the Shareholders Meeting as soon as practicable following
the purchase of shares of Common Stock pursuant to the Offer and the
effectiveness of the S-4, and (iii) subject to the fiduciary duties of the Board
of Directors under applicable law as advised by outside counsel of the Company,
recommend to its shareholders the approval of the Merger. The Company shall use
reasonable efforts to solicit from shareholders of the Company proxies in favor
of the Merger and shall take all other actions reasonably requested by Purchaser
to secure the vote of shareholders required by the DGCL to effect the Merger.
The record date for the Shareholders Meeting shall be a date subsequent to the
date Purchaser or Merger Sub becomes a record holder of Common Stock purchased
pursuant to the Offer.
(b) As soon as practicable following the date of this Agreement, Purchaser,
Merger Sub and the Company shall prepare and file the Proxy Statement with the
SEC, and Purchaser shall, in cooperation with the Company, prepare and file with
the SEC the S-4. Each of Purchaser, Merger Sub and the Company shall use all
reasonable efforts to have the S-4 declared effective under the Securities Act
as promptly as practicable after such filing and to keep the S-4 effective as
long as is necessary to consummate the Merger. The Company shall mail the Proxy
Statement to its shareholders as promptly as practicable after the S-4 is
declared effective under the Securities Act. Purchaser shall also take any
action (other than qualifying to do business in any jurisdiction in which
Purchaser is not now so qualified) required to be taken under any applicable
U.S. state securities laws in connection with the issuance of Purchaser Common
Shares in connection with the Merger.
(c) The Company represents and warrants that the Proxy Statement will
comply as to form in all material respects with the Exchange Act and, at the
respective times filed with the SEC and distributed to shareholders of the
Company, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representation or warranty as to any information included in the Proxy Statement
which was provided by Purchaser or Merger Sub. Purchaser represents and warrants
that none of the information supplied by Purchaser or Merger Sub for inclusion
in the Proxy Statement will, at the respective times filed with the SEC and
distributed to shareholders of the Company, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) Purchaser represents and warrants that the S-4 will comply as to form
in all material respects with the Securities Act and, at the respective times
filed with the SEC, when the same becomes effective and when the prospectus
therein is distributed to shareholders of the Company, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; provided, however, that Purchaser makes no representation or
warranty as to any information included in the Proxy Statement which was
provided by the Company. The Company represents and warrants that none of the
information supplied by the Company for inclusion in the S-4 will, at the
respective times filed with the SEC, when the same becomes effective and when
distributed to shareholders of the Company, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.
(e) Purchaser shall use its best efforts to obtain the approval of the New
York Stock Exchange to the listing of the Purchaser Common Shares to be issued
in the Merger prior to the Effective Date and shall file all listing
applications and other documents requested by the New York Stock Exchange in
connection with such listing.
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(f) Subject to clause (iii) of Section 8.3(a), the Company shall use its
reasonable efforts to obtain the necessary approvals by its shareholders of the
Merger, this Agreement and the transactions contemplated hereby.
(g) Purchaser agrees to cause all shares of Common Stock purchased by
Merger Sub pursuant to the Offer and all other shares of Common Stock owned by
Purchaser, Merger Sub or any other Subsidiary or affiliate of Purchaser to be
voted in favor of the approval of the Merger.
(h) Except as required by law, no amendment or supplement to the Proxy
Statement or the S-4 shall be made by the Company or Purchaser without the
approval of the other party (which shall not be unreasonably withheld). Each
party shall advise the other party, promptly after it receives notice thereof,
of the time when the S-4 has become effective or any supplement or amendment has
been filed, of the issuance of any stop order, of the suspension of the
qualification of Purchaser Common Shares issuable in connection with the Merger
for offering or sale in any jurisdiction, or of any request by the SEC for
amendment of the Proxy Statement or the S-4 or comments thereon and responses
thereto or requests by the SEC for additional information.
8.4. FILINGS; OTHER ACTION.
Subject to the terms and conditions herein provided, the Company, Purchaser
and Merger Sub shall: (a) promptly make their respective filings and thereafter
make any other required submissions under the HSR Act and the Exon-Florio
Amendment with respect to the Offer and, if applicable, the Merger; (b)
cooperate and consult with one another in (i) determining which Regulatory
Filings are required or, in the case of Other Antitrust Filings and Consents,
permitted to be made prior to the Effective Time with, and which Consents are
required or, in the case of Other Antitrust Filings and Consents, permitted to
be obtained prior to the Effective Time from Governmental Entities or other
third parties in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and all Consents
required to transfer to the Company any Permits or registrations held on behalf
of the Company or any of its Subsidiaries by or in the name of distributors,
brokers or sales agents; (ii) preparing all Regulatory Filings and all other
filings, submissions and presentations required or prudent to obtain all
Consents, including by providing to the other parties drafts of such material
reasonably in advance of the anticipated filing or submission dates; and (iii)
timely making all such Regulatory Filings and timely seeking all such Consents
and (c) use their reasonable efforts to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
this Agreement. Each of Purchaser and the Company shall use its best efforts to
contest any proceeding seeking a preliminary injunction or other legal
impediment to, and to resolve any objections as may be asserted by any
Governmental Entity with respect to, the Offer or the Merger under the HSR Act
or Foreign Antitrust Laws. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purpose of this Agreement, the
proper officers and directors of Purchaser and the Surviving Corporation shall
take all such necessary action.
8.5. PUBLICITY. The initial press release relating to this Agreement shall
be a joint press release and thereafter the Company and Purchaser shall, subject
to their respective legal obligations (including the requirements of the New
York Stock Exchange and other similar regulating bodies), use reasonable efforts
to agree upon the text of any press release before issuing such press release or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any Governmental Entity or with any
securities exchange with respect thereto.
8.6. FURTHER ACTION. Each party hereto shall, subject to the fulfillment at
or before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to complete the transactions
contemplated hereby.
8.7. INSURANCE; INDEMNITY.
(a) Purchaser will cause the Surviving Corporation to purchase a six-year
pre-paid noncancellable directors and officers insurance policy covering the
current and all former directors, officers and similar persons of the Company
and its Subsidiaries with respect to acts or failures to act prior to the
Effective Time,
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in a single aggregate amount over the six-year period immediately following the
Closing Date equal to the policy limit for the Company's current directors and
officers insurance policy (the "Current Policy"). If such insurance is not
obtainable at an annual cost per covered year not in excess of three times the
annual premium paid by the Company for the Current Policy (the "Cap"), then
Purchaser will cause the Surviving Corporation to purchase policies providing at
least the same coverage as the Current Policy and containing terms and
conditions no less advantageous to the current and former directors, officers
and similar persons of the Company and its Subsidiaries than the Current Policy
with respect to acts or failures to act prior to the Effective Time; provided,
however, that Purchaser and the Surviving Corporation shall not be required to
obtain policies providing such coverage except to the extent that such coverage
can be provided at an annual cost of no greater than the Cap; and, if equivalent
coverage cannot be obtained, or can be obtained only by paying an annual premium
in excess of the Cap, Purchaser or the Surviving Corporation shall only be
required to obtain as much coverage as can be obtained by paying an annual
premium equal to the Cap.
(b) Purchaser shall cause the Surviving Corporation to keep in effect in
its Bylaws provisions for a period of not less than six years after the
Effective Time (or, in the case of matters occurring prior to the Effective Time
which have not been resolved prior to the sixth anniversary of the Effective
Time, until such matters are finally resolved) which provide for exculpation of
director and officer liability and indemnification (and advancement of expenses
related thereto) of the past and present officers and directors of the Company
and its Subsidiaries to the fullest extent permitted by the DGCL which
provisions shall not be amended except as required by applicable law or except
to make changes permitted by law that would enhance the rights of past or
present officers and directors to indemnification or advancement of expenses.
(c) From and after the Effective Time, Purchaser shall indemnify and hold
harmless, to the fullest extent permitted under the DGCL, each person who is, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer, director or similar person of the Company or any
Subsidiary against all losses, claims, damages, liabilities, costs or expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement (collectively, "Losses") in connection with any claims, actions,
suits, proceedings, arbitrations, investigations or audits (collectively
"Litigation") arising before or after the Effective Time out of or pertaining to
acts or omissions, or alleged acts or omissions, by them in their capacities as
such, which acts or omissions occurred prior to the Effective Time. Without
limiting the foregoing, Purchaser shall periodically advance expenses as
incurred with respect to the foregoing to the fullest extent permitted under
applicable law provided that the person to whom the expenses are advanced
provides an undertaking to repay such advance if it is ultimately determined
that such person is not entitled to indemnification.
(d) If the Merger shall have been consummated, the Surviving Corporation
shall, to the fullest extent permitted under applicable law, indemnify and hold
harmless Purchaser and any person or entity who was a shareholder, officer,
director or affiliate of Purchaser prior to the Effective Time against any
Losses in connection with any Litigation arising out of or pertaining to any of
the transactions contemplated by this Agreement or the Ancillary Documents.
(e) If, after the Effective Time, Purchaser or Surviving Corporation or any
of their respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers all or substantially
all its properties and assets to any person, then, in each such case, proper
provisions shall be made so that successors and assigns of Purchaser or
Surviving Corporation, as the case may be, shall assume all the obligations set
forth in this Section 8.7. The provisions of this Section 8.7 are intended for
the benefit of and shall be enforceable by each person who is now or has been at
any time prior to the date of this Agreement, or who becomes prior to the
Effective Time, an officer, director or similar person of the Company or any of
its Subsidiaries.
(f) Any Indemnified Party will promptly notify Purchaser and the Surviving
Corporation of any claim, action, suit, proceeding or investigation for which
such party may seek indemnification under this Section. If any Litigation
described in paragraph (c) or (d) of this Section 8.7 (each, an "Action") arises
or occurs, the Surviving Corporation shall control the defense of such Action
with counsel selected by the Surviving Corporation, which counsel shall be
reasonably acceptable to the party seeking indemnification pursuant to
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paragraph (c) or (d) of this Section 8.7 (each, an "Indemnified Party"),
provided that the Indemnified Party shall be permitted to participate in the
defense of such Action through counsel selected by the Indemnified Party, at the
Indemnified Party's expense. Notwithstanding the foregoing, if there is any
actual or potential conflict between the Surviving Corporation and any
Indemnified Party or there are additional defenses available to any Indemnified
Party, such Indemnified Party shall be permitted to participate in the defense
of such Action with counsel selected by the Indemnified Party, at the Surviving
Corporation's expense; provided, however, that the Surviving Corporation shall
not be obligated to pay the reasonable fees and expenses of more than one
counsel for all Indemnified Parties in any single Action except to the extent
that two or more of such Indemnified Parties have conflicting interests in the
outcome of such Action. The Surviving Corporation shall not be liable for any
settlement effected without its written consent, which consent shall not
unreasonably be withheld.
8.8. RESTRUCTURING OF MERGER. Upon the mutual agreement of Purchaser and
the Company, the Merger shall be restructured in the form of a forward
subsidiary merger of the Company into Merger Sub, with Merger Sub being the
surviving corporation, or as a merger of the Company into Purchaser, with
Purchaser being the surviving corporation. In such event, this Agreement shall
be deemed appropriately modified to reflect such form of merger.
8.9. EMPLOYEE BENEFIT PLANS. From and after the Effective Time, the
Surviving Corporation and its respective Subsidiaries will honor, in accordance
with their terms, all existing employment and severance agreements between the
Company or any of its Subsidiaries and any current or former officer, director,
consultant or employee of the Company or any of its Subsidiaries to the extent
in effect on the date hereof and all benefits or other amounts earned or accrued
to the extent vested or which become vested pursuant to the terms of such
agreements or in accordance with the terms of this Agreement through the
Effective Time under all employee benefit plans of the Company and any of its
Subsidiaries, in each case to the extent in effect on the date hereof.
8.10. ACCELERATION OF OUTSTANDING INDEBTEDNESS. If, after the Offer is
consummated, the Company's or any Subsidiary's obligation for borrowed money
outstanding is accelerated or the Company or such Subsidiary is otherwise
required to repurchase, repay or prepay any such obligation, Purchaser agrees,
within five business days after notice thereof, to loan to the Company an amount
equal to the amount which the Company or any such Subsidiary is required to so
repurchase, repay or prepay (including any related prepayment premiums or
penalties) at an interest rate not to exceed the rate under Purchaser's bank
credit facility. The term of such loan shall be equal to the term of such
accelerated obligation (prior to its acceleration) and the Company and Purchaser
shall enter into any agreements reasonably necessary to evidence such agreement.
8.11. REAL PROPERTY TRANSFER TAXES. Any liability for real property
transfer taxes, real property gains taxes or similar taxes imposed with respect
to the property of the Company by any state, local or foreign taxing authority
with respect to the Offer and the Merger shall be paid or caused to be paid by
Surviving Corporation.
ARTICLE 9
CONDITIONS
9.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) If approval of this Agreement and the Merger by the holders of Common
Stock is required by applicable law, this Agreement and the Merger shall have
been approved by the requisite vote of such holders.
(b) There shall not have been issued any injunction or issued or enacted
any Law which prohibits or has the effect of prohibiting the consummation of the
Merger or makes such consummation illegal; provided, however, that each of the
parties shall have used its best efforts to prevent the entry of any injunction
or other order and to appeal as promptly as possible any injunction or other
order that may be entered.
26
<PAGE> 30
ARTICLE 10
TERMINATION; AMENDMENT; WAIVER
10.1. TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time
notwithstanding approval thereof by the shareholders of the Company:
(a) by mutual written consent of the Company and Purchaser duly authorized
by their respective Boards of Directors;
(b) by the Company, if Merger Sub shall have failed to commence the Offer
within five business days after the date of this Agreement;
(c) by the Company, if Purchaser or Merger Sub materially breaches any of
their respective representations or warranties or covenants contained in this
Agreement and, with respect to any such breach that can be remedied, the breach
is not remedied within five business days after the Company has furnished
Purchaser or Merger Sub with written notice of such failure;
(d) by Purchaser or the Company:
(i) if the Effective Time shall not have occurred on or before
December 31, 1997 (provided that the right to terminate this Agreement
pursuant to this clause (i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Effective Time to occur on or before
such date);
(ii) if there shall be any statute, law, rule or regulation that makes
consummation of the Offer or the Merger illegal or prohibited or if any
court of competent jurisdiction or other Governmental Entity shall have
issued an order, judgment, decree or ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the Offer or the Merger and
such order, judgment, decree, ruling or other action shall have become
final and non-appealable; or
(iii) if the Offer terminates or expires on account of the failure of
any condition specified in Exhibit A without Merger Sub having purchased
any shares of Common Stock thereunder (provided that the right to terminate
this Agreement pursuant to this clause (iii) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of any such condition); or
(e) by the Company, at any time prior to the acceptance for payment of
shares of Common Stock by Merger Sub pursuant to the Offer, if there is an
Alternative Proposal which the Board of Directors in good faith determines
represents a superior transaction for the shareholders of the Company as
compared to the Offer and the Merger, and the Board of Directors determines,
after consultation with outside counsel and the Financial Advisor, that it is
required by its fiduciary duties to the Company's shareholders imposed by law to
terminate this Agreement and the Company pays to Purchaser any amounts owed
under Section 10.2 below; provided, however, that the right to terminate this
Agreement pursuant to this Section 10.1(e) shall not be available (i) if such
Alternative Proposal shall result from a breach in any material respect of the
Company's obligations under Section 8.1 or (ii) if the Company has not provided
Purchaser and Merger Sub with at least two business days' prior written notice
of its intent to so terminate this Agreement together with a summary of the
material terms and conditions of the Alternative Proposal; and
(f) by Purchaser, if the Board of Directors of the Company shall have
failed to recommend, or shall have withdrawn, modified or amended in any manner
adverse to Purchaser or Merger Sub, its approval or recommendation of the Offer
or the Merger, or shall have recommended acceptance of any Alternative Proposal.
10.2. EFFECT OF TERMINATION. (a) Subject to this Section 10.2, if this
Agreement is terminated and the Merger is abandoned pursuant to Section 10.1,
this Agreement, except for the provisions of Sections 1.3(c) (with respect to
confidentiality), 8.5 and Article 11, shall terminate, without any liability on
the part of any party or their respective directors, officers or shareholders.
Nothing herein shall relieve any party to this
27
<PAGE> 31
Agreement of liability for breach of this Agreement or prejudice the ability of
the non-breaching party to seek damages from any other party for any breach of
this Agreement including, without limitation, attorneys' fees and the right to
pursue any remedy at law or in equity.
(b) In the event (i) the Board of Directors of the Company shall publicly
modify or amend its recommendation of the Offer or the Merger in a manner
adverse to Purchaser or shall withdraw its recommendation of the Offer or shall
recommend any Alternative Proposal, or shall resolve to do any of the foregoing,
or (ii) at any time prior to the termination of this Agreement any person (other
than Purchaser or any of its affiliates) shall publicly announce any Alternative
Proposal and, at any time on or prior to one year after the date of this
Agreement, shall become the beneficial owner of 33% or more of the outstanding
shares of Common Stock or shall consummate an Alternative Proposal, then in any
such event the Company shall promptly, but in no event later than two business
days after the first of such events to occur, pay Purchaser an amount equal to
$15,750,000 which shall be in lieu of any and all damages, costs and expenses
for breach of this Agreement by the Company.
10.3. AMENDMENT. To the extent permitted by applicable law, this Agreement
may be amended by action taken by or on behalf of the Boards of Directors of the
Company and Purchaser at any time before or after adoption of this Agreement by
the shareholders of the Company but, after any such shareholder approval, no
amendment shall be made which decreases the Merger Consideration or which
adversely affects the rights of the Company's shareholders hereunder without the
approval of such shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
10.4. EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken by or on behalf of the Board of Directors of the
Company (subject to Section 1.4) and Purchaser, may (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 by any other applicable party or in any document, certificate or writing
delivered pursuant hereto by any other applicable party or (iii) waive
compliance with any of the agreements or conditions contained herein, except
after any adoption of this Agreement by the shareholders of the Company, for any
waiver which has the effect of decreasing the Merger Consideration or which
adversely affects the rights of the Company's shareholders hereunder without
approval of such shareholders. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 11
GENERAL PROVISIONS
11.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
11.2. NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
28
<PAGE> 32
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
<TABLE>
<S> <C>
If to Purchaser or Merger Sub: If to the Company:
Outboard Marine Corporation
Detroit Diesel Corporation 100 Sea Horse Drive
13400 Outer Drive, West Waukegan, Illinois 60085
Detroit, Michigan 48239-4001 Facsimile: (847) 689-6006
Facsimile: (313) 592-3725 Attention: Harry W. Bowman
Attention: Timothy D. Leuliette With a copy to:
With a copy to: Jones, Day, Reavis & Pogue
Detroit Diesel Corporation 77 West Wacker Drive
13400 Outer Drive, West Chicago, Illinois 60601-1692
Detroit, Michigan 48239-4001 Facsimile: (312) 782-8585
Facsimile: (313) 592-5014 Attention: William P. Ritchie
Attention: John F. Farmer
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that either Purchaser
or Merger Sub (or both) may assign its rights hereunder (including, without
limitation, the right to make the Offer or to purchase shares of Common Stock in
the Offer) to a wholly owned subsidiary but nothing shall relieve the assignor
from its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Sections 8.7 and 8.9, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
11.4. ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreement, the
Disclosure Letter, the Purchaser Disclosure Letter, the Exhibits, the Ancillary
Documents and any other documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto.
11.5. FEES AND EXPENSES. Except as provided in Section 10.2, whether or not
the Offer or Merger is consummated, all costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
11.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws. Each of the Company, Purchaser and Merger Sub hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts located in Lake County, Illinois and of the United States of
America located in the Northern District of Illinois (the "Northern Illinois
Courts") for any litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying of
venue of any such litigation in the Northern Illinois Courts and agrees not to
plead or claim in any Northern Illinois Court that such litigation brought
therein has been brought in an inconvenient forum.
11.7. HEADINGS. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
11.8. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all
29
<PAGE> 33
genders and words denoting natural persons shall include corporations and
partnerships and vice versa. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." As used in this Agreement, the words
"Subsidiary," "affiliate" and "associate" shall have the meanings ascribed
thereto in Rule 12b-2 under the Exchange Act. The phrase "Significant
Subsidiary" means any Subsidiary which is material to Purchaser's results of
operations, financial condition or business and a "Significant Subsidiary" as
such term is defined in Rule 12b-2 under the Exchange Act.
11.9. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.10. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Northern Illinois Court,
this being in addition to any other remedy to which they are entitled at law or
in equity. The prevailing party in any judicial action shall be entitled to
receive from the other party reimbursement for the prevailing party's reasonable
attorney's fees and disbursements, and court costs.
11.11. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
11.12. OBLIGATION OF PURCHASER. Whenever this Agreement requires Merger Sub
to take any action, such requirement shall be deemed to include an undertaking
on the part of Purchaser to cause Merger Sub to take such action.
11.13. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings ascribed to them below:
(a) "BENEFICIAL OWNER" with respect to any securities means a person
that would be a beneficial owner pursuant to Rule 13d-3 promulgated under
the Exchange Act.
(b) "BUSINESS DAY" means any day other than a Saturday, Sunday, or
Federal holiday, and consists of the time period from 12:01 a.m. through
12:00 midnight, New York City time.
(c) "PERSON" means a natural person, company, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
30
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
OUTBOARD MARINE CORPORATION
By: /s/ HARRY W. BOWMAN
--------------------------------------
Name: Harry W. Bowman
Title: Chairman of the Board,
President and Chief
Executive Officer
DETROIT DIESEL CORPORATION
By: /s/ TIMOTHY D. LEULIETTE
--------------------------------------
Name: Timothy D. Leuliette
Title: Vice Chairman
OMC ACQUISITION CORP.
By: /s/ TIMOTHY D. LEULIETTE
--------------------------------------
Name: Timothy D. Leuliette
Title: Vice Chairman
31
<PAGE> 35
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or the Agreement and Plan of
Merger (the "Merger Agreement"), Merger Sub shall not be required to accept for
payment or pay for, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) of the Exchange Act, any shares of Common Stock not
theretofore accepted for payment or paid for and may terminate or amend the
Offer as to such shares of Common Stock unless (i) there shall have been validly
tendered and not withdrawn prior to the expiration of the Offer that number of
shares of Common Stock which would represent at least 13,842,619 shares of the
outstanding shares of Common Stock on a fully diluted basis (collectively, the
"Minimum Condition"), (ii) any waiting period under the HSR Act applicable to
the purchase of shares of Common Stock pursuant to the Offer shall have expired
or been terminated and (iii) approvals required by law to be obtained prior to
the consummation of the Offer under any Foreign Antitrust Laws to the purchase
of shares of Common Stock pursuant to the Offer shall have been obtained.
Furthermore, notwithstanding any other term of the Offer or the Merger
Agreement, Merger Sub shall not be required to accept for payment or, subject as
aforesaid, to pay for any shares of Common Stock not theretofore accepted for
payment or paid for, and may terminate or amend the Offer if at any time on or
after the date of the Merger Agreement and prior to the expiration of the Offer,
any of the following conditions exist or shall occur and remain in effect:
(a) (i) A court of competent jurisdiction or other Governmental Entity
shall have issued an order, judgment, decree or ruling on the merits in
connection with an action, suit or proceeding brought by any Governmental
Entity or person which (1) restrains or prohibits the acquisition by
Purchaser of shares of Common Stock pursuant to the Offer, or the making or
consummation of the Offer or the Merger, (2) makes the purchase of or
payment for some or all of the shares of Common Stock pursuant to the Offer
or the Merger illegal, (3) imposes material limitations on the ability of
Purchaser (or any of its affiliates) to acquire or hold, or to require
Purchaser or any of its affiliates or Subsidiaries to dispose of or hold
separate, any material portion of the assets or the business of Purchaser
and its affiliates taken as a whole or the Company and its Subsidiaries
taken as a whole, or (4) imposes material limitations on the ability of
Purchaser (or its affiliates) to exercise full rights of ownership of the
shares of Common Stock purchased by it, including, without limitation, the
right to vote the shares purchased by it on all matters properly presented
to the shareholders of the Company, or (ii) there shall have been
instituted and pending any action or proceeding by any Governmental Entity
which, in the opinion of Purchaser's counsel (assuming, for purposes of
such opinion only, the validity of the allegations) has a reasonable
likelihood of success on the merits, and which (1) seeks to challenge the
acquisition by Purchaser of shares of Common Stock pursuant to the Offer,
restrain, prohibit or delay the making or consummation of the Offer or the
Merger, or obtain any material damages in connection therewith, (2) seeks
to make the purchase of or payment for some or all of the shares of Common
Stock pursuant to the Offer or the Merger illegal, (3) seeks to impose
material limitations on the ability of Purchaser (or any of its affiliates)
effectively to acquire or hold, or to require Purchaser or the Company or
any of their respective affiliates or subsidiaries to dispose of or hold
separate, any material portion of the assets or the business of Purchaser
and its affiliates taken as a whole or the Company and its subsidiaries
taken as a whole, or (4) seeks to impose material limitations on the
ability of Purchaser (or its affiliates) to exercise full rights of
ownership of the shares of Common Stock purchased by it, including, without
limitation, the right to vote the shares purchased by it on all matters
properly presented to the shareholders of the Company; or
(b) There shall have occurred (i) 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, (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) the commencement of a war,
armed hostilities or other international or national calamity directly or
indirectly involving the United States, or (iv) any limitation (whether or
not mandatory) by any governmental or regulatory authority on, or any other
event which has a material adverse effect on the extension of credit by
banks or other lending institutions in the United States; or
1
<PAGE> 36
(c) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any Governmental Entity,
any Law or there shall have been issued any injunction resulting in any of
the consequences referred to in subsection (a) above; or
(d) the Merger Agreement shall have been terminated in accordance with
its terms; or
(e) (i) the representations and warranties made by the Company in the
Merger Agreement shall not be true and correct as of the date of
consummation of the Offer as though made on and as of that date (other than
representations and warranties made as of a specified date) except for any
breach or breaches which, in the aggregate, would not have a Material
Adverse Effect or (ii) the Company shall have breached or failed to comply
in any material respect with any of its obligations under this Agreement
and, with respect to any such failure that can be remedied, the failure is
not remedied within 20 business days after Purchaser has furnished the
Company with written notice of such failure; or
(f) during the period from the date of this Agreement through the
expiration of the Offer, the Company and its Subsidiaries have not
conducted their business in the ordinary course of such business consistent
with past practices, or there has been any event or state of fact which
would have a Material Adverse Effect; or
(g) the Board of Directors shall have modified or amended its
recommendation of the Offer or the Merger in any manner adverse to
Purchaser or Merger Sub or shall have withdrawn its recommendation of the
Offer or the Merger or shall have recommended acceptance of any Alternative
Proposal or shall have resolved to do any of the foregoing; or
(h) (i) a tender or exchange offer for 33% or more of the then
outstanding shares of Common Stock shall have been publicly proposed to be
made and not withdrawn within five business days, or shall have been made,
by any person, corporation, entity or "group" (as defined in Section
13(d)(3) of the Exchange Act) (other than Purchaser and any of its
affiliates and other than any person who is the beneficial owner of 33% or
more of the shares of Common Stock as of the date of the Merger Agreement)
at a price in excess of the value of the Merger Consideration (calculated
as if the Closing Date were the date such tender offer is commenced); (ii)
any person (other than Purchaser and any of its affiliates) shall have
acquired beneficial ownership of 33% or more of the outstanding shares of
Common Stock, or shall have been granted any options or rights, conditional
or otherwise, to acquire a total of 33% or more of the outstanding shares
of Common Stock; (iii) any new group shall have been formed which
beneficially owns more than 33% of the outstanding shares of Common Stock;
or (iv) any person (other than Purchaser and any of its affiliates) shall
have entered into an agreement in principle or definitive agreement with
the Company with respect to a tender or exchange offer for any shares of
Common Stock or a merger, consolidation or other business combination with
or involving the Company.
Subject to Section 1.1(b) of the Merger Agreement, the foregoing conditions
(a) through (h) are for the sole benefit of Purchaser and Merger Sub and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition and may be waived by Purchaser, in whole or in part, at any time and
from time to time, in the sole discretion of Purchaser. The failure by Purchaser
at any time to exercise any of the foregoing rights will not be deemed a waiver
of any right, the waiver of such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances, and each right will be deemed an ongoing right which may be
asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the depositary to the tendering shareholders.
2
<PAGE> 1
EXHIBIT 11.1
DETROIT DIESEL CORPORATION
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
------------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
Primary net income per share:
Net income $ 7,400,000 ($16,243,000) $ 13,752,000 ($7,918,000)
Pro rata shares:
Common stock outstanding 24,699,566 24,697,316 24,699,566 24,697,316
Common stock equivalents 40,687 (1) 301 (2) 13,964 (1) 317 (2)
----------- ------------- ------------ ------------
Weighted average number of shares outstanding 24,740,253 24,697,617 24,713,530 24,697,633
=========== ============= ============ ============
Primary net income per share $0.30 ($0.66) $0.56 ($0.32)
===== ====== ===== ======
Fully diluted net income per share:
Net income $ 7,400,000 ($16,243,000) $ 13,752,000 ($7,918,000)
Pro rata shares:
Common stock outstanding 24,699,566 24,697,316 24,699,566 24,697,316
Common stock equivalents 104,301 (1) 414 (2) 28,224 (1) 414 (2)
----------- ------------- ------------ ------------
Weighted average number of shares outstanding 24,803,867 24,697,730 24,727,790 24,697,730
=========== ============= ============ ============
Fully diluted net income per share $0.30 ($0.66) $0.56 ($0.32)
===== ====== ===== ======
</TABLE>
- ------------
(1) Represents the weighted average dilutive effect of 300,250, 267,500,
106,000 and 5,000 stock options exercisable at $20.00, $17.00, $23.75 and
$18.00 per share, respectively, calculated using the treasury stock
method.
(2) Represents the weighted average dilutive effect of 305,560, 108,000 and
5,000 stock options exercisable at $20.00, $23.75 and $18.00 per share,
respectively, calculated using the treasury stock method.
<PAGE> 1
EXHIBIT 15
Detroit Diesel Corporation
13400 Outer Drive West
Detroit, Michigan 48239-4001
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Detroit Diesel Corporation and subsidiaries for the periods
ended June 30, 1997 and 1996, as indicated in our report dated July 21, 1997
(which report indicated our reliance on the review report of other accountants
with respect to their review of the interim financial statements of VM Motori,
S.p.A., a consolidated subsidiary for the three-month and six-months periods
ended June 30, 1996); because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated by reference in Registration Statement Nos. 33-84468, 33-84470 and
333-02024 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/Deloitte & Touche LLP
Detroit, Michigan
August 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,500
<SECURITIES> 0
<RECEIVABLES> 320,300
<ALLOWANCES> 3,800
<INVENTORY> 285,100
<CURRENT-ASSETS> 677,800
<PP&E> 428,700
<DEPRECIATION> 138,900
<TOTAL-ASSETS> 1,117,900
<CURRENT-LIABILITIES> 518,600
<BONDS> 74,900
0
0
<COMMON> 200
<OTHER-SE> 331,800
<TOTAL-LIABILITY-AND-EQUITY> 1,117,900
<SALES> 1,077,100
<TOTAL-REVENUES> 1,077,100
<CGS> 828,900
<TOTAL-COSTS> 828,900
<OTHER-EXPENSES> 218,900
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 6,600
<INCOME-PRETAX> 22,700
<INCOME-TAX> 8,900
<INCOME-CONTINUING> 13,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,800
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
