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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
HILITE INDUSTRIES, INC.
(NAME OF ISSUER)
HILITE INDUSTRIES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
431353 10 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
SAMUEL M. BERRY
PRESIDENT AND CHIEF OPERATING OFFICER
HILITE INDUSTRIES, INC.
1671 S. BROADWAY
CARROLLTON, TEXAS 75006
TELEPHONE: (972) 242-2116
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
Copies to:
EDWARD R. MANDELL, ESQ. CHRISTOPHER M. KELLY, ESQ.
JORDAN A. HORVATH, ESQ. PATRICK J. LEDDY, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP JONES, DAY, REAVIS & POGUE
1211 AVENUE OF THE AMERICAS 901 LAKESIDE AVENUE
NEW YORK, NEW YORK 10036 CLEVELAND, OH 44114
(212) 704-6000 (216) 586-3939
MAY 3, 1999
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
- -------------------------------------------------------------------------------
$71,537,850 $14,308
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* For purposes of calculating fee only. This transaction applies to an aggregate
of 5,020,200 shares of common stock of Hilite Industries, Inc. (the sum of (i)
4,900,000 outstanding shares of common stock and (ii) 120,200 outstanding
options to purchase shares of common stock of Hilite Industries, Inc.).
Except as otherwise noted, the per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 is $14.25 per unit.
The proposed maximum aggregate value of transaction is $71,537,850.
The total fee is $14,308 paid by wire transfer on April 30, 1999 to the
designated lockbox depository maintained by the Commission at Mellon Bank. The
amount of the filing fee, calculated in accordance with Rule 0-11 promulgated
under the Securities Exchange Act of 1934, as amended, equals 1/50 of one
percent of the Common Stock to be acquired.
[ ] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
Amount Previously Paid: Not Applicable.
Form or Registration No.: Not Applicable.
Filing Party: Not Applicable.
Date Filed: Not Applicable.
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SCHEDULE 13E-4
INTRODUCTION
This Issuer Tender Offer Statement (this "Statement") relates to the
offer by Hilite Industries, Inc., a Delaware corporation (the "Company"), to
purchase all of its issued and outstanding shares of common stock, $0.01 par
value per share ("Shares"), for $14.25 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated May 3, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal dated May 3, 1999 (which together constitute the "Offer"), copies of
which are attached hereto as Exhibits (a)(1) and (a)(2), respectively.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Hilite Industries, Inc., a Delaware
corporation (the "Company"), which has its principal executive offices at 1671
S. Broadway, Carrollton, Texas 75006.
(b) This Statement relates to the offer by the Company to purchase all
of the Shares for $14.25 per Share, net to Seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase. The information
set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS --
Interests of Certain Persons in the Transactions" and "SPECIAL FACTORS - The
Merger Agreement and the Stockholders Agreement" is incorporated herein by
reference.
(c) The information set forth in the Offer to Purchase under
"INTRODUCTION" and "THE TENDER OFFER -- Section 6. Price Range of Shares;
Dividends and Distributions" is incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) - (b) The information set forth in the Offer to Purchase under
"INTRODUCTION" and "THE TENDER OFFER -- Section 10. Financing of the
Transactions" is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OF PROPOSALS OF THE
ISSUER OR AFFILIATE.
The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS - Background of the Transactions," "SPECIAL
FACTORS - Purposes and Reasons of the Company for the Transactions," "SPECIAL
FACTORS - Purposes and Reasons of Buyer and the Continuing Stockholders for the
Transactions" "SPECIAL FACTORS - Plans for the Company After the Transactions;
Certain Effects of the Transactions," "SPECIAL FACTORS - The Merger Agreement
and the Stockholders Agreement" and "THE TENDER OFFER - Section 11. Effects of
the Transactions on the Market for the Shares; Exchange Act Registration" is
incorporated herein by reference.
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ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- The Merger Agreement and the Stockholders Agreement" and "SPECIAL
FACTORS- Transactions and Arrangements Concerning the Shares" is incorporated
herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO THE ISSUER'S SECURITIES.
The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions," "SPECIAL
FACTORS -- Purpose and Reasons of the Company for the Transactions," "SPECIAL
FACTORS -- Purpose and Reasons of Buyer and Continuing Stockholders for the
Transactions," "SPECIAL FACTORS -- The Merger Agreement and the Stockholders
Agreement" and "SPECIAL FACTORS -- Transactions and Arrangements Concerning the
Shares" is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Transactions," "SPECIAL
FACTORS -- Interests of Certain Persons in the Transactions" and "THE TENDER
OFFER -- Section 14. Fees and Expenses" is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a) The information set forth in the Offer to Purchase under "THE
TENDER OFFER -- Section 7. Certain Information Concerning the Company", "TENDER
OFFER -- Section 8. Recent Developments" and "THE TENDER OFFER -- Section 9.
Summary Historical Financial Information" is incorporated herein by reference.
In addition, the Company's audited financial statements and related notes as of
June 30, 1998 and June 30, 1997 and for the years ended June 30, 1998, and the
Company's unaudited Balance Sheet as of March 31, 1999 and June 30, 1998, the
Statements of Operations for the Three and Nine-Month Periods ended March 31,
1999 and 1998 and Statements of Cash Flows for the Nine-Month Periods Ended
March 31, 1999 and 1998.
(b) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS-Cautionary Statements Concerning Forward-Looking Statements and Company
Financial Projections" is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The information set forth in the Offer to Purchase under "THE
TENDER OFFER -- Section 13. Certain Legal Matters and Regulatory Approvals" is
incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
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(e) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, are incorporated herein by reference in their
entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated May 3, 1999.
(a)(2) Letter of Transmittal, dated May 3, 1999.
(a)(3) Notice of Guaranteed Delivery, dated May 3, 1999.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees, dated May 3, 1999.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees, dated May 3, 1999.
(a)(6) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(7) Summary Advertisement as published in The Wall Street Journal on
May 3, 1999.
(a)(8) Press Release issued by the Company on April 27, 1999.
(a)(9) Letter to the Company's stockholders from Daniel W. Brady,
Chief Executive Officer of the Company, dated May 3, 1999.
(b)(1) Commitment Letter, dated April 20, 1999, from First Union
Investors, Inc.
(b)(2) Commitment Letter, dated April 20, 1999, from First Union
Capital Markets Corp.
(c)(1) Agreement and Plan of Merger, dated as of April 26, 1999, by
and among Hilite Holdings, LLC, a Delaware limited liability company, Hilite
Mergeco, Inc., a Delaware corporation and the Company.
(c)(2) Stockholders Agreement, dated as of April 26, 1999, by and
among Hilite Holdings, LLC, Hilite Mergeco, Inc., and the Continuing
Stockholders of the Company listed on Schedule A thereto.
(d) None.
(e) None.
(f) None.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
Date: May 3, 1999
HILITE INDUSTRIES, INC.
/s/ Samuel M. Berry
------------------------------------------
By: Samuel M. Berry
President and Chief Operating Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
<TABLE>
<S> <C>
(a)(1) Offer to Purchase, dated May 3, 1999.
(a)(2) Letter of Transmittal, dated May 3, 1999.
(a)(3) Notice of Guaranteed Delivery, dated May 3, 1999.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees, dated May 3, 1999.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees, dated May 3, 1999.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
(a)(7) Summary Advertisement as published in The Wall Street Journal on May 3, 1999.
(a)(8) Press Release issued by the Company on April 27, 1999.
(a)(9) Letter to the Company's Stockholders from Daniel W. Brady, Chief Executive
Officer of the Company, dated May 3, 1999.
(b)(1) Commitment Letter, dated April 20, 1999, from First Union Investors, Inc.
(b)(2) Commitment Letter, dated April 20, 1999, from First Union Capital Markets Corp.
(c)(1) Agreement and Plan of Merger, dated as of April 26, 1999, by and among Hilite
Holdings, LLC,. Hilite Mergeco, Inc., a Delaware corporation and the Company.
(c)(2) Stockholders Agreement, dated as of April 26, 1999, by and among Hilite Holdings, LLC,
Hilite Mergeco, Inc., and the Continuing Stockholders of the Company listed on
Schedule A thereto.
(d) None.
(e) None.
(f) None.
</TABLE>
5
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EXHIBIT (d)(1)
OFFER TO PURCHASE FOR CASH BY
HILITE INDUSTRIES, INC.
ALL OUTSTANDING SHARES OF ITS COMMON STOCK
AT
$14.25 NET PER SHARE
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, MAY 28, 1999, UNLESS THE OFFER IS EXTENDED.
------------------------
Hilite Industries, Inc., a Delaware corporation (the "Company"), is
offering to purchase all outstanding shares of its common stock, $.01 par value
per share ("Shares"), for $14.25 per Share, net to seller in cash (such amount,
or any greater amount per Share paid pursuant to the offer, being referred to
herein as the "Offer Price"), upon the terms and subject to the conditions set
forth in this offer to purchase and in the related letter of transmittal (which
together constitute the "Offer").
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer at least
2,510,101 Shares (the "Minimum Condition"), which constitutes a majority of the
outstanding Shares on a fully diluted basis, and the Company obtaining the Debt
Financing (as defined herein) arranged for its benefit by Buyer (as defined
herein). Pursuant to the Stockholders Agreement (as defined herein), the
Continuing Stockholders (as defined herein) have agreed to tender and not
withdraw in the aggregate approximately 73% of the outstanding Shares on a fully
diluted basis. See "The Merger Agreement and the Stockholders Agreement".
The Board of Directors of the Company (the "Board") and the Disinterested
Directors (as defined herein) have each unanimously determined, after giving
careful consideration to a number of factors, that the Offer and the Merger (as
defined herein) are fair to, and in the best interests of, the stockholders of
the Company, and have each unanimously approved the Merger Agreement and the
transactions contemplated thereby including the Offer at the Offer Price, the
Stock Purchase (as defined herein) and the Merger. The Board and the
Disinterested Directors each recommends that the stockholders of the Company
accept the Offer and tender their Shares pursuant to the Offer.
Bowles Hollowell Conner, a division of First Union Capital Market Corp.,
has delivered to the Board its written opinion, dated April 26, 1999, to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Offer Price and the Merger Consideration (as
defined herein) to be received in the Offer and the Merger by the holders of
Shares (other than Continuing Stockholders with respect to their retained
Shares) was fair, from a financial point of view, to such holders.
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S
SHARES SHOULD EITHER (1) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL IN
ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF TRANSMITTAL AND MAIL OR
DELIVER IT TOGETHER WITH THE CERTIFICATE(S) EVIDENCING TENDERED SHARES, AND ANY
OTHER REQUIRED DOCUMENTS, TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY (THE
"DEPOSITARY") (AT THE DEPOSITARY'S ADDRESS SET FORTH ON THE BACK COVER OF THIS
OFFER TO PURCHASE) OR TENDER SUCH SHARES PURSUANT TO THE PROCEDURE FOR
BOOK-ENTRY TRANSFER SET FORTH IN "THE TENDER OFFER -- SECTION 3. PROCEDURES FOR
ACCEPTING THE OFFER AND TENDERING SHARES" OR (2) REQUEST SUCH STOCKHOLDER'S
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE
TRANSACTION FOR SUCH STOCKHOLDER.
The Shares are listed and traded on the Nasdaq National Market. On April
26, 1999, the last full day of trading prior to the announcement of the Offer,
the closing sale price of the Shares on Nasdaq was $10 7/8 per Share. On April
30, 1999, the last full trading day prior to the commencement of the Offer, the
closing sale price of the Shares on Nasdaq was $ 13 11/16 per Share.
Stockholders are urged to obtain a current market quotation for the Shares.
Any stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply with
the procedure for book-entry transfer on a timely basis, may tender such Shares
by following the procedure for guaranteed delivery set forth in "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares".
Questions or requests for assistance may be directed to Morrow & Co., Inc.,
the Information Agent, or First Union Capital Markets Corp., the Dealer Manager,
at their respective addresses and telephone numbers set forth on the back cover
of this Offer to Purchase. Additional copies of this Offer to Purchase, the
Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from
the Information Agent or from brokers, dealers, commercial banks or trust
companies.
THE TRANSACTIONS (AS DEFINED HEREIN) HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTIONS NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
FIRST UNION CAPITAL MARKETS CORP.
May 3, 1999
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TABLE OF CONTENTS
<TABLE>
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INTRODUCTION................................................ 1
SPECIAL FACTORS............................................. 3
Background of the Transactions............................ 3
Recommendation of the Disinterested Directors and the
Board; Fairness of the Transactions.................... 7
Opinion of Bowles Hollowell............................... 8
Purposes and Reasons of the Company for the
Transactions........................................... 11
Purposes and Reasons of Buyer and the Continuing
Stockholders for the Transactions...................... 11
Position of Buyer and the Continuing Stockholders
Regarding Fairness of the Transactions................. 11
Recapitalization.......................................... 12
Interests of Certain Persons in the Transactions.......... 12
The Stock Subscription Agreements......................... 13
Cautionary Statement Concerning Forward-Looking Statements
and Company Financial Projections...................... 13
Plans for the Company after the Transactions; Certain
Effects of the Transactions............................ 14
Rights of the Stockholders in the Transactions............ 15
The Merger Agreement and the Stockholders Agreement....... 16
Related Party Transactions................................ 25
Beneficial Ownership of Common Stock...................... 25
Transactions and Arrangements Concerning the Shares....... 27
THE TENDER OFFER............................................ 28
1. Terms of the Offer; Expiration Date................... 28
2. Acceptance for Payment and Payment for Shares......... 29
3. Procedures for Accepting the Offer and Tendering
Shares................................................. 30
4. Withdrawal Rights..................................... 32
5. Certain U.S. Federal Income Tax Consequences.......... 32
6. Price Range of Shares; Dividends...................... 33
7. Certain Information Concerning the Company............ 33
8. Recent Developments................................... 34
9. Summary Historical Financial Information.............. 34
10. Financing of the Transactions......................... 35
11. Effect of the Transactions on the Market for the
Shares; Exchange Act Registration...................... 38
12. Certain Conditions to the Offer....................... 39
13. Certain Legal Matters and Regulatory Approvals........ 40
14. Fees and Expenses..................................... 42
15. Certain Information Concerning Buyer and Merger
Subsidiary............................................. 43
16. Recapitalization Accounting........................... 44
17. Miscellaneous......................................... 44
</TABLE>
<TABLE>
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SCHEDULE I. Directors and Executive Officers of the Company
SCHEDULE II. Opinion of Bowles Hollowell
SCHEDULE
III. Section 262 of the General Corporation Law of the State of
Delaware
SCHEDULE IV. Audited Financial Statements (and Related Notes) for the
Company as of June 30, 1998 and June 30, 1997 and for the
three years ended June 30, 1998
SCHEDULE V. Unaudited Balance Sheet for the Company as of March 31, 1999
and June 30, 1998, the Statements of Operations for the
Three and Nine-Month Periods ended March 31, 1999 and 1998
and Statements of Cash Flows for the Nine-Month Periods
Ended March 31, 1999 and 1998
</TABLE>
i
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To the Holders of Common Stock of
Hilite Industries, Inc.:
INTRODUCTION
Hilite Industries, Inc., a Delaware corporation (the "Company"), hereby
offers to purchase all outstanding shares of its common stock, $.01 par value
per share ("Shares"), at a price of $14.25 per Share, net to seller in cash
(such amount, or any greater amount per Share paid pursuant to the Offer, being
referred to herein as the "Offer Price"), upon the terms and subject to the
conditions set forth in the Offer. Tendering stockholders will not be obligated
to pay brokerage fees or commissions or, except as otherwise provided in
Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to
the purchase of Shares by the Company pursuant to the Offer. The Company will
pay all charges and expenses of Bowles Hollowell Conner, a division of First
Union Capital Markets Corp., which is acting as financial advisor to the
Company, First Union Capital Markets Corp., which is acting as the dealer
manager for the Offer (the "Dealer Manager"), Continental Stock Transfer & Trust
Company, which is acting as the depositary for the Offer (the "Depositary") and
Morrow & Co., Inc., which is acting as information agent for the Offer (the
"Information Agent") incurred in connection with the Offer. See "THE TENDER
OFFER -- Section 14. Fees and Expenses". If the Transactions are not
consummated, certain of the fees related to the Transactions will be paid by the
Buyer.
The Shares are currently listed and traded on the Nasdaq National Market
under the symbol "HILI". On April 26, 1999, the last full day of trading prior
to the announcement of the Offer, the closing sale price of the Shares on Nasdaq
was $10 7/8 per Share. On April 30, 1999, the last full trading day prior to the
commencement of the Offer, the closing sale price of the Shares on Nasdaq was
$13 11/16 per Share. Stockholders are urged to obtain a current market quotation
for the Shares. The consummation of the Transactions (as defined herein) would
result in: (i) the delisting of the Shares from Nasdaq, (ii) the Shares becoming
eligible for termination of registration pursuant to Section 12(g)(4) of the
Exchange Act (as defined herein), (iii) a change in the composition of the
present board of directors and executive officers of the Company and (iv) a
change in the capitalization of the Company.
The purpose of the Transactions is (i) to enable Hilite Holdings, LLC, a
Delaware limited liability company ("Buyer"), to obtain, in the aggregate,
majority ownership in the Company and (ii) to provide the Company's stockholders
with liquidity for their Shares by enabling them to sell their Shares at a fair
price and at a premium over recent market prices more quickly than through
alternative transaction structures that had been considered. See "THE TENDER
OFFER -- Section 6. Price Range of Shares; Dividends and Distributions" and
"SPECIAL FACTORS -- Recommendation of the Disinterested Directors and Board;
Fairness of the Transactions".
The Company, Buyer and Hilite Mergeco, Inc., a Delaware corporation and
wholly-owned subsidiary of Buyer ("Merger Subsidiary"), entered into an
Agreement and Plan of Merger, dated as of April 26, 1999 (the "Merger
Agreement"). Pursuant to the Merger Agreement, Buyer agreed to purchase after
the expiration of the Offer but immediately prior to the consummation of the
Offer 1,681,414 newly-issued Shares (the "Stock Purchase") at a per Share price
equal to the Offer Price. The Stock Purchase will provide the Company with a
portion of the funds needed to consummate the Offer and the Merger (as defined
herein) and it is anticipated that the remainder of the funds needed to
consummate the Offer and the Merger and to pay all related fees and expenses
will be obtained by the Company through financing arranged for its benefit by
Buyer, consisting of (i) borrowings under a $65 million senior secured credit
facility and (ii) the proceeds from the sale of $15.0 million of 12.5% senior
unsecured subordinated notes (collectively, the "Debt Financing"). See "SPECIAL
FACTORS -- The Merger Agreement and Stockholder Agreement" and "TENDER OFFER --
Section 8. Financing of the Offer and the Merger".
The Offer is being made pursuant to the Merger Agreement which provides
that, among other things, as soon as practicable after the purchase of Shares
pursuant to the Offer and the satisfaction of the other conditions set forth in
the Merger Agreement, in accordance with the requirements of the General
Corporation Law of the State of Delaware, Merger Subsidiary will be merged with
and into the Company (the "Merger" and, together with the Offer and the Stock
Purchase, the "Transactions"), with the Company as the surviving corporation of
the Merger (the "Surviving Corporation"). At the effective time of the Merger,
each Share issued and outstanding
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immediately prior to the effective time of the Merger, other than certain Shares
owned by the James E. Lineberger, Jr. Trust, the Geoffry S. Lineberger Trust,
the Christopher Lineberger Trust, the Brady Family Limited Partnership and
certain members of the Company's management (collectively, "Continuing
Stockholders") and Buyer (see "SPECIAL FACTORS -- The Merger Agreement and
Stockholders Agreement"), will be canceled and converted automatically into the
right to receive $14.25 in cash, or any higher price that may be paid per Share
pursuant to the Offer, without interest (the "Merger Consideration"), subject to
dissenters' rights. Shares owned by any wholly-owned subsidiary of the Company
and Shares owned by Merger Subsidiary will be canceled. Each share of Merger
Subsidiary will be converted into one share of Surviving Corporation. The Merger
Agreement is more fully described in "SPECIAL FACTORS -- The Merger Agreement
and Stockholders Agreement". NO DISSENTERS' RIGHTS ARE AVAILABLE IN CONNECTION
WITH THE OFFER. See "SPECIAL FACTORS -- Rights of the Stockholders in the
Transactions". Stockholders who fully comply with the statutory dissenters'
procedures under Delaware law, the relevant portions of which are attached to
this Offer to Purchase as SCHEDULE III, will be entitled to receive, in
connection with the Merger, cash for the fair value of their Shares as
determined pursuant to the procedures prescribed by Delaware law.
THE BOARD AND THE COMPANY'S THREE OUTSIDE DIRECTORS (THE "DISINTERESTED
DIRECTORS") HAVE EACH UNANIMOUSLY DETERMINED, AFTER GIVING CAREFUL CONSIDERATION
TO A NUMBER OF FACTORS, THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND HAVE EACH UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
INCLUDING THE OFFER AT THE OFFER PRICE, THE STOCK PURCHASE AND THE MERGER. THE
BOARD AND THE DISINTERESTED DIRECTORS EACH RECOMMENDS THAT THE STOCKHOLDERS OF
THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
Bowles Hollowell has delivered to the Board its written opinion, dated
April 26, 1999, to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Offer Price and the
Merger Consideration to be received in the Offer and the Merger by the holders
of Shares (other than Continuing Stockholders with respect to their retained
Shares) was fair from a financial point of view to such holders. See "SPECIAL
FACTORS -- Opinion of Bowles Hollowell" for further information concerning the
opinion of Bowles Hollowell, a copy of which is attached to this Offer to
Purchase as Schedule II.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
2,510,101 SHARES (THE "MINIMUM CONDITION"), WHICH CONSTITUTES A MAJORITY OF THE
OUTSTANDING SHARES ON A FULLY DILUTED BASIS, AND UPON THE COMPANY OBTAINING THE
DEBT FINANCING ARRANGED FOR ITS BENEFIT BY BUYER. SEE "THE TENDER
OFFER -- SECTION 12. CERTAIN CONDITIONS TO THE OFFER". PURSUANT TO THE
STOCKHOLDERS AGREEMENT, THE CONTINUING STOCKHOLDERS HAVE AGREED TO TENDER AND
NOT WITHDRAW IN THE AGGREGATE APPROXIMATELY 73% OF THE OUTSTANDING SHARES ON A
FULLY DILUTED BASIS.
Buyer and Merger Subsidiary have entered into a Stockholders Agreement with
the Continuing Stockholders dated as of the date of the Merger Agreement (the
"Stockholders Agreement"), providing, subject to certain conditions, for (i) the
tender by the Continuing Stockholders of certain Shares owned or controlled by
them, (ii) the retention by the Continuing Stockholders of certain Shares owned
or controlled by them and (iii) the grant of an irrevocable proxy to Buyer by
the Continuing Stockholders to vote all Shares owned or controlled by them at
the time of the Stockholders' Meeting (as defined herein) in favor of the
Merger. See "SPECIAL FACTORS -- The Merger Agreement and the Stockholders
Agreement."
As of March 31, 1999, there were 4,900,000 Shares issued and outstanding
and no Shares held in the treasury of the Company. Employee and director stock
options ("Employee Options") exercisable for 120,200 Shares were outstanding
pursuant to the Company's stock option plans and direct grants as of March 31,
1999, of which all options were vested as of such date. As of March 31, 1999,
there were approximately 40 holders of record of the issued and outstanding
Shares. As of March 31, 1999, the Company's directors and executive officers as
a group beneficially owned 3,842,800 Shares, or 76.5% of the Shares outstanding
as of such date on a fully diluted basis. The Company has been informed by its
directors and executive officers (other than those who are Continuing
Stockholders) that they intend either to tender all Shares beneficially owned by
them to the Company pursuant to the Offer or to vote such Shares in favor of the
Merger Agreement and the Merger. The
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Continuing Stockholders have agreed to tender all their Shares except for their
retained Shares and to vote all of their Shares in favor of the Merger Agreement
and the Merger.
The receipt of cash for Shares pursuant to the Offer or in the Merger will
be a taxable transaction for U.S. federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), and may also be a taxable
transaction under applicable state, local or foreign tax laws. See "THE TENDER
OFFER -- Section 5. Certain U.S. Federal Income Tax Consequences".
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions including the approval and adoption of the Merger Agreement
by the requisite vote of the stockholders of the Company. See "SPECIAL
FACTORS -- The Merger Agreement and the Stockholders Agreement". Under the
Company's certificate of incorporation (the "Certificate of Incorporation") and
Delaware law, the affirmative vote of the holders of a majority of the
outstanding Shares is required to approve the Merger Agreement and the Merger.
If the Offer is consummated, Buyer will be able to effect the Merger without the
affirmative vote of any other stockholder.
Following the consummation of the Transactions, Buyer and the Continuing
Stockholders will own Shares representing approximately 92.2% and 7.8%,
respectively, of the Shares outstanding following such consummation.
This Offer to Purchase and the accompanying documents contain information
required to be disclosed by the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Exchange Act"), including
financial information regarding the Company, a description of the terms,
conditions and background of the Offer, and the procedures for tendering Shares.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTIONS
In early 1998, Daniel W. Brady, the Company's Chief Executive Officer, and
Samuel M. Berry, the Company's President and Chief Operating Officer, noted
several significant changes taking place in the automotive industry, which were
potential obstacles to the future growth prospects for the Company. These
included the expressed goal of the major automotive manufacturers to reduce
their number of suppliers, favoring larger companies who were capable of
supplying component systems and companies with a global presence. In addition,
the merger activity taking place among automotive suppliers in response to these
trends was increasing. In subsequent months, Mr. Brady began to gather
information on acquisition and merger transactions involving automotive
component suppliers and on prices being paid for such suppliers from publicly
available reports and industry seminars.
On April 22, 1998, at a regular Board meeting, Mr. Brady initiated a
discussion regarding the trends affecting the Company and its business,
including automotive supplier consolidation and the increasing importance of
size and a global presence for continued growth. He also expressed his opinion
that the private sale value of the Company may be substantially greater than the
public value of Hilite. Mr. Brady indicated that since Hilite went public in
January 1994 at $9.00 per share, the earnings of the Company had almost doubled,
but that the current market price of the stock was at only $8.00 per share,
$1.00 per share less than the Company's initial public offering price.
Thereafter, the Board discussed the issues raised by Mr. Brady and concluded
that the Company's stock price was undervalued in the public markets and did not
reflect the Company's operating results. The Board determined that such
undervaluation was in part attributable to generally low multiples for small-cap
companies and, specifically, for automotive components suppliers, as well as the
limited public float for the Shares. Acknowledging its primary goal of
maximizing stockholder value over the long term, the Board encouraged Messrs.
Brady, Berry and James E. Lineberger to explore the Company's strategic options,
including the option of selling the Company.
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During May and June 1998, Messrs. Brady, Berry and Lineberger interviewed
and requested proposals from several investment banking firms, some of which
they had met with earlier to discuss strategic alternatives for the Company.
Three firms made proposals with respect to the Company. These proposals
indicated that the stockholders of the Company could realize significantly
higher value for their shares through the sale of the Company rather than
through trading such shares in the public markets.
At a regular meeting of the Board on July 1, 1998, the investment banking
proposals were evaluated and discussed. Mr. Brady reported that, because of the
Company's excellent operating results, the currently strong automotive market
and the intense merger and acquisition activity taking place in the auto
industry, it was an excellent time for the Board to consider its strategic
options. He then made a recommendation that the Board engage Bowles Hollowell
for the purpose of pursuing options for maximizing stockholder value including
the possible sale of the Company. The Board discussed this recommendation as
well as the merits of the proposal made by another investment bank. The Board
unanimously authorized Mr. Brady to negotiate and enter into on behalf of the
Company an engagement letter with Bowles Hollowell. On July 28, 1998, the
Company and Bowles Hollowell signed an engagement letter.
From August 1998 through January 1999, Bowles Hollowell conducted due
diligence on the Company and, together with the Company's management, developed
a summary of the Company, its history and projections for future growth to
present to potential purchasers. The Company also assembled in one location on
its premises the primary documents a potential purchaser would be interested in
reviewing when conducting its own due diligence review of the Company. However,
from October through December 1998, the process of identifying strategic
alternatives proceeded along a slower path than originally envisioned, as the
Company's attention was focused on resolving an issue with a major customer. As
that situation may have had an effect on the sale price of the Company,
contacting potential purchasers was delayed until the issue was settled in
December 1998, without a material effect on the Company.
On November 18, 1998, Mr. Brady updated the Board on Bowles Hollowell's
work and presented a list of potential buyers to the Board for review.
Subsequent to the meeting, Board members contacted Mr. Brady with suggested
additions or changes to the list. On November 23, 1998, John Creamer, an outside
director, and Mr. Brady reviewed the list and suggested certain changes to
Bowles Hollowell.
Also, on November 18, 1998, Mr. Brady submitted to the Company's
Compensation Committee proposed Change in Control Retention Bonus,
Non-competition and Severance Agreements for key Company management and for
Lineberger & Co. LLC, a strategic consultant affiliated with the Company's
Chairman of the Board which is under contract with the Company. The proposed
agreements with management included a non-compete provision, which was intended
to protect both the Company and any prospective purchaser of the Company from
competition by these individuals for a specified time. The Board's primary
reasons for considering these proposed agreements were to insure the retention
of key management during a period of uncertainty that could result in a change
of control of the Company and to provide motivation for them to maximize
stockholder value. Additionally, the Board determined that the agreements would
(i) acknowledge the importance of the management team to the value of the
Company, (ii) provide a measure of security for anyone not being retained by a
new owner and (iii) provide additional value to a prospective purchaser of the
Company by determining the amount of severance costs that would be payable by
the Company for employees who would not be retained. The Compensation Committee
revised the agreements to provide that the change of control bonus payable
pursuant to such agreements would be paid only if the price per share paid to
the stockholders in the transactions giving rise to the change in control was at
least a 15% premium over the trading price of the Company's stock at the close
of business on that day or over the average of the closing prices for the thirty
day period beginning 60 days prior to Board's approval of a change in control.
The Compensation Committee approved these agreements as revised and the
agreements were subsequently approved by the Board. These agreements were
executed in December 1998 and January 1999.
On January 12, 1999, Bowles Hollowell began to initiate contact with a
number of potential purchasers for the Company, including both financial and
strategic buyers. This process continued through March 11, 1999. During this
process, 102 companies were contacted, of which 40 signed confidentiality
agreements and were sent certain confidential information for review. Six
companies, all financial buyers, submitted indications of interest.
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These companies visited the Company's corporate office and main plant outside
Dallas, Texas where they received a plant tour and presentations by management.
They were also given the opportunity to review the due diligence information
assembled by the Company.
On February 4, 1999, Mr. Brady reviewed the status and timetable of the
solicitation process with the Board at its regular meeting. At the meeting, the
Board also discussed severance compensation for the outside directors in the
event of a change of control of the Company. After such discussions, the Board
(not including the outside directors) approved a termination bonus for each of
the three outside directors upon a sale or merger of the Company. The bonus is
equal to the excess, if any, of the merger consideration paid per share over the
closing bid price per share of the Company's common stock on the date of the
meeting ($9 5/8 per Share) multiplied by a number assigned to each director
ranging from 7,500 to 10,000.
On March 11, 1999, Bowles Hollowell requested final bids and comments to a
draft merger agreement that the Company and its counsel had prepared from the
six most interested parties and established a deadline for final bids of March
24, 1999. The letter that Bowles Hollowell distributed included an update of the
Company's financial results through February 1999 and stated that the objective
of the Board was to agree upon terms which result in the highest possible value
to the Company's stockholders and to consummate a transaction expeditiously. The
letter established guidelines for the proposals, including stating a specific
price per share for all the issued and outstanding shares of common stock and
common stock options, the source of financing supported by third party
commitment letters, the additional due diligence required and identification of
any changes to the proposed purchase agreement or the structure of the
transaction. The letter concluded by stating that it was the Company's intention
to enter into exclusive negotiations with the party whose proposal was
considered the most attractive by the Board. Three bids were subsequently
received by the deadline.
After the bid proposals were received, Bowles Hollowell prepared a report
for the Board that described the competitive process leading up to these bids
and which summarized the bids and compared them to each other and to other
recent transactions involving public automotive components suppliers. This
report, which included copies of each bid, was sent to each Board member for
evaluation. In addition, the Company's counsel was asked to review the legal
comments made by each bidder to the draft acquisition agreement.
A telephonic meeting of the Board was held on March 29, 1999 to discuss the
solicitation process and the bids received. At this meeting, the Board was
advised that the proposals received reflected prices ranging from $13.13 to
$14.25 per share, with an investment group led by Carreras, Kestner & Co., LLC
("CK & Co.") bidding $14.25 per share in cash for all of the outstanding Shares.
The Board discussed the various financing and other contingencies included in
each bid and was given an opportunity to ask questions of Bowles Hollowell and
legal counsel regarding such bids. After discussion, the Board unanimously (with
one director absent) authorized management to enter into detailed discussions
and negotiations exclusively with CK & Co. for the purpose of concluding a
definitive agreement for subsequent submission to the Board for approval.
Between March 29, 1999 and April 22, 1999, management of the Company,
together with Bowles Hollowell and legal counsel, began to negotiate the
specific terms of the transaction other than price. During that period, CK & Co.
indicated its desire to structure the transaction to qualify for
recapitalization accounting. In order to obtain this accounting treatment,
certain of the Company's existing stockholders would be required to maintain an
equity interest in the Company after consummation of the Transactions. CK & Co.,
after discussions with the Continuing Stockholders about their willingness to
retain an equity position in the recapitalized Company, proposed to restructure
their offer to provide for a tender offer by the Company for all of its
outstanding Shares and a simultaneous closing of the Stock Purchase and the Debt
Financing. The Company and CK & Co. engaged in extensive discussions regarding
this transaction structure and ultimately agreed to proceed based on CK & Co.'s
proposed structure. In order to facilitate this structure and induce Buyer to
enter into these Transactions, the Continuing Stockholders agreed to retain
certain of their Shares which in the aggregate represents 2.9% of the
outstanding Shares. These retained Shares are expected to represent
approximately 7.8% of the outstanding common stock of the Company after
consummation of the Transactions. During April 1999, the Company and Buyer
continued to negotiate the various terms of the Merger Agreement, including the
conditions to the Offer, termination rights and the amount and triggers of a
break-up fee requested by the Buyer. As a result of these negotiations, the
Company reduced the amount of the break-up fee requested by Buyer and
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<PAGE> 8
narrowed certain of the payment triggers for the fee. As the negotiations
regarding the Merger Agreement progressed, each of the Board members received
periodic updates from Mr. Brady regarding the status of the negotiations.
On April 22, 1999, a telephonic meeting of the Board was held and the
status of the negotiations was reviewed, including the changes to the structure
of the transaction. Bowles Hollowell reviewed with the Board the financial
analyses performed by Bowles Hollowell in connection with its evaluation of the
proposed transaction and indicated that it was in a position to be able to
render an opinion that the Offer Price was fair from a financial point of view
to the holders of Shares (other than the Continuing Stockholders with respect to
their retained Shares). At this time, the Board engaged in discussions with
Bowles Hollowell and legal counsel regarding the negotiations and the proposed
transactions. The Board then considered the financial performance of the Company
for the third fiscal quarter ended March 31, 1999, which the Company was in the
process of finalizing. The report indicated that the results would be extremely
positive with the Company reporting an increase in sales of 16% and an increase
in earning per share of 33% over the third quarter of fiscal 1998. Management
explained that these results were higher than anticipated, but indicated that it
was unlikely that these results could be sustained in the next quarter. The
Board then asked Bowles Hollowell if these results would affect its evaluation
of the fairness of the Offer Price and Bowles Hollowell preliminarily advised
that it would not, but agreed to perform additional analyses to discuss with the
Board before it approved the Transactions. The Board then unanimously (with one
director absent) agreed to authorize management to complete negotiations with CK
& Co. regarding the Merger Agreement and to prepare for release of the third
quarter results to the public as expeditiously as possible. Negotiations between
the Company and Buyer regarding the terms of the Merger Agreement continued
through April 26, 1999.
On April 26, 1999, the Disinterested Directors held a telephonic meeting
with Bowles Hollowell and with legal counsel, at which the Disinterested
Directors were given a separate opportunity to evaluate the proposed
transaction, its structure and its fairness. In connection with this evaluation,
the Disinterested Directors reviewed the interests of the Continuing
Stockholders in the Transactions and determined that the retained ownership of
Shares by the Continuing Stockholders at the agreed upon level (7.8% of the
recapitalized Company or 2.9% of the outstanding Shares prior to the
recapitalization) did not affect their assessment that the Transactions were
fair to the Company's stockholders. In reaching this determination, the
Disinterested Directors acknowledged that the Transactions would eliminate the
opportunity for the stockholders, other than the Continuing Stockholders, to
participate in the future growth of the Company, but also recognized that the
Transactions would limit the stockholders' exposure to the risks of any future
decrease in the value of the Company. In addition, the Disinterested Directors
focused on the fact that the Offer Price was determined prior to any discussions
regarding the Continuing Stockholders' retention of certain Shares to facilitate
recapitalization accounting treatment. Bowles Hollowell, after performing
additional analyses and taking into consideration the Company's third quarter
results, advised the Disinterested Directors that such analyses and
considerations did not effect its original determination as to the fairness of
the Offer Price and the Transactions. After consideration of Bowles Hollowell's
updated analysis, the Disinterested Directors reaffirmed that the Offer Price
was determined before the negotiations that resulted in the Continuing
Stockholders maintaining their interests in the Company, agreed that the Offer
and Merger were fair to, and in the best interests of, the stockholders, and
unanimously recommended that the Board approve the Transactions. Following the
Disinterested Directors meeting, the full Board met with Bowles Hollowell and
legal counsel. Bowles Hollowell reviewed with the Board the updated analysis
presented to the Disinterested Directors and rendered to the Board an oral
opinion (which opinion was subsequently confirmed by delivery of a written
opinion dated April 26, 1999) to the effect that, as of the date of such opinion
and based upon and subject to certain matters stated therein, the Offer Price
was fair from a financial point of view to the holders of the Shares (other than
the Continuing Stockholders with respect to their retained Shares). Thereafter,
the directors unanimously determined, after giving careful consideration to a
number of factors including the recommendation of the Disinterested Directors,
that the Transactions, taken together, were fair to, and in the best interests
of, the Company and its stockholders, and unanimously approved the Transactions.
On April 26, 1999, the Company entered into the Merger Agreement with Buyer
and Merger Subsidiary and the Continuing Stockholders entered into the
Stockholders Agreement with Buyer and Merger Subsidiary. The
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Company publicly announced the proposed Transactions prior to the commencement
of trading of the Company's stock on April 27, 1999.
RECOMMENDATION OF THE DISINTERESTED DIRECTORS AND THE BOARD; FAIRNESS OF THE
TRANSACTIONS
Recommendation of Disinterested Directors and the Board. The Disinterested
Directors and the Board at a special meeting held on April 26, 1999 each
unanimously (i) determined that the Offer and the Merger are fair to, and in the
best interests of, the stockholders of the Company, (ii) approved the Merger
Agreement, the Stockholders Agreement and the Transactions and (iii) recommended
that the Company's stockholders accept the Offer and tender their Shares
thereunder.
Factors Considered by the Disinterested Directors and the Board in Reaching
its Recommendation. In determining that the Transactions, taken together, are
fair to, and in the best interests of, the stockholders of the Company, the
Disinterested Directors and the Board of Directors considered, among other
things, the following:
(i) that the $14.25 per Share price represents a premium of
approximately 31% over the closing price of the Shares on Nasdaq on April
26, 1999, the last day of trading prior to the announcement of the Offer,
and a premium of approximately 35% over the average of the closing prices
of the Shares on Nasdaq for the thirty trading days ending on April 26,
1999;
(ii) the financial and other terms and conditions of the Merger
Agreement, the Offer and the Merger, including the amount and form of the
consideration being offered, the parties' representations, warranties and
covenants and the conditions to their respective obligations;
(iii) the financial condition, results of operations, cash flows and
prospects of the Company, as well as the Boards' knowledge of the business,
operations, assets and properties of the Company on both a historical and
prospective basis;
(iv) the recent and historical market prices and trading volume of the
Company's common stock and the premium to such market prices represented by
the Offer Price;
(v) the current status of the industry in which the Company competes,
including significant trends affecting such industry, and the Company's
position in that industry;
(vi) the financial resources and business reputation of the Buyer and
its ability to obtain funding for the Offer and complete the Merger in a
timely manner;
(vii) the extensive solicitation and auction process leading up to the
Buyer's bid, which was considered by the Board to be the most attractive
bid made for the Company, and the arms-length negotiations between Buyer
and the Company that resulted in the Merger Agreement and the Offer Price;
(viii) the fact that the Merger Agreement permits the Company's Board,
in the exercise of its fiduciary duties, to terminate the Merger Agreement
in favor of a superior proposal and that the break-up fee payable upon such
termination ($3,000,000 plus up to $1,000,000 of documented expenses) would
not effectively preclude a superior proposal;
(ix) the opinion of Bowles Hollowell dated April 26, 1999 to the
effect that based upon their analysis and subject to certain matters stated
therein, the Offer Price to be received by the stockholders of the Company
pursuant to the Transactions (other than the Continuing Stockholders with
respect to their retained Shares) is fair from a financial point of view to
such stockholders;
(x) the view of the Board, based in part upon the presentations of
Bowles Hollowell, that after taking into consideration the extensive
solicitation and auction process completed by the Company, it would be
unlikely that a superior proposal would be presented;
(xi) the alternatives available to the Company, including continuing
to maintain the Company as an independent company and the possibility that
if the Company remained as an independent public corporation, the price
that might be received by the holders of the Shares in the open market or
in a future
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transaction might be less than the Offer Price because of a decline in the
market price of the Shares or the stock market in general; and
(xii) the fact that the Continuing Stockholders agreed to tender
approximately 97% of their Shares (excluding Employee Options) in the
Offer.
The foregoing discussion of factors considered by the Board and the
Disinterested Directors is not intended to be exhaustive. Neither the Board nor
the Disinterested Directors assigned relative weights to the above factors or
determined that any factor was of particular importance. Rather, the Board and
the Disinterested Directors each viewed its position and recommendations as
being based on the totality of the information presented and considered by it.
In addition, it is possible that different members of the Board and different
Disinterested Directors assigned different weights to the factors.
OPINION OF BOWLES HOLLOWELL
The Company engaged Bowles Hollowell to act as its exclusive financial
advisor in connection with the Offer and the Merger. On April 26, 1999, at a
meeting of the Board held to evaluate the proposed Transactions, Bowles
Hollowell rendered to the Board an oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated April 26, 1999) to the effect
that, as of such date and based upon and subject to certain matters stated in
such opinion, the Offer Price and the Merger Consideration to be received in the
Offer and the Merger by the holders of Shares (other than Continuing
Stockholders with respect to their retained Shares) was fair from a financial
point of view to such holders. No limitations were imposed by the Board upon
Bowles Hollowell with respect to the investigations made or the procedures
followed by it in rendering its opinion.
The full text of the written opinion of Bowles Hollowell dated April 26,
1999, which sets forth the assumptions made, matters considered, and limitations
of the review undertaken, is attached as SCHEDULE II hereto and is incorporated
herein by reference. Bowles Hollowell's opinion is directed to the Board,
addresses only the fairness of the Offer Price to be received in the Offer and
the Merger by the holders of Shares (other than the Continuing Stockholders with
respect to their retained Shares) from a financial point of view, and does not
constitute a recommendation to any stockholder as to whether or not such
stockholder should tender Shares in the Offer. The summary of the opinion of
Bowles Hollowell set forth herein is qualified in its entirety by reference to
the full text of such opinion.
In arriving at its opinion, Bowles Hollowell reviewed and analyzed certain
publicly available financial information and other information concerning the
Company and certain internal analyses and other information furnished to Bowles
Hollowell by the Company. Bowles Hollowell also held discussions with members of
senior management of the Company regarding the business and prospects of the
Company. In addition, Bowles Hollowell (i) reviewed the reported prices and
trading activity for the Shares, (ii) compared certain financial and stock
market information for the Company with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which Bowles Hollowell deemed
comparable in whole or in part, (iv) reviewed the terms of the Merger Agreement
as furnished to Bowles Hollowell in draft form dated April 25, 1999, and (v)
performed such other studies and analyses and considered such other factors as
Bowles Hollowell deemed appropriate. In addition, at the request of the Board,
Bowles Hollowell reviewed the Company's third quarter results and determined
that such results did not impact on its opinion as to the fairness to the
stockholders of the Company of the Transactions.
As described in its opinion, Bowles Hollowell assumed and relied upon,
without independent verification, the accuracy, completeness, and fairness of
the information furnished to or otherwise reviewed by or discussed with Bowles
Hollowell for purposes of its opinion. With respect to the information relating
to the prospects of the Company, Bowles Hollowell assumed that such information
reflected the best currently available judgments and estimates of the management
of the Company as to the likely future financial performance of the Company.
Bowles Hollowell did not make nor was it provided with an independent evaluation
or appraisal of the assets or liabilities of the Company. In connection with its
engagement to provide financial advisory services to the Board concerning
strategic alternatives, Bowles Hollowell was requested to solicit, and did
solicit, interest from third parties with respect to the acquisition of the
Company. In arriving at its opinion, Bowles Hollowell considered the nature,
scope, and results of such solicitation. Bowles Hollowell's opinion was based on
market, economic, and
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other conditions as they existed and could be evaluated as of the date of its
opinion. Although Bowles Hollowell evaluated the Offer Price from a financial
point of view, the type and amount of consideration payable in the Transactions
was determined through negotiation between the Company and Buyer.
The following is a summary of the material analyses and factors considered
by Bowles Hollowell in connection with its opinion to the Board dated April 26,
1999:
Analysis of Selected Public Company Trading and Financial
Information. Bowles Hollowell compared certain financial and stock market
information for the Company with similar information for six selected publicly
held companies in the original equipment manufacturing ("OEM") sector of the
automotive components industry: Autocam Corporation, Borg-Warner Automotive,
Inc., Citation Corporation, Dana Corporation, Linamar Corporation and Simpson
Industries, Inc. (collectively, the "Selected Companies"). Bowles Hollowell
calculated market values relative to each company's earnings per share ("EPS")
for the latest 12 months and calendar year 1999, and enterprise values (equity
market value, plus debt, less cash and equivalents) relative to each company's
revenues, earnings before interest and taxes ("EBIT"), and earnings before
interest, taxes, depreciation, and amortization ("EBITDA") for the latest 12
months. All multiples were based on closing stock prices on April 20, 1999. EPS
estimates for the Selected Companies were based on analysts' estimates as
reported by First Call or I/B/E/S, both of which are market research databases,
and EPS estimates for the Company were based on analysts' estimates as reported
by First Call. This analysis indicated multiples for the Selected Companies of
latest 12 months and estimated calendar 1999 EPS of 8.3x to 17.6x (with a median
of 13.5x) and 7.2x to 11.5x (with a median of 8.9x), respectively, and latest 12
months revenues, EBIT and EBITDA of 0.6x to 1.7x (with a median of 0.9x), 8.2x
to 12.2x (with a median of 10.0x) and 4.7x to 8.6x (with a median of 6.3x),
respectively. These multiples compare with implied multiples for the Company
based on the Per Share Amount of latest 12 months and estimated calendar 1999
EPS of 13.8x (based on latest 12 months EPS), 13.4x (based on calendar 1999 EPS
estimates as reported by First Call), respectively, and latest 12 months
revenues, EBIT and EBITDA of 1.0x, 9.7x and 6.8x, respectively.
Analysis of Selected Merger and Acquisition Transactions. Bowles Hollowell
reviewed the purchase price and implied transaction multiples paid in twenty
selected merger and acquisition transactions in the OEM sector of the automotive
components industry, consisting of (acquiror/target): Hayes Lemmerz
International, Inc./CMI International, Inc., TRW Inc./Lucas Varity plc(pending),
Borg-Warner Automotive, Inc./Kuhlman Corporation, Federal-Mogul
Corporation/Cooper Automotive, Oxford Automotive, Inc./Eaton Suspension
Division, Federal-Mogul Corporation/T&N plc, Newcor, Inc./Turn-Matic, Inc.,
Newcor, Inc./The Deco Group, Newcor, Inc./ Machine Tool & Gear, Inc., Delco Remy
International, Inc./Ballantrae Corporation, Dura Automotive Systems, Inc./GT
Automotive Systems, Inc., Oxford Automotive, Inc./Howell Industries, Inc., GKN
plc/Sinter Metals, Inc., Kaydon Corporation/Great Bend Industries (Hein-Werner),
Tower Automotive, Inc./A.O. Smith Automotive Products, Intermet
Corporation/Sudbury, Inc., Gecamex Technologies, Inc./Tarxien Corporation,
Borg-Warner Automotive, Inc./Three Divisions of Coltec Automotive, Venture
Holdings Trust/Bailey Corporation, and Eaton Corporation/Capco Automotive
Products Corporation (the "Selected Merger and Acquisition Transactions"). All
multiples were based on publicly available information at the time of
announcement of such transaction. This analysis indicated multiples of latest 12
months EPS and latest 12 months revenues, EBIT and EBITDA in the Selected Merger
and Acquisition Transactions of 6.5x to 25.9x (with a median of 15.7x), 0.2x to
1.5x (with a median of 1.0x), 6.3x to 16.8x (with a median of 10.0x), and 4.6x
to 10.4x (with a median of 6.7x). All of the Selected Merger and Acquisition
Transactions involved strategic buyers. These multiples compare with implied
multiples for the Company based on the Offer Price of latest 12 months EPS,
revenues, EBIT, and EBITDA of 13.8x, 1.0x, 9.7x, and 6.8x, respectively. Bowles
Hollowell also compared the premiums paid in the Selected Merger and Acquisition
Transactions with the premium payable in the Transactions. The premiums paid in
the Selected Merger and Acquisition Transactions, based on the target company's
closing stock price 30 days prior to public announcement of such transaction,
were 5.3% to 78.1% (with a median of 40.5%). The premium payable in the Offer
and the Merger, based on the closing stock price of the Shares 30 days prior to
the Board meeting held on April 22, 1999 to evaluate the proposed Transactions,
was 39.0%.
Discounted Cash Flow Analysis. Bowles Hollowell performed a discounted cash
flow analysis of the Company to estimate the present value of the stand-alone,
unlevered, after-tax free cash flows that the Company
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could generate over the fiscal years 2000 through 2004, based on internal
estimates of the management of the Company. Bowles Hollowell did not discount or
otherwise risk-adjust management's growth and EBITDA estimates. The stand-alone
discounted cash flow analysis of the Company was determined by (i) adding (x)
the present value at June 30, 1999 of projected free cash flows over the
five-year period 2000 through 2004, and (y) the present value at June 30, 1999
of the estimated perpetual value of the Company in year 2004 and (ii)
subtracting the projected net debt of the Company at June 30, 1999. The range of
estimated perpetual values for the Company at the end of the five-year period
was calculated by applying perpetual growth rates ranging from 2.0% to 4.0%. The
cash flows and perpetual values of the Company were discounted to present value
using discount rates ranging from 12.9% to 14.9%. This analysis yielded an
equity reference range for the Company of approximately $12.03 to $18.40 per
Share as compared to the Offer Price.
Certain Other Factors. In connection with its opinion, Bowles Hollowell
also reviewed and considered, among other things, (i) the indications of
interest and bids of third parties other than CK & Co., (ii) the historical and
pro forma financial profile of the Company, (iii) the historical trading volumes
and market prices for the Shares, and movements in the Shares relative to the
S&P 500 Index, the Nasdaq Composite, and the common stock of the Selected
Companies, and (iv) the ownership profile of the Company.
The summary set forth above does not purport to be a complete description
of the opinion of Bowles Hollowell to the Board or the financial analyses
performed and factors considered by Bowles Hollowell in connection with its
opinion. A copy of Bowles Hollowell's written presentation to the Board with
respect to its opinion has been filed as an exhibit to the Schedule 13E-3 and
will be available for inspection and copying at the principal executive offices
of the Company during regular business hours by any interested stockholder of
the Company or representative of such stockholder who has been designated in
writing and may be inspected, copied, and obtained by mail from the Commission.
The preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Bowles Hollowell believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or selecting portions of the above
summary, without considering all factors and analyses, could create a misleading
or incomplete view of the processes underlying such analyses and opinion. In
performing its analyses, Bowles Hollowell made numerous assumptions with respect
to industry performance, general business, economic, market, and financial
conditions and other matters, many of which are beyond the control of the
Company. No company, transaction, or business used in such analyses as a
comparison is identical to the Company or the proposed Transactions, nor is an
evaluation of the results of such analyses entirely mathematical; rather, such
analyses involve complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect the acquisition,
public trading, or other values of the companies, business segments, or
transactions being analyzed. The estimates contained in such analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Bowles Hollowell's opinion and financial analyses were
only one of many factors considered by the Board in its evaluation of the
proposed Transactions and should not be viewed as determinative of the views of
the Board or management with respect to the Transactions or the consideration
payable in the Transactions.
Bowles Hollowell is a nationally recognized investment banking firm and, as
a part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers,
acquisitions, tender offers, divestitures, leveraged buyouts, and private
placements of debt and equity securities. The Company selected Bowles Hollowell
to serve as its financial advisor based on Bowles Hollowell's reputation,
expertise, and familiarity with the Company. Affiliates of Bowles Hollowell also
will be participating, with the consent of the Board, as syndication agent and
lender in connection with the Debt Financing and as the Dealer Manager with
respect to the Offer, for which services such affiliates will receive customary
compensation. See "THE TENDER OFFER -- Section 10. Financing of the
Transactions". In the ordinary course of business, affiliates of Bowles
Hollowell may actively trade the securities of the Company for their own account
and the
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<PAGE> 13
accounts of its customers and, accordingly, may at any time hold a long or short
position in securities of the Company.
Pursuant to the terms of Bowles Hollowell's engagement, the Company has
agreed to pay Bowles Hollowell upon consummation of the Transactions an
aggregate financial advisory fee of approximately $1,641,850 (less $75,000
already paid as a retainer to Bowles Hollowell) for its services as financial
advisor. In addition, the Company has agreed to reimburse Bowles Hollowell for
its reasonable out-of-pocket expenses, including reasonable fees and
disbursements of counsel, and to indemnify Bowles Hollowell and certain related
parties against certain liabilities, including certain liabilities under the
federal securities laws, relating to, or arising out of, its engagement.
PURPOSES AND REASONS OF THE COMPANY FOR THE TRANSACTIONS
The purposes of the Offer is to provide the Company's shareholders with
liquidity for their Shares by enabling them to sell their Shares at a fair price
and at a substantial premium over recent and historical market prices. The
Company's management believes that the limited supply of Shares traded in the
public market limits the liquidity of the Shares and negatively impacts the
market price of the Shares. Following the consummation of the Transactions, the
Shares would no longer be traded on Nasdaq and registration of the Shares would
be terminated under the Exchange Act.
The acquisition of the Shares has been structured as a cash tender offer
followed by a cash merger in order to (i) effect a prompt and orderly transfer
of ownership of the Company from the stockholders to Buyer and (ii) provide
stockholders with cash for all of their Shares more quickly than through
alternative transaction structures that had been considered by the Board.
PURPOSES AND REASONS OF BUYER AND THE CONTINUING STOCKHOLDERS FOR THE
TRANSACTIONS
Buyer. Buyer's purpose for engaging in the Transactions is to enable Buyer
to obtain a majority ownership interest in the Company, thereby becoming
entitled to all benefits that result from such ownership. Such benefits include
management and investment discretion with regard to the future conduct of the
business of the Company, the benefits of the profits generated by the operations
of the Company and any increase in the Company's value. Similarly, Buyer will
also bear the risk of any decrease in the value of the Company.
Continuing Stockholders. The Continuing Stockholders' purpose for engaging
in the Transactions is to be able to obtain the Offer Price with respect to a
portion of their respective holdings of the Shares or Shares issuable upon
exercise of outstanding stock options while also maintaining an ownership
position in the Company.
Upon the consummation of the Transactions, Buyer and the Continuing
Stockholders will own approximately 92.2% and 7.8%, respectively, of the
outstanding Shares.
POSITION OF BUYER AND THE CONTINUING STOCKHOLDERS REGARDING FAIRNESS OF THE
TRANSACTIONS
Buyer has considered the analysis of and the factors examined by the Board
(described in detail in "SPECIAL FACTORS -- Recommendation of the Disinterested
Directors and the Board; Fairness of the Transactions") and believe that these
analyses and factors, in particular factors (i) through (xii) of that section,
provide a reasonable basis for it to believe, as it does, that the Transactions
are fair to the stockholders of the Company. The views of Buyer were based on
the totality of factors and analyses considered, with no single factor or
analyses being dispositive of, Buyer's fairness determination and should not be
construed as a recommendation by Buyer to the Company's stockholders to tender
their Shares. Certain of the Continuing Stockholders are members of the Board
and their position regarding the fairness of the Transactions is set forth in
"SPECIAL FACTORS -- Recommendation of the Disinterested Directors and the Board;
Fairness of the Transaction." The Continuing Stockholders who are not Board
members, who own in the aggregate approximately 1.6% of the outstanding Shares
and will own approximately 1.5% of the outstanding Shares of the
post-recapitalized Company, have expressed no opinion regarding the fairness of
the Transactions. The Buyer did not review a copy of Bowles Hollowell's fairness
opinion prior to entering into the Merger Agreement.
11
<PAGE> 14
RECAPITALIZATION
The Offer is being made as part of a comprehensive plan to recapitalize the
Company through the Company's purchase of the Shares in the Offer and the Stock
Purchase by Buyer. Following consummation of the Transactions, approximately
2.9% of the Shares outstanding prior to the Transactions on a fully diluted
basis will remain outstanding and will represent approximately 7.8% of the
Shares of the recapitalized Company. Following consummation of the Offer, Buyer
will be able, by virtue of its majority equity interest in the Company, to
direct and control the policies of the Company, including decisions relating to
mergers, sales of assets and similar transactions. The Transactions have been
structured so as to qualify for recapitalization accounting treatment.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Stockholders should be aware in considering their decision to participate
in the Offer that each of the directors of the Company has, to some degree,
interests which may present such directors with an actual or potential conflict
of interests in connection with the Offer. The directors and executive officers
of the Company or their affiliates will receive, as a result of the Transactions
an aggregate of approximately $51,850,000 in cash for the Shares beneficially
owned by them and their options to purchase Shares and those directors and
executive officers who are Continuing Stockholders will also retain a portion of
their Shares. As of April 30, 1999, the directors and executive officers of the
Company as a group beneficially owned 3,842,800 Shares, or 76.5% of the Shares,
including 102,800 Shares issuable upon the exercise of options granted pursuant
to the Company's 1993 Stock Option Plan.
The Company has been informed by its directors and executive officers
(other than those who are Continuing Stockholders) that they intend to tender
all of the Shares beneficially owned by them to the Company pursuant to the
Offer. The Continuing Stockholders have agreed to tender all of their Shares
except their retained Shares and to vote all of their Shares in favor of the
Merger Agreement and the Merger.
Change in Control Agreements. In December 1998 and January 1999, the
Company entered into Change in Control Retention Bonus and Employment Agreements
with seven officers and directors of the Company: Messrs. Maher, Vercher,
Wiegmann, Curto, Reinke, Johnson and Sundararajan (the "Executive Change in
Control Agreements"), and into Change in Control Retention Bonus NonCompetition
and Severance Agreements with two officers and directors of the Company: Messrs.
Berry and Brady (the "Senior Executive Change in Control Agreement") and with a
consultant of the Company: Lineberger & Co., LLC (the "Consultant Change in
Control Agreement," and together with the Executive Change in Control Agreements
and the Senior Executive Change in Control Agreements, collectively the "Change
in Control Agreements"). The Change in Control Agreements were intended to
provide these executives and the consultant with security against changes in
their relationships with the Company in the event of a change in control of the
Company. The Change in Control Agreements provide that each officer, director or
consultant covered by the agreements is entitled to certain benefits in the
event of a change in control of the Company (as defined in such agreements).
Each Executive Change in Control Agreement provides for a lump-sum cash payment
of one times the executive's annual compensation from the Company (and any
entity in which the Company directly or indirectly owns a majority of the voting
interest) as reflected on the executive's Form W-2 for the last year preceding
the change in control, and for an equal severance payment in case the
executive's employment is terminated within two years following a change in
control for any reason other than by the Company for cause or by the executive
without good reason. The Consultant Change in Control Agreement provides that
upon a change in control, the Company will pay Lineberger & Co., LLC a change in
control bonus of two times its annual consulting fees from the Company (and any
entity in which the Company directly or indirectly owns a majority of the voting
interest) as reflected on the consultant's Form 1099 for the last year preceding
the change in control, and a payment in respect of the Consultant's
non-competition covenant of one time that annual fee. The Senior Executive
Change in Control Agreements provide for a lump-sum cash payment of two times
the senior executive's annual compensation from the Company (and any entity in
which the Company directly or indirectly owns a majority of the voting interest)
as reflected on his Form W-2 for the last year preceding the change in control,
and for one times that annual compensation as a payment in respect of the senior
executive's non-competition covenant; these Senior Executive Change in Control
Agreements also provide for continuation for three years after the termination
of the
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<PAGE> 15
senior executive's employment of equivalent health, dental, life insurance and
other death benefit programs as in effect at the time of termination. Each
Change in Control Agreement provides that if any portion of the benefits under
the agreement would constitute an excess parachute payment for purposes of the
Code, benefits will be reduced so that the executive will be entitled to receive
an amount equal to the maximum amount which he could receive without becoming
subject to the excise tax imposed by the Code on such certain excess parachute
payments. The Transactions constitute a change of control pursuant to the Change
in Control Agreements.
The aggregate cash consideration that would be received by officers and
directors of the Company under their respective Change in Control Agreements as
a result of the Transactions would be as follows:
<TABLE>
<S> <C>
Daniel W. Brady............................................. $879,081
Samuel M. Berry............................................. 976,458
Roy Wiegmann................................................ 118,004
Donald M. Maher............................................. 178,465
Arthur D. Johnson........................................... 152,771
Ronald E. Reinke............................................ 124,574
Lineberger & Co., LLC(1).................................... 924,999
</TABLE>
- ---------------
(1) The Company has agreed to pay Lineberger & Co., LLC its change of
control payment of $924,999 over the next three years.
Bonuses. In connection with the consummation of the Transactions, each of James
D. Gerson, Ronald G. Assaf and John F. Creamer, the Company's outside directors,
will receive the following amounts as termination bonuses, respectively:
$46,250, $46,250 and $34,688.
THE STOCK SUBSCRIPTION AGREEMENTS
Merger Subsidiary, Buyer and the Company have entered into separate Stock
Subscription Agreements with the members of Buyer. Under these Stock
Subscription Agreements, the members have agreed, upon the occurrence of a final
and non-appealable judgment against Merger Subsidiary or Buyer in favor of the
Company relating to the Merger Agreement or the transactions contemplated
thereunder, to purchase shares of common stock of Merger Subsidiary for an
aggregate purchase price of $2.0 million in cash. Merger Subsidiary and Buyer
are jointly and severally liable for any such judgments.
The Stock Subscription Agreements may not be amended without the prior
written consent of the Company. The Company is a third-party beneficiary of the
Stock Subscription Agreements and will be entitled to enforce them on behalf of
Merger Subsidiary.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS AND COMPANY FINANCIAL
PROJECTIONS
Cautionary Statement Concerning Forward-Looking Statements. Certain matters
discussed herein are forward-looking statements that involve risks and
uncertainties. Forward looking statements include the projections set forth
below (collectively, the "Projections"). Such information has been included in
this Offer to Purchase for the limited purpose of giving the Company's
stockholders access to financial projections made by the Company's management in
connection with the Transactions and the Debt Financing. Such information was
prepared by the Company's management for internal use and not with a view to
publication. The Projections were based on assumptions concerning the Company's
products and business prospects in 1999 through 2003, including the assumption
that the Company would continue to operate under the same ownership structure as
then existed except as otherwise noted. The Projections were also based on other
revenue and operating assumptions. Information of this type is based on
estimates and assumptions that are inherently subject to significant economic
and competitive uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the Company's control. Accordingly, there
can be no assurance that the projected results would be realized or that actual
results would not be significantly higher or lower than those set forth above.
In addition, the Projections were not prepared with a view to public disclosure
or compliance with the published guidelines of the Commission, or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections and forecasts and are included in the Offer only because such
information was made
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<PAGE> 16
available to Buyer by the Company. Neither Buyer's nor the Company's independent
accountants have examined, compiled or applied any agreed upon procedures to
this information and, accordingly, assume no responsibility for this
information. Neither the Company nor any other party assumes any responsibility
for the accuracy or validity of the Projections. These statements are not
guarantees of future performance and involve unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks include, among others, risks
associated with changes in automotive and non-automotive build rates as well as
risks associated with the manufacturing process and start-up of new products and
risks related to technological changes in components which affect the life of
the product.
The Company provided potential bidders with the following projections in
connection with the bid solicitation process conducted by the Company and Bowles
Hollowell:
SUMMARY PROJECTED FINANCIAL RESULTS
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDING JUNE 30,
-------------------------------------------------------
1999P 2000P 2001P 2002P 2003P
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales:
Brake valves....................... $34,173 $36,495 $ 42,768 $ 48,168 $ 59,918
Power transmission components...... 28,015 33,254 36,694 38,965 40,737
Specialty components and
assemblies....................... 23,869 21,720 22,320 22,920 23,820
------- ------- -------- -------- --------
Net sales.......................... $86,057 $91,469 $101,782 $110,053 $124,475
Gross profit....................... $17,958 $19,846 $ 22,860 $ 26,341 $ 30,642
Gross profit margin................ 20.9% 21.7% 22.5% 23.9% 24.6%
EBIT(1)............................ $10,058 $11,184 $ 13,536 $ 16,863 $ 20,598
EBIT margin........................ 11.7% 12.2% 13.3% 15.3% 16.5%
EBITDA(1).......................... $13,688 $15,160 $ 17,832 $ 21,579 $ 26,004
EBITDA margin...................... 15.9% 16.6% 17.5% 19.6% 20.9%
Depreciation and amortization...... $ 3,630 $ 3,976 $ 4,296 $ 4,716 $ 5,406
Capital expenditures............... 3,162 3,073 3,096 6,400 4,400
Basic earnings per share
(EPS)(2)......................... $ 1.13 $ 1.33 $ 1.68 $ 2.15 $ 2.64
</TABLE>
- ---------------
(1) Excludes expenses related to CEO salary and management fees, and corporate
costs resulting from the public ownership of the Company's stock.
(2) Assumes average weighted number of shares outstanding of 4,900,000 and
annual effective tax rates of 37%.
In addition to the above, the March 11, 1999 letter requesting final bids
sent by Bowles Hollowell to all bidders, indicated that Net Sales and adjusted
EBITDA of the Company for the twelve months ended February 28, 1999 were
approximately $90.2 million and $14.2 million, respectively. Additionally, the
letter indicated the Company's belief that adjusted EBITDA for the fiscal year
ending June 30, 1999 was expected to exceed $14 million.
PLANS FOR THE COMPANY AFTER THE TRANSACTIONS; CERTAIN EFFECTS OF THE
TRANSACTIONS
Pursuant to the Merger Agreement, upon completion of the Offer and the
Stock Purchase, the Company, Buyer and Merger Subsidiary intend to effect the
Merger in accordance with the Merger Agreement. See "SPECIAL FACTORS -- The
Merger Agreement and the Stockholders Agreement."
Except as described in this section or elsewhere in this Offer to Purchase,
neither the Company nor Buyer has current plans or proposals that relate to or
would result in: (a) other than the transactions set forth herein, an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the Company; (b) a
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<PAGE> 17
sale or transfer of a material amount of assets of the Company; (c) any change
in the management of the Company or any change in any material term of the
employment contract of any continuing executive officer; (d) any material change
in the present dividend rate or policy or indebtedness or capitalization of the
Company; or (e) any other material change in the Company's corporate structure
or business upon consummation of the Transactions, Buyer and the Company intend
to terminate the registration of the Shares pursuant to Section 12(g) (4) of the
Exchange Act.
After the consummation of the Transactions, it is expected that James E.
Lineberger, Chairman of the Board, and Daniel W. Brady, Vice Chairman of the
Board and Chief Executive Officer will resign and their involvement in the
Company will be solely as a Continuing Stockholder. Also, the Company's current
dividend policy will be terminated. In addition, Buyer may initiate a review of
the Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel to determine what changes, if
any, would be desirable following the Merger in order best to organize the
activities of the Company. Buyer expressly reserves the right to make any
changes that it deems necessary or appropriate in light of its review or in
light of future developments.
Successful consummation of the Transactions will enable Buyer to obtain
ownership of approximately 92.2% of the Shares, thereby becoming entitled to all
benefits that result from such ownership. Such benefits include management and
investment direction with regard to the future conduct of the business of the
Company, the benefits of the profits generated by operations and any increase in
the Company's value. Similarly, Buyer will also bear the risk of any losses
generated by the operations of the Company and any decrease in the value of the
Company.
Upon consummation of the Transactions, the Company will become a privately
held corporation. Accordingly, stockholders (other than the Continuing
Stockholders with respect to their retained Shares) will not have the
opportunity to participate in the earnings and growth of the Company after the
consummation of the Transactions and will not have any right to vote on
corporate matters. Similarly, stockholders (other than the Continuing
Stockholders with respect to the retained Shares) will not face the risk of
losses generated by the Company's operations or any decrease in the value of the
Company after the consummation of the Transactions.
FOLLOWING THE CONSUMMATION OF THE TRANSACTIONS, THE SHARES WILL NO LONGER
BE QUOTED ON NASDAQ. In addition, the registration of the Shares under the
Exchange Act will be terminated. Accordingly, following the consummation of the
Transactions, there will be no publicly-traded Shares outstanding. See "THE
TENDER OFFER -- Section 11. Effect of the Transactions on the Market for the
Shares; Exchange Act Registration". It is expected that, if Shares are not
accepted for payment by the Company pursuant to the Offer and the Transactions
are not consummated, the Company's current management, under the general
direction of the Board, will continue to manage the Company as an ongoing
business.
RIGHTS OF THE STOCKHOLDERS IN THE TRANSACTIONS
Approval. Under Delaware law, the approval of the Board of Directors of the
Company and the affirmative vote of the holders of a majority of the outstanding
Shares are required to adopt and approve the Merger Agreement and the Merger.
The execution and delivery of the Merger Agreement by the Company and the
consummation by the Company of the Transactions have been duly authorized by all
necessary corporate action on the part of the Company, subject to the approval
of the Merger by the Company's stockholders in accordance with Delaware law. In
addition, the affirmative vote of the holders of a majority of the outstanding
Shares is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve the Merger Agreement and the transactions
contemplated thereby, including the Merger. Therefore, after the consummation of
the Offer and the Stock Purchase, the only remaining required corporate action
of the Company, other than the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware, will be the approval of the Merger
Agreement and the Merger by the affirmative vote of the holders of a majority of
the Shares. As a result of the Stock Purchase, Merger Subsidiary will acquire in
the aggregate at least a majority of the Shares. Each outstanding Share will be
entitled to one vote in any such vote of the stockholders of the Company.
Accordingly, upon consummation of the Offer and the Stock Purchase, the
affirmative vote of no other stockholder of the Company will be required to
approve the Merger Agreement and the Merger.
15
<PAGE> 18
Appraisal Rights. Holders of the Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, holders of the
Shares at the effective time of the Merger will have certain rights pursuant to
the provisions of Section 262 of the DGCL in lieu of receiving the consideration
proposed under the Merger Agreement. Dissenting stockholders of the Company who
comply with the applicable statutory procedures will be entitled to receive a
judicial determination of the fair value of their Shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
and to receive payment of such fair value in cash, together with a fair rate of
interest thereon, if any. Any such judicial determination of the fair value of
the Shares could be based upon factors other than, or in addition to, the price
per share of common stock of the Company, as the case may be, to be paid in the
Merger or the market value of the Shares. The value so determined could be more
or less than the price per Share to be paid in the Merger and payment of the
value would take place subsequent to payment pursuant to the Offer or the
Merger. The value is determined as of the day immediately preceding the Company
Stockholders Meeting at which the Merger is approved.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE
PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE TO
SECTION 262 OF THE DGCL.
THE MERGER AGREEMENT AND THE STOCKHOLDERS AGREEMENT
The following are summaries of certain provisions of the Merger Agreement
and the Stockholders Agreement. These summaries are not a complete description
of the terms and conditions of the Merger Agreement and the Stockholders
Agreement and are qualified in their entirety by reference to the complete text
of the Merger Agreement and the Stockholders Agreement, which are filed with the
Commission as Exhibits (c)(1) and (c)(2), respectively, to the Schedule 13E-3
and are incorporated herein by reference.
The Merger Agreement
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as practicable, but in no event later than five business days after
the initial public announcement of the terms of the Merger Agreement. The
obligation of the Company to commence the Offer, to consummate the Offer and to
accept for payment and to pay for any Shares validly tendered and not withdrawn
is subject only to the Minimum Condition, and the satisfaction or waiver of
certain other conditions set forth in "THE TENDER OFFER -- Section 12. Certain
Conditions to the Offer."
The Offer will remain open (unless the Company, at the written request of
Buyer, terminates the Offer upon the occurrence of an event listed in "THE
TENDER OFFER -- Section 12. Certain Conditions to the Offer") for a period of
twenty Business Days from the commencement of the Offer in accordance with
applicable laws (the "Expiration Date"). The Company, at the request of Buyer,
shall extend the Offer at any time up to June 30, 1999 (the "Outside Termination
Date") for one or more periods of not more than an aggregate of 10 business
days, if at the initial Expiration Date of the Offer, or any extension of the
Offer, the condition to the Offer requiring the expiration or termination of any
applicable waiting periods under the HSR Act is not satisfied. The Company
shall, at Buyer's request, extend the Offer beyond the initial Expiration Date
for a period of up to 10 business days, if, on the date of such extension, more
than 85% but less than 90% of the outstanding Shares on a fully diluted basis
have been tendered.
The Company is not required to accept the Shares for payment and pay the
Offer Price for the Shares tendered unless it has received the proceeds from the
sale of the Buyer Shares and the Debt Financing or other funds arranged for by
Buyer in an amount that equals to or is greater than the Offer Price multiplied
by the number of Shares tendered.
The Stock Purchase. At a closing to be held the day after the Offer
expires, the Company agrees to sell to Buyer 1,681,414 newly-issued Shares (the
"Buyer Shares") for a purchase price equal to the number of Buyer Shares
multiplied by the Offer Price or such increased price per share payable in the
Offer in accordance with the Merger Agreement (the "Purchase Price").
16
<PAGE> 19
As a condition to the Company's obligation to consummate the Stock
Purchase, Buyer will arrange for the Company to receive financing which,
together with the Purchase Price, equals or is greater than the Offer Price
multiplied by the number of Shares tendered.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions set forth therein, and in accordance with the Delaware law,
the Merger is to be effected as soon as practicable after satisfaction or waiver
of all of the conditions to the Merger, and Merger Subsidiary is to be merged
with and into the Company upon the filing of a certificate of merger with the
Delaware Secretary of State, or at such later time as specified in the
Certificate of Merger. At the effective time of the Merger (the "Effective
Time"), the separate existence of Merger Subsidiary will cease and the Company
will continue as the Surviving Corporation and will continue to be governed by
the laws of the State of Delaware. At the Effective Time, by virtue of the
Merger and without any action on the part of any stockholder:
(a) each Share issued and outstanding immediately prior to the
Effective Time will, except Shares to which properly exercised dissenters'
rights are available under Delaware law and exercised and except as
otherwise provided in the following paragraphs (b) and (d), be canceled and
converted into the right to receive the Merger Consideration upon surrender
and exchange of the certificates representing such Shares;
(b) each Share held by the Company as treasury stock or owned by
Merger Subsidiary or any other subsidiary of Buyer or the Company
immediately prior to the Effective Time will be canceled, and no payment
will be made with respect thereto;
(c) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time will be converted and exchanged for
one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation; and
(d) the Buyer Shares and the shares retained by the Continuing
Stockholders will not be canceled as provided above, but will remain
outstanding.
Directors. The Merger Agreement provides that promptly upon the
consummation of the Stock Purchase and the acceptance for payment by the Company
of any Shares, Buyer will be entitled to designate the number of directors,
rounded up to the next whole number, on the Company's Board of Directors that
equals the product of (i) the total number of directors on the Company's Board
of Directors (giving effect to the election of any additional directors to
satisfy the requirement) and (ii) the percentage that the number of Shares owned
by Buyer bears to the total number of Shares outstanding, and the Company shall
take all action necessary to cause Buyer's designees to be elected or appointed
to the Company's Board of Directors, including, without limitation, increasing
the number of directors and seeking and accepting resignations of incumbent
directors. At such times, the Company agrees to use its best efforts to cause
individuals designated by Buyer to constitute the same percentage as such
individuals represent on the Company's Board of Directors of (x) each committee
of such Board (other than any committee of such Board established to take action
under the Merger Agreement), (y) each Board of each subsidiary of the Company
and (z) each committee of each such Board. Until the Effective Time, the Company
agrees to retain as members of its Board of Directors at least two directors who
are directors of the Company on the date of the Merger Agreement.
Certificate of Incorporation and By-laws. The Merger Agreement provides
that the Certificate of Incorporation and By-laws of the Company be, at the
Effective Time, the Certificate of Incorporation and By-laws of the Surviving
Corporation.
Treatment of Stock Option Plans. The Merger Agreement provides for the
following:
(a) Immediately prior to the Effective Time, each outstanding employee
stock option (an "Option") to purchase Shares granted under any employee
stock option or compensation plan or arrangement of the Company are to be
canceled, and each holder of any such Option, whether or not then vested or
exercisable, will be paid by the Company at the Effective Time for each
such Option an amount determined by multiplying (i) the excess, if any, of
the Merger Consideration over the applicable exercise price of such Option,
by (ii) the number of Shares subject to such Option.
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(b) Except as otherwise agreed to in writing by the parties to the
Merger Agreement, (i) the Options and other equity plans will terminate as
of the Effective Time and the provisions in any other plan, program or
arrangement providing for the issuance or grant of any other interest in
the capital stock of the Company or any Subsidiary are to be canceled as of
the Effective Time, and (ii) the Company agrees to use its reasonable
efforts to assure that following the Effective Time no participant in any
of such plans, or other plans, programs or arrangements, will have any
right to acquire equity securities of the Company, the Surviving
Corporation or any subsidiary of either one of them.
Agreements of the Company and Buyer. Pursuant to the Merger Agreement, the
Company agrees to cause a meeting of its stockholders to be duly called and held
as soon as reasonably practicable after the consummation of the Stock Purchase
and the Offer for the purpose of voting on the approval and adoption of the
Merger Agreement and the Merger unless a vote of stockholders of the Company is
not required by Delaware law. In connection with such meeting, the Company
agrees to (i) promptly, after the consummation of the Stock Purchase and the
Offer, prepare and file with the Commission, use its best efforts to have
cleared by the Commission and thereafter mail to its stockholders as promptly as
practicable the proxy or information statement and all other proxy materials for
such meeting, (ii) use its best efforts to obtain the necessary approvals by its
stockholders of the Merger Agreement and the Merger and (iii) otherwise comply
with all legal requirements applicable to such meeting.
Except as provided for in the Merger Agreement, from the date of the Merger
until the Effective Time, the Company and its subsidiaries agree to conduct
their business in the ordinary course consistent with past practice and in
compliance with all applicable laws and regulations and to use their best
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. The Merger Agreement provides further that from the date of the
Merger Agreement until the Effective Time:
- the Company will not adopt or propose any change in its Certificate of
Incorporation or By-laws;
- except for the Merger, the Company will not, and will not permit any
of its subsidiaries to, merge or consolidate with any other person or
entity or acquire a material amount of assets of any other person or
entity;
- the Company will not, and will not permit any of its subsidiaries to,
sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments and
(ii) inventory in the ordinary course consistent with past practice;
- the Company will not, and will not permit any of its subsidiaries to,
(i) take or agree or commit to take any action that would make any
representation and warranty of the Company under the Merger Agreement
inaccurate in any material respect at, or as of any time prior to, the
Effective Time, or (ii) omit, or agree or commit to omit, to take any
action necessary to prevent any such representation or warranty from
being inaccurate in any material respect at any such time;
- the Company will not, and will not permit any of its subsidiaries to,
agree or commit to do any of the foregoing; and
- the Company will not, and will not permit any of its subsidiaries to,
take any of the following actions (other than the Offer and the Stock
Purchase):
- declare, set aside or pay any dividend or other distribution with
respect to any shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire any outstanding shares of capital stock or
other securities of, or other ownership interests in, the Company or
any of its subsidiaries (other than the quarterly dividends paid on
the shares) or split, combination or reclassification of any of its
capital stock or issuance or authorization of the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its capital stock;
- incur, assume or guarantee any indebtedness for borrowed money other
than in the ordinary course of business and in amounts and on terms
consistent with past practices;
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- make any loan, advance or capital contribution to or investment in any
person or entity other than advances to employees in the ordinary
course of business consistent with past practice and other than loans,
advances or capital contributions to or investments in wholly-owned
subsidiaries of the Company made in the ordinary course of business
consistent with past practices;
- cause damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company
or any of its subsidiaries which, individually or in the aggregate,
has had or could reasonably be expected to have a Material Adverse
Effect (as defined herein);
- (i) make any grant of any severance or termination pay to any
director, officer or employee of the Company or any subsidiary, (ii)
enter into any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any of its
subsidiaries, (iii) increase benefits payable under any existing
severance or termination pay policies or employment agreements, (iv)
increase compensation, bonus or other benefits payable to directors,
officers or employees of the Company or any of its subsidiaries, or
(v) enter into any collective bargaining agreements;
- issue, deliver, sell, pledge or otherwise encumber or subject to any
lien any shares of the Company's or any of its subsidiaries' capital
stock, any other voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
- enter into commitments for capital expenditures involving more than
$100,000 in the aggregate except (i) as may be necessary for the
maintenance of existing facilities, machinery and equipment in good
operating condition and repair in the ordinary course of business,
(ii) as reflected in the capital plan of the Company previously
provided to Buyer, or (iii) tooling costs that are reimbursable by
customer;
- change the accounting principles used by it unless required by
generally accepted accounting principles of the United States
consistently applied;
- make or rescind any express or deemed election or settlement or
compromise of any claim or action relating to U.S. Federal, state or
local taxes, or change any of its methods of accounting or of
reporting income or deductions for U.S. Federal income tax purposes;
- satisfy any claims or liabilities, other than, in the ordinary course
of business consistent with past practice, in accordance with their
terms, liabilities reflected or reserved against in, or contemplated
in, the consolidated financial statements (or the notes to the
financial statements) of the Company included in any of the Company's
Form 10-K's or Form 10-Q's or incurred in the ordinary course of
business consistent with past practice;
- other than in the ordinary course of business consistent with past
practice, (A) modify, amend or terminate any material contract, (B)
waive, release, relinquish or assign any material contract, right or
claim or (C) cancel or forgive any material indebtedness owed to the
Company or any of its subsidiaries; provided, however, that the
Company may not under any circumstance waive or release any of its
rights under any standstill or confidentiality agreement to which it
is party; or
- authorize, commit or agree to take, any of the foregoing actions.
No Solicitation; Acquisition Proposals. Pursuant to the Merger Agreement,
the Company agreed that it will not, nor will it permit any of its subsidiaries
to, nor will it authorize (and will use its best efforts not to permit) any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries to (i)
solicit, initiate or encourage (including by way of furnishing information), or
take any other action designed or reasonably likely to facilitate, any inquiry
or the making of any proposal which constitutes or reasonably may give rise to
any inquiry, proposal or offer from any person other than the Buyer and Merger
Subsidiary relating to any (A) direct or indirect acquisition or purchase of a
business that constitutes 15% or more of the net revenues, net income or the
assets of the Company and its subsidiaries,
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<PAGE> 22
taken as a whole, (B) direct or indirect acquisition or purchase of 15% or more
of any class of equity securities of the Company or any of its subsidiaries
whose business constitutes 15% or more of the net revenues, net income or assets
of the Company and its Subsidiaries, taken as a whole, (C) tender offer or
exchange offer for Shares of any class of equity securities of the Company or
any of its subsidiaries, or (D) merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries other than the transactions contemplated by
the Merger Agreement (each, a "Takeover Proposal"), or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; provided, however,
that if at any time prior to the date the Company purchases Shares in the Offer
(the "Offer Completion Date"), the Board of Directors of the Company determines
in good faith, after consultation with outside counsel, that failure to do so
would result in a breach of its fiduciary duties to the Company's stockholders
under applicable law, the Company may, in response to any proposal made by a
third party to acquire, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of Common Stock of the
Company then outstanding or all or substantially all the assets of the Company,
and otherwise on terms which the Board of Directors of the Company determines in
its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
stockholders than the Offer and the Merger, and for which financing, to the
extent required, is then committed or which, in the good faith judgment of the
Board of Directors of the Company, is reasonably capable of being obtained by
such third party (a "Superior Proposal"), which Superior Proposal was not
solicited by the Company or which did not otherwise result from a breach of this
section and subject to providing prior written notice of its decision to take
such action to Buyer, (A) furnish information with respect to the Company and
its subsidiaries to any person making a Superior Proposal pursuant to a
customary confidentiality agreement, and (B) participate in discussions or
negotiations regarding such Superior Proposal. Pursuant to the Merger Agreement,
the Company, its affiliates and their respective officers, directors, employees,
representatives and agents agreed to cease all existing activities, discussions
and negotiations with any parties with respect to any Takeover Proposal and
request the return of all confidential information regarding the Company
provided to any such parties pursuant to the terms of any confidentiality
agreement or otherwise.
Indemnification; Directors' and Officers' Liability. From the Effective
Time through the sixth anniversary of the date on which the Effective Time
occurs, Buyer will cause the Surviving Corporation to indemnify and hold
harmless each present and former officer, director, employee or agent of the
Company, including, without limitation, each person or entity controlling any of
the foregoing persons or entities (each, an "Indemnified Party"), against all
claims, losses, liabilities, damages, judgments, fines, fees, costs or expenses,
including, without limitation, attorneys' fees and disbursements, incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time (including,
without limitation, the Merger Agreement, the Offer Documents (as defined in the
Merger Agreement), the Transactions and the actions contemplated thereby and
giving effect to the consummation of such transactions and actions), whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent permitted under the Certificate of Incorporation or By-Laws of the
Company or indemnification agreements in effect on the date of the Merger
Agreement, including provisions relating to advancement of expenses incurred in
the defense of any claim, action, suit, proceeding or investigation. If any
claim, action, suit, proceeding or investigation is brought against an
Indemnified Party (whether arising before or after the Effective Time), the
Indemnified Party may retain counsel satisfactory to such Indemnified Party and
Buyer or the Surviving Corporation will advance the fees and expenses of such
counsel for the Indemnified Party in accordance with the Certificate of
Incorporation or By-Laws of the Company in effect on the date of the Merger
Agreement. Buyer and the Company agree that all rights to indemnification and
all limitations on liability existing in favor of any such officer, director,
employee or agent as provided in the Company's Certificate of Incorporation and
By-laws as in effect as of the date of the Merger Agreement survive the Merger
and continue in full force and effect unless required to be amended under
applicable law and except to make changes permitted by law that would enlarge an
Indemnified Party's right to indemnification. Any determination required to be
made with respect to whether a person or entity is entitled to indemnification
is to be made by independent legal counsel selected mutually by such person or
entity, and reasonably satisfactory to Buyer; provided, that Buyer will not be
liable for any settlement effected without its written consent. On or prior to
the Effective Time, Buyer agrees to cause the Surviving Corporation to pre-pay,
at
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no expense to the beneficiaries, officers' and directors' liability insurance,
which will be in effect for no less than six years after the Effective Time, in
respect of acts or omissions occurring prior to the Effective Time covering each
such person or entity currently covered by the Company's officers' and
directors' liability insurance policy, on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date of the
Merger Agreement; provided, however, that in no event will Buyer be required to
pay aggregate premiums for such insurance during such six-year period in excess
of nine times the annual premium paid by the Company in 1998 for such purpose;
provided, further, that if the aggregate premiums of such insurance coverage
exceed such amount, Buyer will be obligated to obtain a policy with the best
coverage available, in the reasonable judgment of the Board of Managers of
Buyer, for a cost up to but not exceeding such amount. Buyer agrees to cause the
insurance policy to be in full force and effect with the premiums therefor
prepaid in full, which policy shall by its terms be noncancelable. Buyer agrees
to cause the Surviving Corporation to continue to indemnify, in accordance with
the Company's past practice, certain employees of the Company in respect of
certain lawsuits described in the Merger Agreement.
The Merger Agreement also provides that in the event any claim is made
against any Indemnified Party, neither the Surviving Corporation nor Buyer will
do anything that would forfeit, jeopardize, restrict or limit the insurance
coverage available for that claim until the final disposition thereof. If any
claim, action, suit, proceeding or investigation is made against any Indemnified
Party, on or prior to the sixth anniversary of the Effective Time, the indemnity
provisions will continue in effect until the final disposition of such claim,
action, suit, proceeding or investigation. The Surviving Corporation and Buyer
agree that if either of them (i) consolidates with or merges into any other
person or entity and is not the continuing or the Surviving Corporation or
entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person or entity, proper
provision will be made so that their successors and assigns succeed to the
indemnity obligations prior to the consummation of such transaction.
Best Efforts. Pursuant to the terms of the Merger Agreement and subject to
the conditions thereof, the Company, Buyer and Merger Subsidiary agree to, and
the Company agrees to cause each of its subsidiaries to, cooperate and each
party will use its best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Merger and the Transactions.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties. These include representations and
warranties by the Company with respect to, among other things, (i) corporate
existence and power, (ii) corporate and governmental authorization, (iii)
non-contravention, (v) capitalization of the Company, (vi) investments of the
Company or any Subsidiary, (vii) SEC filings, (viii) financial information, (ix)
disclosure documents, (x) absence of certain changes or events, (xi) no
undisclosed material liabilities, (xii) litigation and permits, (xiii) taxes,
(xiv) employee matters, (xv) labor matters, (xvi) compliance with laws, (xvii)
finder's fees, (xvii) environmental matters, (xviii) property, (xix) insurance,
(xx) intellectual property, (xxi) material contracts, (xxii) the absence of a
stockholders rights agreement, (xxiii) voting requirements with respect to the
Transactions, (xxiv) opinion of financial advisor, (xxv) year 2000 issues,
(xxvi) transaction fees, and (xxvii) insider interests. The representations and
warranties do not survive the closing of the Merger.
Buyer and Merger Subsidiary are also making certain representations and
warranties with respect to, among other things, (i) corporate existence and
power, (ii) corporate and governmental authorization, (iii) non-contravention,
(iv) disclosure documents, (v) finder's fees, (vi) financing, (vii) share
ownership, (viii) Merger Subsidiary's operations, and (ix) due diligence.
Certain representations and warranties in the Merger Agreement are
qualified as to "materiality" or "Material Adverse Effect". For the purposes of
the Merger Agreement, "Material Adverse Effect" with respect to any person means
a material adverse effect on the condition (financial or otherwise), business,
assets or results of operations of the Company and the subsidiaries of the
Company, taken as a whole, that is not a result of general changes in the
economy or the industries in which the Company and its subsidiaries operate
which prevents or materially delays the Company's ability to consummate the
transactions contemplated in the Merger Agreement.
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Conditions to Effect the Stock Purchase.
The Merger Agreement provides that the obligations of the Company and Buyer
to effect the Stock Purchase are subject to the satisfaction or waiver on or
prior to the closing of the Stock Purchase of the following conditions: the
conditions to the offer described in "THE TENDER OFFER -- Section 12. Certain
Conditions to the Offer" will have been satisfied and the Company will
simultaneously with the closing of the Stock Purchase, purchase all Shares
validly tendered and not withdrawn pursuant to the Offer, and no provision of
any applicable law or regulation and no judgment, injunction, order or decree
shall prohibit the consummation of the Merger (each party agrees to use its best
efforts to have any such order reversed or injunction lifted).
The obligations of Buyer to effect the Stock Purchase are also subject to
the satisfaction (or waiver) at or prior to the closing of the Stock Purchase of
each of the following additional conditions: the representations and warranties
of the Company set forth in the Merger Agreement being true and correct as of
the Expiration Date as though made on or as of such date, except (A) those
representations and warranties that address matters only as of a particular date
which are true and correct as of such date (unless they shall not be true and
correct as of the specified date) or (B) where the failure of the
representations and warranties (other than those representations and warranties
set forth in the first sentence of the representation and warranty with respect
to corporate existence and power, and in the representations and warranties with
respect to corporate authorization, capitalization and disclosure documents,
being true and correct (without giving effect to the materiality or material
adverse effect limitations contained therein), individually or in the aggregate,
do not have, and could not reasonably be expected to have, a Material Adverse
Effect; the Company performing or complying in all material respects with all
obligations and agreements, and complying in all materials respects with
covenants, contained in the Merger Agreement to be performed or complied with by
the Company prior to or on the closing of the Stock Purchase; the Company
delivering a certificate of the Company, dated as of the closing of the Stock
Purchase, signed by an executive officer of the Company to evidence satisfaction
of the conditions set forth above; and all Directors of the Company tendering
their resignations effective as of the closing of the Stock Purchase and being
replaced by nominees acceptable to Buyer.
The obligations of the Company to effect the Stock Purchase are also
subject to the satisfaction (or waiver) at or prior to the closing of the Stock
Purchase of each of the following additional conditions: the representations and
warranties of Buyer set forth in the Merger Agreement being true and correct in
all material respects on the closing of the Stock Purchase, with the same force
and effect as though such representations and warranties had been made on and as
of the closing of the Stock Purchase, except for representations and warranties
that are made as of a specified date or time which shall be true and correct in
all material respects only as of such specific date or time; Buyer performing in
all material respects all obligations and agreements, and complying in all
material respects with covenants, contained in the Merger Agreement to be
performed or complied with by Buyer prior to or on the closing of the Stock
Purchase; and the Company receiving certificates of Buyer, dated as of the
closing of the Stock Purchase, signed by an executive officer of Buyer to
evidence satisfaction of the conditions set forth above.
Conditions to Effect the Merger
The Merger Agreement provides that the obligations of the Company, Buyer
and Merger Subsidiary to effect the Merger are subject to the satisfaction or
waiver on or prior to the closing of the Merger of the following conditions: if
required by the DGCL and the Certificate of Incorporation, the Merger Agreement
and the Transactions being duly adopted by the stockholders of the Company; any
applicable waiting period under the HSR Act relating to the Merger expiring; no
provision of any applicable law or regulation and no judgment, injunction, order
or decree prohibiting the consummation of the Merger (each party agreeing to use
its best efforts to have any such order reversed or injunction lifted); the
Company accepting for payment Shares tendered pursuant to the Offer; Buyer
having received or being reasonably satisfied that it will receive all material
consents and approvals in connection with the consummation of the Merger or to
enable the Surviving Corporation to continue to carry on the business of the
Company and its subsidiaries as presently conducted in all material respects;
and Buyer having purchased the Buyer Shares.
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Termination. The Merger Agreement may be terminated and the Transactions
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of the Merger Agreement by the stockholders of the Company):
(a) by mutual written consent duly authorized by each of the Boards of
Directors or Managers, as the case may be, of the Company and Buyer;
(b) by either the Company or Buyer, if the Offer Completion Date has
not occurred by the Outside Termination Date; provided, however, that the
right to terminate this Agreement under this paragraph is not available to
any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure to meet the
date requirements of this paragraph;
(c) by either the Company or Buyer, if any judgment, injunction, order
or decree enjoining Buyer or the Company from consummating the Merger or
accepting for payment or paying for Shares in the Offer is entered by any
Governmental Entity and such judgment, injunction, order or decree shall
become final and nonappealable;
(d) by either the Company or Buyer, if the Offer expires or is
terminated or withdrawn pursuant to its terms without any Shares being
purchased thereunder by the Company as a result of a failure of any of the
conditions to the Offer set forth in "TENDER OFFER -- Section 12. Certain
Conditions to the Offer." to be satisfied or waived prior to the Expiration
Date or any extension thereof;
(e) by the Company at any time prior to the Offer Completion Date, if
Buyer or Merger Subsidiary materially breaches or fails in any material
respect to perform or comply with any of its covenants and agreements
contained in the Merger Agreement or breaches its representations and
warranties in any material respect which materially adversely effects (or
materially delays) the consummation of the Offer or the other Transactions,
which breach or failure to perform cannot be or has not been cured within
ten days of the receipt of written notice of such breach by Buyer or Merger
Subsidiary from the Company; or
(f) by Buyer at any time prior to the Offer Completion Date, if the
Company materially breaches or fails in any material respect to perform or
comply with any of its covenants and agreements contained in the Merger
Agreement or breaches its representations and warranties in any material
respect, which breach or failure to perform cannot be or has not been cured
within ten days of the receipt of written notice of such breach by the
Company from Buyer;
(g) by the Company at any time prior to the Offer Completion Date,
pursuant to a good faith determination of the Board of Directors of the
Company, after the Company has received a Superior Proposal and after
consultation with outside counsel, that failure to (A) withdraw or modify
or propose publicly to withdraw or modify, in a manner adverse to Buyer,
the approval or recommendation by such Board of Directors or such committee
of the Offer, the Merger or the Merger Agreement, (B) approve or recommend,
or propose publicly to approve or recommend, any Takeover Proposal or (C)
cause or authorize the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
related to any Takeover Proposal; provided, however, that such termination
under this clause will not be effective until payment of the fee listed in
the Fees and Expenses section below and provided, further, that the Merger
Agreement may not be terminated pursuant to this clause until the
Expiration Date of the Offer; or
(h) by Buyer or Merger Subsidiary at any time prior to the Offer
Completion Date if, (A) the Board of Directors of the Company has (i)
withdrawn or modified or changed in a manner adverse to Buyer its approval
or recommendation of this Agreement, the Offer, the Merger or the other
Transactions, (ii) approved or recommended, or proposed publicly to approve
or recommend, a Takeover Proposal, (iii) caused or authorized the Company
or any of its subsidiaries to enter into a Company Acquisition Agreement,
(iv) approved the breach of the Company's non-solicitation obligations, or
(v) resolved or publicly disclosed any intention to take any of the
foregoing actions, or (B) Bowles Hollowell has withdrawn or modified or
changed in a manner adverse to Buyer its opinion relating to the Merger
Consideration.
Expenses and Termination Fee. The Merger Agreement provides that except as
otherwise provided in this section, all costs and expenses incurred in
connection with the Merger Agreement are to be paid by the party
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<PAGE> 26
incurring such cost or expense. All costs and expenses related to the
preparation, printing, filing and mailing (as applicable) of the Offer documents
and all SEC filing fees are to be considered to be costs and expenses of Buyer.
The Merger Agreement provides that the Company will pay to Buyer an amount
equal to $3,000,000 (the "Termination Fee") plus up to $1,000,000 of Buyer's
documented expenses in any of the following circumstances:
(a) The Merger Agreement is terminated pursuant to the provisions of
paragraphs (g) and (h) in the section entitled "Termination" above.
(b) The Merger Agreement is terminated by either Buyer or the Company
if the Offer Completion Date has not occurred by June 30, 1999; provided,
however, that the right to terminate this Agreement under this paragraph is
not available to any party whose failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure to
meet the date requirements of this paragraph, and each of the following
items occurs:
(i) at the time of such termination the Minimum Condition has not
been satisfied,
(ii) at the time of such termination the Company shall not have the
right to terminate the Merger Agreement pursuant to paragraph (e) in the
section entitled "Termination" above,
(iii) prior to such termination, a Takeover Proposal involving at
least 50% of the assets of the Company and its subsidiaries, taken as a
whole, or 50% of any class of equity securities of the Company (any such
Takeover Proposal, a "Competing Proposal"), is (A) publicly disclosed or
has been made directly to stockholders of the Company, or (B) any person
or entity (including without limitation the Company or any of its
subsidiaries) publicly announces an intention (whether or not
conditional) to make such a Competing Proposal, and
(iv) prior to or within 12 months after the termination of the
Merger Agreement, the Company or one of its subsidiaries enters into a
Company Acquisition Agreement or the transactions contemplated by a
Competing Proposal are consummated.
(c) The Merger Agreement is terminated by either Buyer or the Company
pursuant to the provisions of paragraph (d) in the section entitled
"Termination" above, and each of the following items occurs:
(i) at the time of such termination the Minimum Condition has not
been satisfied,
(ii) at the time of such termination the Company shall not have the
right to terminate the Merger Agreement pursuant to paragraph (e) in the
section entitled "Termination" above,
(iii) prior to such termination a Takeover Proposal Event has
occurred, and
(iv) prior to or within 12 months after the termination of the
Merger Agreement, the Company or one of its subsidiaries enters into a
Competing Proposal Agreement or the transactions contemplated by a
Competing Proposal are consummated.
(d) The Merger Agreement is terminated by Buyer at any time prior to
the Offer Completion Date, if the Company materially breaches or fails in
any material respect to perform or comply with any of its covenants and
agreements contained in the Merger Agreement or breaches its
representations and warranties in any material respect, which breach or
failure to perform cannot be or has not been cured within ten days of the
receipt of written notice of such breach by the Company from Buyer, and
each of the following items occurs:
(i) prior to such termination a Takeover Proposal Event has
occurred, and
(ii) prior to or within 12 months after the termination of the
Merger Agreement, the Company or one of its subsidiaries enters into a
Competing Proposal Agreement or the transactions contemplated by a
Competing Proposal are consummated unless, in either case, the purchaser
pursuant to such Competing Proposal Agreement or otherwise, waives the
breach (or failure) of the representation,
24
<PAGE> 27
warranty, covenant or agreement that constituted the basis for Buyer's
termination, so long as the Company's breach or failure was not
intentional.
Amendments; No Waivers. The Merger Agreement provides that any provision of
the Merger Agreement may be amended or waived prior to the Effective Time if
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company, Buyer and Merger Subsidiary or in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
adoption of this Agreement by the stockholders of the Company, no such amendment
or waiver will, without the further approval of such stockholders, alter or
change (i) the amount or kind of consideration to be received in exchange for
any shares of capital stock of the Company, or (ii) any of the terms or
conditions of this Agreement if such alteration or change could adversely affect
the holders of any shares of capital stock of the Company.
Stockholders Agreement
Buyer and Merger Subsidiary have entered into a Stockholders Agreement with
the Continuing Stockholders, providing, subject to certain conditions, for (i)
the tender by the Continuing Stockholders of certain of the Shares owned or
controlled by them within 5 business days of the commencement of the Offer, (ii)
the agreement by the Continuing Stockholders not to tender certain of the Shares
owned or controlled by them and (iii) the grant of an irrevocable proxy to Buyer
by the Continuing Stockholders to vote all Shares owned or controlled by them at
the time of the Stockholders' Meeting in favor of the Merger. See "SPECIAL
FACTORS -- The Merger Agreement and the Stockholders Agreement".
RELATED PARTY TRANSACTIONS
During the fiscal years ended June 30, 1998 and 1997, the Company paid
management fees of $283,750 and $235,000, respectively, to Lineberger & Co.,
LLC. During the nine-month period ended March 31, 1999 the Company paid
management fees of $250,000 to Lineberger & Co., LLC. Effective October 1, 1997
the Company and Lineberger & Co., LLC entered into a one-year management
agreement with an additional three year renewal option upon mutual consent,
which provides for annual management fees of $300,000. On October 1, 1998 the
Company and Lineberger & Co., LLC mutually agreed to increase the annual
management fees payable by the Company to $350,000. The renewal agreement allows
for the management fee to be increased upon mutual agreement of the Company and
Lineberger & Co., LLC. Under the agreement, Lineberger & Co., LLC is to perform
various management and consulting services for the Company, including without
limitation, preparation of an annual business plan and projections, recruitment
of senior management, establishment and maintenance of various auditing,
inventory and production controls, assisting with the Company's financial
relationships and acquisitions and rendering general business and administrative
advice. See "SPECIAL FACTORS -- Interests of Certain Persons in the
Transactions".
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of March 31, 1999, the ownership of the
Company's common stock by (i) each person who is known by the Company to be the
beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act)
of more than five percent (5%) of the Company's Common Stock, (ii) each of the
Company's named executive officers and directors, and (iii) each of the
Continuing Stockholders who are not covered by paragraphs (i) and (ii) above.
Except as otherwise indicated, the shareholders listed in the table have
25
<PAGE> 28
sole voting and investment powers with respect to the shares indicated and their
addresses are the address of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
OWNED
------------
<S> <C>
James E. Lineberger......................................... 3,169,287(1)
James E. Lineberger, Jr. Trust.............................. 1,056,429
1120 Boston Post Road
Darien, Connecticut 06820
Geoffry S. Lineberger Trust................................. 1,056,429
1120 Boston Post Road
Darien, Connecticut 06820
Christopher Lineberger Trust................................ 1,056,429
1120 Boston Post Road
Darien, Connecticut 06820
The Brady Family Limited Partnership........................ 357,143
Daniel. W. Brady............................................ 358,143(2)
Samuel M. Berry............................................. 197,370(3)
James D. Gerson............................................. 26,000(4)
Ronald G. Assaf............................................. 6,000
Arthur D. Johnson........................................... 26,200(5)
Donald M. Maher............................................. 26,200(5)
Roy W. Wiegmann............................................. 14,600(5)
John F. Creamer............................................. 2,000
Ronald E. Reinke............................................ 17,000(5)
Willie Vercher.............................................. 1,750(5)
Dr. Krishnamurthy Sundararajan.............................. 1,200(5)
Chris A. Curto.............................................. 5,500(6)
</TABLE>
- ---------------
(1) Includes 1,056,429 shares of common stock of the Company owned by each of
the James E. Lineberger, Jr. Trust, the Geoffry S. Lineberger Trust and the
Christopher Lineberger Trust. Harrietjo Lineberger, Mr. Lineberger's wife,
and James E. Lineberger, Jr., Mr. Lineberger's son, are trustees of the
James E. Lineberger, Jr. Trust and the Christopher Lineberger Trust and
James E. Lineberger, Jr. and Christopher Lineberger, Mr. Lineberger's sons,
are trustees of the Geoffry S. Lineberger Trust and, therefore shares owned
by the trusts may be deemed to be beneficially owned by Mr. Lineberger. Mr.
Lineberger disclaims beneficial ownership of these shares.
(2) Includes 357,143 shares of common stock of the Company held by The Brady
Family Limited Partnership, of which Mr. Brady is the sole general partner,
and 1,000 shares of common stock of the Company owned by the Jacqueline L.
Brady 1993 Living Trust U/A DTD 9/23/93.
(3) Includes 18,800 shares of common stock of the Company issuable upon the
exercise of options granted pursuant to the 1993 Stock Option Plan.
(4) Includes 5,000 shares of common stock of the Company owned by Mr. Gerson's
wife, as custodian for their children, which may therefore be deemed to be
beneficially owned by Mr. Gerson. Mr. Gerson disclaims beneficial ownership
of these shares.
(5) Issuable upon the exercise of options granted pursuant to the 1993 Stock
Option Plan.
(6) Includes 5,000 shares of Common Stock issuable upon the exercise of options
granted pursuant to the 1993 Stock Option Plan.
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<PAGE> 29
In addition, Buyer and Merger Subsidiary may be deemed to be beneficial
owners of all of outstanding Shares owned by the Continuing Stockholders
pursuant to the Stockholders Agreement. Buyer and Merger Subsidiary disclaim
such beneficial ownership.
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE SHARES
To the Company's knowledge, the only transactions in the Shares effected
during the past 60 days by the Company or its executive officers, directors,
affiliates or subsidiaries is as follows: on February 22, 1999, Ronald Assaf, a
director of the Company, transferred 45,000 Shares to a trust for the benefit of
a family member.
To the Company's knowledge, all of the Company's executive officers,
directors, affiliates and subsidiaries (other than the Continuing Stockholders
with respect to the retained Shares) currently intend to tender all Shares which
are held of record or beneficially owned by such persons pursuant to the Offer,
other than shares, if any, held by such persons which, if tendered would cause
such persons to incur liability under the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended. Pursuant to the terms of the
Stockholders Agreement, the Continuing Stockholders have agreed to tender into
the Offer Shares beneficially owned by them approximating 73% of the Shares
outstanding and have agreed not to tender Shares beneficially owned by them
approximating 2.9% of the Shares outstanding.
Except as set forth in this Offer to Purchase, neither the Company nor, to
the Company's knowledge, any of its affiliates, directors or executive officers
or any person controlling the Company, is a party to any contract, arrangement,
understanding or relationship with any other person relating, directly or
indirectly, to, or in connection with, the Offer with respect to any securities
of the Company (including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies, consents or authorizations). Except as described in this Offer to
Purchase, since the commencement of the Company's second full fiscal year
preceding the date of this Offer to Purchase, no contracts or negotiations
concerning a merger, consolidation, or acquisition, a tender offer for or other
acquisition of any securities of the Company, an election of directors of the
Company, or a sale or other transfer of a material amount of assets of the
Company, has been entered into or has occurred between any affiliates of the
Company or between the Company or any of its affiliates and any unaffiliated
person.
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<PAGE> 30
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), the Company will accept for payment, and will pay for all
outstanding Shares validly tendered prior to the Expiration Date (as hereinafter
defined) and not withdrawn as specified in "THE TENDER OFFER -- Section 4.
Withdrawal Rights". The term "Expiration Date" is 12:00 midnight, New York City
time, on Friday, May 28, 1999, unless and until the Company, at the direction of
Buyer (but subject to the terms and conditions of the Merger Agreement), has
extended the period during which the Offer is open, in which event Expiration
Date will be the latest time and date at which the Offer, as so extended by the
Company, expires.
The Company shall, at the direction of Buyer, extend the Offer for a period
not to exceed 10 business days in the aggregate if on the initial Expiration
Date, more than 85% but less than 90% of the outstanding Shares have been
tendered. During any such extension, all Shares previously tendered and not
withdrawn will remain subject to the Offer, subject to the rights of a tendering
stockholder to withdraw such stockholder's Shares. See "THE TENDER
OFFER -- Section 4. Withdrawal Rights". At Buyer's request, the Company also
shall increase the Offer Price and make such other changes to the Offer as Buyer
may request, provided, however, that the Company is not required to make any
changes that decrease the Offer Price, that change the form of consideration to
be paid in the Offer, or that reduce the maximum number of Shares to be
purchased in the Offer, that impose conditions to the Offer in addition to those
set forth in TENDER OFFER-Annex I hereto or that broaden the scope of such
conditions. The Company agreed not to make any other changes to the Offer or
waive any conditions to the Offer or take any other action, including, without
limitation, notice of acceptance of tendered Shares to the Depositary, with
respect to the Offer without Buyer's prior written consent.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition and the Company obtaining the Debt Financing arranged for its
benefit by the Buyer. Pursuant to the Stockholders Agreement, the Continuing
Stockholders have agreed to tender and not withdraw approximately 73% of the
outstanding Shares on a fully diluted basis. See "THE TENDER OFFER -- Section
12. Certain Conditions to the Offer".
Subject to the applicable regulations of the Commission, the Company also
expressly reserves the right, at Buyer's request (but subject to the terms and
conditions of the Merger Agreement), at any time and from time to time, (i) to
delay acceptance for payment of, or, regardless of whether such Shares were
accepted for payment, payment for, any Shares, pending receipt of any regulatory
approval specified in "THE TENDER OFFER -- Section 13. Certain Legal Matters and
Regulatory Approval", (ii) to terminate the Offer and not accept for payment any
Shares upon the occurrence of any of the conditions specified in "THE TENDER
OFFER -- Section 12. Certain Conditions to the Offer" and (iii) to waive any
condition, other than the Minimum Condition, or otherwise amend the Offer in any
respect, by giving oral or written notice of such delay, termination, waiver or
amendment to the Depositary and by making a public announcement thereof. The
Company acknowledges that (i) Rule 14e-1(c) under the Exchange Act requires the
Company to pay the consideration offered or return the Shares tendered promptly
after the termination or withdrawal of the Offer and (ii) the Company may not
delay acceptance for payment of, or payment for (except as provided in clause
(i) of the first sentence of this paragraph), any Shares upon the occurrence of
any of the conditions specified in "THE TENDER OFFER -- Section 12. Certain
Conditions to the Offer" without extending the period of time during which the
Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 13e-4(e) and 14e-1
under the Exchange Act, which require that material changes be promptly
disseminated to stockholders in a manner reasonably calculated to inform them of
such changes) and without limiting the manner in which the Company may choose to
make any public announcement, the Company has no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service.
28
<PAGE> 31
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will extend the Offer to the extent required by Rules
13e-4(e) and 13e-3(e) under the Exchange Act.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, the Company should decide to decrease the number of Shares being sought or
to increase or decrease the consideration being offered in the Offer, such
decrease in the number of Shares being sought or such increase or decrease in
the consideration being offered will be applicable to all stockholders whose
Shares are accepted for payment pursuant to the Offer and, if at the time notice
of any such decrease in the number of Shares being sought or such increase or
decrease in the consideration being offered is first published, sent or given to
holders of such Shares, the Offer is scheduled to expire at any time earlier
than the period ending on the tenth business day from and including the date
that such notice is first so published, sent or given, the Offer will be
extended at least until the expiration of such ten business day period. For
purposes of the Offer, a "business day" means any day other than a Saturday,
Sunday or a federal holiday and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York City Time.
This Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of Shares whose names appear on the Company's stockholder list
and will be furnished, for subsequent transmittal to beneficial owners of
Shares, to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Company will accept for payment, and will pay for, all
outstanding Shares validly tendered prior to the Expiration Date and not
properly withdrawn, promptly after the latest to occur of (i) the Expiration
Date and (ii) the satisfaction or waiver of the conditions to the Offer
specified in "THE TENDER OFFER -- Section 12. Certain Conditions to the Offer".
Subject to applicable rules of the Commission, the Company expressly reserves
the right to delay acceptance for payment of, or payment for, Shares pending
receipt of any regulatory approvals specified in "THE TENDER OFFER -- Section
13. Certain Legal Matters and Regulatory Approvals" or in order to comply in
whole or in part with any other applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (A) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures specified in "THE
TENDER OFFER -- Section 3. Procedures for Accepting the Offer and Tendering
Shares", (B) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or, in the
case of a book-entry transfer, an Agent's Message (as defined below) in lieu of
the Letter of Transmittal and (C) any other documents required under the Letter
of Transmittal.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when the Company gives oral or written notice to the
Depositary of the Company's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the Offer Price with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payments from the Company and
transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. Under no circumstances will the Company pay interest on
the Offer Price, regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedure specified in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and
29
<PAGE> 32
Tendering Shares", such Shares will be credited to an account maintained at the
Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
If, prior to the Expiration Date, the Company increases the consideration
offered to any holders of Shares pursuant to the Offer, such increased
consideration will be paid to all holders of Shares that are purchased pursuant
to the Offer, whether or not such Shares were tendered prior to such increase in
consideration.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
In order for a holder of Shares to validly tender Shares pursuant to the
Offer, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees (or, in the
case of a book-entry transfer, an Agent's Message in lieu of the Letter of
Transmittal) and any other documents required by the Letter of Transmittal, must
be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase and either (i) the Share Certificates evidencing
tendered Shares must be received by the Depositary at such address or such
Shares must be tendered pursuant to the procedure for book-entry transfer
described below and a Book-Entry Confirmation must be received by the Depositary
(including an Agent's Message if the tendering stockholder has not delivered a
Letter of Transmittal), in each case prior to the Expiration Date, or (ii) the
tendering stockholder must comply with the guaranteed delivery procedures
described below. The term "Agent's Message" means a message, transmitted by a
Book-Entry Transfer Facility to, and received by, the Depositary and forming a
part of a Book-Entry Confirmation which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering the Shares that are the subject of such
Book-Entry Confirmation, that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that the Company may enforce
such agreement against such participant.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
either the Letter of Transmittal, properly completed and duly executed, together
with any required signature guarantees, or an Agent's Message in lieu of the
Letter of Transmittal, and any other required documents, must, in any case, be
received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase prior to the Expiration Date, or the tendering
stockholder must comply with the guaranteed delivery procedure described below.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution", as such term is
defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing, an
"Eligible Institution"), except in cases where Shares are tendered (i) by a
registered holder of Shares who has not completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. If a Share Certificate is registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made, or a Share Certificate not accepted for payment or not tendered is to
be returned, to a person other than the registered holder(s), then the Share
Certificate must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear(s)
on the Share Certificate, with the signature(s) on such Share
30
<PAGE> 33
Certificate or stock powers guaranteed by an Eligible Institution. See
Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such stockholder's Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
- such tender is made by or through an Eligible Institution;
- a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Company, is received
prior to the Expiration Date by the Depositary as provided below; and
- the Share Certificates (or a Book-Entry Confirmation) evidencing all
tendered Shares, in proper form for transfer, in each case together with
the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by the Letter of Transmittal are received by the
Depositary within three Nasdaq trading days after the date of execution
of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in the form of Notice of Guaranteed Delivery made available by the
Company.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal, properly completed and
duly executed, with any required signature guarantees, and any other documents
required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. The Company also reserves the absolute right to waive any
condition of the Offer or any defect or irregularity in the tender of any Shares
of any particular stockholder, whether or not similar defects or irregularities
are waived in the case of other stockholders. No tender of Shares will be deemed
to have been validly made until all defects and irregularities have been cured
or waived. None of the Company, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Company's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Cancellation. Promptly following the purchase of the Shares pursuant to the
Offer, the Company intends to cancel any such Shares purchased in the Offer.
The acceptance for payment by the Company of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and the Company upon the terms and subject to the
conditions of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH
RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY
PAYMENTS MADE TO SUCH STOCKHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF
TRANSMITTAL.
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<PAGE> 34
4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Company pursuant to the Offer,
may also be withdrawn at any time after June 28, 1999. If the Company extends
the Offer, is delayed in its acceptance for payment of Shares or is unable to
accept Shares for payment pursuant to the Offer for any reason, then, without
prejudice to the Company's rights under the Offer, the Depositary may,
nevertheless, on behalf of the Company, retain tendered Shares, and such Shares
may not be withdrawn except to the extent that tendering stockholders are
entitled to withdrawal rights as described in this Section 4.
For a withdrawal to be effective, a written notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth on the back
cover page of this Offer to Purchase. Any such notice of withdrawal must specify
the name of the person who tendered the Shares to be withdrawn, the number of
Shares to be withdrawn and the name of the registered holder of such Shares, if
different from that of the person who tendered such Shares. If Share
Certificates evidencing Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such Share
Certificates, the serial numbers shown on the Share Certificates must be
submitted to the Depositary and the signature(s) on the notice of withdrawal
must be guaranteed by an Eligible Institution, unless such Shares have been
tendered for the account of an Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer as set forth in "THE
TENDER OFFER -- Section 3. Procedures for Accepting the Offer and Tendering
Shares", any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Company, in its sole
discretion, whose determination will be final and binding. None of the Company,
the Dealer Manager, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and Tendering Shares".
5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Offer or in the Merger will
be a taxable transaction for U.S. federal income tax purposes under the Code and
may also be a taxable transaction under applicable state, local or foreign tax
laws. In general, a stockholder will recognize gain or loss for U.S. federal
income tax purposes equal to the difference between the amount of cash received
in exchange for the Shares sold and such stockholder's adjusted tax basis in
such Shares. Assuming the Shares constitute capital assets in the hands of the
stockholder, such gain or loss will be capital gain or loss. In the case of an
individual stockholder, such capital gain generally will be subject to a maximum
federal income tax rate of 20% if the individual has held the Shares for more
than one year. Gain or loss will be calculated separately for each block of
Shares tendered pursuant to the Offer or converted pursuant to the Merger. The
deductibility of capital losses is subject to certain limitations. Prospective
investors should consult their own tax advisors in this regard.
In general, in order to prevent backup federal income tax withholding at a
rate of 31% on the cash consideration to be received in the Offer or pursuant to
the Merger, each stockholder who is not otherwise exempt from such requirements
must provide such stockholder's correct taxpayer identification number (and
certain other information) by completing the Substitute Form W-9 in the Letter
of Transmittal.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, INCLUDING BROKER-DEALERS, STOCKHOLDERS WHO ACQUIRED SHARES
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION,
INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND FOREIGN
CORPORATIONS.
32
<PAGE> 35
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW, WHICH IS SUBJECT TO
CHANGE POSSIBLY WITH RETROACTIVE EFFECT. STOCKHOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares are traded on the Nasdaq National Market System under the symbol
"HILI". The following table sets forth the high and low sale prices of the
Shares for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1997:
- ------------
First Quarter...................................... 10 1/4 5
Second Quarter..................................... 6 4 1/4
Third Quarter...................................... 5 1/2 4 3/4
Fourth Quarter..................................... 5 1/2 3 1/4
Fiscal 1998:
- ------------
First Quarter...................................... 6 1/4 4 1/4
Second Quarter..................................... 7 1/8 5 1/4
Third Quarter...................................... 7 7/8 6 3/4
Fourth Quarter..................................... 9 3/4 7 1/2
Fiscal 1999:
- ------------
First Quarter...................................... 9 7 5/8
Second Quarter..................................... 9 1/2 7 5/8
Third Quarter...................................... 11 8 7/8
</TABLE>
Dividends of $0.025 per share on 4,900,000 shares were paid on each of
November 17, 1997, February 23, 1998, and May 18, 1998, August 19, 1998,
November 19, 1998, February 19, 1999 and on April 26, 1999, a dividend of $0.025
per share on 4,900,000 shares was awarded and will be paid on or about May 25,
1999 to holders of record on May 11, 1999.
7. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company designs, manufactures and sells a diversified line of
highly-engineered products primarily for automotive applications. These products
include brake valves such as proportioning valves, power transmission components
such as electromagnetic clutches, mounting brackets and pulleys, and specialty
components and assemblies such as stampings, specialty springs and automated
assemblies. Some of the Company's products are engineered in close cooperation
with the Company's customers to meet their specific performance requirements.
Approximately 70% of the sales of the Company are to automotive companies and
their suppliers for passenger cars and light trucks sold in the United States.
The Company's customers include all three domestic automotive companies: Ford
Motor Company, General Motors Corporation and Daimler - Chrysler Corporation as
well as heavy truck companies such as Navistar International Transportation
Corporation. The Company also sells products to first-tier suppliers including
Borg-Warner Corporation, Bosch Braking Systems Corporation, Denso of Los
Angeles, Inc., and ITT Automotive of North America, Inc. Significant
non-automotive customers include Motorola, Inc., Crane National Vendors, and a
variety of distributors for industrial/hydraulic clutches.
The Company's revenues have grown in recent years through both internal
growth and acquisition. Sales increases in each of the previous three years were
18.6%, 1.2%, and 61.8% in fiscal years 1998, 1997, and 1996, respectively. By
comparison, according to Ward's Automotive Reports, U.S. sales of automobiles
and light trucks
33
<PAGE> 36
have remained flat over the past three years. Vehicles sold in the U.S., by
model year (July -- June), were 15.5 million in 1998, 14.9 million in 1997, and
15.0 million in 1996.
The Company believes that its quick response to customer requirements,
creative engineering and ability to design and manufacture high volumes of
competitively-priced products to meet or exceed the quality standards of the
automotive industry are the principal reasons it has been successful in
increasing its market share and in growing faster than the domestic automotive
industry. The Company has made significant investments in capital equipment and
state-of-the-art manufacturing processes in order to continuously improve its
productivity and maintain its position as a low cost, high quality manufacturer.
Available Information
The Company is subject to the reporting requirements of the Exchange Act
and, in accordance therewith, is required to file reports and other information
with the Commission relating to its business, financial condition and other
matters. Information as of particular dates concerning the Company's directors
and officers, their remuneration, options granted to them, the principal holders
of the Company's securities and any material interests of such persons in
transactions with the Company is required to be disclosed in proxy statements
distributed to the Company's stockholders and filed with the Commission. Such
reports, proxy statements and other information should be available for
inspection at the public reference facilities of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located in the Northwestern Atrium Center, 500 West Madison Street
(Suite 1400), Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies should be obtainable, by mail, upon payment of
the Commission's customary charges, by writing to the Commission's principal
office at 450 Fifth Street, N.W., Washington D.C. 20549. The Commission also
maintains an Internet site on the World Wide Web at http://www.sec.gov that
contains reports, proxy statements and other information.
8. RECENT DEVELOPMENTS
On April 27, 1999, the Company reported its financial results for the
quarter ending March 31, 1999. Sales for the quarter ended March 31, 1999 were
$25,631,000, an increase of $3,524,000 or 16% over sales of $22,107,000 for the
third fiscal quarter of 1998. Earnings in the third quarter were $1,942,000 or
$0.40 per share, increasing 33% over the earnings of $1,463,000 ($0.30 per
share) in the third quarter last year. Sales for the nine months ended March 31,
1999 were $68,214,000, increasing 7% over sales of $63,764,000 for the same
period of the prior year. Earnings for the nine-month period were $4,298,000
($0.88 per share), a 34% increase over earnings of $3,194,000 ($0.65 per share)
in the prior year. Shareholders' equity per share was $6.14 at March 31, 1999,
compared to $5.34 per share at June 30, 1998.
9. SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected consolidated financial data with
respect to the Company for each of the five years as of and for the years ended
June 30, 1998 and should be read in conjunction with the audited
34
<PAGE> 37
financial statements (including the related notes thereto) included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 87,167 $ 73,492 $ 72,642 $ 44,900 $ 36,896
Cost of sales..................... 69,764 63,938 57,711 34,849 28,517
--------- --------- --------- --------- ---------
Gross profit.................... 17,403 9,554 14,931 10,051 8,379
Selling, general and
administrative.................. 9,026 10,340 7,576 4,286 3,696
--------- --------- --------- --------- ---------
Operating income (loss)......... 8,377 (786) 7,355 5,765 4,683
Interest expense, net............. 1,320 1,714 1,659 130 234
--------- --------- --------- --------- ---------
Income (loss) before income
taxes........................ 7,057 (2,500) 5,696 5,635 4,449
Income tax provision (benefit).... 2,545 (843) 2,064 2,016 1,668
--------- --------- --------- --------- ---------
Net income (loss)............... $ 4,512 $ (1,657) $ 3,632 $ 3,619 $ 2,781
========= ========= ========= ========= =========
Earnings (loss) per share:
Basic........................... $ .92 $ (.34) $ .74 $ .74 $ .66
========= ========= ========= ========= =========
Diluted......................... $ .92 $ (.34) $ .74 $ .74 $ .66
========= ========= ========= ========= =========
Shares used in computing earnings
per share:
Basic........................... 4,900,000 4,900,000 4,900,000 4,900,000 4,235,479
========= ========= ========= ========= =========
Diluted......................... 4,912,655 4,900,000 4,903,951 4,900,000 4,235,479
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital................. $ 10,569 $ 8,329 $ 11,285 $ 8,048 $ 9,779
Property, plant and equipment,
net.......................... 27,616 26,323 27,790 16,664 9,725
Total assets.................... 57,356 57,219 56,199 30,248 26,013
Long-term obligations (1)....... 12,957 18,271 19,533 3,419 2,255
Total liabilities............... 31,209 35,216 32,538 10,219 9,603
Stockholders' equity............ 26,148 22,004 23,661 20,029 16,410
</TABLE>
- ---------------
(1) Excludes current portion of long-term debt obligations.
The Company's ratio of earnings to fixed charges for the fiscal years ended
June 30, 1998 and June 30, 1997 and the nine-month period ended March 31, 1999
was 6.3, (45.9) and 8.1, respectively.
10. FINANCING OF THE TRANSACTIONS
The total amount of funds required to consummate the Transactions and to
pay all related fees and expenses will approximate $92.5 million, which will be
provided through a combination of (i) $23,960,149 in proceeds from the Stock
Purchase, (ii) borrowings under a $65 million senior secured credit facility to
be provided to the Company (the "Senior Bank Facilities") and (iii) proceeds
from the sale of $15.0 million of 12.5% senior unsecured subordinated notes (the
"Subordinated Notes") (collectively, the "Financing"). The description set forth
below does not purport to be complete and is qualified in its entirety by
reference to certain agreements setting forth the principal terms of the
Company's debt, which are available upon request from the Company.
Equity Financing. Buyer will purchase the Shares in the Stock Purchase for
$23,960,149. The funds to be used by Buyer in the Stock Purchase will be
provided by Carreras, Kestner & Co., L.L.C. and members of the Buyer: Carreras,
Kestner Investors, L.L.C., Key Equity Capital Corporation, Key Equity Partners
99, Citicorp
35
<PAGE> 38
Venture Capital Corporation and Kelso & Company pursuant to the operating
agreement of the Buyer. It is currently contemplated that the respective
contributions to the equity financing will be as follows:
<TABLE>
<CAPTION>
MEMBER CONTRIBUTION
------ ------------
<S> <C>
Carreras, Kestner & Co., L.L.C.............................. $ 1,425
Carreras, Kestner Investors, L.L.C.......................... $3,449,581
Key Equity Capital Corporation/Key Equity Partners 99....... $6,836,381
Citicorp Venture Capital Corporation........................ $6,836,381
Kelso & Company............................................. $6,836,381
</TABLE>
Senior Credit Facilities.
First Union National Bank ("First Union") has committed to provide the
Company with the Senior Bank Facilities in an aggregate principal amount not to
exceed $65 million. The Senior Bank Facilities will consist of (a) a Tranche A
Senior Secured Term Loan Facility providing for term loans to the Company in a
principal amount not to exceed $17.5 million (the "Tranche A Term Facility");
(b) a Tranche B Senior Secured Term Loan Facility providing for term loans to
the Company in a principal amount not to exceed $27.5 million (the "Tranche B
Term Facility" and collectively with the Tranche A Term Facility, the "Term
Facilities"); and (c) a Senior Secured Revolving Credit Facility providing for
revolving loans to the Company and the issuance of U.S. dollar-denominated
letters of credit for the account of the Company in an aggregate principal and
stated amount at any time not to exceed $20 million (of which (i) up to $3
million may be represented by letters of credit and (ii) not more than $5
million may be represented by swingline loans to be made available by First
Union) (the "Revolving Facility").
Except as set forth below, (i) the Tranche A Term Facility may be drawn in
not more than two draws to fund the Offer and the Merger, to repay existing debt
and to pay related fees, costs and expenses, (ii) the full amount of the Tranche
B Term Facility must be drawn in a single drawing at the Closing to fund the
Tender Offer and the Merger, to repay existing debt and to pay related fees,
costs and expenses. Loans and, subject to certain limitations, letters of credit
under the Revolving Facility will be available at any time after the Closing and
prior to the fifth anniversary thereof.
Loans made under the Tranche A Term Facility will amortize quarterly over
five years with annual increases in the quarterly installment payments. Loans
made under the Tranche B Term Facility will amortize over six and one-half years
in equal nominal quarterly installments during the first five years of such
Facility and substantially greater equal quarterly installments for the final
six installments thereof. Mandatory prepayments of the Term Facilities will be
allocated pro rata between the Tranche A Term Facility and the Tranche B Term
Facility and, within each such Term Facility, among the remaining amortization
payments, and then to the Revolving Facility with a corresponding reduction in
the commitments under the Revolving Facility. Voluntary prepayments of the Term
Facilities will be allocated pro rata between the Tranche A Term Facility and
the Tranche B Term Facility and, within each such Term Facility, among the
remaining amortization payments. Amounts repaid or prepaid under any Term
Facility may not be reborrowed.
The Company will be required to make mandatory prepayments of loans,
subject to certain exceptions (a) in a principal amount equal to 75% of annual
excess cash flow of the Company and its subsidiaries (beginning with the fiscal
year ending June 30, 2000), provided that such excess cash flow percentage will
be reduced to 50% during any period when the leverage ratio consolidated funded
debt to consolidated EBITDA for two consecutive quarters is 3.5 or below, (b) in
a principal amount equal to 100% of the net cash proceeds of certain
dispositions of assets or of the incurrence of certain indebtedness by the
Company and its subsidiaries, and (c) in a principal amount equal to 50% of the
net cash proceeds of certain issuances of equity securities (excluding equity
issued in connection with the acquisition of the Company) by the Company and its
subsidiaries. At the Company's option, loans may be prepaid, and revolving
credit commitments or letters of credit may be permanently reduced, in whole or
in part at any time in minimum amounts to be agreed. Any prepayment of fixed
rate loans other than at the end of an interest period will be subject to
reimbursement of redeployment and other similar costs.
36
<PAGE> 39
The obligations of the Company under the Senior Bank Facilities will be
unconditionally and irrevocably guaranteed by Buyer and each of the direct or
indirect subsidiaries of the Company (collectively, the "Guarantors"), provided
that, if any such guarantee by a foreign subsidiary of the Company would have an
adverse tax impact upon the Company, then no such guarantee shall be required.
In addition, the Senior Bank Facilities will be secured by a first priority
perfected lien on and security interest in (i) 100% of the capital stock of each
Guarantor, whether existing at closing or thereafter organized or acquired (65%
of the capital stock of foreign Guarantors to the extent that a higher
percentage would have an adverse tax impact upon the Company), and (ii) all of
the assets (including, without limitation, accounts receivable, inventory,
equipment, intellectual property and other general intangibles, and real
property) of the Company and the domestic Guarantors other than Buyer.
At the Company's option, the interest rates per annum applicable to the
Senior Bank Facilities will be either (i) adjusted LIBOR plus a margin ranging
from 1.75% to 2.75%, in respect of the Revolving Facility and the Tranche A Term
Facility, and from 3.00% to 3.25%, in respect of the Tranche B Term Facility or
(ii) the Alternate Base Rate plus a margin ranging from .50% to 1.50% , in
respect of the Revolving Facility and the Tranche A Term Facility, and from
1.75% to 2.00%, in respect of the Tranche B Term Facility. The Alternate Base
Rate is the higher of First Union's Prime Rate or the Federal Funds Effective
Rate plus 0.5% per annum.
The Company will pay a per annum fee equal to the applicable LIBOR margin
ranging from 1.75% to 2.75% of the aggregate face amount of outstanding letters
of credit under the Revolving Facility and a per annum fee ranging from 0.375%
to 0.50% on the undrawn portion of the commitments in respect of the Revolving
Facility. In addition, the Company will pay a facing fee with respect to each
letter of credit in an amount equal to 0.25% of the average daily stated amount
thereof, payable quarterly in arrears to First Union for its own account as
issuer of letters of credit.
The Senior Bank Facilities will contain a number of significant covenants
that, among other things, will restrict the ability of the Company to dispose of
assets, incur additional indebtedness, repay other indebtedness or amend other
debt instruments, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, or engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. In addition, under the Senior Bank
Facilities the Company will be required to comply with specified financial
ratios and tests, including minimum interest coverage, minimum working capital
coverage and maximum leverage ratios and a minimum consolidated EBITDA test.
Senior Subordinated Notes
First Union has committed to provide the Company with Subordinated Notes to
finance a portion of the Offer and the Merger, including fees, costs and
expenses related thereto, to refinance existing debt and for working capital and
general corporate purposes. The Subordinated Notes will be subordinated to the
Senior Bank Facilities. The Subordinated Notes will mature on the eight-year
anniversary of the date of issuance thereof (the "Maturity"). Interest on the
Subordinated Notes will be payable quarterly in arrears.
The Company will redeem the full principal amount of the Subordinated
Notes, plus any accrued interest, upon the earlier to occur of any of the
following: the Maturity, an initial public offering, a change of control, a sale
of a material portion of the Issuer's assets (subject to certain limitations) or
other similar fundamental corporate change. Mandatory prepayments will be
subject to the redemption price percentage set forth in the optional redemption
section below and to the terms of the subordination provisions.
The Subordinated Notes may be redeemed at the option of the Company, in
whole or in part, upon not less than 20 nor more than 60 days notice, at a
redemption price as set forth on the redemption price schedule set forth
37
<PAGE> 40
below, as such price may be reduced by First Union based upon the paragraph
below, in each case plus accrued interest on the principal redeemed:
<TABLE>
<CAPTION>
YEARS FROM CLOSING REDEMPTION PRICE PERCENTAGE
- ------------------ ---------------------------
<S> <C> <C>
1................................................... 103%
2................................................... 102%
3................................................... 101%
Thereafter.......................................... 100%
</TABLE>
The obligations of the Company under the Subordinated Notes will be
unconditionally and irrevocably guaranteed by the Guarantors, on a basis
subordinate in right and interest to the guaranties of the Senior Bank
Facilities in a manner consistent with the subordination of the Notes, provided
that, if any such guarantee by a foreign subsidiary of the Company would have an
adverse tax impact upon the Company, then no such guarantee shall be required.
The Notes will be issued pursuant to an Investment Agreement entered into
by and between the Company and the purchasers of the Subordinated Notes. The
Investment Agreement will contain a number of significant covenants that, among
other things, will restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations or engage in
certain transactions with subsidiaries and affiliates and otherwise restrict
corporate activities. In addition, under the Investment Agreement the Company
will be required to comply with specified financial ratios and tests, including
minimum interest coverage, maximum leverage ratios and a minimum consolidated
EBITDA test.
The Subordinated Notes will have detachable warrants to purchase up to 5%
of the fully diluted common equity of the Company. The warrants will contain
customary terms and conditions. The warrant holder is also expected to become a
party to a stockholders agreement among the stockholders of the
post-recapitalized Company.
Sources and Uses of Funds. The following table sets forth the anticipated
sources and uses of funds in connection with the Transactions:
<TABLE>
<S> <C>
SOURCES
Senior Bank Facilities.................................... $53,500,000
Subordinated Notes........................................ 15,000,000
Proceeds from the sale of Buyer Shares.................... 23,960,000
-----------
$92,460,000
===========
USES
Offer Price and Merger Consideration...................... 68,993,000
Retirement of Existing Debt............................... 15,100,000
Fees and Expenses......................................... 8,367,000
-----------
$92,460,000
===========
</TABLE>
11. EFFECT OF THE TRANSACTIONS ON THE MARKET FOR THE SHARES; EXCHANGE ACT
REGISTRATION
Upon consummation of the Transactions, Buyer and the Company intend to
discontinue listing the Shares on Nasdaq and to terminate the registration of
the Shares under the Exchange Act. If the Shares are delisted, the ability to
buy and sell the Shares will be adversely affected. In addition, the termination
of the registration of the Shares under the Exchange Act would substantially
reduce the information required to be furnished by the Company to holders of
Shares and to the Commission and would make certain provisions of the Exchange
Act, such as the short-swing profit recovery provisions of Section 16(b), the
requirement of furnishing a proxy statement in connection with stockholders'
meetings and the requirements of Rule 13e-3 under the Exchange Act with respect
to the "going private" transactions, no longer applicable to the Shares. In
addition, "affiliates" of
38
<PAGE> 41
the Company and persons holding "restricted securities" of the Company may be
deprived of the ability to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended.
12. CERTAIN CONDITIONS TO THE OFFER
In addition to (and not in limitation of) the Company's rights to extend
and amend the Offer pursuant to the provisions of the Merger Agreement, the
Company is not required to accept for payment or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to the Company's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), to pay for, and may
delay the acceptance for payment of or, subject to the restriction referred to
above, the payment for, any tendered Shares, and may terminate the Offer if:
(i) any applicable waiting period under the HSR Act has not expired or
terminated prior to the expiration of the Offer;
(ii) the Minimum Condition has not been satisfied;
(iii) the closing of the Stock Purchase has not occurred other than
due to any breach of the Merger Agreement by Buyer or Merger
Subsidiary;
(iv) the Company has not received the proceeds of the debt portion of
the Financing or otherwise obtained funds sufficient to finance
the Transactions unless such proceeds were not received due to
(x) the failure of the lenders in the Debt Financing and Buyer or
Merger Subsidiary to agree on definitive documentation for such
financing or (y) the failure of Buyer and/or Merger Subsidiary to
receive the equity portion of its Financing; or
as a result of the existence of any of the following conditions which
conditions will not have been satisfied or waived at any time on or after the
date of the Merger Agreement and on or before the Expiration Date or any
extension thereof:
(v) there is instituted and pending by any governmental entity (or the
staff of any HSR Authority recommends the commencement of) any
action or proceeding which (A) seeks to prohibit, or impose any
material limitations on, Buyer's or Merger Subsidiary's ownership
or operation of all or a material portion of the businesses or
assets of the Company and its subsidiaries, taken as a whole, or
of Buyer or its subsidiaries, (B) seeks to impose limitations on
the ability of the Company, or renders the Company unable, to
accept for payment, pay for or purchase some or all of the Shares
pursuant to the Offer and the Merger or the consummation of the
Offer or the Merger, (C) challenges or seeks to make illegal, to
delay materially or to restrain or prohibit, the making of the
Offer, the consummation of the Merger or the other Transactions,
or seeks to restrain or limit the ability of the Company, or
renders the Company unable, to accept for payment, pay for or
purchase some or all of the Shares, to consummate the merger or
the other Transactions, or seeks material damages relating to any
of the Transactions, or (D) imposes limitations on the ability of
Merger Subsidiary or Buyer or its affiliates effectively to
exercise full rights of ownership of the Shares, including without
limitations, the right to vote the Shares purchased by it on all
matters properly presented to the Company's stockholders;
(vi) any action taken or any statute or rule entered, enforced,
issued against or applicable to the Offer, the Merger or the other
Transactions by any governmental entity is in effect that results in any
of the consequences referred to in clauses (A) through (D) of paragraph
(v) above;
(vii) the Merger Agreement has been terminated in accordance with
its terms;
(viii) the commitment for the Debt Financing is no longer in effect
due to (A) any general suspension of, or limitation on prices for,
trading in securities on any national securities exchange or the
over-the-counter market for a period in excess of 24 hours (excluding
suspensions or limitations resulting solely from physical damage or
interference with such exchanges not related to market conditions), (B)
a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), (C) a
commencement of a war, armed hostilities
39
<PAGE> 42
or other international or national calamity directly or indirectly
involving the United States, (D) any limitation (whether or not
mandatory) by any United States governmental entity on the extension of
credit generally by banks or other financial institutions, (E) a change
in general financial, bank or capital market conditions which materially
and adversely affects the ability of financial institutions in the
United States to extend credit or syndicate loans, (F) a decline of at
least 20% in either the Dow Jones Average of Industrial Stocks or the
Standard & Poor's 500 Index from the close of business on the date of
the Merger Agreement, or (G) a material acceleration or worsening of any
of the foregoing;
(ix) since the Balance Sheet Date there has occurred any material
adverse change or any event or development that has resulted in or is
reasonably likely to result in, a material adverse change in the
business, properties, assets, condition (financial), results of
operations, liabilities or operations of the Company and its
subsidiaries, taken as a whole;
(x) the Company's Board of Directors (or any committee thereof) has
(A) withdrawn, or modified or proposed publicly to withdraw or modify or
changed in a manner adverse to Buyer or Merger Subsidiary its
recommendation of the Offer, the Merger Agreement, the Merger or the
other Transactions, (B) taken a position inconsistent with its
recommendation of the Offer, the Merger Agreement or the Merger, (C)
approved or recommended or proposed publicly to approve or recommend any
Takeover Proposal, (D) taken any action in connection with Takeover
Proposals prohibited by the Merger Agreement, (E) caused or authorized
the Company to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Takeover
Proposal, or (F) resolved or publicly disclosed an intention to do any
of the foregoing; or
(xi) Buyer and the Company agree that the Company terminate the
Offer or postpone the acceptance for payment of or payment for Shares
thereunder;
which in the sole judgment of Buyer or Merger Subsidiary, in any such case,
and regardless of the circumstances giving rise to the conditions set forth
in (i) through (xi) above, makes it inadvisable to proceed with the Offer
and/or with such acceptance for payment or payments.
The parties acknowledge that the foregoing conditions are for the sole
benefit of the Buyer and Merger Subsidiary and that the Company will not
assert failure of, or waive, any such condition without the prior written
consent of Buyer and that if Buyer elects to waive any such condition to
the Offer, the Company will cooperate and comply with such election.
13. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS
General. Except as set forth in this Offer to Purchase, the Company is not
aware of any license or regulatory permit that appears to be material to its
business that might be adversely affected by its acquisition of Shares as
contemplated in the Offer or of any approval or other action by any government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, that would be required for the Company's acquisition of Shares pursuant
to the Offer. Should any such approval or other action be required, the Company
currently contemplates that it will seek such approval or other action. The
Company cannot predict whether it may determine that it is required to delay the
acceptance for payment of Shares tendered pursuant to the Offer pending the
outcome of any such matter. There can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that the failure to obtain any such approval or other
action might not result in adverse consequences to the Company's business. The
Company intends to make all required filings under the Exchange Act. The
Company's obligation under the Offer to accept Shares for payment is subject to
certain conditions. See "THE TENDER OFFER -- Section 11. Certain Conditions to
the Offer".
Antitrust. Neither the Offer nor the Merger are subject to compliance with
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") and the rules and regulations promulgated thereunder by the Federal Trade
Commission, based upon an analysis of the "size of person test" as set forth in
the HSR Act.
40
<PAGE> 43
State Takeover Laws
Delaware Business Combination Statute. Section 203 of Delaware General
Corporation Law (the "DGCL"), in general, prohibits a Delaware corporation such
as the Company, from engaging in a "Business Combination" (defined as a variety
of transactions, including mergers, as set forth below) with an "Interested
Stockholder" (defined generally as a person that is the beneficial owner of 15%
or more of a corporation's outstanding voting stock) for a period of three years
following the date that such person became an Interested Stockholder unless (a)
prior to the date such person became an Interested Stockholder, the board of
directors of the corporation approved either the Business Combination or the
transaction that resulted in the stockholder becoming an Interested Stockholder,
(b) upon consummation of the transaction that resulted in the stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding stock held by directors who are also officers
of the corporation and employee stock ownership plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer or (c) on or
subsequent to the date such person became an Interested Stockholder, the
Business Combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of at least 66 2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things (a) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203; (b)
the corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed by
Section 203, provided that, in addition to any other vote required by law, such
amendment of the certificate of incorporation or by-laws must be approved by the
affirmative vote of a majority of the shares entitled to vote, which amendment
would not be effective until 12 months after the adoption of such amendment and
would not apply to any Business Combination between the corporation and any
person who became an Interested Stockholder of the corporation on or prior to
the date of such adoption (a bylaw amendment adopted pursuant to this paragraph
shall not be further amended by the board of directors); (c) the corporation
does not have a class of voting stock that is (1) listed on a national
securities exchange, (2) authorized for quotation on an inter-dealer quotation
system of a registered national securities association or (3) held of record by
more than 2,000 stockholders, unless any of the foregoing results from action
taken, directly or indirectly, by an Interested Stockholder or from a
transaction in which a person became an Interested Stockholder; or (d) a
stockholder became an Interested Stockholder "inadvertently" and thereafter
divests itself of a sufficient number of shares so that such stockholder ceases
to be an Interested Stockholder. Under Section 203, the restrictions described
above also do not apply to certain Business Combinations proposed by an
Interested Stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an Interested Stockholder during the previous three years or who
became an Interested Stockholder with the approval of a majority of the
corporation's directors.
Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an Interested Stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
Interested Stockholder or any affiliate or associate thereof, including, without
limitation, (a) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock of
a corporation; (b) any transaction which results in the issuance or transfer by
the corporation or by certain subsidiaries thereof of any stock of the
corporation or such subsidiaries to the Interested Stockholder, except pursuant
to a transaction that effects a pro rata distribution to all stockholders of the
corporation; (c) any transaction involving the corporation or certain
subsidiaries thereof which has the effect of increasing the proportionate share
of the stock of any class or series, or securities convertible into the stock of
any class or series, of the corporation or any such subsidiary which is owned
directly or indirectly by the Interested Stockholder (except as a result of
immaterial changes due to fractional share adjustments); or (d) any receipt by
the Interested Stockholder of the benefit (except proportionately as a
stockholder of such corporation) of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation.
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<PAGE> 44
The provisions of Section 203 are not applicable to any of the Transactions
as a result of the approval by the Company's Board of the Merger Agreement and
each of the transactions contemplated thereby prior to the execution of the
Merger Agreement.
Other State Takeover Laws. A number of states have adopted laws and
regulations applicable to attempts to acquire securities of corporations which
are incorporated, or have substantial assets, shareholders, principal executive
offices or principal places of business, or whose business operations otherwise
have substantial economic effects, in such states. In Edgar v. MITE Corp., the
Supreme Court of the United States invalidated on constitutional grounds the
Illinois Business Takeover Statute, which, as a matter of state securities law,
made takeovers of corporations meeting certain requirements more difficult.
However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court
held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
affairs of a target corporation without the prior approval of the remaining
shareholders. The state law before the Supreme Court was by its terms applicable
only to corporations that had a substantial number of shareholders in the state
and were incorporated there.
The Company conducts business in a number of other states throughout the
United States, some of which have enacted takeover laws and regulations. The
Company does not know whether any or all of these takeover laws and regulations
will by their terms apply to the Offer, and, except as set forth above with
respect to Section 203 of the DGCL, the Company has not currently complied with
any other state takeover statute or regulation. The Company reserves the right
to challenge the applicability or validity of any state law purportedly
applicable to the Offer and nothing in this Offer to Purchase or any action
taken in connection with the Offer is intended as a waiver of such right. If it
is asserted that any state takeover statute is applicable to the Offer and an
appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer, the Company might be required to file certain information
with, or to receive approvals from, the relevant state authorities, and the
Company might be unable to accept for payment or pay for Shares tendered
pursuant to the Offer, or may be delayed in consummating the Offer. In such
case, the Company may not be obligated to accept for payment or pay for any
Shares tendered pursuant to the Offer. See "-- Section 2. Acceptance for Payment
and Payment."
14. FEES AND EXPENSES
The Company has retained Bowles Hollowell as its financial advisor in
connection with the Offer and the Merger. Pursuant to the terms of the Bowles
Hollowell engagement letter, the Company has agreed to pay to Bowles Hollowell
an aggregate financial advisory fee of $1,566,839 payable in the Offer and the
Merger for its services as financial advisor. In addition the Company has agreed
to reimburse Bowles Hollowell for its reasonable out-of-pocket expenses,
including reasonable fees and disbursements of counsel.
The Company has retained Morrow & Co., Inc. as Information Agent, First
Union Capital Markets Corp. as Dealer Manager and Continental Stock Transfer &
Trust Company as Depositary in connection with the Offer. The Information Agent
and the Depositary will each receive reasonable and customary compensation for
customary services in connection with the Offer and will be reimbursed for
customary and reasonable out-of-pocket expenses. None of the Information Agent,
the Dealer Manager and the Depositary has been retained to, or is authorized to,
make solicitations or recommendations in connection with the Offer.
The Company will not pay any fees or commissions to any broker, dealer,
commercial bank, trust company or other person for soliciting Shares pursuant to
the Offer. The Company will, however, on request, reimburse such persons for
customary handling and mailing expenses incurred in forwarding materials in
respect of the Offer to the beneficial owners for which they act as nominees. No
broker, dealer, commercial bank or trust company has been authorized to act as
an agent for the Company for the purpose of the Offer. The Company will not pay
(or cause to be paid) any stock transfer taxes on its purchase of Shares
pursuant to the Offer, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
42
<PAGE> 45
Estimated costs and fees in connection with the Transactions, all of which
are the obligation of the Company if the Transactions is consummated, are as
follows:
<TABLE>
<S> <C>
Financing and commitment costs.............................. $1,600,000
Legal, accounting and other professional fees............... 950,000
Financial advisory fees..................................... 1,567,000
Printing and distribution costs............................. 100,000
Severance, incentive payments and related expenses.......... 3,850,000
Miscellaneous............................................... 300,000
----------
TOTAL....................................................... $8,367,000
==========
</TABLE>
If the Transactions are not consummated, certain of the fees related to the
Transactions will be paid by the Buyer.
See "SPECIAL FACTORS--The Merger Agreement the Stockholders' Agreement" for
a description of certain provisions for the reimbursement by the Company of
certain fees and expenses incurred by Buyer.
15. CERTAIN INFORMATION CONCERNING BUYER AND MERGER SUBSIDIARY
Buyer. Buyer is a Delaware limited liability company managed by Carreras,
Kestner & Co., L.L.C., newly formed for the purpose of effecting the
Transactions, including the Stock Purchase. It is not anticipated that Buyer
will have any significant assets or liabilities or will engage in any activities
other than those incident to the Transactions and the financing thereof prior to
the consummation of the Offer. The principal executive offices of Buyer are
located at Terminal Tower, 50 Public Square, 32nd Floor, Cleveland, Ohio 44113.
Joseph W. Carreras, Michael B. Goldberg, Michael T. Kestner, John F. Kirby
and Mary Lynn Putney are the directors of Buyer and Messrs. Carreras, Kestner,
Ronald G. Campbell and Ian B. Hessel are executive officers of Buyer. Each is a
citizen of the United States.
Except as set forth in this Offer to Purchase, there have never been any
contacts, negotiations or transactions between Buyer, any of its affiliates or
any of the persons listed on Schedule I and the Company or its affiliates
concerning a merger, consolidation or acquisition, tender offer or other
acquisitions of securities, election of directors or a sale or other transfer of
a material amount of assets.
Merger Subsidiary. Merger Subsidiary is a Delaware corporation, newly
formed by Buyer for the purpose of effecting the Merger. It is not anticipated
that Buyer will have any significant assets or liabilities or will engage in any
activities other than those incident to the Transactions and the financing
thereof prior to the consummation of the Offer. The principal executive offices
of Merger Subsidiary are located at Terminal Tower, 50 Public Square, 32nd
Floor, Cleveland, Ohio 44113.
Messrs. Carreras, Kestner, Goldberg, Kirby and Putney are the directors of
Merger Subsidiary and Messrs. Carreras, Kestner, Campbell and Hessel are
executive officers of Merger Subsidiary. Each is a citizen of the United States.
For certain information concerning the Directors and Executive Officers of
Buyer and Merger Subsidiary see Schedule I to this Offer to Purchase. Except as
set forth in this Offer to Purchase: (i) neither Buyer or Merger Subsidiary nor,
to the knowledge of any of the foregoing, any of the persons listed in Schedule
I to this Offer to Purchase or any associate or majority-owned subsidiary of any
of the foregoing, beneficially owns or has a right to own any Shares or any
other equity securities of the Company; (ii) neither Buyer or Merger Subsidiary
nor, to the best knowledge of any of the foregoing, any of the persons or
entities referred to in clause (i) above or any of their executive officers,
directors or subsidiaries has effected any transaction in the Shares or other
equity securities of the Company during the past sixty days; (iii) neither Buyer
or Merger Subsidiary nor, to the best knowledge of any of the foregoing, any of
the persons listed in Schedule I to this Offer to Purchase has any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of the Company, including, but not limited to, contracts,
arrangements, understandings and relationships concerning the transfer or voting
thereof, joint ventures, loan or option arrangements, puts, calls, guarantees of
loans, guarantees
43
<PAGE> 46
against loss or the giving or withholding of proxies, consents, or abstentions;
(iv) since July 1, 1998, there have been no transactions or business
relationships that would be required to be disclosed under the rules and
regulations of the Commission between any of Buyer or Merger Subsidiary or any
of their respective subsidiaries or to the best knowledge of any of Buyer or
Merger Subsidiary, any of the persons listed in Schedule I to this Offer to
Purchase, on the one hand, and the Company or any of its executive officers,
directors or affiliates, on the other hand; and (v) since July 1, 1998, there
have been no contracts, negotiations or transactions between any of Buyer or
Merger Subsidiary or any of their respective subsidiaries or, to the best
knowledge of any of Buyer or Merger Subsidiary, any of the persons listed in
Schedule I of this Offer to Purchase, on the one hand, and the Company or its
subsidiaries or affiliates, on the other hand, concerning a merger,
consolidation or acquisition, tender offer or other acquisition of securities,
and election of directors or a sale or other transfer of a material amount of
assets of the Company or any of its subsidiaries.
Neither Buyer nor Merger Subsidiary had any relationship with the Company
prior to the commencement of the discussions that led to the execution of the
Merger Agreement. Each of Buyer and Merger Subsidiary disclaims that it is an
"affiliate" of the Company within the meaning of Rule 13e-3 under the Exchange
Act.
16. RECAPITALIZATION ACCOUNTING
The Transactions have been structured to qualify for recapitalization
accounting treatment, consisting of the purchase by the Company (and the
cancelation) of certain Shares (i) in the Offer for the Offer Price and (ii) in
the Merger in exchange for the Merger Consideration, both of which are funded by
the Debt Financing and an equity investment by Buyer of $23,960,149.
17. MISCELLANEOUS
The Company is not aware of any jurisdiction in which the making of the
Offer is prohibited by any administrative or judicial action pursuant to any
valid state statute. If the Company becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of Shares pursuant
thereto, the Company will make a good faith effort to comply with any such state
statute. If, after such good faith effort, the Company cannot comply with any
such state statute, the Offer will not be made to (nor will tenders be accepted
from or on behalf of) the holders of Shares in such state. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of the
Company by the Dealer Manager or by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY NOT CONTAINED IN THIS OFFER TO PURCHASE
OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Pursuant to Section 13(e)(1) of the Exchange Act, the Company has filed
with the Commission the Schedule 13E-4 together with exhibits, furnishing
additional information with respect to the Offer. The Company has filed a
statement on Schedule 13E-3 with respect to the Offer and may file amendments to
the Schedule 13E-3. Such statements, including exhibits and any amendments
thereto, which furnish certain additional information with respect to the Offer
may be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in "THE TENDER OFFER -- Section 7. Certain Information
Concerning the Company".
HILITE INDUSTRIES, INC.
May 3, 1999
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<PAGE> 47
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information about each current executive
officer and director of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
James E. Lineberger............................. 62 Chairman of the Board of Directors
Daniel W. Brady................................. 59 Vice Chairman of the Board of Directors and
Chief Executive Officer
Samuel M. Berry................................. 61 President, Chief Operating Officer and
Director
Ronald G. Assaf................................. 63 Director
James D. Gerson................................. 55 Director
John F. Creamer................................. 68 Director
Arthur D. Johnson............................... 58 Vice President-Operations
Donald M. Maher................................. 52 Vice-President-Sales and Marketing
Ronald E. Reinke................................ 55 Vice President-Engineering
Roy W. Wiegmann................................. 37 Vice President and Chief Financial Officer
</TABLE>
Mr. Lineberger has been Chairman of the Board of Directors of the Company
since it was formed in 1986. He has been a partner of Lineberger & Co., LLC and
its predecessors, private investment firms, since 1969. He has served as a
director of Sensormatic Electronics Corporation since 1968, Chairman of its
Executive Committee since 1974 and as Co-Chief Executive Officer from January to
July 1988.
Mr. Brady has been an officer and/or director of the Company since it was
formed in 1986. He became Chief Executive Officer in 1992 and currently devotes
more than 50% of his time to the Company. In addition, Mr. Brady has been
affiliated with Lineberger & Co., LLC since 1986 and acts as a consultant to and
director of several privately-held companies in which affiliates of Lineberger &
Co., LLC are controlling shareholders. During the last twenty years Mr. Brady
has been continuously associated with the automotive parts industry. From 1986
to 1991 he served first as Chief Financial Officer and then President of B&M
Industries, Inc., an affiliate of Lineberger & Co., LLC. Prior thereto, he was
Chief Financial Officer of D.A.B. Industries from 1978 to 1985 when it was
merged with J.P. Industries, Inc. He then became Treasurer of J.P. Industries,
Inc. from 1985 to 1986.
Mr. Berry has been with the Company and its predecessor operations since
1974. He has served as director, President and Chief Operating Officer of the
Company since December 1986. He has served as President since 1981 and
previously as Vice President-Manufacturing of the Company's predecessor
operations. From 1959 through 1964, he worked part-time for Pitts Industries,
currently a division of the Company.
Mr. Assaf has been a director of the Company since November 1993. He is a
founder of Sensormatic Electronics Corporation, has been its Chairman of the
Board of Directors since October 1971 and served as its President and Chief
Executive Officer since 1974 until his retirement in August 1996. In August
1994, Mr. Assaf was appointed to the Board of Directors of Computer Integration
Corporation. On March 25, 1998, Mr. Assaf, without admitting or denying any
wrongdoing, consented to the entry of a civil order enjoining him from future
violations of certain record-keeping and periodic reporting provisions of the
federal securities laws and pursuant to which he paid a civil money penalty of
$50,000. In its complaint in this civil action, the United States Securities and
Exchange Commission alleged that Mr. Assaf knew of certain improper revenue
recognition practices by Sensormatic Electronics Corporation and knew or
generally was aware that quarterly earnings statements contained in certain
Sensormatic periodic reports and registration statements filed with the SEC
during the period from at least July 1, 1993 through July 10, 1995 were false
and misleading.
Mr. Gerson has been a director of the Company since February 1994. Mr.
Gerson is currently the portfolio manager for Hudson Capital Appreciation Fund,
an affiliate of Fahnestock & Co. Inc. Mr. Gerson also serves as a director of
the following public companies: Ag Services of America, Inc., a distributor of
farm inputs; American Power Conversion Corp., a manufacturer of uninterruptable
power supplies; Arguss Holdings Inc., a fiber and cable construction firm; and
Energy Research Corp., a developer of advanced power generation systems.
I-1
<PAGE> 48
Mr. Creamer has been a director of the Company since January 1998. Mr.
Creamer was a director and vice chairman of the Board of Directors of Echlin,
Inc., an aftermarket and OEM supplier in the automotive industry from 1986 to
1998. Mr. Creamer also serves as a director to R&B, Inc., a supplier of
fasteners for the automotive industry, since 1993 and Bonded Motors, a
remanufacturer of car and light truck engines, since 1996. He currently is the
President and owner of Distribution Marketing Services, Inc., a consulting firm
to the automotive aftermarket and President of the Automotive Warehouse
Distributors Association, a trade association for the automotive aftermarket.
Mr. Johnson has been with the Company and its predecessor operations since
June 1968. He has been Vice President-Operations since January 1983. Previously,
he served as an industrial engineer and then Plant Manager of Pitts Industries,
currently a division of the Company.
Mr. Maher has been with the Company and its predecessor operations since
June 1985. He has served as Vice President-Sales and Marketing since July 1987.
Between 1985 and 1987 he served in various manufacturing capacities including
Vice President-Operations.
Mr. Reinke has been employed by the Company since August 1988 in the
capacity of Vice President-Engineering. From October 1972 through July 1988 he
was employed by the Control Systems Division of Borg-Warner in Decatur, Illinois
where he served in various staff positions including Engineering Manager.
Mr. Wiegmann has been employed by the Company since November 1992 as Vice
President and Chief Financial Officer. From August 1982 through May 1988 he was
a public accountant with the Dallas office of the accounting firm of Deloitte
Haskins and Sells (now known as Deloitte and Touche). He served as Vice
President and Chief Accounting Officer of TM Communications, Inc. from June 1988
to January 1990. From February 1990 through November 1992, he worked with
Professional Service Industries, a national engineering inspection and testing
company, where he served as Assistant Corporate Controller.
DIRECTOR NOMINEES OF BUYER
The following table sets forth information about each director nominee of
the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Joseph W. Carreras.............................. 45 Director Nominee
Michael B. Goldberg............................. 52 Director Nominee
Michael T. Kestner.............................. 44 Director Nominee
John F. Kirby................................... 38 Director Nominee
Mary Lynn Putney................................ 51 Director Nominee
</TABLE>
Mr. Carreras has been the President of Carreras, Kestner & Co., L.L.C.
since February 1998. Prior to February 1998, Mr. Carreras served as Chief
Executive Officer of Sinter Metals, Inc. since January 1994, was its Chairman of
the Board since June 1993 and served as a Director since Sinter Metals, Inc.'s
formation in December 1991.
Mr. Goldberg has been the Managing Director of Kelso & Company, L.P. since
1991. Mr. Goldberg is currently an officer and/or director of a number of
companies.
Mr. Kestner has been the Chief Financial Officer of Carreras, Kestner &
Co., L.L.C. since February 1998. He served as Chief Financial Officer of Sinter
Metals, Inc. from January 1995 until January 1998. Prior to joining Sinter
Metals, Inc. and since 1992, Mr. Kestner was a Vice President of Banc One
Capital Partners.
Mr. Kirby has been the Vice President of Key Bank National Association, Key
Equity Capital Corporation and Key Capital Corporation since 1991. He has also
been the General Partner of Key Equity Partners I, III and IV, Key Equity
Partners 97, 98 and 99, Key Equity Fund Partners I and II and Key Equity Fund
Partners 98 and 99 since their inception. Mr. Kirby has been an officer and/or
director of a number of privately held portfolio companies in connection with
his duties as an officer of Key Equity Capital Corporation.
Ms. Putney has been the Managing Director of Citigroup since 1990. Ms.
Putney has been employed by Citibank, which is the parent corporation of
Citicorp Venture Capital, for 27 years. She served as a Director of Sinter
Metals, Inc. from 1994 until its sale to GKN plc in May, 1997.
I-2
<PAGE> 49
SCHEDULE II
April 26, 1999
The Board of Directors
Hilite Industries, Inc.
1671 S. Broadway
Carrollton, Texas 75006
Members of the Board:
Hilite Industries, Inc., a Delaware Corporation ("Hilite"), Hilite
Holdings, LLC, a Delaware limited liability company (the "Purchaser"), and
Hilite Mergeco, Inc. a Delaware Corporation ("Merger Subsidiary"), have proposed
to enter into an Agreement and Plan of Merger (the "Agreement"). Pursuant to the
Agreement, the implementation of which is contingent on, among other things,
completion of debt financing, Hilite will commence a tender offer to purchase
all outstanding shares of the common stock, par value $0.01 per share, of Hilite
(the "Hilite Common Stock"), other than a portion of such shares held by certain
shareholders of Hilite who will retain an equity interest in Hilite (the
"Roll-over Shareholders"), at a purchase price of $14.25 per share, net to the
seller in cash (the "Tender Offer"). The Agreement also provides that, following
such Tender Offer, the Merger Subsidiary will be merged with and into Hilite
(the "Merger" and, together with the Tender Offer, the "Transaction") pursuant
to which each outstanding share of Hilite Common Stock not previously tendered
(other than those shares held by Roll-over Shareholders and the Purchaser) will
be converted into the right to receive $14.25 in cash. We have assumed, with
your consent, that the Transaction will be treated as a recapitalization for
financial reporting purposes. You have requested our opinion as to whether the
cash consideration to be received in the Transaction by the holders of Hilite
Common Stock (other than Roll-over Shareholders with respect to their retained
Shares) is fair, from a financial point of view, to such holders.
Bowles Hollowell Conner ("BHC"), a division of First Union Capital Markets
Corp. ("FUCMC"), as a part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, tender offers, divestitures, leveraged buyouts, and
private placements of debt and equity securities. We have acted as financial
advisor to the Board of Directors of Hilite in connection with the Transaction
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Transaction. In addition, Hilite has
agreed to indemnify us for certain liabilities that may arise out of such
services, including the rendering of this opinion. FUCMC and/or its affiliates
will be participating, with your consent, as administrative agent, syndication
agent, lender in the senior secured credit facility, and lender holding
subordinated notes with attached warrants, for the financing of the Transaction,
for which services FUCMC and/or such affiliates will receive customary
compensation. In the ordinary course of business, FUCMC and/or its affiliates
may actively trade the securities of Hilite for their own account and the
accounts of its customers and, accordingly, may at any time hold a long or short
position in securities of Hilite.
In arriving at our opinion, BHC reviewed and analyzed certain publicly
available financial information and other information concerning the Company and
certain internal analyses and other information furnished to BHC by the Company.
BHC also held discussions with members of senior management of the Company
regarding the business and prospects of the Company. In addition, BHC:
(i) reviewed the reported prices and trading activity for the Hilite
Common Stock;
(ii) compared certain financial and stock market information for
Hilite with similar information for certain other companies whose
securities are publicly traded;
(iii) reviewed the financial terms of certain recent business
combinations which BHC deemed comparable in whole or in part;
(iv) reviewed the terms of the Agreement as furnished to BHC in draft
form dated April 25, 1999; and
II-1
<PAGE> 50
The Board of Directors
Hilite Industries, Inc.
April 26, 1999
Page 2
(v) performed such other studies and analyses and considered such
other factors as BHC deemed appropriate.
We have not independently verified any of the information described above
and for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to the information relating to the prospects of
Hilite, we have assumed that such information reflects the best currently
available judgments and estimates of the management of Hilite as to the likely
future financial performance of Hilite. We also have assumed, with your consent,
that the final terms of the Agreement reviewed by us in draft form dated April
25 will not vary materially from the draft reviewed by us. In addition, we have
not made an independent evaluation or appraisal of the assets or liabilities of
Hilite, nor have we been furnished with any such evaluations or appraisals. Our
opinion is based on market, economic, and other conditions as they exist and can
be evaluated as of the date of this letter.
In connection with our engagement to provide financial advisory services to
the Board of Directors concerning strategic alternatives, we were authorized to
solicit, and did solicit, interest from third parties with respect to the
acquisition of Hilite. In arriving at our opinion, we have considered the
nature, scope, and results of such solicitation. Our advisory services and the
opinion expressed herein were prepared for the use of the Board of Directors of
Hilite and do not constitute a recommendation to any shareholder as to whether
or not any such shareholder should tender shares of Hilite Common Stock in the
Tender Offer or how such shareholder should vote on the proposed Merger. We
hereby consent to the inclusion of this opinion in its entirety as an exhibit to
the tender offer or proxy statement of Hilite distributed in connection with the
Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the cash consideration to be received in the Transaction by
the holders of Hilite Common Stock (other than Roll-over Shareholders with
respect to their retained Shares) is fair, from a financial point of view, to
such holders.
Sincerely,
/s/ JOSEPH F. KENNY
BOWLES HOLLOWELL CONNER
II-2
<PAGE> 51
SCHEDULE III
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of such stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to section 251 (other than a merger effected pursuant to
section 251(g) of this title), section 252, section 254, section 257, section
258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
III-1
<PAGE> 52
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for the approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to section
228 or 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such stockholder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
III-2
<PAGE> 53
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
III-3
<PAGE> 54
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded such stockholder's appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
III-4
<PAGE> 55
SCHEDULE IV
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Hilite Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Hilite
Industries, Inc. and its subsidiary at June 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
July 28, 1998
IV-1
<PAGE> 56
HILITE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ --
Accounts receivable, less allowance for doubtful accounts
of $193,015 at June 30, 1998 and $195,427 at June 30,
1997................................................... 11,289,779 9,991,098
Tooling receivable........................................ 716,700 96,734
Inventories............................................... 9,927,849 10,075,786
Income taxes receivable................................... 542,188 --
Deferred income taxes..................................... 1,817,012 1,774,082
Assets held for disposal.................................. 532,533 --
Prepaid expenses and other current assets................. 1,015,764 739,803
------------ ------------
Total current assets................................... 25,841,825 22,677,503
------------ ------------
Property, plant and equipment............................... 43,538,367 38,400,240
Less accumulated depreciation and amortization.............. (15,921,909) (12,077,533)
------------ ------------
Property, plant and equipment, net.......................... 27,616,458 26,322,707
------------ ------------
Assets held for disposal.................................... -- 2,330,800
Goodwill, net of accumulated amortization................... 3,898,209 5,888,167
------------ ------------
TOTAL ASSETS................................................ $ 57,356,492 $ 57,219,177
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 12,849,981 $ 11,875,962
Long-term debt -- current portion......................... 2,422,945 2,422,950
Income taxes payable...................................... -- 49,883
------------ ------------
Total current liabilities.............................. 15,272,926 14,348,795
------------ ------------
Long-term debt.............................................. 12,956,896 16,486,252
Subordinated debt........................................... -- 1,785,184
Deferred income taxes....................................... 2,978,761 2,595,392
------------ ------------
Total non-current liabilities.......................... 15,935,657 20,866,828
------------ ------------
Commitments and Contingencies (See Note 12.)
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 4,900,000 issued and outstanding at June
30, 1998 and 1997...................................... 49,000 49,000
Additional paid-in capital................................ 9,105,674 9,105,674
Retained earnings......................................... 16,993,235 12,848,880
------------ ------------
Total stockholders' equity............................. 26,147,909 22,003,554
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $ 57,356,492 $ 57,219,177
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
IV-2
<PAGE> 57
HILITE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $87,166,468 $73,492,117 $72,641,500
Cost of sales....................................... 69,763,754 63,938,186 57,710,737
----------- ----------- -----------
Gross profit........................................ 17,402,714 9,553,931 14,930,763
Selling, general and administrative expenses........ 9,026,028 10,339,722 7,575,953
----------- ----------- -----------
Operating income (loss)............................. 8,376,686 (785,791) 7,354,810
Interest expense.................................... 1,319,957 1,713,763 1,659,373
----------- ----------- -----------
Income (loss) before income taxes................... 7,056,729 (2,499,554) 5,695,437
Income tax provision (benefit)...................... 2,544,874 (842,569) 2,063,580
----------- ----------- -----------
Net income (loss)................................... $ 4,511,855 $(1,656,985) $ 3,631,857
=========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic............................................. $ 0.92 $ (0.34) $ 0.74
=========== =========== ===========
Diluted........................................... $ 0.92 $ (0.34) $ 0.74
=========== =========== ===========
SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic............................................. 4,900,000 4,900,000 4,900,000
=========== =========== ===========
Diluted........................................... 4,912,655 4,900,000 4,903,951
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
IV-3
<PAGE> 58
HILITE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss).................................... $4,511,855 $(1,656,985) $ 3,631,857
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Depreciation.................................. 3,574,599 3,517,792 3,005,474
Goodwill amortization......................... 285,019 307,123 316,968
Restructuring charge.......................... -- 2,738,352 --
Increase (decrease) in net deferred income
taxes...................................... 340,439 (783,652) 647,962
---------- ----------- -----------
Cash provided from operations before changes in
operating assets and liabilities................... 8,711,912 4,122,630 7,602,261
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable............................... (1,298,681) 1,365,379 (2,491,920)
(Increase) decrease in tooling
receivable............................... (619,966) 664,248 (106,215)
(Increase) decrease in inventories......... 147,937 (1,370,079) (149,820)
(Increase) decrease in prepaid expenses and
other current assets..................... (275,961) (370,017) 332,406
Increase (decrease) in accounts payable and
accrued expenses......................... 893,772 1,285,554 (80,014)
Increase (decrease) in income taxes
payable.................................. (592,070) 285,498 (248,952)
---------- ----------- -----------
Total changes in operating assets and
liabilities................................ (1,744,969) 1,860,583 (2,744,515)
---------- ----------- -----------
Net cash provided by operations...................... 6,966,943 5,983,213 4,857,746
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net.... (3,070,083) (4,824,375) (5,764,817)
Acquisition of subsidiary.......................... -- -- (7,789,000)
---------- ----------- -----------
Net cash used in investing activities................ (3,070,083) (4,824,375) (13,553,817)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from acquisition financing................ -- -- 15,397,000
Dividends paid..................................... (367,500) -- --
Repayment of subordinated debt..................... -- (75,000) --
Proceeds from long-term debt....................... -- 1,212,258 1,841,085
Repayments of long-term debt....................... (3,529,360) (2,296,096) (9,662,557)
---------- ----------- -----------
Net cash provided by (used in) financing
activities......................................... (3,896,860) (1,158,838) 7,575,528
---------- ----------- -----------
Net decrease in cash and cash equivalents............ -- -- (1,120,543)
Cash and cash equivalents at beginning of period..... -- -- 1,120,543
---------- ----------- -----------
Cash and cash equivalents at end of period........... $ -- $ -- $ --
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
IV-4
<PAGE> 59
HILITE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1995....... 4,900,000 49,000 9,105,674 10,874,008 20,028,682
Net income for the year
ended June 30, 1996....... -- -- -- 3,631,857 3,631,857
--------- ------- ---------- ----------- -----------
Balance June 30, 1996....... 4,900,000 49,000 9,105,674 14,505,865 23,660,539
Net loss for the year ended
June 30, 1997............. -- -- -- (1,656,985) (1,656,985)
--------- ------- ---------- ----------- -----------
Balance June 30, 1997....... 4,900,000 49,000 9,105,674 12,848,880 22,003,554
Dividends paid.............. -- -- -- (367,500) (367,500)
Net income for the year
ended June 30, 1998....... -- -- -- 4,511,855 4,511,855
--------- ------- ---------- ----------- -----------
Balance June 30, 1998....... 4,900,000 $49,000 $9,105,674 $16,993,235 $26,147,909
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
IV-5
<PAGE> 60
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hilite Industries, Inc. ("Hilite" or the "Company") is engaged in the
manufacture of products used primarily in the automotive industry. The Company's
products are sold primarily to manufacturers of automobiles and their suppliers,
pursuant to credit terms customarily extended in the industry. The Company
operates separately under the names Pitts Industries ("Pitts"), Surfaces,
Machine Parts Company ("MAPCO") and North American Spring and Stamping Corp.
("NASS"). Pitts manufactures electromagnetic clutches for various applications.
Surfaces manufactures brake proportioning valves for automotive brake systems.
MAPCO manufactures mounting brackets, fan blades and pulleys. NASS manufactures
specialty springs, stamping products and assemblies.
On July 21, 1995, the Company acquired 100% of the outstanding common stock
of North American Spring and Stamping Corp. from its three stockholders
("Selling Shareholders"). In consideration for the transaction, the Company paid
$17,397,000. During fiscal 1998, as a result of a lawsuit settlement, the
Company was relieved of its obligation to pay approximately $2,000,000 in
principal and interest on subordinated notes associated with the acquisition
(See Footnote 4). The acquisition was accounted for by the purchase method of
accounting and NASS' assets and liabilities were recorded at their fair value at
the date of the acquisition. The Company's consolidated statements of operations
include the results of operation of NASS subsequent to July 21, 1995.
The Company's significant accounting policies are as follows:
Cash and Cash Equivalents -- Cash and cash equivalents include cash on
hand and short-term investments with original maturities of three months or
less.
Inventory -- Inventories are stated at the lower of cost or market,
cost being determined on a first-in, first-out ("FIFO") basis.
Property, Plant and Equipment -- Property, plant and equipment are
carried at cost. Depreciation and amortization are computed on the
straight-line basis over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Buildings and improvements 20 years or remaining useful life
Machinery and equipment 5 to 10 years
Other assets 3 years
</TABLE>
Repair and maintenance expenditures are charged to operations as incurred
and expenditures for major renewals and betterments are capitalized. When units
of property are disposed of, the cost and related accumulated depreciation are
removed from the accounts, and the resulting gains or losses are included in the
results of operations.
Property, plant and equipment are reviewed for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset or group of
assets may not be recoverable. The impairment review includes a comparison of
future cash flows expected to be generated by the asset or group of assets with
their associated carrying value. If the carrying value of the asset or group of
assets exceeds expected cash flows (undiscounted and without interest charges),
an impairment loss is recognized to the extent carrying amounts exceed fair
value.
The Company routinely makes expenditures for tooling fixtures and equipment
required for production of specific products for customers. These costs are
generally reimbursed by customers. To the extent that expenditures do not equal
related reimbursements, the difference is capitalized and included in property,
plant and equipment (other) and amortized over the related production life. Net
costs expended for tooling which are expected to be reimbursed within one year
are included in prepaid expenses and other current assets. Net reimbursements in
excess of amounts expended are recorded in accounts payable and accrued expenses
until expended.
IV-6
<PAGE> 61
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Goodwill -- The excess of cost over the fair value of net assets acquired
in an acquisition (goodwill) is being amortized over 20 years on a straight-line
basis. The recoverability of goodwill is assessed by the Company on an ongoing
basis by comparing the undiscounted value of expected future operating cash
flows to the carrying value of goodwill. Amortization expense was $285,000,
$307,000, and $317,000 as of June 30, 1998, 1997, and 1996, respectively.
Revenue Recognition -- Sales revenue and related cost of sales are
recognized as products are shipped. In the ordinary course of business, certain
products sold by the Company are subject to retroactive price adjustments. No
material retroactive price adjustments were recorded in the financial statements
for the 1998, 1997, or 1996 fiscal years. The Company's management believes that
there are no sales recorded in the financial statements for periods which are
subject to material retroactive adjustment.
Research and Development -- The Company is engaged in numerous research and
development projects. Costs associated with these projects are charged to
operations when incurred. Research and development costs, which are included in
general and administrative expenses, totaled $1,280,000, $882,000, and $945,000
for the years ended June 30, 1998, 1997, and 1996, respectively. Of these
expenditures, $257,000, $240,000, and $343,000, respectively, were sponsored by
customers and $1,023,000, $642,000, and $602,000, respectively, was sponsored by
the Company.
Income Taxes -- Deferred income taxes are provided for using the liability
method. Under this method, deferred tax assets and liabilities are recognized on
the tax effect of differences between the financial statement and tax basis of
assets and liabilities using presently enacted tax rates.
Use of Estimates -- Financial statements prepared in conformity with
generally accepted accounting principles require management to make estimates
and assumptions about reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities and reported amounts of revenue and expenses.
Management must also make estimates and judgments about future results of
operations related to specific elements of the business in assessing
recoverability of assets and recorded values of liabilities. Actual results
could differ from these estimates.
Stock-Based Compensation -- The Company adopted, on a disclosure basis
only, Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, in fiscal 1996. The Company continues to measure
compensation costs under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees.
Earnings Per Share -- Effective December 31, 1997, the Company adopted
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 establishes standards for computing and presenting earnings per share
("EPS"). The statement requires dual presentation of basic and diluted EPS on
the income statement for entities with complex capital structures and requires
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
the effect of potential dilutive securities while diluted EPS reflects the
potential dilution that would have occurred if securities or other contracts to
issue common stock were exercised, converted, or resulted in the issuance of
common stock that would have then shared in the earnings of the entity. EPS data
for the year ended June 30, 1998 and all prior periods presented herein have
been restated to conform with the provisions of this statement. The table below
is a reconciliation of the numerator and denominator used in the basic and
diluted EPS calculations.
Options to purchase 69,800 shares of common stock in 1998, and warrants to
purchase 100,000 shares of common stock in 1998 and 1996 were not included in
the computation of diluted earnings per common share in 1998 and 1996 because
the exercise price of these equity instruments was greater than the average
market price of the common stock during the year. In 1997, 120,200 options and
100,000 warrants to purchase common stock
IV-7
<PAGE> 62
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
were not included in the computation of diluted earnings per common share
because the Company was in a loss position and their inclusion would have been
antidilutive.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Net income (loss) available to shareholders........... $4,511,855 $(1,656,985) $3,631,857
========== =========== ==========
Weighted average number of shares in basic EPS........ 4,900,000 4,900,000 4,900,000
Effect of dilutive securities:
Stock options....................................... 12,655 -- 3,951
---------- ----------- ----------
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS......... 4,912,655 4,900,000 4,903,951
========== =========== ==========
</TABLE>
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. NASS ACQUISITION
On July 21, 1995, the Company acquired 100% of the outstanding common stock
of North American Spring and Stamping Corp. from its three stockholders. In
consideration for the transaction, the Company paid $17,397,000. The amount paid
at closing included:
<TABLE>
<S> <C>
Cash paid to Selling Shareholders........................... $ 7,789,000
Cash used to refinance certain long-term debt of NASS....... 7,608,000
-----------
Total cash portion of acquisition................. 15,397,000
Subordinated notes payable ("Subordinated Notes") issued to
the Selling Shareholders.................................. 2,000,000
-----------
Total............................................. $17,397,000
===========
</TABLE>
The acquisition was accounted for by the purchase method of accounting and
NASS' assets and liabilities were recorded at their fair value at the date of
the acquisition. The Company's consolidated statements of operations include the
results of operations of NASS subsequent to July 21, 1995. In connection with
the acquisition, goodwill of $6,512,000 was recorded.
During fiscal 1998, as a result of a lawsuit settlement, the Company was
relieved of its obligation to pay approximately $2,000,000 in principal and
interest on subordinated notes associated with the acquisition. The reduction in
the principal of the note was credited against goodwill. (See Footnote 4.)
Supplemental Proforma Results of Operations (Unaudited)
The following unaudited proforma summary presents the consolidated results
of operations as if the acquisition occurred at the beginning of fiscal 1995 and
does not purport to be indicative of what would have occurred had the
acquisition actually been made as of such date or of results which may occur in
the future.
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Net sales................................................... $73,744,530
Net income.................................................. 3,597,833
Net income per share........................................ 0.73
</TABLE>
IV-8
<PAGE> 63
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Adjustments made in arriving at the proforma unaudited results of
operations include the difference in depreciation expense resulting from the
change in the carrying value of property and equipment to their estimated fair
values, differences in cost of sales for the change in inventory valued on the
FIFO method of inventories rather than the LIFO method and increase in goodwill
amortization resulting from the transaction.
3. RESTRUCTURING CHARGE
As a result of operating problems and inefficiencies at the NASS division,
the Company's Board of Directors approved a plan, in June 1997, to substantially
restructure the NASS operations. In conjunction with this plan, the Company
recorded a charge to pre-tax earnings totaling approximately $2,700,000
($1,000,000 in cost of sales and $1,700,000 in selling, general and
administrative costs). The charge is comprised of a reduction (approximately
$900,000) in the net book value of certain assets, primarily machinery,
equipment and tooling, to their estimated fair value, net of estimated selling
costs, accrual of certain costs which the Company expects to incur in
terminating contractual obligations, but for which no future economic benefit
will be received (approximately $1,600,000) and other costs (approximately
$200,000). During the year ending June 30, 1998, the restructuring plan was
substantially completed and approximately $950,000 had been charged against the
accrual for terminating contractual obligations and approximately $30,000 had
been charged against the accrual for other costs. As of June 30, 1998,
approximately $830,000 of the restructuring accrual remained and is expected to
be paid during fiscal 1999.
4. LAWSUIT SETTLEMENT
In May 1997, the Company initiated a law suit in the United States District
Court for the Northern District of Illinois (Eastern Division) against the
former owners of NASS (now known as the specialty components and assemblies
division). The Company alleged, among other things, that the former owners of
NASS made material misrepresentations in connection with the Company's
acquisition of NASS. On February 13, 1998, an agreement was reached between the
Company and the former owners of NASS to settle the suit. Under the terms of the
Settlement Agreement, the Company is relieved of its obligation to pay
approximately $2,000,000 in principal and interest under the Note issued as part
of the consideration for the acquisition of NASS. The reduction in the principal
amount of the note was credited against goodwill. The Company will not be
required to make any future payments under the employment and non-compete
agreements with the former owners and, in addition, the former owners reimbursed
the Company for a portion of its legal fees incurred in connection with the
lawsuit. The former owners, however, remain bound by the non-competition
provisions in their respective employment agreements. In addition, the parties
executed limited mutual general releases. As a result of the settlement,
selling, general and administrative expense and interest expense in 1998 were
reduced by approximately $52,000 and $84,000, respectively.
5. INVENTORIES
Inventories at June 30, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Raw materials............................................... $4,401,069 $ 3,916,344
Work in process............................................. 2,244,363 2,254,960
Finished goods.............................................. 3,282,417 3,904,482
---------- -----------
$9,927,849 $10,075,786
========== ===========
</TABLE>
IV-9
<PAGE> 64
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land........................................................ $ 1,150,000 $ 1,150,000
Building and improvements................................... 7,414,306 6,855,531
Machinery and equipment..................................... 34,714,567 29,834,599
Other....................................................... 259,494 560,110
------------ ------------
43,538,367 38,400,240
Less accumulated depreciation and amortization.............. (15,921,909) (12,077,533)
------------ ------------
$ 27,616,458 $ 26,322,707
============ ============
</TABLE>
Progress payments for machinery ordered and not placed in service totaling
$1,434,450 and $1,635,000 as of June 30, 1998 and 1997, respectively, are
included in machinery and equipment. Open commitments to purchase machinery and
equipment at June 30, 1998 totaled $1,001,000.
As part of the restructuring plan at NASS, net fixed assets of $2,330,800
(fixed assets of $3,476,318 and accumulated depreciation of $1,146,518) were
reclassified on the balance sheet as assets held for disposal on June 30, 1997.
During fiscal 1998, the Company decided to retain certain of these assets with a
net book value of $1,600,000. Depreciation expense on these assets for a full
year is included in the 1998 results of operations. As of June 30, 1998, net
fixed assets of $532,533 (fixed assets of $1,071,577 and accumulated
depreciation of $539,019) are classified as assets held for disposal. On July 1,
1998, the Company entered into an agreement to sell $475,000 of the assets held
for disposal which represented their net book value.
Retirements of machinery and equipment were $242,000 and $644,310 during
fiscal year 1998 and 1997, respectively. There were no significant disposals
during fiscal year 1996.
Routine repairs and maintenance charged to expense were $2,012,716,
$1,847,735, and $1,355,757 for the years ended June 30, 1998, 1997, and 1996,
respectively.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 1998 and 1997
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Trade accounts payable...................................... $ 7,442,026 $ 5,531,022
Restructuring accrual....................................... 828,212 2,082,026
Accrued payroll and payroll related......................... 1,584,400 1,447,151
Accrued employee benefit plan costs......................... 813,508 698,539
Accrued health plan claims.................................. 268,324 291,961
Accrued occupational injury plan costs...................... 140,000 475,000
Other accrued expenses...................................... 1,773,511 1,350,263
----------- -----------
Total............................................. $12,849,981 $11,875,962
=========== ===========
</TABLE>
IV-10
<PAGE> 65
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. LONG-TERM DEBT
Long-term debt at June 30, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Consolidated term loans..................................... $ 8,043,052 $ 9,973,385
Revolving line of credit.................................... 5,394,062 6,500,477
Equipment acquisition term notes payable.................... 1,340,060 1,768,673
Real estate term note payable............................... 602,667 666,667
----------- -----------
15,379,841 18,909,202
Less current portion........................................ (2,422,945) (2,422,950)
----------- -----------
$12,956,896 $16,486,252
=========== ===========
</TABLE>
Effective August 30, 1997, the bank increased the revolving line of credit
to $12,000,000 and on September 18, 1997 the bank increased the availability
under the equipment acquisition facility to $3,000,000 to reflect new credit
facilities totaling $28,700,000. The credit facilities, as of June 30, 1998,
consist of the following:
- ---------------
(1) Term loans of $13,700,000 original principal balance and $8,043,052
outstanding at June 30, 1998. Principal payments on the term loan of
approximately $163,000 together with interest are payable monthly. The
maturity date of the term loans is August 1, 2002. The term loans bear
interest at a blended rate of 6-month and 12-month LIBOR plus 1 1/2% (7.525%
at June 30, 1998). The term loans were used for funding the acquisition of
NASS and for refinancing Company debt,
(2) A revolving line of credit of $12,000,000, subject to availability
requirements, with interest payable monthly at either the bank's prime rate
less 1/2% (8.00% at June 30, 1998) or a blended rate of 6-month and 12-month
LIBOR plus 1 1/4 % (7.070%) at June 30, 1998. As of the balance sheet date,
the revolving line of credit was due to expire on July 21, 1999 and is
reflected as a long-term liability on the financial statements. A commitment
fee of 1/4%, per annum, is charged on the average unused portion of the
revolving line of credit to the bank, payable quarterly. As of June 30,
1998, $5,394,062 had been used on the line of credit and $5,435,891 is
available,
(3) An equipment acquisition facility of $3,000,000 for the financing of
equipment is available at June 30, 1998. Any term notes payable issued under
this facility bear interest, at the Company's option, at either prime rate
or LIBOR plus 1 1/2%.
In addition to the above credit facility, the Company has a fifteen-year
real estate note with the same bank that expires on November 1, 2007. The note,
which has an original principal amount of $960,000 and a $602,667 outstanding
balance at June 30, 1998, is payable in monthly installments of $5,333 plus
interest at the prime rate (8.50% at June 30, 1998). The Company also has two
equipment acquisition term notes payable with the same bank that expire on March
1, 2001 and June 1, 2002, respectively. The notes, which have an original
principal amount of $1,498,000 and $645,000, respectively, and an outstanding
balance of $823,704 and $516,356, respectively, on June 30, 1998, are payable in
monthly installments of $24,961 and $10,750, respectively, plus interest at
LIBOR plus 1 1/2% (7.241% at June 30, 1998).
All of the notes and line of credit are collateralized by the accounts
receivable, inventory, equipment and real estate of the Company. The bank has
the right to accelerate each of the maturity dates of the consolidated term note
and real estate note to coincide with the maturity date of the revolving line of
credit. The Agreement contains certain covenants relating to tangible net worth,
debt and cash flow coverage ratio.
IV-11
<PAGE> 66
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Principal payments on long-term debt, excluding the revolving line of
credit, due in each of the next five fiscal years and thereafter are $2,422,945,
$2,422,945, $2,348,063, $2,123,437, $385,724, and $282,665, respectively.
Interest payments during the years ended June 30, 1998, 1997 and 1996 were
$1,425,865, $1,662,215, and $1,659,373, respectively.
9. INCOME TAXES
The provision for federal income taxes for the years ended June 30, 1998,
1997, and 1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Current:
Federal................................................. $2,040,099 $(205,251) $1,274,580
State................................................... 164,336 145,699 113,000
Deferred................................................ 340,439 (783,017) 676,000
---------- --------- ----------
Total......................................... $2,544,874 $(842,569) $2,063,580
========== ========= ==========
</TABLE>
The following is a reconciliation between the Company's income tax expense
calculated using the statutory federal income tax rate and the tax expense
calculated using the effective income tax rate for the years ended June 30,
1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Pre-tax book income at statutory rate................... $2,399,288 $(849,897) $1,936,450
State taxes............................................. 131,506 33,257 113,000
Other................................................... 14,080 (25,929) 14,130
---------- --------- ----------
$2,544,874 $(842,569) $2,063,580
========== ========= ==========
</TABLE>
The components of net deferred tax assets and liabilities at of June 30,
1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred assets:
Book accruals and reserves in excess of cumulative tax
Deductions........................................... $1,345,094 $1,599,293
Inventory capitalization................................ 471,918 174,789
---------- ----------
Total..................................................... $1,817,012 $1,774,082
========== ==========
Deferred liability -- tax depreciation in excess of
book.................................................... $2,978,761 $2,595,392
========== ==========
</TABLE>
Tax payments during the years ended June 30, 1998, 1997, and 1996 were
$1,935,000, $139,000, and $1,630,000, respectively.
IV-12
<PAGE> 67
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. SALES TO MAJOR CUSTOMERS
The Company's five largest customers with their percentages of the
Company's net sales for the 1998, 1997 and 1996 fiscal years were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------
CUSTOMER 1998 1997 1996
-------- ----- ----- -----
<S> <C> <C> <C>
Ford........................................................ 26% 30% 30%
Borg-Warner................................................. 9 7 7
Bosch (formerly AlliedSignal)............................... 7 6 7
Chrysler.................................................... 7 6 7
Motorola.................................................... 7 3 --
</TABLE>
The Company's customers are primarily in the automotive industry and, as a
result, the Company is impacted by the overall economic conditions within the
industry.
11. TRANSACTIONS WITH RELATED PARTIES
During the year ended June 30, 1998, 1997, and 1996, the Company paid
management fees of $283,750, $235,000, and $235,000 respectively, to Lineberger
& Co., LLC, an entity owned by the Company's Chairman of the Board.
In connection with the acquisition of North American Spring and Stamping
Corp. on July 21, 1995, Lineberger & Co., LLC was paid a transaction fee of
$150,000.
In March, 1998, the Company entered into an agreement with a Director's
automotive aftermarket consulting firm for business and marketing development.
For the year ended June 30, 1998, the Company paid fees of $10,000.
12. CONTINGENCIES
On January 28, 1998, the Company announced that it had been notified by
Visteon, a division of Ford Motor Company, that a part manufactured by the
Company's specialty components and assemblies division is involved in a recall
regarding a fuel gauge accuracy problem with certain 1997 model year vehicles.
Based upon information currently available to the Company, management believes
that this matter will be resolved in a manner not materially adverse to the
Company.
In the normal course of business, the Company is subject to certain claims
and litigation related to on-the-job injuries. The Company does not believe that
any claims will have a material adverse effect on the Company.
IV-13
<PAGE> 68
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
13. LEASE COMMITMENTS
The following is a schedule of future minimum lease payments under
operating leases with initial lease terms in excess of one year:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
Year ending June 30,
1999...................................................... $380,610
2000...................................................... 194,007
2001...................................................... 105,009
2002...................................................... 25,517
2003...................................................... 8,100
Thereafter................................................ --
--------
Total minimum lease payments................................ $713,243
========
</TABLE>
Total minimum lease payments have been reduced by $224,000 to reflect the
total minimum lease payments expected to be received under a noncancelable
sublease arrangement. Rental expense for the years ended June 30, 1998, 1997,
and 1996 was $373,165, $500,047, and $419,231, respectively.
14. EMPLOYEE BENEFITS
The Company sponsors three defined contribution retirement plans for
Company employees. Employees are eligible to participate in the plan upon
attaining certain age and service requirements. Under these plans, eligible
employees may contribute amounts through payroll deductions. Employer
contributions are made either through matching contributions of employee
deductions or through a discretionary contribution. During the years ended June
30, 1998, 1997 and 1996, employer contribution were expensed of $380,000,
$346,000, and $360,000, respectively.
The Company has noncontributory defined benefit pension plans covering NASS
salaried and bargaining unit employees. Pension plan assets are primarily
invested in marketable equity securities and corporate and government
securities. Benefits are generally based on years of service, age at retirement
and the employee's compensation. The Company's funding policy is to contribute
amounts equal to, or exceeding, minimum funding requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The projected
benefit obligation, plan assets and net periodic pension cost associated with
these defined benefit pension plans are not significant to the Company's
consolidated financial statements.
In December 1995, the Company froze all benefits in the NASS defined
benefit pension plan for salaried employees. In June 1997, the Board of
Directors of the Company approved the termination of the plan. As of June 30,
1998, there were sufficient plan assets and Company reserves to satisfy the
asset distribution.
The Company sponsors two self-funded employee benefit plans which provide
comprehensive medical benefits and life and accidental death and dismemberment
insurance to Company employees and their dependents. Eligible employees include
all employees (excluding union employees at the NASS location) who work
full-time (at least thirty hours per week) and have completed either thirty or
sixty days of continuous full-time employment, depending on their
classification. During the years ended June 30, 1998, 1997 and 1996, the Company
incurred expense of $1,724,000, $1,637,000, and $1,230,000, respectively, under
these plans.
Union employees at the NASS location receive medical benefits through a
trust administered by a third party. The Company paid premiums into the trust
during the years ended June 30, 1998, 1997, and 1996 totaling $737,000,
$682,000, and $613,000, respectively.
IV-14
<PAGE> 69
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
15. STOCK-BASED COMPENSATION
During November 1993, the stockholders of the Company approved a stock
option plan and 100,000 shares (increased to 125,000 upon shareholder approval
in November 1997) of Common Stock were reserved for issuance upon exercise of
the options to be granted to employees, officers and directors of the Company
under the plan.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- ------------------
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at Beginning
of year......................... 120,200 $7.38 69,800 $9.00 69,800 $9.00
Options granted................... -- -- 50,400 5.13 -- --
Options exercised................. -- -- -- -- -- --
Options canceled.................. -- -- -- -- -- --
------- ----- ------- ----- ------ -----
Options outstanding at End of
year............................ 120,200 $7.38 120,200 $7.38 69,800 $9.00
======= ===== ======= ===== ====== =====
Options exercisable at End of
year............................ 120,200 $7.38 116,200 $7.32 53,396 $9.00
======= ===== ======= ===== ====== =====
</TABLE>
The following information is presented for stock options outstanding at
June 30, 1998.
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- ------------------------------- -------------------
AVERAGE AVERAGE AVERAGE
LIFE EXERCISE EXERCISE
SHARES (IN YEARS) PRICE SHARES PRICE
- ------- ---------- -------- ------- --------
<S> <C> <C> <C> <C>
69,800 7 $9.00 69,800 $9.00
50,400 10 $5.13 50,400 $5.13
- ------- -- ----- ------- -----
120,200 120,200
======= =======
</TABLE>
In conjunction with the Company's initial public offering, 100,000 warrants
were issued to certain Underwriters. The exercise price for these warrants is
$10.80 per share. At June 30, 1998, all of these warrants are outstanding and
exercisable.
In fiscal 1996, the Company adopted the disclosure-only option under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). For the purposes of pro forma disclosures, the
estimated fair value of the options and restricted share awards is amortized to
expense over the vesting period. The estimated fair value of the options granted
during the year ended June 30, 1997, using the Black-Scholes pricing model, is
$147,017.
If the Company had recorded compensation expense in the fiscal years ended
1998, 1997, and 1996 in accordance with the provisions of FAS 123, the pro forma
net income (loss) and earnings (loss) per share for these periods would have
been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Net income (loss) available to shareholders........... $4,511,855 $(1,754,457) $3,631,857
Earnings (loss) per common share:
Basic............................................... $ 0.92 $ (0.36) $ 0.74
Diluted............................................. $ 0.92 $ (0.36) $ 0.74
</TABLE>
IV-15
<PAGE> 70
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The significant assumptions used to estimate the fair value of the stock
options granted in fiscal 1997 include a risk-free rate of return of 6.70%,
expected option life of ten years, expected volatility of 29.48% and no expected
dividend payments. The effects of applying FAS 123 in this pro forma disclosure
are not indicative of future amounts as the pro forma amounts do not include the
impact of stock option awards granted prior to fiscal 1996.
IV-16
<PAGE> 71
SCHEDULE V
HILITE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ --
Accounts receivable, less allowance for doubtful accounts
of $250,620 and $193,015 at March 31 and June 30,
respectively........................................... 16,347,027 11,289,779
Tooling receivable........................................ 591,700 716,700
Inventories............................................... 10,025,765 9,927,849
Income tax receivable..................................... -- 542,188
Deferred income taxes..................................... 1,817,012 1,817,012
Assets held for disposal.................................. -- 532,533
Prepaid expenses and other current assets................. 474,956 1,015,764
------------ ------------
Total current assets................................... 29,256,460 25,841,825
------------ ------------
Property, plant and equipment............................... 46,398,659 43,538,367
Less accumulated depreciation and amortization.............. (18,556,512) (15,921,909)
------------ ------------
Property, plant and equipment, net.......................... 27,842,147 27,616,458
Goodwill, net of accumulated amortization................... 3,727,068 3,898,209
------------ ------------
TOTAL ASSETS................................................ $ 60,825,675 $ 57,356,492
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 10,672,772 $ 12,849,981
Long-term debt -- current portion......................... 2,542,945 2,422,945
Income taxes payable...................................... 1,380,531 --
------------ ------------
Total current liabilities.............................. 14,596,248 15,272,926
------------ ------------
Long-term debt.............................................. 13,170,014 12,956,896
Deferred income taxes....................................... 2,978,761 2,978,761
------------ ------------
Total non-current liabilities.......................... 16,148,775 15,935,657
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 4,900,000 issued and outstanding at March
31, 1999 and June 30, 1998............................. 49,000 49,000
Additional paid-in capital................................ 9,105,674 9,105,674
Retained earnings......................................... 20,925,978 16,993,235
------------ ------------
Total stockholders' equity............................. 30,080,652 26,147,909
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $ 60,825,675 $ 57,356,492
============ ============
</TABLE>
V-1
<PAGE> 72
HILITE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................ $25,630,565 $22,106,855 $68,213,758 $63,763,644
Cost of sales........................ 19,935,407 17,592,124 53,594,629 50,962,220
----------- ----------- ----------- -----------
Gross profit......................... 5,695,158 4,514,731 14,619,129 12,801,424
Selling, general and administrative
expenses........................... 2,325,166 2,067,652 6,774,452 6,778,701
----------- ----------- ----------- -----------
Operating income..................... 3,369,992 2,447,079 7,844,677 6,022,723
Interest expense..................... 280,461 186,759 970,272 986,777
----------- ----------- ----------- -----------
Income before income taxes........... 3,089,531 2,260,320 6,874,405 5,035,946
Income tax provision................. 1,147,684 797,393 2,576,407 1,842,315
----------- ----------- ----------- -----------
Net income........................... $ 1,941,847 $ 1,462,927 $ 4,297,998 $ 3,193,631
=========== =========== =========== ===========
Per share data:
Basic earnings per share........... $ .40 $ .30 $ .88 $ .65
=========== =========== =========== ===========
Diluted earnings per share......... $ .39 $ .30 $ .87 $ .65
=========== =========== =========== ===========
Shares used in computing earnings per
share:
Basic.............................. 4,900,000 4,900,000 4,900,000 4,900,000
=========== =========== =========== ===========
Diluted............................ 4,929,807 4,913,198 4,921,251 4,909,295
=========== =========== =========== ===========
</TABLE>
V-2
<PAGE> 73
HILITE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operations:
Net income................................................ $4,297,998 $3,193,631
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation...................................... 2,692,283 2,530,898
Amortization...................................... 171,140 227,972
---------- ----------
Cash provided from operations before changes in
operating assets and liabilities...................... 7,161,421 5,952,501
Changes in operating assets and liabilities:
Increase in accounts receivable................... (5,057,248) (2,554,150)
(Increase) decrease in tooling and other
receivable...................................... 125,000 (613,131)
Increase in inventories........................... (97,916) (838,951)
(Increase) decrease in prepaid expenses and other
current assets.................................. 540,808 (76,966)
Increase (decrease) in accounts payable and
accrued expenses................................ (2,352,933) 654,568
Increase in income taxes payable.................. 1,922,719 376,049
---------- ----------
Total changes in operating assets and liabilities...... (4,919,570) (3,052,581)
---------- ----------
Net cash provided by operations............................. 2,241,851 2,899,920
---------- ----------
Cash flows used in investing activities:
Additions to property, plant and equipment................ (2,532,469) (2,190,852)
Proceeds from sale of assets.............................. 325,000 --
---------- ----------
Net cash used in investing activities....................... (2,207,469) (2,190,852)
---------- ----------
Cash flows from financing activities:
Payment of cash dividend.................................. (367,500) (245,000)
Proceeds from long-term debt.............................. 600,000 --
Repayment of long-term debt............................... (1,857,209) (1,817,204)
Net increase in note payable.............................. 1,590,327 1,353,136
---------- ----------
Net cash used in financing activities....................... (34,382) (709,068)
---------- ----------
Net change in cash and cash equivalents..................... -- --
Cash and cash equivalents at beginning of period............ -- --
---------- ----------
Cash and cash equivalents at end of period.................. $ -- $ --
========== ==========
</TABLE>
V-3
<PAGE> 74
The letter of transmittal and certificates evidencing Shares and any other
required documents should be sent or delivered by each stockholder or his
broker, dealer, commercial bank, trust company or other nominee to the
Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
2 Broadway 2 Broadway 2 Broadway
19th Floor 19th Floor 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
</TABLE>
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this offer to purchase, the letter of
transmittal and the notice of guaranteed delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue, 5th Floor
New York, NY 10022
Banks and Brokerage Firms Call:
(800) 662-5200
Stockholders Please Call:
(800) 566-9061
The Dealer Manager for the Offer is:
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, Fifth Floor
301 South College Street, DC-5
Charlotte, NC 28288-0608
(800) 532-2916
<PAGE> 1
EXHIBIT (d)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
HILITE INDUSTRIES, INC.
PURSUANT TO ITS OFFER TO PURCHASE
DATED MAY 3, 1999
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 28, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
2 Broadway 2 Broadway 2 Broadway
19th Floor 19th Floor 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company (the "DTC") pursuant to the
book-entry transfer procedure described in "THE TENDER OFFER -- Section 3.
Procedures for Accepting the Offer and Tendering Shares" of the Offer to
Purchase (as defined below). DELIVERY OF DOCUMENTS TO THE DTC DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
Stockholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates or
deliver confirmation of the book entry transfer of the Shares into the
Depositary's Account at the DTC ("Book-Entry Confirmation") and all other
documents required hereby to the Depositary prior to the Expiration Date (as
defined in "THE TENDER OFFER -- Section 1. Terms of the Offer; Expiration Date"
of the Offer to Purchase) and who wish to tender their Shares must do so
pursuant to the guaranteed delivery procedure described in "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares" of
the Offer to Purchase. See Instruction 2.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ---------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND
(PLEASE FILL IN EXACTLY AS NAME(S) SHARE(S) TENDERED
APPEAR(S) ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
SHARE EVIDENCED BY
CERTIFICATE SHARE NUMBER OF SHARES
NUMBER(S) CERTIFICATE(S) TENDERED
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
TOTAL SHARES
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by stockholders delivering Shares by book-entry
transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by
each Share Certificate delivered to the Depositary are being tendered hereby.
See Instruction 4.
<PAGE> 2
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT THE DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ___________________________________________
Account Number: __________________________________________________________
Transaction Code Number: _________________________________________________
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s): _________________________________________
Window Ticket Number (if any): ___________________________________________
Date of Execution of Notice of Guaranteed Delivery: ______________________
Name of Institution which Guaranteed Delivery: ___________________________
If delivery is by book-entry transfer, give the following: _______________
DTC Account Number: ______________________________________________________
Transaction Code Number: _________________________________________________
2
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Hilite Industries, Inc., a Delaware
corporation (the "Company"), the above-described shares of common stock, $0.01
par value per share (the "Shares"), pursuant to the Company's offer to purchase
all outstanding Shares, at a price of $14.25 per Share, net to the seller in
cash (such amount, or any greater amount per Share paid pursuant to the Offer
(as defined below), being referred to herein as the "Offer Price"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
May 3, 1999 (the "Offer to Purchase"), receipt of which is hereby acknowledged,
and in this Letter of Transmittal (which, together with the Offer to Purchase,
constitute the "Offer").
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to all the Shares tendered herewith and all
dividends and distributions (including, without limitation, distributions of
additional Shares) made in respect of such Shares on or after May 3, 1999 other
than the dividend of $0.025 per Share declared on April 26, 1999 and payable on
or about May 25, 1999 (collectively, "Distributions") and irrevocably appoints
the Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares and all Distributions, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (i) deliver Share Certificates evidencing such
Shares and all Distributions, or transfer ownership of such Shares and all
Distributions on the account books maintained by the DTC, together, in either
case, with all accompanying evidences of transfer and authenticity, to or upon
the order of the Company, (ii) present such Shares and all Distributions for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares and all
Distributions, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered herewith and all Distributions, that when such Shares are accepted for
payment by the Company, the Company will acquire good, marketable and
unencumbered title thereto and to all Distributions, free and clear of all
liens, restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim. The undersigned, upon
request, shall execute and deliver all additional documents deemed by the
Depositary or the Company to be necessary or desirable to complete the
assignment and transfer of the Shares tendered herewith and all Distributions.
In addition, the undersigned shall remit and transfer promptly to the Depositary
for the account of the Company all Distributions, accompanied by appropriate
documentation of transfer, and pending such remittance and transfer or
appropriate assurance thereof, the Company shall be entitled to all rights and
privileges as owner of each such Distribution and may withhold the entire
purchase price of the Shares tendered hereby, or deduct from such purchase
price, the amount or value of such Distribution as determined by the Company in
its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, personal representatives, successors and assigns of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in "THE TENDER OFFER -- Section 3. Procedures for
Accepting the Offer and Tendering Shares" of the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer. The Company's acceptance of such Shares for payment
will constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions", please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered". Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions", please mail
3
<PAGE> 4
the check for the purchase price of all Shares purchased and all Share
Certificates evidencing Shares not tendered or not purchased (and accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing above under "Description of Shares Tendered". In the event that the
boxes entitled "Special Payment Instructions" and "Special Delivery
Instructions" are both completed, please issue the check for the purchase price
of all Shares purchased and return all Share Certificates evidencing Shares not
purchased or not tendered in the name(s) of, and mail such check and Share
Certificates to, the person(s) so indicated. Unless otherwise indicated herein
in the box entitled "Special Payment Instructions", please credit any Shares
tendered hereby and delivered by book-entry transfer, but which are not
purchased by crediting the account at the DTC. The undersigned recognizes that
the Company has no obligation pursuant to the Special Payment Instructions to
transfer any Shares from the name of the registered holder(s) thereof if the
Company does not purchase any of the Shares tendered hereby.
4
<PAGE> 5
<TABLE>
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for To be completed ONLY if the check for the
the purchase price of Shares or Share purchase price of Shares purchased or Share
Certificates evidencing Shares not tendered Certificates evidencing Shares not tendered
or not purchased is to be issued in the name or not purchased are to be mailed to someone
of someone other than the undersigned, or if other than the undersigned, or the
Shares tendered hereby and delivered by undersigned at an address other than that
book-entry transfer which are not purchased shown under "Description of Shares
are to be returned by credit to an account Tendered."
at the DTC other than that designated above.
Issue [ ] Check [ ] Share Mail [ ] Check [ ] Share Certificate(s)
Certificate(s) to: to:
Name: Name:
-------------------------------------------- --------------------------------------------
(PLEASE PRINT) (PLEASE PRINT)
Address: Address:
-------------------------------------------- --------------------------------------------
-------------------------------------------- --------------------------------------------
-------------------------------------------- --------------------------------------------
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
TAXPAYER IDENTIFICATION NUMBER OR TAXPAYER IDENTIFICATION NUMBER OR
SOCIAL SECURITY NUMBER: SOCIAL SECURITY NUMBER:
-------------------------------------------- --------------------------------------------
[ ] Credit Shares delivered by book-entry
transfer and not purchased to the
account set forth below:
--------------------------------------------
(ACCOUNT NUMBER)
</TABLE>
5
<PAGE> 6
IMPORTANT:
STOCKHOLDERS SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
X
- --------------------------------------------------------------------------------
: Sign
X
- --------------------------------------------------------------------------------
: Here
SIGNATURE(S) OF HOLDER(S)
Dated:
- ---------------------------------------------, 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share
Certificates or on a security position listing by a person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please provide the following information and see
Instruction 5).
Name(s):
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (Full Title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No.:
- ----------------------------------------------------------------------------
Tax Identification or Social Security No.:
- ----------------------------------------------------------------
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY.
FINANCIAL INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE BELOW.
6
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAYER'S NAME: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
- -------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- Taxpayer Identification ---------------------------------
FORM W-9 Number -- For all accounts, enter your Social Security Number
taxpayer identification or
number in the box at right. Taxpayer Identification Number
(For most individuals, this (If awaiting TIN write "Applied for")
is your social security
number. If you do not have a
number, see Obtaining a
Number in the enclosed
Guidelines.) Certify by
signing and dating below.
Note: If the account is in
more than one name, see the
chart in the enclosed
Guidelines to determine which ---------------------------------
number to give the payer.
- -------------------------------------------------------------------------------------------------------------------
PART II -- For Payees Exempt From Backup Withholding, see the enclosed Guidelines and complete as instructed
therein.
[PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)]
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to
be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding you received another notification
from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see
instructions in the enclosed Guidelines.)
- -------------------------------------------------------------------------------------------------------------------
SIGNATURE __________________________________________________________ DATE ________________, 1999
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of the Medallion Signature
Guarantee Program, or by any other "eligible guarantor institution", as such
term is defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of
1934, as amended (each of the foregoing being referred to as an "Eligible
Institution"), unless (i) this Letter of Transmittal is signed by the registered
holder(s) of the Shares (which term, for purposes of this document, shall
include any participant in the DTC whose name appears on a security position
listing as the owner of Shares) tendered hereby and such holder(s) has (have)
completed neither the box entitled "Special Payment Instructions" nor the box
entitled "Special Delivery Instructions" or (ii) such Shares are tendered for
the account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter of
Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer pursuant to the
procedure set forth in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and Tendering Shares" of the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or a confirmation of a book-entry
transfer into the Depositary's account at the DTC of all Shares delivered by
book-entry transfer as well as a properly completed and duly executed Letter of
Transmittal and any other documents required by this Letter of Transmittal, must
be received by the Depositary at one of its addresses set forth on the reverse
hereof prior to the Expiration Date (as defined in "THE TENDER OFFER -- Section
1. Terms of the Offer; Expiration Date" of the Offer to Purchase). If Share
Certificates are forwarded to the Depositary in multiple deliveries, a properly
completed and duly executed Letter of Transmittal must accompany each such
delivery. Stockholders whose Share Certificates are not immediately available,
who cannot deliver their Share Certificates and all other required documents to
the Depositary prior to the Expiration Date or who cannot complete the procedure
for delivery by book-entry transfer on a timely basis may tender their Shares
pursuant to the guaranteed delivery procedure described in "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares" of
the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by the Company, must be received by the Depositary prior to the Expiration Date;
and (iii) the Share Certificates evidencing all physically delivered Shares in
proper form for transfer by delivery, or a confirmation of a book-entry transfer
into the Depositary's account at the DTC of all Shares delivered by book-entry
transfer, in each case together with a Letter of Transmittal, properly completed
and duly executed, with any required signature guarantees (or, in the case of a
book-entry transfer, a Book-Entry Confirmation (as defined in "THE TENDER OFFER
-- Section 2. Acceptance for Payment and Payment for Shares" of the Offer to
Purchase)), and any other documents required by this Letter of Transmittal, must
be received by the Depositary within three Nasdaq National Market ("Nasdaq")
trading days after the date of execution of such Notice of Guaranteed Delivery,
all as described in "THE TENDER OFFER -- Section 3. Procedures for Accepting the
Offer and Tendering Shares" of the Offer to Purchase.
The method of delivery of this Letter of Transmittal, Share Certificates
and all other required documents, including delivery through the DTC, is at the
option and risk of the tendering stockholder, and the delivery will be deemed
made only when actually received by the Depositary. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
In all cases, sufficient time should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
all tendering stockholders waive any right to receive any notice of the
acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby,
8
<PAGE> 9
fill in the number of Shares which are to be tendered in the box entitled
"Number of Shares Tendered". In such cases, new Share Certificate(s) evidencing
the remainder of the Shares that were evidenced by the Share Certificates
delivered to the Depositary herewith will be sent to the person(s) signing this
Letter of Transmittal, unless otherwise provided in the box entitled "Special
Delivery Instructions" on the reverse hereof, as soon as practicable after the
expiration or termination of the Offer. All Shares evidenced by Share
Certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered herewith, the signature(s) must correspond with the name(s) as written
on the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any Shares tendered herewith are owned of record by two or more persons,
all such persons must sign this Letter of Transmittal.
If any of the Shares tendered herewith are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case, the Share
Certificate(s) evidencing the Shares tendered herewith must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered herewith, the Share Certificate(s)
evidencing the Shares tendered herewith must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Company of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Company will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to the Company of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the Share Certificates
evidencing the Shares tendered herewith.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered herewith is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered" on the reverse hereof, the appropriate
boxes on the reverse of this Letter of Transmittal must be completed.
Stockholders delivering Shares tendered herewith by book-entry transfer may
request that Shares not purchased be credited to such account maintained at the
DTC as such stockholder may designate in the box entitled "Special Payment
Instructions" on the reverse hereof. If no such instructions are
9
<PAGE> 10
given, all such Shares not purchased will be returned by crediting the account
at the DTC as the account from which such Shares were delivered.
8. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Information Agent or the
Dealer Manager at their respective addresses or telephone numbers set forth
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information Agent
or from brokers, dealers, commercial banks or trust companies.
9. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalty of perjury, that such number is correct and that
such stockholder is not subject to backup withholding of federal income tax. If
a tendering stockholder has been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding, such stockholder must cross
out item (2) of the Certification box of the Substitute Form W-9, unless such
stockholder has since been notified by the Internal Revenue Service that such
stockholder is no longer subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering stockholder to
31% federal income tax withholding on the payment of the purchase price of all
Shares purchased from such stockholder. If the tendering stockholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such stockholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, and sign and date the
Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is
not provided with a TIN within 60 days, the Depositary will withhold 31% on all
payments of the purchase price to such stockholder until a TIN is provided to
the Depositary.
10. IF ANY CERTIFICATE(S) REPRESENTING SHARES HAVE BEEN LOST OR DESTROYED,
THE HOLDERS SHOULD PROMPTLY NOTIFY THE DEPOSITARY, CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY, AT (212) 509-4000. The holders will then be instructed as to
the procedure to be followed in order to replace the Certificate(s). This Letter
of Transmittal and related documents cannot be processed until the procedures
for replacing lost or destroyed Certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED
(TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND SHARE CERTIFICATES OR
CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A
PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN "THE
TENDER OFFER -- SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE" OF THE OFFER TO
PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the Depositary is not provided with the correct TIN, the stockholder
may be subject to a $50 penalty imposed by the Internal Revenue Service and
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%. In addition,
if a stockholder makes a false statement that results in no imposition of backup
withholding, and there was no reasonable basis for such statement, a $500
penalty may also be imposed by the Internal Revenue Service.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such statements
can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instruc-
10
<PAGE> 11
tions. A stockholder should consult his or her tax advisor as to such
stockholder's qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that the TIN provided on Substitute Form
W-9 is correct (or that such stockholder is awaiting a TIN), and that (i) such
stockholder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest or
dividends or (ii) the Internal Revenue Service has notified such stockholder
that such stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for the
TIN in Part I, and sign and dated the Substitute Form W-9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60 days,
the Depositary will withhold 31% of all payments of the purchase price to such
stockholder until a TIN is provided to the Depositary.
11
<PAGE> 12
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY
COMPLETED AND DULY EXECUTED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL,
CERTIFICATES FOR SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR
DELIVERED BY EACH STOCKHOLDER OF THE COMPANY OR HIS BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES
SET FORTH ON THE FIRST PAGE.
The Depositary for the Offer is:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
2 Broadway 2 Broadway 2 Broadway
19th Floor 19th Floor 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
</TABLE>
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue, 5th Floor
New York, New York 10022
Banks and Brokerage Firms Call:
(800) 662-5200
Stockholders Please Call:
(800) 566-9061
The Dealer Manager for the Offer is:
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, Fifth Floor
301 South College Street, DC-5
Charlotte, NC 28288-0608
(800) 532-2916
12
<PAGE> 1
EXHIBIT (d)(3)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
HILITE INDUSTRIES, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined below) (i) if certificates
("Share Certificates") evidencing shares of common stock, $0.01 par value per
share, of Hilite Industries, Inc. ("Shares"), are not immediately available,
(ii) if Share Certificates and all other required documents cannot be delivered
to Continental Stock Transfer & Trust Company, as Depositary (the "Depositary"),
prior to the Expiration Date (as defined in "THE TENDER OFFER -- Section 1.
Terms of the Offer; Expiration Date" of the Offer to Purchase) or (iii) if the
procedure for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand or mail to
the Depositary. See "THE TENDER OFFER -- Section 3. Procedures for Accepting the
Offer and Tendering Shares" of the Offer to Purchase.
The Depositary for the Offer is:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
By Mail: By Hand: By Overnight Courier:
<S> <C> <C>
2 Broadway 2 Broadway 2 Broadway
19th Floor 19th Floor 19th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION,
WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Hilite Industries, Inc., a Delaware
corporation, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated May 3, 1999 (the "Offer to Purchase"), and the related Letter
of Transmittal (which, together with the Offer to Purchase, constitute the
"Offer"), receipt of each of which is hereby acknowledged, the number of Shares
specified below pursuant to the guaranteed delivery procedure described in "THE
TENDER OFFER -- Section 3. Procedures for Accepting the Offer and Tendering
Shares" of the Offer to Purchase.
Number of Shares
- ------------------------------------------------------
Certificate Nos. (If Available)
- ------------------------------------------------------
[ ] Check box if Shares will be delivered by book-entry transfer
Account No.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Signature(s) of Holder(s)
Dated:
- ----------------------------------------, 1999
Name(s) of Holders
- ------------------------------------------------------
- ------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No.
- ------------------------------------------------------
<PAGE> 3
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of the Medallion Signature
Guarantee Program, guarantees to deliver to the Depositary, at one of its
addresses set forth above, either Share Certificates evidencing the Shares
tendered hereby, in proper form for transfer, or confirmation of book-entry
transfer of such Shares into the Depositary's account at The Depository Trust
Company, in each case with delivery of a Letter of Transmittal properly
completed and duly executed with any required signature guarantees or a
Book-Entry Confirmation (as defined in "THE TENDER OFFER -- Section 2.
Acceptance for Payment and Payment for Shares" of the Offer to Purchase) in the
case of a book-entry delivery, and any other required documents, all within
three Nasdaq National Market trading days of the date hereof.
------------------------------------------------------
NAME OF FIRM
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
ADDRESS (INC. ZIP CODE)
------------------------------------------------------
AREA CODE AND TELEPHONE NO.
------------------------------------------------------
AUTHORIZED SIGNATURE
------------------------------------------------------
TITLE
NAME:
- ---------------------------------------------
(TYPE OR PRINT)
DATED:
- -------------------------------------, 1999
NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT (d)(4)
OFFER BY
HILITE INDUSTRIES, INC.
TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF ITS COMMON STOCK AT
$14.25 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, MAY 28, 1999, UNLESS THE OFFER IS EXTENDED.
May 3, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Hilite Industries, Inc., a Delaware corporation
(the "Company"), to act as Dealer Manager in connection with the Company's offer
to purchase for cash all outstanding shares of its common stock, $0.01 par value
per share ("Shares"), at a price of $14.25 per Share, net to seller in cash,
upon the terms and subject to the conditions set forth in the Company's Offer to
Purchase, dated May 3, 1999 (the "Offer to Purchase"), and the related Letter of
Transmittal (which, together with the Offer to Purchase, constitute the "Offer")
enclosed herewith. Please furnish copies of the enclosed materials to those of
your clients for whose accounts you hold Shares registered in your name or in
the name of your nominee.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A
MAJORITY OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS (THE "MINIMUM
CONDITION"), AND (ii) THE COMPANY OBTAINING THE DEBT FINANCING (AS DEFINED IN
"INTRODUCTION" OF OFFER TO PURCHASE) ARRANGED FOR ITS BENEFIT BY BUYER (AS
DEFINED IN "INTRODUCTION" OF THE OFFER TO PURCHASE).
Enclosed for your information and use are copies of the following
documents:
1. Offer to Purchase, dated May 3, 1999;
2. Letter of Transmittal to be used by holders of Shares in accepting
the Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents are not immediately available or
cannot be delivered to Continental Stock Transfer & Trust Company (the
"Depositary") by the Expiration Date (as defined in "THE TENDER
OFFER -- Section 1. Terms of the Offer; Expiration Date" of the Offer to
Purchase) or if the procedure for book-entry transfer cannot be completed
by the Expiration Date;
4. A letter dated May 3, 1999 to stockholders of the Company from
Daniel W. Brady, Chief Executive Officer of the Company;
5. A letter that may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
<PAGE> 2
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, MAY 28, 1999, UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of certificates
evidencing such Shares (or a confirmation of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company), a Letter
of Transmittal properly completed and duly executed and any other required
documents.
If holders of Shares wish to tender, but cannot deliver their certificates
or other required documents or cannot comply with the procedure for book-entry
transfer, prior to the expiration of the Offer, a tender may be effected by
following the guaranteed delivery procedure described in "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares" of
the Offer to Purchase.
The Company will not pay any fees or commissions to any broker, dealer or
other person (other than First Union Capital Markets Corp. (the "Dealer
Manager"), the Depositary and Morrow & Co., Inc. (the "Information Agent") as
described in the Offer) in connection with the solicitation of tenders of Shares
pursuant to the Offer. However, the Company will reimburse you for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients. The Company will pay or cause to be paid any stock
transfer taxes payable with respect to the transfer of Shares to it, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
First Union Capital Markets Corp. or to Morrow & Co., Inc. at their respective
addresses and telephone numbers set forth on the back cover page of the Offer to
Purchase.
Additional copies of the enclosed material may be obtained from the
Information Agent, at the address and telephone number set forth on the back
cover page of the Offer to Purchase.
Very truly yours,
FIRST UNION CAPITAL MARKETS CORP.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY
OTHER PERSON THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT
OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF
THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE
STATEMENTS CONTAINED THEREIN.
<PAGE> 1
EXHIBIT (d)(5)
OFFER BY
HILITE INDUSTRIES, INC.
TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF ITS COMMON STOCK AT
$14.25 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, MAY 28, 1999, UNLESS THE OFFER IS EXTENDED.
May 3, 1999
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated May 3, 1999
(the "Offer to Purchase"), and a related Letter of Transmittal in connection
with the offer by Hilite Industries, Inc., a Delaware corporation (the
"Company"), to purchase for cash all outstanding shares of its common stock,
$0.01 par value per share ("Shares"), at a price of $14.25 per Share, net to
seller in cash (such amount, or any greater amount per Share paid pursuant to
the Offer (as defined below), being referred to herein as the "Offer Price"),
upon the terms and subject to the conditions set forth in the Offer to Purchase
and the related Letter of Transmittal (which, together with the Offer to
Purchase, constitute the "Offer"). We are the holder of record of Shares held by
us for your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE
HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $14.25 per Share, net to you in cash.
2. The Offer is being made for all outstanding Shares.
3. The Board of Directors of the Company (the "Board") and the
Disinterested Directors (as defined in "SPECIAL FACTORS -- Recommendation of the
Disinterested Directors and the Board; Fairness of the Transactions" of the
Offer to Purchase) of the Company have each unanimously determined, after giving
careful consideration to a number of factors, that the Offer and the Merger are
fair to, and in the best interests of, the stockholders of the Company, and have
each unanimously approved the Agreement and Plan of Merger, dated as of April
26, 1999, by and among Hilite Holdings, LLC ("Buyer"), Hilite Mergeco, Inc. and
the Company, and the transactions contemplated thereby, including the Offer at
the Offer Price, the Stock Purchase (as defined in "INTRODUCTION" of the Offer
to Purchase) and the Merger (as defined in "INTRODUCTION" of the Offer to
Purchase). The Board and the Disinterested Directors recommend that the
stockholders of the Company accept the Offer and tender their Shares pursuant to
the Offer.
4. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, MAY 28, 1999, UNLESS THE OFFER IS EXTENDED.
5. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not withdrawn prior to the expiration of the Offer at least
a majority of the outstanding Shares on a fully diluted basis and (ii) the
Company's obtaining the Debt Financing (as defined in "INTRODUCTION" of the
Offer to Purchase) arranged for its benefit by Buyer.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions to the Dealer Manager, the Depositary or the Information Agent or,
except as set forth in Instruction 6 of the Letter of Transmittal, transfer
taxes on the purchase of Shares by the Company pursuant to the Offer. However,
federal income tax backup withholding at a rate of 31% may be required, unless
an exemption is provided or unless the required taxpayer identification
information is provided. See Instruction 9 of the Letter of Transmittal.
<PAGE> 2
Your instruction to us should be forwarded promptly to permit us to submit
a tender on your behalf prior to the Expiration Date.
7. The Company will pay all stock transfer taxes with respect to the sale
and transfer of any Shares to it or its order pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS
SHOULD BE FORWARDED TO US AS SOON AS POSSIBLE SO THAT WE WILL HAVE AMPLE TIME TO
PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE
OFFER.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal, and is being made to all holders of Shares. The Company is not
aware of any state where the making of the Offer is prohibited by administrative
or judicial action pursuant to any valid state statute. If the Company becomes
aware of any valid state statute prohibiting the making of the Offer or the
acceptance of Shares pursuant thereto, the Company will make a good faith effort
to comply with such state statute. If, after such good faith effort, the Company
cannot comply with such state statute, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of Shares in such state.
In any jurisdiction where the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Company by First Union Capital Markets Corp. or one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR
CASH ALL THE OUTSTANDING SHARES OF COMMON STOCK
OF HILITE INDUSTRIES, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated May 3, 1999, and the related Letter of Transmittal
(which, together with the Offer to Purchase, constitute the "Offer") in
connection with the offer by Hilite Industries, Inc., a Delaware corporation, to
purchase for cash all outstanding shares of its common stock, $0.01 par value
per share ("Shares").
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
(SIGN HERE)
--------------------------------------
--------------------------------------
SIGNATURE(S)
Dated: , 1999
--------------------
NAME(S):
-----------------------------
-----------------------------
(PLEASE TYPE OR PRINT)
ADDRESS(ES):
-------------------------
-------------------------
-------------------------
(INCLUDE ZIP CODE)
AREA CODE AND TELEPHONE NUMBER:
------------------------
TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER:
--------------------------------
Number of Shares to be Tendered: Shares*
---------------
- ----------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE> 1
EXHIBIT (d)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
GIVE THE NAME
AND SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------
<C> <S> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person
4. Custodian account of a minor The minor
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person
designated ward, minor, or
incompetent person
7. a. The usual revocable savings The grantor-trustee
trust (grantor is also
trustee)
b. So-called trust account The actual owner
that is not a legal or
valid trust under state
law
8. Sole proprietorship account The owner
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
GIVE THE NAME AND
EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------
<C> <S> <C>
9. A valid trust, estate, or The legal entity (Do
pension trust not furnish
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated in
the account title)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax exempt organization
14. A broker or registered nominee The broker or
nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's Social Security number or employer identification number.
(4) Show your individual name. You may also enter your business name. You may
use your Social Security number or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under Section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any of its agencies or instrumentalities.
- A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- A futures commission merchant registered with the Commodity Futures Trading
Commission.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1) of the Code.
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to non-resident aliens subject to withholding under Section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
Section 852 of the Code).
- Payments described in Section 6049(b)(5) of the Code to non-resident aliens.
- Payments on tax-free covenant bonds under Section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
6042, 6044, 6045, 6049, and 6050N of the Code.
PRIVACY ACT NOTICE. -- Section 6109 of the Code requires most recipients of
dividends, interest, or other payments to give taxpayer identification numbers
to payers who must report the payments to IRS. IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your correct taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE> 1
EXHIBIT (d)(7)
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER
TO SELL SHARES (AS DEFINED BELOW). THE OFFER (AS DEFINED BELOW) IS MADE SOLELY
BY THE OFFER TO PURCHASE DATED MAY 3, 1999 AND THE RELATED LETTER OF
TRANSMITTAL, AND IS BEING MADE TO ALL HOLDERS OF SHARES. THE COMPANY IS NOT
AWARE OF ANY STATE WHERE THE MAKING OF THE OFFER IS PROHIBITED BY ADMINISTRATIVE
OR JUDICIAL ACTION PURSUANT TO ANY VALID STATE STATUTE. IF THE COMPANY BECOMES
AWARE OF ANY VALID STATE STATUTE PROHIBITING THE MAKING OF THE OFFER OR THE
ACCEPTANCE OF SHARES PURSUANT THERETO, THE COMPANY WILL MAKE A GOOD FAITH EFFORT
TO COMPLY WITH SUCH STATE STATUTE. IF, AFTER SUCH GOOD FAITH EFFORT, THE COMPANY
CANNOT COMPLY WITH SUCH STATE STATUTE, THE OFFER WILL NOT BE MADE TO (NOR WILL
TENDERS BE ACCEPTED FROM OR ON BEHALF OF) THE HOLDERS OF SHARES IN SUCH STATE.
IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE
OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER WILL BE DEEMED TO BE
MADE ON BEHALF OF THE COMPANY BY FIRST UNION CAPITAL MARKETS CORP. OR ONE OR
MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
Notice of Offer to Purchase for Cash
by
HILITE INDUSTRIES, INC.
All Outstanding Shares of its Common Stock
At $14.25 Net Per Share
Hilite Industries, Inc., a Delaware corporation (the "Company"), is
offering to purchase all outstanding shares of its common stock, $0.01 par value
per share ("Shares"), at a price of $14.25 per Share, net to the seller in cash
(the "Offer Price"), upon the terms and subject to the conditions set forth in
the Company's Offer to Purchase, dated May 3, 1999 (the "Offer to Purchase"),
and the related Letter of Transmittal (which, together with the Offer to
Purchase, constitute the "Offer"). Following the Offer, the Company intends to
effect the Merger (as defined below).
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, MAY 28, 1999, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer at least
2,510,101 Shares (the "Minimum Condition"), which constitutes a majority of the
outstanding Shares on a fully-diluted basis, and (ii) the Company obtaining the
Debt Financing (as defined in "INTRODUCTION" of the Offer to Purchase) arranged
for its benefit by Buyer (as defined herein). Pursuant to the Stockholders
Agreement (as defined below), the Continuing Stockholders (as defined in
"INTRODUCTION" of the Offer to Purchase) have agreed to tender and not withdraw
in the aggregate approximately 73% of the outstanding Shares on a fully diluted
basis.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 26, 1999 (the "Merger Agreement") by and among Hilite Holdings, LLC,
a Delaware limited liability company ("Buyer"), Hilite Mergeco, Inc., a Delaware
corporation and a wholly owned subsidiary of Buyer ("Merger Subsidiary"), and
the Company. The Merger Agreement provides that, among other things, upon the
terms and subject to the conditions set forth in the Merger Agreement, and in
accordance with the General Corporation Law of the State of Delaware, Merger
Subsidiary will be merged with and into the Company (the "Merger"). Following
consummation of the Merger, the separate existence of Merger Subsidiary will
cease and the Company will continue as the surviving corporation. At the
effective time of the Merger, each Share issued and outstanding immediately
prior to the effective time of the Merger, other than the Buyer Shares (as
defined in "SPECIAL FACTORS -- The Merger Agreement and the Stockholders
Agreement" of the Offer to Purchase) and certain Shares owned by the Continuing
Stockholders (as defined in "INTRODUCTION" of the Offer to Purchase), will be
canceled and converted automatically into the right to receive $14.25 in cash,
or any higher price that may be paid per Share in the Offer, without interest.
The Board of Directors of the Company (the "Board") and the Disinterested
Directors (as defined in "SPECIAL FACTORS -- Recommendation of the Disinterested
Directors and the Board; Fairness of the
<PAGE> 2
Transactions" of the Offer to Purchase) of the Company have each unanimously
determined, after giving careful consideration to a number of factors, that the
Offer and the Merger are fair to, and in the best interests of, the stockholders
of the Company, and have each unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the Offer at the Offer Price, the
Stock Purchase (as defined in "INTRODUCTION" of the Offer to Purchase) and the
Merger. The Board and Disinterested Directors recommend that the stockholders of
the Company accept the Offer and tender their Shares pursuant to the Offer.
The Board of Directors has received a written opinion, dated as of April
26, 1999, of Bowles Hollowell Conner, a division of First Union Capital Markets
Corp., to the effect that, as of such date and based upon and subject to certain
matters stated in such opinion, the Offer Price and the Merger Consideration (as
defined in "INTRODUCTION" of the Offer to Purchase) to be received in the Offer
and the Merger by the stockholders (other than Continuing Stockholders with
respect to their retained Shares) was fair to the stockholders from a financial
point of view.
Buyer and Merger Subsidiary have entered into a Stockholders Agreement with
the Continuing Stockholders, dated as of the date of the Merger Agreement (the
"Stockholders Agreement"), providing, subject to certain conditions, for (i) the
tender by the Continuing Stockholders of certain Shares owned or controlled by
them, (ii) the agreement by the Continuing Stockholders not to tender certain
Shares owned or controlled by them, and (iii) the grant of an irrevocable proxy
to Buyer by the Continuing Stockholders to vote all Shares owned or controlled
by them at the time of the Stockholders Meeting (as defined in "SPECIAL
FACTORS -- The Merger Agreement and the Stockholders Agreement" of the Offer to
Purchase) in favor of the Merger.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when the Company gives oral or written notice to
Continental Stock Transfer & Trust Company (the "Depositary") of the Company's
acceptance for payment of such Shares pursuant to the Offer. Upon the terms and
subject to the conditions of the Offer, payment for Shares accepted for payment
pursuant to the Offer will be made by deposit of the purchase price therefor
with the Depositary, which will act as agent for tendering stockholders for the
purpose of receiving payments from the Company and transmitting such payments to
tendering stockholders whose Shares have been accepted for payment. Under no
circumstances will interest on the purchase price for Shares be paid, regardless
of any extension of the Offer or delay in making such payment. In all cases,
payment for Shares tendered and accepted for payment pursuant to the Offer will
be made only after timely receipt by the Depositary of (i) the certificates
evidencing such Shares ("Share Certificates") or timely confirmation of a
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility (as defined in "THE TENDER OFFER -- Section 2.
Acceptance for Payment and Payment for Shares" of the Offer to Purchase)
pursuant to the procedure set forth in "THE TENDER OFFER -- Section 3.
Procedures for Accepting the Offer and Tendering Shares" of the Offer to
Purchase, (ii) the Letter of Transmittal, properly completed and duly executed,
with any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message (as defined in "THE TENDER OFFER -- Section 3.
Procedures for Accepting the Offer and Tendering Shares" of the Offer to
Purchase) and (iii) any other documents required under the Letter of
Transmittal.
The Company shall, if directed by Buyer (subject to the terms and
conditions of the Merger Agreement), extend for any reason the time period
during which the Offer is open (such period not to exceed 10 business days in
the aggregate), including the occurrence of any condition specified in "THE
TENDER OFFER -- Section 12. Certain Conditions to the Offer" of the Offer to
Purchase, by giving oral or written notice of such extension to the Depositary.
Any such extension will be followed as promptly as practicable by public
announcement thereof, such announcement to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date (as defined below) of the Offer. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw his Shares.
The term "Expiration Date" means 12:00 midnight, New York City time, on May
28, 1999, unless and until the Company, at the direction of Buyer (but subject
to the terms and conditions of the Merger Agreement), has extended the period of
time during which the Offer is open, in which event the term "Expiration Date"
will mean the latest time and date at which the Offer, as so extended by the
Company, will expire.
<PAGE> 3
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Company pursuant to the Offer,
may also be withdrawn at any time after June 28, 1999. For the withdrawal to be
effective, a written notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover page of the Offer
to Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder of such Shares, if different from that of
the person who tendered such Shares. If Share Certificates evidencing Shares to
be withdrawn have been delivered or otherwise identified to the Depositary,
then, prior to the physical release of such Share Certificates, the serial
numbers shown on such Share Certificates must be submitted to the Depositary and
the signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution (as defined in "THE TENDER OFFER -- Section 3. Procedures for
Accepting the Offer and Tendering Shares" of the Offer to Purchase), unless such
Shares have been tendered for the account of an Eligible Institution. If Shares
have been tendered pursuant to the procedure for book-entry transfer as set
forth in "THE TENDER OFFER -- Section 3. Procedures for Accepting the Offer and
Tendering Shares" of the Offer to Purchase, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
and otherwise comply with the Book-Entry Facility's procedures. All questions as
to the form and validity (including the time of receipt) of any notice of
withdrawal will be determined by the Company, in its sole discretion, which
determination will be final and binding.
The purpose of the Transactions (as defined in "INTRODUCTION" of the Offer
to Purchase) is (i) to enable Buyer to obtain, in the aggregate, majority
ownership in the Company and (ii) to provide the Company's stockholders with
liquidity for their Shares by enabling them to sell their Shares at a fair price
and at a premium over recent market prices more quickly than through alternative
transaction structures that had been considered. Following consummation of the
Transactions, the Shares will no longer be traded on the Nasdaq National Market
and registration of the Shares will likely be terminated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
The information required to be disclosed by Rule 13e-4(d)(1) under the
Exchange Act is contained in the Offer to Purchase and is incorporated herein by
reference.
The Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of Shares whose names appear on the Company's stockholder list
and will be furnished to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing for subsequent transmittal to beneficial
owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain
important information which should be read before any decision is made with
respect to the Offer.
Questions and requests for assistance or for additional copies of the Offer
to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent or the Dealer Manager as set
forth below, and copies will be furnished promptly at the Company's expense. No
fees or commissions will be paid to brokers, dealers or other persons (other
than the Information Agent and the Dealer Manager) for soliciting tenders of
Shares pursuant to the Offer.
<PAGE> 4
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue, 5th Floor
New York, New York 10022
Banks and Brokerage Firms Call:
(800) 662-5200
Stockholders Please Call:
(800) 566-9061
The Dealer Manager for the Offer is:
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, Fifth Floor
301 South College Street, DC-5
Charlotte, NC 28288-0608
(800) 532-2916
May 3, 1999
<PAGE> 1
Exhibit (d)(8)
CONTACT: Daniel W. Brady, Chief Executive Officer
Telephone number: (972) 466-0475
FOR IMMEDIATE RELEASE
HILITE INDUSTRIES, INC. ENTERS INTO TENDER OFFER AGREEMENT WITH
INVESTMENT GROUP AT $14.25 PER SHARE AND REPORTS THIRD QUARTER
EARNINGS
CARROLLTON, TEXAS, April 27, 1999. Hilite Industries, Inc. ("Hilite") (NASDAQ:
HILI) today announced that it has entered into an agreement with an investment
group lead by Cleveland-based Carreras, Kestner & Co., LLC ("CK & Co."), whereby
an offer will be made to acquire all of the outstanding common stock of Hilite
at $14.25 per share.
The transaction will take the form of a tender offer by Hilite for all of its
shares at a net cash price of $14.25 per share which will be funded by a
simultaneous purchase of shares by the investment group as well as financing
arranged by the investment group. This transaction will be followed by a merger
in which the remaining public shareholders of Hilite will receive the same per
share cash consideration that participants in the initial tender offer will
receive. The total consideration to be offered for Hilite shares is
approximately $69.8 million. The tender offer and subsequent merger are subject
to customary terms and conditions.
Certain shareholders and management personnel of Hilite have agreed to retain
approximately 143,000 shares, representing approximately a 7.8% post-closing
interest in Hilite. Such shareholders and management personnel have agreed to
tender the balance of their respective shares, representing approximately 73% of
Hilite's outstanding shares, at the time of the tender offer. After completion
of the transactions referred to above, the new investors will own approximately
92.2% of Hilite and Hilite's shares will no longer be publicly traded.
Hilite's Board of Directors has unanimously recommended that shareholders accept
the offer and has received an opinion from Bowles Hollowell Conner & Co., a
division of First Union Capital Markets Corp., ("Bowles Hollowell") that the
transaction is financially fair to shareholders.
Daniel W. Brady, Chief Executive Officer, said, "I am very pleased that our
shareholders can realize an appreciated value for their shares in the Company.
The Board of Directors has been concerned for some time that the value of our
company has not been reflected in the trading price of its shares. The price
offered in the tender is a higher price than the shares have ever traded. The
Company's third quarter earnings are strong. At the Board's request, these
earnings were taken into consideration by Bowles Hollowell in issuing its
fairness opinion. The Board of Directors considered the fairness opinion and
other factors related to the outlook of the Company
<PAGE> 2
and the automotive industry in concluding that the offer is fair and should be
recommended to the shareholders.
CK & Co. was founded in 1998 to take controlling equity and management positions
in manufacturing companies. Joseph W. Carreras, a principal of CK & Co., said
"We were attracted to Hilite by its growth track record, the quality of its
management and its leading position in the markets it serves. Hilite will be a
cornerstone of an aggressive acquisition program to build a substantially larger
automotive parts supply company."
The Company is also announcing its third quarter, fiscal 1999 operating results
which includes strong sales and earnings for the third fiscal quarter of 1999.
Sales for the quarter ended March 31, 1999 were $25,631,000, an increase of
$3,524,000 or 16% over sales of $22,107,000 for the third fiscal quarter of
1998. Earnings in the third quarter were $1,943,000 or $0.40 per share,
increasing 33% over the earnings of $1,463,000 ($0.30 per share) in the third
quarter last year. Sales for the nine months ended March 31, 1999 were
$68,214,000, increasing 7% over sales of $63,763,000 for the same period of the
prior year. Earnings for the nine-month period were $4,299,000 ($0.88 per
share), a 35% increase over earnings of $3,193,000 ($0.65 per share) in the
prior year. Shareholders' equity per share was $6.14 at March 31, 1999, compared
to $5.34 per share at June 30, 1998.
The Board of Directors approved a cash dividend of $0.025 per share for the
third quarter. The record date has been set for May 11, 1999. The dividend is
expected to be distributed on or about May 25, 1999.
Daniel W. Brady, CEO of Hilite Industries, commented: "Sharply increased
automobile and heavy truck build rates contributed to a strong quarter. The
Company was well positioned to take advantage of this opportunity, which
resulted in significant earnings improvement over the second quarter and the
third quarter of the prior year. Currently, the fourth quarter is expected to
also benefit from this volume surge, but not to the same extent as the third
quarter. At this time, it is too early to conclude that these higher build rates
will be sustained for the longer term."
Except for historical information, certain statements contained herein are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Words such as expects,
anticipates, intends, plans, believes, seeks, estimates, or variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve unknown risks and uncertainties, which may cause the Company's actual
results in future periods to differ materially from forecasted results. Those
risks include, among others, risks associated with changes in automotive and
non-automotive build rates as well as risks associated with the manufacturing
process and start-up of new products and risks related to technological
-2-
<PAGE> 3
changes in components which affect the life of the product. These and other
risks are described in the Company's Form 10-K filed with the Securities and
Exchange Commission (SEC) on September 28, 1998 and Forms 10-Q filed quarterly
with the SEC, copies of which are available from the SEC or may be obtained upon
request from the Company. The Company does not undertake any obligation to
update or revise any forward-looking statements
Hilite Industries, Inc. designs, manufactures and sells a diversified line of
highly engineered components and assemblies for the automotive industry
including brake proportioning valves, electromagnetic clutches, machined
components such as mounting brackets and pulleys, and specialty components and
assemblies such as stampings, specialty springs and automated assemblies. The
Company's customers include all three domestic automotive companies: Ford Motor
Company, General Motors Corporation and Daimler Chrysler Corporation as well as
other original equipment manufacturers such as Navistar International
Transportation Corporation and non-automotive companies such as Motorola, Inc.
The Company also sells products to first-tier suppliers of the automotive
industry including Borg-Warner Corporation, Bosch Braking Systems Corporation,
Denso of Los Angeles, Inc. and ITT Automotive of North America, Inc.
For further information call Investor Relations at (972) 466-0475 or access
Hilite Industries, Inc.'s website at www.hilite-ind.com.
-3-
<PAGE> 1
EXHIBIT (d)(9)
[HII LETTERHEAD]
May 3, 1999
Dear Stockholder:
On behalf of the Board of Directors of Hilite Industries, Inc. (the
"Company"), I am pleased to inform you that the Company has entered into an
Agreement and Plan of Merger, dated April 26, 1999 (the "Merger Agreement"),
with Hilite Holdings, LLC ("Buyer") and Hilite Mergeco, Inc. ("Merger
Subsidiary"), pursuant to which the Company has commenced a tender offer (the
"Offer") to purchase for cash all outstanding shares of its common stock, $0.01
par value per share ("Shares"), at $14.25 per Share, net to seller in cash.
Following the successful completion of the Offer, upon the terms and
subject to the conditions contained in the Merger Agreement, Merger Subsidiary
will be merged with and into the Company (the "Merger"), with the Company as the
surviving corporation. At the effective time of the Merger, each remaining
issued and outstanding Share (other than those held by Buyer, any direct or
indirect subsidiary of Buyer or certain other parties described in the enclosed
Offer to Purchase) shall, subject to dissenters' rights, be converted into the
right to receive $14.25 in cash, or any higher price that may be paid per Share
pursuant to the Offer, without interest.
The Board of Directors of the Company (the "Board"), by unanimous vote of
all directors, based upon, among other things, the unanimous recommendation of
the independent directors of the Company (the "Disinterested Directors"), has
determined that the Merger Agreement and the transactions contemplated thereby,
including the Offer, the Stock Purchase (as defined in "INTRODUCTION" of the
Offer to Purchase) and the Merger, are fair to, and in the best interests of,
the Company. The Board has also unanimously approved the Offer, the Merger and
the Merger Agreement and recommends that stockholders accept the Offer, the
Stock Purchase and tender their Shares to the Company pursuant to the Offer.
In arriving at their decisions, the Disinterested Directors and the Board
gave careful consideration to a number of factors described in the enclosed
Offer to Purchase, which is an exhibit to the Company's Tender Offer Statement
on Schedule 13E-4 being filed today with the Securities and Exchange Commission.
The enclosed Offer to Purchase describes the Disinterested Directors'
recommendation and the Board's decision and contains other important information
relating to this transaction.
Also accompanying this letter is a Letter of Transmittal to be used for
tendering your Shares. The Offer to Purchase and Letter of Transmittal set forth
the terms and conditions of the Offer and provide instructions as to how to
tender your Shares. I urge you to read the enclosed materials carefully and
consider all factors set forth therein before making your decision with respect
to the Offer.
On behalf of the Board of Directors, management and employees of the
Company, I thank you for the support you have given to the Company.
Very truly yours,
Daniel W. Brady
Chief Executive Officer
<PAGE> 1
Exhibit (b)(1)
April 20, 1999
Carreras, Kestner & Co., L.L.C.
Terminal Tower
50 Public Square
Suite 3200
Cleveland, Ohio 44113
Attention: Joseph W. Carreras
Ladies and Gentlemen:
Carreras, Kestner & Co., L.L.C. (the "SPONSOR") has informed First
Union Investors, Inc. ("FIRST UNION") that it intends to (i) create a
corporation ("ACQUISITION CO.") and contribute approximately $24,000,000 of
equity capital to Acquisition Co. (the "SPONSOR EQUITY CONTRIBUTION"), (ii)
enter into agreements with Hilite Industries, Inc., a Delaware corporation
("COMPANY"), and certain current shareholders of the Company (the "RETAINING
SHAREHOLDERS") pursuant to which (a) the Company will undertake a self-tender
offer for approximately 97% of its outstanding shares of capital stock, which
represents all of the outstanding shares of the Company's capital stock and
options other than the stock and options retained by the Retaining Shareholders
(the "SELF-TENDER"), (b) the Sponsor will acquire, through Acquisition Co.,
approximately 1,700,000 shares of newly issued capital stock of the Company (the
"ACQUISITION"), (c) the Retaining Shareholders will retain a portion of their
currently outstanding shares of the Company's capital stock so as to effectuate
a "recapitalization" of the Company for accounting purposes (the
"RECAPITALIZATION") and (d) following the consummation of the Acquisition and
the Self-Tender, Acquisition Co. will be merged with and into the Company in a
cash-out merger (the "MERGER" and, together with the Self-Tender, the
Acquisition and the Recapitalization, the "ACQUISITION TRANSACTIONS"), and (iii)
refinance the Company's existing indebtedness. The aggregate equity value (new
cash plus retained equity) of the Sponsor Equity Contribution and the shares of
the Company's capital stock retained by the Retaining Shareholders, when valued
at the tender offer price, will be approximately $25,800,000. Following the
Merger, the Sponsor will own, indirectly, at least 90% of the issued and
outstanding shares of capital stock of the Company (as the surviving entity in
the Merger).
You have further advised First Union that the Company intends (i) to
issue and sell, on
<PAGE> 2
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 2
- -----------------------------
the date that the Acquisition is consummated, an aggregate principal amount of
up to $15,000,000 of senior subordinated notes (the "NOTES") in a private
placement having substantially the terms set forth in the Term Sheet (defined
below) and (ii) to enter into a senior secured debt financing in an aggregate
principal amount of $65,000,000 (the "SENIOR DEBT"; together with the issuance
of the Notes and the Acquisition Transactions, being hereinafter referred to as
the "TRANSACTIONS"). First Union understands that no external debt financing
will be required to effectuate the Transactions other than the placement of the
Notes and the incurrence of the Senior Debt. The Sponsor has requested that
First Union commit to purchase, or cause an affiliate thereof to purchase, the
entire principal amount of the Notes.
First Union is pleased to confirm its commitment to purchase the Notes,
based upon and subject to the foregoing and subject to the terms and conditions
set forth below and in the summary of terms and conditions (the "TERM SHEET")
attached hereto. First Union's commitment hereunder to purchase the Notes is
subject to (i) the Sponsor's written acceptance of a letter from First Union to
the Sponsor of even date herewith (the "FEE LETTER") pursuant to which the
Sponsor agrees to pay, or cause to be paid, to First Union certain fees in
connection with purchasing the Notes as more particularly set forth therein,
(ii) the completion of a definitive note and warrant purchase agreement, the
Notes, the warrants and other related documentation (collectively, the "NOTE
PURCHASE DOCUMENTS") and definitive documentation for the Senior Debt and the
Acquisition Transactions in form and substance satisfactory to First Union,
(iii) compliance with all applicable laws and regulations (including compliance
of this Commitment Letter and the Transactions described herein with all
applicable federal banking laws, rules and regulations), and (iv) the
satisfaction of all other conditions described herein, in the Term Sheet and in
the Note Purchase Documents. The terms and conditions of First Union's
commitment hereunder are not limited to those set forth herein and in the Term
Sheet, and any matters that are not covered by the provisions hereof and thereof
shall be subject to the mutual agreement of First Union and the Sponsor.
While First Union currently intends to purchase the Notes and to hold
all of the Notes after the closing of the Transactions, upon First Union's
request, the Sponsor agrees to assist First Union actively, and to cause the
Company and its subsidiaries to assist First Union actively (before, and, if
applicable, after purchasing the Notes), in the sale or transfer of all or a
portion of the Notes to accredited investors and to provide First Union and any
potential investor or co-investor, promptly upon request, with all information
deemed necessary by them to complete successfully such sale or transfer,
including, but not limited to, an information package for delivery to potential
investors or co-investors and all information and projections prepared by the
Sponsor and the Company, and their subsidiaries and advisors relating to the
Transactions. The Sponsor further agrees to make appropriate officers and
representatives thereof and of the Company and its subsidiaries available to
participate in information meetings for potential investors or co-investors at
such times and places as First Union may reasonably request. Upon the sale or
transfer of all or a portion of the Notes, First Union shall be released from a
<PAGE> 3
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 3
- -----------------------------
corresponding portion of its commitment hereunder to purchase the Notes.
First Union reserves the right, prior to or after the execution of Note
Purchase Documents, to assign part of the foregoing commitment to purchase the
Notes to one or more of its affiliates. The Sponsor agrees that First Union may
share with any of its affiliates and advisors any information related to the
Transactions, or any other matter contemplated hereby, on a confidential basis.
The Sponsor agrees to reimburse First Union from time to time on demand
for all of its reasonable fees and expenses (including reasonable attorneys'
fees and expenses) incurred in connection with the preparation, execution and
delivery of this Commitment Letter, the Term Sheet and the Fee Letter, the Note
Purchase Documents, and all of the other transactions described herein, whether
or not the Notes are purchased. The Sponsor also agrees to indemnify and hold
harmless First Union and each other Note holder, and their respective
affiliates, directors, officers, employees and agents (collectively, the
"INDEMNIFIED PARTIES") from and against any and all actions, suits, losses,
claims, damages and liabilities of any kind or nature, joint or several, to
which such Indemnified Parties may become subject, related to or arising out of
any of the transactions contemplated herein, including, without limitation, the
execution and delivery of this Commitment Letter, the execution and delivery of
Note Purchase Documents, the purchase of the Notes and the use of proceeds
therefrom, and the closing of the other Transactions, and will reimburse the
Indemnified Parties for all out-of-pocket expenses (including reasonable
attorneys' fees and expenses) on demand as they are incurred in connection with
the investigation of, preparation for, or defense of any pending or threatened
claim or any action or proceeding arising therefrom; PROVIDED, HOWEVER, that no
Indemnified Party shall have any right to indemnification for any of the
foregoing to the extent determined by a final and nonappealable judgment of a
court of competent jurisdiction to have resulted from its own gross negligence
or willful misconduct. This Commitment Letter is addressed solely to the
Sponsor, and neither First Union, on the one hand, nor the Sponsor or
Acquisition Co., on the other hand, shall be liable to the other or any other
person for any indirect or consequential damages that may be alleged as a result
of this Commitment Letter or any of the transactions referred to herein. In the
event that the purchase of the Notes fails to occur for any reason, the
provisions of this paragraph shall survive any termination of this Commitment
Letter or the commitment of First Union set forth herein.
Until such time as it has accepted this Commitment Letter in writing as
provided below, the Sponsor is not authorized to show or circulate this
Commitment Letter or the Term Sheet to any other person or entity (other than
Acquisition Co.'s directors, officers and legal counsel and Company's
management, legal counsel and financial advisor in connection with its
evaluation hereof, provided that each of such persons shall also be bound by the
confidentiality provisions hereof), except as may be required by law or
applicable judicial process.
First Union shall have the right to review and approve any public
announcement or public
<PAGE> 4
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 4
- -----------------------------
filing made after the date hereof relating to the Notes or to First Union before
any such announcement or filing is made (such approval not to be unreasonably
withheld or delayed).
This Commitment Letter and the commitment of First Union set forth
herein shall, in the event this Commitment Letter is accepted by the Sponsor as
provided in the last paragraph hereof, automatically expire at the earliest to
occur of the following (each, a "TERMINATION EVENT"): (i) First Union
discovering or becoming aware, and providing notice thereof to the Sponsor, of
any information not previously disclosed to it that it believes to be materially
inconsistent with its understanding, based on the information provided to it by
or on behalf of the Sponsor or the Company prior to the date hereof, of the
business, properties, operations, or condition (financial or otherwise) of
Acquisition Co. and its subsidiaries or the Company and its subsidiaries, (ii)
the occurrence of a material adverse change in the business, properties,
operations or condition (financial or otherwise) of Acquisition Co. and its
subsidiaries or the Company and its subsidiaries, or the occurrence of a
material adverse effect on the feasibility of the Transactions and, in each
case, First Union providing notice thereof to the Sponsor, (iii) the
consummation of the Acquisition or another transaction or series of transactions
in which the Sponsor or any of its affiliates acquires any stock or assets of
the Company, (iv) the termination of (A) the Company's Self-Tender or (B) the
definitive purchase or merger agreement with regard to the Acquisition, and (v)
5:00 p.m. on June 25, 1999, if the purchase of the Notes shall not have occurred
by such time.
This Commitment Letter and the Fee Letter shall be governed by and
construed in accordance with the internal laws of the State of North Carolina
and constitute the entire agreement between the parties relating to the subject
matter hereof and thereof and supersede any previous agreement, written or oral,
between the parties with respect to the subject matter hereof and thereof. This
Commitment Letter shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the parties hereto, but shall not be
assigned in whole or in part by the Sponsor without the prior written consent of
First Union. This Commitment Letter may not be amended or any provision hereof
waived or modified except by an instrument in writing signed by each of the
parties hereto. This Commitment Letter is intended to be solely for the benefit
of the parties hereto and is not intended to confer any benefits on, or create
any rights in favor of, any other person or entity. This Commitment Letter may
be executed in any number of counterparts, each of which shall be an original
and all of which, when taken together, shall constitute one agreement.
<PAGE> 5
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 5
- -----------------------------
If the Sponsor is in agreement with the foregoing, please indicate
acceptance of the terms hereof by signing the enclosed counterpart of this
Commitment Letter and returning it to First Union, together with an executed
counterpart of the Fee Letter and any payment of fees required under the Fee
Letter to be delivered concurrently therewith, if any, by no later than 5:00
p.m. on April 20, 1999. This Commitment Letter and the commitment of First Union
set forth herein shall automatically terminate at such time unless signed
counterparts of this letter and the Fee Letter together with any such payment
shall have been delivered to First Union in accordance with the terms of the
immediately preceding sentence.
Sincerely,
FIRST UNION INVESTORS, INC.
By: /s/ EDWARD H. ROSS
-------------------------------
Name: Edward H. Ross
-------------------------
Title: Senior Vice President
-------------------------
Agreed to and accepted as of the date first above written:
CARRERAS, KESTNER & CO., L.L.C.
By: /s/ JOSEPH W. CARRERAS
----------------------------
Name: Joseph W. Carreras
----------------------
Title: President
----------------------
<PAGE> 6
SUMMARY OF PROPOSED TERMS AND CONDITIONS
$15,000,000 SENIOR SUBORDINATED NOTES
HILITE INDUSTRIES, INC.
ISSUER: Hilite Industries, Inc.
ISSUE: Senior Subordinated Notes (the "Notes") in the
aggregate principal amount of $15,000,000 and
detachable warrants (the "Warrants") to purchase
common stock representing 5% of the fully diluted
common equity of the Issuer (including and
assuming the grant of all equity securities under
the Issuer's compensation and bonus plans).
PURCHASER: First Union Investors, Inc. ("First Union"),
PROVIDED that First Union shall have the right
to sell or transfer the Notes, in whole or in
part, to affiliates or third parties.
MATURITY: Eight years from the date of issuance.
COUPON: 12.5% per annum, payable quarterly in arrears.
SUBORDINATION: The Notes will be subordinated only to the Senior
Debt (as defined in the commitment letter to
which this term sheet is attached), subject to
certain refinancings and increases to be agreed
upon, and senior to all other indebtedness.
GUARANTORS: The Notes will be irrevocably and unconditionally
guaranteed on a joint and several basis by all
direct and indirect subsidiaries of the Issuer,
now or hereafter existing, on a basis
subordinate in right and interest to the
guaranties of the Senior Debt in a manner
consistent with the subordination of the Notes;
provided, however, if any such guarantee by a
foreign subsidiary (a "controlled foreign
corporation", as such term is defined in Section
957 of the Internal Revenue Code) of the Issuer
would have an adverse tax impact upon the
Issuer, then no such guarantee shall be
required.
USE OF PROCEEDS: The proceeds of the Notes shall be used solely
(i) to finance a portion of the Self-Tender (as
such term is defined in the Commitment Letter to
which this term sheet is attached), (ii) to
refinance certain existing debt, (iii) to pay
certain transaction fees and expenses in
connection with the Transactions (as such term
is defined in the Commitment Letter to which
this term sheet is attached) in amounts
reasonably acceptable to the Agent, and (iv) to
provide for the working capital and general
corporate requirements of the Issuer and its
subsidiaries, including capital expenditures.
MANDATORY REDEMPTION: The Issuer will redeem the full principal amount
of the Notes, plus any accrued interest, upon
the earlier to occur of any of the following:
the Maturity, an initial public offering, a
change of control, a sale of substantially all
of the Issuer's assets or other similar
fundamental corporate change. Mandatory
prepayments will be subject to the redemption
price percentage set forth in the Optional
Redemption section below and to the terms of the
subordination provisions.
OPTIONAL REDEMPTION: The Notes may be redeemed at the option of the
Issuer, in whole or in part, upon not
================================================================================
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 1
<PAGE> 7
less than 30 nor more than 60 days notice, at a
redemption price as set forth on the redemption
price schedule set forth below, as such price
may be reduced by First Union based upon the
paragraph below, in each case plus accrued
interest on the principal redeemed:
<TABLE>
<CAPTION>
---------------------------------- -----------------------------------
Years from Closing Redemption Price Percentage
---------------------------------- -----------------------------------
<S> <C> <C>
1 103%
---------------------------------- -----------------------------------
2 102%
---------------------------------- -----------------------------------
3 101%
---------------------------------- -----------------------------------
Thereafter 100%
---------------------------------- -----------------------------------
</TABLE>
CONDITIONS PRECEDENT
TO CLOSING: Purchase of the Notes will be subject to
satisfactory execution of acceptable
documentation with respect to the purchase and
other conditions precedent deemed appropriate by
First Union, including but not limited to each of
the following:
(1) The definitive documentation for the
Note and Warrant Purchase Agreement, the
Notes, the Warrants and all related
documentation (the "Note Purchase
Documents"), and the definitive
documentation for the other
Transactions, including all employment
agreements and the tender offer and
merger documents for the stock of the
Issuer, shall be satisfactory in form
and substance to First Union;
(2) The corporate and capital structure of
the Issuer and its subsidiaries after
giving effect to the Acquisition
Transactions (as such term is defined in
the Commitment Letter to which this term
sheet is attached), the equity
investment and the other related
transactions, and all legal, tax,
accounting, business and other matters
relating to the Transactions or to the
Issuer and its subsidiaries after giving
effect thereto (including, without
limitation, the Acquisition
Transactions), shall be satisfactory in
all respects to First Union;
(3) All governmental and third party
consents and approvals necessary in
connection with the purchase of the
Notes and the other Transactions shall
have been obtained and remain in effect
and shall be satisfactory in all
respects to First Union;
(4) First Union shall have received the
results of lien searches with respect to
the Issuer and its subsidiaries in
jurisdictions selected by it and shall
be satisfied with the results thereof;
(5) Prior to or substantially concurrently
with the purchase of the Notes, (i) the
Self-Tender and the Acquisition (as such
term is defined in the Commitment Letter
to which this term sheet is attached)
shall have been consummated in
accordance with the terms of the
definitive documentation therefor,
without any material amendment or waiver
thereof except as approved by First
Union, (ii) the Issuer shall have
accepted tendered shares representing
not less than 75% of its outstanding
shares, and (iii) any existing
indebtedness of the Issuer or any of its
subsidiaries shall have been satisfied
in full and all liens
================================================================================
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 2
<PAGE> 8
and guarantees in connection therewith shall
have been released, and First Union shall have
received satisfactory evidence thereof;
(6) Prior to or substantially concurrently
with the purchase of the Notes, the
Issuer shall have received cash proceeds
of approximately $24,000,000 from the
issuance of equity securities to
Carreras, Kestner & Co., L.L.C. (the
"Sponsor") and, when aggregated with the
equity value (determined based on the
tender offer price) of the shares
retained by the Retaining Shareholders
(as such term is defined in the
Commitment Letter to which this term
sheet is attached), total equity
contributions in the form of cash and
retained equity of approximately
$25,800,000, on terms and conditions
satisfactory to First Union; in the
event of any purchase price payments
required to consummate the tender offer,
including pursuant to Section 262 of the
Delaware General Corporation Law, the
Sponsor shall have entered into a valid
and binding agreement with the Issuer,
which agreement shall remain in full
force and effect after the Acquisition
and the other Transactions, to make an
additional equity contribution to the
Issuer in an equal amount to fund such
additional payments;
(7) First Union shall have received (i)
unaudited statements of the Issuer and
its Subsidiaries for the fiscal period
ending April 30, 1999, (ii) an opening
pro forma balance sheet of the Issuer
and its subsidiaries as of April 30,
1999 giving effect to the consummation
of the Acquisition, the
Recapitalization, the Notes, the Senior
Debt and the other Transactions and
(iii) a solvency opinion from an
independent firm acceptable to the
Agent, in each case, in form and
substance satisfactory to the Agent;
(8) First Union shall have received evidence
satisfactory to it that the Issuer is in
compliance with all financial covenants
on a pro forma basis as of a recent date
after giving effect to the Acquisition,
the incurrence of the Senior Debt and
the initial purchase of the Notes;
(9) First Union shall be satisfied that (i)
total funded debt of the Issuer and its
subsidiaries on a consolidated basis
("Total Debt") shall not exceed
$68,500,000 after giving effect to the
Acquisition, the purchase of the Notes
and the initial borrowing under the
Senior Debt, (ii) pro forma EBITDA of
the Issuer and its subsidiaries on a
consolidated basis for the immediately
preceding twelve-month period ("Last
12-Month EBITDA") shall not be less than
$14,000,000, and (iii) the ratio of
Total Debt to Last 12-Month EBITDA shall
not be in excess of 4.85:1.0;
(10) First Union shall have received and be
satisfied with all documentation related
to the Senior Debt and all closing
conditions thereto shall be satisfied to
the satisfaction of First Union on the
closing date;
(11) First Union shall have received such
other documents, agreements and opinions
(including but not limited to legal
opinions of counsel to the Issuer and
reliance letters with respect to the
legal opinions of counsel delivered
pursuant to the Transactions) in
connection with the Facilities, all
satisfactory in form
================================================================================
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 3
<PAGE> 9
and substance, as First Union may
reasonably request; and
(12) There shall not have occurred (a) any
material adverse change in the condition
(financial or otherwise), operations,
properties or business of the Issuer and
its subsidiaries, taken as a whole, or
(b) any event, condition or state of
facts that could reasonably be expected
to have such a material adverse change.
REPRESENTATIONS AND
WARRANTIES: Those customarily found in First Union note
agreements for similar financings and any
additional representations and warranties deemed
appropriate by First Union in the context of the
proposed transaction, including, without
limitation, representations and warranties
regarding corporate organization and power,
absence of violation of organic documents, other
agreements and applicable laws, absence of
material litigation, obtaining of government and
other approvals, subsidiaries, payment of taxes,
authorization and enforceability of the Note
Purchase Documents, compliance with other
instruments, full disclosure, margin securities,
ERISA matters, accuracy of financial statements,
absence of material adverse change, title to and
sufficiency of assets, solvency, real estate,
governmental permits and licenses, compliance
with laws, environmental matters, insurance,
Year 2000 compliance, consummation of, and
receipt of proceeds from, the Acquisition and
the other Transactions, and material contracts,
COVENANTS: Those covenants set forth in the Senior Debt,
subject to certain adjustments as the Agent and
the Lenders thereunder may agree with First
Union.
FINANCIAL COVENANTS: The definitive note purchase documentation shall
contain the following financial covenants and
such other financial covenants as First Union
and the Issuer may agree:
(a) Maximum Leverage Ratio;
(b) Minimum Interest Coverage Ratio;
(c) Maximum Annual Capital Expenditures;
and
(d) Minimum EBITDA.
EVENTS OF DEFAULT: Those customarily found in First Union note
agreements for similar financings and any
additional events of default deemed appropriate
by First Union in the context of the proposed
transaction including without limitation,
failure to pay any principal, interest or fees
when due (provided, that the payment of interest
and fees shall have a two business-day grace
period); breach of covenants (with customary
grace periods for certain affirmative
covenants); material incorrectness when made of
any representation or warranty; payment or other
default under material indebtedness, other than
the Senior Debt; acceleration of any amounts due
under the Senior Debt as a result of a default
thereunder; bankruptcy or insolvency; judgment
or ERISA liens in excess of agreed upon amounts;
actual or asserted invalidity of guaranty
documents; change of control of the Issuer. In
the event of a Default and acceleration of the
Notes, the Optional Redemption premium
provisions shall apply.
================================================================================
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 4
<PAGE> 10
WARRANT EXERCISABILITY: At any time, in whole or in part, after Closing.
WARRANT TERM: Ten years after Closing.
WARRANT EXERCISE PRICE: $.01 per share in cash or, at the option of the
Purchaser, in an equivalent amount of Notes or
Warrants.
OTHER RIGHTS: In addition to the rights outlined above, the
note purchase documents will provide for the
following: complete anti-dilution protection;
put rights (the Warrants will be subject to call
rights exercisable one year later than the date
the put rights are exercisable); co-sale rights
on any sale of the Issuer's equity securities by
the Issuer or its holders; rights of first
refusal to purchase a pro rata share of any
sales of the Issuer's equity securities by its
holders; preemptive rights to purchase a pro
rata share of any equity or equity-linked
securities issued by the Issuer; demand
(post-IPO) and piggyback registration rights;
and other provisions customarily found in
warrants and note purchase documents.
VOTING: Majority, subject to certain customary 100%
voting issues.
PARTICIPATIONS AND
ASSIGNMENTS: Any Note holder may sell participations in its
interest in the Notes subject to customary
restrictions on voting rights.
NOTE PURCHASE DOCUMENTS: The transactions described
herein will be evidenced by a note purchase
agreement (a/k/a, an Investment Agreement) and
other ancillary agreements, documents, opinions,
certificates, schedules and exhibits deemed
necessary by the Purchaser.
EXPENSES AND
INDEMNIFICATION: The Issuer will pay (a) all reasonable
out-of-pocket costs and expenses of First Union
(including the reasonable fees and disbursements
of counsel) in connection with the preparation,
execution, delivery and administration of the
Note Purchase Documents and any amendment or
waiver with respect thereto, and (b) all
reasonable out-of-pocket costs and expenses of
First Union and other Note and Warrant holders
(including the reasonable fees and disbursements
of counsel) in connection with the enforcement
of any of the Note Purchase Documents.
The Issuer will indemnify First Union and the
other Note and Warrant holders and hold them
harmless against all claims, losses, liabilities
and expenses (including reasonable fees and
disbursements of counsel) arising from or
relating to the proposed financing contemplated
hereby and the other transactions connected
therewith, except to the extent of such
indemnified party's gross negligence or willful
misconduct.
GOVERNING LAW, ETC: North Carolina
MISCELLANEOUS: Customary provisions regarding amendments and
waivers, consent to forum in North Carolina and
service of process and other miscellaneous
matters. All parties will agree to mandatory
arbitration of disputes.
================================================================================
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 5
<PAGE> 1
Exhibit (b)(2)
April 20, 1999
Carreras, Kestner & Co., L.L.C.
Terminal Tower
50 Public Square
Suite 3200
Cleveland, Ohio 44113
Attention: Joseph W. Carreras
Ladies and Gentlemen:
Carreras, Kestner & Co., L.L.C. (the "SPONSOR") has informed First
Union National Bank ("FIRST UNION") and First Union Capital Markets Corp. (the
"ARRANGER") that it intends to (i) create a corporation ("ACQUISITION CO.") and
contribute approximately $24,000,000 of equity capital to Acquisition Co. (the
"SPONSOR EQUITY CONTRIBUTION"), (ii) enter into agreements with Hilite
Industries, Inc., a Delaware corporation ("COMPANY"), and certain current
shareholders of the Company (the "RETAINING SHAREHOLDERS") pursuant to which (a)
the Company will undertake a self-tender offer for approximately 97% of its
outstanding shares of capital stock, which represents all of the outstanding
shares of the Company's capital stock and options other than the stock and
options retained by the Retaining Shareholders (the "SELF-TENDER"), (b) the
Sponsor will acquire, through Acquisition Co., approximately 1,700,000 shares of
newly issued capital stock of the Company (the "ACQUISITION"), (c) the Retaining
Shareholders will retain a portion of their currently outstanding shares of the
Company's capital stock so as to effectuate a "recapitalization" of the Company
for accounting purposes (the "RECAPITALIZATION") and (d) following the
consummation of the Acquisition and the Self-Tender, Acquisition Co. will be
merged with and into the Company in a cash-out merger (the "MERGER" and,
together with the Self-Tender, the Acquisition and the Recapitalization, the
"ACQUISITION TRANSACTIONS"), and (iii) refinance the Company's existing
indebtedness. The aggregate equity value (new cash plus retained equity) of the
Sponsor Equity Contribution and the shares of the Company's capital stock
retained by the Retaining Shareholders, when valued at the tender offer price,
will be approximately $25,800,000. Following the Merger, the Sponsor will own,
indirectly, at least 90% of the issued and outstanding shares of capital stock
of the Company (as the surviving entity in the Merger).
<PAGE> 2
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 2
- -----------------
You have further advised us that a senior secured debt financing in the
aggregate principal amount of $65,000,000 (the "FACILITY") will be required in
order to refinance the Company's existing senior credit facility, to pay fees
and expenses in connection with the Acquisition Transactions and such
refinancing, and to provide for the working capital and general corporate
requirements of the Company and its subsidiaries (such senior secured debt
financing, together with the Acquisition Transactions and the Subordinated Debt
(referred to below), being hereinafter referred to collectively as THE
"TRANSACTIONS"). First Union understands that no other external debt financing
will be required to effectuate the Transactions other than the financing
described herein and $15,000,000 of subordinated debt financing (the
"SUBORDINATED DEBT") described in the Term Sheet (defined below). The Sponsor
has requested that First Union commit to provide the entire principal amount of
the Facility and that the Arranger agree to structure, arrange and syndicate the
Facility.
First Union is pleased to confirm its commitment to provide the
Facility to the Company, based upon and subject to the foregoing and subject to
the terms and conditions set forth below and in the summary of terms and
conditions (the "TERM SHEET") attached hereto. First Union's commitment
hereunder and the Arranger's agreement to provide the services described herein
are subject to (i) the Sponsor's written acceptance of a letter from First Union
and the Arranger to the Sponsor of even date herewith (the "FEE LETTER")
pursuant to which the Sponsor agrees to pay, or cause to be paid, to First Union
and the Arranger certain fees in connection with the Facility as more
particularly set forth therein, (ii) the completion of a definitive credit
agreement and related documentation for the Facility and definitive
documentation for the Acquisition Transactions in form and substance
satisfactory to First Union, (iii) compliance with all applicable laws and
regulations, (iv) the absence of any condition in the financial or capital
markets prior to the execution of such definitive credit documentation that
could reasonably be expected to have a material adverse effect on the primary
syndication of the Facility, (v) First Union's satisfaction that, prior to and
during the syndication of the Facility, there shall be no competing issues of
debt securities or commercial bank or other credit facilities of Acquisition
Co., the Company or any of their subsidiaries being offered, placed or arranged,
and (vi) the satisfaction of all other conditions described herein, in the Term
Sheet, and in such definitive credit documentation. The terms and conditions of
First Union's commitment hereunder and of the Facility are not limited to those
set forth herein and in the Term Sheet, and any matters that are not covered by
the provisions hereof and thereof shall be subject to the mutual agreement of
First Union and the Sponsor.
In addition, it is understood and agreed that First Union shall be
entitled, after consultation with the Sponsor, to change the pricing (including
interest and upfront fees), terms and structure of the Facility, and the timing
of syndication and closing thereof, at any time if the syndication of the
Facility has not been completed and First Union determines in good faith that
such changes are advisable to ensure a successful syndication of the Facility,
provided that the total principal amount of the Facility remains unchanged. The
commitment of First Union
<PAGE> 3
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 3
- ----------------
hereunder is subject to the agreements of the Sponsor set forth in this
paragraph. The provisions of this paragraph shall survive the execution of
definitive credit documentation for the Facility and the closing thereof.
It is agreed that (a) First Union will act as the administrative agent
and as the syndication agent for the Facility, and (b) the Arranger will act as
the sole arranger for the Facility, and that each will perform the duties and
exercise the authority customarily associated with such roles. It is further
agreed that no additional agents, co-agents or arrangers will be appointed and
no lender will receive compensation outside the terms contained herein
(including the Term Sheet) and in the Fee Letter in order to obtain its
commitment to participate in the Facility, in each case unless the Sponsor and
First Union so agree. Notwithstanding the foregoing, First Union and the
Arranger each reserves the right to allocate (in whole or in part) to any of its
affiliates any fees payable to it in such manner as it and its affiliates may
agree in their sole discretion.
First Union reserves the right, prior to or after the execution of
definitive documentation with respect to the Facility, and as part of any
syndication thereof or otherwise, to assign part of its commitment hereunder, in
accordance with the Term Sheet, to one or more financial institutions (together
with First Union, the "LENDERS") that will become lenders under the Facility and
be party to such definitive documentation. Upon the acceptance of the commitment
of any such new Lender to provide a portion of the Facility, First Union shall
be released from a corresponding portion of its commitment hereunder.
The Sponsor understands that the Arranger intends to syndicate a
portion of the Facility to other financial institutions identified by us in
consultation with you. The Arranger intends to commence its syndication efforts
promptly and the Sponsor agrees actively to assist First Union and the Arranger
in achieving a timely syndication that is mutually satisfactory to First Union,
the Arranger, the Sponsor and the Company, including the exercise of all
commercially reasonable efforts to achieve complete syndication prior to or
concurrently with the closing of the Facility. The syndication will be
accomplished by a variety of means, including direct contact during the
syndication between senior management of Acquisition Co., the Company, First
Union, the Arranger and their respective affiliates and advisors. The Sponsor
agrees that First Union and the Arranger may share with any of their respective
affiliates and advisors any information related to the Acquisition Co., the
Company and the Transactions or any other matter contemplated hereby, on a
confidential basis.
It is understood and agreed that the Arranger will manage, in
consultation with the Sponsor, all aspects of the syndication, including, but
not limited to, decisions as to the selection of institutions to be approached,
when they will be approached, when their commitments will be accepted, which
institutions will participate, the allocations of the commitments among the
Lenders and the amount and distribution of fees among the Lenders. To assist the
Arranger in its syndication efforts, the Sponsor agrees (i) promptly to prepare
and provide to the Arranger and First Union all information reasonably requested
by them with respect to the Company and the
<PAGE> 4
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 4
- ----------------
Transactions, including all financial information and projections (the
"PROJECTIONS"), as the Arranger and First Union may reasonably request in
connection with the arrangement and syndication of the Facility, (ii) to assist,
and to cause its affiliates and advisors to assist, the Arranger in the
preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication, (iii) to make
appropriate officers and representatives of the Company and its subsidiaries
available to participate in information meetings for the potential Lenders at
such times and places as the Arranger may reasonably request, and (iv) to advise
and consult with First Union and the Arranger with respect to the timing of the
tender offer for the Company's shares and the other aspects of the tender offer
process. First Union's commitment as set forth herein and the Arranger's
agreement to provide the services described herein are subject to the condition
that (a) all information (other than the Projections) concerning the Company and
its subsidiaries and the Transactions (the "INFORMATION") that has been or will
be made available to the Arranger or First Union by the Sponsor or any of its
representatives is, or will be when furnished, complete and correct in all
material respects and does not, or will not when furnished, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which such statements are made, and (b) the Projections
that have been or will be made available to the Arranger or First Union by the
Sponsor and the Company or any of their authorized representatives have been or
will be prepared in good faith based upon reasonable assumptions.
The Sponsor also agrees that First Union and its affiliates will be
afforded an opportunity to offer proposals to provide (a) any interest rate
caps, currency swaps and other hedging transactions to be entered into by the
Company or any of its affiliates and (b) cash management, funds transfer, trade,
corporate trust and securities services to be obtained by the Company or any of
its affiliates. In addition, the Sponsor agrees that First Union and its
affiliates will be afforded the opportunity to compete to act as placement agent
or underwriter for any subordinated debt or equity financing to be undertaken by
the Company or any of its affiliates.
The Sponsor agrees to reimburse First Union and the Arranger from time
to time on demand for all of their reasonable fees and expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, execution, syndication, and delivery of this Commitment Letter, the
Term Sheet, the Fee Letter, and the definitive credit documentation for the
Facility, and all of the other transactions described herein, whether or not the
Facility is closed or any credit is extended thereunder. The Sponsor also agrees
to indemnify and hold harmless First Union, the Arranger and each other Lender
and their respective affiliates, directors, officers, employees and agents
(collectively, the "INDEMNIFIED PARTIES") from and against any and all actions,
suits, losses, claims, damages and liabilities of any kind or nature, joint or
several, to which such Indemnified Parties may become subject, related to or
arising out of any of the transactions contemplated herein, including, without
limitation, the execution and delivery of this Commitment Letter, the execution
and delivery of definitive credit
<PAGE> 5
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 5
- ----------------
documentation for the Facility, the syndication and closing of the Facility and
the use of proceeds thereunder, and the closing of the other Transactions, and
will reimburse the Indemnified Parties for all out-of-pocket expenses (including
reasonable attorneys' fees and expenses) on demand as they are incurred in
connection with the investigation of, preparation for, or defense of any pending
or threatened claim or any action or proceeding arising therefrom; PROVIDED,
HOWEVER, that no Indemnified Party shall have any right to indemnification for
any of the foregoing to the extent determined by a final and nonappealable
judgment of a court of competent jurisdiction to have resulted from its own
gross negligence or willful misconduct. This Commitment Letter is addressed
solely to the Sponsor, and neither First Union or the Arranger, on the one hand,
nor the Sponsor or Acquisition Co., on the other hand, shall be liable to the
other or any other person for any indirect or consequential damages that may be
alleged as a result of this Commitment Letter or any of the transactions
referred to herein. In the event that the closing of the Facility fails to occur
for any reason, the provisions of this paragraph shall survive any termination
of this Commitment Letter or the commitment of First Union set forth herein.
Until such time as it has accepted this Commitment Letter in writing as
provided below, the Sponsor is not authorized to show or circulate this
Commitment Letter or the Term Sheet to any other person or entity (other than
Acquisition Co.'s directors, officers and legal counsel and the Company's
management, legal counsel and financial advisor in connection with its
evaluation hereof, provided that each of such persons shall also be bound by the
confidentiality provisions hereof), except as may be required by law or
applicable judicial process.
First Union shall have the right to review and approve any public
announcement or public filing made after the date hereof relating to the
Facility or to First Union before any such announcement or filing is made (such
approval not to be unreasonably withheld or delayed). The Sponsor agrees and
consents to First Union's disclosure of information relating to this transaction
to GOLD SHEETS and other similar bank trade publications. Such information will
consist of deal terms and other information customarily found in such
publications.
This Commitment Letter, the commitment of First Union set forth herein
and the agreement of the Arranger to provide the services set forth herein
shall, in the event this Commitment Letter is accepted by the Sponsor as
provided in the last paragraph hereof, automatically expire at the earliest to
occur of the following (each, a "TERMINATION EVENT"): (i) First Union
discovering or becoming aware, and providing notice thereof to the Sponsor, of
any information not previously disclosed to it that it believes to be materially
inconsistent with its understanding, based on the information provided to it by
or on behalf of the Sponsor or the Company prior to the date hereof, of the
business, properties, operations or condition (financial or otherwise) of
Acquisition Co. and its subsidiaries or the Company and its subsidiaries, (ii)
the occurrence of a material adverse change in the business, properties,
operations or condition (financial or otherwise) of Acquisition Co. and its
subsidiaries or the Company and its subsidiaries or the occurrence of a material
adverse effect on the feasibility of the Transactions
<PAGE> 6
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 6
- ----------------
and, in each case, First Union providing notice thereof to the Sponsor, (iii)
the consummation of the Acquisition or another transaction or series of
transactions in which the Sponsor or any of its affiliates acquires any stock or
assets of the Company, (iv) the termination of (A) the Company's Self-Tender or
(B) the definitive purchase or merger agreement with regard to the Acquisition,
and (v) 5:00 p.m. on June 25, 1999, if the initial borrowing under the Facility
shall not have occurred by such time.
This Commitment Letter and the Fee Letter shall be governed by and
construed in accordance with the internal laws of the State of North Carolina
and constitute the entire agreement between the parties relating to the subject
matter hereof and thereof and supersede any previous agreement, written or oral,
between the parties with respect to the subject matter hereof and thereof. This
Commitment Letter shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the parties hereto, but shall not be
assigned in whole or in part by the Sponsor without the prior written consent of
First Union and the Arranger. This Commitment Letter may not be amended or any
provision hereof waived or modified except by an instrument in writing signed by
each of the parties hereto. This Commitment Letter is intended to be solely for
the benefit of the parties hereto and is not intended to confer any benefits on,
or create any rights in favor of, any other person or entity. This Commitment
Letter may be executed in any number of counterparts, each of which shall be an
original and all of which, when taken together, shall constitute one agreement.
If the Sponsor is in agreement with the foregoing, please indicate
acceptance of the terms hereof by signing the enclosed counterpart of this
Commitment Letter and returning it to First Union, together with an executed
counterpart of the Fee Letter and any payment of fees required under the Fee
Letter to be delivered concurrently therewith, if any, by no later than 5:00
p.m. on April 20, 1999. This Commitment Letter, the commitment of First Union
set forth herein and the agreement of the Arranger to provide the services set
forth herein shall automatically terminate at such time unless signed
counterparts of this letter and the Fee Letter together with any such payment
shall have been delivered to First Union in accordance with the terms of the
immediately preceding sentence.
Sincerely,
FIRST UNION NATIONAL BANK
By: /s/ EDWARD H. ROSS
-----------------------------------
Name: Edward H. Ross
------------------------
Title: Senior Vice President
------------------------
<PAGE> 7
Carreras, Kestner & Co., L.L.C.
April 20, 1999
Page 7
- ----------------
FIRST UNION CAPITAL MARKETS CORP.
By: /s/ GERALD HULLINGER
-------------------------------------
Name: Gerald Hullinger
-------------------------
Title: Vice President
-------------------------
Agreed to and accepted as of the date first above written:
CARRERAS, KESTNER & CO., L.L.C.
By: /s/ JOSEPH W. CARRERAS
----------------------------------
Name: Joseph W. Carreras
---------------------------
Title: President
---------------------------
<PAGE> 8
SUMMARY OF TERMS AND CONDITIONS
$65,000,000 SENIOR SECURED CREDIT FACILITIES
HILITE INDUSTRIES, INC.
BORROWER: Hilite Industries, Inc.
FACILITIES: Facility A: $17,500,000 5-year Senior Secured Term Loans
("Term A"). Facility B: $27,500,000 6 - 1/2-year
Senior Secured Term Loans ("Term B"). Facility C:
$20,000,000 5-year Senior Secured Revolving Credit
Facility (the "Revolver").
The Term A and Term B facilities are collectively
referred to as the "Term Facilities" and, together
with the Revolver, the "Facilities."
A portion of the Revolver, in an amount to be
determined, will be available for use by the Borrower
for the issuance of letters of credit. Letters of
credit may be issued with maturities of up to one
year, renewable annually thereafter, and in any event
shall not extend beyond the Revolving Credit Maturity
Date. The Revolver will also contain a $5,000,000
sublimit for swingline loans to be made available by
First Union.
Agent: First Union National Bank ("First Union" or the "Agent").
First Union will be the issuing bank for all letters
of credit.
Arranger: First Union Capital Markets Corp.
Lenders: First Union and a syndicate of financial institutions
acceptable to the Agent and the Arranger (the
"Lenders") in consultation with the Borrower.
Availability: Term A must be drawn in not more than two draws: the first draw
to fund the Self-Tender (as such term is defined in
the Commitment Letter to which this term sheet is
attached) and the other uses set forth below under
the Use of Proceeds and the second draw to fund
payments to the remaining shareholders in connection
with the Merger (as such term is defined in the
Commitment Letter to which this term sheet is
attached). Term B must be drawn in full in a single
draw on the closing date to fund the uses set forth
below under the Use of Proceeds. Amounts repaid under
the Term Facilities may not be reborrowed.
Loans under the Revolver will be available at any
time prior to the Revolving Credit Maturity Date,
subject to reduction by the aggregate amount of
outstanding or unreimbursed letters of credit.
Maturity Date: Term A: 5 years from the closing date.
Term B: 6-1/2 years from the closing date.
Revolver: 5 years from the closing date ("Revolving
Credit Maturity Date").
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 1
<PAGE> 9
Use of Proceeds: The proceeds of the Facilities shall be used solely (i) to
finance a portion of the tender offer, (ii) to
refinance certain existing debt, (iii) to pay certain
transaction fees and expenses in connection with the
Transactions (as such term is defined in the
Commitment Letter to which this term sheet is
attached) in amounts reasonably acceptable to the
Agent, and (iv) to provide for the working capital
and general corporate requirements of the Borrower
and its subsidiaries, including capital expenditures.
Amortization: Outstanding principal of Term A and Term B will be payable
quarterly in the following annual amounts based on
the following schedule:
<TABLE>
<CAPTION>
Term A Term B
Year Reductions Reductions
---- ---------- ----------
<S> <C> <C>
Year 1 $2,000,000 $ 275,000
Year 2 3,000,000 275,000
Year 3 3,500,000 275,000
Year 4 4,000,000 275,000
Year 5 5,000,000 275,000
Year 6 17,416,670
Year 7 8,708,330
</TABLE>
All outstanding principal of the Revolver will be
due and payable on the Revolving Credit Maturity
Date.
Guaranties: The Facilities will be unconditionally guaranteed by the
parent of the Borrower and all direct and indirect
subsidiaries of the Borrower, whether existing at
closing or thereafter organized or acquired;
provided, however, if any such guarantee by a foreign
subsidiary (a "controlled foreign corporation", as
such term is defined in Section 957 of the Internal
Revenue Code) of the Borrower would have an adverse
tax impact upon the Borrower, then no such guarantee
shall be required.
Collateral: The Facilities will be secured by a first priority perfected
lien on and security interest in (a) 100% of the
capital stock of the Borrower and of each direct and
indirect subsidiary of the Borrower (subject to any
applicable legal restrictions, including, without
limitation, Regulation U and excluding any shares of
the Borrower's capital stock held by unaffiliated
shareholders prior to the merger), whether existing
at closing or thereafter organized or acquired (65%
in the case of foreign subsidiaries to the extent
that a higher percentage would have an adverse tax
impact upon the Borrower), and (b) all of the assets
(including, without limitation, accounts receivable,
inventory, equipment, intellectual property and
other general intangibles, and real property) of the
Borrower and its direct and indirect United States
subsidiaries, whether existing at closing or
thereafter organized or acquired.
Borrowing Options: At the Borrower's option, loans under the Facilities shall
bear interest at (i) the Agent's Base Rate ("Base
Rate") from time to time in effect plus the
applicable Base Rate Margin in effect at such time
with respect to the relevant Facility or (ii) the
applicable LIBOR plus the applicable LIBOR Margin in
effect at such time with
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 2
<PAGE> 10
respect to the relevant Facility, each such Margin to
be determined from time to time in accordance with
the pricing grids set forth in EXHIBIT A.
The Base Rate is the higher of (i) the Agent's prime
commercial lending rate as announced from time to
time or (ii) the federal funds rate plus 0.5% per
annum. LIBOR is the London Interbank Offered Rate for
corresponding deposits of U.S. Dollars for interest
periods of one, two, three or six months, subject to
availability, as selected by the Borrower and as
quoted to the Agent.
Interest on Base Rate loans shall be payable
quarterly in arrears. Interest on LIBOR loans shall
be payable at the end of each applicable interest
period or at three-month intervals, if earlier.
Interest shall be calculated on an actual/360-day
basis for LIBOR loans and an actual/365/366-day basis
for Base Rate loans.
During an event of default under the Facilities, all
outstanding principal, accrued interest and other
amounts shall accrue interest at a rate per annum of
2% in excess of the rate otherwise applicable, and
such interest shall be payable on demand. The
definitive credit documents shall include the Agent's
standard protective provisions for such matters as
increased costs, funding losses, illegality and
withholding taxes.
Commitment Fee: A per annum rate, as determined in accordance with the
pricing grids set forth in Exhibit A, on the
aggregate unutilized portion of the Revolver, payable
quarterly in arrears to the Agent for the ratable
benefit of the Lenders, calculated on an actual/
365-day basis and commencing on the execution date of
the definitive credit agreement for the Facilities.
Letter of Credit Fee: A per annum rate equal to the applicable LIBOR Margin in
effect from time to time for the Revolver (as
determined in accordance with the pricing grids set
forth in EXHIBIT A) on the average daily stated
amount of all letters of credit, payable quarterly in
arrears to the Agent for the ratable benefit of the
Lenders and calculated on an actual/365-day basis. In
addition, the Borrower will pay a facing fee with
respect to each letter of credit in an amount equal
to 0.25% of the average daily stated amount thereof,
payable quarterly in arrears to First Union for its
own account as issuer of letters of credit and
calculated on an actual/365-day basis.
Mandatory Prepayments/
Commitment Reductions: The Borrower will be required to prepay amounts
outstanding under the Facilities, without premium or
penalty (subject to payment of any funding losses
resulting from prepayment of LIBOR loans other than
on the last day of the applicable interest period) as
follows: (i) 100% of the net cash proceeds from the
sale or disposition of assets outside the ordinary
course of business (to the extent permitted pursuant
to the definitive credit agreement), including
insurance proceeds to the extent such insurance
proceeds are not applied within 180 days, after
receipt thereof, towards the repair or replacement of
the corresponding damaged or destroyed assets,
subject to limited exceptions to be agreed upon, (ii)
100% of the net cash proceeds of any issuance or sale
of debt securities (excluding debt issued in
connection with the Acquisition), (iii) 50% of the
net cash proceeds of any issuance or sale of equity
securities (excluding equity issued in connection
with the
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 3
<PAGE> 11
Acquisition), subject to limited exceptions to be
agreed upon, and (iv) 75% of Excess Cash Flow (to be
defined) in accordance with terms mutually acceptable
to the Agent, the Lenders and the Borrower; provided,
that the Excess Cash Flow percentage will be reduced
to 50% during any period when the Leverage Ratio is
3.5 or below. Such proceeds shall be applied first to
the Term Facilities, pro rata among Term A and Term B
and, within each such Facility, to the remaining
amortization payments on a pro rata basis, and then
to the Revolver.
In the event that (a) the sum of the aggregate
principal amount of loans outstanding under the
Revolver and the aggregate face amount of all letters
of credit outstanding under the Revolver exceeds
(b) the aggregate commitments under the Revolver, the
Borrower will immediately repay loans under the
Revolver in the amount of such excess.
Voluntary Prepayments/
Commitment Reductions: The Borrower may prepay amounts outstanding under the
Facilities at any time, without premium or penalty
(subject to advance notice provisions and minimum
repayment amounts to be agreed upon, and subject to
payment of any funding losses resulting from
prepayment of LIBOR loans other than on the last day
of the applicable interest period). Each voluntary
prepayment of the Term Facilities shall be applied
pro rata among Term A and Term B and, within each
such Facility, to the remaining amortization payments
on a pro rata basis. Additionally, the Borrower may,
at its option upon five business days' notice to the
Agent, reduce the aggregate unutilized commitments
under the Revolver in part (in principal amounts of
at least $1,000,000 or an integral multiple thereof)
or in whole. Any such reductions shall be applied to
the Revolver commitments pro rata.
Conditions Precedent
to Borrowing: The initial funding of the Facilities will be subject to
the satisfaction of conditions precedent consistent
with those customarily found in similar financings
and such additional conditions deemed appropriate by
the Agent in the context of the Facilities, including
without limitation the following:
(1) The definitive credit agreement and all other
documentation for the Facilities and the
other Transactions, including all collateral
documentation, employment agreements and the
tender offer and merger documents for the
stock of the Borrower shall be satisfactory
in form and substance to the Agent and the
Lenders;
(2) The corporate and capital structure of the
Borrower and its subsidiaries after giving
effect to the Acquisition Transactions (as
such term is defined in the Commitment Letter
to which this term sheet is attached), the
equity investment and the other related
transactions, and all legal, tax, accounting,
business and other matters relating to the
Transactions or to the Borrower and its
subsidiaries after giving effect thereto
(including, without limitation, the
Acquisition Transactions), shall be
satisfactory in all respects to the Agent;
(3) All governmental and third party consents and
approvals necessary in
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 4
<PAGE> 12
connection with the consummation
of the Facilities and the other
Transactions shall have been
obtained and remain in effect and
shall be satisfactory in all
respects to the Agent;
(4) All filings, recordations and other actions
necessary or in the Agent's reasonable
opinion desirable to perfect the Agent's
liens and security interests in the
Collateral securing the Facilities shall have
been made or taken, or arrangements
satisfactory to the Agent for the completion
thereof shall have been made; and the Agent
shall have received the results of lien
searches with respect to the Borrower and its
subsidiaries in jurisdictions selected by it
and shall be satisfied with the results
thereof;
(5) The Agent shall have received satisfactory
landlord consents for certain of the
Borrower's leased properties and satisfactory
documentation with respect to all of the
owned real property and certain leased real
property of the Borrower and its
subsidiaries, including without limitation
(i) deeds of trust or mortgages duly recorded
and reflecting a first priority lien on the
subject property, (ii) surveys, (iii)
environmental assessments, (iv) flood
certification, (v) title insurance policies,
and such other matters as the Agent may
reasonably require.
(6) Prior to or substantially concurrently with
the initial funding of the Facilities, (i)
the tender offer and the Acquisition (as such
term is defined in the Commitment Letter to
which this term sheet is attached) shall have
been consummated in accordance with the terms
of the definitive documentation therefor,
without any material amendment or waiver
thereof except as approved by the Agent, (ii)
the Borrower shall have accepted tendered
shares representing not less than 75% of its
outstanding shares, and (iii) any existing
indebtedness of the Borrower or any of its
subsidiaries shall have been satisfied in
full and all liens and guarantees in
connection therewith shall have been
released, and the Agent shall have received
satisfactory evidence thereof;
(7) Prior to or substantially concurrently with
the initial funding of the Facilities, the
Borrower shall have received (a) cash
proceeds of approximately $24,000,000 from
the issuance of equity securities to
Carreras, Kestner & Co., L.L.C. (the
"Sponsor") and, when aggregated with the
equity value (determined based on the tender
offer price) of the shares retained by the
Retaining Shareholders (as such term is
defined in the Commitment Letter to which
this term sheet is attached), total equity
contributions in the form of cash and
retained equity of approximately $25,800,000,
on terms and conditions satisfactory to the
Agent and (b) cash proceeds of not less than
$15,000,000 from the issuance of subordinated
debt on terms and conditions satisfactory to
the Agent (the "Subordinated Debt"); in the
event of any additional purchase price
payments required to consummate the tender
offer, including pursuant to Section 262 of
the Delaware General Corporation Law, the
Sponsor shall have entered into a valid and
binding agreement with the Borrower, which
agreement shall remain in full force and
effect after the
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 5
<PAGE> 13
Acquisition and the other Transactions, to
make an additional equity contribution to the
Borrower in an equal amount to fund such
additional payments;
(8) The Agent shall have received (i) unaudited
statements of the Borrower and its
subsidiaries for the fiscal period ending
April 30, 1999, (ii) an opening pro forma
balance sheet of the Borrower and its
subsidiaries as of April 30, 1999 giving
effect to the consummation of the
Acquisition, the Facilities, the Subordinated
Debt and the other Transactions and (iii) a
solvency opinion from an independent firm
acceptable to the Agent, in each case, in
form and substance satisfactory to the Agent;
(9) The Agent shall have received evidence
satisfactory to it that the Borrower is in
compliance with all financial covenants on a
pro forma basis as of a recent date after
giving effect to the Acquisition, the
incurrence of the Subordinated Debt and the
initial borrowing under the Facilities;
(10) The Agent shall be satisfied that (i) total
funded debt of the Borrower and its
subsidiaries on a consolidated basis ("Total
Debt") shall not exceed $68,500,000 after
giving effect to the Acquisition, the initial
borrowing under the Facilities and the
purchase of the Subordinated Debt, (ii) pro
forma EBITDA of the Borrower and its
subsidiaries on a consolidated basis for the
immediately preceding twelve-month period
("Last 12-Month EBITDA") shall not be less
than $14,000,000, and (iii) the ratio of
Total Debt to Last 12-Month EBITDA shall not
be in excess of 4.85:1.0;
(11) The Agent and the Lenders shall have received
such other documents, agreements and opinions
(including but not limited to legal opinions
of counsel to the Borrower and reliance
letters with respect to the legal opinions of
counsel delivered pursuant to the
Transactions) in connection with the
Facilities, all satisfactory in form and
substance, as the Agent or any Lender may
reasonably request; and
(12) There shall not have occurred (a) any
material adverse change in the condition
(financial or otherwise), operations,
properties or business of the Borrower and
its subsidiaries, taken as a whole, or (b)
any event, condition or state of facts that
could reasonably be expected to have such a
material adverse change.
Representations and
Warranties: The definitive credit documentation will contain
representations and warranties consistent with those
customarily found in similar financings and such
additional representations and warranties deemed
appropriate by the Agent in the context of the
Facilities, including without limitation
representations and warranties regarding corporate
organization and power, absence of violation of
organizational documents, other agreements and
applicable laws, absence of material litigation,
obtaining of government approvals, subsidiaries,
payment of taxes, authorization and enforceability
of the credit documents, full disclosure, margin
securities, ERISA
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 6
<PAGE> 14
matters, solvency, accuracy of financial statements,
absence of material adverse change, title to and
sufficiency of assets, real estate, governmental
permits and licenses, insurance, compliance with
laws, environmental matters, validity and perfection
of security interests, Year 2000 compliance,
material contracts and consummation of, and receipt
of proceeds from the Acquisition, the Subordinated
Debt and the other Transactions.
Covenants: The definitive credit documentation will contain
affirmative, negative and financial covenants
consistent with those customarily found in similar
financings and such additional covenants deemed
appropriate by the Agent in the context of the
Facilities, including without limitation: (i)
delivery of quarterly unaudited consolidated and
certain consolidating financial statements and
annual audited consolidated and certain unaudited
consolidating financial statements, together with
financial covenant compliance certificates; (ii)
annual delivery of operating budget and cash flow
projections, prepared on a monthly basis; (iii)
quarterly delivery of accounts receivable aging and
inventory report; (iv) delivery of regulatory
reports, management letters, public filings, reports
to stockholders and other specified business
information; (v) delivery of notice of material
litigation, proceedings, events of default, ERISA
events and other significant matters; (vi)
maintenance of corporate existence, franchises and
properties; compliance with laws; payment of taxes
and other obligations; and maintenance of insurance,
books and records; (vii) Year 2000 compliance;
(viii) restrictions on consolidation, merger, sale
or disposition of assets and sale-leaseback
transactions; (ix) restrictions on indebtedness,
including guaranties; (x) restrictions on liens
(negative pledge); (xi) restrictions on loans, joint
ventures, new subsidiaries, acquisitions and other
investments; (xii) restrictions on dividends,
redemptions, distributions and other restricted
payments; (xiii) restrictions on transactions with
affiliates; (xiv) restrictions on changes in lines
of business; and (xv) restrictions on amendments to
subordinated debt and equity documents, other
negative pledges, burdensome covenants in other
contracts, changes in accounting policies and
changes in fiscal year.
Financial Covenants: Financial covenants, with definitions of financial terms,
levels and other terms to be agreed upon by the
Borrower and the Agent, determined on a consolidated
basis for the Borrower and its subsidiaries, and to
include, at a minimum, the following:
(a) Maximum Leverage Ratio;
(b) Minimum Interest Coverage Ratio;
(c) Maximum Annual Capital Expenditures;
(d) Minimum EBITDA; and
(e) Minimum Working Capital Coverage
Ratio.
Events of Default: The definitive credit documentation will contain events
of default consistent with those
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 7
<PAGE> 15
customarily found in similar financings and such
additional events of default deemed appropriate by
the Agent in the context of the Facilities,
including without limitation failure to pay any
principal, interest or fees when due (provided, that
the payment of interest and fees shall have a
two-business day grace period); breach of covenants
(with customary grace periods for certain
affirmative covenants); material incorrectness when
made of any representation or warranty; payment or
other default under other material indebtedness;
bankruptcy or insolvency; judgment or ERISA liens;
actual or asserted invalidity of guaranty or
security documents; and change of control of the
Borrower.
Interest Rate
Protection: Within 90 days after closing, the Borrower will be
required to have fixed or hedged at least 50% of the
Term Facilities for a period of not less than 3
years on terms acceptable to the Agent.
Assignments and
Participations: Customary participation rights will be provided, subject
to voting restrictions on significant matters.
Assignments by Lenders to banks and other financial
institutions meeting certain size thresholds will be
permitted with the approval (not to be unreasonably
withheld) of the Agent and the Borrower, subject to
minimum amounts to be agreed upon and payment of a
$3,000 assignment fee to the Agent.
Required Lenders: Majority.
Expenses and
Indemnification: The Borrower will pay (a) all reasonable out-of-pocket
costs and expenses of the Agent and the Arranger
(including the reasonable fees and disbursements of
counsel) in connection with the preparation,
execution, delivery and administration of the
definitive documentation for the Facilities and any
amendment or waiver with respect thereto and the
syndication of the Facilities, and (b) all
reasonable out-of-pocket costs and expenses of the
Agent and the Lenders (including the reasonable fees
and disbursements of counsel) in connection with the
enforcement of the Facilities.
The Borrower will indemnify the Arranger, the Agent
and the Lenders and hold them harmless against all
claims, losses, liabilities and expenses (including
reasonable fees and disbursements of counsel)
arising from or relating to the proposed financing
contemplated hereby and the other transactions
connected therewith, except to the extent of such
indemnified party's gross negligence or willful
misconduct.
Governing Law: North Carolina.
Agent's Counsel: Robinson, Bradshaw & Hinson, P.A.
Miscellaneous: Customary provisions regarding amendments and waivers,
consent to forum and service of process, and other
miscellaneous matters. All parties will agree to
mandatory arbitration of disputes.
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 8
<PAGE> 16
EXHIBIT A
Pricing Grids
The applicable LIBOR Margins, Base Rate Margins and commitment fee
percentage will be determined according to the following grids by reference to
the Leverage Ratio, with each change in the applicable LIBOR Margins, Base Rate
Margins and commitment fee percentage to be effective 10 days after delivery to
the Agent of quarterly or annual financial statements and a compliance
certificate showing the Leverage Ratio as of the last day of the fiscal quarter
most recently ended.
<TABLE>
<CAPTION>
Pricing for Term A, Revolver and Commitment Fee
-----------------------------------------------
Applicable Applicable Base Applicable
Tier Leverage Ratio LIBOR Margin Rate Margin Commitment Fee
---- -------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
I Greater than or equal to 4.5 to 2.75% 1.50% 0.50%
1.0
II Less than 4.5 to 1.0 but greater 2.50% 1.25% 0.50%
than or equal to 4.0 to 1.0
III Less than 4.0 to 1.0 but greater 2.25% 1.00% 0.375%
than or equal to 3.5 to 1.0
IV Less than 3.5 to 1.0 but greater 2.00% 0.75% 0.375%
than or equal to 3.0 to 1.0
V Less than 3.0 to 1.0 1.75% 0.50% 0.375%
</TABLE>
Notwithstanding the foregoing, the initial applicable LIBOR Margin and
applicable Base Rate Margin for Term A and the Revolver and the initial
commitment fee percentage (from the date of closing until the delivery and
effectiveness of the quarterly financial statements for the fiscal quarter
ending September 30, 1999) will be set at Tier I.
<TABLE>
<CAPTION>
Pricing for Term B
------------------
Term B
------
Applicable Applicable
LIBOR Base Rate
----- ---------
Tier Leverage Ratio Margin Margin
---- -------------- ------ ------
<S> <C> <C> <C>
I Greater than or equal to 4.5 to 1.0 3.25% 2.00%
II Less than 4.5 to 1.0 but greater than or equal to 4.o to 1.0 3.25% 2.00%
III Less than 4.0 to 1.0 but greater than or equal to 3.5 to 1.0 3.00% 1.75%
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 10
<PAGE> 17
<S> <C> <C> <C>
IV Less than 3.5 to 1.0 but greater than or equal to 3.0 to 1.0 3.00% 1.75%
V Less than 3.0 to 1.0 3.00% 1.75%
</TABLE>
Notwithstanding the foregoing, the initial applicable LIBOR Margin and
applicable Base Rate Margin for Term B (from the date of closing until the
delivery and effectiveness of the quarterly financial statements for the fiscal
quarter ending September 30, 1999) will be set at Tier I.
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS MIDDLE MARKET CAPITAL GROUP PAGE 11
<PAGE> 1
Exhibit (c)(1)
AGREEMENT AND PLAN OF MERGER
DATED AS OF
APRIL 26, 1999
AMONG
HILITE INDUSTRIES, INC.
HILITE HOLDINGS, LLC
AND
HILITE MERGECO, INC.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS(1)
ARTICLE I
THE OFFER
<S> <C>
SECTION 1.01. The Offer.....................................................2
SECTION 1.02. Company Action................................................3
SECTION 1.03. Directors.....................................................4
ARTICLE II
STOCK PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of Shares...................................5
SECTION 2.02. Purchase Price................................................5
SECTION 2.03. Closing.......................................................5
SECTION 2.04. Closing Deliveries by the Company.............................5
SECTION 2.05. Closing Deliveries by Buyer...................................6
ARTICLE III
THE MERGER
SECTION 3.01. The Merger....................................................6
SECTION 3.02. Conversion of Shares..........................................7
SECTION 3.03. Surrender and Payment.........................................7
SECTION 3.04. Dissenting Shares.............................................9
SECTION 3.05. Stock Options.................................................9
SECTION 3.06. Merger Without Meeting of Stockholders.......................10
SECTION 3.07. Closing......................................................10
SECTION 3.08. Certificate of Incorporation.................................10
SECTION 3.09. By-Laws......................................................10
SECTION 3.10. Directors and Officers.......................................10
SECTION 3.11. Effects of the Merger........................................11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
SECTION 4.01. Corporate Existence and Power................................11
SECTION 4.02. Corporate Authorization......................................11
SECTION 4.03. Governmental Authorization...................................12
SECTION 4.04. Non-Contravention............................................12
SECTION 4.05. Capitalization...............................................12
SECTION 4.06. Subsidiaries.................................................13
SECTION 4.07. Investments..................................................14
SECTION 4.08. SEC Filings..................................................14
SECTION 4.09. Financial Statements.........................................14
SECTION 4.10. Disclosure Documents.........................................15
SECTION 4.11. Absence of Certain Changes...................................15
SECTION 4.12. No Undisclosed Material Liabilities..........................17
SECTION 4.13. Litigation; Permits..........................................17
SECTION 4.14. Taxes........................................................18
SECTION 4.15. Employee Matters.............................................19
SECTION 4.16. Labor Matters................................................22
SECTION 4.17. Compliance with Laws.........................................22
SECTION 4.18. Finders' Fees................................................22
SECTION 4.19. Environmental Matters........................................23
SECTION 4.20. Property.....................................................24
SECTION 4.21. Insurance....................................................25
SECTION 4.22. Patents and Trademarks.......................................25
</TABLE>
- --------
(1) The Table of Contents is not a part of this Agreement.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 4.23. Material Contracts...........................................26
SECTION 4.24. Shareholder Rights Agreement.................................26
SECTION 4.25. Voting Requirements..........................................26
SECTION 4.26. Opinion of Financial Advisor.................................26
SECTION 4.27. Year 2000 Issues.............................................27
SECTION 4.28. Transaction Fees.............................................27
SECTION 4.29. Insider Interests............................................27
SECTION 4.30. Full Disclosure..............................................27
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
SECTION 5.01. Corporate Existence and Power................................28
SECTION 5.02. Corporate Authorization......................................28
SECTION 5.03. Governmental Authorization...................................28
SECTION 5.04. Non-Contravention............................................28
SECTION 5.05. Disclosure Documents.........................................28
SECTION 5.06. Finders' Fees................................................29
SECTION 5.07. Financing....................................................29
SECTION 5.08. Share Ownership..............................................29
SECTION 5.09. Merger Subsidiary's Operations...............................29
SECTION 5.10. Due Diligence................................................29
ARTICLE VI
COVENANTS OF THE COMPANY
SECTION 6.01. Conduct of the Company.......................................30
SECTION 6.02. Stockholder Meeting; Proxy Material..........................30
SECTION 6.03. Access to Information........................................31
SECTION 6.04. Other Offers.................................................31
SECTION 6.05. Notices of Certain Events....................................33
ARTICLE VII
COVENANTS OF BUYER
SECTION 7.01. Obligations of Merger Subsidiary.............................34
SECTION 7.02. Voting of Shares.............................................34
SECTION 7.03. Director and Officer Liability...............................34
SECTION 7.04. Merger Subsidiary Subscription Agreements....................36
ARTICLE VIII
COVENANTS OF BUYER
AND THE COMPANY
SECTION 8.01. Best Efforts.................................................36
SECTION 8.02. Certain Filings..............................................37
SECTION 8.03. Public Announcements.........................................37
SECTION 8.04. Conveyance Taxes.............................................37
SECTION 8.05. Further Assurances...........................................37
SECTION 8.06. Employee Matters.............................................38
SECTION 8.07. Certain Litigation...........................................38
SECTION 8.08. Recapitalization.............................................39
SECTION 8.09. Stop Transfer Order..........................................39
ARTICLE IX
CONDITIONS TO THE STOCK PURCHASE AND THE MERGER
SECTION 9.01. Conditions to the Stock Purchase............................39
SECTION 9.02. Conditions to the Merger.....................................40
ARTICLE X
TERMINATION
SECTION 10.01. Termination.................................................41
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION 10.02. Effect of Termination.......................................43
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Notices.....................................................43
SECTION 11.02. Survival of Representations and Warranties..................44
SECTION 11.03. Amendments; No Waivers......................................44
SECTION 11.04. Expenses....................................................45
SECTION 11.05. Successors and Assigns......................................47
SECTION 11.06. Governing Law...............................................48
SECTION 11.07. Severability................................................48
SECTION 11.08. Third Party Beneficiaries...................................48
SECTION 11.09. Entire Agreement............................................48
SECTION 11.10. Counterparts; Effectiveness.................................48
SECTION 11.11. Jurisdiction................................................48
SECTION 11.12. Knowledge...................................................49
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
Company Disclosure Letter
Section 4.01: Licenses
Section 4.03: Governmental Authorization
Section 4.04: Non-Contravention
Section 4.05: Stock Options
Section 4.06: Subsidiaries
Section 4.07: Investments
Section 4.11: Absence of Certain Changes
Section 4.12: Material Liabilities
Section 4.13: Litigation, Permits
Section 4.15: Employee Matters
Section 4.16: Labor Matters
Section 4.17: Compliance with Laws
Section 4.19: Environmental Matters
Section 4.20: Property
Section 4.21: Insurance
Section 4.22: Patents and Trademarks
Section 4.23: Material Contracts
Section 4.28: Transaction Fees
Section 4.29: Insider Interests
Section 5.10: Data Room Index
Section 7.03: Director and Officer Liability
Section 8.06: Employee Bonuses
Exhibit A -- Confidentiality Agreement
<PAGE> 6
DEFINITIONS
The following terms which may appear in more than one Section of this
Agreement are defined in the following Sections:
TERMS SECTION OR OTHER LOCATION
- ----- -------------------------
Advisor Section 1.02 (a)
Agreement Preamble
Balance Sheet Section 4.09
Balance Sheet Date Section 4.09
Benefit Arrangement Section 4.15 (A)
Business Day Section 1.01
Buyer Preamble
Buyer Shares Section 2.01 (a)
By-Laws Section 1.02 (a)
CBA Section 4.16
Certificate of Incorporation Section 1.02 (a)
Code Section 4.14 (a)
Company Preamble
Company 10-K Section 4.06 (a)
Company 10-Qs Section 4.08 (a)
Company Acquisition Agreement Section 6.04
Company Designees Section 1.03 (a)
Company Disclosure Documents Section 4.10 (a)
Company Disclosure Letter Section 4.01
Company Notice Section 6.04
Company Permits Section 4.13
Company Proxy Statement Section 6.02
Company Securities Section 4.05
Company SEC Documents Section 4.08 (a)
Company Stockholder Meeting Section 6.02
Competing Proposal Section 11.04(b)(i)(B)(3)
Competing Proposal Agreement Section 11.04(b)(i)(B)(4)
Confidentiality Agreement Section 6.03
DGCL Preamble
Depositary Section 3.03 (a)
Effective Time Section 3.01 (b)
Employee Agreement Section 4.15 (B)
Employee Plan Section 4.15 (C)
Environmental Law Section 4.19 (b)
Environmental Permits Section 4.19 (b)
ERISA Section 4.15 (D)
ERISA Affiliate Section 4.15 (E)
Exchange Act Section 1.01
Expenses Section 11.04(b)(ii)
Expiration Date Section 1.01
Fiduciary Duties Section 1.02 (c)
Financing Section 5.07
GAAP Section 4.09
Governmental Entity Section 4.03
HSR Act Section 4.03
HSR Authority Section 8.01
<PAGE> 7
Indemnified Parties Section 7.03
Leases Section 4.20 (c)
Licenses Section 4.01
Lien Section 4.04
Loan Agreement Section 4.06 (b)
Material Adverse Effect Section 4.01
Material Contracts Section 4.23 (a)
Material Patents and Trademarks Section 4.22 (a)
Merger Section 3.01 (a)
Merger Closing Section 2.07
Merger Closing Date Section 2.07
Merger Consideration Section 3.02 (a)
Merger Subsidiary Preamble
Minimum Condition Section 1.01 (a)
Multiemployer Plan Section 4.15 (F)
Offer Preamble
Offer Completion Date Section 6.04
Offer Documents Section 1.01 (b)
Offer Price Section 1.01 (a)
Offer to Purchase Section 1.01 (b)
Option Section 2.05 (a)
Option Consideration Section 2.05 (a)
Outside Termination Date Section 10.01 (ii)
PBGC Section 4.15 (d)
Person Section 2.03 (c)
Pre-Closing Tax Period Section 4.14 (b)
Purchase Price Section 2.02
Real Property Section 4.20 (b)
Retained Employees Section 8.06 (a)
Returns Section 4.14 (a)
Schedule 13E-3 Section 1.01 (b)
Schedule 13E-4 Section 1.01 (b)
SEC Section 1.01 (b)
Secretary Section 3.01 (b)
Share(s) Preamble
Stockholder Agreement Preamble
Stock Purchase Closing Section 2.03
Stock Purchase Closing Date Section 2.03
Subsidiary Section 4.06 (a)
Subsidiary Agreement Section 4.06 (b)
Subsidiary Securities Section 4.06 (b)
Superior Proposal Section 6.04
Surviving Corporation Section 3.01 (a)
Takeover Proposal Section 6.04
Takeover Proposal Event Section 11.04(b)(i)(C)(3)
Tax Asset Section 4.14 (a)
Taxes Section 4.14 (b)
Termination Fee Section 11.04
Title IV Plan Section 4.15 (G)
Transactions Section 1.01 (b)
Transaction Fees Section 4.28
Trigger Event Section 11.04 (b)
UST's Section 4.19 (a) (iii)
<PAGE> 8
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of April 26, 1999 (this
"AGREEMENT") among HILITE INDUSTRIES, INC., a Delaware corporation (the
"COMPANY"), HILITE HOLDINGS, LLC, a Delaware limited liability company
("BUYER"), and HILITE MERGECO, INC., a Delaware corporation and a wholly owned
subsidiary of Buyer ("MERGER SUBSIDIARY").
WHEREAS, the Boards of Managers or Directors, as the case may
be, of Buyer, Merger Subsidiary and the Company have each determined that it is
in the best interests of their respective members or stockholders for Buyer to
acquire the Company upon the terms and subject to the conditions set forth
herein; and
WHEREAS, in furtherance of such acquisition, it is proposed
that the Company shall make a cash tender offer (the "OFFER") to acquire all of
the issued and outstanding shares of Common Stock, par value $.01 per share, of
the Company (referred to collectively as the "SHARES" and individually as a
"SHARE"), for $14.25 per Share net to the seller in cash, upon the terms and
subject to the conditions of this Agreement and the Offer; and
WHEREAS, in furtherance of such acquisition, Buyer, Merger
Subsidiary and certain significant stockholders of the Company have entered into
a Stockholders Agreement (the "STOCKHOLDERS AGREEMENT") pursuant to which such
Stockholders agree, among other things, to tender pursuant to the Offer all of
their Shares, except for certain Shares to be retained by such stockholders in
accordance with the Stockholders Agreement; and
WHEREAS, the Board of Directors of the Company has unanimously
approved the making of the Offer and resolved and agreed to recommend that
holders of Shares tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the
respective Boards of Managers or Directors, as the case may be, of Buyer and the
Company has each approved the purchase by Buyer and the sale by the Company (the
"Stock Purchase") of 1,681,414 Shares for the Offer Price immediately prior to
the consummation of the Offer; and
WHEREAS, the parties hereto intend that the acquisition be
treated as a recapitalization for financial accounting purposes; and
WHEREAS, also in furtherance of such acquisition, the Boards
of Managers or Directors, as the case may be, of Buyer, Merger Subsidiary and
the Company have each approved the merger of Merger Subsidiary with and into the
Company in accordance with the General Corporation Law of the State of Delaware
(the "DGCL") following the consummation of the Offer and upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Buyer, Merger Subsidiary and the Company hereby agree as follows:
<PAGE> 9
ARTICLE I
THE OFFER
SECTION 1.01. THE OFFER.
(a) Provided that nothing shall have occurred that would
result in a failure to satisfy any of the conditions set forth in Annex I
hereto, the Company shall commence, within the meaning of Rule 13e-4(a)(4) under
the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), as promptly as
practicable after the date hereof, but in no event later than five business days
(as such term is defined in Rule 14d-1 under the Exchange Act, a "BUSINESS DAY")
following the public announcement of the terms of this Agreement, the Offer to
purchase all of the outstanding Shares at a price of $14.25 per Share (the
"OFFER PRICE"), net to the sellers in cash, subject to any amounts required to
be withheld under applicable federal, state, local or foreign income tax
regulations. Subject to the extension of the Offer as provided below, the
obligation of the Company to commence the Offer, to consummate the Offer and to
accept for payment and to pay for any Shares validly tendered and not withdrawn
shall be subject only to: (i) the condition that there shall be validly tendered
in accordance with the terms of the Offer prior to the expiration date of the
Offer and not withdrawn a number of Shares which represents at least a majority
of the Shares outstanding on a fully diluted basis (the "MINIMUM CONDITION"),
and (ii) the satisfaction or waiver of the other conditions set forth in Annex I
hereto. At Buyer's request, the Company shall increase the price per Share
payable in the Offer and make such other changes to the Offer as Buyer may
request, provided, however, that the Company will not be required to make any
changes which decrease the price per Share payable in the Offer, which change
the form of consideration to be paid in the Offer, which reduce the maximum
number of Shares to be purchased in the Offer, which impose conditions to the
Offer in addition to those set forth in Annex I hereto or which broaden the
scope of such conditions. The Company shall make no other changes to the Offer
or waive any conditions to the Offer or take any other action, including,
without limitation, notice of acceptance of tendered Shares to the Depositary,
with respect to the Offer without Buyer's prior written consent. The Offer will
remain open (unless the Company, at the written request of Buyer, terminates the
Offer upon the occurrence of an event in Annex I) for a period of twenty
Business Days from the commencement of the Offer in accordance with applicable
law (the "EXPIRATION DATE") unless the Company, at the request of Buyer, extends
the period of time for which the Offer is open as may be permitted or required
by this Agreement, or applicable laws in which case the term "Expiration Date"
will mean the latest time and date at which the Offer as so extended by the
Company expires. Notwithstanding the foregoing, the Company shall extend the
Offer at any time up to the Outside Termination Date (as defined in Section
10.01) for one or more periods of not more than an aggregate of 10 Business
Days, if at the initial expiration date of the Offer, or any extension thereof,
the condition to the Offer requiring the expiration or termination of any
applicable waiting periods under the HSR Act (as defined in Section
4.03) is not satisfied or required. In addition, the Offer Price may be
increased and the Offer may be extended to the extent required by law in
connection with such increase in each case only at the request of Buyer. The
Company shall, at Buyer's request, extend the Offer beyond the initial
Expiration Date for a period of up to 10 Business Days, if, on the date of such
extension, more than 85% but less than 90% of the outstanding Shares on a fully
diluted basis have been tendered. Subject to the terms and conditions of the
Offer and subject to the closing of the Stock Purchase as set forth in Article
II herein, the Company shall pay, as promptly as practicable after expiration of
the Offer, for all Shares validly tendered and not withdrawn. Notwithstanding
the foregoing, the Company shall not be required to consummate the Offer or pay
the Offer Price for the Shares tendered unless it shall have received the
proceeds from the sale of the Buyer Shares and the Financing or other funds
arranged for by Buyer in an amount which shall be equal to or greater than the
Offer Price multiplied by the number of Shares tendered.
(b) As soon as practicable on the date of commencement of the
Offer, the Company shall file with the Securities and Exchange Commission (the
"SEC"), an Issuer Tender Offer Statement on Schedule 13E-4 with respect to the
Offer which will contain the offer to purchase and form of the related letter of
transmittal (together with any supplements or amendments thereto, the "SCHEDULE
13E-4"), and the Company,
<PAGE> 10
Buyer and Merger Subsidiary shall file with the SEC a Rule 13E-3 Transaction
Statement on Schedule 13E-3 (together with all amendments and supplements
thereto, the "SCHEDULE 13E-3") with respect to the Offer, the Stock Purchase,
the Merger and the other transactions contemplated by this Agreement
(collectively, the "TRANSACTIONS"). The Schedule 13E-4 and Schedule 13E-3 shall
contain or shall incorporate by reference an offer to purchase (the "OFFER TO
PURCHASE") and forms of the related letter of transmittal and any other
documents related to the Offer (the Schedule 13E-4, together with the Schedule
13E-3, the Offer to Purchase and such other documents, together with any
supplements or amendments thereto, are collectively referred to herein as the
"OFFER DOCUMENTS"). Buyer and the Company each agree promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that it shall have become false or misleading in any material respect. Buyer and
the Company agree 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,
in each case as and to the extent required by applicable federal securities
laws. Buyer and its counsel shall be given a reasonable opportunity to review
and comment on the Offer Documents prior to their being filed with the
applicable authorities.
SECTION 1.02. COMPANY ACTION.
(a) The Company hereby approves and agrees to undertake the
Offer and represents that its Board of Directors, at a meeting duly called and
held on April 26, 1999, has (i) unanimously determined that this Agreement and
the Transactions are fair to and in the best interest of the Company's
stockholders, (ii) unanimously approved this Agreement, the Stockholders
Agreement and the Transactions, which approval satisfies in full the
requirements of the DGCL including Section 203 of the DGCL, and the Amended and
Restated Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION") and
the Amended and Restated By Laws (the "BY-LAWS") of the Company and (iii)
subject to Section 6.04 (b), unanimously resolved to recommend acceptance of the
Offer and approval and adoption of this Agreement and the Merger by its
stockholders. The Company shall include a statement of such recommendation and
approval in the Offer Documents.
The Company represents that Bowes Hollowell Conner & Co. (the
"ADVISOR") as financial advisors to the Company, has delivered to the Company's
Board of Directors its written opinion that the cash consideration to be
received in the Offer and the Merger by the holders of Shares (other than any
holders of Shares who will retain Shares following consummation of the Offer and
the Merger) is fair from a financial point of view to such holders. The Company
has been advised that all of its directors and executive officers intend to
tender their Shares pursuant to the Offer (except to the extent provided in the
Stockholders Agreement). The Company agrees to, and has been authorized by the
financial advisor to permit, subject to prior review and consent of the
financial advisor (such consent not to be unreasonably withheld), the inclusion
of the fairness opinion (or a reference thereto) in the Offer Documents.
(b) The Company shall take all action as may be necessary to
effect the Offer as contemplated by this Agreement, including, without
limitation, promptly mailing the Offer Documents to the record holders and
beneficial owners of the Shares.
(c) References herein to the "FIDUCIARY DUTIES" of the members
of the Board of Directors of the Company mean the fiduciary duties of such
members to the holders of Shares.
SECTION 1.03. DIRECTORS.
(a) Promptly upon the consummation of the Stock Purchase and
the acceptance for payment by the Company of any Shares, Buyer shall be entitled
<PAGE> 11
to designate the number of directors, rounded up to the next whole number, on
the Company's Board of Directors that equals the product of (i) the total number
of directors on the Company's Board of Directors (giving effect to the election
of any additional directors pursuant to this Section) and (ii) the percentage
that the number of Shares owned by Buyer bears to the total number of Shares
outstanding, and the Company shall take all action necessary to cause Buyer's
designees to be elected or appointed to the Company's Board of Directors,
including, without limitation, increasing the number of directors and seeking
and accepting resignations of incumbent directors. At such times, the Company
will use its best efforts to cause individuals designated by Buyer to constitute
the same percentage as such individuals represent on the Company's Board of
Directors of (x) each committee of such Board (other than any committee of such
Board established to take action under this Agreement), (y) each board of
directors of each Subsidiary (as defined in Section 4.06) and (z) each committee
of each such board. Notwithstanding the foregoing, until the Effective Time (as
defined in Section 2.01(b)), the Company shall retain as members of its Board of
Directors at least two directors who are directors of the Company on the date
hereof (the "COMPANY DESIGNEES").
(b) The Company's obligations to appoint designees to the
Board of Directors shall be subject to Section 14(f) of the Exchange Act (as
defined in Section 4.03) and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to Section 14(f) and Rule
14f-i in order to fulfill its obligation under this Section 1.03 and shall
include in the Schedule 13E-4 such information with respect to the Company and
its officers and directors as is required under Section 14(f) and Rule 14f-1 to
fulfill its obligations under this Section 1.03. Buyer will supply to the
Company in writing and be solely responsible for any information with respect to
itself and its nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1.
(c) From and after the time, if any, that Buyer's designees
constitute a majority of the Company's Board of Directors until the Effective
Time, any amendment of this Agreement, any termination of this Agreement by the
Company, any extension of time for performance of any of the obligations of
Buyer or Merger Subsidiary hereunder, any waiver of any condition to the
obligations of the Company or any of the Company's rights hereunder or other
action by the Company hereunder may be effected only by the action of a majority
of the directors of the Company then in office who were directors of the Company
on the date hereof, which action shall be deemed to constitute the action of the
full Board of Directors; PROVIDED that if there shall be no such directors, such
actions may be effected by majority vote of the entire Board of Directors of the
Company.
ARTICLE II
STOCK PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of Shares.
(a) Upon the terms and subject to the conditions of this
Agreement, at the Stock Purchase Closing (as defined herein), the Company shall
sell to Buyer and Buyer shall purchase from the Company, 1,681,414 Shares (the
"BUYER SHARES").
(b) The Buyer Shares will be validly issued, fully paid and
nonassessable, and will be issued free of preemptive rights or any Liens.
SECTION 2.02. PURCHASE PRICE. The aggregate purchase price for
the Buyer Shares shall be the number of Buyer Shares multiplied by the Offer
Price or such increased price per share payable in the Offer in accordance with
Section 1.01(a) (the "PURCHASE PRICE").
<PAGE> 12
SECTION 2.03. CLOSING. Upon the terms and subject to the
conditions of this Agreement, the sale and purchase of the Buyer Shares
contemplated by this Agreement shall take place at a closing (the "STOCK
PURCHASE CLOSING") to be held at the offices of Jones, Day, Reavis & Pogue, 599
Lexington Avenue, New York, New York, at 10:00 a.m., on the day after the Offer
is scheduled to expire, or at such other place or at such other time or on such
other date as the Company and Buyer may mutually agree upon in writing (the day
on which the Closing takes place being the "STOCK PURCHASE CLOSING DATE").
SECTION 2.04. CLOSING DELIVERIES BY THE COMPANY. At the Stock
Purchase Closing, the Company shall deliver or cause to be delivered to Buyer:
(a) stock certificates evidencing the Buyer Shares;
(b) a receipt for the Purchase Price; and
(c) the certificates and other documents required to be
delivered pursuant to Section 9.01(b)(iii).
SECTION 2.05. CLOSING DELIVERIES BY BUYER. At the Stock
Purchase Closing, Buyer shall deliver to the Company:
(a) the Purchase Price by wire transfer of immediately
available funds to an account at a United States bank designated in writing by
the Company, which designation shall be received by Buyer at least three
Business Days prior to the Stock Purchase Closing;
(b) the certificates and other documents required to be
delivered pursuant to Section 9.01(c)(iii); and
(c) Buyer shall arrange for the Company to receive
financing which, together with the Purchase Price, shall be equal to or greater
than the Offer Price multiplied by the number of Shares tendered.
ARTICLE III
THE MERGER
SECTION 3.01. THE MERGER.
(a) At the Effective Time (as defined in Section 3.01(b)),
Merger Subsidiary shall be merged (the "MERGER") with and into the Company in
accordance with the DGCL, whereupon the separate existence of Merger Subsidiary
shall cease, and the Company shall be the surviving corporation (the "SURVIVING
CORPORATION").
(b) As soon as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger, the Company
and Merger Subsidiary will file a certificate of merger with the Secretary of
State of the State of Delaware (the "SECRETARY") and make all other filings or
recordings required by the DGCL in connection with the Merger. The Merger shall
become effective on such date as the certificate of merger is duly filed with
the Secretary or at such later date as is specified in the certificate of merger
(the "EFFECTIVE TIME").
(c) From and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities, liabilities and duties of
the Company and Merger Subsidiary, all
<PAGE> 13
as provided under the DGCL.
(d) Buyer may, with the consent of the Company, modify the
structure of the Merger if Buyer determines it advisable to do so because of tax
or other considerations, and the parties hereto shall promptly enter into any
amendment to this Agreement necessary or desirable to accomplish such structure
modification, provided that no such amendment shall reduce the Merger
Consideration or delay the Stock Purchase Closing or the Effective Time.
SECTION 3.02. CONVERSION OF SHARES. At the Effective Time by
virtue of the Merger and without any action on the part of any stockholder:
(a) each Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section, 3.02(b) or 3.02(d) or as
provided in Section 3.04 with respect to Shares as to which properly exercised
dissenters rights are available under the DGCL, be canceled and converted into
the right to receive the Offer Price in cash or any higher price paid for each
Share in the Offer, without interest (the "MERGER CONSIDERATION") upon surrender
and exchange of the certificates representing such Shares in accordance with
Section 3.03. Any payment made pursuant to this Section 3.02(a) will be made net
of applicable withholding taxes to the extent such withholding is required by
law.
(b) each Share held by the Company as treasury stock or owned
by Merger Subsidiary or any other subsidiary of Buyer or the Company immediately
prior to the Effective Time shall be canceled, and no payment shall be made with
respect thereto;
(c) each share of common stock of Merger Subsidiary
outstanding immediately prior to the Effective Time shall be converted and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock of the Surviving Corporation; and
(d) the aggregate number of Shares owned by certain
stockholders and by existing management which shall be retained by such persons
pursuant to the Stockholders Agreement and the Buyer Shares, shall not be
canceled as provided above, but shall remain outstanding.
SECTION 3.03. SURRENDER AND PAYMENT.
(a) Prior to the Effective Time, Buyer shall appoint a
depositary (the "DEPOSITARY") for the purpose of exchanging certificates
representing Shares for the Merger Consideration. The Depositary shall at all
times be a commercial bank having a combined capital and surplus of at least
$100,000,000. Buyer will arrange for financing for the Company in an amount
sufficient for the Company to pay to the Depositary immediately available funds
in amounts necessary to make payments pursuant to Section 3.02 and this Section
3.03 to holders of Shares entitled thereto. Promptly after the Effective Time,
the Company will send, or will cause the Depositary to send, but in no event
later than three Business Days after the Effective Time, to each holder of
Shares at the Effective Time a letter of transmittal for use in such exchange
(which shall specify that the delivery shall be effected, and risk of loss and
title shall pass, only upon proper delivery of the certificates representing
Shares to the Depositary).
(b) Each holder of Shares that have been converted into a
right to receive the Merger Consideration, upon surrender to the Depositary of a
certificate or certificates properly representing such Shares, together with a
properly completed letter of transmittal covering such Shares, will be entitled
to receive the Merger Consideration payable in respect of such Shares. Until so
surrendered, each such certificate shall, after the Effective Time, represent
for all purposes, only the right to receive such
<PAGE> 14
Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid
to a Person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Depositary any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Shares or establish to the satisfaction of the
Depositary that such tax has been paid or is not payable. For purposes of this
Agreement, "PERSON" means an individual, a corporation, limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(d) After the Effective Time, there shall be no further
registration of transfers of Shares. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the consideration provided for, and in accordance
with the procedures set forth, in this Article III.
(e) Any portion of the Merger Consideration paid to the
Depositary pursuant to Section 3.03(a) that remains unclaimed by the holders of
Shares one year after the Effective Time shall be returned to the Surviving
Corporation, upon demand, and any such holder who has not exchanged his Shares
for the Merger Consideration in accordance with this Section prior to that time
shall thereafter look only to Surviving Corporation for payment of the Merger
Consideration in respect of his Shares. Notwithstanding the foregoing, Buyer,
Merger Subsidiary and the Surviving Corporation shall not be liable to any
holder of Shares for any amount paid to a public official pursuant to applicable
abandoned property laws.
(f) Any portion of the Merger Consideration paid to the
Depositary pursuant to Section 3.03(a) to pay for Shares for which dissenter's
rights have been exercised shall be returned to Surviving Corporation upon
demand.
(g) If any Certificate has 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 Depositary shall issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
due to such person pursuant to this Agreement.
SECTION 3.04. DISSENTING SHARES. Notwithstanding Section 3.02,
Shares outstanding immediately prior to the Effective Time and held by a holder
who has not voted in favor of the Merger or consented thereto in writing and who
has demanded appraisal for such Shares in accordance with the DGCL shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect or withdraws or otherwise loses his right to appraisal. If
after the Effective Time such holder fails to perfect or withdraws or loses his
right to appraisal, such Shares shall be treated as if they had been converted
as of the Effective Time into a right to receive the Merger Consideration. The
Company shall give Buyer prompt notice of any demands received by the Company
for appraisal of Shares, and Buyer shall have the right to direct all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 3.05. STOCK OPTIONS.
<PAGE> 15
(a) Immediately prior to the Effective Time, each outstanding
employee stock option (an "OPTION") to purchase Shares granted under any
employee stock option or compensation plan or arrangement of the Company shall
be canceled, and each holder of any such Option, whether or not then vested or
exercisable, shall be paid by the Company at the Effective Time for each such
Option an amount determined by multiplying (i) the excess, if any, of the Merger
Consideration per Share over the applicable exercise price of such Option by
(ii) the number of Shares such holder could have purchased (assuming full
vesting of all Options) had such holder exercised such option in full
immediately prior to the Effective Time (the "OPTION CONSIDERATION").
(b) The consideration due under this Section 3.05 shall be
payable without interest after (a) verification by the Depositary of the
ownership and terms of the particular Option by reference to the Company's
records and (b) delivery in the manner provided in Section 3.03 of a written
instrument duly executed by the owner of the Option, in a form to be provided by
the Depositary promptly after the Effective Time, setting forth (i) the
aggregate number of Shares of Common Stock acquirable by such Option holder upon
exercise of all Options held by such holder whether or not such Options are
immediately exercisable, the respective issue dates of each Option and the
exercise price of each Option; (ii) a representation by the person that he or
she is the owner of all Options described pursuant to clause (a), and that none
of those Options has expired or ceased to be exercisable; and (iii) a consent to
the treatment of such Options pursuant to this Section 3.05 in full satisfaction
of all rights relating to such Options.
(c) Prior to the Effective Time, the Company shall (i) use its
best efforts to obtain any consents from holders of Options and (ii) make any
amendments to the terms of such stock option or compensation plans or
arrangements, to the extent such consents or amendments are necessary to give
effect to the transactions contemplated by Section 3.05(a). Notwithstanding any
other provision of this Section, payment may be withheld in respect of any
Option until necessary consents are obtained.
(d) Except as otherwise agreed to in writing by the parties,
(i) the Options and other equity plans will terminate as of the Effective Time
and the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any subsidiary thereof will be canceled as of the Effective Time, and
(ii) the Company shall use its reasonable efforts to assure that following the
Effective Time no participant in any of such plans, or other plans, programs or
arrangements, will have any right thereunder to acquire equity securities of the
Company, the Surviving Corporation or any subsidiary thereof.
SECTION 3.06. MERGER WITHOUT MEETING OF STOCKHOLDERS.
Notwithstanding Section 6.02 hereof, in the event that Buyer, Merger Subsidiary
or any other subsidiary of Buyer shall acquire at least 90% of the outstanding
shares of capital stock of the Company, the parties hereto agree to take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after such acquisition, without a meeting of stockholders of the
Company, in accordance with the DGCL.
SECTION 3.07. CLOSING. The closing of the Merger (the "MERGER
CLOSING") will take place at a time and on a date to be specified by the
parties, which is to be no later than the second Business day after satisfaction
or waiver (subject to applicable law) of the conditions (excluding conditions
that, by their terms, cannot be satisfied until the Merger Closing Date) set
forth in Article IX, unless another time or date is agreed to by parties to this
Agreement. The Merger Closing will be held at the offices of Jones, Day, Reavis
& Pogue, 901 Lakeside Avenue, Cleveland, Ohio, or such other location as the
parties to this Agreement agree to in writing. The date on which the Merger
Closing occurs is hereinafter referred to as the "MERGER CLOSING DATE."
<PAGE> 16
SECTION 3.08. CERTIFICATE OF INCORPORATION. The certificate of
incorporation of Surviving Corporation in effect at the Effective Time shall be
the certificate of incorporation of the Company until amended in accordance with
applicable law.
SECTION 3.09. BY-LAWS. The By-Laws of Surviving Corporation in
effect at the Effective Time shall be the by-laws of the Company.
SECTION 3.10. DIRECTORS AND OFFICERS. From and after the
Effective Time, until successors are duly elected or appointed and qualified in
accordance with applicable law, the directors of the Company at the Effective
Time shall be the initial directors of the Surviving Corporation and the
officers of the Company at the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected and appointed or qualified.
SECTION 3.11. EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in Section 259 of the DGCL.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Buyer and Merger
Subsidiary that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and except as set forth on Section 4.01 of the
letter delivered to the Company simultaneously herewith (the "COMPANY DISCLOSURE
LETTER"), has all corporate powers and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted and has all
governmental licenses, authorizations, consents, permits and approvals
(collectively, "LICENSES") required to carry on its business as now conducted
except where the failure to have any such License would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below). The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. As used herein, the term
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of the
Company and the Subsidiaries, taken as a whole, that is not a result of general
changes in the economy or the industries in which the Company and its
Subsidiaries operate or which prevents or materially delays the Company's
ability to consummate the transactions contemplated hereby. The Company has
heretofore delivered to Buyer true and complete copies of the Company's
Certificate of Incorporation and By-Laws as currently in effect.
SECTION 4.02. CORPORATE AUTHORIZATION. The execution, delivery
and performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Company's
corporate powers and authority and, except for any required approval by the
Company's stockholders in connection with the consummation of the Merger, have
been duly authorized by all necessary corporate action. This Agreement, assuming
due and valid authorization, execution and delivery by the Buyer and Merger
Subsidiary, has been duly executed and delivered by the Company and, constitutes
a legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its
<PAGE> 17
terms, except that (i) enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The Company has taken all actions necessary
to render the prohibitions of Section 203 of the DGCL to be inapplicable to the
execution and delivery of this Agreement, the Stockholders Agreement and the
transactions contemplated hereby and thereby, including the acquisition of the
Shares pursuant to the Offer and the Merger. No other "fair price," "merger
moratorium," "control share acquisition" or other anti-takeover statute or
similar statute or regulation applies or purports to apply to the Merger, this
Agreement, the Stockholders Agreement or any of the transactions contemplated
hereby.
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. Except as set forth
in Section 4.03 of the Company Disclosure Letter, the execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no action by or in respect of,
or filing with, any governmental body, agency, official or authority (each, a
"GOVERNMENTAL ENTITY") other than: (i) the filing of a certificate of merger in
accordance with the DGCL; (ii) compliance with any applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT") and
(iii) compliance with any applicable requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder (the
"EXCHANGE ACT").
SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby do not and will not (i) contravene or
conflict with the Certificate of Incorporation or By-Laws of the Company or
comparable organizational documents of its Subsidiaries, (ii) except as set
forth in Section 4.04 of the Company Disclosure Letter and assuming compliance
with the matters referred to in Section 4.03, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any
Subsidiary, (iii) except as set forth in Section 4.04 of the Company Disclosure
Letter, with or without the giving of notice or passage of time or both,
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Company or any Subsidiary or
to a loss of any benefit to which the Company or any Subsidiary is entitled
under any provision of any agreement, contract or other instrument binding upon
the Company or any Subsidiary or any license, franchise, permit or other similar
authorization held by the Company or any Subsidiary, or (iv) result in or
require the creation or imposition of any Lien on any asset of the Company or
any Subsidiary excluding from the foregoing clauses (ii), (iii) or (iv) such
violations, breaches, defaults or Liens which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company and its Subsidiaries
taken as a whole, and which will not materially impair the ability of the
Company to consummate the transactions contemplated hereby. For purposes of this
Agreement, "LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
SECTION 4.05. CAPITALIZATION. The authorized capital stock of
the Company consists of 15,000,000 shares of common stock, par value $0.01 per
Share, and 5,000,000 shares of preferred stock. As of January 31, 1999, there
were outstanding 4,900,000 shares of common stock, no shares of preferred stock
and Options to purchase an aggregate of 120,200 Shares, both vested and
unvested. Section 4.05 of the Company Disclosure Letter accurately sets forth
information regarding the exercise prices of the Options. All outstanding shares
of capital stock of the Company have been duly authorized and validly issued and
are fully paid and
<PAGE> 18
nonassessable. Except as set forth in this Section, there are outstanding (i) no
shares of capital stock or other voting securities of the Company, (ii) no
securities of the Company or of any Subsidiary convertible into or exchangeable
for shares of capital stock or voting securities of the Company, (iii) no
options, warrants, calls or other rights to acquire from the Company, and no
obligation of the Company to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company or its Subsidiaries, and (iv) no outstanding
obligations of the Company or any of its Subsidiaries to issue, sell or deliver,
or cause to be issued, sold or delivered any securities issuable by the Company
or the Subsidiaries (the items in clauses (i), (ii), (iii) and (iv) being
referred to collectively as the "COMPANY SECURITIES"). There are no outstanding
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any Company Securities. Neither the Company nor any Subsidiary is
subject to any voting agreement with respect to the voting of the Company
Securities.
SECTION 4.06. SUBSIDIARIES.
(a) Each Subsidiary that is actively engaged in any business
or owns any material assets (an "ACTIVE SUBSIDIARY") (i) is a limited
partnership or a corporation duly formed, validly existing and in good standing
under the laws of its jurisdiction of incorporation, (ii) except as set forth in
Section 4.06 of the Company Disclosure Letter, has all corporate or partnership
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and (iii) is duly
qualified to do business as a foreign corporation or limited partnership and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except in each case to the extent that the failure of this
representation and warranty to be true would not have a Material Adverse Effect.
For purposes of this Agreement, "SUBSIDIARY" means any corporation, limited
partnership or other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned by
the Company. All Active Subsidiaries and their respective jurisdictions of
organization are either identified in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1998 (the "COMPANY 10-K") or in Section 4.06
of the Company Disclosure Letter.
(b) Except that the stock of the Active Subsidiaries is
pledged under the Loan Agreement set forth in Section 4.04 of the Company
Disclosure Letter (the "LOAN AGREEMENT") which Loan Agreement restricts the
sale, transfer, disposition, pledge or hypothecation of such stock, all of the
outstanding capital stock of, or other ownership interests in, each Active
Subsidiary, is owned by the Company, directly or indirectly, free and clear of
any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests); there are no outstanding (i) securities of
the Company or any Subsidiary convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
Subsidiary, or (ii) options or other rights to acquire from the Company or any
Subsidiary, and no other obligation of the Company or any Subsidiary to
issue, any capital stock, voting securities or other ownership interests in, or
any securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Subsidiary (the items in clauses (i)
and (ii) being referred to collectively as the "SUBSIDIARY SECURITIES"); and,
there are no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities.
All outstanding capital stock or other equity interests of each of the
Subsidiaries has been validly issued and is fully paid and nonassessable.
SECTION 4.07. INVESTMENTS. Except as disclosed in Section 4.07
of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries, directly or
<PAGE> 19
indirectly, owns any shares or has any ownership interest in any other Person
other than the Subsidiaries.
SECTION 4.08. SEC FILINGS.
(a) The Company has delivered to Buyer (i) its Annual Reports
on Form 10-K for its fiscal years ended June 30, 1998, 1997 and 1996, (ii) its
Quarterly Reports on Form 10-Q for its fiscal quarters ended September 30, 1998
and December 31, 1998 (such reports are hereinafter referred to as the "COMPANY
10-QS"), (iii) its proxy or information statements relating to its annual
meeting held on November 18, 1998 and all meetings of, or actions taken without
a meeting by, the stockholders of the Company held since June 30, 1998, and (iv)
all of its other reports, statements, schedules and registration statements
filed by the Company with the SEC since June 30, 1996 (collectively the "COMPANY
SEC DOCUMENTS").
(b) As of its respective filing date or as later modified by
an amendment thereto or by subsequent Company SEC Documents, each of the
Company's SEC Documents (i) did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, and (ii) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations promulgated thereunder applicable to such SEC
Documents.
SECTION 4.09. FINANCIAL STATEMENTS. The audited consolidated
financial statements and unaudited consolidated interim financial statements of
the Company included in the Company SEC Documents fairly present, in conformity
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto and, in the case of the interim
financial statements included in the Company SEC Documents, except for the
absence of certain footnotes that would be required under Generally Accepted
Accounting Principles herein referred to as "GAAP"), the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements). The financial statements of the Company
included in the Company SEC Documents comply as to form, as of their respective
date of filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. For purposes of this Agreement, "BALANCE SHEET" means the consolidated
balance sheet of the Company as of December 31, 1998 set forth in the Company
10-Qs and "BALANCE SHEET DATE" means December 31, 1998.
SECTION 4.10. DISCLOSURE DOCUMENTS. Each document required to
be filed by the Company with the SEC in connection with the transactions
contemplated by this Agreement (the "COMPANY DISCLOSURE DOCUMENTS"), including,
without limitation, the Schedule 13E-4, Schedule 13E-3 and the Company Proxy
Statement, if any, will, when filed, (i) comply as to form in all material
respects with the applicable requirements of all applicable law, including
without limitation, the Exchange Act and (ii) 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 light of
the circumstances under which they are made, not misleading (in the case of the
Company Proxy Statement at the time it or any amendment or supplement thereto is
first mailed to stockholders of the Company) at the time the stockholders vote
on adoption of this Agreement and at the Effective Time and in the case of any
other Company SEC Documents, at the time of filing thereof and at the time of
distribution thereof. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to the statements made in any of the
foregoing documents based on written information supplied by or on behalf of
either Buyer, Merger Subsidiary or
<PAGE> 20
any of their respective affiliates specifically for inclusion therein.
SECTION 4.11. ABSENCE OF CERTAIN CHANGES. Since the Balance
Sheet Date, and except as set forth in Section 4.11 of the Company Disclosure
Letter or as contemplated by this Agreement, the Company and Subsidiaries have
conducted their business in the ordinary course consistent with past practice,
there has not been a Material Adverse Effect, the Company and its Subsidiaries
have not taken any action that if taken after the date of this Agreement would
constitute a violation of Section 6.01, neither the Company nor any of its
Subsidiaries has incurred nor shall there have arisen any liabilities (direct,
contingent or otherwise) which would have a Material Adverse Effect and there
has not been:
(a) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
the Company, or any repurchase, redemption or other acquisition by the
Company or any Subsidiary of any outstanding shares of capital stock or
other securities of, or other ownership interests in, the Company or
any Subsidiary other than the quarterly dividends paid on the shares or
split, combination or reclassification of any of its capital stock or
issuance or authorization of the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock;
(b) any incurrence, assumption or guarantee by the Company or
any Subsidiary of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with
past practices;
(c) any making of any loan, advance or capital contribution to
or investment in any Person other than advances to employees in the
ordinary course of business consistent with past practice and loans,
advances or capital contributions to or investments in wholly-owned
Subsidiaries made in the ordinary course of business consistent with
past practices;
(d) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the
Company or any Subsidiary which, individually or in the aggregate, has
had or could reasonably be expected to have a Material Adverse Effect;
(e) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any Subsidiary, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any Subsidiary, (iii)
increase in benefits payable under any existing severance or
termination pay policies or employment agreements, (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company or any Subsidiary, other than compensation,
bonus or other benefits payable to employees at the Company in the
ordinary course of business consistent with past practices or (v) enter
into any collective bargaining agreements;
(f) any issuance, delivery, sale, pledge or other encumbrance
or subjecting to any Lien any shares of its capital stock, any other
voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;
(g) any entering into of commitments for capital expenditures
involving more than $100,000 in the aggregate except (i) as may be
necessary for the maintenance of existing facilities, machinery and
equipment in good operating condition and repair in the ordinary course
of business, (ii) as reflected in the capital plan of the Company
previously provided to Buyer, or (iii) tooling costs
<PAGE> 21
which are reimbursable by customer;
(h) any change in the accounting principles used by it unless
required by GAAP;
(i) any making or rescinding of any express or deemed election
or settlement or compromise of any claim or action relating to U. S.
Federal, state or local taxes, or change of any of its methods of
accounting or of reporting income or deductions for U.S. federal income
tax purposes;
(j) any satisfaction of any claims or liabilities, other than
the satisfaction, in the ordinary course of business consistent with
past practice, in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of the Company included in the
Company 10-K or Company 10-Qs or incurred in the ordinary course of
business consistent with past practice;
(k) other than in the ordinary course of business consistent
with past practice, any (A) modification, amendment or termination of
any material contract, (B) waiver, release, relinquishment or
assignment of any material contract (or any of the Company's rights
thereunder), right or claim or (C) canceling or forgiveness of any
material indebtedness owed to the Company or the Subsidiaries;
provided, however, that the Company may not under any circumstance
waive or release any of its rights under any standstill or
confidentiality agreement to which it is party; or
(l) any authorization of, or commitment or agreement to take,
any of the foregoing actions.
SECTION 4.12. NO UNDISCLOSED MATERIAL LIABILITIES. Except as
set forth in Section 4.12 of the Company Disclosure Letter, there are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise other than:
(a) liabilities disclosed or provided for in the Balance Sheet
and in the Company's SEC Documents;
(b) other liabilities the presence of which, individually or
in the aggregate, do not have and could not reasonably be expected to have a
Material Adverse Effect;
(c) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date; and
(d) liabilities under this Agreement or in connection with
this Agreement or disclosed hereunder.
SECTION 4.13. LITIGATION; PERMITS. Except as set forth in the
Company SEC Documents or in Section 4.13 of the Company Disclosure Letter, there
is no action, suit, investigation or proceeding pending against, or to the
knowledge of the Company threatened against or affecting, the Company or any
Subsidiary or any of their respective properties before any court or arbitrator
or any governmental body, agency or official which, if determined or resolved
adversely to the Company or any Subsidiary could reasonably be expected to have
a Material Adverse Effect. Except as set forth in Section 4.13 of the Company
Disclosure Letter, the Company, its subsidiaries and employees hold all permits,
licenses, variances, exemptions, orders, registrations and approvals of all
Governmental Entities which are required for the operation of the businesses of
Company and its Subsidiaries (collectively the
<PAGE> 22
"COMPANY PERMITS"), except where the failure to have any such Company Permits
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect. The Company and its Subsidiaries are in compliance with
the terms of the Company Permits and all applicable statutes, laws, ordinances,
rules and regulations, except where failure so to comply individually or in the
aggregate has not had a Material Adverse Effect.
SECTION 4.14. TAXES.
(a) (i) All income and other material Tax returns, statements,
reports and forms (including estimated Tax returns and reports and information
returns and reports) required to be filed with any taxing authority with respect
to any Pre-Closing Tax Period (as defined herein) by or on behalf of the Company
or any Subsidiary (collectively, the "RETURNS") have been filed; (ii) to the
Company's knowledge as of the time of filing such Returns correctly reflected in
all material respects the facts regarding the income, business, assets,
operations, activities and status of the Company, the Subsidiaries and any other
information required to be shown therein; (iii) the Company and the Subsidiaries
have timely paid, or withheld and remitted to the appropriate taxing authority,
all Taxes shown as due and payable on the Returns that have been filed; (iv) the
charges, accruals and reserves for Taxes with respect to the Company and any
Subsidiary for any Pre-Closing Tax Period (including any Pre-Closing Tax Period
for which no Return has yet been filed) reflected on the books of the Company
and the Subsidiaries (excluding any provision for deferred income taxes) are
adequate (in accordance with GAAP) to cover such Taxes; (v) neither the Company
nor any Subsidiary of the Company has been a member of an affiliated group (as
defined in Section 1504 of the Internal Revenue Code of 1986, as amended (the
"CODE")) other than one of which the Company was the common parent, or filed or
been included in a combined, consolidated or unitary Return other than one filed
by the Company; (vi) the Company is not and has not been within five years of
the date hereof a "United States real property holding corporation" as defined
in Section 897 of the Code; (vii) there is no claim, action, suit or proceeding
now pending or threatened in writing against or in respect of any Tax or "tax
asset" of the Company or any Subsidiary the resolution of which would as
proposed, or audit or investigation now pending or threatened in writing against
or in respect of any Tax or "tax asset" of the Company or any Subsidiary the
resolution of which the Company believes would (taking into account any changes,
accruals and reserves referred to in clause (iv) above), individually or in the
aggregate, have a Material Adverse Effect. (The term "TAX ASSET" means any net
operating loss, net capital loss, investment tax credit, foreign tax credit,
charitable deduction or any other credit or tax attribute which could reduce
Taxes); and (viii) the only states in which the Company or any Subsidiary files
income Tax returns are Georgia, Illinois (on a non-unitary basis), Michigan and
Texas.
(b) As used in this Section 4.14, "TAXES" mean all (i)
Federal, state, local and foreign income, franchise, alternative or add-on
minimum tax, gross receipts, transfer, withholding on amounts paid to or by the
Company or any of its Subsidiaries, payroll, employment, license, property,
sales, use, excise and other taxes, tariffs or governmental charges of any
nature whatsoever, together with any interest, penalty or additional tax
attributable to such taxes; (ii) liability of the Company or any Subsidiary for
the payment of any amounts of the type described in clause (i) of this paragraph
as a result of being a member of an affiliated, consolidated, combined or
unitary group, or being a party to any agreement or arrangement whereby
liability of the Company or any Subsidiary for payments of amounts was
determined or taken into account with reference to the liability of any other
person; and (iii) liability of the Company or any Subsidiary for the payment of
any amounts as a result of being party to any tax sharing agreement or with
respect to the payment of any amounts of the type described in clauses (i) or
(ii) of this paragraph as a result of any express or implied obligation to
indemnify any other person.
<PAGE> 23
"PRE-CLOSING TAX PERIOD" means any Tax period (or portion
thereof) ending on or before the close of business on the Effective Time.
SECTION 4.15. EMPLOYEE MATTERS.
(a) For purposes of this Section, the following terms shall
have the meanings set forth below:
(A) "BENEFIT ARRANGEMENT" means any material contract
(other than the Employee Agreements), arrangement or policy, or any
plan or arrangement (whether or not written) providing for severance
benefits, insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that (i) is not an
Employee Plan, (ii) is entered into or maintained, as the case may be,
by the Company or any of its Subsidiaries and (iii) covers any employee
or former employee of the Company or any of its Subsidiaries.
(B) "EMPLOYEE AGREEMENT" means all written employment
agreements and severance agreements with employees of the Company or
any of its Subsidiaries
(C) "EMPLOYEE PLAN" means any "employee benefit
plan", as defined in Section 3(3) of ERISA, that (i) is maintained,
administered or contributed to by the Company, any Subsidiary or any of
their ERISA Affiliates for employees or former employees of the Company
or any of its Subsidiaries and (ii) covers any employee or former
employee of the Company or any of its Subsidiaries.
(D) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and any successor statute thereto,
and the rules and regulations promulgated thereunder.
(E) "ERISA AFFILIATE" of any entity means any other
entity which, together with such entity, would be treated as a single
employer under Section 4001(b)(1) of ERISA or Section 414 (b), (c), (m)
or (o) of the Code.
(F) "MULTIEMPLOYER PLAN" means each Employee Plan
that is a multiemployer plan, as defined in Section 3(37) of ERISA.
(G) "TITLE IV PLAN" means an Employee Plan, other
than any Multiemployer Plan, subject to Title IV of ERISA.
(b) Section 4.15 of the Company Disclosure Letter identifies
each Employee Plan. The Company has furnished or made available to Buyer copies
of the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof together with (i) the two
most recent annual reports prepared in connection with any material Employee
Plan (Form 5500 including, if applicable, Schedule B thereto), (ii) the most
recent actuarial valuation report prepared in connection with any Employee Plan
and (iii) such other related information as is reasonably requested by Buyer.
(c) With respect to each Employee Plan: (i) no "prohibited
transaction", as defined in Section 406 of ERISA or Section 4975 of the Code or
any breach of fiduciary duty, has, to the knowledge of the Company, occurred
with respect to any Employee Plan; (ii) neither (A) disputes in the ordinary
course of the operation of
<PAGE> 24
an Employee Plan that might reasonably be expected to have a Material Adverse
Effect nor (B) disputes outside the ordinary course of the operation of an
Employee Plan, are pending, or to the knowledge of the Company, threatened;
(iii) all contributions required to be made to each Employee Plan as of the date
hereof (taking into account any extensions permitted by the Code or the IRS)
have been made in full.
(d) Except as set forth in Section 4.15 of the Company
Disclosure Letter, no liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate that has not been satisfied in full and to the
knowledge of the Company, no condition exists that presents a material risk to
the Company or its ERISA Affiliates of incurring any material liability to the
Pension Benefit Guaranty Corporation (the "PBGC"), Department of Labor or the
plan participants (other than routine claims for benefits). No Employee Plan has
incurred an accumulated funding deficiency, as defined in Section 302 of ERISA
or Section 312 of the Code, whether or not waived.
(e) If a "complete withdrawal" by the Company, all its
Subsidiaries and all of their ERISA Affiliates were to occur as of the Effective
Time with respect to all Multiemployer Plans, none of the Company, any of its
Subsidiaries or any of their ERISA Affiliates would incur any material
withdrawal liability under Title IV of ERISA.
(f) Except as set forth in Section 4.15 of the Company
Disclosure Letter, each Employee Plan that is intended to be qualified under
Section 401(a) of the Code is and has been determined by the Internal Revenue
Service to be so qualified and no event has occurred since the date of such
determination that, to the knowledge of the Company, would adversely affect such
qualification, and each trust created under any such Employee Plan has been
determined by the Internal Revenue Service to be exempt from Tax under Section
501(a) of the Code and no event has occurred since the date of such
determination that, to the knowledge of the Company, would adversely affect such
exemption. The Company has provided or made available to Buyer the most recent
determination letter of the Internal Revenue Service relating to each such
Employee Plan. Except as set forth in Section 4.15 of the Company Disclosure
Letter, each Employee Plan has been maintained in substantial compliance (to
include timely, complete and substantially correct filing of Form 5500 and any
attachments) with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations, including but not limited to
ERISA and the Code. No Employee Plan is or has been audited or is or has been
under investigation by the Department of Labor or the Internal Revenue Service.
(g) All contributions to each Employee Plan have been or will
be deductible in accordance with the applicable provisions of the Code.
(h) With respect to any insurance policy providing funding for
benefits under any Employee Plan, there is no liability of the Company or any of
its Subsidiaries, in the nature of a retroactive rate adjustment, loss sharing
arrangement, or other actual or contingent liability, nor would there be any
such liability if such insurance policy was terminated on the date hereof, and
no insurance company issuing any such policy is in receivership,
conservatorship, liquidation or similar proceeding and, to the knowledge of the
Company, no such proceedings with respect to any such insurer are imminent.
(i) Neither the Company nor any of its Subsidiaries or ERISA
Affiliates has any liability with respect to any "employee benefit plans"
(within the meaning of Section 3(3) of ERISA) previously maintained or
contributed to by the Company, its Subsidiaries or ERISA Affiliates or to which
any such entity previously had an obligation to contribute.
(j) Except as set forth on Section 4.15 of the Company
Disclosure Letter, the execution and performance of this Agreement will not (i)
constitute a stated triggering event under any Employee Plan, Benefit
Arrangement or Employee
<PAGE> 25
Agreement that will result in any payment (whether of severance pay or
otherwise) becoming due from any director, officer, employee, or former employee
(or dependents of such employee), or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any employee, officer or
director of the Company or the Subsidiaries.
(k) Section 4.15 of the Company Disclosure Letter identifies
each material Benefit Arrangement. The Company has furnished or made available
to Buyer copies or descriptions of each material Benefit Arrangement. Each such
Benefit Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations.
(l) Section 4.15 of the Company Disclosure Letter identifies
by name all Employee Agreements in effect or committed to be put in effect as of
the date hereof.
(m) Neither the Company nor any of its ERISA Affiliates has
any material current or projected liability in respect of post-employment or
post-retirement health or medical or life insurance benefits for retired or
former employees of the Company.
(n) There has been no amendment or announcement by the Company
or any of its ERISA Affiliates relating to, or change in benefits, employee
participation or coverage under, any Employee Plan or Benefit Arrangement, that
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended June 30, 1998.
(o) Except as set forth in Section 4.15 of the Company
Disclosure Letter, the Company is not aware of any Employee Agreement or other
contract, agreement, plan or arrangement covering any employee or former
employee of the Company that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to the terms of
Section 280G of the Code.
(p) No excise Tax under Section 4980B or other provision of
the Code has been incurred by the Company or an ERISA Affiliate in respect of
any Employee Plan.
(q) Section 4.15 of the Company Disclosure Letter lists by
policy number and issuer all corporate owned life insurance policies owned by
the Company or an ERISA Affiliate and with respect to each such policy lists the
(1) current cash surrender value, net of any loan, (2) name of insured and (3)
the face amount. Each policy so identified is a life insurance contract within
the meaning of Section 7702 of the Code.
SECTION 4.16. LABOR MATTERS. Except as set forth in Section
4.16 of the Company Disclosure Letter, (i) there are no controversies pending
or, to the best knowledge of the Company, threatened between the Company or any
Subsidiary and any of their respective employees which individually or in the
aggregate would have a Material Adverse Effect; and (ii) neither the Company nor
any Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or any Subsidiary
(any such agreement or contract a "CBA"), nor, to the knowledge of the Company,
are there any activities or proceedings of any labor union to organize any such
employees. The Company has furnished or made available, to Buyer true and
complete copies of all CBAs. Except as set forth in Section 4.16 of the Company
Disclosure Letter, at no time since December 31, 1995 has the Company or the
Subsidiaries experienced any strikes or work stoppages by any
<PAGE> 26
union or labor organization or any other group of employees, or been involved in
or the subject of any grievance, dispute or controversy by or with any union or
labor organization or any other group of employees or any pending or threatened
legal proceeding based on or related to any employment grievance, dispute or
controversy or received any notice of any of the foregoing which individually or
in the aggregate have had a Material Adverse Effect.
SECTION 4.17. COMPLIANCE WITH LAWS. Except as set forth in
Section 4.17 of the Company Disclosure Letter, neither the Company nor any
Subsidiary is in violation of any provisions of any laws, statutes, ordinances
orders, judgements, decrees, rules or regulations except where such violations,
individually or in the aggregate, would not have a Material Adverse Effect.
SECTION 4.18. FINDERS' FEES. Except for the Advisor, a copy of
whose engagement agreement has been provided to Buyer, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of the Company or any Subsidiary who would be
entitled to any fee or commission from the Company, any Subsidiary, Buyer or any
of its affiliates upon consummation of the transactions contemplated by this
Agreement.
SECTION 4.19. ENVIRONMENTAL MATTERS.
(a) To the Company's knowledge, except as set forth in the
Company SEC Documents or in Section 4.19 of the Company Disclosure Letter:
(i) the Company and its Subsidiaries has not received any (A)
written communication from any person or entity (including any Governmental
Entity) stating that (x) it or its Subsidiaries may be a potentially responsible
party under Environmental Law (as defined in (c) below) with respect to any
actual or alleged environmental contamination or (y) any Governmental Entity is
conducting or has conducted any environmental remediation or environmental
investigation which could reasonably be expected to result in liability for the
Company or its Subsidiaries under Environmental Law; or (B) request for
information under Environmental Law from any Governmental Entity with respect to
any actual or alleged environmental contamination, except, in each case, for
communications, environmental remediation and investigations and requests for
information which would not, individually or in the aggregate, have a Material
Adverse Effect;
(ii) the Company and its Subsidiaries have not received any
written communication from any person or entity (including any Governmental
Entity) stating or alleging that the Company or its Subsidiaries may have
violated any Environmental Law, or that the Company or its Subsidiaries has
caused or contributed to any environmental contamination that has caused any
property damage or personal injury under Environmental Law, except, in each
case, for statements and allegations of violations and statements and
allegations of responsibility for property damage and personal injury which
would not, individually or in the aggregate, have a Material Adverse Effect;
(iii) all underground storage tanks ("UST'S") on property
currently owned or leased by the Company currently comply with and for the past
three years have compiled with applicable Environmental Law, except for failures
to comply which would not, individually or in the aggregate, have a Material
Adverse Effect.
(iv) with respect to UST's other than those covered by Section
4.19(a)(iii), to the Company's knowledge, all obligations for which the Company
and its Subsidiaries have retained liability either contractually or by
operation of law would not have a Material Adverse Effect; and
<PAGE> 27
(v) the Company and its Subsidiaries have no liabilities under
any Environmental Laws which individually or in the aggregate would reasonably
be expected to result in a Material Adverse Effect.
(vi) the Company and its Subsidiaries are and for the past
three years have been in material compliance with all applicable Environmental
Laws;
(vii) the Company has made available to Buyer all information
including such studies, analyses and test results, in the possession, custody or
control of or otherwise known and available to the Company or its Subsidiaries
relating to the environmental conditions on, under or about any of the
properties or assets owned, leased or operated by the Company or its
Subsidiaries at any time or any other property for which the Company or its
Subsidiaries may bear some liability for under applicable Environmental Laws;
and
(viii) the Company and its Subsidiaries hold all permits,
licenses or authorizations required under applicable Environmental Laws
("ENVIRONMENTAL PERMITS") and have submitted on a timely basis complete
applications for the renewal of any Environmental Permit which has expired but
has not yet been renewed or which will expire within the period of time after
the Closing Date, the length of which is the number of days prior to expiration
that a renewal application for any such Environmental Permit is required to be
submitted.
(b) For purposes of this Section 4.19, "ENVIRONMENTAL LAW"
means all applicable state, federal and local laws, regulations and rules,
including common law, judgments, decrees and orders relating to pollution, the
preservation of the environment and the release of material into the
environment.
SECTION 4.20. PROPERTY.
(a) The Company and the Subsidiaries have good title to all
assets other than the Real Property (as defined herein) necessary to conduct the
business of the Company as currently conducted except to the extent the failure
of this representation and warranty to be true would not have a Material Adverse
Effect.
(b) Section 4.20 of the Company Disclosure Letter contains a
complete and accurate legal description of each parcel of real property owned,
leased or used in any manner by the Company and the Subsidiaries (collectively,
the "REAL PROPERTY"), indicating, in each case, whether such property is owned
or leased. The Real Property constitutes all of the Real Property necessary to
the conduct of the Business as currently conducted. The Company and its
Subsidiaries have good and marketable title to the Real Property which it owns
and to all plants, buildings and improvements thereon, free and clear of any
Liens, claims, charges, imperfections of title, encroachments, easements,
rights-of-way, squatters' rights, encumbrances, covenants, conditions or
restrictions of any kind or nature whatsoever, other than those described in
Section 4.20 of the Company Disclosure Letter.
(c) The Company and the Subsidiaries have a valid and
enforceable leasehold interest, free and clear of all Liens, in each parcel or
tract of leased Real Property attributable to it pursuant to a lease (the
"LEASES"). The Company or the Subsidiaries, as applicable, has performed all of
the obligations required to be performed by the tenant under the Leases,
possesses and quietly enjoys the Real Property demised under each of the Leases
and has not released any of its rights under the Leases.
(d) Neither of the Company or the Subsidiaries is a foreign
person within the meaning of Section 1445 of the Code.
<PAGE> 28
(e) There are not currently any pending or, to the knowledge
of the Company, threatened (i) condemnation, eminent domain or similar
proceedings that would affect any parcel of Real Property, or (ii) any future
improvements by any Governmental Entities, any part of the cost of which would
be assessed against the Real Property. Since the Balance Sheet Date, all Real
Property has been maintained, repaired and replaced consistent with past
practice in a manner that is appropriate for the continued operation of the
business of the Company. To the knowledge of the Company, the ownership,
occupancy, operation or use by the Company of each parcel of Real Property
including, without limitation, all buildings, structures and improvements
located on such property (i) complies with and does not violate any restriction
imposed by any declaration, covenant running with the land, lease, permit, deed
of restriction or other contract affecting such Real Property; (ii) complies
with and does not violate any Law, including, without limitation, fire and
zoning Laws; and (iii) there are no pending changes in Laws affecting any of the
Real Property (including zoning) that will render any part of the business of
the Company as presently conducted illegal or uneconomical. To the knowledge of
the Company, there is no plan, study or effort with respect to any of the Real
Property by any Governmental Authorities or of any other Person that could
adversely affect any of the business of the Company.
SECTION 4.21. INSURANCE. Section 4.21 of the Company
Disclosure Letter contains an accurate and complete list and a brief description
(including the insurer, policy number, type of insurance, coverage limits,
deductibles, current premium, expiration dates and any special cancellation
conditions) of all material policies of fire, liability (including but not
limited to product liability), workers' compensation and other forms of
insurance owned or held by either the Company or the Subsidiaries or pursuant to
which any of their assets are insured. Such policies (i) are carried by insurers
of recognized responsibility; (ii) are in full force and effect; and (iii) to
the Company's knowledge, are sufficient for compliance with all requirements of
law and insure the assets, business and operations of the Company or the
Subsidiaries against all liabilities, claims, hazards and risks against which
businesses in industries similar to the Company or the Subsidiaries customarily
insure. All such insurance shall be in effect through the Effective Time. No
insurance coverage of either the Company or the Subsidiaries is maintained
through self-insurance except as set forth in Section 4.21 of the Company
Disclosure Letter.
SECTION 4.22. PATENTS AND TRADEMARKS.
(a) The Company and the Subsidiaries own all right, title and
interest to, or possess valid and enforceable licenses or other rights to use
all patents, trademarks, trademark rights, trade names and trade name rights
(including any applications for any of the foregoing) material to the Company's
business and operations (collectively, "MATERIAL PATENTS AND TRADEMARKS") used
or held for use in connection with the business of the Company and the
Subsidiaries as currently conducted free and clear of all Liens, licenses and
other restrictions. All Material Patents and Trademarks owned by the Company or
its Subsidiaries are validly registered or registrations have been applied for.
(b) Except as set forth in Section 4.22 of the Company
Disclosure Letter, the Company is unaware of any assertion or claim challenging
the validity of any Material Patent and Trademark. Except as set forth in
Section 4.22 of the Company Disclosure Letter, the conduct of the business of
the Company and the Subsidiaries as currently conducted does not conflict with
any patent, patent application, trademark or trademark application of any third
party in a manner that could reasonably be expected to have a Material Adverse
Effect. To the knowledge of the Company, there are no material infringements of
any Material Patents and Trademarks.
(c) Each of the Company's employees set forth in Section
4.22(c) of
<PAGE> 29
the Company Disclosure Letter has entered into an agreement with the Company
regarding intellectual property matters in the form provided to Buyer.
SECTION 4.23. MATERIAL CONTRACTS.
(a) Except as set forth in Section 4.23 of the Company
Disclosure Letter, the Company SEC Documents list each material contract or
agreement (including, but not limited to, all material leases, licensing
agreements, manufacturing, production or distribution contracts and any material
contracts or agreements pursuant to which the Company or any Subsidiary has
licensed intellectual property to a third party) (collectively, the "MATERIAL
CONTRACTS") to which the Company or any of its Subsidiaries is a party, other
than purchase orders with customers entered into in the ordinary course of
business.
(b) To the knowledge of the Company, each Material Contract is
in full force and effect and is enforceable in all material respects against the
parties thereto (other than the Company and the Subsidiaries) in accordance with
its terms and no condition or state of facts exists that, with notice or the
passage or time, or both, would constitute a material default by the Company or
any Subsidiary or, to the knowledge of the Company, any third party under any
Material Contract.
SECTION 4.24. SHAREHOLDER RIGHTS AGREEMENT. The Company
currently is not, and no resolution or other action has been taken providing for
the Company to become at a later date, a party to a shareholder rights
agreement, "poison pill" or any other agreement of like nature.
SECTION 4.25. VOTING REQUIREMENTS. The affirmative vote of the
holders of a majority of the Shares at the Company Stockholder Meeting to adopt
this Agreement is the only vote of the holders of any class or series of the
Company's capital stock necessary to adopt and approve this Agreement, and the
Merger and the transactions contemplated hereby and thereby.
SECTION 4.26. OPINION OF FINANCIAL ADVISOR. The Company has
received the opinion of Bowles Hollowell Conner, dated the date of this
Agreement, to the effect that, as of such date, the Merger Consideration and the
Offer Price are fair from a financial point of view to holders of shares of
Common Stock, a signed copy of which opinion will be made available to Buyer
promptly after the date hereof.
SECTION 4.27. YEAR 2000 ISSUES. The Company has adopted and
implemented commercially reasonable measures to investigate and correct any
"year 2000 problems" associated with (i) the operation of the Company's
business, and (ii) the products manufactured and distributed by the Company. The
Company has provided to Buyer a written explanation of the costs that the
Company and Company Subsidiaries have incurred in each of the past two fiscal
years to investigate and correct the "year 2000 problem," as well as a written
report of its estimates of the costs to be incurred in the future to investigate
and correct the "year 2000 problem."
SECTION 4.28. TRANSACTION FEES. Section 4.28 of the Company
Disclosure Letter sets forth all fees and expenses paid by the Company, and the
Company's estimate of any additional fees and expenses which it expects to
incur, as a result of or in connection with the Offer and the transactions
contemplated by this Agreement, including legal, accounting and investment
banking fees and expenses as well as any and all payments made or to be made
pursuant to any change in control, severance or other agreements to which the
Company is a party (collectively, the "TRANSACTION FEES"). As of the Offer
Completion Date and the Closing Date, the Transaction Fees shall not exceed
$5,900,000, unless the Company shall incur additional expenses in defending
lawsuits brought by stockholders of the Company that arise as a result of the
transactions contemplated by this Agreement in which case the
<PAGE> 30
amount of the Transaction Fees may exceed $5,900,000 by the amount such
litigation expenses, together with the legal expenses otherwise incurred by the
Company in connection with the transactions contemplated by this Agreement,
exceed $250,000.
SECTION 4.29. INSIDER INTERESTS. Except as set forth in
Section 4.29 to the Company Disclosure Letter or the Company SEC Documents, no
officers, directors, employees or stockholders of the Company or its
Subsidiaries and no entity controlled by such persons has a relationship with
the Company that would be required to be disclosed under Item 404 of Regulation
S-K promulgated under the Securities Act of 1933, as amended, if such Item 404
applied to all of such persons.
SECTION 4.30. FULL DISCLOSURE. To the Company's knowledge, no
representation or warranty made by the Company in this Agreement or in any
schedule hereto contains any untrue statement of material fact or omits to state
a material fact necessary to make the statements herein or therein not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
Buyer and Merger Subsidiary represent and warrant to the Company that:
SECTION 5.01. CORPORATE EXISTENCE AND POWER. Each of Buyer and
Merger Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation.
SECTION 5.02. CORPORATE AUTHORIZATION. The execution, delivery
and performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers and authority of Buyer and Merger
Subsidiary and have been duly authorized by all necessary corporate action. This
Agreement, assuming due and valid authorization, execution and delivery by the
Company, constitutes a legally valid and binding agreement of each of Buyer and
Merger Subsidiary enforceable against the Buyer and Merger Subsidiary in
accordance with its terms, except that (i) enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
SECTION 5.03. GOVERNMENTAL AUTHORIZATION. The execution,
delivery and performance by Buyer and Merger Subsidiary of this Agreement and
the consummation by Buyer and Merger Subsidiary of the transactions contemplated
by this Agreement require no action by or in respect of, or filing with, any
Governmental Entity, other than (i) the filing of a certificate of merger in
accordance with the DGCL; (ii) compliance with any applicable requirements of
the HSR Act and (iii) compliance with any applicable requirements of the
Exchange Act.
SECTION 5.04. NON-CONTRAVENTION. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby do not and will not (i) contravene or conflict with the certificate of
incorporation or by-laws of Merger Subsidiary or Buyer, (ii) assuming compliance
with the matters referred to in Section 5.03, contravene or conflict with any
provision of law, regulation, judgment, order or decree binding upon Buyer or
Merger subsidiary, or (iii) constitute a default under or give rise to any right
of termination, cancellation or acceleration of any right or obligation of Buyer
or Merger Subsidiary or to a loss of any benefit to which Buyer or
<PAGE> 31
Merger Subsidiary is entitled under any agreement, contract or other instrument
binding upon Buyer or Merger Subsidiary, except in the case of clauses (ii) and
(iii) as would not materially impair the consummation of the Offer or the
Merger.
SECTION 5.05. DISCLOSURE DOCUMENTS. The information with
respect to Buyer and its subsidiaries and Merger Subsidiary that Buyer and
Merger Subsidiary furnish to the Company in writing specifically for use in any
Offer Document will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading (i) in the case of the Company Proxy Statement (as defined in Section
6.02 herein) at the time the Company Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the Company, at the time
the stockholders vote on adoption of this Agreement and at the Effective Time,
and (ii) in the case of any Offer Document other than the Company Proxy
Statement, at the time of the filing thereof and at the time of any distribution
thereof. The Schedule 13E-3, when filed, will comply as to form in all material
respects with the applicable requirements of the Exchange Act. The Schedule
13E-3 will not at the time of the filing thereof, at the time of any
distribution thereof or at the time of consummation of the Offer, contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading; PROVIDED that this representation and
warranty will not apply to statements or omissions in the Offer Documents based
upon information furnished to Buyer or Merger Subsidiary in writing by the
Company specifically for use therein.
SECTION 5.06. FINDERS' FEES. There is no investment banker,
broker, finder or other intermediary who might be entitled to any fee or
commission from the Company or any of its affiliates upon consummation of the
transactions contemplated by this Agreement.
SECTION 5.07. FINANCING. Buyer has received commitments from
financing sources to provide debt and equity financing to Buyer and/or the
Company sufficient to finance the Transactions, including the Buyer Shares, the
Option Consideration and the Transaction Fees, and to perform the obligations of
Buyer and Merger Subsidiary hereunder (the "FINANCING").
SECTION 5.08. SHARE OWNERSHIP. As of the date hereof and
except pursuant to the Stockholders Agreement, Buyer and Merger Subsidiary do
not beneficially own any Shares.
SECTION 5.09. MERGER SUBSIDIARY'S OPERATIONS. Merger
Subsidiary was formed solely for the purpose of engaging in the transactions
contemplated hereby and has not engaged in any business activities, conducted
any operations or incurred any obligations other than in connection with the
transactions contemplated hereby.
SECTION 5.10. DUE DILIGENCE. Buyer and its representatives
have received a copy of such documents relating to the Company as requested by
Buyer (including without limitation the Data Room Index attached hereto as
Section 5.10 of the Company Disclosure Letter and all documents referred to
therein), has had the opportunity to obtain any additional information necessary
to verify the accuracy of the information contained in such documents and has
been given the opportunity to meet with representatives of the Company and to
have them answer any questions and provide any additional information requested,
and all such questions have been answered and requested information provided to
Buyer's full satisfaction.
ARTICLE VI
COVENANTS OF THE COMPANY
<PAGE> 32
The Company agrees that:
SECTION 6.01. CONDUCT OF THE COMPANY. From the date hereof
until the Effective Time, the Company and the Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and in compliance
with all applicable laws and regulations and shall use their best efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time:
(a) the Company will not adopt or propose any change in its
certificate of incorporation or by-laws;
(b) except for the Merger, the Company will not, and will not
permit any Subsidiary to, merge or consolidate with any other Person or
acquire a material amount of assets of any other Person;
(c) the Company will not, and will not permit any Subsidiary
to, sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments and
(ii) inventory in the ordinary course consistent with past practice;
(d) the Company will not, and will not permit any Subsidiary
to, take any action other than the Offer and the Stock Purchase that
would constitute a violation of Section 4.11 (in the case of Section
4.11(e)(iv), without giving effect to the ordinary course of business
qualifier);
(e) the Company will not, and will not permit any Subsidiary
to (i) take or agree or commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time or
(ii) omit, or agree or commit to omit, to take any action necessary to
prevent any such representation or warranty from being inaccurate in
any material respect at any such time; and
(f) the Company will not, and will not permit any Subsidiary
to, agree or commit to do any of the foregoing.
SECTION 6.02. STOCKHOLDER MEETING; PROXY MATERIAL. The Company
shall cause a meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to
be duly called and held as soon as reasonably practicable after the Offer
Completion Date for the purpose of voting on the approval and adoption of this
Agreement and the Merger unless a vote of stockholders of the Company is not
required by the DGCL. The directors of the Company shall, subject to Section
6.04(b) recommend approval and adoption of this Agreement and the Merger by the
Company's stockholders. In connection with such meeting, the Company (i) will
promptly, after the consummation of the Offer, prepare and file with the SEC,
will use its best efforts to have cleared by the SEC and will thereafter mail to
its stockholders as promptly as practicable the proxy or information statement
and all other proxy materials for such meeting (the "COMPANY PROXY STATEMENT"),
(ii) will use its best efforts to obtain the necessary approvals by its
stockholders of this Agreement and the transactions contemplated hereby and
(iii) will otherwise comply with all legal requirements applicable to such
meeting. Without limiting the generality of the foregoing but subject to its
rights pursuant to Section 6.04, the Company agrees that its obligations
pursuant to the first sentence of this Section 6.02 shall not be affected by the
commencement, public proposal, public disclosure or communication to the Company
or any Takeover Proposal.
SECTION 6.03. ACCESS TO INFORMATION. From the date hereof
until the
<PAGE> 33
Effective Time, the Company will give Buyer, its counsel, financial
advisors, auditors and other authorized representatives reasonable access during
normal business hours to the offices, properties, books and records of the
Company and the Subsidiaries, will furnish to Buyer, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request and
will instruct the Company's employees, counsel and financial advisors to
cooperate with Buyer in its investigation of the business of the Company and the
Subsidiaries; PROVIDED that all requests for information, to visit plants or
facilities or to interview the Company's employees or agents should be directed
to and coordinated with an executive officer of the Company and PROVIDED further
that no investigation pursuant to this Section shall affect any representation
or warranty given by the Company to Buyer hereunder and any information received
by Buyer or its representatives shall remain subject to the Confidentiality
Agreement between Buyer and the Company (the "CONFIDENTIALITY AGREEMENT") which
is attached hereto as Exhibit A. The Company agrees to provide, and will cause
its Subsidiaries and its and their respective officers, employees and advisors
to provide, all cooperation reasonably necessary in connection with the
arrangement of the Financing, including, without limitation, participation in
meetings, due diligence sessions and assisting Buyer or its lenders in obtaining
landlord consents or estoppel certificates or any other financing related
agreement or document.
SECTION 6.04. OTHER OFFERS. (a) The Company shall not, nor
shall it permit any of its Subsidiaries to, nor shall it authorize or permit any
of its directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its Subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed or reasonably likely to facilitate, any inquiries or the
making of any proposal which constitutes or reasonably may give rise to any
Takeover Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal. Notwithstanding the foregoing, if,
at any time prior to the date the Company purchases Shares in the Offer (the
"OFFER COMPLETION DATE"), the Board of Directors of the Company determines in
good faith, after consultation with outside counsel that failure to do
so would result in a breach of its fiduciary duties to the Company's
stockholders under applicable law, the Company may, in response to a Superior
Proposal (as defined in Section 6.04(b)) which was not solicited by it or which
did not otherwise result from a breach of this Section 6.04 and subject to
providing prior written notice of its decision to take such action to Buyer (the
"COMPANY NOTICE") and compliance with Section 6.04(c), (x) furnish information
with respect to the Company and its Subsidiaries to any person making a Superior
Proposal pursuant to a customary confidentiality agreement (as determined by the
Company after consultation with its outside counsel) that is no less restrictive
than the Confidentiality Agreement and (y) participate in discussions or
negotiations regarding such Superior Proposal. The Company, its affiliates and
their respective officers, directors, employees, representatives and agents
shall immediately cease all existing activities, discussions and negotiations
with any parties conducted heretofore with respect to any Takeover Proposal and
request the return of all confidential information regarding the Company
provided to any such parties prior to the date hereof pursuant to the terms of
any confidentiality agreements or otherwise. For purposes of this Agreement,
"TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any person other
than the Buyer and Merger Subsidiary relating to any (v) direct or indirect
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or the assets of the Company and its Subsidiaries, taken as
a whole, (w) direct or indirect acquisition or purchase of 15% or more of any
class of equity securities of the Company or any of its Subsidiaries whose
business constitutes 15% or more of the net revenues, net income or assets of
the Company and its Subsidiaries, taken as a whole, (x) tender offer or exchange
offer for Shares of any class of equity securities of the Company or any of its
Subsidiaries, or (y) merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction
<PAGE> 34
involving the Company or any of its Subsidiaries other than the transactions
contemplated by this Agreement.
(b) Except as expressly permitted by this Section 6.04(b),
neither the Board of Directors of the Company nor any committee thereof shall
(i) withdraw or modify or propose publicly to withdraw or modify, in a manner
adverse to Buyer, the approval or recommendation by such Board of Directors or
such committee of the Offer, the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal or
(iii) cause or authorize the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (each a
"COMPANY ACQUISITION AGREEMENT") related to any Takeover Proposal.
Notwithstanding the foregoing, if prior to the Offer Completion Date, the Board
of Directors of the Company determines in good faith, after the Company has
received a Superior Proposal and after consultation with outside counsel, that
failure to do so would result in a breach of its fiduciary duties to the
Company's stockholders under applicable law, the Board of Directors of the
Company may (subject to this and the following sentences and Section 11.04)
terminate this Agreement in order to concurrently enter into such Company
Acquisition Agreement with respect to a Superior Proposal, PROVIDED, HOWEVER,
that the Company may not terminate this Agreement pursuant to this Section
6.04(b) unless and until (i) five Business Days have elapsed following the
delivery to Buyer of the Company Notice and (x) the Company has delivered to
Buyer the written notice required by Section 6.04(c) below, and (y) during such
five Business Day period, the Company otherwise cooperates with Buyer with
respect to the Takeover Proposal that constitutes a Superior Proposal with the
intent of enabling Buyer to engage in good faith negotiations so that the
transactions contemplated hereby may be effected, and (ii) at the end of such
five Business day period the Board of Directors of the Company continues
reasonably to believe that the Takeover Proposal constitutes a Superior
Proposal. For purposes of this Agreement, a "SUPERIOR PROPOSAL" means any
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction,
for consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of Common Stock of the Company then
outstanding or all or substantially all the assets of the Company and otherwise
on terms which the Board of Directors of the Company determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Company's stockholders than
the Offer and the Merger and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the Board of Directors of
the Company, is reasonably capable of being obtained by such third party.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.04, the Company shall immediately
advise Buyer orally and in writing of any request for information or of any
Takeover Proposal, the material terms and conditions of such request or Takeover
Proposal, and the identity of the person making such request or Takeover
Proposal and promptly furnish to Buyer a copy of any such written proposal in
addition to any information provided to or by any third-party relating thereto.
The Company shall keep Buyer reasonably informed of the status and details
(including amendments and proposed amendments) of any such request or Takeover
Proposal.
(d) Nothing contained in this Section 6.04 prohibits the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or making any disclosure to
the Company's stockholders if, in the good faith judgment of the Board of
Directors of the Company, after consultation with outside counsel, failure so to
disclose would result in breach of its fiduciary duties to the Company's
stockholders under applicable law; provided, however that except as expressly
permitted by paragraph (b) of this Section 6.04 in connection with a Superior
Proposal, neither the Company nor its Board of Directors
<PAGE> 35
nor any committee thereof shall withdraw or modify, or propose publicly to
withdraw or modify, its position with respect to the Offer, this Agreement or
the Merger or approve or recommend, or propose publicly to approve or recommend,
a Takeover Proposal.
SECTION 6.05. NOTICES OF CERTAIN EVENTS. The Company shall
promptly notify Buyer of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required
in connection with the transactions contemplated by this
Agreement;
(ii) any notice or other communication from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of its knowledge,
threatened against, relating to or involving or otherwise
affecting the Company or any Subsidiary which, if pending on
the date of this Agreement, would have been required to have
been disclosed pursuant to Section 4.13 or which relate to the
consummation of the transactions contemplated by this
Agreement;
(iv) the occurrence or non-occurrence of any event
whose occurrence or non-occurrence would be likely to cause
either (A) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time or (B)
any condition set forth in Annex I to be unsatisfied in any
material respect at any time from the date hereof to the date
Buyer purchases Shares pursuant to the Offer; and
(v) any material failure of the Company, or any
officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.05 shall not
limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
SECTION 7.01. OBLIGATIONS OF MERGER SUBSIDIARY. Buyer will
take all action necessary to cause Merger Subsidiary to perform its obligations
under this Agreement and to consummate the Merger on the terms and conditions
set forth in this Agreement.
SECTION 7.02. VOTING OF SHARES. Buyer agrees to vote all
Shares beneficially owned by it or by its Subsidiaries in favor of adoption of
this Agreement at the Company Stockholder Meeting.
SECTION 7.03. DIRECTOR AND OFFICER LIABILITY. From the
Effective Time through the sixth anniversary of the date on which the Effective
Time occurs, Buyer shall cause the Surviving Corporation to indemnify and hold
harmless each present and former officer, director, employee or agent of the
Company, including, without limitation, each Person controlling any of the
foregoing Persons (the "INDEMNIFIED PARTIES"), against all claims, losses,
liabilities, damages, judgments, fines, fees, costs or
<PAGE> 36
expenses, including, without limitation, attorneys' fees and disbursements
(collectively, "Costs"), incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time (including, without limitation, this Agreement,
the Offer Documents, the Transactions and actions contemplated hereby and
thereby and giving effect to the consummation of such transactions and actions),
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under the Articles of Incorporation or By-Laws of the
Company or indemnification agreements in effect on the date hereof, including
provisions relating to advancement of expenses incurred in the defense of any
claim, action, suit, proceeding or investigation. Without limiting the
foregoing, in the event that any claim, action, suit, proceeding or
investigation is brought against an Indemnified Party (whether arising before or
after the Effective Time), the Indemnified Party may retain counsel satisfactory
to such Indemnified Party and Buyer shall, or shall cause the Surviving
Corporation to, advance the fees and expenses of such counsel for the
Indemnified Party in accordance with the Articles of Incorporation or By-Laws of
the Company in effect on the date of this Agreement. Buyer and the Company agree
that all rights to indemnification and all limitations on liability existing in
favor of any such officer, director, employee or agent as provided in the
Company's Certificate of Incorporation and By-laws as in effect as of the date
hereof shall survive the Merger and shall continue in full force and effect
unless required to be amended under applicable law and except to make changes
permitted by law that would enlarge the Indemnified Parties' right to
indemnification. Any determination required to be made with respect to whether
any of the foregoing Persons is entitled to indemnification as set forth above
shall be made by independent legal counsel selected mutually by such Person and
reasonably satisfactory to Buyer; PROVIDED, HOWEVER, that Buyer will not be
liable for any settlement effected without its written consent. On or prior to
the Effective Time, Buyer will cause the Surviving Corporation to pre-pay, at no
expense to the beneficiaries, officers' and directors' liability insurance,
which will be in effect for no less than six years after the Effective Time, in
respect of acts or omissions occurring prior to the Effective Time covering each
such Person currently covered by the Company's officers' and directors'
liability insurance policy on terms with respect to coverage and amount no less
favorable than those of such policy in effect on the date hereof; PROVIDED,
HOWEVER, that in no event will Buyer be required to pay aggregate premiums for
such insurance during such six-year period under this Section 7.03 in excess of
nine times the annual premium paid by the Company in 1998 for such purpose;
PROVIDED, FURTHER, that if the aggregate premiums of such insurance coverage
exceed such amount, Buyer will be obligated to obtain a policy with the best
coverage available, in the reasonable judgment of the Board of Directors of
Buyer, for a cost up to but not exceeding such amount. Buyer will on the
Effective Time cause the policy referred to in the preceding sentence to be in
full force and effect with the premiums therefore prepaid in full, which policy
shall by its terms be noncancelable. Buyer shall cause the Surviving Corporation
to continue to indemnify in accordance with the Company's past practices each of
the employees listed in Section 7.03 of the Company Disclosure Letter in respect
of the lawsuit set forth opposite such employee's name in Section 7.03 of the
Company Disclosure Letter.
In the event any claim is made against present or former
directors, officers or employees of the Company that is covered or potentially
covered by insurance, neither the Surviving Corporation nor Buyer shall do
anything that would forfeit, jeopardize, restrict or limit the insurance
coverage available for that claim until the final disposition thereof.
Notwithstanding anything herein to the contrary, if any claim,
action, suit proceeding or investigation (whether arising before, at or after
the Effective Time) is made against any Indemnified Party, on or prior to the
sixth anniversary of the Effective Time, the provisions of this Section 7.03
shall continue in effect until the final disposition of such claim, action,
suit, proceeding or investigation.
<PAGE> 37
In the event that the Surviving Corporation or Buyer 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 or conveys all or
substantially all of its properties and assets to any Person, then, and in each
such case, to the extent necessary to effectuate the purposes of this Section
7.03, proper provision shall be made so that the successors and assigns of the
Surviving Corporation or Buyer shall succeed to the obligations set forth in
this Section 7.03 and none of the actions described herein shall be taken until
such provision is made.
SECTION 7.04. MERGER SUBSIDIARY SUBSCRIPTION AGREEMENTS.
Certain stockholders of Merger Subsidiary shall enter into agreements to
subscribe for shares of capital stock of Merger Subsidiary in form and substance
satisfactory to the Company.
ARTICLE VIII
COVENANTS OF BUYER
AND THE COMPANY
The parties hereto agree that:
SECTION 8.01 BEST EFFORTS. (a) Subject to the terms and
conditions of this Agreement, the Company, Buyer and Merger Subsidiary shall,
and the Company shall cause each of its subsidiaries to, cooperate and each
party will use its best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement; provided that Buyer and its affiliates shall not be required to
agree to any consent decree or order in connection with any objections of the
Department of Justice or Federal Trade Commission (each an "HSR AUTHORITY") to
the transactions contemplated by this Agreement.
(b) The Company and Buyer shall coordinate in advance of
sending any communications to or scheduling any meetings with any Governmental
Entity relating to this Agreement, the Offer or the Merger and shall promptly
share all correspondence or other communication received from any Governmental
Entity relating to this Agreement, the Offer or the Merger.
(c) The Company shall, upon the request of Buyer, take all
reasonable steps to assist in any challenge by Buyer to the validity or
applicability to the transactions contemplated by this Agreement, including the
Merger, of any state takeover law.
SECTION 8.02 CERTAIN FILINGS. The Company and Buyer shall
cooperate with one another (a) in connection with the preparation of the Company
Disclosure Documents and the Offer Documents, (b) in determining whether any
action by or in respect of, or filing with, any governmental body, agency or
official, or authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts
(including, without limitation, lessors under material leases), in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, the consummation of the Financing in accordance
with the terms thereof) and (c) in seeking any such actions, consents, approvals
or waivers or making any such filings, furnishing information required in
connection therewith or with the Company Disclosure Documents or the Offer
Documents and seeking timely to obtain any such actions, consents, approvals or
waivers.
<PAGE> 38
SECTION 8.03. PUBLIC ANNOUNCEMENTS. Buyer and the Company will
consult with each other before issuing, and provide each other the opportunity
to review, comment upon and concur with, any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, court process or any
listing agreement with any national securities exchange, will not issue any such
press release or make any such public statement prior to such consultation.
SECTION 8.04. CONVEYANCE TAXES. Buyer and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
Taxes which become payable in connection with the transactions contemplated
hereunder that are required or permitted to be filed on or before the Effective
Time.
SECTION 8.05. FURTHER ASSURANCES. At and after the Effective
Time, the officers and directors of the Surviving Corporation will be authorized
to execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger. The
Company shall use its best efforts to obtain a release from each Person owed any
Transaction Fees.
SECTION 8.06. EMPLOYEE MATTERS.
(a) Buyer and Merger Subsidiary agree that, effective as of
the Effective Time and for the six-month period following the Effective Time,
the Surviving Corporation and its Subsidiaries and successors shall continue for
those persons who, immediately prior to the Effective Time, were employees of
the Company or its Subsidiaries ("RETAINED EMPLOYEES") the Employee Plans and
material Benefit Arrangements or provide benefits that are not less favorable in
the aggregate to such Employee Plans and Benefit Arrangements. Service accrued
by such Retained Employees during employment with the Company and its
Subsidiaries prior to the Effective Time shall be recognized to the extent and
for the purposes such service was recognized prior to the Effective Time by the
applicable Employee Plan or Benefit Arrangements or benefits plans established
after the Effective Time. Except as provided in the Employee Agreements, nothing
contained in the foregoing is intended to preclude the Surviving Corporation
from terminating the employment of any Retained Employee after the Effective
Time.
(b) Buyer and Merger Subsidiary agree to honor, and cause the
Surviving Corporation to honor, without modification, the Employee Agreements on
the same terms as disclosed in Section 4.15 of the Company Disclosure Letter
hereof (whether or not executed as of the date hereof) which Employee Agreements
are listed on Section 4.15 of the Company Disclosure Letter hereto. Buyer and
Merger Subsidiary acknowledge that the consummation of the Offer shall
constitute a change in control for purposes of the Employee Agreements.
(c) Buyer and Merger Subsidiaries agree to honor, and cause
the Surviving Company to pay, without modification, no later than the earlier of
July 31, 1999 or such employee's last day of work for the Company to each
employee listed in Section 8.06(c) of the Company Disclosure Letter, the bonus
amounts set forth opposite such employee's names listed in Section 8.06 of the
Company Disclosure
<PAGE> 39
Letter.
(d) In the event Buyer or Merger Subsidiary or the Surviving
Corporation or any of their 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 or
conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, to the extent necessary to effectuate the purposes
of this Section 8.06, proper provision shall be made so that the successors and
assigns of Buyer, Merger Subsidiary or the Surviving Corporation, as the case
may be, assume the obligations set forth in this Section 8.06 and none of the
actions described in clauses (i) and (ii) shall be taken until such provision is
made.
SECTION 8.07 CERTAIN LITIGATION. Buyer and Merger Subsidiary
have the right to participate in the defense of any stockholder litigation
against the Company and its officers, directors, employees, representatives and
agents relating to the transactions contemplated by this Agreement. The Company
agrees that it shall not settle any such litigation without the prior written
consent of Buyer, which consent shall not be unreasonably withheld.
SECTION 8.08. RECAPITALIZATION. Each of the Company, Buyer and
Merger Subsidiary agrees to use its best efforts to cause the transactions
contemplated by this Agreement, including the Merger, to be accounted for as a
recapitalization and such accounting treatment to be accepted by their
respective accountants and the SEC, and each of the Company, Buyer and Merger
Subsidiary agrees that it shall take no action that would cause such accounting
treatment not to be obtained in the event the Merger is consummated.
SECTION 8.09. STOP TRANSFER ORDER. The Company shall instruct
the Company's transfer agent that, except as provided in the Stockholders
Agreement, there is a stop transfer order with respect to all of the Shares (as
defined in the Stockholders Agreement) and that the Stockholders Agreement
places limits on the transfer of such Shares.
ARTICLE IX
CONDITIONS TO THE STOCK PURCHASE AND THE MERGER
SECTION 9.01. CONDITIONS TO THE STOCK PURCHASE (a) The
respective obligations of the Company and Buyer to consummate the Stock Purchase
are subject to the satisfaction (or waiver) at or prior to the Stock Purchase
Closing Date of the following conditions:
(i) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Stock Purchase (each party agreeing to use its best efforts to
have any such order reversed or injunction lifted); and
(ii) the conditions to the Offer set forth in Annex I shall
have been satisfied and the Company shall simultaneously with the Stock
Purchase Closing purchase all Shares validly tendered and not withdrawn
pursuant to the Offer.
(b) The obligation of Buyer to consummate the Stock Purchase
are subject to the satisfaction (or waiver) at or prior to the Stock Purchase
Closing Date to each of the following additional conditions:
<PAGE> 40
(i) (A) the representations and warranties of the Company set
forth in the first sentence of Section 4.01 and in Sections 4.02, 4.05
and 4.10 of this Agreement shall be true and correct as of the Stock
Purchase Closing Date as though made on such date, (B) the
representations and warranties set forth in this Agreement other than
those contained in the first sentence of Section 4.01 and in Sections
4.02, 4.05 and 4.10 shall be true and correct (without giving effect to
the materiality or material adverse effect limitations contained
therein) except for any breach or breaches which individually or in the
aggregate, do not have, and could not reasonably expected to have, a
Material Adverse Effect; and (C) clauses A and B of this paragraph
shall be limited to the extent that representations and warranties set
forth in this Agreement that address matters only as of a particular
date shall be true and correct in all material respects only as of such
specified date;
(ii) the Company shall have performed or complied in all
material respects with all obligations and agreements, and complied in
all materials respects with covenants, contained in this Agreement to
be performed or complied with by it prior to or on the Stock Purchase
Closing Date;
(iii) the Company shall have delivered a certificate of the
Company, dated as of the Stock Purchase Closing Date, signed by an
executive officer of the Company to evidence satisfaction of the
conditions set forth in Sections 9.01(b)(i) and (ii); and
(iv) all Directors of the Company, to the extent requested by
Buyer, shall have tendered their resignations effective as of the Stock
Purchase Closing and shall have been replaced by nominees acceptable to
Buyer.
(c) The obligation of the Company to effect the Stock Purchase
is also subject to the satisfaction (or waiver) at or prior to the Stock
Purchase Closing Date of each of the following additional conditions:
(i) the representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects on
the Stock Purchase Closing Date, with the same force and effect as
though such representations and warranties had been made on and as of
the Stock Purchase Closing Date, except for representations and
warranties that are made as of a specified date or time which shall be
true and correct in all material respects only as of such specific date
or time;
(ii) Buyer shall have performed in all material respect all
obligations and agreements, and complied in all material respects with
the covenants, contained in this Agreement to be performed or complied
with by it prior to or on the Stock Purchase Closing Date; and
(iii) the Company shall have received certificates of Buyer,
dated as of the Stock Purchase Closing Date, signed by an executive
officer of Buyer to evidence satisfaction of the conditions set forth
in Section 9.01(c)(i) and (ii).
SECTION 9.02 CONDITIONS TO THE MERGER. The respective
obligations of the Company, Buyer and Merger Subsidiary to consummate the Merger
are subject to the satisfaction at or prior to the Merger Closing Date of the
following conditions:
(i) if required by the DGCL and the Certificate of
Incorporation,
<PAGE> 41
this Agreement and the transactions contemplated hereby shall
have been adopted by the stockholders of the Company in
accordance therewith;
(ii) any applicable waiting period under the HSR Act relating
to the Merger shall have expired;
(iii) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Merger (each party agreeing to use its best efforts to have any
such order reversed or injunction lifted);
(iv) the Company shall have accepted for payment Shares
tendered pursuant to the Offer;
(v) Buyer shall have received or be reasonably satisfied that
it will receive all material consents and approvals contemplated by
Section 4.04 in connection with the consummation of the Merger or to
enable the Surviving Corporation to continue to carry on the business
of the Company and the Subsidiaries as presently conducted in all
material respects; and
(vi) Buyer shall have purchased the Buyer Shares.
ARTICLE X
TERMINATION
SECTION 10.01. TERMINATION . This Agreement may be terminated
and the Transactions may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(i) by mutual written consent of the Board of Directors of
each of Company and Buyer;
(ii) by either the Company or Buyer if the Offer Completion
Date shall not have occurred by June 30, 1999 (the "OUTSIDE TERMINATION
DATE"); PROVIDED, HOWEVER, that the right to terminate this Agreement
under this paragraph 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 to meet the date requirements of this
paragraph;
(iii) by either the Company or Buyer, if any judgment,
injunction, order or decree enjoining Buyer or the Company from
consummating the Merger or accepting for payment or paying for Shares
in the Offer is entered by any Governmental Entity and such judgment,
injunction, order or decree shall become final and nonappealable;
(iv) by either the Company or Buyer if the Offer expires or is
terminated or withdrawn pursuant to its terms without any Shares being
purchased thereunder by the Company as a result of a failure of any of
the conditions to the Offer set forth in ANNEX I to be satisfied or
waived prior to the Expiration Date or any extension thereof;
(v) by the Company at any time prior to the Offer Completion
Date, if Buyer or Merger Subsidiary materially breaches or fails in any
material respect to perform or comply with any of its covenants and
<PAGE> 42
agreements contained herein or breaches its representations and
warranties in any material respect which materially adversely affects
(or materially delays) the consummation of the Offer or the other
Transactions, which breach or failure to perform cannot be or has not
been cured within ten days of the receipt of written notice of such
breach by Buyer or Merger Subsidiary from the Company; or
(vi) by Buyer at any time prior to the Offer Completion Date,
if the Company materially breaches or fails in any material respect to
perform or comply with any of its covenants and agreements contained
herein or breaches its representations and warranties in any material
respect, which breach or failure to perform cannot be or has not been
cured within ten days of the receipt of written notice of such breach
by the Company from Buyer;
(vii) by the Company at any time prior to the Offer Completion
Date, pursuant to the second sentence of Section 6.04(b), PROVIDED that
such termination under this clause (vii) shall not be effective until
payment of the fee required by Section 11.04 hereof and PROVIDED,
FURTHER, that this Agreement may not be terminated pursuant to this
clause (vii) until the Expiration Date of the Offer; or
(viii) by Buyer or Merger Subsidiary at any time prior to the
Offer Completion Date, if, (A) the Board of Directors of the Company
shall have (i) withdrawn or modified or changed in a manner adverse to
Buyer its approval or recommendation of this Agreement, the Offer, the
Merger or the other Transactions, (ii) approved or recommended, or
proposed publicly to approve or recommend, a Takeover Proposal, (iii)
caused or authorized the Company or any of its subsidiaries to enter
into a Company Acquisition Agreement, (iv) approved the breach of the
Company's obligations in Section 6.04(b), or (v) resolved or publicly
disclosed any intention to take any of the foregoing actions or (B) the
Advisor shall have withdrawn or modified or changed in a manner adverse
to Buyer its opinion relating to the Merger Consideration.
The party desiring to terminate this Agreement pursuant to clauses (ii), (iii),
(iv), (v), (vi), (vii) or (viii) shall give written notice of such termination
to the other party.
SECTION 10.02. EFFECT OF TERMINATION. If this Agreement is
terminated pursuant to Section 10.01, this Agreement shall become void and of no
effect with no liability on the part of any party hereto, except that the
agreements contained in Section 11.04 and the Confidentiality Agreement shall
survive the termination hereof and nothing herein shall relieve any party from
liability for any breach of this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given,
if to Buyer or Merger Subsidiary, to:
Carreras, Kestner & Co., LLC
Terminal Tower
50 Public Square, 32nd Floor
<PAGE> 43
Cleveland, Ohio 44113
Telecopy: 216-344-7631
Attention: Chief Financial Officer
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Telecopy: 216-579-0212
Attention: Patrick J. Leddy, Esq.
if to the Company, to:
Hilite Industries, Inc.
1671 S. Broadway
Carrollton, Texas 75006
Telecopy: 972-242-6140
Attention: Samuel M. Berry, President and
Chief Operating Officer
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Telecopy: (212) 704-6288
Attention: Edward R. Mandell, Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received or (ii) if given by any other
means, when delivered at the address specified in this Section.
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement. All covenants and agreements contained herein
which by their terms are to be performed in whole or in part subsequent to the
Effective Time shall survive the Merger in accordance with their terms and shall
be enforceable by the party entitled to the benefit thereof. Nothing contained
in this Section 11.02 shall relieve any party from liability for any breach of
this Agreement.
SECTION 11.03 AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company, Buyer and
Merger Subsidiary or in the case of a waiver, by the party against whom the
waiver is to be effective; PROVIDED that after the adoption of this Agreement by
the stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company or (ii) any of the terms or conditions of this Agreement if such
alteration or change could adversely affect the holders of any shares of capital
stock of the Company.
<PAGE> 44
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 11.04. EXPENSES.
(a) Except as otherwise provided in this Section, all costs
and expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense. All costs and expenses related to the
preparation, printing, filing and mailing (as applicable) of the Offer Documents
and all SEC filing fees shall be considered to be costs and expenses of Buyer.
(b) (i) The Company will pay to Buyer an amount equal to
$3,000,000 (the "TERMINATION FEE") in any of the following circumstances:
(A) This Agreement is terminated at such time that
this Agreement is terminable pursuant to Sections 10.01(vii)
or 10.01(viii);
(B) This Agreement is terminated by either Buyer or
the Company pursuant to Section 10.01(ii), and each of the
following items occurs:
(1) at the time of such termination the
Minimum Condition shall not have been satisfied,
(2) at the time of such termination the
Company shall not have the right to terminate this
Agreement pursuant to Section 10.01(v),
(3) prior to such termination, a Takeover
Proposal involving at least 50% of the assets of the
Company and its subsidiaries, taken as a whole, or
50% of any class of equity securities of the Company
(any such Takeover Proposal, a "COMPETING PROPOSAL"),
is (x) publicly disclosed or has been made directly
to stockholders of the Company generally or (y) any
Person (including without limitation the Company or
any of its Subsidiaries) publicly announces an
intention (whether or not conditional) to make such a
Competing Proposal, and
(4) prior to the termination of this
Agreement or within 12 months after the termination
of this Agreement, the Company or a Subsidiary enters
into a Company Acquisition Agreement providing for a
Competing Proposal (any such agreement, a "COMPETING
PROPOSAL AGREEMENT") or the transactions contemplated
by a Competing Proposal are consummated;
(C) This Agreement is terminated by either Buyer or
the Company pursuant to Section 10.01(iv), and each of the
following items occurs:
(1) at the time of such termination the
Minimum Condition shall not have been satisfied,
(2) at the time of such termination the
Company shall not have the right to terminate this
Agreement pursuant to Section 10.01(v),
(3) prior to such termination an event
referred to in Section 11.04(b)(i)(B)(3) (a "TAKEOVER
PROPOSAL EVENT") shall have occurred, and
<PAGE> 45
(4) prior to the termination of this
Agreement or within 12 months after the termination
of this Agreement, the Company or a Subsidiary
thereof enters into a Competing Proposal Agreement or
the transactions contemplated by a Competing Proposal
are consummated; or
(D) This Agreement is terminated by Buyer pursuant to Section
10.01(vi), and each of the following shall have occurred:
(1) prior to such termination a Takeover Proposal
Event shall have occurred, and
(2) prior to the termination of this Agreement or
within 12 months after the termination of this Agreement, the
Company or a subsidiary thereof enters into a Competing
Proposal Agreement or the transactions contemplated by a
Competing Proposal are consummated unless, in either case, the
purchaser pursuant to such Competing Proposal Agreement or
otherwise waives the breach (or failure) of the
representation, warranty, covenant or agreement that
constituted the basis for Buyer's termination pursuant to
Section 10.01(vi), so long as the Company's breach or failure
was not intentional.
(ii) If this Agreement is terminated in circumstances
where a Termination Fee is then payable, then in any such case
the Company will promptly, but in no event later than two
Business Days after submission of a request therefor, pay
Buyer up to $1,000,000 of Buyer's documented Expenses.
(iii) If a Termination Fee is payable pursuant to
Section 10.01(b)(i)(B), 10.01(b)(i)(C) or 10.01(b)(i)(D), then
the Company will pay the Termination Fee to Buyer upon the
signing of a Competing Proposal Agreement or, if no Competing
Proposal Agreement is signed, then at the closing (and as a
condition to the closing) of a Competing Proposal.
Notwithstanding any other provision hereof, (A) in no event
may the Company enter into a Competing Proposal Agreement
unless, prior thereto, the Company has paid any amount due
under Section 10.01(b) or which will become due under Section
10.01(b), (B) the Company may not terminate this Agreement
under Sections 6.04(b) or 10.01(vii) unless prior thereto it
has paid all amounts due under Section 10.01(b) to Buyer, (C)
all amounts due in the event that this Agreement is terminated
under Section 10.01(vii) or 10.01(viii) and in circumstances
in which the Company has not entered into a Competing Proposal
Agreement will be payable promptly, but in no event more than
two Business Days after request therefor is made, and (d) all
amounts due under this Section 10.01(b) will be paid on the
date due in immediately available funds wire transferred to
the account designated by the Person entitled to such payment.
(iv) This Section 11.04 will survive any termination
of this Agreement. For purposes of this Agreement, the term
"EXPENSES" means all actual out-of-pocket fees, costs and
other expenses incurred or assumed by Buyer or Merger
Subsidiary or incurred on their behalf in connection with this
Agreement or any of the transactions contemplated hereby,
including, without limitation, in connection with the
negotiation, preparation, execution and performance of this
Agreement, the structuring and financing of the Merger and the
other transactions contemplated hereby, or any commitments or
agreements relating to such financing,
<PAGE> 46
including without limitation, fees and expenses payable to all
banks, investment banking firms, other financial institutions
and other Persons and their respective agents and counsel for
arranging, committing to provide or providing any financing
for the Merger and any other transactions contemplated hereby
or structuring, negotiating or advising with respect to such
transactions or financing, and all fees and expenses of
counsel, accountants, experts and computer, environmental,
actuarial, insurance and other consultants to Buyer or Merger
Subsidiary.
(v) The Company acknowledges that the agreements
contained in this Section 11.04 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Buyer and Merger Subsidiary would not enter
into this Agreement; accordingly, if the Company fails
promptly to pay the amount due pursuant to this Section 11.04,
and, in order to obtain such payment, Buyer or Merger
Subsidiary commences a suit which results in a judgment
against the Company for a fee set forth in this Section 11.04,
the Company will pay to Buyer and Merger Subsidiary their
documented Expenses (including attorneys' fees and expenses)
in connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
SECTION 11.05. SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, PROVIDED that except as provided
in Section 11.02, no party may assign, delegate or otherwise transfer any of
its rights or obligations under this Agreement without the consent of the other
parties hereto except that Buyer may transfer or assign, in whole or from time
to time in part, (i) to one or more of its direct or indirect wholly owned
subsidiaries, the right to purchase Shares pursuant to the Offer, but such
transfer or assignment will not relieve Buyer of its obligations under the
Offer or prejudice the rights of tendering stockholders to receive payment for
Shares validly tendered and accepted for payment pursuant to the Offer or (ii)
its rights under this Agreement as collateral to the Lender, its successors and
assigns, providing the Financing.
SECTION 11.06. GOVERNING LAW. This Agreement shall be
construed in accordance with and governed by the law of the State of Delaware
without regard to conflicts of laws.
SECTION 11.07. SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated herein is not affected in any
manner materially adverse to any party hereto. Upon such determination that any
term or other provisions is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner.
SECTION 11.08 THIRD PARTY BENEFICIARIES. No provision of this
Agreement other than Sections 7.03 and 8.06 and the second sentence of Section
11.02 is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
SECTION 11.09. ENTIRE AGREEMENT. This Agreement (including any
exhibits or schedules hereto), Annex A, the Stockholders Agreement and the
Confidentiality Agreement, which will survive the execution and delivery of this
Agreement, constitute the entire agreement among the parties with respect to the
<PAGE> 47
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto, both written and oral. No addition to or
modification of any provision of this Agreement will be binding upon any party
hereto unless made in writing and signed by all parties hereto.
SECTION 11.10. COUNTERPARTS; EFFECTIVENESS. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 11.11. JURISDICTION. Any legal action or proceeding
with respect to this Agreement or any matters arising out of or in connection
with this Agreement, and any Action for enforcement of any judgment in respect
thereof shall be brought exclusively in the courts of the State of New York or
of the United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Company, Buyer and Merger
Subsidiary each hereby accepts for itself and in respect of its property,
generally and unconditionally, the exclusive jurisdiction of the aforesaid
courts and appellate courts thereof. The Company, Buyer and Merger Subsidiary
irrevocably consent to service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, or by recognized international
express carrier or delivery service, to the Company, Buyer or Merger Subsidiary
at their respective addresses referred to in Section 11.01 hereof. The Company,
Buyer and Merger Subsidiary each hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Agreement or
otherwise brought in the courts referred to above and hereby further irrevocably
waives and agrees, to the extent permitted by applicable law, not to plead or
claim in any such court that any such action or proceedings brought in any such
court has been brought in an inconvenient forum. Nothing herein shall affect the
right of any party hereto to serve process in any other manner permitted by law.
SECTION 11.12. KNOWLEDGE. The phrase "to the Company's
knowledge" when used throughout this Agreement shall mean the actual knowledge
of the officers of the Company preparing the Company Disclosure Letter after
reasonable inquiry, including, without limitation, the following officers:
Samuel Berry, Daniel Brady, Roy Weigmann and Chris Curto.
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
HILITE INDUSTRIES, INC.
By: /s/ Samuel M. Berry
---------------------------------------------
Name: Samuel M. Berry
Title: President and Chief Operating Officer
HILITE HOLDINGS, LLC
By: /s/ Joseph W. Carreras
---------------------------------------------
Name: Joseph W. Carreras
Title: President
HILITE MERGECO, INC.
By: /s/ Joseph W. Carreras
---------------------------------------------
Name: Joseph W. Carreras
Title: President
<PAGE> 49
ANNEX I
CONDITIONS TO THE OFFER
-----------------------
Notwithstanding any other provisions of the Offer, and in
addition to (and not in limitation of) the Company's rights to extend and amend
the Offer pursuant to the provisions of the Merger Agreement, the Company shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating
to the Company's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), to pay for, and may delay the
acceptance for payment of or, subject to the restriction referred to above, the
payment for, any tendered Shares, and may terminate the Offer if (i) any
applicable waiting period under the HSR Act has not expired or terminated prior
to the expiration of the Offer, (ii) the Minimum Condition has not been
satisfied, (iii) the Stock Purchase Closing shall not have occurred other than
due to any breach of this Agreement by Buyer or Merger Subsidiary, (iv) the
Company shall not have received the proceeds of the debt portion of the
Financing or otherwise obtained funds sufficient to finance the Transactions
except that the foregoing condition shall not apply in the event such proceeds
are not received due to (x) the failure of the lenders in the Financing and
Buyer to agree on definitive documentation for the Financing or (y) the failure
of Buyer and/or Merger Subsidiary to receive the equity portion of the
Financing, or (v) at any time on or after the date of the Merger Agreement, and
on or before the Expiration Date (whether or not any Shares have heretofore been
accepted for payment or paid for pursuant to the Offer), any of the following
conditions shall exist (each of paragraphs (a) through (g) providing for a
separate and independent condition to the Company's obligations pursuant to the
Offer):
(a) there shall be instituted and pending by any Governmental
Entity (or the staff of any HSR Authority shall have recommended the
commencement of) any action or proceeding which (1) seeks to prohibit, or impose
any material limitations on, Buyer's or Merger Subsidiary's ownership or
operation of all or a material portion of the businesses or assets of the
Company and its Subsidiaries, taken as a whole, or to compel Buyer or any of its
subsidiaries or affiliates to dispose of or hold separate all or any material
portion of the business or assets of the Company and its Subsidiaries, taken as
a whole, or of Buyer or its subsidiaries, (2) seeks to impose limitations on the
ability of Buyer or render Buyer unable to accept for payment, payment for or
purchase some or all of the Shares pursuant to the Offer and the Merger or the
consummation of the Offer or the Merger, (3) challenges or seeks to make
illegal, to delay materially or to restrain or prohibit, the making of the
Offer, the consummation of the Merger or the other Transactions, or seeks to
restrain or limit the ability of the Company, or renders the Company unable, to
accept for payment, pay for or purchase some or all of the Shares, to consummate
the Merger or the other Transactions, or seeks material damages relating to the
transactions contemplated by the Offer, the Merger or the other Transactions or
(4) imposes limitations on the ability of Merger Subsidiary or Buyer or its
Affiliates effectively to exercise full rights of ownership of the Shares,
including without limitation, the right to vote the Shares purchased by it on
all matters properly presented to the Company's stockholders;
(b) any action taken, or any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted, issued or
applicable to the Offer, the Merger or the other Transactions by any
Governmental Entity shall be in effect that results in any of the consequences
referred to in clauses (1) through (4) of paragraph (a) above;
(c) the Merger Agreement shall have been terminated in
accordance with its
<PAGE> 50
terms;
(d) the commitment for the Financing shall be no longer in
effect due to (i) any general suspension of, or limitation on prices for,
trading in securities on any national securities exchange or the
over-the-counter market for a period in excess of 24 hours (excluding
suspensions or limitations resulting solely from physical damage or interference
with such exchanges not related to market conditions), (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (iii) a commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States, (iv) any limitation (whether or not mandatory) by
any United States Governmental Entity on the extension of credit generally by
banks or other financial institutions, (v) a change in general financial, bank
or capital market conditions which materially and adversely affects the ability
of financial institutions in the United States to extend credit or syndicate
loans, (vi) a decline of at least 20% in either the Dow Jones Average of
Industrial Stocks or the Standard & Poor's 500 Index from the close of business
on the date of the Merger Agreement, or (vii) in the case of any of the
foregoing existing at the time of the execution of the Merger Agreement, a
material acceleration or worsening thereof;
(e) since the Balance Sheet Date there shall have occurred any
material adverse change or any event or development that has resulted in or is
reasonably likely to result in, a material adverse change in the business,
properties, assets, condition (financial), results of operations, liabilities or
operations of the Company and its Subsidiaries, taken as a whole;
(f) the Company's Board of Directors (or any committee
thereof) shall have (i) withdrawn, or modified or changed in a manner adverse to
Buyer or Merger Subsidiary (including by amendment of the Schedule 13E-4) its
recommendation of the Offer, the Merger Agreement; the Merger or the other
Transactions; (ii) taken a position inconsistent with its recommendation of the
Offer, the Merger Agreement or the Merger, (iii) approved or recommended any
Takeover Proposal; (iv) taken any action referred to in Section 6.04(b) of the
Merger Agreement that is prohibited thereby, or (v) shall have resolved or
publicly disclosed an intention to do any of the foregoing;
(g) Buyer and the Company shall have agreed that the Company
shall terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder
which in the sole judgment of Buyer or Merger Subsidiary, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
If any condition to the Financing shall also be a condition to
the Offer in this Annex I, Buyer shall use the failure to satisfy the condition
set forth in this Annex I as the basis for terminating the Merger Agreement
instead of clause (iii) of the first paragraph of this Annex I.
The parties acknowledge that the foregoing conditions are for
the sole benefit of the Buyer and Merger Subsidiary and that the Company shall
not assert failure of, or waive, any such condition without the prior written
consent of Buyer and that if Buyer elects to waive any such condition to the
Offer, the Company shall cooperate and comply with such election.
<PAGE> 51
Exhibit A
CONFIDENTIALITY AGREEMENT
Bowles Hollowell Conner & Co.
First Union Capital Markets Group
101 South Tryon Street, 40th Floor
Charlotte, North Carolina 28280
Ladies and Gentlemen:
You have advised us that you are acting on behalf of , a
certain publicly traded company ("Neon" or the "Company") in its consideration
of a possible sale of Neon, and you have agreed to discuss with us the possible
purchase of Neon. As a condition to such discussions, you have required that we
agree to keep strictly confidential all information conveyed to us regarding
this matter.
This letter will confirm our agreement with you and Neon to retain in
strict confidence all information (whether oral or written) conveyed to us by
Neon, its agents, or you regarding the Company, unless such information is
publicly available, we can clearly establish was known to us, without any direct
or indirect obligation of confidentiality, prior to your disclosure, or is or
becomes available to us on a nonconfidential basis from a source other than you,
Neon, or its agents, provided that such other source is not bound by a
confidentiality agreement with you or Neon. We will use such information only in
connection with our consideration of whether to purchase Neon and will not
otherwise us it in our business or disclose it to others, except that we shall
have the right to communicate the information to such of our directors,
officers, advisors, and employees (if any) who are required by their duties to
have knowledge thereof, provided that each such person is informed that such
information is strictly confidential and subject to this agreement and agrees
not to disclose or use such information except as provided herein. We hereby
agree to be jointly and severally responsible for any breach of this agreement
by our officers, directors, advisors, and/or employees or any of our
representatives. In the event that we become legally compelled by deposition,
subpoena, or other court or governmental action to disclose any of the
confidential information covered by this agreement, we shall provide Neon with
prompt prior written notice to that effect, and we will cooperate with Neon if
it seeks to obtain a protective order concerning such confidential information.
We agree not to initiate contact, or engage in discussions, with any
employee, customer, or supplier of Neon without the express prior consent of you
or the Company. Unless we purchase Neon, we agree not to hire or solicit for
employment any employees of Neon, without the written consent of the Company,
for a period of two years from the date of this letter.
Until the expiration of two years from the date of this letter, we will not
and will insure that our officers, directors, advisors, and employees will not,
without the prior written approval of the Board of Directors of the Company, (i)
acquire or agree to acquire or make any proposal to acquire directly or
indirectly any securities or property of the Company, or (ii) otherwise act
alone, or in concert with others to seek to control or influence the management,
Board of Directors, or policies of the Company.
We acknowledge that neither Neon nor any of its directors, officers,
employees, stockholders, or agents make any representation as to the accuracy or
completeness of such information and that neither Neon nor any of its directors,
officers, employees, stockholders, or agents shall have any liability to us as a
result of our use of such information.
We also agree that without prior consent of Neon, we and our officers,
directors, advisors, and employees will not disclose to any other person that we
have received such information, that we are in discussions or negotiations with
you and Neon as to a possible purchase of Neon, or that the Board of Directors
of the Company is contemplating a possible sale of Neon.
<PAGE> 52
CONFIDENTIALITY AGREEMENT
Page 2
We will advise all of our directors, officers, employees, and other
representatives who are informed of the matters which are the subject of this
letter that U.S. securities laws prohibit any person who has material, nonpublic
information concerning an issuer of publicly held securities from purchasing or
selling such securities.
We acknowledge that Neon reserves the right to reject any or all offers to
acquire the Company. We further acknowledge that the Company reserves the right
to discontinue discussions at any time and to conduct the process for the sale
of the Company as in its sole discretion it shall determine (including without
limitation, negotiating with any prospective purchasers, and entering into a
definitive agreement without prior notice to us or any other person or to change
any procedures relating to such sale without notice to us or any other person).
We shall have no claim against the Company or any of its directors, officers,
representatives, affiliates, or agents arising out of or relating to the sale of
the Company other than as against them as named parties to a definitive
agreement and only in accordance with the express terms and conditions thereof.
We further acknowledge that we acquire no intellectual property rights based on
any information provided to us hereunder and no right under any invention,
patent or patent application based on any information conveyed to us in
accordance with this agreement.
In the event that we do not purchase Neon, we agree to return to you all
financial and other written information provided to us relating to Neon,
including any memoranda, notes, or other writings prepared by us or our
representatives based on such information, together with all copies of such
information in our possession or under our control to which we have access. We
agree that neither Neon nor Bowles Hollowell Conner & Co. shall be obligated to
pay any fees on our behalf to any brokers, finders, or other parties claiming to
represent us in this transaction. Without limiting the generality of the
nondisclosure agreements contained herein above, it is further understood that
we are strictly prohibited by this agreement from acting as a broker or an agent
using any of the confidential information provided to us.
We acknowledge that unauthorized disclosure of such information would cause
substantial and irreparable damage to the business and competitive position of
the Company, and we agree that the Company shall be entitled to injunctive
relief in the event of any breach or threatened breach of the terms of this
letter agreement in addition to such other remedies as may be available at law
or equity. The parties hereto acknowledge that any action or proceeding arising
out of or relating to this letter agreement shall be determined by the United
States District Court for the Northern District of Texas and this agreement
shall be interpreted and construed in its entirety in accordance with the laws
of the State of Delaware.
Name: Michael T. Kestner
----------------------------
Title: Chief Financial Officer
----------------------------
Company: Carreras, Kestner & Co., LLC
----------------------------
Date: 1/22/99
----------------------------
<PAGE> 1
Exhibit (c)(2)
STOCKHOLDERS AGREEMENT
----------------------
STOCKHOLDERS AGREEMENT, dated as of April 26, 1999 (this "Agreement"),
among Hilite Holdings, LLC, a Delaware limited liability company ("Buyer"),
Hilite Mergeco, Inc., a Delaware corporation ("Merger Subsidiary"), and the
parties listed on SCHEDULE A attached hereto (each a "Stockholder" and
collectively, the "Stockholders").
WHEREAS, each Stockholder is the owner of the number of shares (the
"Shares") of Common Stock, par value $.01 per share, of Hilite Industries, Inc.,
a Delaware corporation (the "Company"), set forth opposite such Stockholder's
name on SCHEDULE A and holds stock options (the "Options") to acquire the number
of Shares set forth opposite such Stockholder's name on SCHEDULE A; and
WHEREAS, Buyer, Merger Subsidiary and the Company propose to enter into
an Agreement and Plan of Merger, dated as of even date herewith (as the same may
be amended from time to time, the "Merger Agreement"), which provides, upon the
terms and subject to the conditions thereof, for (i) the Company to make a cash
tender offer (the "Offer") to acquire all of the issued and outstanding shares
of Common Stock, par value $.01 per share, of the Company for $14.25 per share,
net to the seller in cash, (ii) the purchase by Buyer and the sale by the
Company of 1,681,414 shares of Common Stock of the Company immediately prior to
the consummation of the Offer and (iii) the merger of Merger Subsidiary with and
into the Company (the "Merger"); and
WHEREAS, as a condition to the willingness of Buyer and Merger
Subsidiary to enter into the Merger Agreement, Buyer and Merger Subsidiary have
requested that the Stockholders agree, and, in order to induce Buyer and Merger
Subsidiary to enter into the Merger Agreement, each of the Stockholders have
agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder
hereby severally represents and warrants to Buyer and Merger Subsidiary as
follows:
(a) Such Stockholder is the sole record and beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which meaning will apply for all purposes of this
Agreement) of, and has good title to, all of the Shares, and there exist no
liens, claims, security interests, options, proxies, voting agreements, charges
or encumbrances of whatever nature ("Liens") affecting the Shares.
(b) Upon transfer to the Company by such Stockholder of the
Shares upon consummation of the Offer or the Merger (whichever is earlier), the
Company will have good title to the Shares, free and clear of all Liens.
<PAGE> 2
(c) Other than the Options, the Shares constitute all of the
securities (as defined in Section 3(10) of the Exchange Act, which definition
will apply for all purposes of this Agreement) of the Company beneficially
owned, directly or indirectly, by such Stockholder (excluding any securities
beneficially owned by any of its or his affiliates or associates (as such terms
are defined in Rule 12b-2 under the Exchange Act, which definition will apply
for all purposes of this Agreement) as to which it or he does not have voting or
investment power).
(d) Except for the Shares and the Options, such Stockholder
does not, directly or indirectly, beneficially own or have any option, warrant
or other right to acquire any securities of the Company that are or may by their
terms become entitled to vote or any securities that are convertible or
exchangeable into or exercisable for any securities of the Company that are or
may by their terms become entitled to vote, nor is such Stockholder subject to
any contract, commitment, arrangement, understanding or relationship (whether or
not legally enforceable) that allows or obligates it or him to vote or acquire
any securities of the Company.
(e) The execution and delivery of this Agreement by such
Stockholder does not, and the performance by such Stockholder of its or his
obligations hereunder will not, constitute a violation of, conflict with, result
in a default (or an event which, with notice or lapse of time or both, would
result in a default) under, or result in the creation of any Lien on any Shares
under, (i) any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Stockholder is a party or by which such
Stockholder is bound or (ii) any judgment, writ, decree, order or ruling
applicable to the Stockholder.
(f) Such Stockholder has the legal capacity, power and
authority to enter into and perform all of such Stockholder's obligations under
this Agreement. This Agreement has been duly and validly authorized, executed
and delivered by such Stockholder and, assuming its due authorization, execution
and delivery by Buyer and Merger Subsidiary, constitutes a legal, valid and
binding obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms. If such Stockholder is married and such Stockholder's
Shares constitute community property or otherwise require spousal or other
approval for this Agreement to be legal, valid and binding, this Agreement, has
been duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such person
in accordance with its terms.
(g) Neither the execution and delivery of this Agreement nor
the performance by such Stockholder of its or his obligations hereunder will (i)
violate any order, writ, injunction or judgment applicable to such Stockholder
or (ii) to the best knowledge of such Stockholder, violate any law, decree,
statute, rule or regulation applicable to such Stockholder or require any
consent, authorization or approval of, filing with or notice to, any court,
administrative agency or other governmental body or authority, other than any
required notices or filings pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act") or the federal securities laws, and except where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or materially delay the
performance by the Stockholder of its or his obligations under this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY. Each
of Buyer and Merger Subsidiary represents and warrants to each Stockholder as
follows:
2
<PAGE> 3
(a) Each of Buyer and Merger Subsidiary is duly organized and
validly existing and in good standing under the laws of the State of Delaware,
has the requisite corporate or limited liability company power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and has taken all necessary corporate or limited liability
company action to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly and validly executed and delivered by
each of Buyer and Merger Subsidiary and constitutes the legal, valid and binding
obligation of each of Buyer and Merger Subsidiary, enforceable against each of
Buyer and Merger Subsidiary in accordance with its terms.
(b) The execution and delivery of this Agreement by each of
Buyer and Merger Subsidiary does not, and the performance by each of Buyer and
Merger Subsidiary of its respective obligations hereunder will not, (i)
constitute a violation of, conflict with, or result in a default (or an event
which, with notice or lapse of time or both, would result in a default) under,
its respective certificate of incorporation or bylaws or equivalent documents or
any contract, commitment, agreement, understanding, arrangement or restriction
of any kind to which either of Buyer and Merger Subsidiary is a party or by
which either of Buyer and Merger Subsidiary is bound or any law, regulation,
judgment, writ, decree, order or ruling applicable to Buyer or Merger
Subsidiary, or (ii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the property or
assets of either Buyer or Merger Subsidiary pursuant to any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which either Buyer or Merger Subsidiary is a
party or by which it or any of its properties is bound or affected, except for
any such breaches, defaults or other occurrences that would not prevent or
materially delay the performance by either Buyer or Merger Subsidiary of its
obligations under this Agreement.
(c) Neither the execution and delivery of this Agreement nor
the performance by each of Buyer and Merger Subsidiary of its respective
obligations hereunder will violate any order, writ, injunction, judgment, law,
decree, statute, rule or regulation applicable to Buyer or Merger Subsidiary or
require any consent, authorization or approval of, filing with, or notice to,
any court, administrative agency or other governmental body or authority, other
than any required notices or filings pursuant to the HSR Act or the federal
securities laws.
3. TENDER OF SHARES. Each Stockholder hereby irrevocably undertakes to
(i) except as and to the extent provided in clause (ii) below, validly tender
and sell (and not withdraw) pursuant to and in accordance with the terms of the
Offer all of its or his Shares by the fifth Business Day (as defined in the
Merger Agreement) following commencement of the Offer, and (ii) not tender
pursuant to the Offer the number of Shares set forth opposite such Stockholder's
name on SCHEDULE A under the heading "Retained Shares." In the event,
notwithstanding the provisions of the first sentence of this Section 3, any
Shares tendered pursuant to clause (i) above are for any reason withdrawn from
the Offer or are not purchased pursuant to the Offer or any Retained Shares are
tendered in violation of clause (ii) above, such Shares will remain subject to
the terms of this Agreement. Each Stockholder acknowledges that the Company's
obligation to accept for payment and pay for the Shares in the Offer is subject
to all the terms and conditions of the Offer.
3
<PAGE> 4
4. TRANSFER OF THE SHARES. During the term of this Agreement, except as
otherwise provided herein, each Stockholder will not (a) offer to sell, sell,
pledge or otherwise dispose of or transfer any interest in or encumber with any
Lien any of its or his Shares, (b) acquire any shares of Common Stock or other
securities of the Company (otherwise than in connection with a transaction of
the type described in Section 7 and any such additional shares or securities
will be deemed Shares and included in the Shares subject to this Agreement),
including, without limitation, by exercising any of the Options, except upon the
prior written consent of Buyer and Merger Subsidiary, (c) deposit its or his
Shares into a voting trust, enter into a voting agreement or arrangement with
respect to such Shares or grant any proxy or power of attorney with respect to
such Shares, or (d) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect acquisition or sale,
assignment or other disposition of or transfer of any interest in or the voting
of any shares of Common Stock or any other securities of the Company.
5. VOTING OF SHARES. Each Stockholder, by this Agreement, does hereby
constitute and appoint Buyer, or any nominee thereof, with full power of
substitution, during and for the term of this Agreement, as his true and lawful
attorney and proxy for and in his name, place and stead, to vote each of its or
his Shares at any annual, special or adjourned meeting of the stockholders of
the Company (and this appointment will include the right to sign its or his name
(as stockholder) to any consent, certificate or other document relating to the
Company which the laws of the State of Delaware may require or permit) (a) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval and adoption of the terms thereof and hereof; (b)
against any action or agreement that would result in a breach in any respect of
any covenant, agreement, representation or warranty of the Company under the
Merger Agreement; and (c) against the following actions (other than the Merger
and the other transactions contemplated by the Merger Agreement): (i) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its subsidiaries; (ii) a sale,
lease or transfer of a material amount of assets of the Company or one of its
subsidiaries, or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries; (iii) (A) any change in a majority of the
persons who constitute the board of directors of the Company as of the date
hereof; (B) any change in the present capitalization of the Company or any
amendment of the Company's certificate of incorporation or by-laws, as amended
to date; (C) any other material change in the Company's corporate structure or
business; or (D) any other action which, in the case of each of the matters
referred to in clauses (iii)(A), (B), (C) and (D), is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or adversely
affect the Merger and the other transactions contemplated by this Agreement and
the Merger Agreement. This proxy and power of attorney is a proxy and power
coupled with an interest, and each Stockholder declares that it is irrevocable.
Each Stockholder hereby revokes all and any other proxies with respect to the
Shares that it or he may have heretofore made or granted.
6. ENFORCEMENT OF THE AGREEMENT. Each Stockholder acknowledges that
irreparable damage would occur in the event that any of the provisions of this
Agreement are not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that Buyer or Merger Subsidiary
will be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which it is entitled at law or in equity.
4
<PAGE> 5
7. ADJUSTMENTS. The number and type of securities subject to this
Agreement will be appropriately adjusted in the event of any stock dividends,
stock splits, recapitalizations, combinations, exchanges of shares or the like
or any other action that would have the effect of changing such Stockholder's
ownership of the Company's capital stock or other securities.
8. COMPLIANCE WITH MERGER AGREEMENT. Each Stockholder shall comply with
the requirements of Section 6.04 of the Merger Agreement.
9. TERMINATION. This Agreement, including the proxy under Section 5,
will terminate on the earlier of (a) the date the Merger Agreement is terminated
in accordance with its terms, or (b) the purchase of all the Shares (other than
the Retained Shares) pursuant to the Offer in accordance with Section 3.
10. EXPENSES. All fees and expenses incurred by either of the parties
hereto will be borne by the party incurring such fees and expenses.
11. BROKERAGE. Each Stockholder, on the one hand, and Buyer and Merger
Subsidiary, on the other hand, represent and warrant to the other that the
negotiations relevant to this Agreement have been carried on by such
Stockholders, on the one hand, and Buyer and Merger Subsidiary, on the other
hand, directly with the other, and that there are no claims for finder's fees or
brokerage commissions or other like payments in connection with this Agreement
or the transactions contemplated hereby other than to Bowles Hallowell Conner.
Each Stockholder, on the one hand, and Buyer and Merger Subsidiary, on the other
hand, will indemnify and hold harmless the other from and against any and all
claims or liabilities for finder's fees or brokerage commissions or other like
payments incurred by reason of action taken by him, it or any of them, as the
case may be.
12. MISCELLANEOUS. (a) Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits thereof. No such waiver,
amendment or supplement will be effective unless in a writing and is signed by
the party or parties sought to be bound thereby. Any waiver by any party of a
breach of any provision of this Agreement will not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement or one or more sections hereof will not
be considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement.
(b) This Agreement contains the entire agreement among Buyer,
Merger Subsidiary and the Stockholders with respect to the subject matter
hereof, and supersedes all prior agreements among Buyer, Merger Subsidiary and
the Stockholders with respect to such matters. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified, except upon the
delivery of a written agreement executed by the parties hereto.
(c) This Agreement is to be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and performed in that state.
(d) The descriptive headings contained herein are for
convenience and reference only and will not affect in any way the meaning or
interpretation of this Agreement.
5
<PAGE> 6
(e) All notices and other communications hereunder must be in
writing and are to be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by telecopy, or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
If to the Stockholders to:
To the address or addresses on SCHEDULE A
With a copy to:
Parker Chapin Flattau & Kimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Telecopy: 212-704-6288
Attention: Edward R. Mandell, Esq.
If to the Buyer or Merger Subsidiary to:
Carerras, Kestner & Co., LLC
Terminal Tower
50 Public Square, 32nd Floor
Cleveland, Ohio 44113
Telecopy: 216-344-7631
Attention: Chief Financial Officer
with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Patrick J. Leddy, Esq.
Telecopier: (216) 579-0212
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(f) This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one agreement.
(g) This Agreement is binding upon and is solely for the
benefit of the parties hereto and their respective successors, legal
representatives and assigns. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement will be assigned by any of the
parties hereto without the prior written consent of the other parties, except
that Buyer or Merger Subsidiary will have the right to assign to any direct or
indirect wholly owned subsidiary of Buyer or Merger Subsidiary any and all
rights and obligations of Buyer or Merger Subsidiary
6
<PAGE> 7
under this Agreement, provided that any such assignment will not relieve Buyer
or Merger Subsidiary from any of its obligations hereunder.
(h) If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party hereto. Upon any such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated by this Agreement are consummated to
the extent possible.
(i) All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity will be
cumulative and not alternative, and the exercise of any thereof by either party
will not preclude the simultaneous or later exercise of any other such right,
power or remedy by such party.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
HILITE HOLDINGS, LLC
By: /s/ Joseph W. Carreras
--------------------------------------
Name: Joseph W. Carreras
Title: President
HILITE MERGECO, INC.
By: /s/ Joseph W. Carreras
--------------------------------------
Name: Joseph W. Carreras
Title: President
Stockholders:
James E. Lineberger, Jr. Trust
By: /s/ James E. Lineberger, Jr.
--------------------------------------
Name: James E. Lineberger, Jr.
Title: Trustee
Geoffry S. Lineberger Trust
By: /s/ James E. Lineberger, Jr.
--------------------------------------
Name: James E. Lineberger, Jr.
Title: Trustee
Christopher Lineberger Trust
By: /s/ James E. Lineberger, Jr.
--------------------------------------
Name: James E. Lineberger, Jr.
Title: Trustee
The Brady Family Limited Partnership
By: /s/ Daniel W. Brady
--------------------------------------
Name: Daniel W. Brady
Title: General Partner
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<PAGE> 9
/s/ Samuel M. Berry
----------------------------------
Samuel M. Berry
/s/ Chris A. Curto
----------------------------------
Chris A. Curto
/s/ Arthur D. Johnson
----------------------------------
Arthur D. Johnson
/s/ Ronald E. Reinke
----------------------------------
Ronald E. Reinke
/s/ Donald M. Maher
----------------------------------
Donald M. Maher
/s/ William Vercher
----------------------------------
William Vercher
/s/ Dr. Krishnamurthy Sundararajan
----------------------------------
Dr. Krishnamurthy Sundararajan
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<PAGE> 10
SCHEDULE A
----------
<TABLE>
<CAPTION>
Number of Number of Number of
Name and Address of Stockholder Shares Options Retained Shares
- ------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
James E. Lineberger, Jr. Trust 1,056,429 0 29,239
1120 Boston Post Road
Darien, CT 06820
Geoffry S. Lineberger Trust 1,056,429 0 29,240
1120 Boston Post Road
Darien, CT 06820
Christopher Lineberger Trust 1,056,429 0 29,240
1120 Boston Post Road
Darien, CT 06820
The Brady Family Limited Partnership 358,143** 0 7,018
2845 Parkwood Lane
Aurora, IL 60504
Samuel M. Berry 178,570 18,800 21,053
c/o Hilite Industries, Inc.
1671 S. Broadway
Carrollton, TX 75006
Chris A. Curto 500 5,000 2,759
c/o Hilite Industries, Inc.
1671 S. Broadway
Carrollton, TX 75006
Arthur D. Johnson 0 26,200 9,035*
c/o Hilite Industries, Inc.
1671 S. Broadway
Carrollton, TX 75006
Ronald E. Reinke 0 17,000 5,762*
c/o Hilite Industries, Inc.
1671 S. Broadway
Carrollton, TX 75006
Donald M. Maher 0 26,200 9,035*
c/o Hilite Industries, Inc.
1671 S. Broadway
Carrollton, TX 75006
Willie Vercher 0 1,750 455*
c/o Hilite Industries, Inc.
1671 S. Broadway
Carrollton, TX 75006
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Number of Number of Number of
Name And Address of Stockholder Shares Options Retained Shares
- ------------------------------- ---------- --------- ----------------
<S> <C> <C> <C>
Dr. Krishnamurthy Sundararajan 0 1,200 312*
c/o Hilite Industries, Inc. --------- ------ -------
1671 S. Broadway
Carrollton, TX 75006
TOTAL 3,706,500 96,150 143,148
========= ====== =======
</TABLE>
* To the extent such shares are obtained upon exercise of their respective
options.
** The Jacqueline L. Brady 1993 Living Trust U/A DTD 09/23/93 owns 1,000 shares
of those referenced.
11
