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INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ X ] Preliminary Information Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ ] Definitive Information Statement
PDG REMEDIATION, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g)
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:*
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
*Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ X ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
________________________________________________________________________________
4) Date Filed:
________________________________________________________________________________
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INFORMATION STATEMENT
PDG REMEDIATION, INC.
300 OXFORD DRIVE
MONROEVILLE, PENNSYLVANIA 15146
(412) 856-6100
WE ARE NOT ASKING FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY
This Information Statement is being furnished to all shareholders of PDG
Remediation, Inc. (the "Corporation") in connection with an action to be taken
by written consent of the shareholders of the Corporation. This Information
Statement is being sent to the shareholders of the Corporation on or about
October 11, 1996. No meeting of the Corporation's shareholders will be held
with respect to the matter which is the subject of the written consent. The
consent of shareholders holding 59.5% of the votes entitled to be cast has
already been accepted and as a result the action has been approved and no
further consents are being solicited.
THE WRITTEN CONSENT
This Information Statement is being furnished in connection with the written
consent in lieu of a meeting of the shareholders. The sole purpose of the
written consent is to change the jurisdiction of incorporation of the
Corporation from the Commonwealth of Pennsylvania to the State of Delaware (the
"Reincorporation") pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") between the Corporation and ICHOR Corporation, a Delaware
corporation recently formed for this purpose ("ICHOR").
PDG Environmental, Inc. ("PDGE") controls approximately 59.5% of the common
stock, par value $.01, of the Corporation (the "Common Stock"). See "Security
Ownership of Certain Beneficial Owners and Management." The Board of Directors
of the Corporation has approved the Reincorporation and PDGE has executed a
written consent in favor of the Reincorporation and the adoption of the Merger
Agreement. As a result, unless terminated in accordance with the provisions of
the Merger Agreement, the Reincorporation will occur. See "THE
REINCORPORATION." Pursuant to applicable provisions of the Pennsylvania
Business Corporation Law of 1988, as amended, the Corporation is required to
offer dissenters' rights to shareholders objecting to the Reincorporation. See
"DISSENTERS RIGHTS."
THE REINCORPORATION
At a special meeting of the Corporation's Board of Directors held on August 20,
1996, the Corporation's Board of Directors, by the unanimous vote of all
members present, approved, and for the reasons set forth below, PDGE has
consented to, a change in the domicile of the Corporation from Pennsylvania to
Delaware by means of a merger. The general effect of the Reincorporation will
be that the Corporation in the future will be governed by the corporation laws
of Delaware rather than the corporation laws of Pennsylvania. The effect of
Reincorporation on the rights of the Corporation's shareholders is set forth
below.
The special meeting of the Corporation's Board held on August 20, 1996, was
attended by John Musacchio, President of the Corporation, John C. Regan,
Chairman of PDGE, and David J. D'Appolonia, who were three of the four members
of the Corporation's Board of Directors at the time. Dr. Edgar Berkey, the
remaining member of the Corporation's Board at that time, was not present at
the special meeting but subsequently consented to the actions taken at the
meeting. Of the four members of
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the Corporation's Board of Directors acting on the Reincorporation, only one of
the directors, John Regan, is affiliated with PDGE as its Chairman, Chief
Executive Officer and majority stockholder and a second, David J. D'Appolonia,
was formerly affiliated with PDGE as an officer, director and significant
shareholder. Prior to the special meeting, however, David J. D'Appolonia
resigned as an officer and director of PDGE and divested himself of the
majority of his stock ownership of PDGE, and he owned less than 10% of PDGE's
outstanding common stock as of the date of the special Board meeting. No Board
member was specifically designated as a representative of the unaffiliated
shareholders of the Corporation; however, the Corporation believes that the
actions of the Board, the majority of which was unaffiliated with PDGE, were in
the best interests of the Corporation and its shareholders. See "PRINCIPAL
REASONS FOR THE REINCORPORATION."
The Reincorporation will be effected by the Merger Agreement pursuant to which
the Corporation will be merged with and into ICHOR, which was recently formed
for the purpose of effecting the Reincorporation. ICHOR will be the surviving
corporation and its only business immediately after the Reincorporation will be
the Corporation's business. Upon completion of the Reincorporation, the name
of the Corporation will remain ICHOR Corporation, as the name change is one of
the intended reasons for the Reincorporation.
Pursuant to the Merger Agreement, the form of which is attached hereto as Annex
A, upon the effective date of the Reincorporation, each outstanding share of
the Corporation's Common Stock will automatically be converted into one share
of ICHOR common stock, par value $.01 per share ("ICHOR Common Stock"). Each
share of the Corporation's preferred stock, par value $.01 per share (the
"Preferred Stock"), will automatically be converted into one share of ICHOR
preferred stock, par value $.01 per share ("ICHOR Preferred Stock"). Each
outstanding option or warrant representing the right to purchase Common Stock
of the Corporation will continue to represent the right to purchase the same
number of shares of ICHOR Common Stock upon the same terms and conditions.
IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF THE CORPORATION TO EXCHANGE THEIR
CERTIFICATES REPRESENTING SHARES OF THE CORPORATION'S COMMON OR PREFERRED STOCK
FOR CERTIFICATES REPRESENTING SHARES OF ICHOR COMMON STOCK OR ICHOR PREFERRED
STOCK. HOWEVER, SHAREHOLDERS MAY EXCHANGE THEIR CERTIFICATES IF THEY SO
CHOOSE. Adoption of the Reincorporation will not affect the listing of shares
of the Corporation on the NASDAQ Small Cap market. After the Reincorporation,
shares of ICHOR Common Stock will be traded on the NASDAQ Small Cap market
without interruption under the symbol "PDGS." Redeemable common stock warrants
of ICHOR will continue to trade on the NASDAQ Small Cap Market without
interruption under the symbol "PDGSW." These are the same symbols under which
shares of the Corporation's Common Stock and redeemable Common Stock purchase
warrants traded before the Reincorporation.
Under Pennsylvania law, and pursuant to the provisions of the Articles of
Incorporation and By-laws of the Corporation, shareholders of the Corporation
may act by written consent and without a meeting. Further, under Pennsylvania
law, the majority of the votes cast by all shareholders entitled to vote
thereon are necessary to adopt the Reincorporation. PDGE, which controls
approximately 59.5% of the Common Stock, has consented in writing to the
Reincorporation and the adoption of the Merger Agreement. As a result, subject
to the following, the Reincorporation will occur on the effective date set
forth in the Merger Agreement (the "Effective Date"). No further action by the
remaining shareholders of the Corporation is necessary. It is expected that
the Effective Date of the Reincorporation will be November 1, 1996. However,
pursuant to the terms of the Merger Agreement, the Reincorporation may be
delayed or abandoned if in the opinion of the Board of Directors of the
Corporation or ICHOR, circumstances arise that make it inadvisable to proceed
with the Reincorporation. At the time this Information Statement was mailed,
the Board of Directors of the Corporation was aware of no circumstances which
would make
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it inadvisable to proceed with the Reincorporation. Notwithstanding the
foregoing, since the Reincorporation is being effected so that PDGE can sell
all of its shares in the Corporation (see "PRINCIPAL REASONS FOR THE
REINCORPORATION"), if that transaction were to terminate, the Corporation may
consider terminating the Reincorporation. In addition, if more than 5% of the
Corporation's shareholders exercise their dissenters' rights (see "DISSENTERS'
RIGHTS" below), then the Corporation may consider terminating the
Reincorporation.
At the effective time of the Reincorporation, the Board of Directors of the
Corporation will become the Board of Directors of ICHOR. The Reincorporation
will effect only a change in the legal domicile of the Corporation and change
the name of the Corporation to ICHOR Corporation. The Reincorporation will NOT
effect any significant change in the business, operations, management, location
of the principal executive offices or liabilities of the Corporation. The
Merger Agreement provides that the officers of the Corporation will be the
officers of ICHOR following the Reincorporation. All employee benefit plans of
the Corporation will be continued by ICHOR and each share of the Corporation's
Common Stock reserved for issuance upon the exercise of all stock options or
warrants for the purchase of shares of the Corporation will be converted into a
share of ICHOR Common Stock reserved for issuance upon the exercise of stock
options or warrants for the purchase of shares of ICHOR at the same price per
share, upon the same terms and subject to the same conditions as set forth in
the Corporation's stock option plans or warrant agreements as the case may be.
CONFLICTS OF INTEREST
The Corporation was incorporated as a wholly-owned subsidiary of PDGE on July
20, 1994. On February 9, 1995, the Corporation completed a public offering of
its securities pursuant to which approximately 40% of the Corporation's voting
securities were sold to the public unaffiliated with PDGE. At the time of the
Corporation's incorporation, PDGE caused the Corporation to be subject to the
"anti-takeover" provisions of subchapters E,F,G,H,I and J of Chapter 25 (the
"Pennsylvania Anti-Takeover Statutes") of the Pennsylvania Business Corporation
Law of 1988, as amended (the "BCL"), even though PDGE, as the sole shareholder
of the Corporation, could have caused the Corporation to "opt out" of such
provisions at that time. The effect of these provisions, as more fully
described below, is to regulate transactions for controlling interests in the
Corporation. While the Corporation and PDGE believed that, on balance, these
provisions would benefit the Corporation and PDGE by requiring third parties
who wished to gain a controlling interest in the Corporation to comply with
these laws, these laws also have the effect of severely limiting PDGE's ability
to sell its interest in the Corporation. In addition, these laws have also had
the effect of limiting the Corporation's ability to carry out its business plan
of growth through acquisitions by limiting the Corporation's ability to pay for
such acquisitions through the issuance of blocks of its stock. PDGE, at the
time it caused the Corporation to be incorporated, also caused the articles of
incorporation of the Corporation to permit action by written consent of
shareholders of the Corporation in lieu of a meeting thereof. Therefore, so
long as PDGE controlled a majority of the voting shares of the Corporation,
PDGE maintained the power and right to sell or otherwise dispose of its
interest in the Corporation without the effects of the Pennsylvania Anti-
takeover Statutes by causing the Corporation to be reincorporated and not
subject to such "anti-takeover" laws. As a result, PDGE suggested the
Reincorporation so that it would have the ability to transfer its shares of the
Corporation's stock without restriction.
One consequence of this power invested in PDGE is the creation of a conflict of
interest between PDGE and the Corporation's shareholders unaffiliated with PDGE
since PDGE can cause the transaction to occur without the approval or input of
such unaffiliated shareholders. The Reincorporation will directly benefit PDGE
since, after the Reincorporation, PDGE will be free to transfer its shares of
the Corporation's Common Stock as a block, and PDGE's transferee will not be
restricted by the Pennsylvania Anti-takeover Statutes. The Board of Directors
of the Corporation considered this inherent conflict of interest
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when it considered PDGE's suggestion to reincorporate the Corporation at the
special meeting of the Board held on August 20, 1996. At that meeting, the
Corporation's Board, the majority of which were not affiliated with PDGE,
approved the Reincorporation. The Board, using its business judgment, believed
that the Reincorporation to be in the best interests of the Corporation even
though the Reincorporation will also directly benefit PDGE. The Board based
this conclusion, in part, upon the fact that: (i) after the Reincorporation the
Corporation will be able to make acquisitions by issuing controlling blocks of
its stock without the effects of the Pennsylvania Anti-takeover Statutes; (ii) a
sale of PDGE's shares as a block should not have the same potential adverse
effect upon the market that a sale of such shares into the market may have;
(iii) PDGE has indicated its unwillingness to provide financial support needed
by the Corporation and, although the Board recognized that there can be no
assurance that a buyer of PDGE's shares would provide such support, the Board
believed that the Reincorporation would at least allow for the possibility of a
supportive parent; and (iv) the Reincorporation allows the Corporation the
opportunity to change its name. (See "PRINCIPAL REASONS FOR THE
REINCORPORATION.") In addition, the Board considered that the shareholders
unaffiliated with PDGE would be afforded dissenters' rights (see "DISSENTERS'
RIGHTS").
BACKGROUND
One of the principal reasons for the Reincorporation is so that PDGE can sell
the shares of Common Stock owned by it to Drummond Financial Corporation,
formerly known as CVD Financial Corporation ("CVD"), a Delaware corporation
which is the principal lender to PDGE, or its assigns. See "PRINCIPAL REASONS
FOR THE REINCORPORATION." This section summarizes the background of the
relationship between PDGE and CVD. During 1994, PDGE entered into a loan
agreement with CVD (the "CVD Agreement"), in the amount of $1,182,000 and an
Amended and Restated Credit Agreement") with Integra Bank in the amount of
$2,500,000. Under the Amended and Restated Credit Agreement, borrowings by
PDGE were limited to 60% of the underlying receivable borrowing base at an
interest rate based upon the bank's basic rate (as defined) plus 2%. The
Amended and Restated Credit Agreement also provided for the issuance of letters
of credit and a commitment fee of 1/2 of 1% on the average daily unused portion
of the facility.
The CVD Agreement provided for a $1,000,000 line of credit facility which
expired on April 1, 1995 and an $812,000 term loan which was to expire on April
1, 1997. Interest accrued on all borrowing under the CVD Agreement at a bank
rate (as defined) plus 7%. Borrowings under the CVD Agreement are limited to
85% of the receivables borrowing base. The principal balance of the term loan
amortized over a five-year period and was secured by the fixed assets and a
mortgage on certain property of PDGE. PDGE was required to supply certain
financial and non- financial information under the CVD Agreement, and the CVD
Agreement also provided that a material adverse change in PDGE's financial
condition may trigger an event of default. PDGE was also prohibited from
declaring any dividends under the CVD agreement. PDGE issued 277,500 warrants
to purchase shares of its common stock at an exercise price of $1.125 per share
in conjunction with the execution of the CVD Agreement.
Effective June 30, 1994, Integra Bank sold its interest in the Amended and
Restated Credit Agreement to CVD for a purchase price of 70% of the aggregate
outstanding principal balance. Additionally, Integra Bank sold its interest in
an outstanding mortgage to CVD at 70% of the aggregate outstanding principal
balance. CVD afforded PDGE forgiveness of indebtedness in the amount of
$789,000 in connection with the purchase of the loans from Integra Bank.
Subsequent to the purchase of the loans from Integra Bank, CVD provided PDGE
with a $2,000,000 line of credit on terms equivalent to those under the CVD
Agreement.
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The CVD Agreement was amended several times during PDGE's fiscal year ended
January 31, 1995 to extend to PDGE an additional $300,000 revolving credit, to
transfer $300,000 of revolving credit available under a separate subsidiary
line of credit discussed below to the CVD Agreement, and to extend the
repayment date associated with these additional advances to the sale by PDGE to
the public of approximately 40.5% of the shares of the Corporation's Common
Stock then owned by PDGE. On February 27, 1995, PDGE repaid $1.1 million to
CVD with proceeds generated from the sale of 40.5% of its interest in the
Corporation and the existing line of credit was reduced to $2.5 million.
On October 31, 1995, PDGE entered into an Amended and Restated Loan Agreement
with CVD (the "Loan Agreement") wherein the maximum borrowing under this line
of credit was set at $2,419,994. The interest rate under this line of credit
was reduced from prime plus 7% to prime plus 3% and all amounts borrowed under
this line of credit were due and payable on December 31, 1996. A term loan for
$559,991 was also provided as part of the Loan Agreement, with interest at the
prime rate of interest plus 3%. The term loan required monthly principal
payments of $13,533 plus interest and was scheduled to mature December 31,
1996. Prior to the October 31, 1995 refinancing, CVD held warrants to purchase
752,500 shares of PDGE's common stock at prices ranging from $0.75 to $1.25 per
share.
As part of the aforementioned Loan Agreement, CVD was granted the right to
convert any portion of the outstanding balances of the line of credit and term
loan, any time after January 31, 1996, into common stock of PDGE at a
conversion price equal to the lesser of the market price, as defined, of PDGE's
common stock on January 31, 1996 or the market price on the date of the
conversion notice, except that the conversion price, in either case, shall not
be less than $0.65 per share. Additionally, PDGE pledged the shares of Common
Stock representing its 59.5% interest in the Corporation as additional
collateral for the Loan Agreement. At January 31, 1996, PDGE was fully
borrowed under the $2.42 million of combined availability existing under the
CVD Agreement.
In the summer of 1996, PDGE contacted CVD to discuss a further modification
to the Loan Agreement. At that time, PDGE raised with CVD the possibility of
the acquisition of PDGE's shares of the Corporation's Common Stock in return
for a reduction in the outstanding balance of the CVD loan. On or about July 5,
1996, a Loan Modification Agreement, dated effective as of May 21, 1996 ("May
21, 1996 Loan Modification Agreement"), was executed by CVD and PDGE which,
among other things, (i) extended the maturity date of the credit facility to
May 21, 1997; (ii) allowed PDGE to readvance certain monies under the credit
facility under certain circumstances once the loan had been reduced by at least
$1,400,000; and (iii) modified the stock pledge agreement between PDGE and CVD.
In late July or early August 1996, PDGE and CVD began further discussions
concerning the status of the loan and a further extension of the maturity date
of the credit facility to August 1, 1997, and to otherwise modify certain terms
of the credit facility.
On September 3, 1996, PDGE and CVD entered into a certain loan modification
agreement effective as of July 31, 1996 (the "Loan Modification Agreement").
Pursuant to the Loan Modification Agreement, among other things, PDGE agreed to
sell, transfer and convey to CVD or its assigns 1,470,320 issued and
outstanding shares of Common Stock of the Corporation owned by PDGE. The sale
of such stock is subject to and conditioned upon: (a) the effective
Reincorporation of the Corporation as a Delaware corporation, on or before
November 1, 1996, including the filing of a certificate of incorporation in
Delaware and the adoption of by-laws each containing (as and where appropriate)
provisions expressly electing not to be governed by Section 203 of the Delaware
General Corporation Law and such other provisions as are acceptable to CVD in
its sole discretion; (b) the closing of the purchase and sale of the shares of
Common Stock on or before November 1, 1996; (c) the Reincorporation resulting
in no material liabilities to the Corporation, as determined in the sole
discretion of CVD; and (d) the Reincorporation resulting in not more than 5% of
the shareholders of the Corporation exercising their dissenters' rights.
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The following is a summary of certain terms of the Loan Modification Agreement
by and between PDGE and CVD. The Loan Modification Agreement provides that the
maturity date of all of CVD's loans to PDGE was extended to August 1, 1997.
PDGE agreed to transfer to CVD (or CVD's assignee) its 1,470,320 shares of the
Corporation's common stock for $0.82 per share, resulting in a credit to the
PDGE loan of $1,205,662. If, prior to November 1, 1996, PDGE locates a buyer
for all 1,470,320 shares of the Corporation's common stock plus any other
securities which CVD then owns, at a price greater than CVD's cost basis in
those shares, then CVD will sell those shares to the buyer and the "profit"
from such a sale will be credited against the PDGE loan. Shareholders should
be aware, however, that if PDGE is unable to find a purchaser to acquire the
entire lot, CVD may either hold the shares or sell the shares either into the
open market, which could have an adverse effect on the value of the
Corporation's Common Stock, or as a block. The maximum amount drawable on the
PDGE credit facility loan will be set at $1,500,000, thus allowing a drawdown
of approximately $285,000 by PDGE. PDGE will bring all interest payments and
other amounts due under the loan agreements current prior to any such drawdown
being made.
The Loan Modification Agreement also provided for a change in the composition
of the Corporation's Board; Messrs. D'Appolonia and Regan immediately resigned
from the Corporation's Board and Messrs. Smith, Jimmy Lee, Zanatta and Petersen
were appointed. The Loan Modification Agreement provides that it will be of
full economic effect from and after July 31, 1996. From that time the interest
payable on the PDGE loan will be calculated with the reduced principal balance
due to the transfer of PDGE's shares of the Corporation's Common Stock.
PRINCIPAL REASONS FOR THE REINCORPORATION
PDGE'S PENDING SALE OF THE CORPORATION'S COMMON STOCK.
One of the principal reasons that the Reincorporation is being effected is so
that PDGE can sell the shares of Common Stock owned by it to CVD or its assigns,
which management of the Corporation believes is in the best interests of the
Corporation for the reasons set forth below. As a Pennsylvania "registered
corporation," the Corporation is governed by the BCL. Included in the BCL are
the Pennsylvania Anti-takeover Statutes. CVD has informed the Corporation that
it believes that the provisions of these subchapters may adversely affect CVD's,
or its assignee's, rights as a potential majority shareholder of the
Corporation. By reincorporating under Delaware law and by assuring that the
provisions of Section 203 of the Delaware General Corporation Law do not apply
to the surviving corporation, there will be no state law "anti-takeover"
provisions which affect CVD's, or its assignee's, ability to effect transactions
which may result in a change of control of the Corporation.
Specifically, because the Corporation is currently incorporated under
Pennsylvania law, a closing on the purchase of PDGE's shares will potentially
cause the occurrence of a "control transaction" pursuant to provisions of
Subchapter E of Chapter 25 of the BCL. In the event of such a "control
transaction," the purchaser may be required, among other things, to make a cash
payment to shareholders of the Corporation, other than PDGE, who so demand, in
the amount of the fair market value of each voting share. CVD does not wish to
make such a payment. However, pursuant to the terms of the Merger Agreement,
and pursuant to the terms of the BCL, the Corporation must offer dissenters'
rights to shareholders objecting to the Reincorporation. See "DISSENTERS'
RIGHTS."
In addition, pursuant to Subchapter F of Chapter 25 of the BCL, if the
Reincorporation does not occur and a purchaser acquires PDGE's shares, the
purchaser may be prohibited from entering into certain "business combination"
transactions with the Corporation for a period of time after such party's
acquisition of PDGE's shares. Such "business combinations" include, among
other things, a merger, consolidation, share exchange or division between the
purchaser or any of the purchaser's related entities
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and the Corporation, any sale or lease, exchange, mortgage, pledge, transfer or
other disposition of significant assets of the Corporation to or with the
purchaser, or any of the purchaser's affiliates, or any subsidiary thereof or
the issuance by the Corporation of any shares of the Corporation having an
aggregate market value of 5% or more of the market value of all outstanding
shares of the Corporation. While CVD has not informed the Corporation of any
current intent to enter into any such business combination, it has informed the
Corporation that it does not wish to be limited in its ability to do so. After
the Reincorporation, a purchaser of PDGE's shares would not be so limited.
Further, pursuant to Subchapter G of Chapter 25 of the BCL, if a purchaser
were to acquire PDGE's shares, it could be argued that such a transaction would
be a "control share acquisition" transaction, as a result of which the
purchaser's shares would not have any voting rights unless such rights were
restored by the affirmative vote of the remaining shareholders of the
Corporation. Upon the Reincorporation, there would be no such potential
restriction on the purchaser's ability to vote any shares acquired by it.
Also, under Subchapter H of Chapter 25 of the BCL, if a purchaser of PDGE's
shares, were to acquire PDGE's shares of the Corporation's Common Stock and
then sell such shares within an 18-month period thereafter, it could be argued
that the Corporation could recover any profit earned by the purchaser in such
subsequent sale. While CVD has not informed the Corporation of any intent to
sell any shares it obtains from PDGE within such 18-month period of time, it
has informed the Corporation of its desire, in the event of such a sale, that
CVD not be forced to disgorge any profits made from such a sale to the
Corporation. Upon the Reincorporation, there would be no such requirement.
Section 203 of the Delaware General Corporation Law regulates certain business
combination transactions in a manner similar to Subchapter F of Chapter 25 of
the BCL. However, pursuant to the Certificate of Incorporation of ICHOR, which
will govern the surviving corporation after the Reincorporation, ICHOR is
expressly "opting out" of the effect of Section 203 of the Delaware General
Corporation Law. As a result, interested shareholders (including CVD or its
assignee) who acquire a controlling interest in the Corporation will not be
restricted in effecting business combinations between themselves or their
affiliates and the Corporation. The Corporation believes that the
Reincorporation, including opting out of Section 203 of the Delaware General
Corporation Law, will have the effect of taking away state law statutory
provisions considered by the Corporation to be of an "anti-takeover" nature.
WITHOUT THE REINCORPORATION, THE CORPORATION'S ABILITY TO CARRY OUT
ACQUISITIONS IS LIMITED.
The Corporation has previously announced a strategic plan of growth through
acquisitions. In order to carry out its strategic plan, the Corporation
believes that it is important that the Corporation have the ability to issue
blocks of its stock as consideration for such acquisitions. However, the
Corporation believes that it currently cannot issue stock in significant
amounts without the risk of triggering the effects of one or more of the
Pennsylvania Anti-takeover Statutes. After giving effect to the
Reincorporation, the Corporation would not be so limited.
WITHOUT THE REINCORPORATION PDGE'S SHARES MAY NOT BE SOLD AS A BLOCK WITHOUT
RUNNING AFOUL OF PENNSYLVANIA'S ANTI-TAKEOVER STATUTES.
As more fully described above, the Corporation believes that PDGE cannot
currently sell its shares of the Corporation's common stock without running a
risk of triggering the provisions of one or more of the Pennsylvania's
Anti-takeover Statutes. The Corporation believes that this in effect chills
the market for potential buyers of such shares. PDGE has attempted to sell its
shares of the Corporation's Common Stock for over a year, but has been unable
to do so. PDGE has explained to the Corporation that PDGE is in arrears in its
interest payment obligations to CVD. It is the understanding of the
Corporation's Board that if the Reincorporation is not effected and PDGE's
shares of the Corporation cannot be sold to CVD or some third party as a block,
CVD may, as a consequence, sell PDGE's shares of the Corporation's
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Common Stock into the open market as permitted by the terms of share pledge
agreement executed by PDGE in favor of CVD. The Corporation believes that such
a sale by CVD of approximately 59.5% the Corporation's Common Stock into the
market could have an adverse effect upon the market value of the Corporation's
Common Stock.
FINANCIAL CONSIDERATIONS
In addition to the reasons discussed above, the Board of Directors and
management of the Corporation believe that the sale by PDGE of its shares and
the Reincorporation are in the best interests of the Corporation and its
shareholders unaffiliated with PDGE because of the potential financial support
that a purchaser of PDGE's shares could provide to the Corporation. Because
of PDGE's financial condition, PDGE has been unable to support the level of
bonding that would permit the Corporation to undertake certain types of
significant projects that require payment or performance bonds. In addition,
PDGE and the Corporation are currently guarantors of the obligations of PDG
Environmental Services, Inc., a wholly owned subsidiary of the Corporation
("PDGES"), under a project financing arrangement with Sirrom Environmental
Funding LLC. PDGE has indicated that it does not wish to guarantee any
additional obligations incurred by PDGES to Sirrom. At the special meeting of
the Board of Directors of the Corporation held on August 20, 1996, the Board
discussed the fact that a parent entity with a healthier financial condition
would be a potential benefit to the Corporation. PDGE, as of its last
published quarterly report on Form 10-Q, had an accumulated deficit of more
than $4.3 million and a total net worth of only slightly more than $400,000.
For the six months ended July 31, 1996, PDGE reported a net loss of $800,000.
Finally, as evidenced by the background to the Loan Modification Agreement
discussed above, the Board of Directors of the Corporation perceived that PDGE
was unable to add credit support to the Corporation. Shareholders should be
aware, however, that there can be no assurance that CVD, or if CVD sells the
shares, the buyer, will be willing or able to provide any financial support to
the Corporation.
DELAWARE HAS DEVELOPED CONSIDERABLE EXPERTISE IN DEALING WITH CORPORATION LEGAL
ISSUES.
For many years the State of Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has long been a
leader in adopting, construing and implementing comprehensive, flexible
corporate laws responsive to the legal and business needs of corporations
organized under its laws. The Delaware General Corporation Law is widely
regarded as the most extensive and well-defined body of corporate law in the
United States. Because of Delaware's prominence as the state of incorporation
for many major corporations, both the legislature and courts in Delaware have
demonstrated an ability and a willingness to act quickly and effectively to
meet changing business needs. Moreover, the Delaware courts have rendered a
substantial number of decisions interpreting and explaining Delaware law and
public policies with respect to corporate issues. This is especially true in
the areas of director liability and contests for corporate control and the
related issues of a board's fiduciary duties in responding to unsolicited
tender offers, aggressive market buying programs, proxy contests and other
types of efforts to acquire control of a corporation or otherwise influence
decisions of the corporation in a manner that is not in the best interests of
the corporation or its shareholders. As a result, many corporations have
initially chosen Delaware for their state of incorporation or have subsequently
changed their corporate domicile to Delaware in a manner similar to that
proposed by the Corporation. Although the Pennsylvania's BCL is substantially
similar to and generally based upon the Delaware General Corporation Law, the
Pennsylvania courts have issued fewer decisions interpreting or explaining the
BCL.
Although the Corporation's Board of Directors believes that the Reincorporation
is in the best interest of the Corporation and its shareholders, shareholders
should be aware that Delaware law has been publicly criticized on the grounds
that it does not afford minority shareholders the same substantive rights
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and protection as are available in a number of other states. While there are
no material differences between Pennsylvania law and Delaware law with respect
to a number of matters, including but not limited to inspection of books,
records and shareholder lists, appraisal rights, dividends and proxies, certain
differences between Delaware and Pennsylvania law that may affect the
Corporation's shareholders include the following. Under the Delaware General
Corporation Law, an absolute majority of the outstanding voting stock of a
corporation is generally required to take action on a fundamental transaction,
such as a merger or an amendment to charter documents, while in Pennsylvania a
majority of the shares voting (rather than an absolute majority) is generally
sufficient to take action on such a transaction. Second, the BCL provides that
action taken by partial written consent of the shareholders shall not become
effective until at least ten days' written notice of the action has been given
to each shareholder entitled to vote on the matter who has not consented to the
action, while the Delaware General Corporation Law does not impose such a
delay. Also, under the BCL, any meeting in which directors are to be elected
may be adjourned only from day to day, or for longer periods not exceeding 15
days, as the shareholders present at the meeting direct. The Delaware General
Corporation Law does not restrict the adjournment of meetings. The BCL also
authorizes shareholders entitled to cast at least 20% of the votes to call a
special meeting of shareholders, but stockholders in a Delaware corporation do
not have a statutory right to call special meetings. Further, the BCL
authorizes shareholders entitled to cast at least 10% of the votes to proposed
amendments to a corporation's articles, while stockholders in a Delaware
corporation do not have such a right.
CHANGE OF CORPORATION'S NAME.
As a result of the Reincorporation, the name of the surviving corporation will
be ICHOR Corporation. The Board of Directors and management of the Corporation
has been contemplating a change of the Corporation's name for several months
and believes that such a change is in the best interests of the Corporation for
a number of reasons. The Corporation was formed as a wholly owned subsidiary
of PDGE in July 1994. In October 1994, PDGE reorganized its subsidiaries,
including the Corporation, by capitalizing the Corporation with PDGE's
environmental remediation services businesses to separate that business segment
from PDGE's other business segment. However, upon the acquisition by CVD of
PDGE's shares of Common Stock of the Corporation, PDGE will no longer have any
interest in the Corporation. In addition, from the time of the capitalization
of the Corporation as described above, PDGE and the Corporation have operated
their businesses as separate and independent operations. Moreover, the Board of
Directors and management of the Corporation believe that the current name of
the Corporation does not accurately reflect all of the lines of business into
which the Corporation may diversify in the future. For all of these reasons,
the Board of Directors of the Corporation believes that the change of the name
of the Corporation through the Reincorporation is in the best interests of the
Corporation.
DISSENTERS' RIGHTS
The following is a brief summary of Subchapter D of Chapter 15 of the BCL which
sets forth the procedure by which a shareholder of the Corporation may dissent
from the Reincorporation and demand statutory rights to obtain payment for the
fair value of his or her shares. The dissenter's rights pursuant to
Pennsylvania law will govern this transaction. This summary is qualified in its
entirety by reference to Subchapter D of Chapter 15 of the BCL, a copy of which
is attached hereto as Annex B, and shareholders are urged to read Subchapter D
in its entirety. This notice is intended to comply with Section 1575 of the
BCL and to constitute notice to the Corporation's shareholders of their right
to dissent and to obtain payment for the fair value of their shares. Any
shareholder who wishes to dissent must send a demand for payment and deposit
the certificates representing his or her shares to the Secretary of the
Corporation at 300 Oxford Drive, Monroeville, Pennsylvania 15146 by not later
than November 12, 1996. Upon the deposit of certificates representing
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shares by holders attempting to assert their dissenters' rights, such shares
shall be held by the Corporation and shall not be transferable. A form for
demanding payment is included as Annex C attached hereto.
A shareholder who fails to deposit the certificate(s) representing the shares
for which he or she wishes to exercise dissenters' rights by November 12, 1996
shall not have any right under Subchapter D of Chapter 15 to receive payment
for the fair value of his or her shares. Upon timely receipt of demand for
payment, the Corporation shall either remit to the dissenters who have made a
demand and deposited their certificates the amount that the Corporation
estimates to be the fair market value of the shares or provide written notice
that no remittance will be made. Such remittance or notice shall be
accompanied by: (i) a closing balance sheet and statement of income for the
fiscal year ended January 31, 1996 as well as the latest available interim
financial statements; (ii) a statement of the estimated fair market value of
the shares; and (iii) a notice of the right of the dissenter to demand payment
or supplemental payment. If the Corporation does not then remit the amount of
its estimate of the fair market value of the shares, it shall return all
certificates that have been deposited with a notation on such certificate that
the demand has been made. Shares with respect to which such notation has been
made may be transferred so long as each new certificate issued therefore shall
bear a similar notation together with the name of the original dissenting
holder or owner of such shares. A transferee of such shares shall not acquire
by such transfer any rights of the Corporation other than those that the
original dissenter had after making demand for payment.
If the Corporation gives notice of its estimate of the fair value without
remitting such amount or remits payment of its estimate and the dissenter
believes that the amount stated or remitted is less than fair market value of
his or her shares, he or she may send to the Corporation his or her own
estimate of the fair value which shall be deemed a demand for payment of the
amount of the deficiency. If the dissenter does not file his or her own
estimate within 30 days after the mailing by the Corporation of its remittance
or notice, the dissenter shall be entitled to no more than the amount stated in
the notice or remitted to him or her by the Corporation.
Within 60 days after the latest of (i) the Effective Date of the
Reincorporation, (ii) the timely receipt of any demands for payment, or (iii)
the timely receipt of any estimates of the dissenter's fair market value
differing from the Corporation's estimate, if any demands for payment remain
unsettled, the Corporation may file in the Court of Common Pleas of Allegheny
County, Pennsylvania (the "Court") an application for relief requesting that
the fair market value be determined by the court. If the Corporation fails to
file an application to the court, any dissenter who made demands and who has
not already settled his claim against the Corporation may do so in the name of
the Corporation at any time within 30 days after the expiration of such 60-day
period. If a dissenter does not file an application within such 30-day period,
each dissenter entitled to file an application shall be paid the Corporation's
estimate and no more and may bring an action to recover any amount not
previously remitted.
The cost and expense of any proceeding relating to valuation, including the
reasonable compensation and expenses of an appraiser appointed by the court,
shall be determined by the court and assessed against the Corporation, except
that any part of the costs and expenses may be apportioned and assessed by the
court as the court deems appropriate against all or some of the dissenters who
are parties and whose action in demanding the supplemental payment the Court
finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith. Fees and
expenses of counsel and experts for the respective parties may be assessed as
the court deems appropriate against the Corporation and in favor of any and all
dissenters if the Corporation failed to comply substantially with the
requirements of Subchapter D of Chapter 15 of the BCL and may be assessed
against either the Corporation or a dissenter, in favor of the other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in an obdurate, arbitrary or vexatious manner.
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Pursuant to the Loan Modification Agreement, CVD is not required to purchase
PDGE's shares of the Corporation's common stock if more than 5% of the
shareholders of the Corporation exercise dissenters' rights. Under
Pennsylvania law, the Board of Directors of the Corporation, even after receipt
of the written consent of a majority of the shareholders of the Corporation,
may decide to abandon the Reincorporation. If more than 5% of the
Corporation's shareholders exercise dissenters' rights and if CVD elects not to
purchase PDGE's shares, the Board may or may not determine to abandon the
Reincorporation. If the Reincorporation is abandoned, the Corporation will
return the certificates of any shareholder who demanded dissenters rights and
deposited his or her certificates with the Corporation.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
Set forth below is a summary of certain Federal income tax consequences to the
Corporation's shareholders who become holders of ICHOR Common Stock in exchange
for the Corporation's Common Stock as a result of the Reincorporation. This
summary does not discuss all aspects of Federal taxation that may be relevant
to particular shareholders, such as dealers in securities and certain holders
of stock options or shares acquired upon exercise of stock options. In view of
the individual nature of tax consequences, shareholders are urged to consult
their own tax advisors as to the specific tax consequences to them of the
Reincorporation, including the applicability of federal, state, local and
foreign tax laws.
The Corporation has not requested a ruling from the Internal Revenue Service
with respect to the Federal income tax consequences of the Reincorporation
under the Internal Revenue Code of 1986, as amended (the "Code"). The
Corporation will, however, receive an opinion from its legal counsel, Thorp,
Reed & Armstrong, to the effect that: (i) the Reincorporation will constitute
a tax-free reorganization under Section 368(a)(1)(F) of the Code; (ii) no gain
or loss will be recognized by holders of capital stock of the Corporation upon
receipt of capital stock of ICHOR pursuant to the Reincorporation; (iii) the
aggregate tax basis of the capital stock of ICHOR received by each shareholder
will be the same as the aggregate tax basis of the capital stock of the
Corporation held by such shareholder at the time of the Reincorporation, and
(iv) the holding period of the capital stock of ICHOR received by each
shareholder of the Corporation will include the period for which such
shareholder held the capital stock of the Corporation surrendered in exchange
therefor, provided that such capital stock of the Corporation was held by such
shareholder as a capital asset at the time of the Reincorporation. Although
such an opinion is not a condition to the Reincorporation, the Corporation will
receive such opinion before the effective time of the Reincorporation.
ALTHOUGH IT IS NOT ANTICIPATED THAT STATE OR LOCAL INCOME TAX CONSEQUENCES TO
SHAREHOLDERS WILL VARY FROM THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED
ABOVE, SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE EFFECT
OF THE REINCORPORATION UNDER STATE, LOCAL OR FOREIGN INCOME TAX LAWS.
The Corporation will not recognize gain or loss for Federal income tax purposes
as a result of the Reincorporation. ICHOR will succeed, without adjustment, to
the Federal income tax attributes of the Corporation. The Corporation is
currently subject to Pennsylvania state income taxes and capital stock taxes.
Upon the Reincorporation, ICHOR will be subject to Pennsylvania state income
taxes and will be obligated to pay annual franchise tax in Delaware.
Shareholders should be aware that ICHOR'S franchise taxes in the State of
Delaware are likely to be higher than the Corporation's capital stock taxes in
the Commonwealth of Pennsylvania. Based upon current information, the
Corporation estimates that annual franchise taxes for Delaware will be
approximately $15,000 higher than the amount of capital stock taxes that the
Corporation paid to Pennsylvania for the fiscal year ended January 31, 1996.
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ACCOUNTING TREATMENT OF THE REINCORPORATION
The reincorporation will be accounted for as a reorganization of companies
under common control in a manner similar to pooling of interests accounting.
Therefore, the historical financial statements will be carried forward as if
the merging companies had been one company.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 16, 1996 with
respect to beneficial ownership of the Corporation's Common Stock by: (i) all
persons known to the Corporation to be considered to own beneficially more than
five (5%) percent of the Corporation's Common Stock; (ii) all directors of the
Corporation; and (iii) all of the Corporation's executive officers and
directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF CLASS
OF BENEFICIAL OF COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP OF STOCK SHARES OWNED(1)
------------------------ ------------------ ---------------
<S> <C> <C>
PDG Environmental, Inc. (2) 1,470,320 59.5%
300 Oxford Drive
Monroeville, Pennsylvania 15146
Anthony J. Pace 146,300 5.9%
981 Madison Avenue, 2nd Floor
New York, New York 10021
Kennedy Capital Management, Inc. 183,000 7.4%
425 N. New Ballas Road, Suite 181
St. Louis, Missouri 63141
John M. Musacchio (3)(4)(5) 116,716 4.7%
Edgar Berkey (3)(5)(6) 12,500 *
Jimmy Lee (3)(6) 10,000 *
Michael Smith (3)(6) 10,000 *
Roy Zanatta (3)(6) 10,000 *
Leonard Petersen (3)(6) 10,000 *
All directors and officers of the
Corporation as a group, including
those named above (9 persons) 239,216 9.7%
--------------------------------- ------- ----
</TABLE>
Notes:
(1) Percentage ownership based on 2,470,320 shares of Common Stock.
(2) PDG Environmental, Inc., has entered into a binding agreement to sell its
59.5% ownership interest to CVD Financial subject to certain conditions.
(3) Director
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(4) Officer
(5) Includes 12,500 shares of Common Stock that may be acquired by Dr. Berkey,
and 116,666 shares of Common Stock that may be acquired by Mr. Musacchio,
pursuant to options granted under the Corporation's Amended 1994 Stock
Option Plan and the Corporation's 1995 Stock Option Plan.
(6) Includes 10,000 shares of Common Stock that may be acquired by Messrs. Lee,
Smith, Zanatta and Petersen under the Corporation's Amended 1994 Stock
Option Plan.
* Indicates less than 1%.
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