<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
THOMPSON PBE, INC.
(Name of Subject Company)
THOMPSON PBE, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $0.001 PAR VALUE
(Including the Stock Purchase Rights Associated Therewith)
(Title of Class of Securities)
884888108
(CUSIP Number of Class of Securities)
---------------------
MORTIMER A. KLINE, III
CHIEF EXECUTIVE OFFICER
THOMPSON PBE, INC.
4553 GLENCOE AVENUE, SUITE 200
MARINA DEL REY, CA 90292
(310) 306-7112
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of Person(s) Filing Statement)
---------------------
Copies To:
ANTHONY J. RICHMOND, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET
SUITE 4000
LOS ANGELES, CA 90071
(213) 485-1234
================================================================================
<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Thompson PBE, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 4553 Glencoe Avenue, Suite 200, Marina del Rey, California 90292.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9" or
the "Statement") relates is the Company's Common Stock, par value $.001 per
share (the "Common Stock") and the stock purchase rights associated therewith
(collectively, the "Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the tender offer by FMST Acquisition Corporation,
a Delaware corporation ("Purchaser"), and a wholly owned subsidiary of
FinishMaster, Inc., an Indiana corporation ("Parent" or "FinishMaster"),
disclosed in a Tender Offer Statement on Schedule 14D-1, dated October 21, 1997
(the "Schedule 14D-1"), to purchase all outstanding Shares for a purchase price
of $8.00 per Share, net to the seller in cash, without interest thereon, upon
the terms and subject to the conditions set forth in Purchaser's Offer to
Purchase, dated October 21, 1997 (the "Offer to Purchase"), and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer"), copies of which are filed hereto
as Exhibits A and B, respectively, and incorporated herein by reference.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 14, 1997 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company, a copy of which is filed hereto as Exhibit C and incorporated
herein by reference. Pursuant to the Merger Agreement, after completion of the
purchase of Shares pursuant to the Offer and the satisfaction of other
conditions set forth in the Merger Agreement and in accordance with the relevant
provisions of the General Corporation Law of the State of Delaware (the "DGCL"),
Purchaser will be merged with and into the Company (the "Merger"), with the
Company being the surviving corporation in the Merger and a wholly owned
subsidiary of Parent. At the effective time of the Merger (the "Effective
Time"), by virtue of the Merger and without any action on the part of the
Company, Parent or Purchaser, each Share then outstanding (other than Shares
held by Parent, Purchaser or any other wholly owned subsidiary of Parent, or in
the treasury of the Company or by any wholly owned subsidiary of the Company,
and Shares held by stockholders who perfect their appraisal rights under Section
262 of the DGCL) will be converted into and become the right to receive an
amount in cash equal to the highest price per Share which may be paid pursuant
to the Offer, subject to applicable withholding or back-up withholding taxes, if
any, without interest thereon (the "Merger Consideration").
Based on information in the Offer to Purchase, the principal executive
offices of Purchaser and Parent are 54 Monument Circle, Indianapolis, Indiana
46204 and 4259 40th Street, S.E., Kentwood, Michigan 49512, respectively. Copies
of the press release issued by the Company and Parent are filed hereto as
Exhibit D, and incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND.
(a) Name and Address of the Company. The name and address of the Company,
which is the person filing this Statement, is set forth in Item 1 above.
(b) Material Contracts etc. Except as set forth in this Item 3(b) or
incorporated herein by reference, to the knowledge of the Company, as of the
date hereof there exists no material contract, agreement, arrangement or
understanding and no actual or potential conflict of interest between the
Company or its affiliates and (1) the executive officers, directors or
affiliates of the Company or (2) Parent or Purchaser or their respective
executive officers, directors or affiliates.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its directors, executive officers and
affiliates, including a description of the Company's employment arrangements
with its executive officers are described (i) under the captions "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT," "EXECUTIVE
COMPENSATION" and "OPTION GRANTS IN THE FISCAL YEAR SEPTEMBER 30, 1996" in the
Company's
2
<PAGE> 3
Proxy Statement and Notice of Annual Meeting of Stockholders, dated January 10,
1997 (the "Proxy Statement and Notice of Annual Meeting"), as previously mailed
to stockholders of the Company, filed with the Securities and Exchange
Commission (the "Commission"), attached as Exhibit E hereto and incorporated
herein by reference, and (ii) in the Company's Information Statement in sections
entitled "BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY -- Director
Compensation," "EXECUTIVE COMPENSATION" and "OPTION GRANTS IN THE FISCAL YEAR
SEPTEMBER 30, 1996." The Information Statement is attached hereto as Annex A and
incorporated herein by reference.
Severance Agreements.
The Company has entered into severance agreements (the "Severance
Agreements"), with each of its executive officers (the "Executive Officers") and
certain other key employees, which provide for cash payments and continued
medical insurance coverage upon the termination of each such Executive Officer's
employment within a specified period of time following a "Change of Control," as
such term is defined in the Severance Agreements. For purposes of the Severance
Agreements, consummation of the Offer will constitute a Change of Control. Other
than the Severance Agreements between the Company and each of Mortimer A. Kline,
III and Michael O'Donovan, each Severance Agreement provides that benefits will
be provided upon an Executive Officer's termination of employment within one
year of a Change of Control because of, among other things, (i) a significant
adverse alteration in the nature or status of his or her responsibilities; (ii)
a reduction in base salary; (iii) relocation of the Company's office at which
the employee works from such office's present location to a location more than
fifty miles away; (iv) failure of the new corporation to pay compensation due
and owing; (v) the cancellation of benefits and (vi) harassing or denigrating
treatment of such employee inconsistent with his or her position with the
Company (collectively, "Good Reason"). Additionally, Executive Officers will be
entitled to such benefits if they are terminated by the Company within one year
of a Change of Control other than because of such Executive Officer's failure to
work for six consecutive months due to physical or mental incapacity and further
failure to return to work within thirty days of receiving a written request to
do so (a "Disability"), because of a willful, continued failure to perform
duties required and a refusal to correct such situation or the conviction of a
felony (each, "Cause").
The Severance Agreements entered into with each of Messrs. Kline and
O'Donovan provide that they shall be entitled to benefits upon their termination
of employment for Good Reason or by the Company other than for Cause or
Disability within two years of a Change of Control. Except in the case of Mr.
Kline, each employee entitled to benefits under his or her Severance Agreement
shall receive a lump sum payment equal to amounts ranging from six months to two
years annual salary and shall receive medical insurance coverage for a period
ranging from six months to two years from the date of termination of employment.
Upon becoming eligible for benefits under his Severance Agreement, Mr. Kline
shall receive a lump sum payment equal to two years annual salary, medical
insurance coverage for a period of two years following the termination of his
employment and, for a period of two years, any perquisites which Mr. Kline was
receiving immediately prior to his termination of employment. Notwithstanding
the foregoing, no Executive Officer shall receive benefits pursuant to his or
her Severance Agreement which would not be deductible to the Company by reason
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code").
Indemnification Agreements.
The Company has entered into indemnification agreements ("Indemnification
Agreements") with each of its directors and certain Executive Officers of the
Company, pursuant to which the Company has agreed to indemnify each such
director and officer to the fullest extent permitted by applicable law for all
costs associated with any claim, action, suit or proceeding, whether brought by
or in the right of the Company, and whether of a civil or criminal nature, in
which such director or officer may be or may have been involved as a party or
otherwise, by reason of the fact that such director or officer is or was a
director or officer of the Company. By the terms of such Indemnification
Agreements and the Merger Agreement, the benefits of such contracts will survive
the consummation of the Offer and the Merger.
(b)(2) In connection with the transactions contemplated by the Merger, the
following agreements were entered into: (i) the Merger Agreement, (ii) a
Confidentiality Agreement, dated as of June 27, 1997 (the
3
<PAGE> 4
"Confidentiality Agreement"), by and among the Company, FinishMaster, LDI
AutoPaints, Inc. ("AutoPaints"), Lacy Distribution, Inc., LDI, Ltd. ("LDI"), LDI
Management, Inc. ("LDIM") and Andre B. Lacy and (iii) the LDI Financing Letter,
dated October 14, 1997, from LDI to the Company (the "LDI Financing Letter" and,
together with the Merger Agreement and the Confidentiality Agreement, the
"Agreements").
A summary of the Agreements follows. These summaries are qualified in their
entirety by reference to the complete text of the Agreements, which are filed as
exhibits hereto and incorporated herein by reference.
Merger Agreement
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is filed as Exhibit C hereto and is incorporated herein by
reference. This summary is not a complete description of the terms and
conditions of the Merger Agreement and is qualified in its entirety by reference
to the full text of the Merger Agreement.
The Offer. The Merger Agreement provides that Parent will take all
necessary actions to cause Purchaser to commence the Offer as soon as
practicable, but in no event later than five business days from the date of the
announcement of the Merger Agreement. The obligation of Purchaser to accept for
payment (and thereby purchase) any Shares tendered pursuant to the Offer is
subject to the conditions set forth in Annex A to the Merger Agreement (the
"Offer Conditions"). See the Section entitled "Conditions to the Offer" below.
Purchaser may waive, in its sole discretion, any Offer Condition other than the
Minimum Condition (as defined below). Subject only to the Offer Conditions,
Purchaser has agreed to accept for payment and purchase, as soon as permitted by
the terms of the Offer, all Shares validly tendered and not withdrawn prior to
the expiration of the Offer. Without the prior express written consent of the
Company (which it may grant or withhold in its sole discretion), Parent and
Purchaser have agreed that they will not decrease the per Share price to be paid
pursuant to the Offer or the number of Shares for which the Offer is made,
extend the expiration date of the Offer except as permitted by the Merger
Agreement, change the form of consideration or impose conditions to the Offer in
addition to or in modification of the conditions set forth in the Section
entitled "Conditions to the Offer" below (other than to waive any conditions to
the extent permitted by the Merger Agreement), waive or increase the Minimum
Condition, or otherwise amend the Offer in any manner that would adversely
affect the Company's stockholders; provided, however, that Purchaser may,
without the consent of the Company, (a) extend the offer beyond any scheduled
Expiration Date for a period not to exceed 20 business days, if at any scheduled
Expiration Date the conditions listed in (a) through (f) in the Section entitled
"Conditions to the Offer" below and the Minimum Condition have not been
satisfied or waived, (b) extend the offer for any period required by any rule,
regulation, interpretation or position of the Commission or its staff, or (c)
extend the Offer for a period of 7 business days beyond the latest Expiration
Date if more than 90% of the Shares have not been tendered. In addition,
Purchaser has agreed to extend the Offer from time to time in order to satisfy
its obligations to take, or cause to be taken, all action and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement (subject to the earlier termination of the Merger
Agreement).
Upon payment by Purchaser for Shares purchased pursuant to the Offer
constituting at least a majority of the outstanding Shares on a Fully Diluted
Basis (as defined below), including without limitation, all Shares issuable upon
the conversion of any convertible securities or upon the exercise of options,
warrants or rights (the "Minimum Condition"), the Company, at Parent's request,
will take all necessary actions to cause its Board of Directors to include a
number of Parent's designees such that the designees constitute a percentage of
the Board as nearly equal as practicable to the percentage of outstanding Shares
beneficially owned by Parent on a Fully Diluted Basis (which will be at least a
majority of the Board). The necessary actions of the Company may include
accepting resignations of certain incumbent directors or increasing the size of
the Board. The Company and Parent have agreed that the Company's Board of
Directors shall have at least two members ("Independent Directors") who are
neither officers of the Company nor designees, stockholders or affiliates of
Parent ("Parent Insiders"); provided, however, that if the number of Independent
Directors shall be reduced below two because of death, disability or
resignation, the remaining Independent Director shall be
4
<PAGE> 5
entitled to designate persons to fill such vacancies who shall be deemed to be
Independent Directors. From and after the date of any designation of directors
by Parent pursuant to the above provision, there will be formed a Committee of
the Board of Directors (the "Special Committee") which will make all
determinations to be made by the Company's Board of Directors under the Merger
Agreement. For purposes of the Merger Agreement, "Fully Diluted Basis" means, as
of any date of determination, a basis that includes all outstanding Shares,
together with all Shares issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights.
Any amendment or termination of the Merger Agreement by the Company, any
waiver of any of the Company's rights thereunder, any extension of the time for
performance of Parent's obligations thereunder, or any other action taken by the
Company's Board of Directors in connection with the Merger Agreement or which
adversely affects the interest of the stockholders of the Company (other than
Parent, Purchaser and their affiliates) in addition to action pursuant to
certain specified provisions of the Merger Agreement will require the
concurrence of a majority of the members of the Special Committee, none of the
members of which may be Parent Insiders.
The Merger. The Merger Agreement provides that at the Effective Time,
subject to the terms and conditions thereof, Purchaser will be merged with and
into the Company, and the Company will be the Surviving Corporation. The name of
the Surviving Corporation will be "Thompson PBE, Inc." Pursuant to the Merger,
the Certificate of Incorporation and By-Laws of the Company will be the
Certificate of Incorporation and By-Laws of the Surviving Corporation until
thereafter amended as provided by law. The directors of Purchaser at the
Effective Time will become the directors of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified. The
officers of the Company at the Effective Time will continue as the officers of
the Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
Conversion of Shares. The Merger Agreement provides that at the Effective
Time, each outstanding Share will be converted into the right to receive the
Merger Consideration (or any higher price per Share paid in the Offer), other
than (a) Shares held by the Parent, Purchaser or any wholly owned subsidiary of
Parent or Purchaser, or in the treasury of the Company, or by any wholly owned
subsidiary of the Company, which Shares, by virtue of the Merger and without any
action on the part of the holder thereof, will be canceled and retired and will
cease to exist with no payment being made with respect thereto, and (b) Shares
held by stockholders who exercise their statutory appraisal rights as described
below. At the Effective Time, each issued and outstanding share of capital stock
of Purchaser will be converted into one validly issued, fully paid and
nonassessable share of Common Stock, par value $.001 per share, of the Surviving
Corporation.
The Merger Agreement further provides that any Shares outstanding
immediately before the Effective Time and held by a stockholder who has not
voted in favor of or consented to the Merger in writing and who complies with
all the provisions of the DGCL concerning the right of holders of shares of
capital stock to dissent from the Merger and require appraisal of their shares
(a "Dissenting Stockholder") will not be converted into the right to receive the
Merger Consideration as described above but instead will be converted, at the
Effective Time, by virtue of the Merger and without any further action, into the
right to receive any consideration that may be determined to be due to the
Dissenting Stockholder pursuant to the DGCL; provided, that Shares outstanding
immediately before the Effective Time and held by a Dissenting Stockholder who,
after the Effective Time, fails to perfect or withdraws or loses the Dissenting
Stockholder's right to appraisal, in either case pursuant to the DGCL, will be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration, without interest or dividends thereon. The Company may
not, without the prior written consent of Parent, voluntarily make any payment
with respect to, or settle or offer to settle, any demands for appraisal of
Shares.
Stockholders' Meeting. The Company has agreed to convene a meeting of its
stockholders as soon as practicable after the purchase of shares pursuant to the
Offer to consider and vote on the adoption of the Merger Agreement, if such a
meeting is required by applicable law or the rules of the Nasdaq National
Market. The Company has agreed that in the proxy statement with respect to the
meeting, the Company will, through its Board, and subject to the fiduciary
obligations of the Board under applicable law and as advised by
5
<PAGE> 6
counsel, recommend that stockholders of the Company vote in favor of approval
and adoption of the Merger Agreement. Parent has agreed that at any
stockholders' meeting, it will vote or cause all of the Shares then owned by it,
Purchaser or any of its other affiliates to be voted in favor of approval and
adoption of the Merger Agreement.
Conditions to the Merger. The respective obligations of each party to
effect the Merger are subject to the satisfaction or waiver, if permissible,
prior to the Effective Time of the following conditions: (a) The Merger
Agreement shall have been adopted by the stockholders of the Company in
accordance with applicable law and the rules of the Nasdaq National Market if
such a vote is required; (b) no statute, rule, regulation, order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority of competent jurisdiction which restrains,
enjoins or otherwise prohibits the consummation of the Merger; provided,
however, that the Company, Parent and Purchaser shall, among other things, use
their reasonable best efforts to have any such order, decree or injunction
vacated; (c) the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), shall have expired or been
terminated; and (d) Purchaser shall have accepted for payment and paid for all
Shares validly tendered pursuant to the Offer, provided that this condition will
be deemed satisfied with respect to the obligations of Parent and Purchaser if
Purchaser fails to accept for payment and pay for any Shares pursuant to the
Offer in violation of the terms of the Merger Agreement or the Offer.
Conditions to the Offer. Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment, purchase or pay for any
Shares tendered until the expiration or termination of any applicable waiting
period under the HSR Act, and Purchaser may terminate or, subject to the terms
of the Merger Agreement, amend the Offer and may postpone the purchase of, and
payment for, Shares if the Minimum Condition has not been met or if, at any time
on or after the date of the Merger Agreement, and prior to the time of
acceptance of any such Shares for payment, any of the following events shall
occur and remain in effect:
(a) an order shall have been entered in any action or proceeding
before any United States federal or state court or governmental agency or
other United States regulatory or administrative agency or commission (an
"Order"), or a preliminary or permanent injunction by a United States court
of competent jurisdiction shall have been issued and remain in effect (an
"Injunction"), which in either case (i) prohibits the making or
consummation of the Offer or the consummation of the Merger, (ii)
significantly restricts the ability of Purchaser, or renders Purchaser
unable, to accept for payment, pay for or purchase Shares sufficient to
satisfy the Minimum Condition in the Offer or the remaining Shares
outstanding in the Merger (other than as a result of the exercise of
dissenters' rights and other than for delays or restrictions that are not
material to Parent and Purchaser), (iii) prohibits or restricts the
ownership or operation by Parent or Purchaser (or any of their respective
affiliates or subsidiaries) of any portion of its or the Company's business
or assets which is material to the business of the Company and its
subsidiaries taken as a whole or of Parent and its subsidiaries taken as a
whole or compels Parent or Purchaser (or any of their respective affiliates
or subsidiaries) to dispose of or hold separate any portion of its or the
Company's business or assets which is material to the business of the
Company and its subsidiaries taken as a whole or of Parent and its
subsidiaries, taken as a whole, (iv) imposes material limitations on the
ability of Purchaser effectively to acquire or to hold or to exercise full
rights of ownership of the Shares, including, without limitation, the right
to vote the Shares purchased by Purchaser on all matters properly presented
to the stockholders of the Company, (v) imposes any material limitations on
the ability of Parent or Purchaser or any of their respective affiliates or
subsidiaries effectively to control in any material respect the business
and operations of the Company and its subsidiaries, or (vi) which otherwise
would result in a Company Material Adverse Effect; provided, however, that
Parent and Purchaser shall have complied with Section 5.5 of the Merger
Agreement and that in order to invoke this condition Parent and Purchaser
shall have used their respective reasonable best efforts to prevent such
Order or Injunction or ameliorate the effects thereof; and provided,
further, that if this Order or Injunction is a temporary restraining order
or preliminary injunction of a court of competent jurisdiction, Purchaser
may not by virtue of this condition alone amend or terminate the Offer, but
may only extend the Offer and thereby postpone acceptance for payment or
purchase of Shares; or
6
<PAGE> 7
(b) there shall have been any United States federal or state statute,
rule or regulation enacted or promulgated after the date of the Offer that
would result in any of the material adverse consequences referred to in
paragraph (a) above; or
(c) there shall have occurred and be continuing (in any event, for not
less than two consecutive days) (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or on the Nasdaq National Market, (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) the commencement of a war, armed
hostilities or other international or national calamity directly involving
the United States, (iv) from the date of commencement of the Offer, a
decline of at least 25 percent in the Standard & Poor's 500 Index, (v) any
limitation by any U.S. governmental authority or agency that materially
affects generally the extension of credit by banks or other financial
institutions or (vi) in the case of any of the foregoing existing at the
time of the commencement of the Offer, a material acceleration or worsening
thereof; or
(d) the Company shall have breached or failed to perform in any
material respect any of its obligations, covenants or agreements contained
in the Merger Agreement or any of the representations and warranties of the
Company set forth in the Merger Agreement (other than such breaches,
failure to perform or inaccuracies which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect); or
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) the Board of Directors of the Company shall have publicly
withdrawn or modified in any manner adverse to Purchaser its recommendation
that stockholders accept the Offer; provided, however, that Purchaser shall
not be entitled to terminate the Offer pursuant to this paragraph if, as a
result of an offer which the Board of Directors of the Company, after
consultation with the Company's outside legal counsel and financial
advisor, determines, in its good faith judgment by a majority vote, to be
more favorable to the Company's stockholders than the Offer and the Merger
(a "Superior Offer"), the Company withdraws or modifies its approval or
recommendation of the transactions contemplated hereby by reason of taking,
and disclosing to the Company's stockholders, a position with respect to a
tender offer contemplated by Rules 14d-9 and 14e-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and if,
within five business days of taking and disclosing such position, the
Company publicly reaffirms its recommendation of the transactions
contemplated by the Merger Agreement which in the reasonable judgment of
Parent with respect to each and every matter referred to above regardless
of the circumstances (including any action or inaction by Parent or
Purchaser) giving rise to any such condition, makes it advisable to proceed
with the Offer or with such acceptance for payment or payment.
The foregoing conditions set forth in paragraphs (a) through (f) are for
the sole benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such conditions (including any action or
inaction by Purchaser) or, subject to the terms of the Merger Agreement, may be
waived by Purchaser in whole or in part. The failure by Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and such right shall be deemed a continuing right which may be asserted at
any time and from time to time.
For purposes of the Merger Agreement, "Company Material Adverse Effect"
means a material adverse effect on the financial condition, results of operation
or business of the Company and its subsidiaries taken as a whole or on the
ability of the Company to consummate the transactions contemplated by the Merger
or the Offer.
Interim Operations of the Company. In the Merger Agreement, the Company has
agreed that, except as contemplated by the Merger Agreement or previously
disclosed to Parent, prior to the Effective Time, (i) the business of the
Company and its subsidiaries will be conducted only in the ordinary and usual
course of
7
<PAGE> 8
business consistent with past practice, and (ii) the Company will not, nor will
it permit any of its subsidiaries to, without the prior written consent of
Parent (such consent not to be unreasonably withheld):
(a) issue, sell or repurchase, or authorize or propose the issuance,
sale or repurchase of any shares of capital stock of the Company and its
subsidiaries, or securities convertible into such shares, or any rights,
warrants or options to acquire such shares or other convertible securities,
other than the issuance of Shares pursuant to the redemption of preferred
share purchase rights ("Rights") issued pursuant to the Rights Agreement,
dated as of May 6, 1997 (the "Rights Agreement"), between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, if otherwise
permitted or required by the Merger Agreement, or the exercise of options,
warrants or other derivative securities as outstanding on the date of the
Merger Agreement.
(b) declare or pay any dividend or distribution on any shares of its
capital stock (other than dividends paid by wholly owned subsidiaries of
the Company to the Company or a redemption of the Rights if otherwise
permitted or required by the Merger Agreement);
(c) except for such transactions in the ordinary course of business or
fees and expenses related to the transactions contemplated by the Merger
Agreement, authorize or enter into any agreement with respect to any
commitment or transaction which requires the Company to pay in excess of
$300,000 in the aggregate;
(d) except as specified in the Merger Agreement and except in the
ordinary course of business consistent with past practice and except as
previously disclosed to Parent or as may be required by law, adopt or amend
in any material respect or terminate any profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or
other employee benefit plan, agreement, trust, plan, fund or other
arrangement (collectively, "Compensation Plans"), or grant, or become
obligated to grant, any general increase in the compensation of executive
officers or any increase in the compensation payable or to become payable
to any executive officer or institute any material new welfare program or
Compensation Plan, or make any material change in any Compensation Plan;
(e) except as required by the consummation of the Merger, pay,
discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business;
(f) except for transactions in the ordinary course of business (i)
incur, assume or prepay any long-term or short-term debt or issue any debt
securities except for borrowing under existing lines of credit or
prepayments or other borrowings not to exceed $300,000 in the aggregate;
(ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for any material obligations
of any other person except for obligations of wholly owned subsidiaries of
the Company; (iii) make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly owned subsidiaries
of the Company, advances to customers in amounts not to exceed $25,000 in
the aggregate, or customary loans to employees in amounts not material to
the maker of such loan); (iv) except as required under the Company's 1995
Credit Agreement with Heller Financial, Inc. and the participating
financial institutions, as amended (the "1995 Credit Agreement"), pledge or
otherwise encumber shares of capital stock of the Company or any of its
subsidiaries; or (v) except as required under the 1995 Credit Agreement,
mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any lien thereupon, excluding certain permitted
liens;
(g) subject to the rights of the Company's stockholders under
applicable law, propose or adopt any amendments to its Certificate of
Incorporation or By-laws (except for any amendment to the Company's By-Laws
necessary to increase the number of directors);
(h) except for transactions in the ordinary course of business,
contemplated by the Merger Agreement or otherwise disclosed therein,
acquire, sell, lease or dispose of any assets which in the aggregate are
material to the Company and its subsidiaries taken as a whole, or enter
into or modify, amend, terminate or waive any rights under any commitments,
contracts, agreements or transactions
8
<PAGE> 9
which would, individually or in the aggregate, be material to the Company
and its subsidiaries taken as a whole;
(i) except for transactions with subsidiaries, acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or any
equity interest therein;
(j) subject to certain exceptions, make any material tax election or
settle or compromise any material federal, state or local tax liability or
assent to the assessment of any federal, state or local tax;
(k) authorize any new capital expenditure or expenditures not
reflected in the capital expenditure budget provided to Parent and which in
the aggregate are in excess of $50,000; or
(l) agree, in writing or otherwise, to take any of the foregoing
actions.
Stock Option Plans. The Merger Agreement provides that, immediately prior
to the Effective Time, each holder of a then-outstanding Company stock option
issued pursuant to either of the Company's stock option plans, whether or not
then presently exercisable, to purchase Shares (an "Option") will be entitled to
receive a cash payment from the Company equal to the product of (a) the total
number of Shares then subject to each such Option with an exercise price less
than the per Share Merger Consideration and (b) the excess of the per Share
Merger Consideration over the exercise price per Share subject to such Option,
subject to any required withholding of taxes, and the Options will be canceled
and will cease to exist.
CVCA Warrants. The Merger Agreement provides that, immediately prior to the
Effective Time, the holder of the warrants issued on April 7, 1994 to the
predecessor to Chase Venture Capital Associates, L.P. (the "CVCA Warrants")
will, to the extent such warrants have not previously been exercised, be
entitled to receive a cash payment from Purchaser equal to the product of (a)
47,806 (the total number of Shares then subject to such CVCA Warrants) and (b)
the excess of the per Share Merger Consideration over $0.004545 (the exercise
price per Share subject to the CVCA Warrants). As a condition to such payment,
the holder of the CVCA Warrants must provide to Purchaser a written
acknowledgement that such payment satisfies in full all of the Company's
obligations to such person pursuant to such warrants.
Rights Agreement. The Company has issued Rights pursuant to the Rights
Agreement. The Merger Agreement provides that the Company's Board of Directors
has taken all necessary action to provide that neither Parent nor Purchaser will
become an "Acquiring Person" such that no "Shares Acquisition Date" or
"Distribution Date" (as such terms are defined in the Rights Agreement) will
occur and that Section 11.1.2 of the Rights Agreement will not be triggered as a
result of the announcement, commencement or consummation of the Offer, the
execution or delivery of the Merger Agreement or any amendments thereto, the
consummation of the Merger, or the consummation of the transactions contemplated
by the Merger Agreement. Under the Merger Agreement, the Company has agreed,
should Parent or Purchaser so request, to redeem the Rights effective
immediately prior to Purchaser's acceptance of Shares for purchase pursuant to
the Offer. No such request has been made as of the date of this Statement and
the Company does not presently expect that any such request will be made.
No Solicitation. The Company has agreed, has agreed to cause its officers
and directors, and has agreed to use its reasonable best efforts to cause its
employees, representatives and agents, to cease any existing discussions or
negotiations with any parties with respect to any Third Party Transaction. A
"Third Party Transaction" means the acquisition of beneficial ownership of all
or a majority of the assets of, or a majority equity interest in, the Company
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock, sale of assets, tender offer or exchange offer or other
business combination, sale of shares of capital stock, sale of assets, tender
offer or exchange offer or other business acquisition or combination transaction
involving the Company and its subsidiaries, including any single transaction or
series of related transactions which is structured to permit such a party other
than Parent, Purchaser or an affiliate thereof (a "Third Party") to acquire
beneficial ownership of a majority of the assets of, or majority equity interest
in, the Company (other than transactions contemplated by the Merger Agreement).
9
<PAGE> 10
The Company has also agreed that the Company and its subsidiaries will not,
and will cause its officers and directors, and has agreed to use its reasonable
best efforts to cause its employees and representatives of the Company and its
subsidiaries not, to solicit any inquiries with respect to any unsolicited, bona
fide written proposal made by a Third Party to enter into a Third Party
Transaction (an "Acquisition Proposal") (other than the transactions
contemplated by the Merger Agreement) or, except as discussed below, to engage
in negotiations or discussions with, or furnish any confidential information
relating to the Company or any of its subsidiaries to, any Third Party relating
to an Acquisition Proposal. Notwithstanding anything to the contrary in the
Merger Agreement, the Company and its representatives may furnish information
to, and participate in discussions or negotiations with, any Third Party which
submits an Acquisition Proposal if the Company's Board of Directors, in its good
faith judgment by a majority vote, after consultation with the Company's outside
legal counsel and financial advisor, determines that the proposal constitutes a
more favorable offer to the Company's stockholders than the Offer and the Merger
and that, based as to legal matters on the advice of outside legal counsel, the
failure to furnish such information or participate in such discussions or
negotiations or waive any such agreement, could reasonably be expected to result
in a breach of their fiduciary duties under applicable law.
The Company has also agreed that it will not enter into a definitive
written agreement providing for a Third Party Transaction except concurrently
with or after the termination of the Merger Agreement in accordance with its
terms. The Company will promptly provide Parent with a reasonable description of
any Acquisition Proposal received (including a summary of all material terms
and, unless it is prohibited from disclosing the same, the identity of the
person making such Acquisition Proposal). The Company will also promptly inform
Parent of the status and content of any discussions regarding any Acquisition
Proposal.
The Company has further agreed not to disclose non-public information to
any Third Party making an Acquisition Proposal unless such party enters into a
confidentiality agreement with the Company. The Company will notify Parent of
such event and identify the person with whom the agreement was executed, unless
such disclosure is prohibited.
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
provides that after the Effective Time, Parent and the Surviving Corporation
will perform the obligations of the Company under the indemnification agreements
between the Company and the directors and certain officers of the Company
previously identified to Parent. After the consummation of the Merger, the
Surviving Corporation will remain responsible for officers' and directors' right
to indemnification and exculpation provided for in the Certificate of
Incorporation and By-Laws of the Company as in effect on the date of the Merger
Agreement, with respect to the acts and omissions occurring prior to the
Effective Time, including, without limitation, the transactions contemplated by
the Merger Agreement. Further, Parent has agreed that for six years after the
Effective Time, Parent or the Surviving Corporation will maintain officers' and
directors' liability insurance covering the persons who are presently covered by
the Company's officers' and directors' liability insurance policies with respect
to acts and omissions occurring prior to the Effective Time, on terms which are
not less favorable than that in effect on the date of the Merger Agreement;
provided, however, that Parent will not be obligated to make annual premium
payments for such insurance exceeding 175% of the annual premiums paid as of the
date of the Merger Agreement (the "Maximum Amount"). If the cost of such
insurance exceeds the Maximum Amount, Parent and the Surviving Corporation will
maintain the most advantageous policies of directors and officers insurance
obtainable for an annual premium equal to the Maximum Amount.
The Merger Agreement also provides that, to the fullest extent permitted by
applicable law, from and after the purchase of the Shares pursuant to the Offer,
Parent, Purchaser and the Company will indemnify and hold harmless, and from and
after the Effective Time, Parent and the Surviving Corporation will indemnify
and hold harmless, each present and former director and officer of the Company
for acts and omissions pertaining to the transactions occurring prior to the
Effective Time including, without limitation, events contemplated by the Merger
Agreement. The Company or the Surviving Corporation have also agreed to advance
such expenses to each former director and officer of the Company and to
cooperate fully in the defense of any such matter.
10
<PAGE> 11
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, the Company's organization, capitalization,
authority to enter into the Merger Agreement and to consummate the transactions
contemplated thereby, potential conflicts, consents and approvals, public
filings, absence of certain events, undisclosed liabilities, litigation,
compliance with laws, tax matters, termination, severance and employment
agreements, employee benefit plans, environmental matters, assets (including
real property and intellectual property), broker's fees, labor matters and
information set forth in this Schedule 14D-9. None of the representations or
warranties in the Merger Agreement will survive the Effective Time of the
Merger.
Access; Confidentiality. The Company has agreed, until the Effective Time,
to give Parent and its authorized representatives access during normal business
hours to all facilities, books and records of the Company and its subsidiaries
and to permit Parent make such inspections as it may reasonably require. In
addition, the Company has agreed to use reasonable efforts to cause its
accountants to furnish such financial and operating data as Parent may
reasonably request. Pursuant to the Confidentiality Agreement, Parent has agreed
to hold in confidence all information concerning the Company and its
subsidiaries and not to use that information in any way detrimental to the
Company. A copy of the Confidentiality Agreement is filed as Exhibit F to this
Schedule 14D-9 and is incorporated herein by reference.
Amendment. Subject to applicable law, the Company, Parent and Purchaser may
amend or supplement the Merger Agreement at any time before or after stockholder
approval of the Merger Agreement, but after the purchase of Shares pursuant to
the Offer, no amendment may be made which decreases the price per Share, changes
the form of consideration to be received by the holders of Shares in the Merger
or which adversely affects the rights of stockholders of the Company under the
Merger Agreement without the approval of such stockholders and, if required, the
Special Committee.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned, notwithstanding approval thereof by the stockholders of the Company,
at any time prior to the Effective Time,
(a) by mutual written consent of Parent and the Company (including, if
required, the Special Committee);
(b) by Parent, Purchaser or the Company if the Effective Time has not
occurred on or before April 30, 1998; provided, however, that the right to
terminate the Merger Agreement will not be available to (i) Parent if it or
its affiliates have purchased Shares pursuant to the Offer or (ii) any
party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of the failure of the Effective Time to occur on or
before such date;
(c) by Parent, Purchaser or the Company if any court of competent
jurisdiction or other governmental body has taken action restraining or
otherwise prohibiting the Offer or the Merger and such action has become
final and nonappealable;
(d) by the Company (i) if the Company has not materially breached any
representation, warranty, covenant or agreement and Purchaser (A) has
failed to commence the Offer within the time required by Regulation 14D
under the Exchange Act or (B) terminated the Offer or allowed it to expire,
or (ii) prior to the acceptance of any Shares pursuant to the Offer, if a
Third Party has made an Acquisition Proposal that the Board of Directors of
the Company, after consultation with the Company's outside legal counsel
and financial advisor, determines constitutes a Superior Offer, and the
Board, after consultation with the Company's outside legal counsel,
determines, in its good faith judgment, that a withdrawal, modification or
change of recommendation or approval is required for the Board to comply
with its fiduciary duties under applicable law;
(e) by Parent if (i) Purchaser has failed to commence the Offer due to
an occurrence which would result in a failure to satisfy any of the
conditions set forth in paragraphs (a) through (f) of Annex A to the Merger
Agreement or (ii) the Offer has expired or been terminated without any
Shares being purchased thereunder by Purchaser as a result of a failure of
any of the conditions set forth in the Merger Agreement;
11
<PAGE> 12
(f) by Parent or Purchaser prior to the acceptance of any Shares for
purchase pursuant to the Offer, if (i) the Company has breached any
representation or warranty in the Merger Agreement having a Company
Material Adverse Effect, which breach has not been cured prior to 10 days
following notice of such breach, (ii) the Company has breached any covenant
or agreement in the Merger Agreement which materially adversely affects the
consummation of the Offer, which breach has not been cured prior to 10 days
following notice of such breach, or (iii) the Company's Board of Directors
has withdrawn its approval or recommendation of the Offer, the Merger, or
the Merger Agreement, or has recommended another offer to the Company's
stockholders;
(g) by the Company if (i) Parent has breached any representation or
warranty in the Merger Agreement which materially adversely affects the
consummation of the Offer, which breach is not cured prior to 10 days
following notice of such breach, or (ii) Parent or Purchaser has materially
breached any covenant or agreement in the Merger Agreement which materially
adversely affects the consummation of the Offer which has not been cured
prior to 10 days following notice of such breach; or
(h) by the Company if (i) after 90 days from the date of the Merger
Agreement any government agency shall have commenced and be continuing any
formal or informal investigations of the transactions contemplated by the
Merger Agreement and (ii) the Company delivers written notice to Parent or
Purchaser of its intent to terminate the Merger Agreement and Parent and
Purchaser fail to resolve the government agency investigation within 10
business days of such notice.
The Merger Agreement provides that in the event of termination, all legal
and other costs and expenses incurred in connection with the Merger Agreement
and the transactions contemplated thereby will be paid by the party incurring
such costs and expenses; provided, however, that if the Company terminates the
Merger Agreement in accordance with subsection (d)(ii) above, then the Company
will pay to Parent $2.2 million within three business days thereafter, and if
the Company terminates the Merger Agreement in accordance with Subsection
(d)(ii) above and consummates a Third Party Transaction within nine months from
the date of termination of the Merger Agreement, the Company will pay Parent an
additional fee in the amount of $2.2 million within three business days of the
consummation of the Third Party Transaction.
Timing. The exact timing and details for the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Parent and Purchaser have
agreed to cause the Merger to be consummated on the terms described above, there
can be no assurance as to the timing of the Merger.
Appraisal Rights. Holders of Shares do not have dissenters' rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
will have certain rights pursuant to the provisions of Section 262 of the DGCL
to dissent and demand appraisal of, and to receive payment in cash of the fair
value of, their Shares. If the statutory procedures are complied with, such
rights could lead to a judicial determination of the fair value required to be
paid in cash to such dissenting holders for their shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than or in addition to the Offer Price or the market value of the Shares,
including asset values and the investment value of the Shares. The value so
determined could be more or less than the Offer Price or the Merger
Consideration.
If any stockholder who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses the right to appraisal, as
provided in the DGCL, the Shares of such stockholder will be converted into the
Merger Consideration in accordance with the Merger Agreement. A stockholder may
withdraw a demand for appraisal by delivery to Parent of a written withdrawal of
the demand for appraisal and acceptance of the Merger.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS WILL RESULT IN THE LOSS OF SUCH RIGHTS.
Confidentiality Agreement.
Pursuant to the Confidentiality Agreement, LDI agreed to treat
confidentially all information, whether written or oral, concerning the Company
or any of its affiliates, which the Company or any of its directors,
12
<PAGE> 13
officers, employees, agents, financial advisors or representatives furnished to
LDI or its directors, officers, employees, agents, legal counsel, financial
advisors, accountants or representatives, (the "Representatives"), together with
all reports, analyses, compilations, data, studies and other materials which
contain or otherwise reflect or are generated from such information. As part of
Confidentiality Agreement, the parties also entered into a standstill agreement,
pursuant to which LDI further agreed that neither it (including any person or
entity directly or indirectly, through one or more intermediaries, controlling
LDI or controlled by LDI or under common control with LDI), nor any of its
Representatives, acting alone or as part of any group, would, for a period of
two years from the date of the Confidentiality Agreement, directly or
indirectly, unless specifically requested to do so in writing in advance by the
Company's Board of Directors, (i) acquire ownership of any of the securities or
assets of the Company or any rights or options to acquire any such ownership,
(ii) make a solicitation of proxies to vote or advise or influence any person
with respect to the voting of any securities of the Company, (iii) join or
participate in a "group" (as defined in the Exchange Act) with respect to any
voting securities of the Company, (iv) arrange or participate in any financing
for the purchase of any voting securities or assets, (v) propose to the Company
to any of its stockholders any merger, business combination, restructuring,
recapitalization or similar transaction or seek to control, change or influence
the management, Board of Directors or policies of the Company, (vi) solicit,
negotiate with, or provide any information to, any person with respect to a
merger, exchange offer or liquidation of the Company or any other acquisition of
the Company or similar transaction, or (vii) enter into discussion with a third
party with respect to any of the foregoing.
LDI Financing Letter.
On October 14, 1997, LDI delivered to the Company the LDI Financing Letter
pursuant to which LDI informed the Company that LDI had irrevocably and
unconditionally committed to advance to FinishMaster the funds necessary to
complete the acquisition of the Company and repay certain of the Company's
existing indebtedness. The LDI Financing Letter provides that the Company may
rely on LDI's commitment to FinishMaster as if it were made to the Company. The
LDI Financing Letter is included as Annex B to Merger Agreement and is
incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board. At a meeting of the Company's Board of
Directors held on October 14, 1997, the board by unanimous vote, (i) determined
that the Offer and the Merger were fair to, and in the best interests of, the
Company and its stockholders, (ii) approved the Merger Agreement, the Offer and
the Merger and (iii) recommended that the stockholders accept the Offer and
approve the Merger Agreement. A letter to the Company's stockholders from the
Company's Chairman of the Board, President and Chief Executive Officer, dated
October 21, 1997, which includes the board's recommendation to the stockholders,
is attached as Exhibit G hereto and is incorporated herein by reference.
THEREFORE, THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS TENDER THEIR SHARES PURSUANT TO THE TERMS OF THE OFFER.
(b) Background; Reasons for Board's Recommendation.
Background of the Offer. In September 1995, the Company's senior executives
(including Mr. Mortimer A. Kline, III, then the President and Chief Operating
Officer of the Company) were introduced to Andre B. Lacy, Chairman of the Board,
Chief Executive Officer and President of LDIM, the managing general partner of
LDI, William Fennessy, Vice President and Chief Financial Officer of LDIM, and
Robert H. Reynolds, outside counsel to LDI and Corporate Secretary of LDIM, in a
meeting held in Chicago. In that meeting, which had been requested by Mr. Lacy,
Mr. Lacy expressed an interest in LDI investing in the auto paint distribution
industry generally and in acquiring a significant ownership position in the
Company in particular. The Company elected not to pursue Mr. Lacy's unsolicited
expression of interest.
In the Spring of 1996, the then-controlling shareholder of FinishMaster
advised the Company that it was actively seeking a buyer for its stake in
FinishMaster or, possibly, the entire company. The Company considered this
opportunity with the assistance of Donaldson, Lufkin & Jenrette Securities
Corporation
13
<PAGE> 14
("DLJ"), but determined not to pursue a transaction. In June 1996, LDI, through
its subsidiary AutoPaints, acquired this controlling stake in FinishMaster
consistent with its strategic plan to invest in the auto paint distribution
industry. Upon completion of that transaction, Mr. Lacy became Chairman of the
Board and Chief Executive Officer of FinishMaster. During this time period,
AutoPaints also acquired an additional independent auto paint distributor.
On October 18, 1996, at the invitation of Mr. Lacy, D. Hunt Ramsbottom,
Jr., then Chief Executive Officer of the Company, met with Mr. Lacy in Chicago.
The purpose of the meeting was to establish a personal relationship and discuss
in general terms the prospects of the auto paint distribution business.
In December 1996, the Company announced that Mr. Ramsbottom would be
resigning from his positions with the Company and that Mr. Kline would assume
the additional positions of Chairman and Chief Executive Officer. At the
invitation of Mr. Lacy, Mr. Kline and Mr. Lacy met in Chicago on January 30,
1997 for the purpose of renewing their relationship and discussing the prospects
of the auto paint distribution business.
During late 1996 and into 1997, the Company's Board of Directors began to
consider the long-term business plan and strategic future of the Company.
Throughout this period, the Company generally reported operating results that
were inferior to the prior year reflecting several business challenges. The
Company continued to experience difficulties in fully integrating acquired
companies that had been purchased at a very rapid pace in 1995 and 1996. More
broadly, the Company was faced with unfavorable industry conditions, including
flat revenue on decreasing volume and a consolidating customer base. In
response, the Company's stock price had been declining, thereby limiting the
Company's options to obtain growth capital to fund its acquisition strategy,
while at the same time the Company also faced the need to make significant
capital expenditures to upgrade its computer systems. In light of the foregoing
factors, the Board of Directors of the Company determined that it was in the
interests of the Company and its stockholders to consider a possible strategic
transaction with a third party. In particular, the Board of Directors was of the
view that the Company's stock was significantly undervalued in the marketplace
in light of the considerable value the Company might have to another distributor
of auto paint and related supplies, another supplier of products to the
Company's customers, or a financial buyer who could use the Company as a
platform for such a transaction.
On or about April 9, 1997, Mr. Thomas U. Young, President of FinishMaster,
telephoned Mr. Kline and asked for a meeting between Mr. Kline and Messrs. Lacy
and Young. After consulting with the outside directors, Mr. Kline accepted the
invitation and the meeting was scheduled for May 5, 1997.
At a Board meeting held on April 29, 1997, the Company's Board determined
that it should retain an investment banker to assist it in the consideration of
strategic alternatives to maximize shareholder value. A member of the Company's
Board of Directors was delegated to interview candidates and recommend the
retention of an appropriate financial advisor to assist the Company. This
process led to the retention of DLJ shortly thereafter and the execution of an
engagement letter dated June 2, 1997.
On May 5, 1997, Mr. Kline met with Messrs. Lacy and Young in Palm Springs,
California. At this meeting, Messrs. Lacy and Young indicated preliminary
interest in considering the possible combination of FinishMaster and the
Company. Mr. Kline advised them that the present sentiment of the Company's
Board of Directors was that the Company should consider its strategic
alternatives in a formal process. However, Mr. Kline also indicated that the
board might be inclined to give FinishMaster a first opportunity to propose a
transaction if it was interested in moving quickly. Mr. Kline suggested that Mr.
Lacy meet with Mr. David L. Ferguson, a member of the Company's Board of
Directors.
On May 7, 1997, Mr. Lacy met with Messrs. Kline and Ferguson at Mr.
Ferguson's offices in El Segundo, California. Again, Mr. Lacy, on behalf of
FinishMaster, expressed interest in a business combination. Mr. Ferguson
indicated that the Company's Board of Directors would give appropriate
consideration to any proposal made by FinishMaster. Mr. Ferguson also advised
Mr. Lacy that the board presently intended to hire an investment banker to
assist it in conducting a process to explore the strategic alternatives that
might be available to the Company.
14
<PAGE> 15
Messrs. Lacy, Kline and Ferguson met again in Los Angeles on May 28, 1997
at the request of Mr. Lacy. In that meeting, Mr. Lacy proposed a business
combination which contemplated a stock for stock transaction and suggested
approximately equal values for FinishMaster and Company shares. Mr. Ferguson
indicated that the Company generally preferred a cash transaction. He suggested
that FinishMaster's advisor, Smith Barney Inc. ("Smith Barney"), make contact
with DLJ so that the financial advisors could exchange views regarding a
possible transaction. On June 27, 1997, the Company entered into the
Confidentiality Agreement with FinishMaster, Mr. Lacy, LDI and certain of their
affiliated companies in order to facilitate the release of certain non-public
financial information to FinishMaster and Smith Barney.
In the conversations that followed among the financial advisors,
FinishMaster continued to propose transaction structures which contemplated all
FinishMaster stock or mostly stock with a limited cash component. At the
direction of the Board, DLJ conveyed to Smith Barney the Company's view that
such a structure was not likely to be acceptable and that the Company was
inclined to conduct a formal auction process to determine whether or not a cash
transaction was possible with another party. Mr. Ferguson also conveyed this
view in separate calls with Mr. Lacy and a representative of Smith Barney.
On July 1, 1997, Messrs. Kline and Ferguson and representatives of DLJ
conferred with Mr. Lacy and representatives of Smith Barney in a telephone
conference to discuss the confidential information provided by the Company to
FinishMaster and Smith Barney. Subsequently, on approximately July 8, 1997,
FinishMaster, acting through Smith Barney, informed DLJ that FinishMaster would
not make a further proposal at that time, but would instead participate in the
process to maximize shareholder value which was to be conducted by DLJ on behalf
of the Company. After the market closed on July 8, 1997, the Company issued a
press release stating that the Company had elected to explore the strategic
alternatives that may be available to the Company with the objective of
maximizing the Company's value to its stockholders and other constituents, and
that DLJ had been retained to assist the Company in this process. The last
reported sales price of the Common Stock on July 8, 1997 was $4.625 per share.
Promptly after this press release was issued, DLJ began to contact parties
that it believed might be interested in a transaction and to respond to
inquiries from parties that had seen the Company's press release. During July
and August 1997, DLJ had contact with approximately 87 parties, of which 45
parties entered into confidentiality agreements and received information
packages regarding the Company and seven parties responded with written
indications of interest in conducting a formal due diligence review of the
Company. Subsequently, DLJ invited six of these interested parties (including
FinishMaster) to attend presentations to be held in early September at the
Company's executive offices and to have access to the Company's files for due
diligence purposes. The Board of Directors of the Company held meetings on each
of August 7, August 20 and September 17, 1997 to monitor this process.
At a special meeting of the Board of Directors of Parent held on October 3,
1997, that board approved and authorized Parent to make a proposal to the
Company for an $8.00 per Share acquisition and the execution and delivery of a
related Agreement and Plan of Merger. In accordance with instructions received
from DLJ, Parent submitted to DLJ on October 6, 1997, a written proposal to
acquire the Company at a purchase price of $8.00 in cash per Share. In its
proposal, FinishMaster advised the Company that its bid was fully financed
either through a bank financing to be arranged by FinishMaster or additional
funds to be provided by LDI.
On October 8, 1997, the Company's Board of Directors met with DLJ and
counsel to review the results of the auction process. At this meeting, the board
determined to pursue a transaction with FinishMaster consistent with the
proposal described above. Accordingly, the board authorized its counsel and DLJ
to meet with representatives of FinishMaster and to attempt to negotiate the
definitive terms of an all cash, fully-financed transaction consistent with
FinishMaster's October 6 proposal. Those meetings commenced in Los Angeles at
the offices of counsel to the Company on the afternoon of October 9, 1997 and
continued through the afternoon of October 11, 1997. Final details on a draft
form of Merger Agreement and the related LDI Financing Letter were completed
among counsel on October 13, 1997.
The Board of Directors of the Company met on October 14, 1997 to consider
presentations by counsel and to review the draft Merger Agreement. A
presentation was also provided by DLJ, which included the
15
<PAGE> 16
delivery of its written opinion to the effect that the proposed cash
consideration of $8.00 per Share was fair to the Company's stockholders from a
financial point of view. After considering these presentations, the Board of
Directors of the Company approved the Merger Agreement and approved its
execution, subject to receiving the LDI Financing Letter. These events were
completed late in the day of October 14, 1997 and a related public announcement
was disseminated before the stock market opened on October 15, 1997.
Reasons for the Board's Recommendations. In approving the Merger Agreement
and the transactions contemplated thereby, and recommending that all
stockholders tender their Shares pursuant to the Offer, the Company's Board of
Directors considered a number of factors, including:
(i) the financial and other terms of the Offer, the Merger and the Merger
Agreement;
(ii) that the $8.00 per Share tender offer price represents (A) a premium of
73.0% over the last reported sales price of the Common Stock on the Nasdaq
National Market on July 8, 1997, the last trading session before the
Company announced its intention to explore the strategic alternatives that
may be available to it with the objective of maximizing stockholder value;
and (B) a 25.5% premium over the last reported sales price of the Common
Stock on the Nasdaq National Market on October 14, 1997, the last trading
session before the announcement of the Merger Agreement;
(iii) recent trading prices of the Shares, including the fact that the Shares
have not closed above $8.00 on the Nasdaq National Market in the 52-week
period prior to the announcement of the Merger Agreement on October 15,
1997;
(iv) the presentation by DLJ at the October 14, 1997 Board meeting and the
opinion of DLJ to the effect that, as of the date of such opinion and
based upon certain matters considered relevant by DLJ, the consideration
to be received by the Stockholders of the Company in the Offer and the
Merger was fair to such stockholders from a financial point of view (the
full text of such opinion, dated October 14, 1997, which sets forth the
procedures followed, assumptions and qualifications made, matters
considered and the limitations thereof, is included as Exhibit H hereto
and stockholders are urged to read it in its entirety);
(v) the fact that the Company conducted an auction process and no other bidder
submitted a proposal having terms more favorable than those ultimately
proposed by FinishMaster;
(vi) advice to the Company's Board of Directors from DLJ regarding the
likelihood of a superior offer arising;
(vii) the familiarity of the Company's Board of Directors with the business,
results of operations, properties and financial condition of the Company
and the nature of the industry in which it operates;
(viii) the view of the Company's Board of Directors that in light of unfavorable
industry conditions and the significant capital needs of the Company, a
sale of the Company was in the best interests of the stockholders;
(ix) the fact that the obligations of FinishMaster and Purchaser under the
Merger Agreement were not subject to any financing conditions and were
supported by the further financial assurances of an affiliate as expressed
in the LDI Financing Letter;
(x) the financial resources of LDI, FinishMaster and Purchaser and their
ability to meet their respective obligations under the Merger Agreement;
(xi) the provisions of the Merger Agreement, including the provision allowing
the Company to respond to an Acquisition Proposal on terms superior to
those reflected in the Merger Agreement, and the provisions which permit
the Company to terminate the Merger Agreement in the event that the Board
determines to accept an Acquisition Proposal that it, in its good faith
judgment by a majority vote, determines to be more favorable to the
Company's stockholders than the Offer and the Merger, upon payment to
Purchaser of a break-up fee of $4.4 million (without any further
obligation to pay any other expenses of Parent or Purchaser); and
16
<PAGE> 17
(xii) the limited number of conditions to Purchaser's requirement to consummate
the Offer and the Merger.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger
Agreement and the Offer, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specified factors
considered in reaching its determination.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter dated June 2, 1997, between the Company
and DLJ (the "DLJ Engagement Letter"), a copy of which is attached hereto as
Exhibit I and is incorporated herein by reference, the Company retained DLJ to
(i) assist, as exclusive financial advisor, in evaluating various plans,
strategies or transactions for maximizing the Company's value to its
stockholders (a "Transaction"), (ii) assist in preparing an offering memorandum
describing the Company, its operations, its historical performance and its
future prospects; (iii) identify and contact selected qualified acquirors
acceptable to the Company; (iv) arrange for potential acquirors to conduct
business investigations; (v) negotiate the financial aspects of any proposed
Transaction under the Company's guidance; and (vi) deliver an opinion to the
Board of Directors of the Company, if requested, as to the fairness from a
financial point of view of the consideration to be received by the stockholders
of the Company in any proposed Transaction and updates to such opinion. Pursuant
to the DLJ Engagement Letter, the Company has agreed to pay to DLJ, if a
Transaction is consummated, a transaction fee of one percent of the total
transaction value with respect to any Transaction. The transaction fee payable
to DLJ, assuming consummation of the Offer and the Merger on the terms described
herein, is estimated to be approximately $1.14 million. In addition, the Company
agreed (i) to reimburse DLJ for out-of-pocket expenses (including the reasonable
fees and expenses of counsel) incurred in performing its services under the DLJ
Engagement Letter and (ii) to indemnify DLJ and certain related persons against
certain liabilities related to, or arising out of, DLJ's engagement under the
DLJ Engagement Letter.
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Share Transactions in Last 60 Days. No transactions in Shares have been
effected by the Company or, to the Company's knowledge, by any of its executive
officers, directors, affiliates or subsidiaries during the past 60 days, except
for Shares purchased pursuant to the Company's 1994 Stock Option Plan (the "1994
Plan").
(b) Intent to Tender. To the Company's knowledge, (i) all of the Company's
executive officers and directors presently intend to tender in the Offer all
Shares that they now own and (ii) none of such persons presently intends to
otherwise sell any Shares which are owned beneficially or held of record by such
persons prior to the consummation of the Offer, except that any stock options or
warrants held by such persons will be canceled in return for a cash payment
equal to the excess (if any) of the per Share Merger Consideration (as defined
in the Merger Agreement) over the exercise price thereof. The foregoing does not
include any Shares over which, or with respect to which, any such person acts in
a fiduciary or representative capacity or is subject to instructions from a
third party, as to which Shares, to the Company's knowledge, no determination
has been made.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Certain Negotiations. Except as described in this Schedule 14D-9,
including as set forth in the Offer to Purchase, to the knowledge of the
Company, no negotiation is being undertaken or is under way by the Company in
response to the Offer which relates to or would result in (i) any extraordinary
transaction, such as a merger or reorganization, involving the Company or any
affiliate or subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the
17
<PAGE> 18
Company, (iii) a tender offer for or other acquisition of securities by or of
the Company or (iv) any material change in the present capitalization or
dividend policy of the Company. Pursuant to the Merger Agreement, however, and
as described under "Merger Agreement" in Item 3(b)(2) above, the Company may,
subject to certain limitations, take certain actions in respect of proposed
transactions necessary for the directors of the Company to discharge their
fiduciary duties to stockholders under applicable law.
(b) Certain Transactions. Except as described in this Schedule 14D-9, there
are no transactions, resolutions of the Board of Directors of the Company,
agreements in principle or signed contracts in response to the Offer which
relate to or would result in one or more of the matters referred to in Item
7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company's Board of
Directors other than at a meeting of the Company's stockholders.
At its meeting held October 14, 1997, the Board of Directors (i) authorized
and approved entering into the Merger Agreement and the transactions
contemplated thereby for purposes of Section 203 of the DGCL and (ii) took all
necessary action such that neither the Offer nor the Merger would constitute a
"Trigger Event" or result in a "Distribution Date," in each of such cases as
defined in the Rights Agreement.
18
<PAGE> 19
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C>
Exhibit A -- Offer to Purchase*
Exhibit B -- Letter of Transmittal*
Exhibit C -- Agreement and Plan of Merger by and among Parent, Purchaser
and the Company, dated as of October 14, 1997 (including the
LDI Financing Letter attached thereto as Annex B)
Exhibit D -- Press release issued on October 15, 1997
Exhibit E -- The Company's Proxy Statement, dated January 10, 1997, for
the Company's 1997 Annual Meeting of Stockholders
Exhibit F -- Confidentiality Agreement, dated as of June 27, 1997, by and
among the Company, FinishMaster, Inc., LDI AutoPaints, Inc.,
Lacy Distribution, Inc., LDI, Ltd, LDI Management, Inc. and
Andre B. Lacy
Exhibit G -- Letter to Stockholders dated October 21, 1997*
Exhibit H -- Fairness opinion of DLJ dated July 14, 1997*
Exhibit I -- Engagement Letter dated June 2, 1997 between DLJ and the
Company
Exhibit J -- 1994 Stock Option Plan, as amended**
Exhibit K -- Stock Option Plan for Outside Directors of Thompson PBE,
Inc.***
Exhibit L -- Form of Indemnification Agreement between the Company and
each of its Directors and certain Executive Officers of the
Company
Exhibit M -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Mortimer A. Kline, III
Exhibit N -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Michael O'Donovan
Exhibit O -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Thomas E. Case
Exhibit P -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Victor J. Jedlicka
Exhibit Q -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Walter M. Lacher
Exhibit R -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Glen R. Thompson
</TABLE>
- -------------------------
* Included in the materials sent to stockholders of Company.
** Incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (No. 33-83310) and Exhibit 10.64 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995.
*** Incorporated by reference to Exhibit 10.46 to the Company's Registration
Statement on Form S-1 (No. 33-96256).
19
<PAGE> 20
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Schedule 14D-9 is true, complete
and correct.
Dated: October 21, 1997 THOMPSON PBE, INC.
By: /s/ MORTIMER A. KLINE, III
------------------------------------
Mortimer A. Kline, III
Chairman, President and
Chief Executive Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT DESCRIPTION NUMBER
------- ----------- ------
<S> <C> <C> <C>
Exhibit A -- Offer to Purchase*
Exhibit B -- Letter of Transmittal*
Exhibit C -- Agreement and Plan of Merger by and among Parent, Purchaser
and the Company, dated as of October 14, 1997 (including the
LDI Financing Letter attached thereto as Annex B)
Exhibit D -- Press release issued on October 15, 1997
Exhibit E -- The Company's Proxy Statement, dated January 10, 1997, for
the Company's 1997 Annual Meeting of Stockholders
Exhibit F -- Confidentiality Agreement, dated as of June 27, 1997, by and
among the Company, FinishMaster, Inc., LDI AutoPaints, Inc.,
Lacy Distribution, Inc., LDI, Ltd, LDI Management, Inc. and
Andre B. Lacy
Exhibit G -- Letter to Stockholders dated October 21, 1997*
Exhibit H -- Fairness opinion of DLJ dated July 14, 1997*
Exhibit I -- Engagement Letter dated June 2, 1997 between DLJ and the
Company
Exhibit J -- 1994 Stock Option Plan, as amended**
Exhibit K -- Stock Option Plan for Outside Directors of Thompson PBE,
Inc.***
Exhibit L -- Form of Indemnification Agreement between the Company and
each of its Directors and certain Executive Officers of the
Company
Exhibit M -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Mortimer A. Kline, III
Exhibit N -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Michael O'Donovan
Exhibit O -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Thomas E. Case
Exhibit P -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Victor J. Jedlicka
Exhibit Q -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Walter M. Lacher
Exhibit R -- Severance Agreement, dated as of September 1, 1997, by and
between the Company and Glen R. Thompson
</TABLE>
- -------------------------
* Included in the materials sent to stockholders of Company.
** Incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (No. 33-83310) and Exhibit 10.64 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995.
*** Incorporated by reference to Exhibit 10.46 to the Company's Registration
Statement on Form S-1 (No. 33-96256).
<PAGE> 22
ANNEX A
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES AND EXCHANGE ACT OF 1934,
AS AMENDED, AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about October 21, 1997 as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of record of the Shares as of the close of
business on or about October 14, 1997. Capitalized terms used and not otherwise
defined shall have the meaning ascribed to them in the Schedule 14D-9. You are
receiving this Information Statement in connection with the possible election of
persons designated by Purchaser to a majority of the seats of the Board of
Directors of the Company.
The Merger Agreement provides that promptly upon the acquisition by
Purchaser pursuant to the Offer of such number of Shares that satisfies the
Minimum Condition, Purchaser shall be entitled to designate, subject to
compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, such number of Directors, rounded up to the next whole number (the
"Purchaser Designees"), of the Company's Board of Directors, that would make the
percentage of the Company's directors designated by Purchaser equal to the
aggregate voting power of the Shares held by Purchaser and Parent expressed as a
percentage of the fully diluted number of Shares outstanding or subject to
issuance. The Merger Agreement provides that the Company shall, at such time and
subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, use its reasonable best efforts to cause the Purchaser Designees to
be so elected.
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder. YOU ARE URGED TO READ THIS INFORMATION STATEMENT
CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on October
21, 1997. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on Tuesday, November 18, 1997 unless the Offer is extended.
The following information contained in this Information Statement
concerning Parent, Purchaser and the Purchaser Designees has been furnished to
the Company by either Parent or Purchaser, and the Company assumes no
responsibility for the accuracy or completeness of such information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
GENERAL
The Board of Directors of the Company currently consists of five directors
each of whom holds office until his resignation or removal and until his
successor is duly elected and qualified at the next Annual Meeting of
Stockholders.
PURCHASER DESIGNEES
Pursuant to the Merger Agreement, promptly upon the acquisition by
Purchaser pursuant to the Offer of such number of Shares that satisfies the
Minimum Condition, Purchaser shall be entitled to designate such number of
Directors, rounded up to the next whole number of the Company's Board of
Directors, that would make the percentage of the Company's directors designated
by Purchaser equal to the aggregate voting power of the Shares held by Purchaser
and Parent expressed as a percentage of the fully diluted number of Shares
outstanding or subject to issuance. The Merger Agreement provides that the
Company shall, at such time, use its reasonable best efforts to cause the
Purchaser Designees to be so elected.
Parent has informed the Company that it will choose the Purchaser Designees
from the directors and executive officers listed in Annex I to Purchaser's Offer
to Purchase and that each of the directors and executive officers listed in
Annex I to Purchaser's Offer to Purchase has consented to act as a directors, if
so
A-1
<PAGE> 23
designated. The business address of Parent is 4259 40th Street, S.E., Kentwood,
Michigan 49512. The principal address of Purchaser is 54 Monument Circle,
Indianapolis, Indiana 46204.
It is presumed that the Purchaser Designees may assume office at any time
following the purchase by Purchaser pursuant to the Offer of such number of
Shares that satisfies the Minimum Condition, and that upon assuming office, the
Purchaser Designees will thereafter constitute at least a majority of the
Company's Board of Directors.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning each of the Company's current directors and
executive officers is set forth below:
MORTIMER A. KLINE, III, age 38, incorporated the Company on April 4, 1989.
From April 1989 to the present, Mr. Kline has served as President and Chief
Operating Officer of the Company. In November 1996, he was named to the
additional positions of Chairman of the Board and Chief Executive Officer. In
addition, Mr. Kline served as Chief Financial Officer of the Company from its
inception until December 1993. From February 1987 to November 1988, Mr. Kline
served as Chief Financial Officer of Kellow-Brown Company, a commercial printing
company based in Los Angeles.
FRANK C. ALEXANDER, age 64, has served as a director of the Company since
May 1989. From April 1991 to May 1992, and from March 1994 to the present, Mr.
Alexander has been a self-employed consultant. From May 1992 to March 1994, Mr.
Alexander was a Vice President of M&A Capital, an investment bank. From 1981
until his retirement in April 1991, Mr. Alexander served as Executive Vice
President and Chief Financial Officer of Intermark, Inc.
DAVID L. FERGUSON, age 42, has served as a director of the Company since
June 1992. From June 1990 through May 1997, Mr. Ferguson was a General Partner
and since June 1997 has been a Special General Partner of Chase Capital Partners
("CCP"), which is the general partner of Chase Venture Capital Associates, L.P.,
a venture capital fund ("Chase Ventures"). From September 1989 to June 1990, Mr.
Ferguson was a Vice President of CCP. Mr. Ferguson is also a director of Guitar
Center, Inc., Wild Oats Markets, Inc. and numerous private companies.
JOHN D. ROACH, age 53, has served as a director of the Company since
December 1995. Since July 1997, Mr. Roach has been Chief Executive Officer of
Stonegate Resources, LLC, a private investment firm. From July 1991 to July
1997, Mr. Roach was Chairman, President and Chief Executive Officer of
Fiberboard Corporation, a manufacturer of building and industrial products and
an owner/operator of ski resorts. From 1988 to 1991, Mr. Roach was Executive
Vice President of Manville Corporation, a manufacturer of building products,
paperboard packaging, fiberglass and industrial minerals, where from 1990 to
1991 he served as President of its Mining and Minerals Group and President of
Celite Corporation, a wholly owned Manville subsidiary. In addition, from 1988
to 1989, Mr. Roach served as president of Manville Sales Corporation, now known
as Schuller International, and the Fiberglass and Specialty Products Group, and
from 1987 to 1988, as Chief Financial Officer of Manville Corporation.
LOUIS A. SIMPSON, age 60, has served as a director of the Company since
August 1995. Mr. Simpson has been President and Chief Executive Officer --
Capital Operations of GEICO Corporation, an insurance holding company, since
1993, having served as Vice Chairman of the Board from 1985 to 1993. In addition
to GEICO Corporation, Mr. Simpson is also a director of Salomon Inc, Potomac
Electric Power Company, Pacific American Income Shares, Inc. and Cohr Inc.
THOMAS E. CASE, 52, became Executive Vice President, Sales and Strategic
Development of the Company in February 1996. From May 1994 through February
1996, he served as Executive Vice President and General Manager, Southern
California Division. Prior to that and since 1984, Mr. Case was Vice President,
Sales of the Company.
VICTOR J. JEDLICKA, age 60, has served as Executive Vice President,
Materials and Logistics, since January 1997. From November 1996 through January
1997, he served as Corporate Purchasing Director for Sizzler
A-2
<PAGE> 24
International, Inc. From April 1996 through September 1996, he served as
Director of Purchasing of Kent & Spiegel, Inc. From March 1996 through November
1996, he was a co-founder of Fundation, Inc., a distributor of food products.
From June 1993 through January 1996, he served as Corporate Purchasing Director
for Sizzler International. From December 1992 through June 1993, he served as
Director of Materials Management for Daniel Freedman Hospital. From 1989 through
December 1992, he served as Executive Director of Material Resources for J.I.
Case, a division of Tenneco, Inc.
WALTER M. LACHER, age 33, has served as Corporate Controller since July
1997. From October 1996 to July 1997, Mr. Lacher served as Chief Financial
Officer of Global One Distribution and Merchandising, Inc., a publicly held
distribution company ("Global One"). From July 1996 to October 1996, Mr. Lacher
served as Corporate Controller of Global One. From July 1988 to July 1996, Mr.
Lacher was employed by Deloitte & Touche, LLP.
MICHAEL O'DONOVAN, age 39, has served as Chief Financial Officer since
April 1997. From December 1994 to April 1997, Mr. O'Donovan served as Vice
President, Corporate Controller. From June 1991 to December 1994, Mr. O'Donovan
served as Director of Accounting of Retix, a publicly held multi-national
computer hardware and software manufacturer and distributor. From January 1985
to June 1991, Mr. O'Donovan was employed by Price Waterhouse, LLP in its
Entrepreneurial Services Group.
GLEN R. THOMPSON, age 47, became Executive Vice President Operations of the
Company in December 1996. From February 1996 through December 1996, he served as
Vice President, Operations, California Division. Prior to that and since 1989,
Mr. Thompson was Vice President of Operations, Southern California Division.
COMMITTEES OF THE BOARD
The Compensation Committee for the Board of Directors is presently
comprised of Messrs. Alexander, Ferguson, Roach and Simpson. Mr. Ferguson chairs
the committee. This Committee reviews and approves executive salaries, considers
awards to be granted under the Company's Incentive Compensation Plan for Senior
Executives and performs other related functions upon request of the Board of
Directors. This Committee also awards and administers stock option grants under
the 1994 Plan. The Compensation Committee met once during the fiscal year ended
September 30, 1996.
The Audit Committee of the Board of Directors is presently comprised of
Messrs. Alexander, Ferguson, Roach and Simpson. Mr. Alexander chairs the
committee. The functions of the Audit Committee include reviewing and making
recommendations to the Board of Directors with respect to the engagement or
reengagement of an independent accounting firm to audit the Company's financial
statements for the then current fiscal year, the policies and procedures of the
Company and management in maintaining the Company's books and records and
furnishing information necessary to the independent auditors; the adequacy and
implementation of the Company's internal controls and the adequacy and
competency of the related personnel; and such other matters relating to the
Company's financial affairs and accounts as the Committee may in its discretion
deem desirable. The Audit Committee met five times during the fiscal year ended
September 30, 1996.
The Nominating Committee of the Board of Directors is presently comprised
of Messrs. Alexander, Ferguson, Roach and Simpson. Mr. Simpson chairs the
committee. This Committee advises and makes recommendations to the Board on all
matters concerning the selection of candidates as nominees for election as
directors. The Committee did not meet during the last fiscal year as all actions
regarding the nomination of directors were presented to the full Board of
Directors.
MEETINGS
During the fiscal year ended September 30, 1996, the Board of Directors
held seven meetings. All directors attended at least 75% of all meetings of the
Board of Directors and of all committees on which such person served during such
period.
A-3
<PAGE> 25
DIRECTOR COMPENSATION
Directors of the Company who are also employees are not separately
compensated for their services as directors. Non-Employee Directors of the
Company received during the fiscal-year ended September 30, 1996, $1,000 per
meeting attended, $1,000 per month and $500 per committee meeting attended for
all services as a director of the Company. Since December 1, 1996, all
non-employee directors have received $1,500 per month and $1,000 per committee
meeting. Also in August 1995, the Board of Directors approved the Stock Option
Plan for Outside Directors of the Company, which was approved by stockholders at
the Company's 1996 Annual Meeting of Stockholders.
VOTING SECURITIES AND PRINCIPAL HOLDERS
GENERAL
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock entitles the holder to one vote. As of
October 21, 1997, there were 8,645,084 Shares issued and outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth certain information as of October 14, 1997
with respect to the beneficial ownership of the Company's Common Stock, which
constitutes the Company's only outstanding class of voting securities, by (i)
each person who, to the knowledge of the Company, beneficially owned more than
5% of the Common Stock, (ii) each director of the Company, (iii) the Named
Executive Officers (as defined below) and (iv) all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1)
------------------------ -------------------- ----------
<S> <C> <C>
Wasatch Advisors, Inc.(2)................................... 1,892,469 21.9%
Chase Venture Capital Associates, L.P.(3)................... 1,101,432 12.7
Kaim Non-Traditional, L.P.(4)............................... 1,002,320 11.6
David L. Ferguson(3)........................................ 1,101,432 12.7
Mortimer A. Kline III(5)(6)................................. 567,718 6.5
Louis A. Simpson(5)(7)(8)................................... 114,500 1.3
Frank C. Alexander(5)(7).................................... 5,000 *
John D. Roach(5)(7)......................................... 5,000 *
Thomas E. Case(5)(9)........................................ 36,224 *
Michael O'Donovan(5)(10).................................... 12,000 *
All directors and executive officers -- as a group (10
persons)(11)........................................... 764,499 8.6
</TABLE>
- -------------------------
* Less than 1%.
(1) Shares which each identified stockholder has the right to acquire
immediately prior to the Effective Time are deemed to be outstanding in
calculating the percentage ownership of such stockholder, but are not
deemed to be outstanding as to any other person. In the case of options
issued pursuant to the Company's stock option plans, all such options are
assumed to be exercisable because vesting will be accelerated immediately
prior to the Effective Time; provided, however, that only options with an
exercise price of less than the per Share Merger Consideration are deemed
beneficially owned. All other options will be canceled in connection with
the Merger. Except as otherwise noted, the Company believes that each such
stockholder has sole voting and investment power over the shares
beneficially owned by such stockholder.
(2) Based solely on an amendment to a filing on Schedule 13G, dated February
14, 1997, in which Wasatch Advisors, Inc., 68 South Main Street, Suite 400,
Salt Lake City, Utah 84101, reported sole voting and dispositive power with
respect to such shares of Common Stock.
A-4
<PAGE> 26
(3) Excludes an aggregate of 72,644 shares for which Chase Ventures has granted
options to Messrs. D. Hunt Ramsbottom, Jr. and Kline (which options are
presently exercisable) and includes an aggregate of 47,806 shares issuable
upon exercise of the CVCA Warrant which is presently exercisable. Mr.
Ferguson disclaims beneficial ownership in the shares owned by Chase
Ventures except to the extent of his pecuniary interest therein which
cannot be immediately calculated. The mailing addresses for Chase Ventures
and Mr. Ferguson are, respectively, 380 Madison Avenue, 12th Floor, New
York, New York 10017 and c/o CVP Management Corp., 840 Apollo Street, Suite
223, El Segundo, California 90245.
(4) Based solely on a filing on Schedule 13G, dated March 6, 1997, in which
Kaim Non-Traditional, L.P., 1800 Avenue of the Stars, Suite 1425, Los
Angeles, California 90067, reported shared voting and dispositive power
with respect to such shares of Common Stock.
(5) The mailing address for such person is: c/o Thompson PBE, Inc., 4553
Glencoe Avenue, Suite 200, Marina del Rey, California 90292.
(6) Includes (i) 11,817 shares for which Mr. Kline has options to purchase from
Wedbush Capital Partners ("WCP") and 36,322 shares for which Mr. Kline has
options to purchase from Chase Ventures, in each case at an exercise price
of $0.91 per share, all of which options are presently exercisable, and
(ii) 132,118 shares which Mr. Kline has the right to acquire within 60 days
of the date of this table by exercise of stock options vested pursuant to
the Company's 1994 Plan. Also includes 17,241 shares over which Mr. Kline
exercises the right to vote but which are otherwise held beneficially by an
individual who is neither an employee nor an affiliate of the Company. Does
not include options to purchase 122,233 shares of Common Stock issued under
the 1994 Plan with exercise prices in excess of the per Share Merger
Consideration and which will be canceled upon occurrence of the Merger.
(7) Includes options to purchase 5,000 shares of Common Stock for each of
Messrs. Simpson, Alexander and Roach, respectively, issued under the
Outside Director Plan. Does not include options to purchase 20,000, 15,000
and 5,000 shares of Common Stock issued to Messrs. Simpson, Alexander and
Roach, respectively, under the Outside Director Plan with exercise prices
in excess of the per Share Merger Consideration and which will be canceled
upon occurrence of the Merger.
(8) Includes 9,500 shares which Mr. Simpson owns beneficially as a trustee.
(9) Includes options to purchase 36,224 shares of Common Stock issued under the
1994 Plan. Does not include options to purchase 12,800 shares of Common
Stock issued to Mr. Case under the 1994 Plan, with exercise prices in
excess of the per Share Merger Consideration and which will be canceled
upon occurrence of the Merger.
(10) Includes options to purchase 12,000 shares of Common Stock issued under the
1994 Plan. Does not include options to purchase 4,000 shares of Common
Stock issued to Mr. O'Donovan under the 1994 Plan with exercise prices in
excess of the per Share Merger Consideration and which will be canceled
upon occurrence of the Merger.
(11) Includes beneficial ownership of an aggregate of 385,613 shares of Common
Stock subject to options granted pursuant to the Outside Director Plan and
the 1994 Plan, as well as the options granted to Messrs. Ramsbottom and
Kline by certain stockholders of the Company, all of which are exercisable
within 60 days of the date of this table. Excludes beneficial ownership of
Mr. Ferguson in relation to shares owned by Chase Ventures.
A-5
<PAGE> 27
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer during the fiscal year ended September 30, 1996 (Mr.
Ramsbottom) and the four other executive officers of the Company who earned more
than $100,000 (salary and bonus) (the "Named Executive Officers") for all
services rendered in all capacities to the Company during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------- ----------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(#) COMPENSATION(#)
--------------------------- ------ ------ ----- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mortimer A. Kline, III(2)....... 1996 $235,000 $ -- $ -- -- --
(Chief Executive Officer, 1995 232,500 50,000 185,934(3) 122,233 --
President and Chairman 1994 226,305 55,000 -- 100,000 --
of the Board)
D. Hunt Ramsbottom, Jr.(2)(4)... 1996 235,000 -- -- -- --
1995 232,500 50,000 185,934(3) 122,233 --
1994 226,305 55,000 -- 100,000 --
Thomas E. Case.................. 1996 125,000 17,000 -- -- --
(Executive Vice President 1995 125,000 25,000 -- 12,800 --
and General Manager, 1994 129,327 35,000 -- 26,224 --
California Division)
Michael O'Donovan............... 1996 92,307 16,000 -- -- --
(Chief Financial Officer) 1995 69,230 12,000 -- 4,000 --
1994 -- -- -- -- --
</TABLE>
- ------------------------
(1) With respect to each of the executive officers named in the table, the
aggregate amount of perquisites and other personal benefits, securities or
property received was less than either $50,000 or 10% of the total annual
salary and bonus reported for such executive officer.
(2) In termination of a Securities Purchase and Sale Agreement entered into in
1989, in June 1994 WCP transferred 19,131 shares of Common Stock to each of
Messrs. Ramsbottom and Kline.
(3) Represents the excess of the fair market value of securities purchased from
the Company in May 1995 over the price paid for such securities.
(4) Mr. Ramsbottom resigned as Chief Executive Officer in November 1996 and as
an executive officer of the Company effective January 1, 1997.
OPTION GRANTS IN THE FISCAL YEAR SEPTEMBER 30, 1996
During the fiscal year ended September 30, 1996, none of the Named
Executive Officers received any awards under any long-term incentive plan.
Additionally, none of the Named Executive Officers exercised any stock options
during the fiscal year ended September 30, 1996 and the Company does not have a
pension plan. Accordingly, the following tables are omitted: "Aggregated Option
Exercise Table," "Long-Term Incentive Plan Awards Table" and "Pension Plan
Table."
OTHER OPTION ARRANGEMENTS
Each of Messrs. Ramsbottom and Kline has a presently exercisable option to
acquire an aggregate of 48,139 shares of Common Stock from Chase Ventures and
WCP at a purchase price of $0.91 per share. These options were granted on June
29, 1994, and the Company has not, and will not, incur any obligation in
connection with such arrangements.
A-6
<PAGE> 28
EMPLOYMENT CONTRACTS; INCENTIVE COMPENSATION PROGRAM
The Company has entered into an employment agreement (the "Employment
Agreement"), dated as of October 14, 1993, as amended, with Mortimer A. Kline,
III, pursuant to which Mr. Kline agreed to serve as President of the Company. On
November 20, 1996, he was named to the additional positions of Chairman of the
Board and Chief Executive Officer. Mr. Kline will receive such compensation,
non-monetary perquisites and benefits as determined from time-to-time by the
Board of Directors of the Company. The term of employment pursuant to the
Employment Agreement is on a month-to-month basis until terminated. Upon any
termination of employment of Mr. Kline by the Company other than for "cause" (as
defined), he will have the right to receive from the Company for the next twelve
months after such termination all salary, nonmonetary perquisites and other
benefits received by him for the twelve months immediately preceding such
termination.
The Executive Officers have entered into severance agreements as described
in the attached Schedule 14D-9.
The Compensation Committee also administers an incentive compensation
program pursuant to which certain eligible senior executives of the Company may
receive bonus compensation. The Compensation Committee establishes from time to
time objectives to be utilized in its evaluation which, presently, are based on
(i) earnings growth, (ii) revenue growth, (iii) return on capital and (iv) in
the Compensation Committee's discretion, the attainment of non-financial
objectives. The award of bonuses under this program is fully within the
discretion of the Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the Compensation Committee of the Board of Directors of
the Company consisted of Frank C. Alexander, David L. Ferguson, John D. Roach
and Louis A. Simpson, none of whom (i) is a present or former officer or
employee of the Company or any of its subsidiaries or (ii) engaged in any
transactions described under "Certain Transactions" in the Proxy Statement and
Notice of Annual Meeting, although Chase Ventures, an affiliate of Mr. Ferguson,
has engaged in certain financing transactions with the Company in prior years.
The Company has entered into the Severance Agreements with its Executive
Officers, which provide for cash payments and continued medical insurance
coverage upon the termination of each such Executive Officer's employment within
a specified period of time following a "Change of Control," as such term is
defined in the Severance Agreements. For purposes of the Severance Agreements,
consummation of the Offer will constitute a Change of Control. See "Severance
Agreements" under Item 3(b)(1) in the attached Schedule 14D-9.
By operation of the 1994 Plan and the Company's Stock Option Plan for
Outside Directors, the vesting of all options granted thereunder will, without
any action by the Company, be accelerated in connection with the consummation of
the Merger and thereby all such options will become exercisable regardless of
the vesting schedule contained in any option agreement or in either plan and
will be canceled at the Effective Time. Upon cancellation, each holder of any
such option will be entitled to receive an amount in cash (subject to any
applicable withholding taxes) equal to the product of (a) the total number of
Shares then subject to each such option with an exercise price less than the per
Share Merger Consideration and (b) the excess of the per Share Merger
Consideration over the exercise price per Share.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
General. The Company's executive compensation program is administered by
the Compensation Committee of the Board of Directors (the "Committee"). During
fiscal 1996, the Committee was composed of Frank C. Alexander, David L.
Ferguson, John D. Roach and Louis A. Simpson, each of whom was an independent
non-employee director of the Company.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a federal income tax deduction to any publicly-held corporation for
compensation paid to the chief executive officer and the
A-7
<PAGE> 29
four most highly compensated executive officers to the extent that such
compensation in a taxable year exceeds $1,000,000. Section 162(m) does not,
however, disallow a deduction for qualified "performance based compensation" and
such compensation would be deductible. The Company has structured the 1994 Plan
in such a manner that the remuneration attributable to stock options granted
thereunder should not be subject to the $1,000,000 limitation. The Committee
intends generally to design executive compensation programs that conform with
the requirements of Section 162(m), although the Company's Incentive
Compensation Plan for Senior Executives does not satisfy such requirements.
Nonetheless, the Committee does not expect that Section 162(m) will limit the
ability of the Company to deduct any compensation expense for federal income tax
purposes in the immediate future.
Compensation Philosophy. The Company's executive compensation program is
designed to (i) attract and retain qualified executives and to reward them for
superior performance in achieving the Company's business goals and enhancing
stockholder value and (ii) provide incentives for creation of long-term
stockholder value and align management's interests with those of the
stockholders. The key elements of executive compensation are base salary, annual
performance bonus and stock options. The Committee reviews and approves policies
and practices relating to executive compensation including (i) base salary
levels, (ii) incentive compensation plans and related performance objectives and
awards and (iii) long-term incentives, principally stock option awards.
Base Salaries. Base salaries for executive officers are set at levels which
reflect base salaries for positions of similar responsibility at other public
companies and also take into account the unique talents and skills which may be
required in particular positions. Base salaries are adjusted annually to account
for such factors as individual past performance, changes in responsibilities,
changes in competitive pay levels and inflation. These conclusions have
generally been reached by the Committee on a subjective basis. In addition, the
Committee has from time to time, as it deemed appropriate, referred to outside
survey data and consulted with independent compensation specialists in
evaluating the Company's executive officer base salary levels. Aspects of the
compensation payable to certain executive officers of the Company (including Mr.
Kline) are also governed by employment contracts with such persons. See "--
Employment Contracts; Incentive Compensation Program."
During fiscal 1996, the Chief Executive Officer, Mr. Ramsbottom, and Mr.
Kline, were each paid a yearly base compensation of $235,000, the same base
salary as the prior year. Effective November 20, 1996, Mr. Kline's base salary
was increased to $250,000 per annum in conjunction with being named Chairman of
the Board and Chief Executive Officer of the Company. This increase reflects,
among other things, the increased responsibility as the senior officer of the
Company as it continues to grow. During the current fiscal year, revenues of the
Company were $178 million, a 35% increase over the prior year. The determination
of base salary for Mr. Kline involves subjectivity on the part of the Committee,
however considerable weight is given by the Committee to the vision and unique
abilities believed possessed by him.
Incentive Compensation Plan. The Committee administers the Company's
Incentive Compensation Plan for Senior Executives (the "Incentive Plan"),
pursuant to which the Committee determines the amount of incentive compensation
payable upon attainment of specified Company performance objectives, subject to
the discretion of the Committee. Incentive compensation opportunities, which are
limited to a maximum of 100% of an executive's base salary, are set by the
Committee for each eligible executive, taking into account the executive's level
of responsibility and ability to affect overall Company financial performance.
The performance objectives, which are measures believed by the Committee to have
the greatest positive effect on the Company's stockholder value, are: (i)
earnings growth, (ii) revenue growth and (iii) return on invested capital. The
incentive opportunity available to be earned by an eligible executive under the
Incentive Plan is a specified percentage of the executive's base salary as of
the end of the fiscal year. To the extent the Company's performance against the
objectives meets or exceeds certain threshold levels, an incentive bonus is
earned by the executive. Accordingly, an executive's incentive compensation
correlates to the Company's actual performance within a given range of financial
performance objectives. The Committee may also adjust an incentive bonus, in the
Committee's discretion, based on the achievement of non-financial objectives.
For fiscal year 1996 the Company did not accrue bonuses for either of
Messrs. Ramsbottom or Kline.
A-8
<PAGE> 30
Long-Term Incentives. The Company uses stock option grants to provide
additional incentives for creation of, and increase in, long-term stockholder
value and to link management and stockholder interests. From the Company's
initial public offering in November 1994 through the end of fiscal 1996, the
Committee has awarded to the Company's Named Executive Officers options to
purchase 548,690 shares of the Company's common stock pursuant to the 1994 Plan,
of which options on 222,333 shares were awarded to each of Messrs. Ramsbottom
and Kline.
The Committee administers the 1994 Plan and is responsible for determining,
among other things, eligibility to participate, the terms of the options and the
number of shares subject to option grants. Option grants to executives in fiscal
1996 are based primarily on assessment of the contribution by each executive to
the Company's success, as well as such executive's prospects for the future and
value to the Company, and also take into account the amount of options or stock
already owned by the executive. There were no option awards to Messrs.
Ramsbottom and Kline in fiscal 1996.
<TABLE>
<S> <C> <C>
December 30, 1996
Frank C. Alexander John D. Roach
David L. Ferguson Louis A. Simpson
</TABLE>
STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return on its Common Stock (no dividends have been paid thereon) with the
cumulative total return, assuming reinvestment of dividends, of (i) the Center
for Research in Security Prices ("CRSP") Index for Nasdaq Stock Market (US
companies) and (ii) the CRSP Index for the Nasdaq Stock Market -- Nonfinancial
Companies. The presentation assumes $100 was invested on November 8, 1994 (the
date the Common Stock commenced trading on the Nasdaq National Market). The
lines shown present quarterly index levels derived from daily returns that
include all dividends.
The historical stock price performance of the Common Stock shown on the
Stock Performance Graph set forth below is not necessarily indicative of future
stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
NASDAQ - NON-
MEASUREMENT PERIOD NASDAQ - US FINANCIAL
(FISCAL YEAR COVERED) THOMPSON COMPANIES COMPANIES
<S> <C> <C> <C>
11/7/94 100 100 100
DEC-94 122 99 99
MAR-95 132 106 109
JUN-95 150 123 125
SEP-95 156 136 139
DEC-95 127 140 138
MAR-96 120 149 145
JUN-96 109 168 158
SEP-96 91 164 162
</TABLE>
A-9
<PAGE> 31
COMPLIANCE WITH SECTION 16(A) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities ("Insiders"), to file with the
Commission initial reports of changes in ownership of Common Stock. Insiders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) reports filed by such persons.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company, during the fiscal year ended September
30, 1996 all Section 16(a) filing requirements applicable to Insiders were
complied with.
A-10
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE STOCK PURCHASE RIGHTS ASSOCIATED THEREWITH)
OF
THOMPSON PBE, INC.
AT
$8.00 NET PER SHARE
BY
FMST ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
FINISHMASTER, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, NOVEMBER 18, 1997, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES OF COMMON STOCK, INCLUDING THE STOCK PURCHASE RIGHTS ASSOCIATED THEREWITH
(COLLECTIVELY, THE "SHARES"), THAT WOULD REPRESENT AT LEAST A MAJORITY OF ALL
OUTSTANDING SHARES ON A FULLY DILUTED BASIS, (B) THE EXPIRATION OR TERMINATION
OF ANY APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT OF 1976, AS AMENDED, AND (C) THE SATISFACTION OF CERTAIN OTHER
TERMS AND CONDITIONS.
THE BOARD OF DIRECTORS OF THOMPSON PBE, INC. (THE "COMPANY") UNANIMOUSLY
(A) APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT, (B) DETERMINED THAT
THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS, AND (C) RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES.
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (a) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required by
Instruction 1 to the Letter of Transmittal and mail or deliver the Letter of
Transmittal or such facsimile together with the certificate(s) representing
tendered Shares and all other required documents to the Depositary, or tender
such Shares pursuant to the procedure for book-entry transfer set forth in
Section 2 of this Offer to Purchase or (b) request such stockholder's broker,
dealer, commercial bank, trust company or other nominee to effect the
transaction for such stockholder. Stockholders having Shares registered in the
name of a broker, dealer, commercial bank, trust company or other nominee must
contact such broker, dealer, commercial bank, trust company or other nominee if
they desire to tender their Shares.
Stockholders who desire to tender Shares and whose certificates for such
Shares are not immediately available, or who cannot comply in a timely manner
with the procedure for book-entry transfer, or who cannot deliver all required
documents to the Depositary prior to the expiration of the Offer, may tender
such Shares by following the procedure for guaranteed delivery set forth in
Section 2 of this Offer to Purchase.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed on the back cover of this Offer to Purchase. Requests for copies of the
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery
and other tender offer materials may be directed to the Information Agent, and
copies will be furnished promptly at the Purchaser's expense.
------------------------
The Dealer Manager for the Offer is:
SMITH BARNEY INC.
October 21, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 1
THE TENDER OFFER
1. Terms of the Offer...................................... 2
2. Procedure for Tendering Shares.......................... 4
3. Withdrawal Rights....................................... 6
4. Acceptance for Payment and Payment...................... 7
5. Certain United States Federal Income Tax Consequences... 8
6. Price Range of the Shares; Dividends on the Shares...... 9
7. Effect of the Offer on the Market for the Shares; Stock
Exchange Listing; Registration Under the Exchange Act... 9
8. Certain Information Concerning the Company.............. 10
9. Certain Information Concerning Purchaser and Parent..... 13
10. Source and Amount of Funds.............................. 15
11. Contacts with the Company; Background of the Offer...... 17
12. Purpose of the Offer and the Merger Agreement; Plans for
the Company............................................... 20
13. Dividends and Distributions............................. 29
14. Certain Conditions of the Offer......................... 29
15. Certain Legal Matters; Regulatory Approvals............. 30
16. Fees and Expenses....................................... 32
17. Miscellaneous........................................... 33
Annex I -- Certain Information Concerning the Directors and
Executive Officers of Parent, Purchaser and
Controlling Persons
Annex II -- Section 262 of the General Corporation Law of
the State of Delaware
</TABLE>
i
<PAGE> 3
TO THE HOLDERS OF COMMON STOCK OF THOMPSON PBE, INC.:
INTRODUCTION
FMST Acquisition Corporation, a Delaware corporation ("Purchaser") and a
wholly owned subsidiary of FinishMaster, Inc., an Indiana corporation
("Parent"), hereby offers to purchase all outstanding shares of Common Stock,
par value $.001 per share, of Thompson PBE, Inc., a Delaware corporation (the
"Company"), including the stock purchase rights associated therewith issued
pursuant to the Rights Agreement, dated as of May 6, 1997, between the Company
and ChaseMellon Shareholder Services, L.L.C. (collectively, the "Shares"), at
$8.00 per Share, net to the seller in cash (the "Offer Price"), without
interest, upon the terms and subject to the conditions set forth in this Offer
to Purchase and in the related Letter of Transmittal (which, together with any
amendments or supplements hereto or thereto, collectively constitute the
"Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. Purchaser will pay all fees and expenses of Smith Barney
Inc. ("Smith Barney"), which is acting as the Dealer Manager (the "Dealer
Manager"), First Chicago Trust Company of New York, which is acting as the
Depositary (the "Depositary"), and Morrow & Co., Inc., which is acting as
Information Agent (the "Information Agent"), incurred in connection with the
Offer. See Section 16.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY (A) APPROVED THE OFFER,
THE MERGER AND THE MERGER AGREEMENT, (B) DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, AND (C) RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER
THEIR SHARES.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION
1) THAT NUMBER OF SHARES WHICH REPRESENTS AT LEAST A MAJORITY OF THE NUMBER OF
SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"). SEE
SECTIONS 1, 14 AND 15.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), the Company's
financial advisor, has delivered to the Board of Directors of the Company its
written opinion, dated October 14, 1997, to the effect that, as of the date of
such opinion and based on certain matters considered relevant by DLJ, the
consideration to be received by the holders of the Shares pursuant to each of
the Offer and the Merger was fair to such holders from a financial point of
view. The full text of such opinion which sets forth the procedures followed,
assumptions and qualifications made, matters considered and the limitations
thereof, is attached to the Company's Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders of
the Company herewith. Stockholders are urged to read such opinion in its
entirety.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of October 14, 1997 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company, pursuant to which, following the consummation of the Offer and
the satisfaction or waiver of certain conditions, Purchaser will be merged with
and into the Company, with the Company surviving the merger (as such, the
"Surviving Corporation") as a wholly owned subsidiary of Parent (the "Merger").
In the Merger, each Share issued and outstanding immediately prior to the
Effective Time as defined below (other than Shares held by Parent, Purchaser or
any other wholly owned subsidiary of Parent, or in the treasury of the Company
or by any wholly owned subsidiary of the Company, all of which shall be
cancelled, and the Shares pursuant to which statutory appraisal rights have been
validly exercised (as described in Section 12 hereof)) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive an amount in cash equal to the highest price per share
which may be paid pursuant to the Offer (the "Merger Consideration"), subject to
applicable withholding or back-up withholding taxes, if any, payable by the
holder thereof, without interest thereon, upon surrender of the certificate(s)
formerly representing such Shares. See Section 12. "Effective Time" means the
time of acceptance for filing by the Delaware Secretary of State of a
certificate of merger in
1
<PAGE> 4
the form required, and executed in accordance with, the relevant provisions of
the Delaware General Corporation Law (the "DGCL") and such other documents as
may be required by the DGCL.
The Merger is subject to a number of conditions, including approval by
stockholders of the Company, if such approval is required by applicable law. In
the event Purchaser acquires 90% or more of the outstanding Shares pursuant to
the Offer or otherwise, Purchaser would be able to, and intends to, effect the
Merger pursuant to the short-form merger provisions of Section 253 of the DGCL,
without prior notice to, or any action by, any other stockholder of the Company.
See Section 12.
The Company has informed Parent and Purchaser that, as of October 14, 1997,
there were (a) 8,645,084 Shares issued and outstanding (excluding shares held in
treasury), (b) no shares of preferred stock issued and outstanding, (c) 712,343
Shares subject to options (the "Stock Options") pursuant to the Company's 1994
Stock Option Plan and the Company's Stock Option Plan for Outside Directors
(collectively, the "Stock Option Plans"), (d) 47,806 Shares subject to the
Common Stock Purchase Warrant issued April 7, 1994 to Chase Venture Capital
Associates, L.P. (the "CVCA Warrants"), (e) 170,000 Shares subject to the
Warrant Certificate, issued January 1, 1997, to SEV Corporation pursuant to the
Warrant Agreement dated as of May 31, 1995 (the "SEV Warrants"), and (f) Shares
issuable pursuant to the conversion rights contained in the Non-Negotiable
Adjusted Convertible Promissory Note Subject to Right of Set-Off in the original
principal amount of $2,125,000 issued April 18, 1996 to Jerry W. Smith (the "APS
Note"). Accordingly, Purchaser believes that the Minimum Condition (as defined
in Section 14) will be satisfied, based on the foregoing assumptions, if
approximately 4,837,987 shares are validly tendered and not withdrawn prior to
the Expiration Date (as defined herein). If the Minimum Condition is satisfied
and Purchaser accepts for payment Shares tendered pursuant to the Offer,
Purchaser will be able to, and intends to, elect a majority of the members of
the Company's Board of Directors and to effect the Merger without the
affirmative vote of any other stockholder of the Company.
The Merger Agreement is more fully described in Section 12. Certain United
States federal income tax consequences of the sale of Shares pursuant to the
Offer and the exchange of Shares for the Merger Consideration pursuant to the
Merger are described in Section 5.
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.
THE TENDER OFFER
1. TERMS OF THE OFFER
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 extension or
amendment), Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date and not withdrawn in accordance with
Section 3. The term "Expiration Date" means 12:00 Midnight, New York City time,
on Tuesday, November 18, 1997, unless and until Purchaser shall have extended
the period of time during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by Purchaser, shall expire. UNDER NO CIRCUMSTANCES WILL ANY INTEREST BE
PAID ON THE OFFER PRICE FOR TENDERED SHARES, REGARDLESS OF ANY EXTENSION OF THE
OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The Offer is subject to certain conditions set forth in Section 14,
including satisfaction of the Minimum Condition and the expiration or
termination of the waiting period applicable to Purchaser's acquisition of
Shares pursuant to the Offer under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). If any such condition is not satisfied
Purchaser may, subject to the terms of the Merger Agreement, (a) terminate the
Offer and return all tendered Shares to tendering stockholders, (b) extend the
Offer and, subject to withdrawal rights as set forth in Section 3, retain all
such Shares until the expiration of the Offer as so extended, (c) waive such
condition and, subject to any requirements to extend the period of time during
which the Offer is open, purchase all Shares validly tendered by the Expiration
Date and not properly withdrawn or (d) delay acceptance for payment of, or
payment for, Shares, subject to applicable law,
2
<PAGE> 5
until satisfaction or waiver of the conditions to the Offer and subject to the
right of Purchaser to extend the Offer as set forth below and in Section 12.
Purchaser has agreed that, without the prior express written consent of the
Company, Purchaser will not (i) decrease the price per Share or the number of
Shares for which the Offer is made, (ii) extend the expiration date of the Offer
except as set forth in Sections 12 and 14, (iii) change the form of
consideration payable in the Offer, (iv) impose conditions to the Offer in
addition to or in modification of those set forth in Section 14, (v) waive or
increase the Minimum Condition as set forth in Section 14, or (vi) otherwise
amend any other term of the Offer in any manner which adversely affects the
rights of the holders of Shares. Pursuant to the Merger Agreement, Purchaser has
agreed, subject to the conditions in Section 14 and its rights under the Offer,
to accept for payment Shares validly tendered and not properly withdrawn as
promptly as practicable following the satisfaction or waiver of the conditions
specified in Section 14. For a description of Purchaser's right or obligation to
extend the period of time during which the Offer is open, and to amend, delay or
terminate the Offer, see Sections 12 and 14.
Any extension, waiver, amendment or termination of the Offer will be
followed as promptly as practicable by public announcement thereof. In the case
of an extension, Rule 14e-1(d) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires that the announcement be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which Purchaser may choose to make
any public announcement, Purchaser will not have any obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service and making any appropriate
filing with the Securities and Exchange Commission (the "Commission").
If Purchaser extends the Offer or if Purchaser (whether before or after its
acceptance for payment of Shares) is delayed in its acceptance for payment of or
payment for Shares, or it is unable to pay for Shares pursuant to the Offer for
any reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of Purchaser, and such Shares
may not be withdrawn except to the extent tendering stockholders are entitled to
withdrawal rights as described in Section 3. The ability of Purchaser to delay
the payment for Shares that Purchaser has accepted for payment is limited,
however, by Rule 14e-1 under the Exchange Act, which requires that a bidder pay
the consideration offered or return the securities deposited by or on behalf of
holders of securities promptly after the termination or withdrawal of such
bidder's offer.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including a waiver of the Minimum Condition), Purchaser will disseminate
additional tender offer materials and extend the Offer to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act or otherwise. The
minimum period during which an offer must remain open following material changes
in the terms of the Offer or information concerning the Offer, other than a
change in price or a change in the percentage of securities sought, will depend
upon the facts and circumstances then existing, including the relative
materiality of the changed terms or information. With respect to a change in
price or a change in the percentage of securities sought, a minimum period of
ten business days is generally required to allow for adequate dissemination to
stockholders. If prior to the Expiration Date, Purchaser should decide to
increase the price per share being offered in the Offer, such increase will be
applicable to all stockholders whose shares are accepted for payment pursuant to
the Offer. As used in this Offer to Purchase, "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 midnight, New York City time as computed in
accordance with Rule 14d-1 under the Exchange Act.
The Company has provided Purchaser with the Company's stockholder lists and
security position listings for the purpose of disseminating the Offer to holders
of the Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed by Purchaser to record holders of Shares
and will be furnished by Purchaser to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder lists or, if applicable, who are listed as
3
<PAGE> 6
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
2. PROCEDURE FOR TENDERING SHARES
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof), together with any required signature
guarantees, or an Agent's Message (as defined herein) in connection with a
book-entry delivery of Shares, 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 prior to the Expiration Date,
or the tendering stockholder must comply with the guaranteed delivery procedure
set forth below. Additionally, either (a) certificates for such tendered Shares
must be received by the Depositary along with the Letter of Transmittal or such
Shares must be delivered pursuant to the procedure for book-entry transfer set
forth below (and a Book-Entry Confirmation (as defined below) received by the
Depositary), in each case prior to the Expiration Date, or (b) the guaranteed
delivery procedures set forth below must be complied with.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company and Philadelphia Depository Trust Company (the
"Book-Entry Transfer Facilities") for purposes of the Offer within two business
days after the date of this Offer. Any financial institution that is a
participant in any of the Book-Entry Transfer Facilities' systems may make
book-entry delivery of Shares by causing a Book-Entry Transfer Facility to
transfer such Shares into the Depositary's account in accordance with such
Book-Entry Transfer Facility's procedures for such transfer. However, although
delivery of Shares may be effected through book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility, the Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or an Agent's Message in
connection with a book-entry transfer, and any other required documents, must,
in any case, be transmitted to, and 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. The confirmation of a book-entry transfer of
Shares into the Depositary's account at a Book-Entry Transfer Facility as
described above is referred to herein as a "Book-Entry Confirmation." No
alternative, conditional or contingent tenders will be accepted. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY
TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED 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.
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 Purchaser may enforce such agreement
against such participant.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (a) the Letter of Transmittal is signed by the registered holder
of Shares (which term, for purposes of this Section, includes any participant in
any of the Book-Entry Transfer Facilities' systems whose name appears on a
security position listing as the owner of the Shares) tendered therewith and
such registered holder has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on the
Letter of Transmittal or (b) such Shares are tendered for the account of a firm
that is a member of a
4
<PAGE> 7
registered national securities exchange or of the National Association of
Securities Dealers, Inc. (the "NASD"), or a commercial bank, trust company or
savings institution having an office or correspondent in the United States
(each, an "Eligible Institution"). In all other cases, all signatures on the
Letters of Transmittal must be guaranteed by a recognized member of a Medallion
Signature Guarantee Program or by an Eligible Institution. See Instructions 1
and 5 to the Letter of Transmittal. If the certificates for Shares are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or certificates for Shares not tendered
or not accepted for payment are to be issued to a person other than the
registered holder of the certificates surrendered, the tendered certificates
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name or names of the registered holders or owners appear
on the certificates, with the signatures on the certificates or stock powers
guaranteed as specified above. See Instruction 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available, the procedure for book-entry transfer cannot be completed on a timely
basis or time will not permit all required documents to reach the Depositary
prior to the Expiration Date, such stockholder's tender may be effected if all
the following conditions are met:
(a) such tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary, as provided below, prior to the Expiration
Date; and
(c) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof), with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message)
and any other documents required by the Letter of Transmittal, are received
by the Depositary within three trading days after the date of execution of
such Notice of Guaranteed Delivery. A "trading day" is any day on which the
New York Stock Exchange, Inc. (the "NYSE") is open for business.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by telegram, facsimile transmission or mail, to the Depositary and must include
a guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (b) a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), with
any required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message and (c) any other documents required by the Letter of
Transmittal. Accordingly, tendering stockholders may be paid at different times
depending upon when certificates for Shares or Book-Entry Confirmations are
actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE
PAID ON THE PURCHASE PRICE FOR THE SHARES TO BE PAID BY PURCHASER, REGARDLESS OF
ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering stockholder and
Purchaser upon the terms and subject to the conditions of the Offer.
Appointment. By executing a Letter of Transmittal as set forth above, the
tendering stockholder irrevocably appoints designees of Purchaser as such
stockholder's attorneys-in-fact and proxies in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full extent
of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by Purchaser and with respect to any and
all other Shares or other securities or rights issued or issuable in respect of
such Shares on or after October 14, 1997. All such proxies shall be considered
coupled with an interest in the tendered Shares. Such appointment will be
effective when, and only to the extent that, Purchaser accepts
5
<PAGE> 8
for payment Shares tendered by such stockholder as provided herein. Upon such
acceptance for payment, all prior powers of attorney and proxies given by such
stockholder with respect to such Shares or other securities or rights will,
without further action, be revoked and no subsequent powers of attorney and
proxies may be given (and, if given, will not be deemed effective). The
designees of Purchaser will thereby be empowered to exercise voting and other
rights with respect to such Shares or other securities or rights in respect of
any annual, special or adjourned meeting of the Company's stockholders, or
otherwise, as they in their sole discretion deem proper. Purchaser reserves the
right to require that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's acceptance for payment of such Shares, Purchaser
must be able to exercise voting and other rights with respect to such Shares and
other securities or rights, including voting at any meeting of stockholders then
scheduled.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by Purchaser in its sole discretion, which determination will
be final and binding. Purchaser reserves the absolute right to reject any or all
tenders determined by it not to be in proper form or the acceptance for payment
of or payment for which may, in the opinion of Purchaser's counsel, be unlawful.
Purchaser also reserves the absolute right to waive any defect or irregularity
in any tender with respect to any particular Shares, whether or not similar
defects or irregularities are waived with respect to other Shares. No tender of
Shares will be deemed to have been validly made until all defects or
irregularities relating thereto have been cured or waived. None of Purchaser,
Parent, the Depositary, the Dealer Manager, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
Backup Federal Income Tax Withholding. To prevent backup federal income tax
withholding on payments of cash pursuant to the Offer, each stockholder
surrendering Shares in the Offer must provide the Depositary with such
stockholder's correct taxpayer identification number ("TIN") on a Substitute
Form W-9 and certify that such TIN is correct and that such stockholder is not
subject to backup federal income tax withholding. Certain stockholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup federal income tax withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service ("IRS") may impose
a penalty on such stockholder and payment of cash to such stockholder pursuant
to the Offer may be subject to backup withholding of 31%. All stockholders
surrendering Shares pursuant to the Offer should complete and sign the main
signature box and the Substitute Form W-9 included as part of the Letter of
Transmittal to provide the information and certification necessary to avoid
backup federal income tax withholding (unless an applicable exemption exists and
is proved in a manner satisfactory to Purchaser and the Depositary).
Non-corporate foreign stockholders should complete and sign the main signature
box and a Form W-8, Certificate of Foreign Status, a copy of which may be
obtained from the Depositary, in order to avoid backup federal income tax
withholding. See Section 5 of this Offer to Purchase and Instruction 11 to the
Letter of Transmittal.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn pursuant to the procedures set forth below at any time prior to the
Expiration Date and, unless theretofore accepted for payment and paid for by
Purchaser pursuant to the Offer, may also be withdrawn at any time after
December 19, 1997.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name of the registered holder of
the Shares to be withdrawn, if different from the name of the person who
tendered the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an
6
<PAGE> 9
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed in a manner required by Section 2 hereof. Withdrawals of tenders of
Shares may not be rescinded, and any Shares properly withdrawn will thereafter
be deemed not validly tendered for any purposes of the Offer. However, withdrawn
Shares may be retendered by again following one of the procedures described in
Section 2 at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser in its sole discretion,
which determination will be final and binding. None of Purchaser, Parent, the
Depositary, the Dealer Manager, 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 will incur any liability for failure to give any such
notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT
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), Purchaser will accept for payment and will pay for all Shares
validly tendered prior to the Expiration Date and not properly withdrawn in
accordance with Section 3 as soon as practicable after the Expiration Date and
the satisfaction or waiver of the conditions described in Section 14 hereof. For
a description of Purchaser's right to terminate the Offer and not accept for
payment or pay for Shares or to delay acceptance for payment or payment for
Shares, see Sections 12 and 14.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (a) certificates
evidencing such Shares (or timely Book-Entry Confirmation of a transfer of such
Shares as described in Section 2), (b) the Letter of Transmittal (or a manually
signed 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) and (c) any other documents required by the Letter of
Transmittal. The per Share consideration paid to any stockholder pursuant to the
Offer will be the highest per Share consideration paid to any other stockholder
pursuant to the Offer.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to Purchaser and not
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares. 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 payment from Purchaser and
transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE FOR THE SHARES TO BE PAID BY PURCHASER,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
If Purchaser is delayed in its acceptance for payment of, or payment for,
tendered Shares or is unable to accept for payment or pay for such Shares
pursuant to the Offer for any reason, then, without prejudice to Purchaser's
rights under the Offer (but subject to compliance with Rule 14e-1(c) under the
Exchange Act, which requires that a tender offeror pay the consideration offered
or return the tendered securities promptly after the termination or withdrawal
of a tender offer), the Depositary may, nevertheless, on behalf of Purchaser,
retain tendered Shares, and such Shares may not be withdrawn except to the
extent tendering stockholders are entitled to exercise, and duly exercise,
withdrawal rights as described in Section 3.
If any tendered Shares are not purchased pursuant to the Offer because of
an invalid tender or otherwise, certificates for any such Shares will be
returned, without expense to the tendering stockholder (or, in the case of
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the procedure set forth in
Section 2, such Shares will be credited to an account maintained at the
appropriate Book-Entry Transfer Facility), as promptly as practicable after the
expiration or termination of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to Parent, or to one or more direct or indirect wholly owned
subsidiaries of Parent, the right to purchase Shares tendered
7
<PAGE> 10
pursuant to the Offer, but any such transfer or assignment will not relieve
Purchaser of its obligations under the Offer and will in no way prejudice the
rights of tendering stockholders to receive payment for Shares validly tendered
and accepted for payment pursuant to the Offer.
5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Sales of Shares pursuant to the Offer (and the receipt of the right to
receive cash by stockholders of the Company pursuant to the Merger) will be
taxable transactions for federal income tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code"), and may also be taxable transactions
under applicable state, local, foreign and other tax laws. A tendering
stockholder will generally recognize gain or loss for federal income tax
purposes equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer (or to be received pursuant to the Merger) and
the aggregate tax basis in the Shares tendered by the stockholder and purchased
pursuant to the Offer (or canceled pursuant to the Merger). Gain or loss will be
calculated separately for each block of Shares tendered and purchased pursuant
to the Offer (or canceled pursuant to the Merger).
Under current law, gain or loss from the sale or exchange of property will
be treated as long-term capital gain or loss if the property is deemed to have
been held for more than 18 months. The maximum federal long-term capital gains
rate applicable to an individual is 20%. Gain or loss from the sale or exchange
of stock will be treated as mid-term capital gain if the stock is deemed to have
been held for more than one year but not more than 18 months. The maximum
federal mid-term capital gains rate for an individual is 28%. Any gain or loss
other than long-term or mid-term capital gain or loss will be treated as
short-term capital gain or loss. The maximum federal tax rate applicable to
ordinary income (including dividends and short-term capital gains) recognized by
individuals is 39.6%. The maximum federal tax rate applicable to all capital
gains and ordinary income recognized by a corporation is 35%.
A stockholder (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals) that tenders Shares
may be subject to 31% backup withholding unless the stockholder provides its TIN
and certifies that such number is correct or properly certifies that it is
awaiting a TIN. A stockholder that does not furnish its TIN may be subject to a
penalty imposed by the IRS. Each stockholder should complete and sign the
Substitute Form W-9 included as part of the Letter of Transmittal so as to
provide the information and certification necessary to avoid backup withholding.
See Section 2.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can be credited
against the federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder upon filing an income tax return.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES
RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS
COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX
TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES,
TAX-EXEMPT ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A
HOLDER OF SHARES IN LIGHT OF ITS INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL
OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE OFFER AND THE MERGER.
8
<PAGE> 11
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES
The Shares are admitted for quotation and traded on the Nasdaq National
Market under the symbol "THOM." The following table sets forth, for each of the
periods indicated, the high and low last reported sales prices per Share as
published in financial sources. The periods set forth below are calendar
quarters.
<TABLE>
<CAPTION>
LOW HIGH
--- ----
<S> <C> <C> <C> <C>
1995
Fourth Quarter...................................... $13 1/2 $20 1/2
1996
First Quarter....................................... $11 5/8 $15 1/4
Second Quarter...................................... $ 9 7/8 $14 1/4
Third Quarter....................................... $ 9 $13
Fourth Quarter...................................... $ 5 3/4 $10 1/2
1997
First Quarter....................................... $ 5 1/8 $ 6 3/4
Second Quarter...................................... $ 2 1/4 $ 6 3/4
Third Quarter....................................... $ 4 5/8 $ 5 7/8
Fourth Quarter (through October 17, 1997)........... $ 5 3/8 $ 7 13/16
</TABLE>
The Company has not paid any cash dividends on the Shares since its
formation. Pursuant to the Merger Agreement, the Company has agreed not to
declare or pay any dividend or distribution on the Shares until the consummation
of the Merger.
On October 14, 1997, the last full day of trading before the public
announcement of the execution of the Merger Agreement, the last reported sales
price of the Shares on the Nasdaq National Market was $6 3/8 per Share. On
October 17, 1997, the last reported sales price of the Shares on the Nasdaq
National Market was $7 3/4 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE SHARES.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK EXCHANGE LISTING;
REGISTRATION UNDER THE EXCHANGE ACT
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and may reduce the number of holders
of Shares, which could adversely affect the liquidity and market value of the
remaining publicly held Shares. Purchaser cannot predict whether the reduction
in the number of Shares that might otherwise trade publicly would have an
adverse or beneficial effect on the market price for or marketability of the
Shares or whether it would cause future market prices to be greater or less than
the Offer Price.
Nasdaq National Market Listing. Depending upon the aggregate market value
and the per Share price of any Shares not purchased pursuant to the Offer,
following the Offer the Shares may no longer meet the standards for continued
inclusion on the Nasdaq National Market, which require an issuer to have at
least 750,000 publicly held shares and net tangible assets of at least
$4,000,000 or at least 1.1 million publicly held shares with a market
capitalization, total assets or total revenue of at least $75 million. Shares
held directly or indirectly by an officer or director of the Company or by any
beneficial owner of more than 10% of the shares are ordinarily not considered as
being publicly held for this purpose. If the Shares were no longer quoted on the
Nasdaq National Market, it is possible that the Shares could continue to trade
in the over-the-counter market and that quotations would continue to be reported
through from other sources. The extent of the public market for the Shares and
the availability of such quotations would, however, depend upon the number of
stockholders and/or the aggregate market value of the Shares remaining at such
time, the interest in maintaining a market in the Shares on the part of
securities firms, the possible termination of registration of the Shares under
the Exchange Act, as described below, and other factors.
9
<PAGE> 12
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause future
market prices to be greater or less than the price in the Offer.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of such Shares. Depending upon
factors similar to those described above regarding listing and market
quotations, following the Offer the Shares might no longer constitute "margin
securities" for the purposes of the Federal Reserve Board's margin regulations
and, therefore, could no longer be used as collateral for loans made by brokers.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Such registration may be terminated upon application of the
Company to the Commission if the Shares are not listed on a national securities
exchange and there are less than 300 holders of record. 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 of the provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section 16(b), the
requirement of furnishing a proxy or information statement in connection with
stockholder action and the related requirement of an annual report to
stockholders and the requirements of Rule 13e-3 under the Exchange Act with
respect to "going private" transactions, no longer applicable to the Shares.
Furthermore, "affiliates" of 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. If registration of the Shares under the Exchange Act were terminated,
the Shares would no longer be "margin securities" or eligible for listing on a
securities exchange or Nasdaq reporting. It is the current intention of Parent
to deregister the Shares after consummation of the Offer if the requirements for
termination of registration are met.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
Except as otherwise set forth herein, the information concerning the
Company contained in this Offer to Purchase, including financial information,
has been furnished by the Company or has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources. Although none of Purchaser, Parent or the Dealer Manager has any
knowledge that would indicate that the statements contained herein based upon
such documents are untrue, none of Purchaser, Parent or the Dealer Manager
assumes any responsibility for the accuracy or completeness of the information
concerning the Company furnished by the Company, or contained in such documents
and records, or for any failure by the Company to disclose events which may have
occurred or which may affect the significance or accuracy of any such
information but which are unknown to Purchaser, Parent or the Dealer Manager.
The Company is a Delaware corporation with its principal executive offices
at 4553 Glencoe Avenue, Suite 200, Marina del Rey, California 90292. According
to the Company's Annual Report on Form 10-K (a "Form 10-K") for the fiscal year
ended September 30, 1996, the Company is an independent aftermarket distributor
of automotive paint and related supplies to the automotive collision repair
industry. As of September 30, 1996, the Company operated 101 distribution sites,
with 39 in the Southeast Division, 20 in the Southern California Division, 11 in
the Northern California Division, 11 in the Rocky Mountain Division, 13 in the
Mid-Atlantic Division and 7 in the Northeast Division.
Set forth below is certain selected consolidated financial information with
respect to the Company and its subsidiaries excerpted or derived from the
information contained in the Company's Form 10-K for the fiscal year ended
September 30, 1996 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 28, 1997 (the "Company's 10-Q"). More comprehensive
financial information is included in such reports and other documents filed by
the Company with the Commission, and the following summary is qualified in its
entirety by reference to such reports and such other documents and all the
financial information (including any related notes) contained therein. Such
reports and other documents should be available for
10
<PAGE> 13
inspection and copies thereof should be obtainable in the manner set forth below
under "Available Information."
THOMPSON PBE, INC.
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER JUNE 30,
------------------- -------------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................. $131,827 $178,139 $128,084 $151,505
Cost of revenues...................................... 82,562 113,210 80,305 97,959
-------- -------- -------- --------
Gross profit.......................................... 49,265 64,929 47,779 53,546
Selling, general and administrative................... 36,996 55,831 37,133 44,067
Depreciation expense.................................. 1,387 1,848 1,345 1,646
Amortization of goodwill and other intangible
assets(1)........................................... 1,679 2,267 1,598 2,206
Interest expense...................................... 2,918 2,600 1,642 3,146
Charge in connection with sale, closure or
consolidation of certain sites...................... 3,616
-------- -------- -------- --------
Income (loss) before income taxes and extraordinary
items............................................... 6,285 2,383 6,061 (1,135)
Provision for income taxes............................ 805 1,310 2,515 606
-------- -------- -------- --------
Income (loss) before extraordinary item............... 5,480 1,073 3,546 (1,741)
Extraordinary item -- early extinguishment of debt.... (445)
-------- -------- -------- --------
Net income (loss)..................................... $ 5,035 $ 1,073 $ 3,546 $ (1,741)
======== ======== ======== ========
HISTORICAL PER SHARE DATA(2):
Income before extraordinary item...................... $ 0.70 $ 0.12 $ 0.40 $ (0.20)
Extraordinary item -- early extinguishment of debt.... $ (0.07)
Net income per share.................................. $ 0.63 $ 0.12 $ 0.40 $ (0.20)
Weighted average common and common equivalent
shares.............................................. 6,317 8,850 8,849 8,656
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................... $ 21,617 $ 30,249 $ 36,261 $ 17,841
Total assets.......................................... 81,908 124,380 119,774 129,064
Long-term debt........................................ 46,084 44,307 42,687 39,118
Stockholders' equity.................................. 16,956 51,234 53,657 49,135
</TABLE>
- -------------------------
(1) Includes amortization of goodwill and covenants not to compete resulting
primarily from the Company's business acquisitions and amortization of debt
issuance costs.
(2) Historical income per share before extraordinary item and historical net
income per share for the fiscal year ended September 30, 1995 have each been
computed assuming a charge of $1,078,000 related to the redemption of the
Company's redeemable stock and dividends accrued thereon. All outstanding
shares of the Company's redeemable stock were redeemed with a portion of the
net proceeds from the Company's November 1994 initial public offering.
PROJECTED FINANCIAL INFORMATION. IN THE COURSE OF DISCUSSIONS BETWEEN
REPRESENTATIVES OF PARENT AND THE COMPANY (SEE SECTION 11), THE COMPANY PROVIDED
PARENT WITH CERTAIN PROJECTED FINANCIAL INFORMATION. SUCH INFORMATION WAS NOT
PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED
GUIDELINES OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS. THE INFORMATION
WAS NOT PREPARED WITH THE ASSISTANCE OF, OR REVIEWED BY, INDEPENDENT
ACCOUNTANTS, AND IS INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE IT WAS
PROVIDED TO PARENT IN JULY 1997. NEITHER PARENT, PURCHASER, THE COMPANY, THE
DEALER MANAGER, NOR ANY OFFICER, DIRECTOR, OR REPRESENTATIVE OF OR ADVISOR TO
ANY SUCH PERSON ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS,
ACCURACY OR COMPLETENESS OF THESE PROJECTIONS. WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, THESE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING
TO THE BUSINESSES OF THE COMPANY THAT MAY NOT BE REALIZED AND ARE SUBJECT TO
SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY AND, THEREFORE, THESE PROJECTIONS ARE INHERENTLY
IMPRECISE, AND THERE CAN BE NO ASSURANCE THAT PROJECTED FINANCIAL RESULTS OR ANY
VALUATION ASSUMED THEREIN WILL BE REALIZED. SET FORTH BELOW IS CERTAIN
CONSOLIDATED
11
<PAGE> 14
FINANCIAL INFORMATION WITH RESPECT TO THE COMPANY AND ITS SUBSIDIARIES INCLUDED
IN THE PROJECTED FINANCIAL INFORMATION SHOWN TO PARENT BY THE COMPANY. THE
INCLUSION OF SUCH PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION
THAT PARENT, PURCHASER, THE COMPANY, THE DEALER MANAGER OR ANY OFFICER,
DIRECTOR, OR REPRESENTATIVES OF OR ADVISOR TO ANY SUCH PERSON OR ANY OTHER PARTY
WHO RECEIVES SUCH INFORMATION CONSIDERS IT AS AN ACCURATE PREDICTION OF FUTURE
EVENTS. THE PROJECTIONS DO NOT TAKE INTO ACCOUNT ANY OF THE POTENTIAL EFFECTS OF
THE TRANSACTIONS CONTEMPLATED BY THE OFFER AND THE MERGER.
THOMPSON PBE, INC.
PROJECTED INCOME STATEMENT INFORMATION
(PREPARED IN JUNE 1997)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1997(1) 1998 1999 2000 2001
------- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues............................................ $197.9 $206.9 $230.9 $265.2 $300.2
Cost of Goods Sold.................................. 127.8 132.4 147.8 169.8 192.2
------ ------ ------ ------ ------
Gross Profit........................................ 70.1 74.5 83.1 95.4 108.0
Selling, General and Administrative................. 54.9 56.9 62.3 71.6 81.1
------ ------ ------ ------ ------
EBITDA......................................... 15.2 17.6 20.8 23.8 26.9
Depreciation and Amortization....................... 5.3 5.4 6.0 6.9 7.8
------ ------ ------ ------ ------
EBIT........................................... $ 9.9 $ 12.2 $ 14.8 $ 16.9 $ 19.1
====== ====== ====== ====== ======
</TABLE>
- -------------------------
(1) Pro forma for $3.0 million in net operating income benefit, of which $1.2
million is assumed to be realized in fiscal 1997, and $0.65 million of
non-recurring expenses.
Discussion of Financial Projections
Sales. Sales are projected to increase from $202.9 million in fiscal 1996
(pro forma) to $300.2 million in fiscal 2001 through acquisitions and increases
in same store sales for 1998 and beyond. Comparable store sales are projected to
decrease in fiscal 1997 as a result of unseasonably mild weather in several of
the Company's major markets and acquisition integration. Revenue from new
acquisitions with annual sales of $9.9 million will offset this decline. Fiscal
year 1998 comparable store sales are projected to be $201.9 million, up 2.0%
from 1997. Sales are estimated assuming that base sales per store increase by
2.0% per year after 1997. Acquisitions with sales of $10 million per year in
1998 are assumed with a sales contribution of $5 million (one half of a year).
Acquisitions of businesses representing $30 million in sales are assumed in 1999
through 2001 spread evenly through each year, resulting in $15 million of sales
contribution per year for the new acquisitions. The Company assumes that
acquisition will be paid for with cash at a price which is consistent with the
average price paid for acquisitions in the past. However, the Company has
historically used debt (usually taken by the seller as part of the proposed
purchase price) to finance a portion of its acquisitions and will continue to
use debt in the future when terms are attractive.
Gross Profit. Gross profit margin for the years 1998 through 2001 is
assumed to be approximately 36.0%. This is an increase from the 35.4% expected
in 1997. 1997's gross profit margin will be below historical and projected
levels due to the Company's focus on reducing inventory and the resultant
reduction of bulk order discounts from paint manufacturers. The Company expects
to complete its inventory rationalization by the end of fiscal 1997 and believes
that its gross margin will rise as the Company returns to historic purchasing
patterns.
Selling, General & Administrative. Base selling, general and administrative
expenses are assumed to decline over time as a percentage of revenue as the
Company leverages its fixed costs over a larger revenue base.
Depreciation and Amortization. The Company expects depreciation to increase
by $400,000 (17%) to $2.7 million in 1998 as the Company's new computer system
and related costs are depreciated over seven years. Amortization will increase
over the period of the projections as the Company records intangible assets
related to acquisitions.
12
<PAGE> 15
Operating Income. Operating income is projected to increase from $9.9
million in fiscal 1997 to $19.1 million in fiscal 2001. The Company has
implemented plans to realize $3.0 million of annualized net operating income
benefit and $0.65 million of non-recurring expenses in fiscal year 1997 and will
reduce recurring operating expenses on a pro forma basis.
Corporate Expenses. In fiscal 1997 it is estimated that corporate expenses,
which are included in selling, general and administrative expenses, will be $6.6
million. Corporate expenses are assumed to rise by inflation over the forecast
period. Below is a table outlining the major components of 1997 annualized
corporate expenses. ($ in millions)
<TABLE>
<S> <C>
Accounting............................................... $3.5
Corporate................................................ 1.8
MIS...................................................... 0.8
Public Company Costs..................................... 0.5
----
Total............................................... $6.6
====
</TABLE>
Capital Expenditures. Capital expenditures, primarily for vehicles and
leasehold improvements, are expected to be $1.7 million in 1997 and are expected
to increase by approximately $0.2 million per year thereafter. These amounts
exclude costs for the Company's new computer system.
Working Capital. Working capital requirements and ratios remain constant
over the period of the projections. However, when the Company acquires a target,
the net working capital of that business is included in the acquisition price.
In addition, the Company is often able to decrease working capital requirements
of new businesses because, as the largest distributor of aftermarket automotive
paint in the U.S., the Company can take advantage of published discounts and
terms which smaller companies may not receive.
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, the principal holders of the Company's
securities and any material interest 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 may be inspected 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 Citicorp
Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661-2511 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of this
material may also be obtained 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 a Web site
on the Internet that contains reports, proxy materials, information statements
and other information regarding issuers that file electronically with the SEC,
including the Company. The address of such site is: http://www.sec.gov.
9. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT
Purchaser, a Delaware corporation and wholly owned subsidiary of Parent,
was organized to acquire the Company and has not conducted any unrelated
activities since its organization. The principal offices of Purchaser are
located at 54 Monument Circle, Indianapolis, Indiana 46204. All outstanding
shares of capital stock of Purchaser are owned by Parent. Until immediately
prior to the time Purchaser purchases shares pursuant to the Offer, it is not
anticipated that Purchaser will have any significant assets or liabilities or
engage in activities other than those incident to its formation and
capitalization and the transactions contemplated by the Offer. Because Purchaser
is a newly formed corporation and has minimal assets and capitalization, no
meaningful financial information regarding Purchaser is available.
13
<PAGE> 16
Parent is an Indiana corporation with its principal office located at 4259
40th Street, SE, Kentwood, Michigan 49512. The Parent's business is the sale and
distribution of automotive paints, coatings and paint-related accessories
principally to the automotive collision repair industry. Parent is controlled by
LDI AutoPaints, Inc., an Indiana corporation ("AutoPaints"), a wholly owned
subsidiary of Lacy Distribution, Inc., an Indiana corporation ("Lacy"), and an
indirect wholly owned subsidiary of LDI, Ltd., an Indiana limited partnership
("LDI"). LDI has two general partners: LDI Management, Inc. ("LDIM"), its
managing partner, and Andre B. Lacy, the Chairman and Chief Executive Officer of
Parent. The name, business address, present principal occupation or employment,
five-year employment history and citizenship of each of the directors and
executive officers of Purchaser, Parent and each entity controlling Parent are
set forth in Annex I.
Set forth below is certain selected consolidated financial information with
respect to Parent and its subsidiaries excerpted or derived from the information
contained in Parent's Form 10-K for the period ended December 31, 1996 and the
Parent's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997. More comprehensive financial information is included in such reports and
other documents filed by Parent with the Commission, and the following summary
is qualified in its entirety by reference to such reports and such other
documents and all the financial information (including any related notes)
contained therein. Such reports and other documents should be available for
inspection and copies thereof should be obtainable in the manner set forth below
under "Available Information."
FINISHMASTER, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS NINE MONTHS NINE MONTHS FISCAL YEAR ENDED
ENDED ENDED ENDED ENDED MARCH 31,
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, ------------------
1997 1996 1996(1) 1995(1) 1996 1995
---------- ---------- ------------ ------------ ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA
Net sales................... $60,273 $63,122 $95,822 $77,538 $107,511 $79,382
Gross margin................ 22,201 22,240 33,891 27,699 38,012 28,048
Income from operations(2)... 3,155 2,190 2,566 4,619 5,073 5,394
Net income.................. 1,411 701 660 2,647 2,649 3,462
------- ------- ------- ------- -------- -------
Net income per share........ $ .24 $ .12 $ 0.11 $ 0.44 $ 0.44 $ 0.58
------- ------- ------- ------- -------- -------
Shares used in the
computation of net income
per share................. 5,994 6,000 6,000 6,000 6,000 6,000
</TABLE>
- -------------------------
(1) Parent elected to change its fiscal year-end from March 31 to December 31,
effective for the period ended December 31, 1996. As a result of this change
Parent has shown unaudited comparative information for the nine months ended
December 31, 1995.
(2) State income taxes have been reclassified from operating expense to income
tax expense in the prior year amounts to conform with the presentation of
corresponding amounts in the current period.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1996 1995
-------- ------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital..................................... $23,439 $22,819 $25,036 $17,763
Total assets........................................ 61,361 66,477 66,772 46,442
Long-term debt...................................... 19,782 21,970 23,248 7,208
Stockholders' equity................................ 33,686 32,326 31,665 28,956
</TABLE>
14
<PAGE> 17
Acquisitions made by Parent have been accounted for as purchases and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition. Operating results of these
acquired organizations are included in Parent's financial statements from the
respective dates of purchase.
Except as described in this Offer to Purchase, neither Purchaser nor Parent
(together, the "Corporate Entities") or, to the best knowledge of the Corporate
Entities, any of the persons listed in Annex I or any associate or
majority-owned subsidiary of the Corporate Entities or any of the persons so
listed, beneficially owns any equity security of the Company (except that LDI
and Parent each own 100 Shares), and none of the Corporate Entities, any of the
other persons referred to above, or any of the respective directors, executive
officers or subsidiaries of any of the foregoing, has effected any transaction
in any equity security of the Company during the past 60 days.
Except as described in this Offer to Purchase, (a) there have not been any
contracts, transactions or negotiations between the Corporate Entities, any of
their respective subsidiaries or, to the best knowledge of the Corporate
Entities, any of the persons listed in Annex I, on the one hand, and the Company
or any of its directors, officers or affiliates, on the other hand, that are
required to be disclosed pursuant to the rules and regulations of the Commission
and (b) none of the Corporate Entities or, to the best knowledge of the
Corporate Entities, any of the persons listed in Annex I has any contract,
arrangement, understanding or relationship with any person with respect to any
securities of the Company.
During the last five years none of the Corporate Entities or, to the best
knowledge of Corporate Entities, any of the persons listed in Annex I (a) has
been convicted in a criminal proceeding (excluding traffic violations and
similar misdemeanors) or (b) was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, Federal or state securities
laws or finding any violation of such laws.
Available Information. Parent 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
Parent's directors and officers, their remuneration, the principal holders of
Parent's securities and any material interest of such persons in transactions
with Parent is required to be disclosed in proxy statements distributed to
Parent's stockholders and filed with the Commission. Such reports, proxy
statements and other information should be available for inspection at the
Commission, and copies thereof should be obtainable from the Commission, in the
same manner as set forth with respect to information concerning the Company in
Section 8.
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Purchaser to purchase all outstanding
Shares pursuant to the Offer, to refinance certain indebtedness of the Company
and to pay fees and expenses related to the Offer and the Merger is estimated to
be approximately $110 million. Purchaser plans to obtain all funds needed for
the Offer and the Merger through a capital contribution that will be made by
Parent to Purchaser.
Bank Facilities. NBD Bank, N.A. ("NBD") has entered into a written
commitment with Parent (the "Bank Commitment Letter") dated October 8, 1997, to
provide up to $100 million (the "Aggregate Commitment") through two credit
facilities (the "Facilities") to be used by Parent to: (a) provide funds for the
purchase of the Company, (b) pay expenses in connection with the acquisition,
(c) refinance certain indebtedness, (d) satisfy the working capital needs of
Parent and its subsidiaries, and (e) fund the general corporate purposes of the
Parent and its subsidiaries. NBD has retained the right to syndicate all or a
portion of the Facilities to additional lenders. First Chicago Capital Markets,
Inc., an affiliate of NBD (the "Arranger"), will provide the syndication
services.
15
<PAGE> 18
The term loan facility provided for in the Bank Commitment Letter (the
"Term Loan Facility") in the principal amount of $40 million matures six years
from the date of closing of the Facilities (the "Loan Closing Date") with
quarterly installments of principal in the following aggregate annual amounts:
<TABLE>
<CAPTION>
ANNUAL AMOUNT
YEAR EACH PERIOD
---- -------------
<S> <C>
1998.............................................. $ 0
1999.............................................. $ 4,000,000
2000.............................................. $ 6,000,000
2001.............................................. $ 9,000,000
2002.............................................. $10,000,000
2003.............................................. $11,000,000
</TABLE>
Interest on indebtedness outstanding under the Term Loan Facility will be
payable at a rate per annum equal to, at Parent's election, either (a) the
greater of NBD's corporate base rate or the federal funds rate plus 0.50% per
annum (the "ABR Rate"), or (b) the Eurodollar Rate, plus in the case of each of
(a) and (b), an additional amount (the "Applicable Margin") based on the ratio
of Parent's total indebtedness to EBITDA (the "Leverage Ratio"). In the case of
ABR loans, the Applicable Margin ranges from 1.00% to 0% and, in the case of
Eurodollar loans, ranges from 2.25% to 0.75%.
The revolving credit facility provided for in the Bank Commitment Letter
(the "Revolving Credit Facility") in the amount of $60 million matures six years
from the Loan Closing Date. Interest is payable on the indebtedness outstanding
under the Revolving Credit Facility at a rate per annum determined in the same
manner as with respect to the Term Loan. The aggregate outstanding amount of
loans under the Revolving Credit Facility may not exceed the borrowing base
which will consist of inventory and accounts receivable, with eligibility and
advance rates to be determined.
The Facilities will be secured by a first perfected security interest in
all of Parent's assets and, through secured guarantees, in all of its
subsidiaries' assets, including the assets of the Surviving Corporation.
The funding of the Facilities is conditioned upon Parent having received at
least $30 million in proceeds from the issuance of a subordinated note to LDI,
an affiliate of Parent. The anticipated terms of such subordinated note are
described below. Other conditions to funding of the Facilities include, among
other matters: (a) absence of default; (b) lack of material adverse change from
Parent's or the Company's financial condition and operations performance,
properties or prospects since September 30, 1997; (c) determination that all
required approvals to the Merger and Offer have been obtained; (d) satisfactory
results of confirmatory due diligence investigation of Parent and the Company
and their subsidiaries have been received; (e) the terms of the Offer and the
Merger Agreement are acceptable to NBD; (f) receipt of a copy of the fairness
opinion from the Company's investment banker addressed to the Company; (g)
receipt of opinions of value and solvency from Parent's Chief Financial Officer
supporting conclusion that Parent and the Company are each solvent and will be
solvent subsequent to incurring the indebtedness and each can pay their debts as
they come due; and (h) other customary conditions.
The Bank Commitment Letter provides that the definitive loan documents will
include customary representations, warranties and covenants, including financial
covenants which have not yet been negotiated.
Pursuant to the Bank Commitment Letter, Purchaser has agreed, regardless of
whether the Bank Commitment Letter is revoked or terminated or whether or not
the financing transactions contemplated by the Bank Commitment Letter close, to
reimburse NBD and the Arranger for all out of pocket expenses incurred by NBD
and the Arranger in connection with the Bank Commitment Letter, the transactions
contemplated thereby and the on-going due diligence investigation of NBD and the
Arranger in connection therewith and to indemnify NBD, the Arranger, the lenders
and their respective officers, employees, agents and directors against any
losses, claims, damages or liabilities (including, but not limited to, costs of
defense and investigation) to which they may become subject in connection with
the transaction contemplated by the Bank Commitment Letter.
16
<PAGE> 19
The obligations of the Agent and the Arranger in the Bank Commitment Letter
are subject to the execution and delivery of mutually agreeable loan documents
incorporating the terms and conditions contained in the Bank Commitment Letter,
the absence of a material adverse change with respect to Purchaser and its
subsidiaries and the Company and its subsidiaries and the absence of a material
adverse change in the loan syndication markets or capital markets generally.
The Bank Commitment Letter provides that the commitments in respect of the
facilities will terminate on January 31, 1998 unless definitive loan documents
are executed on or before that date.
The foregoing description of the Bank Commitment Letter is qualified in its
entirety by reference to the text of the Bank Commitment Letter, a copy of which
has been filed as an exhibit to the Schedule 14D-1 of Purchaser and the Parent
relating to the Offer (the "Schedule 14D-1").
LDI Commitment. LDI, the indirect owner of approximately 67.4% of the
outstanding common stock of Parent, has provided a written commitment to Parent,
dated October 14, 1997, to advance to Parent the funds needed to complete the
Offer and the Merger and to refinance certain indebtedness of the Company (the
"LDI Commitment Letter"). Although not specifically referenced, the commitment
of LDI in the LDI Commitment Letter includes providing $30 million to the Parent
in exchange for a subordinated note as required by the Bank Commitment Letter
(the "Subordinated Note").
Although the definitive terms of such Subordinated Note have not been fully
negotiated, it is anticipated that such Subordinated Note will (a) bear an
interest rate equal to the rate borne by obligations of the U.S. Treasury having
approximately the same maturity as the Subordinated Note plus 300 basis points,
(b) mature at least 18 months after the Facilities, (c) provide for the payment
of interest quarterly and the payment of principal at maturity, (d) be
unsecured, and (e) contain subordination and other provisions acceptable to the
Arranger, NBD and the lenders under the Facilities.
The obligation of LDI under the LDI Commitment Letter is not limited to the
purchase of the Subordinated Note. If the Facilities contemplated by the Bank
Commitment Letter are not funded, LDI has committed to make available to Parent
the funds required to complete the Offer and the Merger. The terms on which such
funds would be made available to Parent have not yet been negotiated.
The foregoing description of the LDI Commitment Letter is qualified in its
entirety by reference to the text of the LDI Commitment Letter, a copy of which
has been filed as an exhibit to the Schedule 14D-1.
Repayment. Parent expects that it will repay any amounts borrowed under the
Facilities and the Subordinated Note with cash flow from operations and/or with
proceeds from public or private sales of debt or equity securities.
11. CONTACTS WITH THE COMPANY; BACKGROUND OF THE OFFER
In September 1995, the Company's senior executives (including Mr. Mortimer
A. Kline, III, then the President and Chief Operating Officer of the Company)
were introduced to Andre B. Lacy, Chairman of the Board, Chief Executive Officer
and President of LDIM, the managing general partner of LDI, William Fennessy,
Vice President and Chief Financial Officer of LDIM, and Robert H. Reynolds,
outside counsel to LDI and Corporate Secretary of LDIM, in a meeting held in
Chicago. In that meeting, which had been requested by Mr. Lacy, Mr. Lacy
expressed an interest in LDI's investing in the auto paint distribution industry
generally and in acquiring a significant ownership position in the Company in
particular. The Company elected not to pursue Mr. Lacy's unsolicited expression
of interest.
In the Spring of 1996, the then-controlling shareholder of Parent advised
the Company that it was actively seeking a buyer for its stake in Parent or,
possibly, the entire company. The Company considered this opportunity with the
assistance of DLJ, but determined not to pursue a transaction. In June 1996,
LDI, through its subsidiary AutoPaints, acquired this controlling stake in
Parent consistent with its strategic plan to invest in the auto paint
distribution industry. Upon completion of that transaction, Mr. Lacy became
Chairman of the Board and Chief Executive Officer of Parent. During this time
period, AutoPaints also acquired an additional independent auto paint
distributor.
17
<PAGE> 20
On October 18, 1996, at the invitation of Mr. Lacy, D. Hunt Ramsbottom,
Jr., then Chief Executive Officer of the Company, met with Mr. Lacy in Chicago.
The purpose of the meeting was to establish a personal relationship and discuss
in general terms the prospects of the auto paint distribution business.
In December 1996, the Company announced that Mr. Ramsbottom would be
resigning from his positions as an executive officer with the Company and that
Mr. Kline would assume the additional positions of Chairman and Chief Executive
Officer. At the invitation of Mr. Lacy, Mr. Kline and Mr. Lacy met in Chicago on
January 30, 1997 for the purpose of renewing their relationship and discussing
the prospects of the auto paint distribution business.
During late 1996 and into 1997, the Company's Board of Directors began to
consider the long-term business plan and strategic future of the Company.
Throughout this period, the Company generally reported operating results that
were inferior to the prior year reflecting several business challenges. The
Company continued to experience difficulties in fully integrating acquired
companies that had been purchased at a very rapid pace in 1995 and 1996. More
broadly, the Company was faced with unfavorable industry conditions, including
flat revenue on decreasing volume and a consolidating customer base. In
response, the Company's stock price had been declining, thereby limiting the
Company's options to obtain growth capital to fund its acquisition strategy,
while at the same time the Company also faced the need to make significant
capital expenditures to upgrade its computer systems. In light of the foregoing
factors, the Board of Directors of the Company determined that it was in the
interests of the Company and its stockholders to consider a possible strategic
transaction with a third party. In particular, the Board of Directors was of the
view that the Company's stock was significantly undervalued in the marketplace
in light of the considerable value the Company might have to another distributor
of auto paint and related supplies, another supplier of products to the
Company's customers, or a financial buyer who could use the Company as a
platform for such a transaction.
On or about April 9, 1997, Mr. Thomas U. Young, President of Parent,
telephoned Mr. Kline and asked for a meeting between Mr. Kline and Messrs. Lacy
and Young. After consulting with the Company's outside directors, Mr. Kline
accepted the invitation and the meeting was scheduled for May 5, 1997.
At a Board meeting held on April 29, 1997, the Company's Board of Directors
determined that it should retain an investment banker to assist it in the
consideration of strategic alternatives to maximize shareholder value. A member
of the Company's Board of Directors was delegated to interview candidates and
recommend the retention of an appropriate financial advisor to assist the
Company. This process led to the retention of DLJ shortly thereafter and the
execution of an engagement letter dated June 2, 1997.
On May 5, 1997, Mr. Kline met with Messrs. Lacy and Young in Palm Springs,
California. At this meeting, Messrs. Lacy and Young indicated preliminary
interest in considering the possible combination of Parent and the Company. Mr.
Kline advised them that the present sentiment of the Company's Board was that
the Company should consider its strategic alternatives in a formal process.
However, Mr. Kline also indicated that the board might be inclined to give
Parent a first opportunity to propose a transaction if it was interested in
moving quickly. Mr. Kline suggested that Mr. Lacy meet with Mr. David L.
Ferguson, a member of the Company's Board of Directors.
On May 7, 1997, Mr. Lacy met with Messrs. Kline and Ferguson at Mr.
Ferguson's offices in El Segundo, California. Again, Mr. Lacy, on behalf of
Parent, expressed interest in a business combination. Mr. Ferguson indicated
that the Company's Board of Directors would give appropriate consideration to
any proposal made by Parent. Mr. Ferguson also advised Mr. Lacy that the board
presently intended to hire an investment banker to assist it in conducting a
process to explore the strategic alternatives that might be available to the
Company.
Messrs. Lacy, Kline and Ferguson met again in Los Angeles on May 28, 1997
at the request of Mr. Lacy. In that meeting, Mr. Lacy proposed a business
combination which contemplated a stock for stock transaction and suggested
approximately equal values for Parent and Company shares. Mr. Ferguson indicated
that the Company generally preferred a cash transaction. He suggested that
Parent's advisor, Smith Barney, make contact with DLJ so that the financial
advisors could exchange views regarding a possible transaction. On June 27,
1997, the Company entered into a confidentiality and standstill agreement with
Parent, Mr. Lacy,
18
<PAGE> 21
LDI and certain of their affiliated companies (the "Letter Agreement") in order
to facilitate the release of certain non-public financial information to Parent
and Smith Barney.
In the conversations that followed among the financial advisors, Parent
continued to propose transaction structures which contemplated all Parent stock
or mostly stock with a limited cash component. At the direction of the Board,
DLJ conveyed to Smith Barney the Company's view that such a structure was not
likely to be acceptable and that the Company was inclined to conduct a formal
auction process to determine whether or not a cash transaction was possible with
another party. Mr. Ferguson also conveyed this view in separate calls with Mr.
Lacy and a representative of Smith Barney.
On July 1, 1997, Messrs. Kline and Ferguson and representatives of DLJ
conferred with Mr. Lacy and representatives of Smith Barney in a telephone
conference to discuss the confidential information provided by the Company to
Parent and Smith Barney. Subsequently, on approximately July 8, 1997, Parent,
acting through Smith Barney, informed DLJ that Parent would not make a further
proposal at that time, but would instead participate in the process to maximize
shareholder value which was to be conducted by DLJ on behalf of the Company.
After the market closed on July 8, 1997, the Company issued a press release
stating that the Company had elected to explore the strategic alternatives that
may be available to the Company with the objective of maximizing the Company's
value to its stockholders and other constituents, and that DLJ had been retained
to assist the Company in this process. The last reported sales price of the
Common Stock on July 8, 1997 was $4.625 per share.
Promptly after this press release was issued, DLJ began to contact parties
that it believed might be interested in a transaction and to respond to
inquiries from parties that had seen the Company's press release. During July
and August 1997, DLJ had contact with approximately 87 parties, of which 45
parties entered into confidentiality agreements and received information
packages regarding the Company and seven parties responded with written
indications of interest in conducting a formal due diligence review of the
Company. Subsequently, DLJ invited six of these interested parties (including
Parent) to attend presentations to be held in early September at the Company's
executive offices and to have access to the Company's files for due diligence
purposes. The Board of Directors of the Company held meetings on each of August
7, August 20 and September 17, 1997 to monitor this process.
At a special meeting of the Board of Directors of Parent held on October 3,
1997, that board approved and authorized Parent to make a proposal to the
Company for an $8.00 per Share acquisition and the execution and delivery of a
related Agreement and Plan of Merger. In accordance with instructions received
from DLJ, Parent submitted to DLJ on October 6, 1997 a written proposal to
acquire the Company at a purchase price of $8.00 in cash per Share. In its
proposal, Parent advised the Company that its bid was fully financed either
through a bank financing to be arranged by Parent or additional funds to be
provided by LDI.
On October 8, 1997, the Company's Board of Directors met with DLJ and
counsel to review the results of the auction process. At this meeting, the board
determined to pursue a transaction with Parent consistent with the proposal
described above. Accordingly, the board authorized its counsel and DLJ to meet
with representatives of Parent and to attempt to negotiate the definitive terms
of an all cash, fully-financed transaction consistent with Parent's October 6
proposal. Those meetings commenced in Los Angeles at the offices of counsel to
the Company on the afternoon of October 9, 1997 and continued through the
afternoon of October 11, 1997. Final details on a draft form of Merger Agreement
and the related LDI Commitment Letter were completed among counsel on October
13, 1997.
The Board of Directors of the Company met on October 14, 1997 to consider
presentations by counsel and to review the draft Merger Agreement. A
presentation was also provided by DLJ, which included the delivery of its
written opinion to the effect that the proposed cash consideration of $8.00 per
share is fair to the Company's stockholders from a financial point of view.
After considering these presentations, the Board of Directors of the Company
approved the Merger Agreement and approved its execution, subject to receiving
the LDI Commitment Letter. These events were completed late in the day of
October 14, 1997 and a related public announcement was disseminated before the
stock market opened on October 15, 1997.
19
<PAGE> 22
12. PURPOSE OF THE OFFER AND THE MERGER AGREEMENT; PLANS FOR THE COMPANY
The purpose of the Offer is to enable Parent and Purchaser to acquire
control of the entire equity interest in the Company. The purpose of the Merger
is for Purchaser and Parent to acquire any remaining equity interest in the
Company not acquired in the Offer.
Subject to the foregoing, Parent intends to conduct a detailed review of
the Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel and to consider what, if any,
changes would be desirable in light of the circumstances then existing and
reserves the right to take such actions or effect such changes as it deems
desirable. Such changes could include changes in the Company's business,
corporate structure, capitalization, Board of Directors or management.
Except as otherwise described in this Offer to Purchase, Purchaser and
Parent have no current plans or proposals that would relate to, or result in,
any extraordinary corporate transaction involving the Company, such as a merger,
reorganization or liquidation involving the Company or any of its subsidiaries,
a sale or transfer of a material amount of assets of the Company or any of its
subsidiaries, any change in the Company's capitalization or dividend policy or
any other material change in the Company's business, corporate structure or
personnel.
The Merger Agreement
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is filed as an Exhibit to the Schedule 14D-1 and is incorporated
herein by reference. The Merger Agreement may be examined, and copies may be
obtained as set forth in Section 9 above. Such summary is qualified in its
entirety by reference to the Merger Agreement.
The Offer. The Merger Agreement provides that Parent will take all
necessary actions to cause Purchaser to commence the Offer as soon as
practicable, but in no event later than five business days from the date of the
announcement of the Merger Agreement. The obligation of Purchaser to accept for
payment (and thereby purchase) any Shares tendered pursuant to the Offer is
subject to the conditions set forth in Annex A to the Merger Agreement (the
"Offer Conditions"). See the Section entitled "Conditions to the Offer" below
and Section 14. Purchaser may waive, in its sole discretion, any Offer Condition
other than the Minimum Condition (as defined in Section 14). Subject only to the
Offer Conditions, Purchaser has agreed to accept for payment and purchase, as
soon as permitted by the terms of the Offer, all Shares validly tendered and not
withdrawn prior to the expiration of the Offer. Without the prior express
written consent of the Company (which it may grant or withhold in its sole
discretion), Parent and Purchaser have agreed that they will not decrease the
per Share price to be paid pursuant to the Offer or the number of Shares for
which the Offer is made, extend the expiration date of the Offer except as
permitted by the Merger Agreement, change the form of consideration or impose
conditions to the Offer in addition to or in modification of the conditions set
forth in Section 14 (other than to waive any conditions to the extent permitted
by the Merger Agreement), waive or increase the Minimum Condition (as defined in
Section 14), or otherwise amend the Offer in any manner that would adversely
affect the Company's stockholders; provided, however, that Purchaser may,
without the consent of the Company, (a) extend the offer beyond any scheduled
Expiration Date for a period not to exceed 20 business days, if at any scheduled
Expiration Date the conditions listed in (a) through (f) of Section 14 and the
Minimum Condition have not been satisfied or waived, (b) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
Commission or its staff, or (c) extend the Offer for a period of seven business
days beyond the latest Expiration Date if more than 90% of the Shares have not
been tendered. In addition, Purchaser has agreed to extend the offer from time
to time in order to satisfy its obligations 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 and make effective
the transactions contemplated by the Merger Agreement (subject to the earlier
termination of the Merger Agreement).
Upon payment by Purchaser for Shares purchased pursuant to the Offer
constituting at least a majority of the outstanding Shares on a Fully Diluted
Basis (as defined below), the Company, at Parent's request, will take all
necessary actions to cause its Board of Directors to include a number of
Parent's designees such that
20
<PAGE> 23
the designees constitute a percentage of the Board as nearly equal as
practicable to the percentage of outstanding Shares beneficially owned by Parent
on a Fully Diluted Basis (which will be at least a majority of the Board). The
necessary actions of the Company may include accepting resignations of certain
incumbent directors or increasing the size of the Board. The Company and the
Parent have agreed that the Company's Board of Directors shall have at least two
members ("Independent Directors") who are neither officers of the Company nor
designees, stockholders or affiliates of the Parent ("Parent Insiders");
provided, however, that if the number of Independent Directors shall be reduced
below two because of death, disability or resignation, the remaining Independent
Director shall be entitled to designate persons to fill such vacancies who shall
be deemed to be Independent Directors. From and after the date of any
designation of directors by Parent pursuant to the above provision, there will
be formed a Committee of the Board of Directors (the "Special Committee") which
will make all determinations to be made by the Company's Board of Directors
under the Merger Agreement. For purposes of the Merger Agreement, "Fully Diluted
Basis" means, as of any date of determination, a basis that includes all
outstanding Shares, together with all Shares issuable upon the conversion of any
convertible securities or upon the exercise of any options, warrants or rights.
Any amendment or termination of the Merger Agreement by the Company, any
waiver of any of the Company's rights thereunder, any extension of the time for
performance of the Parent's obligations thereunder, or any other action taken by
the Company's Board of Directors in connection with the Merger Agreement or
which adversely affects the interest of the stockholders of the Company (other
than Parent, Purchaser and their affiliates) in addition to action pursuant to
certain specified provisions of the Merger Agreement will require the
concurrence of a majority of the members of the Special Committee, none of the
members of which may be Parent Insiders.
The Merger. The Merger Agreement provides that at the Effective Time,
subject to the terms and conditions thereof, Purchaser will be merged with and
into the Company, and the Company will be the Surviving Corporation. The name of
the Surviving Corporation will be "Thompson PBE, Inc." Pursuant to the Merger,
the Certificate of Incorporation and By-Laws of the Company will be the
Certificate of Incorporation and By-Laws of the Surviving Corporation until
thereafter amended as provided by law. The directors of Purchaser at the
Effective Time will become the directors of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified. The
officers of the Company at the Effective Time will continue as the officers of
the Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
Conversion of Shares. The Merger Agreement provides that at the Effective
Time, each outstanding Share will be converted into the right to receive the
Merger Consideration, other than (a) Shares held by the Parent, Purchaser or any
wholly owned subsidiary of Parent or Purchaser, or in the treasury of the
Company, or by any wholly owned subsidiary of the Company, which Shares, by
virtue of the Merger and without any action on the part of the holder thereof,
will be canceled and retired and will cease to exist with no payment being made
with respect thereto, and (b) Shares held by stockholders who exercise their
statutory appraisal rights as described below. At the Effective Time, each
issued and outstanding share of capital stock of Purchaser will be converted
into one validly issued, fully paid and nonassessable share of Common Stock, par
value $.001 per share, of the Surviving Corporation.
The Merger Agreement further provides that any Shares outstanding
immediately before the Effective Time and held by a stockholder who has not
voted in favor of or consented to the Merger in writing and who complies with
all the provisions of the DGCL concerning the right of holders of shares of
capital stock to dissent from the Merger and require appraisal of their shares
(a "Dissenting Stockholder") will not be converted into the right to receive the
Merger Consideration as described above but instead will be converted, at the
Effective Time, by virtue of the Merger and without any further action, into the
right to receive any consideration that may be determined to be due to the
Dissenting Stockholder pursuant to the DGCL; provided, that Shares outstanding
immediately before the Effective Time and held by a Dissenting Stockholder who,
after the Effective Time, fails to perfect or withdraws or loses the Dissenting
Stockholder's right to appraisal, in either case pursuant to the DGCL, will be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration, without interest or dividends thereon. The Company
21
<PAGE> 24
may not, without the prior written consent of the Parent, voluntarily make any
payment with respect to, or settle or offer to settle, any demands for appraisal
of Shares.
Stockholders' Meeting. The Company has agreed to convene a meeting of its
stockholders as soon as practicable after the purchase of shares pursuant to the
Offer to consider and vote on the adoption of the Merger Agreement, if such a
meeting is required by applicable law or the rules of the Nasdaq National
Market. The Company has agreed that in the proxy statement with respect to the
meeting, the Company will, through its Board, and subject to the fiduciary
obligations of the Board under applicable law and as advised by counsel,
recommend that stockholders of the Company vote in favor of approval and
adoption of the Merger Agreement. Parent has agreed that at any stockholders'
meeting, it will vote or cause all of the Shares then owned by it, Purchaser or
any of its other affiliates to be voted in favor of approval and adoption of the
Merger Agreement.
Conditions to the Merger. The respective obligations of each party to
effect the Merger are subject to the satisfaction or waiver, if permissible,
prior to the Effective Time of the following conditions: (a) the Merger
Agreement shall have been adopted by the stockholders of the Company in
accordance with applicable law and the rules of the Nasdaq National Market if
such a vote is required; (b) no statute, rule, regulation, order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority of competent jurisdiction which restrains,
enjoins or otherwise prohibits the consummation of the Merger; provided,
however, that the Company, Parent and Purchaser shall, among other things, use
their reasonable best efforts to have any such order, decree or injunction
vacated; (c) the applicable waiting period under the HSR Act shall have expired
or been terminated; and (d) Purchaser shall have accepted for payment and paid
for all Shares validly tendered pursuant to the Offer, provided that this
condition will be deemed satisfied with respect to the obligations of Parent and
Purchaser if Purchaser fails to accept for payment and pay for any Shares
pursuant to the Offer in violation of the terms of the Merger Agreement or the
Offer.
Conditions to the Offer. Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment, purchase or pay for any
Shares tendered until the expiration or termination of any applicable waiting
period under the HSR Act, and Purchaser may terminate or, subject to the terms
of the Merger Agreement, amend the Offer and may postpone the purchase of, and
payment for, Shares if the Minimum Condition (as defined in Section 14) has not
been satisfied or waived or if, at any time on or after the date of the Merger
Agreement, and prior to the time of acceptance of any such Shares for payment,
any of the following events shall occur and remain in effect:
(a) an order shall have been entered in any action or proceeding
before any United States federal or state court or governmental agency or
other United States regulatory or administrative agency or commission (an
"Order"), or a preliminary or permanent injunction by a United States court
of competent jurisdiction shall have been issued and remain in effect (an
"Injunction"), which in either case (i) prohibits the making or
consummation of the Offer or the consummation of the Merger, (ii)
significantly restricts the ability of Purchaser, or renders Purchaser
unable, to accept for payment, pay for or purchase Shares sufficient to
satisfy the Minimum Condition in the Offer or the remaining Shares
outstanding in the Merger (other than as a result of the exercise of
dissenters' rights and other than for delays or restrictions that are not
material to Parent and Purchaser), (iii) prohibits or restricts the
ownership or operation by Parent or Purchaser (or any of their respective
affiliates or subsidiaries) of any portion of its or the Company's business
or assets which is material to the business of the Company and its
subsidiaries taken as a whole or of Parent and its subsidiaries taken as a
whole or compels Parent or Purchaser (or any of their respective affiliates
or subsidiaries) to dispose of or hold separate any portion of its or the
Company's business or assets which is material to the business of the
Company and its subsidiaries taken as a whole or of Parent and its
subsidiaries, taken as a whole, (iv) imposes material limitations on the
ability of Purchaser effectively to acquire or to hold or to exercise full
rights of ownership of the Shares, including, without limitation, the right
to vote the Shares purchased by Purchaser on all matters properly presented
to the stockholders of the Company, (v) imposes any material limitations on
the ability of Parent or Purchaser or any of their respective affiliates or
subsidiaries effectively to control in any material respect the business
and operations of the Company and its subsidiaries, or (vi) which otherwise
would result in a Company Material Adverse Effect (as defined
22
<PAGE> 25
below); provided, however, that Parent and Purchaser shall have complied
with Section 5.5 of the Merger Agreement and that in order to invoke this
condition Parent and Purchaser shall have used their respective reasonable
best efforts to prevent such Order or Injunction or ameliorate the effects
thereof; and provided, further, that if the Order or Injunction is a
temporary restraining order or preliminary injunction of a court of
competent jurisdiction Purchaser may not by virtue of this condition alone
amend or terminate the Offer, but may only extend the Offer and thereby
postpone acceptance for payment or purchase of Shares; or
(b) there shall have been any United States federal or state statute,
rule or regulation enacted or promulgated after the date of the Offer that
would result in any of the material adverse consequences referred to in
paragraph (a) above; or
(c) there shall have occurred and be continuing (in any event, for not
less than two consecutive days) (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or on the Nasdaq National Market, (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) the commencement of a war, armed
hostilities or other international or national calamity directly involving
the United States, (iv) from the date of commencement of the Offer, a
decline of at least 25 percent in the Standard & Poor's 500 Index, (v) any
limitation by any U.S. governmental authority or agency that materially
affects generally the extension of credit by banks or other financial
institutions or (vi) in the case of any of the foregoing existing at the
time of the commencement of the Offer, a material acceleration or worsening
thereof; or
(d) the Company shall have breached or failed to perform in any
material respect any of its obligations, covenants or agreements contained
in the Merger Agreement or any of the representations and warranties of the
Company set forth in the Merger Agreement (other than such breaches,
failures to perform or inaccuracies which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect); or
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) the Board of Directors of the Company shall have publicly
withdrawn or modified in any manner adverse to Purchaser its recommendation
that stockholders accept the Offer; provided, however, that Purchaser shall
not be entitled to terminate the Offer pursuant to this paragraph if, as a
result of an offer which the Board of Directors of the Company, after
consultation with the Company's outside legal counsel and financial
advisor, determines, in its good faith judgment by a majority vote, to be
more favorable to the Company's stockholders than the Offer and the Merger
(a "Superior Offer"), the Company withdraws or modifies its approval or
recommendation of the transactions contemplated hereby by reason of taking,
and disclosing to the Company's stockholders, a position with respect to a
tender offer contemplated by Rules 14d-9 and 14e-2 promulgated under the
Exchange Act and if, within five business days of taking and disclosing
such position, the Company publicly reaffirms its recommendation of the
transactions contemplated by the Merger Agreement which in the reasonable
judgment of Parent with respect to each and every matter referred to above
regardless of the circumstances (including any action or inaction by Parent
or Purchaser) giving rise to any such condition, makes it advisable to
proceed with the Offer or with such acceptance for payment or payment.
The foregoing conditions set forth in paragraphs (a) through (f) are for
the sole benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such conditions (including any action or
inaction by Purchaser) or, subject to the terms of the Merger Agreement, may be
waived by Purchaser in whole or in part. The failure by Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and such right shall be deemed a continuing right which may be asserted at
any time and from time to time.
For purposes of the Merger Agreement, "Company Material Adverse Effect"
means a material adverse effect on the financial condition, results of operation
or business of the Company and its subsidiaries taken as a
23
<PAGE> 26
whole or on the ability of the Company to consummate the transactions
contemplated by the Merger Agreement.
Interim Operations of the Company. In the Merger Agreement, the Company has
agreed that, except as contemplated by the Merger Agreement or previously
disclosed to Parent, prior to the Effective Time, (i) the business of the
Company and its subsidiaries will be conducted only in the ordinary and usual
course of business consistent with past practice, and (ii) the Company will not,
nor will it permit any of its subsidiaries to, without the prior written consent
of Parent (such consent not to be unreasonably withheld):
(a) issue, sell or repurchase, or authorize or propose the issuance,
sale or repurchase of any shares of capital stock of the Company and its
subsidiaries, or securities convertible into such shares, or any rights,
warrants or options to acquire such shares or other convertible securities,
other than the issuance of Shares pursuant to the redemption of preferred
share purchase rights ("Rights") issued pursuant to the Rights Agreement,
dated as of May 6, 1997, between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent, if otherwise permitted or required by
the Merger Agreement, or the exercise of Stock Options, CVCA Warrants, SEV
Warrants or the APS Note as outstanding on the date of the Merger
Agreement,
(b) declare or pay any dividend or distribution on any shares of its
capital stock (other than dividends paid by wholly owned subsidiaries of
the Company to the Company or a redemption of the Rights if otherwise
permitted or required by the Merger Agreement);
(c) except for such transactions in the ordinary course of business or
fees and expenses related to the transactions contemplated by the Merger
Agreement, authorize or enter into any agreement with respect to any
commitment or transaction which requires the Company to pay in excess of
$300,000 in the aggregate;
(d) except as specified in the Merger Agreement and except in the
ordinary course of business consistent with past practice and except as
previously disclosed to Parent or as may be required by law, adopt or amend
in any material respect or terminate any profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or
other employee benefit plan, agreement, trust, plan, fund or other
arrangement (collectively, "Compensation Plans"), or grant, or become
obligated to grant, any general increase in the compensation of executive
officers or any increase in the compensation payable or to become payable
to any executive officer or institute any material new welfare program or
Compensation Plan, or make any material change in any Compensation Plan;
(e) except as required by the consummation of the Merger, pay,
discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business;
(f) except for transactions in the ordinary course of business (i)
incur, assume or prepay any long-term or short-term debt or issue any debt
securities except for borrowing under existing lines of credit or
prepayments or other borrowings not to exceed $300,000 in the aggregate;
(ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for any material obligations
of any other person except for obligations of wholly owned subsidiaries of
the Company; (iii) make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly owned subsidiaries
of the Company, advances to customers in amounts not to exceed $25,000 in
the aggregate, or customary loans to employees in amounts not material to
the maker of such loan); (iv) except as required under the 1995 Credit
Agreement (as defined in the Merger Agreement), pledge or otherwise
encumber shares of capital stock of the Company or any of its subsidiaries;
or (v) except as required under the 1995 Credit Agreement, mortgage or
pledge any of its material assets, tangible or intangible, or create or
suffer to exist any lien thereupon, excluding Permitted Liens (as defined
in the Merger Agreement);
(g) subject to the rights of the Company's stockholders under
applicable law, propose or adopt any amendments to its Certificate of
Incorporation or By-Laws (except for any amendment to the Company's By-Laws
necessary to increase the number of directors);
24
<PAGE> 27
(h) except for transactions in the ordinary course of business,
contemplated by the Merger Agreement or otherwise disclosed therein,
acquire, sell, lease or dispose of any assets which in the aggregate are
material to the Company and its subsidiaries taken as a whole, or enter
into or modify, amend, terminate or waive any rights under any commitments,
contracts, agreements or transactions which would, individually or in the
aggregate, be material to the Company and its subsidiaries taken as a
whole;
(i) except for transactions with subsidiaries, acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or any
equity interest therein;
(j) subject to certain exceptions, make any material tax election or
settle or compromise any material federal, state or local tax liability or
assent to the assessment of any federal, state or local tax;
(k) authorize any new capital expenditure or expenditures not
reflected in the capital expenditure budget provided to Parent and which in
the aggregate are in excess of $50,000; or
(l) agree, in writing or otherwise, to take any of the foregoing
actions.
Stock Option Plans. The Merger Agreement provides that, immediately prior
to the Effective Time, each holder of a Stock Option, whether or not then
presently exercisable, will be entitled to receive a cash payment from the
Company equal to the product of (a) the total number of Shares then subject to
each such Stock Option with an exercise price less than the per Share Merger
Consideration and (b) the excess of the per Share Merger Consideration over the
exercise price per Share subject to such Stock Option, subject to any required
withholding of taxes, and the Stock Options will be canceled and will cease to
exist.
CVCA Warrants. The Merger Agreement provides that, immediately prior to the
Effective Time, the holder of the CVCA Warrants will, to the extent such
warrants have not previously been exercised, be entitled to receive a cash
payment from Purchaser equal to the product of (a) 47,806 (the total number of
Shares then subject to such CVCA Warrants) and (b) the excess of the per Share
Merger Consideration over $0.004545 (the exercise price per Share subject to the
CVCA Warrants). As a condition to such payment, the holder of the CVCA Warrants
must provide to Purchaser a written acknowledgment that such payment satisfies
in full all of the Company's obligations to such person pursuant to such
warrants.
Rights Agreement. The Company has issued Rights pursuant to the Rights
Agreement. The Merger Agreement provides that the Company's Board of Directors
has taken all necessary action to provide that neither Parent nor Purchaser will
become an "Acquiring Person" such that no "Shares Acquisition Date" or
"Distribution Date" (as such terms are defined in the Rights Agreement) will
occur and that Section 11.1.2 of the Rights Agreement will not be triggered as a
result of the announcement, commencement or consummation of the Offer, the
execution or delivery of the Merger Agreement or any amendments thereto, the
consummation of the Merger, or the consummation of the transactions contemplated
by the Merger Agreement. Under the Merger Agreement, the Company has agreed,
should Parent or Purchaser so request, to redeem the Rights effective
immediately prior to Purchaser's acceptance of Shares for purchase pursuant to
the Offer. No such request has been made as of the date of this Offer to
Purchase.
No Solicitation. The Company has agreed, has agreed to cause its officers
and directors and, has agreed to use its reasonable best efforts to cause its
employees, representatives and agents to cease any existing discussions or
negotiations with any parties with respect to any Third Party Transaction. A
"Third Party Transaction" means the acquisition of beneficial ownership of all
or a majority of the assets of, or a majority equity interest in, the Company
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock, sale of assets, tender offer or exchange offer or other
business combination, sale of shares of capital stock, sale of assets, tender
offer or exchange offer or other business acquisition or combination transaction
involving the Company and its subsidiaries, including any single transaction or
series of related transactions which is structured to permit such a party other
than Parent, Purchaser or an affiliate thereof (a "Third Party") to acquire
beneficial ownership of a majority of the assets of, or majority equity interest
in, the Company (other than transactions contemplated by the Merger Agreement).
25
<PAGE> 28
The Company has also agreed that the Company and its subsidiaries will not,
and will cause its officers and directors, and has agreed to use its reasonable
best efforts to cause its employees and representatives of the Company and its
subsidiaries not, to solicit any inquiries with respect to any unsolicited, bona
fide written proposal made by a Third Party to enter into a Third Party
Transaction (an "Acquisition Proposal") (other than the transactions
contemplated by the Merger Agreement) or, except as discussed below, to engage
in negotiations or discussions with, or furnish any confidential information
relating to the Company or any of its subsidiaries to, any Third Party relating
to an Acquisition Proposal. Notwithstanding anything to the contrary in the
Merger Agreement, the Company and its representatives may furnish information
to, and participate in discussions or negotiations with, any Third Party which
submits an Acquisition Proposal if the Company's Board of Directors, in its good
faith judgment by a majority vote, after consultation with the Company's outside
legal counsel and financial advisor, determines that the proposal constitutes a
Superior Offer and that, based as to legal matters on the advice of outside
legal counsel, the failure to furnish such information or participate in such
discussions or negotiations could reasonably be expected to result in a breach
of their fiduciary duties under applicable law.
The Company has also agreed that it will not enter into a definitive
written agreement providing for a Third Party Transaction except concurrently
with or after the termination of the Merger Agreement in accordance with its
terms. The Company will promptly provide Parent with a reasonable description of
any Acquisition Proposal received (including a summary of all material terms
and, unless it is prohibited from disclosing the same, the identity of the Third
Party making such Acquisition Proposal). The Company will also promptly inform
Parent of the status and content of any discussions regarding any Acquisition
Proposal.
The Company has further agreed not to disclose non-public information to
any Third Party making an Acquisition Proposal unless such party enters into a
confidentiality agreement with the Company. The Company will notify Parent of
such event and identify the person with whom the agreement was executed, unless
such disclosure is prohibited.
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
provides that after the Effective Time, Parent and the Surviving Corporation
will perform the obligations of the Company under the indemnification agreements
between the Company and the directors and certain officers of the Company
previously identified to Parent. After the consummation of the Merger, the
Surviving Corporation will remain responsible for officers' and directors' right
to indemnification and exculpation provided for in the Amended and Restated
Certificate of Incorporation and By-Laws of the Company as in effect on the date
of the Merger Agreement, with respect to the acts and omissions occurring prior
to the Effective Time, including, without limitation, the transactions
contemplated by the Merger Agreement. Further, Parent has agreed that for six
years after the Effective Time, Parent or the Surviving Corporation will
maintain officers' and directors' liability insurance covering the persons who
are presently covered by the Company's officers' and directors' liability
insurance policies with respect to acts and omissions occurring prior to the
Effective Time, on terms which are not less favorable than that in effect on the
date of the Merger Agreement; provided, however, that Parent will not be
obligated to make annual premium payments for such insurance exceeding 175% of
the annual premiums paid as of the date of the Merger Agreement (the "Maximum
Amount"). If the cost of such insurance exceeds the Maximum Amount, Parent and
the Surviving Corporation will maintain the most advantageous policies of
directors and officers insurance obtainable for an annual premium equal to the
Maximum Amount.
The Merger Agreement also provides that, to the fullest extent permitted by
applicable law, from and after the purchase of the Shares pursuant to the Offer,
Parent, Purchaser and the Company will indemnify and hold harmless, and from and
after the Effective Time, Parent and the Surviving Corporation will indemnify
and hold harmless, each present and former director and officer of the Company
for acts and omissions pertaining to the transactions occurring prior to the
Effective Time including, without limitation, events contemplated by the Merger
Agreement. The Company or the Surviving Corporation have also agreed to advance
such expenses to each former director and officer of the Company and to
cooperate fully in the defense of any such matter.
26
<PAGE> 29
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, the Company's organization, capitalization,
authority to enter into the Merger Agreement and to consummate the transactions
contemplated thereby, potential conflicts, consents and approvals, public
filings, absence of certain events, undisclosed liabilities, litigation,
compliance with laws, tax matters, termination, severance and employment
agreements, employee benefit plans, environmental matters, assets (including
real property and intellectual property), broker's fees, labor matters and
information set forth in the Schedule 14D-9. None of the representations or
warranties in the Merger Agreement will survive the Effective Time of the
Merger.
Access; Confidentiality. The Company has agreed, until the Effective Time,
to give Parent and its authorized representatives access during normal business
hours to all facilities, books and records of the Company and its subsidiaries
and to permit Parent to make such inspections as it may reasonably require. In
addition, the Company has agreed to use reasonable efforts to cause its
accountants to furnish such financial and operating data as Parent may
reasonably request. Pursuant to the Letter Agreement, Parent has agreed to hold
in confidence all information concerning the Company and its subsidiaries and
not to use that information in any way detrimental to the Company. A copy of the
Letter Agreement is filed as an Exhibit to the Schedule 14D-1 and is
incorporated herein by reference.
Amendment. Subject to applicable law, the Company, Parent and Purchaser may
amend or supplement the Merger Agreement at any time before or after stockholder
approval of the Merger Agreement, but after the purchase of Shares pursuant to
the Offer, no amendment may be made which decreases the price per Share, changes
the form of consideration to be received by the holders of Shares in the Merger
or which adversely affects the rights of stockholders of the Company under the
Merger Agreement without the approval of such stockholders and, if required, the
Special Committee.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned, notwithstanding approval thereof by the stockholders of the Company,
at any time prior to the Effective Time,
(a) by mutual written consent of Parent and the Company (including, if
required, the Special Committee);
(b) by Parent, Purchaser or the Company if the Effective Time has not
occurred on or before April 30, 1998; provided, however, that the right to
terminate the Merger Agreement will not be available to (i) Parent if it or
its affiliates have purchased Shares pursuant to the Offer or (ii) any
party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of the failure of the Effective Time to occur on or
before such date;
(c) by Parent, Purchaser or the Company if any court of competent
jurisdiction or other governmental body has taken action restraining or
otherwise prohibiting the Offer or the Merger and such action has become
final and nonappealable;
(d) by the Company (i) if the Company has not materially breached any
representation, warranty, covenant or agreement and Purchaser has failed to
commence the Offer within the time required by Regulation 14D under the
Exchange Act or terminated the Offer or allowed it to expire, or (ii) prior
to the acceptance of any Shares pursuant to the Offer, if a Third Party has
made an Acquisition Proposal that the Board of Directors of the Company,
after consultation with the Company's outside legal counsel and financial
advisor, determines constitutes a Superior Offer, and the Board, after
consultation with the Company's outside legal counsel, determines, in its
good faith judgment, that a withdrawal, modification or change of
recommendation or approval is required for the Board to comply with its
fiduciary duties under applicable law;
(e) by Parent if (i) Purchaser has failed to commence the Offer due to
an occurrence which would result in a failure to satisfy any of the
conditions set forth in paragraphs (a) through (f) of Section 14 or (ii)
the Offer has expired or been terminated without any Shares being purchased
thereunder by Purchaser as a result of a failure of any of the conditions
set forth in Section 14;
27
<PAGE> 30
(f) by Parent or Purchaser prior to the acceptance of any Shares for
purchase pursuant to the Offer, if (i) the Company has breached any
representation or warranty in the Merger Agreement having a Company
Material Adverse Effect, which breach has not been cured prior to 10 days
following notice of such breach, (ii) the Company has breached any covenant
or agreement in the Merger Agreement which materially adversely affects the
consummation of the Offer, which breach has not been cured prior to 10 days
following notice of such breach, or (iii) the Company's Board of Directors
has withdrawn its approval or recommendation of the Offer, the Merger, or
the Merger Agreement, or has recommended another offer to the Company's
stockholders;
(g) by the Company if (i) Parent has breached any representation or
warranty in the Merger Agreement which materially adversely affects the
consummation of the Offer, which breach has not been cured prior to 10 days
following notice of such breach, or (ii) Parent or Purchaser has materially
breached any covenant or agreement in the Merger Agreement which materially
adversely affects the consummation of the Offer which has not been cured
prior to 10 days following notice of such breach; or
(h) by the Company if (i) after 90 days from the date of the Merger
Agreement any government agency shall have commenced and be continuing any
formal or informal investigations of the transactions contemplated by the
Merger Agreement and (ii) the Company delivers written notice to Parent or
Purchaser of its intent to terminate the Merger Agreement and Parent and
Purchaser fail to resolve the government agency investigation within 10
business days of such notice.
The Merger Agreement provides that in the event of termination, all legal
and other costs and expenses incurred in connection with the Merger Agreement
and the transactions contemplated thereby will be paid by the party incurring
such costs and expenses; provided, however, that if the Company terminates the
Merger Agreement in accordance with subsection (d)(ii) above, then the Company
will pay to Parent $2.2 million within three business days thereafter, and if
the Company terminates the Merger Agreement in accordance with Subsection
(d)(ii) above and consummates a Third Party Transaction within nine months from
the date of termination of the Merger Agreement, the Company will pay Parent an
additional fee in the amount of $2.2 million within three business days of the
consummation of the Third Party Transaction.
Timing. The exact timing and details for the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Parent and Purchaser have
agreed to cause the Merger to be consummated on the terms described above, there
can be no assurance as to the timing of the Merger.
Appraisal Rights. Holders of Shares do not have dissenters' rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
will have certain rights pursuant to the provisions of Section 262 of the DGCL
to dissent and demand appraisal of, and to receive payment in cash of the fair
value of, their Shares. If the statutory procedures are complied with, such
rights could lead to a judicial determination of the fair value required to be
paid in cash to such dissenting holders for their shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than or in addition to the Offer Price or the market value of the Shares,
including asset values and the investment value of the Shares. The value so
determined could be more or less than the Offer Price or the Merger
Consideration.
If any stockholder who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses the right to appraisal, as
provided in the DGCL, the Shares of such stockholder will be converted into the
Merger Consideration in accordance with the Merger Agreement. A stockholder may
withdraw a demand for appraisal by delivery to Parent of a written withdrawal of
the demand for appraisal and acceptance of the Merger. The full text of DGCL
Section 262 is attached to this Offer to Purchase as Annex II.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS WILL RESULT IN THE LOSS OF SUCH RIGHTS.
28
<PAGE> 31
13. DIVIDENDS AND DISTRIBUTIONS
If prior to the Effective Time, the outstanding Shares are changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or a stock dividend thereon is declared with a record date prior
to the Effective Time, the amount of the per Share Merger Consideration will be
correspondingly adjusted.
The Merger Agreement prohibits the Company from taking the foregoing
actions and from declaring or paying any dividend or distribution on any shares
of its capital stock (other than dividends paid by wholly owned subsidiaries of
the Company to the Company or a redemption of the Rights if otherwise permitted
or required thereby).
14. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment, purchase or pay for any Shares tendered until
the expiration or termination of any applicable waiting period under the HSR
Act, and Purchaser may terminate or, subject to the terms of the Merger
Agreement, amend the Offer and may postpone the purchase of, and payment for,
Shares if fewer than a majority of the Shares then issued and outstanding on a
fully diluted basis (including without limitation, all Shares issuable upon the
exercise of any options, warrants or rights) are validly tendered and not
withdrawn prior to the Expiration Date (the "Minimum Condition") or if, at any
time on or after the date of the Merger Agreement, and prior to the time of
acceptance of any such Shares for payment, any of the following events shall
occur and remain in effect:
(a) an order shall have been entered in any action or proceeding
before any United States federal or state court or governmental agency or
other United States regulatory or administrative agency or commission (an
"Order"), or a preliminary or permanent injunction by a United States court
of competent jurisdiction shall have been issued and remain in effect (an
"Injunction"), which in either case (i) prohibits the making or
consummation of the Offer or the consummation of the Merger, (ii)
significantly restricts the ability of Purchaser, or renders Purchaser
unable, to accept for payment, pay for or purchase Shares sufficient to
satisfy the Minimum Condition in the Offer or the remaining Shares
outstanding in the Merger (other than as a result of the exercise of
dissenters' rights and other than for delays or restrictions that are not
material to Parent and Purchaser), (iii) prohibits or restricts the
ownership or operation by Parent or Purchaser (or any of their respective
affiliates or subsidiaries) of any portion of its or the Company's business
or assets which is material to the business of the Company and its
subsidiaries taken as a whole or of Parent and its subsidiaries taken as a
whole or compels Parent or Purchaser (or any of their respective affiliates
or subsidiaries) to dispose of or hold separate any portion of its or the
Company's business or assets which is material to the business of the
Company and its subsidiaries taken as a whole or of Parent and its
subsidiaries taken as a whole, (iv) imposes material limitations on the
ability of Purchaser effectively to acquire or to hold or to exercise full
rights of ownership of the Shares, including, without limitation, the right
to vote the Shares purchased by Purchaser on all matters properly presented
to the stockholders of the Company, (v) imposes any material limitations on
the ability of Parent or Purchaser or any of their respective affiliates or
subsidiaries effectively to control in any material respect the business
and operations of the Company and its subsidiaries, or (vi) which otherwise
would result in a Company Material Adverse Effect; provided, however, that
Parent and Purchaser shall have complied with Section 5.5 of the Merger
Agreement and that in order to invoke this condition Parent and Purchaser
shall have used their respective reasonable best efforts to prevent such
Order or Injunction or ameliorate the effects thereof; and provided,
further, that if the Order or Injunction is a temporary restraining order
or preliminary injunction of a court of competent jurisdiction Purchaser
may not by virtue of this condition alone amend or terminate the Offer, but
may only extend the Offer and thereby postpone acceptance for payment or
purchase of Shares; or
(b) there shall have been any United States federal or state statute,
rule or regulation enacted or promulgated after the date of the Offer that
would result in any of the material adverse consequences referred to in
paragraph (a) above; or
29
<PAGE> 32
(c) there shall have occurred and be continuing (in any event, for not
less than two consecutive days) (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or on the Nasdaq National Market, (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) the commencement of a war, armed
hostilities or other international or national calamity directly involving
the United States, (iv) from the date of commencement of the Offer, a
decline of at least 25 percent in the Standard & Poor's 500 Index, (v) any
limitation by any U.S. governmental authority or agency that materially
affects generally the extension of credit by banks or other financial
institutions or (vi) in the case of any of the foregoing existing at the
time of the commencement of the Offer, a material acceleration or worsening
thereof; or
(d) the Company shall have breached or failed to perform in any
material respect any of its obligations, covenants or agreements contained
in the Merger Agreement or any of the representations and warranties of the
Company set forth in the Merger Agreement (other than such breaches,
failures to perform or inaccuracies which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect); or
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) the Board of Directors of the Company shall have publicly
withdrawn or modified in any manner adverse to Purchaser its recommendation
that stockholders accept the Offer; provided, however, that Purchaser shall
not be entitled to terminate the Offer pursuant to this paragraph if, as a
result of a Superior Offer, the Company withdraws or modifies its approval
or recommendation of the transactions contemplated hereby by reason of
taking, and disclosing to the Company's stockholders, a position with
respect to a tender offer contemplated by Rules 14d-9 and 14e-2 promulgated
under the Exchange Act and if, within five business days of taking and
disclosing such position, the Company publicly reaffirms its recommendation
of the transactions contemplated by the Merger Agreement which in the
reasonable judgment of Parent with respect to each and every matter
referred to above regardless of the circumstances (including any action or
inaction by Parent or Purchaser) giving rise to any such condition, makes
it advisable to proceed with the Offer or with such acceptance for payment
or payment.
The foregoing conditions set forth in paragraph (a) through (f) are for the
sole benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such conditions (including any action or
inaction by Purchaser) or, subject to the terms of the Merger Agreement, may be
waived by Purchaser in whole or in part. The failure by Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and such right shall be deemed a continuing right which may be asserted at
any time and from time to time.
15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
Based on a review of publicly available filings made by the Company with
the Commission and other publicly available information concerning the Company,
neither Purchaser nor Parent is aware of any license or regulatory permit that
appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by Purchaser's acquisition of
Shares as contemplated herein or of any approval or other action, except as
otherwise described in this Section 15, by any governmental entity that would be
required for the acquisition or ownership of Shares by Purchaser as contemplated
herein. Should any such approval or other action be required, Purchaser and
Parent currently contemplate that such approval or other action will be sought.
While Purchaser does not presently intend to delay the acceptance for payment of
or payment for 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 failure to obtain any such approval or other action might not result in
consequences adverse to the Company's business or that certain parts of the
Company's business might not have to be disposed of if such approvals were not
obtained or such other actions were not taken. Purchaser's obligations under the
Offer to accept for payment and pay for Shares are subject to certain conditions
including conditions relating to certain of the legal matters discussed in this
Section 15. See Section 14.
30
<PAGE> 33
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive offices or places of business in such states. In
Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS Corp.
v. Dynamics Corp. of America, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquirer from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions.
Section 203 of the DGCL limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined as any
beneficial owner of 15% or more of the outstanding voting stock of the
corporation) unless, among other things, the corporation's board of directors
has given its prior approval to either the business combination or the
transaction which resulted in the stockholder becoming an "interested
stockholder." The Company's Board of Directors has approved the Merger Agreement
and Purchaser's acquisition of Shares pursuant to the Offer and, therefore,
Section 203 of DGCL is inapplicable to the Merger.
Based on information supplied by the Company, Purchaser does not believe
that any state takeover statutes purport to apply to the Offer or the Merger.
Neither Purchaser nor Parent has currently complied with any state takeover
statute or regulation. Purchaser reserves the right to challenge the
applicability or validity of any state law purportedly applicable to the Offer
or the Merger and nothing in this Offer to Purchase or any action taken in
connection with the Offer or the Merger is intended as a waiver of such right.
If it is asserted that any state takeover statute is applicable to the Offer or
the Merger and an appropriate court does not determine that it is inapplicable
or invalid as applied to the Offer or the Merger, Purchaser might be required to
file certain information with, or to receive approvals from, the relevant state
authorities, and Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer, or be delayed in consummating the Offer
or the Merger. In such case, Purchaser may not be obliged to accept for payment
or pay for any Shares tendered pursuant to the Offer.
Antitrust. Under the provisions of the HSR Act applicable to the Offer, the
purchase of Shares under the Offer may be consummated following the expiration
of a 15-calendar day waiting period following the filing by LDI, as the ultimate
parent entity of Parent, of a Notification and Report Form with respect to the
Offer, unless LDI receives a request for additional information or documentary
material from the Antitrust Division of the Department of Justice (the
"Antitrust Division) or the Federal Trade Commission (the "FTC") or unless early
termination of the waiting period is granted. LDI will make such filing on or
about the date of this Offer to Purchase. If, within the initial 15-day waiting
period, either the Antitrust Division or the FTC requests additional information
or material from LDI concerning the Offer, the waiting period will be extended
and would expire at 11:59 p.m., New York City time, on the tenth calendar day
after the date of substantial compliance by LDI with such request. Only one
extension of the waiting period pursuant to a request for additional information
is authorized by the HSR Act. Thereafter, such waiting period may be extended
only by court order or with the consent of LDI. In practice, complying with a
request for additional information or material can take a significant amount of
time. In addition, if the Antitrust Division or the FTC raises substantive
issues in connection with a proposed transaction, the parties frequently engage
in negotiations with the relevant governmental agency concerning possible means
of addressing those issues and may agree to delay consummation of the
transaction while such negotiations continue.
The Merger would not require an additional filing under the HSR Act if
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as Purchaser's proposed acquisition of
the Company. At any time before or after Purchaser's purchase of Shares pursuant
to the Offer, the Antitrust Division or FTC could take such action under the
31
<PAGE> 34
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of Shares pursuant to the Offer or the
consummation of the Merger or seeking the divestiture of Shares acquired by
Purchaser or the divestiture of substantial assets of Parent or its
subsidiaries, or the Company or its subsidiaries. Private parties may also bring
legal action under the antitrust laws under certain circumstances. There can be
no assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such a challenge is made, of the results thereof.
Federal Reserve Board Regulations. Regulations G, U and X (the "Margin
Regulations") of the Federal Reserve Board restrict the extension or maintenance
of credit for the purpose of buying or carrying margin stock, including the
Shares, if the credit is secured directly or indirectly by margin stock. Such
secured credit may not be extended or maintained in an amount that exceeds the
maximum loan value of all the direct and indirect collateral securing the
credit, including margin stock and other collateral.
The security arrangements for the financing described in Section 10 of this
Offer to Purchase will be negotiated by Parent and NBD. Such financing may be
directly or indirectly secured by the Shares or other securities which
constitute margin stock. Pursuant to the Margin Regulations, the maximum loan
value of margin stock is presently 50% of its current market value, which in the
case of credit used to purchase securities, means the total cost of purchase of
such securities. The loan value of collateral other than margin stock is the
amount that a lender would in good faith lend against such collateral without
regard to other loan or collateral arrangements such lender might have. It is
Parent's intention that all financing for the Offer and the Merger be in full
compliance with the Margin Regulations, and Parent believes that direct or
indirect margin stock and other collateral having an aggregate loan value in
excess of the entire amount of the financing will be available to comply fully
with the Margin Regulations.
Going Private Transactions. The Merger would have to comply with any
applicable Federal law operative at the time of its consummation. Rule 13e-3
under the Exchange Act is applicable to certain "going private" transactions.
Purchaser does not believe that Rule 13e-3 will be applicable to the Merger
unless the Merger is consummated more than one year after the termination of the
Offer. If applicable, Rule 13e-3 would require, among other things, that certain
financial information concerning the Company and certain information relating to
the fairness of the Merger and the consideration offered to minority
stockholders be filed with the Commission and disclosed to minority stockholders
prior to consummation of the Merger.
16. FEES AND EXPENSES
Except as described below, neither Purchaser nor Parent will pay any fees
or commissions to any broker or dealer or other person in connection with the
solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks
and trust companies will be reimbursed by Purchaser upon request for customary
mailing and handling expenses incurred by them in forwarding material to their
customers.
Smith Barney is acting as Dealer Manager for the Offer and as Parent's
exclusive financial advisor in connection with Parent's proposed acquisition of
the Company, for which services Smith Barney will receive customary
compensation. Parent also has agreed to reimburse Smith Barney for reasonable
travel and other out-of-pocket expenses, including reasonable legal fees and
expenses, and to indemnify Smith Barney and certain related parties against
certain liabilities, including liabilities under the federal securities laws,
arising out of Smith Barney's engagement. In the ordinary course of business,
Smith Barney and its affiliates may actively trade or hold the securities of
Parent and the Company for their own account or for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Purchaser has retained Morrow & Co., Inc. to act as the Information Agent
and First Chicago Trust Company of New York to act as the Depositary in
connection with the Offer. The Information Agent and the Depositary each will
receive reasonable and customary compensation for their services, be reimbursed
for certain reasonable out-of-pocket expenses and be indemnified against certain
liabilities and expenses in connection therewith, including certain liabilities
under the federal securities laws.
Neither Purchaser nor Parent, nor any officer, director, stockholder, agent
or other representative of Purchaser or Parent, will pay any fees or commissions
to any broker, dealer or other person (other than the
32
<PAGE> 35
Information Agent and the Dealer Manager) for soliciting tenders of Shares
pursuant to the Offer. Brokers, dealers, commercial banks and trust companies
and other nominees will, upon request, be reimbursed by Purchaser for customary
mailing and handling expenses incurred by them in forwarding materials to their
customers.
17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. Neither Purchaser nor Parent is aware of any jurisdiction in which
the making of the Offer or the tender of Shares in connection therewith would
not be in compliance with the laws of such jurisdiction. To the extent Purchaser
or Parent becomes aware of any state law that would limit the class of offerees
in the Offer, Purchaser will amend the Offer and, depending on the timing of
such amendment, if any, will extend the Offer to provide adequate dissemination
of such information to holders of Shares prior to the expiration of the Offer.
In any jurisdiction the securities, blue sky or other laws of which require the
Offer to be made by a licensed broker or dealer, the Offer is being made on
behalf of Purchaser 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 TO MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR PARENT NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Purchaser or Parent has filed with the Commission the Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional
information with respect to the Offer. In addition, the Company has filed with
the Commission the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act,
setting forth its recommendation with respect to the Offer and the reasons for
such recommendation and furnishing certain additional related information. Such
Schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable in the manner set forth in
Sections 8 and 9 (except that they will not be available at the regional offices
of the Commission).
FMST ACQUISITION CORPORATION
October 21, 1997
33
<PAGE> 36
ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
The name, business address, present principal occupation or employment and
five-year employment history of each director and executive officer of Parent
and certain other information are set forth below. Unless otherwise indicated
below, the address of each director and officer is c/o LDI, Ltd., 54 Monument
Circle, Indianapolis, Indiana 46204, and each occupation set forth below an
individual's name refers to employment with Parent. All directors and officers
listed below are citizens of the United States.
ANDRE B. LACY,
Chairman of the Board and
Chief Executive Officer....... Mr. Lacy was elected Chairman Board and Chief
Executive of the Board of Directors and Officer
Chief Executive Officer of the Parent in July,
1996. Mr. Lacy is President, Chief Executive
Officer and Chairman of the Board of Directors
of LDIM, the managing general partner of LDI.
Mr. Lacy, individually, also serves as a
general partner of LDI. Mr. Lacy serves as
President, Chief Executive Officer and Chairman
of the Board of Directors of Lacy and he has
served as Chairman of the Board of Directors
and Chief Executive Officer of AutoPaints,
since its formation in April, 1996. Except for
his position with the Parent and AutoPaints,
Mr. Lacy has served in these capacities for
more than the previous five years. Mr. Lacy
also serves as a director of Tredegar
Industries, Inc., Albemarle Corporation, IPALCO
Enterprises, Inc., Herff Jones, Inc., The
National Bank of Indianapolis, and Patterson
Dental Company.
THOMAS U. YOUNG,
Director, President and Chief
Operating Officer............. Mr. Young was named Vice President and Chief
Operating Chairman of the Board of Officer
Directors of the Parent in July 1996, and was
subsequently elected President and Chief
Operating Officer of the Parent effective July
24, 1996. Mr. Young has served as a Vice
President of LDIM and as President and Chief
Operating Officer of AutoPaints since June
1996. From 1989 until May 31, 1996, Mr. Young
served as the World Wide Director of the
Refinish Business for E.I. Dupont de Nemours &
Co., Wilmington, Delaware. Mr. Young's
principal business address is 4259 40th Street,
S.E., Kentwood, Michigan 49512.
MARGOT L. ECCLES,
Director...................... Ms. Eccles has served as a director of the
Parent since July 1996. She has served as a
director of LDIM and as its Vice President and
Assistant Secretary for more than the previous
five years. Ms. Eccles also serves as a
director, Vice President and Assistant
Secretary of Lacy, and she has served as a
director and Assistant Secretary of AutoPaints
since its formation in April 1996.
WILLIAM J. FENNESSY,
Director and Treasurer........ Mr. Fennessy has served as the Treasurer and as
a director of the Parent since July 1996. He
has served as Vice President, Treasurer and
Chief Financial Officer of LDIM for more than
the previous five years. Mr. Fennessy also
serves as a director and as the Vice President,
Treasurer and Chief Financial Officer of Lacy,
and he
34
<PAGE> 37
has served as a director and Treasurer of
AutoPaints since its formation in April 1996.
PETER L. FRECHETTE,
Director...................... Mr. Frechette has served as a director of the
Parent since August 1996. He has also served as
Chairman of the Board, President, and Chief
Executive Officer of Patterson Dental Company,
a distributor of dental supplies and equipment
based in St. Paul, Minnesota, for more than the
past five years. His principal business address
is 1031 Mendota Heights Road, St. Paul,
Minnesota 55120.
WALTER S. WISEMAN,
Director...................... Mr. Wiseman has served as a director of the
Parent since July 1996. He has served as a Vice
President of LDIM for more than the last five
years. He served as President of Major Video
Concepts, Inc. ("MVC"), a wholesale distributor
of videocassettes based in Indianapolis,
Indiana, and a wholly owned subsidiary of Lacy
from June, 1987 until March 31, 1997.
ROBERT H. REYNOLDS,
Secretary..................... Mr. Reynolds is the Secretary of Parent and of
LDIM. Mr. Reynolds has been a partner of the
law firm of Barnes & Thornburg for more than
five years. Mr. Reynolds's business address is
11 South Meridian Street, Indianapolis, Indiana
46204.
ROGER A. SOROKIN,
Vice President -- Finance and
Chief Financial Officer....... Mr. Sorokin has been the Vice President --
Finance and Chief Financial Officer of Parent
for more than the last five years. His business
address is 4259 40th Street, S.E., Kentwood,
Michigan 49512.
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
The name, business address, present principal occupation or employment and
five-year employment history of each director and executive officer of Purchaser
and certain other information are set forth below. Unless otherwise indicated
below, the address of each director and officer is c/o 54 Monument Circle,
Indianapolis, Indiana 46204, and each occupation set forth below an individual's
name refers to employment with Purchaser. All directors and officers listed
below are citizens of the United States.
ANDRE B. LACY,
Chairman of the Board and
Chief Executive Officer....... Mr. Lacy has served as the Chairman of the
Board and Chief Executive Officer of Purchaser
since its incorporation in October 1997. Mr.
Lacy is President, Chief Executive Officer and
Chairman of the Board of Directors of LDIM, the
corporate managing general partner of LDI. Mr.
Lacy, individually, also serves as a general
partner of LDI. Mr. Lacy serves as President,
Chief Executive Officer and Chairman of the
Board of Directors of Lacy, and he has served
as Chairman of the Board of Directors and Chief
Executive Officer of AutoPaints, since its
formation in April 1996. Except for his
position with the Parent, Purchaser and
AutoPaints, Mr. Lacy has served in these
capacities for more than the previous five
years. Mr. Lacy also serves as a director of
35
<PAGE> 38
Tredegar Industries, Inc., Albemarle
Corporation, IPALCO Enterprises, Inc., Herff
Jones, Inc., The National Bank of Indianapolis,
and Patterson Dental Company.
THOMAS U. YOUNG,
Director and President........ Mr. Young has served as President and as a
director of Purchaser since its formation in
October 1997. Mr. Young was named Vice Chairman
of the Board of Directors of the Parent in July
1996, and was subsequently elected President
and Chief Operating Officer of the Parent
effective July 24, 1996. Mr. Young has served
as a Vice President of LDIM and as President
and Chief Operating Officer of AutoPaints since
June 1996. From 1989 until May 31, 1996, Mr.
Young served as the World Wide Director of the
Refinish Business for E.I. Dupont de Nemours &
Co., Wilmington, Delaware. Mr. Young's
principal business address is 40th Street,
S.E., Kentwood, Michigan 49512.
MARGOT L. ECCLES,
Director, Vice President and
Assistant Secretary........... Ms. Eccles has served as Vice President,
Assistant Secretary and a director of Purchaser
since its formation in October 1997. Ms. Eccles
has served as a director of the Parent since
July 1996. She has served as a director of LDIM
and as its Vice President and Assistant
Secretary for more than the previous five
years. Ms. Eccles also serves as a director,
Vice President and Assistant Secretary of Lacy,
and she has served as a director and Assistant
Secretary of AutoPaints since its formation in
April 1996.
WILLIAM J. FENNESSY,
Director and Treasurer........ Mr. Fennessy has served as Treasurer and a
director of Purchaser since its formation in
October 1997. Mr. Fennessy has served as the
Treasurer and as a director of the Parent since
July 1996. He has served as Vice President,
Treasurer and Chief Financial Officer of LDIM
for more than the previous five years. Mr.
Fennessy also serves as a director and as the
Vice President, Treasurer and Chief Financial
Officer of Lacy, and he has served as a
director and Treasurer of AutoPaints since its
formation in April 1996.
ROBERT H. REYNOLDS,
Director and Secretary........ Mr. Reynolds has served as Secretary and a
director of Purchaser since its formation in
October 1997. Mr. Reynolds is the Secretary of
Parent and LDIM. Mr. Reynolds has been a
partner of the law firm of Barnes & Thornburg
for more than five years. Mr. Reynolds's
business address is 11 South Meridian Street,
Indianapolis, Indiana 46204.
36
<PAGE> 39
DIRECTORS AND EXECUTIVE OFFICERS OF CONTROLLING PERSONS
The name, business address, present principal occupation or employment and
five-year employment history of each director and executive officer of
Controlling Persons (as defined in the Exchange Act) who are not executive
officers or directors of Parent or Purchaser and certain other information are
set forth below. All directors and officers listed below are citizens of the
United States.
J. FRED RISK.................. Mr. Risk is a director of LDIM. Mr. Risk has
served as the Chairman of Security Group, Inc.,
in Indianapolis, Indiana for more than the last
five years. His principal business address is
7801 North Pennsylvania Street, Indianapolis,
Indiana 46240.
RAMON L. HUMKE................ Mr. Humke serves as a director of LDIM. He has
been the President and Chief Operating Officer
of IPALCO Enterprises, Inc., an electric
utility in Indianapolis, Indiana, for more than
the last five years. Mr. Humke's principal
business address is One Monument Circle,
Indianapolis, Indiana 46204.
ROBERT A. NICKELL............. Mr. Nickell serves as a director and a Vice
President of LDIM. He has been the Chairman and
President of Tucker Rocky Distributing for more
than the last five years. His business address
is 2120 Walnut Hill, Suite 222, Irving, Texas
75038.
RICHARD A. HEISE.............. Mr. Heise is a director of LDIM. Mr. Heise has
been a partner of Casati-Heise Partnership, a
real estate owner and developer in Chicago,
Illinois for more than the last five years. His
business address is 440 LaSalle Street, Suite
2909, Chicago, Illinois 60605.
JOYCE M. SCHOOLEY............. Ms. Schooley has been the Vice President --
Human Resources of LDIM for more than the last
five years. Her business address is 54 Monument
Circle, Indianapolis, Indiana 46204.
DAVID N. SHANE................ Mr. Shane has been a Vice President and
Corporate Counsel for LDIM since August 1,
1997. Mr. Shane was a partner of the law firm
of Baker & Daniels in Indianapolis, Indiana
from January 1, 1982 through December 31, 1995
and served as the President of Community
Leaders Allied for Superior Schools from
January 15, 1996 through July 31, 1997.
37
<PAGE> 40
ANNEX II
Set forth below is Section 262 of the General Corporation Law of the State
of Delaware regarding appraisal rights, which rights will only be available in
connection with the Merger.
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
sec. 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 sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the 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 sec.sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251), 252, 254, 257, 258, 263 or 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 holders of the surviving corporation as
provided in subsection (f) of sec. 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
sec.sec. 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 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.
38
<PAGE> 41
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 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.
(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 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 his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his 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 his 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 sec. 228
or sec. 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 twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder'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 holder'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
39
<PAGE> 42
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.
(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 his 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
his 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 his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
40
<PAGE> 43
(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.
(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 his 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 his 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.
41
<PAGE> 44
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each shareholder of the Company or his
broker, dealer, commercial bank or other nominee to the Depositary at one of its
addresses set forth below.
The Depositary for the Offer is:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By Mail:
Tenders & Exchanges
P.O. Box 2569
Suite 4660-Thompson
Jersey City, New Jersey
07303-2569
Facsimile Transmission
(For Eligible Institutions Only):
(201) 222-4720
or
(201) 222-4721
Confirm Receipt of Notice of
Guaranteed Delivery
(201) 222-4707
By Overnight Courier:
Tenders & Exchanges
14 Wall Street
8th Floor
Suite 4680-Thompson
New York, New York 10005
By Hand:
Tenders & Exchanges
c/o The Depository Trust Company
55 Water Street
DTC TAD
Vietnam Veterans Memorial Plaza
New York, New York 10041
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Information Agent at its telephone numbers and location
listed below. You may also contact your broker, dealer, commercial bank or trust
company or nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
[MORROW & CO., INC. LOGO]
909 Third Avenue
20th Floor
New York, New York 10022
(212) 754-8000
Toll Free: (800) 566-9061
Banks and Brokerage Firms, please call:
(800) 662-5200
The Dealer Manager for the Offer is:
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
(212) 816-7401
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE STOCK PURCHASE RIGHTS ASSOCIATED THEREWITH)
OF
THOMPSON PBE, INC.
AT
$8.00 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE
DATED OCTOBER 21, 1997
BY
FMST ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
FINISHMASTER, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, NOVEMBER 18, 1997, UNLESS EXTENDED
- --------------------------------------------------------------------------------
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
OR HER BROKER, DEALER, BANK OR OTHER NOMINEE TO THE DEPOSITORY AT ONE OF ITS
ADDRESSES SET FORTH BELOW.
The Depositary for the Offer is:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<C> <C> <C>
By Mail: By Hand: By Overnight Courier:
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 c/o The Depository Trust Company 14 Wall Street
Suite 4660 - Thompson 55 Water Street 8th Floor
Jersey City, New Jersey DTC TAD Suite 4680 - Thompson
07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005
New York, New York 10041
- ---------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ---------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
SHARE CERTIFICATE(S) AND SHARES TENDERED) (ATTACHED ADDITIONAL SIGNED LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
SHARE REPRESENTED BY NUMBER OF
CERTIFICATE SHARE SHARES
NUMBER(S)(1) CERTIFICATE(S)(2) TENDERED(2)
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
==================================================
TOTAL SHARES.....................
- ---------------------------------------------------------------------------------------------------------------
(1) Need not be completed by Book-Entry Stockholders.
(2) Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See
Instruction 4.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF
TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 ON THE
REVERSE SIDE.
THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE> 2
Any 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 the Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and other related materials may
be obtained without charge from the Information Agent or from brokers, dealers,
commercial banks and trust companies.
The Information Agent for the Offer is:
[MORROW & CO., INC. LOGO]
909 Third Avenue
20th Floor
New York, New York 10022
(212) 754-8000
Toll Free: (800) 566-9061
Banks and Brokerage Firms please call:
(800) 662-5200
The Dealer Manager for the Offer is:
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
(212) 816-7401
This Letter of Transmittal is to be used by stockholders of Thompson PBE,
Inc. either if certificates are to be forwarded herewith or, unless an Agent's
Message (as defined in Section 2 of the Offer to Purchase) is utilized, if
delivery of Shares (as defined below) is to be made by book-entry transfer to an
account maintained by the Depositary at The Depository Trust Company ("DTC") or
Philadelphia Depository Trust Company ("PDTC") (each, a "Book-Entry Transfer
Facility") pursuant to the procedures set forth in Section 2 of the Offer to
Purchase. Stockholders who deliver Shares by book-entry transfer are referred to
herein as "Book-Entry Stockholders" and other stockholders are referred to
herein as "Certificate Stockholders." Stockholders whose certificates for Shares
are not immediately available or who cannot deliver either the certificates for,
or a Book-Entry Confirmation (as defined in Section 2 of the Offer to Purchase)
with respect to, their Shares and all other documents required hereby to the
Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to
Purchase) must tender their Shares in accordance with the guaranteed delivery
procedures set forth in Section 2 of the Offer to Purchase. See Instruction 2.
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution
Account No. at
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Transaction Code No.
[ ]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
2
<PAGE> 3
Name of Institution which Guaranteed Delivery
If delivered by Book-Entry Transfer check box of Book-Entry Transfer
Facility:
Account No. at
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Transaction Code No.
3
<PAGE> 4
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to FMST Acquisition Corporation, a Delaware
corporation (the "Purchaser") and a wholly-owned subsidiary of FinishMaster,
Inc., an Indiana corporation ("Parent"), the above-described shares of common
stock, par value $.001 per share, of Thompson PBE, Inc. (the "Company"),
including the stock purchase rights associated therewith issued pursuant to the
Rights Agreement, dated May 6, 1997, between the Company and ChaseMellon
Shareholder Services, L.L.C. (collectively, the "Shares"), pursuant to
Purchaser's offer to purchase all outstanding Shares at a price of $8.00 per
Share (the "Offer Price"), net to the seller in cash, without interest, upon the
terms and subject to the conditions set forth in Purchaser's Offer to Purchase,
dated October 21, 1997 (the "Offer to Purchase"), and this Letter of Transmittal
(which, together with any amendments or supplements thereto or hereto,
collectively constitute the "Offer"), receipt of which is hereby acknowledged.
Subject to and effective upon acceptance for payment of Shares tendered
herewith in accordance with the terms of the Offer (including, if the Offer is
extended or amended, the terms or conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to, or upon the
order of, Purchaser all right, title and interest in and to all the Shares that
are being tendered hereby (and any and all other Shares or other securities or
rights issued or issuable in respect of such Shares on or after October 14,
1997) and irrevocably constitutes and appoints the Depositary the true and
lawful agent and attorney-in-fact of the undersigned with respect to such Shares
(and any such other Shares or securities or rights), with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver certificates for such Shares (and any
such other Shares or securities or rights) or transfer ownership of such Shares
(and any such other Shares or securities or rights) on the account books
maintained by a Book-Entry Transfer Facility together, in any such case, with
all accompanying evidences of transfer and authenticity to, or upon the order
of, Purchaser, (b) present such Shares (and any such other Shares or securities
or rights) for transfer on the Company's books, and (c) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
such other Shares or securities or rights), 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 tendered
Shares (and any and all Shares or other securities or rights issued or issuable
in respect of such Shares on or after October 14, 1997), and, when the same are
accepted for payment by Purchaser, Purchaser will acquire good title thereto,
free and clear of all liens, restrictions, claims and encumbrances. The
undersigned will, upon request, execute any additional documents deemed by the
Depositary or Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the tendered Shares (and any such other Shares or
other securities or rights).
All authority conferred or agreed to be conferred pursuant to this Letter
of Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. Except as stated in the Offer to Purchase, this
tender is irrevocable.
The undersigned hereby irrevocably appoints Andre B. Lacy and Thomas U.
Young, in their respective capacities as officers of Purchaser, and any
individual who shall hereafter succeed to any such office of Purchaser, and each
of them, and any other designees of Purchaser, the attorneys-in-fact and proxies
of the undersigned, each with full power of substitution, to vote at any annual,
special or adjourned meeting of the Company's stockholders or otherwise in such
manner as each such attorney and proxy or his substitute shall in his sole
discretion deem proper with respect to, to execute any written consent
concerning any matter as each such attorney and proxy or his substitute shall in
his sole discretion deem proper with respect to, and to otherwise act as each
such attorney and proxy or his substitute shall in his sole discretion deem
proper with respect to, all the Shares tendered hereby that have been accepted
for payment by Purchaser prior to the time any such action is taken and with
respect to which the undersigned is entitled to vote (and with respect to any
and all other Shares or other securities or rights issued or issuable in respect
of such Shares on or after October 14, 1997). This appointment is effective
when, and only to the extent that, Purchaser accepts for payment such Shares as
provided in the Offer to Purchase. This power of attorney and proxy are
irrevocable and are granted in consideration of the acceptance for payment of
such Shares in accordance with the terms of the Offer. Such acceptance for
payment shall, without further action, revoke all prior powers of attorney and
proxies appointed by the undersigned at any time with respect to such Shares
(and any such other Shares or securities or rights) and no subsequent powers of
attorney or proxies will be appointed by the undersigned, or be effective, with
respect thereto. The undersigned recognizes that under certain conditions set
forth in the Offer to Purchase, Purchaser may not be required to accept for
payment any of the Shares tendered hereby.
4
<PAGE> 5
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 2 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain conditions set forth in the Offer to
Purchase, Purchaser may not be required to accept for payment any of the Shares
tendered hereby. The undersigned acknowledges that no interest will be paid on
the Offer Price for tendered Shares regardless of any extension of the Offer or
any delay in making such payment.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificates for
Shares not tendered or accepted for payment in the name(s) of the registered
holder(s) appearing under "Description of Shares Tendered." Similarly, unless
otherwise indicated under "Special Delivery Instructions," please mail the check
for the purchase price and/or return any certificates for Shares not tendered or
accepted for payment (and accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing under "Description of Shares
Tendered." In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please issue the check for the
purchase price and/or return any certificates for Shares not tendered or
accepted for payment (and any accompanying documents, as appropriate) in the
name of, and deliver such check and/or return such certificates (and any
accompanying documents, as appropriate) to, the person or persons so indicated.
The undersigned recognizes that Purchaser has no obligation pursuant to the
Special Payment Instructions to transfer any Shares from the name of the
registered holder thereof if Purchaser does not accept for payment any of the
Shares so tendered.
5
<PAGE> 6
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not accepted for
payment and/or the check for the purchase price of Shares accepted for payment
are to be issued in the name of someone other than the undersigned.
Issue: [ ] Check [ ] Certificate(s) to:
Name:
(Please Print)
Address:
- -------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security No.)*
*(See Substitute Form W-9 On Reverse Side)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 7)
To be completed ONLY if certificates for Shares not tendered or not accepted for
payment and/or the check for the purchase price of Shares accepted for payment
are to be sent to someone other than the undersigned or to the undersigned at an
address other than that indicated above.
Send: [ ] Check [ ] Certificate(s) to:
Name:
(Please Print)
Address:
- -------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security No.)*
*(See Substitute Form W-9 on Reverse Side.)
6
<PAGE> 7
SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Sign Here:
---------------------------------------------------------------------
Sign Here:
---------------------------------------------------------------------
Signature(s) of Stockholder(s)
- --------------------------------------------------------------------------------
Dated:
- -------------------------------------------------------------------------------,
1997
(MUST BE SIGNED BY REGISTERED HOLDER(S) AS NAME(S) APPEAR(S) ON THE
CERTIFICATE(S) FOR THE SHARES OR ON A SECURITY POSITION LISTING OR BY PERSON(S)
AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY CERTIFICATES AND DOCUMENTS
TRANSMITTED HEREWITH. IF SIGNATURE IS BY TRUSTEES, EXECUTORS, ADMINISTRATORS,
GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF CORPORATIONS OR OTHERS ACTING IN A
FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE PROVIDE THE FOLLOWING INFORMATION
AND SEE INSTRUCTION 5).
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print or Type)
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number
- ---------------------------------------------------------------------------
Taxpayer Identification or Social Security Number*
- -----------------------------------------------------------
*Complete Substitute Form W-9 On Reverse
Side
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
(Please Print or Type)
Name of Firm
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
- ---------------------------------------------------------------------------
Dated:
- -------------------------------------------------------------------------------,
1997
7
<PAGE> 8
(REVERSE SIDE)
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURE. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank, trust company or
savings institution having an office or correspondent in the United States
(each, an "Eligible Institution") or by a recognized member of a Medallion
Signature Guarantee Program. No signature guarantee is required on this Letter
of Transmittal (a) if this Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Shares) of Shares tendered herewith, unless
such holder(s) has completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" on the reverse
side of this Letter of Transmittal, or (b) if such Shares are tendered for the
account of an Eligible Institution. See Instruction 5.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by
stockholders either if certificates are to be forwarded herewith or, unless an
Agent's Message is utilized, if delivery of Shares is to be made pursuant to the
procedures for book-entry transfer set forth in Section 2 of the Offer to
Purchase. For a stockholder validly to tender Shares pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof), together with any required signature
guarantees (or an Agent's Message) and any other required documents, must be
received by the Depositary at one of its addresses set forth herein prior to the
Expiration Date and either (i) certificates for tendered Shares must be received
by the Depositary at one of such addresses prior to the Expiration Date or (ii)
Shares must be delivered pursuant to the procedures for book-entry transfer set
forth herein and a Book-Entry Confirmation must be received by the Depositary
prior to the Expiration Date or (b) the tendering stockholder must comply with
the guaranteed delivery procedures set forth below and in Section 2 of the Offer
to Purchase.
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer prior to the
Expiration Date may tender their Shares by properly completing and duly
executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in Section 2 of the Offer to Purchase. Pursuant to such
procedures, (a) such tender must be made by or through an Eligible Institution,
(b) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by Purchaser must be received by the
Depositary prior to the Expiration Date, and (c) the certificates for all
physically delivered Shares or a Book-Entry Confirmation with respect to all
tendered Shares, as well as a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message) and
any other documents required by this Letter of Transmittal, must be received by
the Depositary within three New York Stock Exchange, Inc. ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery. A NYSE trading
day is any day on which the NYSE is open for business.
THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. 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. All tendering stockholders, by execution of
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
8
<PAGE> 9
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or 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 certificate submitted
are to be tendered, fill in the number of Shares that are to be tendered in the
box entitled "Number of Shares Tendered." In any such case, new certificate(s)
for the remainder of the Shares that were evidenced by the old certificate(s)
will be issued in the name of, and sent to, the registered holder in accordance
with the terms of the Offer, unless otherwise provided in the appropriate
box(es) on this Letter of Transmittal, as soon as practicable after the
Expiration Date. All Shares represented by certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTERS OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to Purchaser of their authority so to act must be submitted.
When this Letter of Transmittal is signed by the registered holder(s) of
the Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to, or
certificates for Shares not tendered or accepted for payment are to be issued
to, a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution or by
a recognized member of a Medallion Signature Guarantee Program.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of certificates listed, the certificates must be endorsed
or accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates.
Signatures on such certificates or stock powers must be guaranteed by an
Eligible Institution or by a recognized member of a Medallion Signature
Guarantee Program.
6. STOCK TRANSFER TAXES. The Purchaser will pay any stock transfer taxes
with respect to the transfer and sale of Shares to it or its order pursuant to
the Offer. If, however, payment of the purchase price is to be made to, or if
certificates for Shares not tendered or accepted for payment are to be
registered in the name of, any persons other than the registered holder(s), or
if tendered certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any stock transfer
taxes (whether imposed on the registered holder(s) or such other person) payable
on account of the transfer to such person will be deducted from the purchase
price unless satisfactory evidence 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 CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in
the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be returned in the name of, a person other than the signer of
this Letter of Transmittal or if a check is to be sent and/or such certificates
are to be returned to a person other than the signer of this Letter of
Transmittal or to an address other than that shown
9
<PAGE> 10
in the box entitled "Description of Shares Tendered" on the reverse side of this
Letter of Transmittal, the appropriate boxes on this Letter of Transmittal
should be completed. Stockholders tendering Shares by book-entry transfer may
request that Shares not purchased be credited to such account at any of the
Book-Entry Transfer Facilities as such stockholder may designate in the box
entitled "Special Payment Instructions." If no such instructions are given, any
such Shares not purchased will be returned by crediting the account at the
Book-Entry Transfer Facilities designated on the reverse side of this Letter of
Transmittal. See Instructions 1, 5, and 6.
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 and telephone numbers set forth on
the back cover of the Offer to Purchase. Additional copies of the Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other
related materials may be obtained at no charge from the Information Agent or
from brokers, dealers, commercial banks and trust companies.
9. WAIVER OF CONDITIONS. Subject to the terms of the Offer, Purchaser
reserves the absolute right in its sole discretion to waive any of the specified
conditions of the Offer, in whole or in part, or any defect or irregularity in
tender with regard to any Shares tendered.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing
Shares has been lost, destroyed or stolen, the stockholder should promptly
notify the Company's Transfer Agent, ChaseMellon Shareholder Services, L.L.C.,
at (213) 553-9700. The stockholder will then be instructed as to the procedures
that must be taken in order to replace the certificate. The tender of Shares
pursuant to this Letter of Transmittal will not be valid unless prior to the
Expiration Date: (a) such procedures have been completed and a replacement
certificate for the Shares has been delivered to the Depositary or (b) a Notice
of Guaranteed Delivery has been delivered to the Depositary. See Instruction 2.
11. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required
to provide the Depositary with either a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under "Important Tax
Information" below, or a properly completed Form W-8. Failure to provide the
information on either Substitute Form W-9 or Form W-8 may subject the tendering
stockholder to 31% federal income tax backup withholding on the payment of the
purchase price. The tendering stockholder may write "Applied For" in Part I of
Substitute Form W-9 and sign the "Certificate of Awaiting Taxpayer
Identification Number" of Substitute Form W-9 if he or she has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future. If "Applied For" is written in Part I of Substitute Form W-9 and the
"Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9
is signed and the Depositary is not provided with a TIN by the time of payment,
the Depositary will withhold 31% on all payments for tendered Shares thereafter
until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, OR AN AGENT'S MESSAGE IN THE CASE OF A BOOK-ENTRY
DELIVERY, TOGETHER WITH CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER
REQUIRED DOCUMENTS OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE
EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such stockholder's correct TIN on Substitute Form W-9 below or a properly
completed Form W-8. If such stockholder is an individual, the TIN is his or her
social security number. For businesses and other entities, the number is the
federal employer identification number. If the Depositary is not provided with
the correct TIN or properly completed Form W-8, the stockholder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such stockholder with respect to Shares purchased pursuant to
the Offer may be subject to backup
10
<PAGE> 11
withholding. The Form W-8 can be obtained from the Depositary. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" below for additional instructions.
If federal income tax 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 federal income tax liability
of persons subject to backup withholding will be reduced by the amount of the
tax withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid 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 his or her correct TIN by completing the Substitute
Form W-9 below certifying that the TIN provided on Substitute Form W-9 is
correct and that (a) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (b)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding; provided, however, that backup withholding will not apply to
foreign Preferred Shareholders subject to 30% (or lower treaty rate) withholding
on gross payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the registered owner of the Shares.
If the Shares are in more than one name or are not in the name of the actual
owner, consult the "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" enclosed herewith for additional guidance on
which number to report.
11
<PAGE> 12
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
- ------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT
FORMW-9 AND CERTIFY BY SIGNING AND DATING BELOW. TIN:
Social Security Number
or Employer
Identification Number
-------------------------------------------------------------------------------------------
Department of the PART II--For Payees exempt from backup withholding, see the enclosed Guidelines for
Treasury, Internal Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as
Revenue Service instructed therein.
PAYER'S REQUEST FOR -----------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION Certification--Under penalties of perjury, I certify that:
NUMBER ("TIN") AND
CERTIFICATION (1) The number shown on this form is my correct TIN (or I am waiting for a number
to be issued to me); and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject
to backup withholding.
-----------------------------------------------------------------------------------------
SIGNATURE DATE: ________________
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are currently 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 were no longer subject to
backup withholding, do not cross out item (2). (Also see the instructions in the
enclosed Guidelines.)
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
<TABLE>
<S><C>
- --------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to me, and either (1) I have
mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social
Security Administration Officer or (2) I intend to mail or deliver an application in the near
future. I understand that if I do not provide a TIN by the time of payment, 31% of all payments
pursuant to the Offer made to me thereafter will be withheld until I provide a number.
Signature: _ Date:
- --------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Letter of Transmittal and other tender offer materials may be
directed to the Information Agent as set forth below.
The Information Agent for the Offer is:
[MORROW & CO., INC. LOGO]
909 Third Avenue
20th Floor
New York, New York 10022
(212) 754-8000
Toll Free: (800) 566-9061
Banks and Brokerage Firms, please call:
(800) 662-5200
The Dealer Manager for the Offer is:
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
(212) 816-7401
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is dated
as of October 14, 1997, by and among FinishMaster, Inc., an Indiana corporation
("Parent"), FMST Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("Sub"), and Thompson PBE, Inc., a Delaware
corporation (the "Company").
ARTICLE I
THE OFFER
SECTION 1.1 The Offer.
(a) General. Subject to the terms of this Agreement, as
promptly as practicable, but in no event later than the fifth business day
following public announcement of this Agreement, Parent shall cause Sub to
commence, and Sub shall commence, a tender offer (the "Offer") for all of the
Company's issued and outstanding shares of common stock, par value $.001 per
share, and the stock purchase rights associated therewith (collectively, the
"Shares"), at a price of not less than $8.00 per share, net to the seller in
cash. The obligation of Sub to commence the Offer shall be subject only to the
condition that none of the events set forth in clauses (a) through (f) of Annex
A hereto shall have occurred on and after the date hereof and be continuing.
Sub's obligation to accept for payment and pay for Shares tendered pursuant to
the Offer shall be subject only to the conditions set forth in Annex A hereto.
Parent shall cause Sub to accept for payment Shares validly tendered and not
withdrawn pursuant to the Offer as soon as practicable, and pay for all such
Shares as promptly as practicable thereafter, following the satisfaction or
waiver of the conditions set forth in Annex A. Without the prior express
written consent of the Company (which it may grant or withhold in its sole
discretion), Parent shall not permit Sub to, and Sub shall not, decrease the
per Share price to be paid pursuant to the Offer or the number of Shares for
which the Offer is made, extend the expiration date of the Offer except as
permitted hereby, change the form of consideration or impose conditions to the
Offer in addition to or in modification of the conditions set forth in Annex A
(other than to waive any conditions to the extent permitted by this Agreement),
waive or increase the Minimum Condition (as defined in Annex A), or otherwise
amend the Offer in any manner that would adversely affect the Company's
stockholders. Notwithstanding the foregoing, (A) Sub may, without consent of
the Company, (i) extend the Offer beyond any scheduled expiration date (the
initial scheduled expiration date being 20 business days following commencement
of the Offer) for a period not to exceed 20 business days, if at any scheduled
expiration date of the Offer, any of the conditions to Sub's obligation to
accept for payment, and pay for, shares of Company Common Stock set forth in
clauses (a) through (f) of Annex A or the Minimum Condition shall not be
satisfied or waived, until such time as such conditions are satisfied or
waived, (ii) extend the Offer for any period required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission (the
"SEC") or the staff thereof applicable to the Offer and (iii) extend the Offer
for an aggregate period of not more than 7 business days beyond the latest
expiration date that would otherwise be permitted under clause (i) or (ii) of
this sentence if there shall not have been tendered greater than 90% of the
outstanding Shares and (B) Sub shall extend the Offer from time to time
(subject to the earlier termination of this Agreement pursuant to Section 7.1)
in order to satisfy the obligations of Parent
<PAGE> 2
and Sub pursuant to Section 5.5 and the provisos to clause (a) to Annex A
(including, without limitation, the covenant of Parent and Sub to use their
respective reasonable best efforts to obtain all required consents and
approvals).
(b) Offer to Purchase. As soon as practicable on the
date of the commencement of the Offer, Parent and Sub shall file with the
Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1 (together with all amendments and supplements thereto, the
"Schedule 14D-1") with respect to the Offer. The Schedule 14D-1 will contain
(including as an exhibit) or will incorporate by reference the Offer to
Purchase relating to the Offer (the "Offer to Purchase") and forms of the
related letter of transmittal and summary advertisement (which documents,
together with any supplements or amendments thereto, are referred to herein
collectively as the "Offer Documents"). The information provided and to be
provided by Parent, Sub and the Company for use in the Offer Documents shall
not, on the date the Schedule 14D-1 is filed with the SEC, and on the date the
Offer Documents are first published, sent or given to stockholders, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and Parent, Sub and the Company agree promptly to correct any
such information provided by any of them for use in the Offer Documents that
shall have become false or misleading and to take all steps necessary to cause
the Offer Documents as so corrected to be filed with the SEC and such Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable law and the rules of the Nasdaq
National Market (the "NMS"). The Offer Documents shall comply as to form in
all material respects with the provisions of applicable law. The Company and
its counsel shall be given an opportunity to review the Offer Documents prior
to the filing thereof with the SEC. Parent and Sub agree to provide the
Company and its counsel in writing with any comments Parent, Sub or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly upon receipt thereof.
SECTION 1.2 Company Actions.
(a) Board Approval. The Company's Board of Directors has
received the opinion of Donaldson, Lufkin & Jenrette Securities Corporation
(the "Financial Advisor") to the effect that the consideration to be received
by the holders of Shares pursuant to the Offer and the Merger (as defined
herein) is fair to such holders from a financial point of view. The Company
hereby consents to the Offer and represents that the Company's Board of
Directors, at a meeting duly called and held, subject to the terms and
conditions set forth herein, has (i) determined that the Offer and the Merger
are fair to and in the best interests of the Company and its stockholders, (ii)
resolved, subject to the fiduciary duties of the directors of the Company under
applicable law as advised by counsel, to recommend acceptance of the Offer and
approval and adoption of this Agreement by the stockholders of the Company and
(iii) approved the Offer, this Agreement and the Merger, which approval
constituted approval of the Offer, this Agreement and the Merger for purposes
of the letter agreement, dated June 27, 1997, between the Company, Parent and
the affiliates of Parent identified
2
<PAGE> 3
therein (the "Letter Agreement"), and Sections 203 and 251 of the General
Corporation Law of the State of Delaware (the "DGCL").
(b) Schedule 14D-9. Promptly after the commencement of
the Offer, the Company shall file with the SEC and mail to the holders of
Shares a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9"). Subject to paragraph (d) of this Section 1.2, the Schedule 14D-9 and
the Offer Documents shall reflect the recommendation of the Board of Directors.
The Schedule 14D-9 and any amendments or supplements thereto will comply as to
form in all material respects with all provisions of applicable law and shall
not, on the date it is filed with the SEC and on the date it is first
published, sent or given to stockholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company agrees promptly to
correct any information in the Schedule 14D-9 that shall have become false or
misleading and to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to stockholders, as and to
the extent required by applicable law and the NMS.
(c) Stockholder Information. In connection with the
Offer, the Company will cause its transfer agent promptly to furnish Parent
with mailing labels, security position listings and any available listing or
computer file containing the names and addresses of the record holders of the
Shares as of a recent date and will cause its transfer agent to furnish Parent
with such additional information and assistance as Parent or its agents may
reasonably request in communicating the Offer to the stockholders of the
Company. Except for such steps as are necessary to disseminate the Offer
Documents, Parent and Sub will hold in confidence the information contained in
such materials furnished to Parent or Sub pursuant to the preceding sentence,
use such information only in connection with the Offer and, if this Agreement
is terminated, will deliver to the Company all such written information and any
copies or extracts therefrom in its possession or under its control.
(d) Modification or Withdrawal of Recommendation. The
Board of Directors may withdraw, modify or change any recommendation or
approval regarding the Offer, including any statement in the Schedule 14D-9 or
any amendment thereto, this Agreement or the Merger, or recommend or approve an
Acquisition Proposal (as defined in Section 5.3(b)) which the Board of
Directors of the Company, after consultation with the Company's outside legal
counsel and financial advisor, determines, in its good faith judgment by a
majority vote, to be more favorable to the Company's stockholders than the
Offer and the Merger (a "Superior Offer"), and only to the extent that the
Board, after consultation with the Company's outside legal counsel, determines,
in its good faith judgment, that such withdrawal, modification or change of
such recommendation or approval is required for the Board to comply with its
fiduciary duties under applicable law.
3
<PAGE> 4
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the DGCL, Sub shall be merged with and into the
Company (the "Merger") as soon as practicable following the satisfaction of the
conditions set forth in Section 6.1 hereof. Following the Merger, the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
the separate corporate existence of Sub shall cease.
SECTION 2.2 Effective Time. The Merger shall be consummated by and
shall be effective at the time of acceptance for filing by the Delaware
Secretary of State of a certificate of merger (the "Certificate of Merger") in
such form as is required by, and executed in accordance with, the relevant
provisions of the DGCL, and such other documents as shall be required by the
provisions of the DGCL (the time of such filing being the "Effective Time").
SECTION 2.3 Effects of the Merger. The Merger shall have the effects
set forth in Sections 259, 260 and 261 of the DGCL. As of the Effective Time,
the Company shall be a wholly-owned subsidiary of Parent.
SECTION 2.4 Certificate of Incorporation and By-Laws. Subject to
Section 5.8 hereof, the Amended and Restated Certificate of Incorporation and
By-Laws of the Company as in effect at the Effective Time shall be the
Certificate of Incorporation and By-Laws of the Surviving Corporation.
SECTION 2.5 Directors. The directors of Sub at the Effective Time
shall be the directors of the Surviving Corporation, until the next annual
stockholders' meeting of the Surviving Corporation and until their successors
shall be elected or appointed and shall duly qualify.
SECTION 2.6 Officers. The officers of the Company at the Effective
Time shall be the initial officers of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise
provided by law.
SECTION 2.7 Conversion of Shares. Each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held by Parent, Sub
or any other wholly-owned subsidiary of Parent, or in the treasury of the
Company or by any wholly-owned subsidiary of the Company, all of which shall be
cancelled, and Dissenting Shares, as hereinafter defined) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive an amount in cash equal to the highest
price per share which may be paid pursuant to the Offer (the "Merger
Consideration"), subject to applicable withholding or back-up withholding
taxes, if any, payable by the holder thereof, without interest thereon, upon
surrender of the certificate formerly representing such Share.
4
<PAGE> 5
SECTION 2.8 Conversion of Sub Common Stock. Each share of common
stock, par value $1.00 per share, of Sub issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and represent the
right to receive one share of common stock of the Surviving Corporation.
SECTION 2.9 Dissenting Shares.
(a) General. Notwithstanding anything in this Agreement
to the contrary, Shares which are issued and outstanding immediately prior to
the Effective Time and which are held by stockholders who have not voted such
Shares in favor of the Merger, who shall have delivered a written demand for
appraisal of such Shares in the manner provided in the DGCL and who, as of the
Effective Time, shall not have effectively withdrawn or lost such right to
appraisal ("Dissenting Shares") shall not be converted into or represent a
right to receive the Merger Consideration pursuant to Section 2.7 hereof, but
the holders thereof shall be entitled only to such rights as are granted by
Section 262 of the DGCL. Each holder of Dissenting Shares who becomes entitled
to payment for such Shares pursuant to Section 262 of the DGCL shall receive
payment therefor from the Surviving Corporation in accordance with the DGCL;
provided, however, that (i) if any such holder of Dissenting Shares shall have
failed to establish his entitlement to appraisal rights as provided in Section
262 of the DGCL, (ii) if any such holder of Dissenting Shares shall have
effectively withdrawn his demand for appraisal of such Shares or lost his right
to appraisal and payment for his Shares under Section 262 of the DGCL or (iii)
if neither any holder of Dissenting Shares nor the Surviving Corporation shall
have filed a petition demanding a determination of the value of all Dissenting
Shares within the time provided in Section 262 of the DGCL, such holder or
holders (as the case may be) shall forfeit the right to appraisal of such
Shares and each such Share shall thereupon be deemed to have been converted, as
of the Effective Time, into and represent the right to receive payment from the
Surviving Corporation of the Merger Consideration, without interest thereon, as
provided in Section 2.7 hereof.
(b) Notice of Appraisal Demands. The Company shall give
Parent and Sub (i) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other instruments served pursuant
to Section 262 of the DGCL received by the Company and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for appraisal
under Section 262 of the DGCL; the Company may, if it elects, also participate
in any such negotiations. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands.
SECTION 2.10 Payment for Shares.
(a) Exchange Mechanics. Prior to the Effective Time,
Parent shall designate a bank or trust company reasonably satisfactory to the
Company to act as Exchange Agent in the Merger (the "Exchange Agent"). At or
prior to the Effective Time, and from time to time thereafter, Parent will take
all steps necessary to enable and cause the Surviving Corporation to provide
the Exchange Agent immediately available funds (the "Fund") necessary to make
the payments
5
<PAGE> 6
contemplated by Section 2.7. Out of the Fund, the Exchange Agent shall,
pursuant to irrevocable instructions, make the payments referred to in Section
2.7. The Fund shall not be used for any other purpose. The Exchange Agent may
invest portions of the Fund, as directed by Parent (so long as such directions
do not impair the Exchange Agent's ability to make the payments referred to in
Section 2.7 hereof or otherwise impair the rights of holders of Shares),
provided that no such investments may be made other than in direct obligations
of the United States of America, obligations for which the full faith and
credit of the United States of America is pledged to provide for the payment of
principal and interest, commercial paper rated of the highest quality by
Moody's Investors Services, Inc. or Standard & Poor's Corporation, or
certificates of deposit issued by a commercial bank having capital exceeding
$500,000,000. Any net earnings resulting from, or interest or income produced
by, such investments shall be paid to the Surviving Corporation as and when
requested by Parent. The Surviving Corporation shall replace any monies lost
through any investment made pursuant to this paragraph. Deposit of funds
pursuant hereto shall not relieve Parent or the Surviving Corporation of their
obligations to make payments in respect of Shares and Parent hereby guarantees
the Surviving Corporation's obligations in respect thereof.
(b) Letter of Transmittal. Promptly after the Effective
Time, the Surviving Corporation shall cause the Exchange Agent to mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") a form letter of transmittal (the "Letter of Transmittal")
for return to the Exchange Agent (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent) and instructions for
use in effecting the surrender of the Certificates, for payment therefor. Upon
surrender to the Exchange Agent of a Certificate, together with the Letter of
Transmittal duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor cash in an amount equal to the product of the
number of Shares represented by such Certificate and the Merger Consideration,
and such Certificate shall forthwith be cancelled. No interest will be paid or
accrued on the cash payable upon the surrender of the Certificates. If payment
is to be made to a person other than the person in whose name the Certificate
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this
Section 2.10, each Certificate (other than Certificates representing Shares
held by Parent, Sub or any other wholly-owned subsidiary of Parent, the Company
or any wholly-owned subsidiary of the Company which shall have been cancelled,
or Dissenting Shares) shall represent for all purposes the right to receive the
Merger Consideration in cash multiplied by the number of Shares evidenced by
such Certificate, without any interest thereon, subject to applicable
withholding or back-up withholding taxes, if any, or, as set forth in the
Letter of Transmittal, the stock transfer taxes described in the immediately
preceding sentence.
6
<PAGE> 7
(c) Return of Unclaimed Funds. Any cash provided to the
Exchange Agent pursuant to this Section 2.10 and not exchanged for Certificates
within six months after the Effective Time will be returned by the Exchange
Agent to the Surviving Corporation which thereafter will act as Exchange Agent.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to a holder of Shares for any Merger Consideration delivered to
a public official pursuant to applicable abandoned property, escheat and
similar laws.
SECTION 2.11 No Further Rights or Transfers. At and after the
Effective Time, each holder of a Certificate that represented issued and
outstanding Shares immediately prior to the Effective Time shall cease to have
any rights as a stockholder of the Company, except for the right to surrender
his or her Certificate or Certificates in exchange for the payment provided
pursuant to Sections 2.7 and 2.10 hereof or to perfect his or her right to
receive payment for his or her Shares pursuant to Section 262 of the DGCL and
Section 2.9 hereof if such holder has validly exercised and perfected and not
withdrawn his or her right to receive payment for his or her Shares, and there
shall be no transfers on the stock transfer books of the Surviving Corporation
of the Shares which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates formerly representing Shares are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for cash as provided in this Article II.
SECTION 2.12 Stock Options. Immediately prior to the Effective Time,
each holder of a then-outstanding Company stock option issued pursuant to
either (a) the Company's 1994 Stock Option Plan, as amended (the "1994 Plan"),
or (b) the Company's Stock Option Plan for Outside Directors (collectively with
the 1994 Plan, the "Stock Option Plans"), whether or not then presently
exercisable, to purchase Shares (an "Option") will be entitled to receive, and
shall receive, in settlement of such Option a cash payment from the Company
equal to the product of (i) the total number of Shares then subject to each
such Option with an exercise price less than the per Share Merger Consideration
and (ii) the excess of the per Share Merger Consideration over the exercise
price per Share subject to such Option, subject to any required withholding of
taxes. If necessary or appropriate under the Stock Option Plans, the Company
will, upon the request of Parent, use its reasonable best efforts to obtain the
written acknowledgment of each person holding an Option that the payment of the
amount of cash referred to above will satisfy in full the Company's obligation
to such person pursuant to such Option. By virtue of the foregoing treatment
of the Options, at the Effective Time all Options shall be cancelled and shall
cease to exist. The Company shall take such actions within its power as are
reasonably necessary with regard to the Stock Option Plans to permit the
foregoing treatment of the Options.
SECTION 2.13 Warrants.
(a) CVCA Warrants. Immediately prior to the Effective
Time, the holder of that certain Common Stock Purchase Warrant issued April 7,
1994 to Chase Venture Capital Associates, L.P. (formerly Chemical Venture
Capital Associates) (the "CVCA Warrants"), will, to the extent such warrant has
not previously been exercised, be entitled to receive, and shall receive, in
settlement of such CVCA Warrants, a cash payment from the Sub in immediately
available funds equal to the
7
<PAGE> 8
product of (i) 47,806 (the total number of Shares then subject to such CVCA
Warrant) and (ii) the excess of the per Share Merger Consideration over
$0.004545 (the exercise price per Share subject to the CVCA Warrants). As a
condition to such payment, the holder of the CVCA Warrants shall provide to the
Sub a written acknowledgment that the payment of the amount of cash referred to
above will satisfy in full all of the Company's obligations to such person
pursuant to such warrants.
(b) SEV Corporation Warrants. That certain Warrant
Certificate, issued January 1, 1997 to SEV Corporation pursuant to that certain
Warrant Agreement dated as of May 31, 1995 (the "SEV Warrants"), will, to the
extent that the warrants under such warrant certificate have not previously
been exercised, remain outstanding in accordance with its terms and become, at
or after the Effective Time, the right to receive, upon payment of the exercise
price of $21.25 per Share, the per Share Merger Consideration in accordance
with the adjustment provisions contained in Section 10(e) of the SEV Warrants.
SECTION 2.14 Adjustments. If, between the date of this Agreement and
the Effective Time, the outstanding Shares shall be changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon shall be declared with a record date prior to the
Effective Time, the amount of consideration to be received pursuant to this
Article II in exchange for each outstanding Share, Option, CVCA Warrant or SEV
Warrant shall be correspondingly adjusted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as
follows:
SECTION 3.1 Organization. The Company and each of its subsidiaries
which owns more than a single operating distribution site as identified on
Schedule 3.1 (the "Significant Subsidiaries") is a corporation duly organized,
validly existing and in good standing under the laws of its state or
jurisdiction of incorporation and is in good standing as a foreign corporation
in each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification and where failure to be in
good standing or to so qualify would have a material adverse effect on the
financial condition, results of operations or business of the Company and its
subsidiaries taken as a whole or on the ability of the Company to consummate
the transactions contemplated by this Agreement (which for all purposes hereof
consist solely of the Offer and the Merger) (a "Company Material Adverse
Effect"). The Company has made available to Parent true and correct copies of
its Amended and Restated Certificate of Incorporation and By-Laws.
SECTION 3.2 Capitalization.
(a) Company Capitalization. The authorized capital stock
of the Company consists of 25,000,000 Shares and 3,000,000 shares of Preferred
Stock. As of the date hereof, there are (i) 8,645,084 Shares issued and
outstanding and (ii) no shares of Preferred Stock issued and
8
<PAGE> 9
outstanding. Since June 30, 1997 through the date hereof, no Shares have been
issued except for the issuance of Shares pursuant to the exercise of Options
issued pursuant to the Stock Option Plans. Except for (i) 712,343 Shares
issuable upon exercise of outstanding Options issued pursuant to the Stock
Option Plans, (ii) 47,806 Shares issuable upon exercise of the CVCA Warrants,
(iii) 170,000 Shares issuable upon exercise of the SEV Warrants, (iv) Shares
issuable pursuant to the conversion rights contained in the Non-Negotiable
Adjustable Convertible Promissory Note Subject to Right of Set-Off in the
original principal amount of $2,125,000 issued April 18, 1996 to Jerry W. Smith
(the "APS Note"), and (v) the rights outstanding pursuant to the Company's
Rights (the "Rights") Agreement dated as of May 6, 1997 (the "Rights Plan"),
there are not now, and at the Effective Time there will not be, any existing
options, warrants, calls, subscriptions, or other rights, or other agreements
or commitments, obligating the Company to issue, transfer or sell any shares of
capital stock of the Company or any of its subsidiaries. All issued and
outstanding Shares are validly issued, fully paid, nonassessable and free of
preemptive rights.
(b) Subsidiary Capitalization. All of the outstanding
shares of capital stock of each of the subsidiaries have been validly issued
and are fully paid and non-assessable are owned directly or indirectly by the
Company free and clear of all liens, charges, claims or encumbrances, except
those existing under the terms of the Company's 1995 Credit Agreement with
Heller Financial, Inc. and the participating banks referred to therein, as
amended (the "1995 Credit Agreement"), or as imposed by applicable securities
laws. There are no outstanding options, warrants, calls, subscriptions, or
other rights, or other agreements or commitments, obligating any subsidiary of
the Company to issue, transfer or sell any shares of its capital stock.
SECTION 3.3 Authority Relative to This Agreement.
(a) Company Approvals. The Company has full corporate
power and authority to execute and deliver this Agreement and, subject to
obtaining the necessary approval of this Agreement by its stockholders to the
extent required by applicable law and the NMS, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company, and no other
corporate proceedings on the part of the Company are necessary for the
execution and delivery of this Agreement by the Company and, subject to the
filing of the Certificate of Merger pursuant to Section 2.2 and obtaining the
necessary approvals of the Company's stockholders to the extent required by
applicable law and the NMS, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes a valid and binding obligation of each
of Parent and Sub, this Agreement constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors rights generally or by general equitable principles.
9
<PAGE> 10
(b) Other Authorizations. Other than in connection with,
or in compliance with, applicable requirements of the DGCL with respect to the
transactions contemplated hereby, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the securities laws of the various states and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), no authorization, consent or approval of, or filing with, any court or
any public body or authority is necessary for the consummation by the Company
of the transactions contemplated by this Agreement other than authorizations,
consents and approvals the failure to obtain, or filings the failure to make,
which would not, in the aggregate, cause or result in a Company Material
Adverse Effect.
SECTION 3.4 No Violation. Neither the execution or delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder nor the consummation by the Company of the transactions contemplated
hereby will (a) subject to stockholder approval, constitute a breach or
violation of any provision of the Amended and Restated Certificate of
Incorporation or By-Laws of the Company or the articles or certificate of
incorporation and by-laws of each Significant Subsidiary, (b) except as set
forth in Schedule 3.4 hereto, constitute a breach, violation or default (or any
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in the creation of any lien or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries under, any note,
bond, mortgage, indenture, deed of trust, license, agreement or other
instrument to which the Company or any of its subsidiaries is a party or by
which they or any of their respective properties or assets are bound or (c)
constitute a violation of any order, writ, injunction, decree, statute, rule or
regulation of any court or governmental authority applicable to the Company,
any of its subsidiaries or any of their properties or assets, other than, in
the case of clauses (b) and (c) above, such breaches, violations, defaults,
terminations, accelerations or creation of liens and encumbrances which, in the
aggregate, would not have a Company Material Adverse Effect. No representation
or warranty is made regarding whether or not any consent may be required in
respect of any distribution site lease.
SECTION 3.5 SEC Reports. Since September 30, 1995, the Company has
filed all forms, reports and documents ("SEC Reports") with the SEC required to
be filed by it pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act and the SEC rules and regulations
promulgated thereunder. Copies of all such SEC Reports have been made
available to Parent by the Company. As of their respective dates, the SEC
Reports complied in all material respects with the Securities Act and the
Exchange Act, as the case may be, and none of such SEC Reports (as of their
respective filing dates) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The audited and unaudited consolidated
financial statements of the Company included in the SEC Reports have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis (except as otherwise stated in such financial
statements, including the related notes, and except that the interim financial
statements do not contain all of the footnote disclosures required by GAAP) and
fairly present in all material respects the financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the results of
their operations and their
10
<PAGE> 11
cash flows for the periods then ended, subject, in the case of the interim
unaudited financial statements, to year-end audit adjustments. Neither the
Company nor any of its subsidiaries, nor any of their respective assets,
businesses, or operations, is a party to, or is bound or affected by, or
receives benefits under, any material contract or agreement or amendment
thereto, that in each case was required to be filed as an exhibit to an SEC
Report that has not been filed as an exhibit to an SEC Report.
SECTION 3.6 Proxy Statement; Other Information. None of the
information included in the letter to stockholders, notice of meeting, proxy
statement and form of proxy, or the information statement, as the case may be,
to be distributed to stockholders of the Company in connection with the Merger,
or any schedules required to be filed with the SEC in connection therewith
(collectively referred to herein as the "Proxy Statement"), the Schedule 14D-9,
or any other document filed or to be filed by or on behalf of the Company with
the SEC or any other governmental entity in connection with the transactions
contemplated by this Agreement contained when filed or will, at the respective
times filed with SEC or other governmental entity, and, in addition, in the
case of the Proxy Statement, if any, at the date it or any amendment or
supplement is mailed to stockholders 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 made therein, in light of the
circumstances under which they were made, not misleading. The Schedule 14D-9
and Proxy Statement, if any, will, when filed by the Company with the SEC,
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to the statements
made in any of the foregoing documents based on and in conformity with
information supplied in writing by or on behalf of Parent or Sub or any of
their respective affiliates in writing specifically for inclusion therein.
None of the information supplied in writing by the Company specifically for
inclusion or incorporation by reference in the Offer Documents or any other
document filed or to be filed by or on behalf of Parent or Sub with the SEC or
any other governmental entity in connection with the transactions contemplated
by this Agreement contains, or will contain, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. No
representation is made by the Company with respect to any projections and
related information which may have been supplied by the Company whether or not
included by Parent or Sub in any Offer Document or in the Proxy Statement.
SECTION 3.7 Absence of Certain Changes; No Undisclosed Liabilities.
Except as disclosed or reflected in the SEC Reports filed with the SEC prior to
the date of this Agreement, since June 30, 1997, there has not been a Company
Material Adverse Effect. Except as disclosed or reflected in the SEC Reports
filed with the SEC prior to the date of this Agreement, since June 30, 1997,
the Company has not (i) except in the ordinary course of business, incurred any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, or suffered any event or occurrence which, individually or in the
aggregate, would have a Company Material Adverse Effect or (ii) made any
material changes in accounting methods, principles or practices or (iii)
declared, set aside or paid any dividend or other distribution with respect to
its capital stock other than any action which may
11
<PAGE> 12
be taken with respect to the Company's Rights Plan in connection with the Offer
or the Merger. Except as disclosed or reflected in the SEC Reports, since June
30, 1997, each of the Company and its subsidiaries has conducted its operations
in the ordinary course of business consistent with past practice in all
material respects.
SECTION 3.8 Litigation. Except as disclosed by the Company in the
SEC Reports or identified on Schedule 3.8, there is no suit, claim, action,
proceeding, or investigation pending or threatened in writing or, to the
knowledge of the Company otherwise threatened, against the Company or any of
its subsidiaries, or any of their respective properties or assets before any
court or governmental entity which, individually or in the aggregate, could, if
determined adversely, reasonably be expected to have a Company Material Adverse
Effect or delay the consummation of the transactions contemplated by this
Agreement in any material respect. Neither the Company nor any of its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen, individually or in the aggregate,
in the future would have a Company Material Adverse Effect or would delay the
consummation of the transactions contemplated hereby in any material respect.
This Section 3.8 does not apply to any governmental authorizations related to
the transactions governed hereby and identified in Section 3.3.
SECTION 3.9 Compliance with Applicable Law. Except as disclosed by
the Company in the SEC Reports or identified on Schedule 3.9, the Company and
its subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all governmental entities necessary for the lawful conduct of
their respective businesses, if any (the "Company Permits"), except where such
failures to hold such permits, licenses, variances, exemptions, orders and
approvals would not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect. Except as disclosed by the
Company in the SEC Reports, the Company and its subsidiaries are in compliance
with the terms of the Company Permits, except where the failure so to comply
would not, individually or in the aggregate, reasonably be expected to result
in a Company Material Adverse Effect. Except as disclosed by the Company in
the SEC Reports, the business of the Company and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any governmental
entity except for violations or possible violations which individually or in
the aggregate are not reasonably expected to result in a Company Material
Adverse Effect. Except as disclosed by the Company in the SEC Reports, no
investigation or review by any governmental entity with respect to the Company
or any of its Significant Subsidiaries is pending or threatened in writing, or
to the knowledge of the Company, otherwise threatened, other than, in each
case, those which would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. This Section 3.9 does
not apply to any governmental authorizations related to the transactions
governed hereby and identified in Section 3.3.
SECTION 3.10 Taxes. The Company and each of its subsidiaries (since
the date of acquisition by the Company) has filed, or caused to be filed, all
federal, state, local and foreign income and other tax returns required to be
filed by it, has paid or withheld, or caused to be paid or withheld, all taxes
of any nature whatsoever, with any related penalties, interest and liabilities
(any of the foregoing being referred to herein as a "Tax"), that are shown on
such tax returns as due and
12
<PAGE> 13
payable, or otherwise required to be paid, other than such Taxes as are being
contested in good faith and for which reserves have been established in
accordance with GAAP in all material respects, except where the failure so to
file or pay would not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect. The Company and each of its
subsidiaries (since the date of acquisition by the Company) have paid all Taxes
due with respect to any period ending on or prior to the date Shares are
purchased pursuant to the Offer, or where the payment of Taxes is not yet due,
have established, or with respect to Taxes incurred after the date hereof, will
timely establish in accordance with past practices, an adequate accrual in
accordance with GAAP in all material respects, except for failures to pay or
accrue that would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. Except as set forth in Schedule
3.10, there are no claims, assessments or audits pending or threatened in
writing, or to the Company's knowledge otherwise threatened, against the
Company or its subsidiaries for any alleged deficiency in any Tax, and the
Company does not know of any Tax claims or assessments threatened against the
Company or any of its subsidiaries which if upheld could, individually or on
the aggregate, reasonably be expected to have a Company Material Adverse Effect
(after giving effect to any reserves maintained by the Company). None of the
Company or any of its Significant Subsidiaries has filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code").
There is no material intercompany item which would be taken into account by, or
excess loss account which would be includable in income of, the Company or any
of its subsidiaries as a result of the transactions contemplated by this
Agreement pursuant to the Treasury Regulations promulgated under Section 1502
of the Code. Except as set forth in Schedule 3.10, there are no waivers or
extensions of any applicable statute of limitation to assess any Taxes. All
returns filed by or on behalf of the Company and its subsidiaries (since the
date of acquisition by the Company) with respect to Taxes are true and correct
in all material respects. There are no outstanding requests by the Company for
any extension of time within which to file any return (except for normal
automatic extensions) or within which to pay any Taxes shown to be due on any
return. There are no liens for any Taxes upon the assets of the Company or any
of its subsidiaries (other than statutory liens for Taxes not yet due and
payable and liens for real estate taxes being contested in good faith) which
individually or in the aggregate could have a Company Material Adverse Effect.
Except as set forth in Schedule 3.10, neither the Company nor any of its
subsidiaries is a party to, is bound by or has any obligation under, a tax
sharing or tax allocation agreement or arrangement for the allocation,
apportionment, sharing, indemnification or payment of taxes.
SECTION 3.11 Termination, Severance and Employment Agreements. As
set forth on Schedule 3.11, the Company has provided to Parent and Sub a
complete and accurate list of each (a) employment or severance agreement of any
officer or other "key employee" (as defined in Schedule 3.11) not terminable by
the terms thereof without material liability or obligation (either individually
or collectively) on 60 days' or less notice; (b) agreement with any director,
executive officer or other key employee of the Company (i) the benefits of
which are contingent, or the terms of which are materially altered, on the
occurrence of a transaction involving the Company of the nature of any of the
transactions contemplated by this Agreement or relating to an actual or
potential change in control of the Company or (ii) providing any term of
employment or other compensation guarantee or extending severance benefits or
other benefits after termination not comparable to benefits available
13
<PAGE> 14
to employees of the Company generally; (c) agreement, plan or arrangement under
which any person may receive payments that may be subject to tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (d) plan, including
any stock option plan, stock appreciation right plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be triggered, increased,
or the vesting of the benefits of which will be triggered or accelerated, by
the occurrence of any of the transaction contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
SECTION 3.12 Employee Benefit Plans; ERISA.
(a) Except as previously disclosed to the Parent and Sub in
writing, (i) each "employee benefit plan" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and all
other employee benefit, bonus, incentive, stock option (or other equity-based),
severance, change in control, welfare (including post-retirement medical and
life insurance) and fringe benefit plans (whether or not subject to ERISA)
maintained or sponsored by the Company or its Significant Subsidiaries or any
member of the Company's controlled group of entities (within the meaning of
Code Sections 414(b), (c), (m) or (o)) (each, an "ERISA Affiliate"), for the
benefit of any employee or former employee of the Company or any of its ERISA
Affiliates (individually, a "Plan," and collectively, the "Plans") is, and has
been operated in accordance with its terms and in compliance (including the
making of governmental filings) with all applicable laws, including ERISA and
the applicable provisions of the Code, except for failures that would not,
individually or in the aggregate, have a Company Material Adverse Effect, (ii)
each of the Plans presently maintained by the Company or any Significant
Subsidiary and intended to be "qualified" within the meaning of Section 401(a)
of the Code has been determined by the Internal Revenue Service to be so
qualified, (iii) no "reportable event," as such term is defined in Section
4043(c) of ERISA (for which the 30-day notice requirement to the Pension
Benefit Guaranty Corporation ("PBGC") has not been waived), has occurred with
respect to any Plan that is subject to Title IV of ERISA which presents a risk
of liability to any governmental entity or other person which, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect, and (iv) there are no pending or threatened in writing or to the
Company's knowledge otherwise threatened, claims (other than routine claims for
benefits) by, on behalf of or against, any of the Plans or any trust related
thereto which would, individually or in the aggregate, have a Company Material
Adverse Effect. No Plan is a "multiemployer plan" (within the meaning of
ERISA) nor to the knowledge of the Company has the Company or any ERISA
Affiliate ever contributed or been required to contribute to any multiemployer
plan.
(b) (i) No Plan has incurred a material "accumulated funding
deficiency" (as defined in Section 302 of ERISA or Section 412 of the Code)
whether or not waived and (ii) neither the Company nor any ERISA Affiliate has
incurred any liability under Title IV of ERISA except for required premium
payments to the PBGC, which payments have been made when due, and no events
have occurred which are reasonably likely to give rise to any liability of the
Company or an ERISA Affiliate under Title IV of ERISA or which could reasonably
be anticipated to result in any claims
14
<PAGE> 15
being made against Sub by the PBGC, in any such case, which presents a risk of
liability which would, individually or in the aggregate, have a Company
Material Adverse Effect.
(c) With respect to each Plan that is subject to Title IV of
ERISA, (i) the Company has provided to Parent and Sub copies of the most recent
actuarial valuation report prepared for such Plan prior to the date hereof,
(ii) the assets and liabilities in respect of the accrued benefits as set forth
in the most recent actuarial valuation report prepared by the Plan's actuary
fairly presented the funded status of such Plan in all material respects, and
(iii) since the date of such valuation report there has been no adverse change
in the funded status of any such Plan which would, individually or in the
aggregate, have a Company Material Adverse Effect.
(d) Neither the Company nor any ERISA Affiliate has failed to make
any contribution or payment to any Plan which has resulted or could result in
the imposition of a lien or the posting of a bond or other security under ERISA
or the Code which would have a Company Material Adverse Effect.
(e) The Company has not sponsored, maintained, administered or
contributed to or participated in a Plan subject to Title VI of ERISA within
the last seven years.
SECTION 3.13 Environmental Matters. The Company and each of its
subsidiaries has obtained and is in substantial compliance with the terms and
conditions of all required permits, licenses and other authorizations required
under Environmental Laws (as hereinafter defined), except for failures or
noncompliance which would not reasonably be expected to, individually or in the
aggregate, have a Company Material Adverse Effect. The Company and each of its
subsidiaries is in substantial compliance with all applicable Environmental
Laws, except for failures to comply which would not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect. The
Company has disclosed past and present noncompliance with, or liability under,
Environmental Laws and discharges, emissions, leaks, releases or disposals of
any substance or waste regulated under or defined by Environmental Laws that
have formed the basis of any claim, action, suite proceeding, hearing or
investigation under any applicable Environmental Laws which, in any such case,
individually or in the aggregate, would have a Company Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received notice of any past
or present events, conditions, circumstances, activities, practices, incidents,
actions or plans that have resulted in any common law or legal liability, or
otherwise form the basis of any material liability under, any applicable
Environmental Laws, which would, individually or in the aggregate, have a
Company Material Adverse Effect. For purposes of this Section 3.13, (a)
"Environmental Laws" mean applicable federal, and local laws, regulations and
codes relating in any respect to pollution or protection of the environment and
(b) "Hazardous Substances" means any toxic, caustic, or otherwise dangerous
substance (whether or not regulated under federal, state or local environmental
statutes, rules, ordinances, or orders), including (i) "hazardous substance" as
defined in 42 U.S.C. Section 9601, and (ii) petroleum products, derivatives,
byproducts and other hydrocarbons.
15
<PAGE> 16
SECTION 3.14 Assets; Real Property; Intellectual Property.
(a) The Company and its Significant Subsidiaries own or have
rights to use all assets necessary to permit the Company and its Significant
Subsidiaries to conduct their business as it is currently being conducted
except where the failure to own or have the right to use such assets would not,
individually or in the aggregate, have a Company Material Adverse Effect,
subject to the matters disclosed in Section 3.4 and on Schedule 3.4.
(b) Except as previously disclosed to Parent and Sub (including,
without limitation the matters disclosed in Section 3.4 and on Schedule 3.4),
the Company has, either directly or through its subsidiaries, (i) good, valid
and marketable or indefeasible title to all real property material to its
business operations, free and clear of any liens, encumbrances, mortgages and
security interests other than Permitted Liens (as hereinafter defined), or (ii)
rights by lease or other agreement to use all such real property. The term
"Permitted Liens" shall mean (i) liens or encumbrances for water, sewage and
similar charges and current taxes and assessments not yet due and payable or
being contested in good faith, (ii) mechanics', carriers', workers',
repairers', materialmen's, warehousemen's and other similar liens or
encumbrances arising or incurred in the ordinary course of business, (iii)
liens, encumbrances, mortgages and security interests arising or resulting from
any action taken by Parent or Sub, (iv) liens, encumbrances, mortgages and
security interests of record or securing indebtedness described in the SEC
Reports, (v) liens, encumbrances, mortgages and security interests incurred in
the ordinary course of business since June 30, 1997, (vi) easements, rights of
way, restrictions and other similar charges or encumbrances, and any other
liens, encumbrances, mortgages and security interests, that do not materially
interfere with the ordinary conduct of the Company's business. All real
property leases under which the Company or any of its subsidiaries is a lessee
or lessor are, as of the date hereof, valid, binding and enforceable in
accordance with their terms, and there are not existing defaults thereunder
which would, individually or in the aggregate, have a Company Material Adverse
Effect, subject to the matters disclosed in Section 3.4 and on Schedule 3.4.
(c) As presently used by the Company, none of the Intellectual
Property owned by the Company or any of its subsidiaries is infringed or
challenged or threatened in any way, except for infringements, challenges or
threats which would not individually or in the aggregate, have a Company
Material Adverse Effect. "Intellectual Property" means trademarks, trade
names, service marks, service names, mark registrations, logos, assumed names,
copyright registrations, patents and all applications therefor and all other
similar proprietary rights.
SECTION 3.15 Labor Matters. Neither the Company nor any of its
subsidiaries has, since September 30, 1994, (i) been subject to, threatened in
writing, or to the Company's knowledge otherwise threatened, with any strike,
lockout or other labor dispute the result of which had or could reasonably be
expected to have or constitute, a Company Material Adverse Effect, or (ii)
received written notice of any pending petition for certification before the
National Labor Relations Board with respect to any group of employees of the
Company or any of its subsidiaries who are not currently organized. The
Company is not a party to any collective bargaining agreement with a labor
union.
SECTION 3.16 Rights Agreement. The Company's Board of Directors has
taken all necessary action (i) to provide that neither Parent nor Sub will
become an "Acquiring Person" such
16
<PAGE> 17
that no "Shares Acquisition Date" or "Distribution Date" (as such terms are
defined in the Rights Agreement) will occur and that Section 11.1.2 of the
Rights Agreement will not be triggered, in each case as a result of the
announcement, commencement or consummation of the Offer, the execution or
delivery of this Agreement or any amendment hereto, the consummation of the
Merger, or the consummation of any other transactions contemplated hereby or
thereby, and (ii) at the request of Parent or Sub, to redeem the Rights
effective immediately prior to the Sub's acceptance of Shares for purchase
pursuant to the Offer.
SECTION 3.17 Certain Fees. With the exception of the fees payable to
the Financial Advisor pursuant to the engagement letter dated June 2, 1997,
which has been delivered to Parent, neither the Company, any of its
subsidiaries nor any of their officers, directors or employees has employed any
broker or finder or incurred any liability for any financial advisory,
brokerage or finder's fees or commissions in connection with the transactions
contemplated herein.
SECTION 3.18 No Default. Except as disclosed in the SEC Reports, in
Section 3.4 or on Schedule 3.4, and except for defaults or violations which, in
the aggregate, would not reasonably be expected to constitute a Company
Material Adverse Effect, the Company is not in default or violation (and no
event has occurred which with notice or lapse of time or both would constitute
a default or violation) of any material term, condition or provision of (i) its
charter, bylaws or other governing documents, (ii) any note, mortgage,
indenture or other evidence of indebtedness, guarantee, license, agreement or
other contract, instrument or contractual obligation to which the Company or
any of its subsidiaries is now a party or by which they or any of their assets
may be bound, or (iii) any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any of its subsidiaries on the date
hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as
follows:
SECTION 4.1 Organization. Each of Parent, Sub and their respective
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state or jurisdiction of incorporation and is in
good standing as a foreign corporation in each other jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification and where failure to be in good standing or so to qualify
would have a material adverse effect on the financial condition, results of
operations or businesses of Parent and its subsidiaries taken as a whole.
SECTION 4.2 Authority Relative to This Agreement.
(a) Parent and Sub Approvals. Each of Parent and Sub has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions
17
<PAGE> 18
contemplated hereby. The execution and delivery of this Agreement by Parent
and Sub and the consummation of the transactions contemplated hereby have been
duly authorized by the respective Boards of Directors of Parent and Sub, and by
Parent as the sole stockholder of Sub, and no other corporate proceedings on
the part of Parent or Sub are necessary for the execution and delivery of this
Agreement by each of Parent and Sub, the performance by each of Parent and Sub
of their respective obligations hereunder and the consummation by each of
Parent and Sub of the transactions so contemplated. This Agreement has been
duly executed and delivered by each of Parent and Sub and, assuming this
Agreement constitutes a valid and binding obligation of the Company, this
Agreement constitutes a valid and binding agreement of each of Parent and Sub,
enforceable against each of Parent and Sub in accordance with its terms, except
to the extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors
rights generally or by general equitable principles.
(b) Other Authorizations. Other than in connection with,
or in compliance with applicable requirements of the DGCL with respect to the
transactions contemplated hereby, the Exchange Act, the securities laws of the
various states and the HSR Act, no authorization, consent or approval of, or
filing with, any court or any public body or authority is necessary for the
consummation by Parent and Sub of the transactions contemplated by this
Agreement other than authorizations, consents and approvals the failure to
obtain, or filings the failure to make, would not, in the aggregate, have a
material adverse effect on the financial condition, results of operations or
business of Parent and its subsidiaries taken as a whole or on the ability of
Parent and Sub to consummate the transactions contemplated hereby.
SECTION 4.3 No Violation. Neither the execution or delivery of this
Agreement by Parent and Sub, the performance by Parent and Sub of their
respective obligations hereunder nor the consummation by them of the
transactions contemplated hereby will (a) constitute a breach or violation
under the Certificate of Incorporation or By-Laws of Parent or Sub or (b)
constitute a breach, violation or default (or any event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any lien or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under, any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument to which Parent or
any of its subsidiaries is a party or by which they or any of their respective
properties or assets are bound or (c) constitute a violation of any order,
writ, injunction, decree, statute, rule or regulation of any court or
governmental authority applicable to Parent or Sub or any of their respective
properties or assets, other than, in the case of clauses (b) and (c) above,
such breaches, violations, defaults, terminations, accelerations or creation of
liens and encumbrances which, in the aggregate, would not have a material
adverse effect on the financial condition, results of operations or business of
Parent and its subsidiaries taken as a whole or on the ability of Parent and
Sub to consummate the transactions contemplated hereby.
SECTION 4.4 Information. Neither the Offer Documents, nor any other
document filed or to be filed by or on behalf of Parent or Sub with the SEC or
any other governmental entity in connection with the transactions contemplated
by this Agreement, contained when filed, or will
18
<PAGE> 19
contain, at the respective times filed with the SEC or other governmental
entity, 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
made therein, in light of the circumstances under which they were made, not
misleading; provided that the foregoing shall not apply to information supplied
by the Company in writing specifically for inclusion or incorporation by
reference in any such document. The Offer Documents will, when filed with the
SEC, comply in all material respects with the provisions of the Exchange Act
and the rules and regulations thereunder. None of the information supplied in
writing by Parent or Sub specifically for inclusion or incorporation by
reference in the Schedule 14D-9, the Proxy Statement, if any, or any other
document filed or to be filed by or on behalf of the Company with the SEC or
any other governmental entity in connection with the transactions contemplated
by this Agreement, contains, or will contain, any untrue statement of a
material fact or omits, or will omit, to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
SECTION 4.5 Financing. Parent and Sub have the funds, or have
binding written commitments from a responsible financial institution or from an
affiliate of Parent to provide Parent or Sub with the funds, necessary to
consummate on a timely basis the Offer and the Merger and the transactions
contemplated thereby, including, without limitation, funding the repayment of
the 1995 Credit Agreement and to satisfy any debt obligations of the Company
which will be accelerated as a result of the consummation of the Offer and/or
the Merger. Parent and Sub will keep available to each of them (either in cash
or pursuant to commitments) sufficient funds to enable Parent and Sub to carry
out all their obligations under this Agreement. An affiliate of Parent has
delivered an unconditional financing commitment to the Company in the form of
Annex B to this Agreement.
SECTION 4.6 No Prior Activities. Sub has not incurred, directly or
indirectly, any liabilities or obligations, except those incurred in connection
with its organization or with the negotiation of this Agreement and the
transactions contemplated hereby. Sub has not engaged, directly or indirectly,
in any business or activity of any type or kind, or entered into any agreement
or arrangement with any person or entity, or is subject to or bound by any
obligation or undertaking, that is not contemplated by or in connection with
this Agreement and the transactions contemplated hereby.
SECTION 4.7 Certain Fees. None of Parent, any affiliate thereof or
any of their officers, directors or employees has employed any broker or finder
or incurred any liability for any financial advisory, brokerage or finder's
fees or commissions in connection with the transactions contemplated herein for
which the Company could have any liability.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of the Company. Except as
contemplated by this Agreement or previously disclosed to Parent, during the
period from the date of this Agreement to
19
<PAGE> 20
the Effective Time, the Company will, and will cause each of its subsidiaries
to, conduct their respective operations according to its ordinary and usual
course of business and consistent with past practice in all material respects.
Without limiting the generality of the foregoing, and except as contemplated by
this Agreement or as previously disclosed to Parent, prior to the Effective
Time, the Company will not, and the Company will cause its subsidiaries not to,
without the prior written consent of Parent (such consent not to be
unreasonably withheld):
(a) issue, sell or repurchase, or authorize or propose
the issuance, sale or repurchase of any shares of capital stock of the Company
and its subsidiaries, or securities convertible into such shares, or any
rights, warrants or options to acquire such shares or other convertible
securities, other than the issuance of Shares pursuant to the redemption of
Rights if otherwise permitted or required hereby, the exercise of Options, CVCA
Warrants, SEV Warrants or the APS Note as outstanding on the date hereof;
(b) declare or pay any dividend or distribution on any
shares of its capital stock (other than dividends paid by wholly-owned
subsidiaries of the Company to the Company or a redemption of the Rights if
otherwise permitted or required hereby);
(c) except for such transactions in the ordinary course
of business or fees and expenses related to the transactions contemplated
hereby, authorize or enter into any agreement with respect to any commitment or
transaction which requires the Company to pay in excess of $300,000 in the
aggregate;
(d) except as set forth in Schedule 5.1 and except in the
ordinary course of business consistent with past practice and except as
previously disclosed to Parent or as may be required by law, adopt or amend in
any material respect or terminate any profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, plan, fund or other arrangement
(collectively, "Compensation Plans"), or grant, or become obligated to grant,
any general increase in the compensation of executive officers or any increase
in the compensation payable or to become payable to any executive officer or
institute any material new welfare program or Compensation Plan, or make any
material change in any Compensation Plan;
(e) except as required by the consummation of the Merger,
pay, discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business;
(f) except for transactions in the ordinary course of
business (i) incur, assume or prepay any long-term or short-term debt or issue
any debt securities except for borrowing under existing lines of credit or
prepayments or other borrowings not to exceed $300,000 in the aggregate; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any material obligations of any other
person except for obligations of wholly-owned subsidiaries of the Company;
(iii) make any loans, advances or capital contributions
20
<PAGE> 21
to, or investments in, any other person (other than to wholly-owned
subsidiaries of the Company, advances to customers in amounts not to exceed
$25,000 in the aggregate, or customary loans to employees in amounts not
material to the maker of such loan); (iv) except as required under the 1995
Credit Agreement, pledge or otherwise encumber shares of capital stock of the
Company or any of its subsidiaries; or (v) except as required under the 1995
Credit Agreement, mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any lien thereupon, excluding
Permitted Liens;
(g) subject to the rights of the Company's stockholders
under applicable law, propose or adopt any amendments to its certificate of
incorporation or By-laws (except for any amendment to the Company's By-Laws
necessary to increase the number of directors to comply with Section 5.9);
(h) except for transactions in the ordinary course of
business, contemplated hereby or otherwise disclosed herein, acquire, sell,
lease or dispose of any assets which in the aggregate are material to the
Company and its subsidiaries taken as a whole, or enter into or modify, amend,
terminate or waive any rights under any commitments, contracts, agreements or
transactions which would, individually or in the aggregate, be material to the
Company and its subsidiaries taken as a whole;
(i) except for transactions with subsidiaries, acquire
(by merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or any equity
interest therein;
(j) make any material tax election or settle or
compromise any material federal, state or local tax liability or assent to the
assessment of any federal, state or local tax (provided the Company may settle
the pending Florida sales tax audit for an amount equal to or less than the
reserve carried on its financial statements as of June 30, 1997);
(k) authorize any new capital expenditure or expenditures
not reflected in the capital expenditure budget provided to Parent and which in
the aggregate are in excess of $50,000; or
(l) agree, in writing or otherwise, to take any of the
foregoing actions.
SECTION 5.2 Access to Information.
(a) General. So long as this Agreement has not been
terminated, between the date of this Agreement and the Effective Time, the
Company will give Parent and its authorized representatives access during
normal business hours to all stores, offices, warehouses and other facilities
and to all books and records of it and its subsidiaries, will permit Parent to
make such inspections as it may reasonably require and will cause its officers
and those of its subsidiaries and use reasonable best efforts to cause its
accountants promptly to furnish Parent with such financial and
21
<PAGE> 22
operating data and other information with respect to the business and
properties of the Company and its subsidiaries as Parent may from time to time
reasonably request.
(b) Confidentiality. Parent, Sub and the Company agree
that the provisions of the Letter Agreement, shall remain binding and in full
force and effect and that the terms of the Letter Agreement are incorporated
herein by reference; provided that nothing in such undertaking shall prohibit
Parent and Sub from consummating the transactions contemplated by this
Agreement and the Offer in accordance with the terms of this Agreement.
SECTION 5.3 Acquisition Proposals.
(a) The Company shall, shall cause its officers and
directors, and shall use its reasonable best efforts to cause its employees,
representatives and agents, to cease immediately any existing discussions or
negotiations with any parties conducted heretofore with respect to any Third
Party Transaction (as defined in Section 5.3(b) hereof). From and after the
date of this Agreement, the Company and its subsidiaries will not, and will
cause their respective officers and directors, and will use their respective
reasonable best efforts to cause their respective employees, representatives,
including investment bankers, attorneys and accountants, or other agents
retained by or acting for the Company or any of its subsidiaries, not (i) to
solicit, directly or through an intermediary, any inquiries with respect to, or
the making of any Acquisition Proposal (as defined in Section 5.3(b)), or (ii)
except as permitted below, to engage in negotiations or discussions with, or
furnish any confidential information relating to the Company or any of its
subsidiaries to, any Third Party (as defined in Section 5.3(b)) relating to an
Acquisition Proposal (other than the transactions contemplated hereby).
Notwithstanding anything to the contrary contained in this Agreement, the
Company (and any person referred to above) may furnish information to, and
participate in discussions or negotiations with, any Third Party which submits
an Acquisition Proposal to the Company, and may waive any provision of any
confidentiality or standstill agreement to which it or any of its
representatives is a party, if the Company's Board of Directors in its good
faith judgment by a majority vote, after consultation with the Company's
outside legal counsel and financial advisor, determines that such Acquisition
Proposal constitutes a Superior Offer and that, based as to legal matters upon
the advice of outside legal counsel, the failure to furnish such information or
participate in such discussions or negotiations or waive any provision of any
such agreement, could reasonably be expected to result in a breach of their
fiduciary duties under applicable law; provided that nothing herein shall in
any event prevent the Company's Board of Directors from taking and disclosing
to the Company stockholders a position contemplated by Rules 14D-9 and 14e-2
promulgated under the Exchange Act with respect to any tender offer or from
making such other disclosures to Company stockholders which, based upon the
advice of outside legal counsel, the Board in its good faith judgment
determines is required by the fiduciary duties of the Board of Directors under
applicable law; and provided further, that the Company shall not enter into a
definitive written agreement providing for a Third Party Transaction except
concurrently with or after the termination of this Agreement in accordance with
the terms of this Agreement including, but not limited to, satisfaction of a
Company's obligations under Section 7.2 hereof (except with respect to
confidentiality agreements, stand still agreements and other similar agreements
to the extent expressly provided herein). The Company shall promptly provide
Parent
22
<PAGE> 23
with a reasonable description of any Acquisition Proposals received (including
a summary of all material terms of such Acquisition Proposal and, unless it is
prohibited from disclosing the same, the identity of the person making such
Acquisition Proposal). The Company shall promptly inform Parent of the status
and content of any discussions regarding any Acquisition Proposal with a Third
Party. In no event shall the Company provide non-public information to any
Third Party making an Acquisition Proposal unless such party enters into a
confidentiality or similar agreement containing provisions believed by the
Company reasonably to protect the confidentiality of such information.
Promptly after entering into any confidentiality or any similar agreement with
any person, the Company shall notify Parent of such event and identify the
person with whom the agreement was executed unless it is prohibited from
disclosing the same.
(b) For purposes of the Agreement, the term "Acquisition Proposal"
shall mean any unsolicited, bonafide written proposal made by a Third Party to
enter into a Third Party Transaction. "Third Party Transaction" means the
acquisition of beneficial ownership of all or a majority of the assets of, or a
majority equity interest in, the Company pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock, sale of assets,
tender offer or exchange offer or other business acquisition or combination
transaction involving the Company and its subsidiaries, including any single
transaction or series of related transactions which is structured to permit
such a Third Party to acquire beneficial ownership of a majority of the assets
of, or majority equity interest in, the Company (other than transactions
contemplated by this Agreement). "Third Party" means any person other than
Parent, Sub or any affiliate thereof.
SECTION 5.4 Stockholders' Meeting.
(a) General. If required by applicable law or the NMS in
order to consummate the Merger, the Company, acting through its Board of
Directors, shall, in accordance with its charter documents and such
requirements:
(i) duly call, give notice of, convene and hold an
annual or special meeting (the "Special Meeting") of its
stockholders as soon as practicable after the purchase of
Shares pursuant to the Offer for the purpose of considering
and taking action upon this Agreement;
(ii) subject to its fiduciary duties under
applicable law as advised by counsel, include in the Proxy
Statement the recommendation of its Board of Directors that
stockholders of the Company vote in favor of the approval and
adoption of this Agreement; and
(iii) use its reasonable best efforts (x) to obtain
and furnish the information required to be included by it in
the Proxy Statement, to respond promptly to any comments made
by the SEC with respect to the Proxy Statement and any
preliminary version thereof and to cause the Proxy Statement
to be mailed to its stockholders at the earliest practicable
time following the expiration or termination of the Offer and
23
<PAGE> 24
(y) subject to its fiduciary duties under applicable law as
advised by counsel, to obtain the necessary approval of the
Merger by its stockholders.
(b) Shortform Merger. Notwithstanding the foregoing, if
Parent, Sub or any other affiliate of Parent shall acquire at least 90 percent
of the outstanding Shares, the parties hereto agree to take all necessary and
appropriate action to cause the Merger to become effective, as soon as
practicable after the expiration of the Offer, but in no event later than ten
business days thereafter, without a meeting of stockholders of the Company, in
accordance with Section 253 of the DGCL.
(c) Voting of Shares by Parent and Sub. Parent agrees
that, at the Special Meeting, all of the Shares acquired in the Offer or
otherwise owned by Parent, Sub or any other affiliate of Parent will be voted
in favor of the Merger.
SECTION 5.5 Cooperation. Subject to the terms and conditions herein
provided and to the fiduciary duties of the Company's directors as advised by
outside counsel to the Company, each of the parties hereto agrees to use its
reasonable best efforts (and to use its reasonable best efforts to cause its
affiliates) (a) to take, or cause to be taken, all action, and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement including, without limitation, (i) along with their respective
affiliates promptly making their respective filings, and thereafter using their
reasonable best efforts promptly to make any required submissions, under the
HSR Act, (ii) promptly making any filings that are required to be made or
seeking any consents, approvals, permits or authorizations that are required to
be obtained under any other federal, state or other law or regulation, (iii)
using its reasonable best efforts to respond promptly and fully to any and all
inquiries of government officials or agencies and to endeavor to resolve any
inquiries or objections made by any such officials or agencies, and (iv) using
its reasonable best efforts to prevent or ameliorate the effects of any Order
or Injunction (as defined in paragraph (a) of Annex A attached hereto) and (b)
to refrain from taking, directly or indirectly, any action contrary to or
inconsistent with the provisions of this Agreement, including action which
would impair such party's ability to consummate the transactions contemplated
hereby. In case at any time before or after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall use
their respective reasonable best efforts to take all such necessary action. If
any "fair price," "moratorium," "control share acquisition" or other form of
anti-takeover statute, regulation, charter provision or contract is or becomes
applicable to the transactions contemplated by this Agreement, the Company will
use its reasonable best efforts to grant such approvals and take such actions
as are necessary under such laws, provisions or contracts so that the
transaction contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise act to
eliminate or minimize the effects of such statute, regulation, provision or
contract on the transaction contemplated by this Agreement.
SECTION 5.6 Notification of Certain Matters. Each of the Company, on
the one hand, and Parent and Sub, on the other hand, shall give prompt notice
to the other parties of (i) the occurrence, or non-occurrence, of any event
which causes or has caused any representation or warranty of any
24
<PAGE> 25
party contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the acceptance for payment of
Shares pursuant to the Offer, and (ii) any material failure of the Company,
Parent or Sub, as the case may be, or any officer, director, employee,
representative or agent thereof, to comply with or satisfy any material
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 5.6 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 5.7 Public Announcements. Parent, Sub and the Company will
consult with each other before issuing any press release or otherwise making
any public statements with respect to the Offer or the Merger and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any securities exchange or
similar authority. The parties agree that, upon execution of this Agreement,
they will cause to be disseminated the joint press release attached hereto as
Annex C.
SECTION 5.8 Indemnification and Insurance.
(a) Continuation of Contractual Obligations. From and
after the purchase of Shares pursuant to the Offer, the Company and, after the
Effective Time, Parent and the Surviving Corporation, shall perform the
obligations of the Company under the indemnification agreements between the
Company and directors and certain officers of the Company previously identified
to Parent (the "Indemnification Agreements"). Copies of the Indemnification
Agreements have been supplied to Parent.
(b) Responsibility for Charter Obligations to Officers
and Directors. After the consummation of the Merger, the Surviving Corporation
shall remain responsible for the officers' and directors' right to
indemnification and exculpation provided for in the Amended and Restated
Certificate of Incorporation and By-Laws of the Company as in effect on the
date hereof, with respect to acts and omissions occurring prior to the
Effective Time, including, without limitation, the transactions contemplated by
this Agreement.
(c) Continuation of D&O Insurance. For six years after
the Effective Time, Parent or the Surviving Corporation shall maintain
officers' and directors' liability insurance covering the persons who are
presently covered by the Company's officers' and directors' liability insurance
policies (copies of which have heretofore been delivered to Parent) with
respect to actions and omissions occurring prior to the Effective Time, on
terms which are not less favorable than the terms of such current insurance in
effect for the Company on the date hereof; provided, however, that Parent and
the Surviving Corporation shall not be obligated to make annual premium
payments for such insurance to the extent such premiums exceed 175% of the
annual premiums paid as of the date hereof by the Company for such insurance
(the "Maximum Amount"). If the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount, Parent
and the Surviving Corporation shall maintain the most advantageous policies of
directors and officers liability insurance obtainable for an annual premium
equal to the Maximum Amount.
25
<PAGE> 26
(d) Indemnification. From and after the purchase of the
Shares pursuant to the Offer, (i) Parent, Sub and the Company shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless, and
from and after the Effective Time, Parent and the Surviving Corporation shall,
to the fullest extent permitted under applicable law, indemnify and hold
harmless, each present and former director and officer of the Company
(collectively, the "Indemnified Parties") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
pending, threatened or completed claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission occurring prior to the
Effective Time (including, without limitation, any claim, action, suit,
proceeding or investigation arising out of or pertaining to the transactions
contemplated by this Agreement) and in the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time); (ii) the Company or the Surviving Corporation shall advance
expenses to each such Indemnified Party, including the payment of the
reasonable fees and expenses of counsel selected by such Indemnified Party,
which counsel shall be reasonably satisfactory to the Company or the Surviving
Corporation, as the case may be, promptly after statements therefor are
received, and (iii) the Company and the Surviving Corporation will cooperate
fully in the defense of any such matter. Neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld).
(e) Eligibility for Indemnification. Notwithstanding any
provision to the contrary contained in the Amended and Restated Certificate of
Incorporation and By-Laws of the Company as in effect on the date hereof or in
any Indemnification Agreement, any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under the DGCL, under such charter provisions or Indemnification
Agreements shall be made by independent counsel selected by the Indemnified
Party and reasonably acceptable to the Company, Parent, Sub or the Surviving
Corporation, which shall pay such counsel's reasonable fees and expenses (it
being agreed that neither the Company, Parent, Sub nor the Surviving
Corporation shall challenge any such determination by such independent counsel
which is favorable to an Indemnified Party).
(f) Survival. This Section shall survive the closing of
the transactions contemplated hereby, is intended to benefit the Company,
Parent, Sub or the Surviving Corporation and each of the Indemnified Parties
(each of whom shall be entitled to enforce this Section against the Company,
Parent, Sub or the Surviving Corporation, as the case may be) and shall be
binding on all successors and assigns of Parent and the Surviving Corporation.
(g) Merger, Assignment, etc. In the event Parent, the
Surviving Corporation or any of their respective successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
person, then, and in each such case, proper provision shall be made so that the
successors and assigns of Parent or the Surviving Corporation assume the
obligations set forth in this Section 5.8.
26
<PAGE> 27
SECTION 5.9 Company Board of Directors.
(a) Right of Sub to Reconfigure Board of Directors.
Following the acquisition of a number of Shares pursuant to the Offer
satisfying the Minimum Condition, Sub shall be entitled, subject to compliance
with applicable law and the NMS, to designate at its option up to that number
of directors, rounded to the nearest whole number, of the Company's Board of
Directors, as will make the percentage of the Company's directors designated by
Sub equal to the aggregate voting power of the Shares held by Sub and Parent
expressed as a percentage of the fully diluted number of Shares outstanding or
subject to issuance pursuant to Options or CVCA Warrants. The Company shall,
upon the request of Parent, use its reasonable best efforts promptly to
increase the size of the Board and/or secure the resignation of such number of
directors as is necessary to enable Sub's designees to be elected to the
Company's Board of Directors, and shall use its reasonable best efforts to
cause Sub's designees to be elected to the Company's Board of Directors,
subject in all cases to the provisions set forth below. It is understood and
agreed that prior to the Effective Time, the Company's Board of Directors shall
always have at least two members ("Independent Directors") who are neither
officers of the Company nor designees, stockholders or affiliates of Parent
("Parent Insiders"); provided that if the number of Independent Directors shall
be reduced below two because of death, disability or resignation, the remaining
Independent Directors (or Independent Director, if there be only one remaining)
shall be entitled to designate persons to fill such vacancies who shall be
deemed to be Independent Directors for purposes of this Agreement. From and
after the date of any designation of directors by Parent under this Section
5.9, there shall be formed a committee of the Board of Directors (the "Special
Committee") which shall consist solely of persons who are not Parent Insiders
and which shall make all determinations to be made by the Company's Board of
Directors hereunder.
(b) Compliance with Section 14(f) of the Exchange Act.
The Company's obligations to appoint designees to the Board shall be subject to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The
Company shall promptly take all actions required pursuant to Section 14(f) and
Rule 14f-1 in order to fulfill its obligations under this Section 5.9 and shall
include in the Schedule 14D-9 mailed to stockholders promptly after the
commencement of the Offer 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 5.9. Parent will supply to the
Company 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) Certain Amendments. (i) Any amendment or
termination of this Agreement by the Company, any waiver of any of the
Company's rights hereunder or otherwise pursuant to Section 1.1, 7.1, 7.4 or
7.5 hereof, or any extension of the time for performance of Parent's
obligations or other acts hereunder, or (ii) any other action taken by the
Company's Board of Directors (x) in connection with this Agreement or (y) which
adversely affects the interests of the stockholders of the Company (other than
Parent, Sub and their affiliates), shall require the concurrence of a majority
of the members of the Special Committee, none of the members of which may be
Parent Insiders.
27
<PAGE> 28
SECTION 5.10 Employee Benefits. Parent agrees from and after the
Effective Time to cause the Surviving Corporation to perform all the Company's
obligations under the employment, severance, bonus, and commission agreements
and similar arrangements to which the Company is a party which are set forth in
Schedule 5.10 hereto.
SECTION 5.11 Rights Inapplicable. The Company shall take all action
(including, if required, redeeming all of the outstanding Rights or amending
the Rights Plan) so that entering into this Agreement and the consummation of
the transactions contemplated hereby (including, without limitation, the Offer)
shall not and will not result in the grant of any rights under the Rights Plan
to purchase or receive additional shares of capital stock of the Company or
enable or require the Rights to be exercised, distributed or triggered in any
way.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to Each Party's Obligation To Effect
the Merger. The respective obligations of each party to effect the Merger are
subject to the satisfaction or waiver, where legally permissible, prior to the
Effective Time of the following conditions:
(a) This Agreement shall have been adopted by the
requisite vote of the stockholders of the Company in accordance with applicable
law and the NMS, if such vote is required by applicable law or the NMS;
(b) No statute, rule, regulation, order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority of competent jurisdiction which restrains,
enjoins or otherwise prohibits the consummation of the Merger; provided,
however, that the Company, Parent and Sub shall use their reasonable best
efforts to have any such order, decree or injunction vacated and otherwise take
all actions required pursuant to Section 5.5;
(c) The applicable waiting period under the HSR Act shall
have expired or been terminated; and
(d) Sub shall have accepted for payment and paid for all
Shares validly tendered pursuant to the Offer, provided that this condition
will be deemed satisfied with respect to the obligations of Parent and Sub if
Sub fails to accept for payment and pay for any Shares pursuant to the Offer in
violation of the terms of this Agreement or the Offer.
28
<PAGE> 29
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent duly authorized by the
boards of directors of Parent and the Company (including, if required, the
Special Committee);
(b) by Parent, Sub or the Company if the Effective Time
shall not have occurred on or before April 30, 1998; provided, however, that
the right to terminate this Agreement pursuant to this Section 7.1(b) shall not
be available to (i) Parent if it or its affiliates have purchased Shares
pursuant to the Offer or (ii) any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(c) by Parent, Sub or the Company if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Offer or the Merger and
such order, decree, ruling or other action shall have become final and
nonappealable;
(d) by the Company if (i) there shall not have been a
material breach of any representation, warranty, covenant or agreement on the
part of the Company (provided, however, that if any of the representations and
warranties is already qualified in any respect by materiality or as to Company
Material Adverse Effect for purposes of this Section 7.1(d)) such materiality
or Company Material Adverse Effect qualification will be in all respects
ignored (but subject to the overall standard as to materiality set forth
immediately prior to this proviso)) and Sub shall have (A) failed to commence
the Offer within the time required by Regulation 14D under the Exchange Act, or
(B) terminated the Offer or allowed it to expire, or (ii) prior to the
acceptance of any Shares for purchase pursuant to the Offer, a Third Party
shall have made an Acquisition Proposal that the Board of Directors of the
Company, after consultation with the Company's outside legal counsel and
financial advisor, determines to be a Superior Offer, and the Board, after
consultation with the Company's outside legal counsel, determines, in its good
faith judgment, that such withdrawal, modification or change of such
recommendation or approval is required for the Board to comply with its
fiduciary duties under applicable law;
(e) by Parent if (i) Sub shall have failed to commence
the Offer as provided by Section 1.1 hereof due to an occurrence which would
result in a failure to satisfy any of the conditions set forth in paragraphs
(a) through (f) of Annex A or (ii) the Offer shall have expired or been
terminated without any Shares being purchased thereunder by Sub as a result of
a failure of any of the conditions set forth in Annex A;
(f) by Parent or Sub prior to the acceptance of any
Shares for purchase pursuant to the Offer, if (i) there shall have been a
breach of any representation or warranty on the part of the Company under this
Agreement having a Company Material Adverse Effect, which shall not have been
cured prior to 10 days following notice of such breach (provided, however, that
if any of the
29
<PAGE> 30
representations and warranties is already qualified in any respect by
materiality or as to Company Material Adverse Effect for purposes of this
Section 7.1(f) such materiality or Company Material Adverse Effect
qualification will be in all respects ignored (but subject to the overall
standard as to materiality set forth immediately prior to this proviso)), (ii)
there shall have been a breach of any covenant or agreement in this Agreement
on the part of the Company which materially adversely affects the consummation
of the Offer, which shall not have been cured prior to 10 days following notice
of such breach, or (iii) the Company's Board of Directors (A) shall have
withdrawn its approval or recommendation of the Offer, the Merger or this
Agreement, or (B) shall have recommended to the Company's stockholders another
offer;
(g) by the Company if (i) there shall have been a breach
of any representation or warranty in this Agreement on the part of Parent or
Sub which materially adversely affects the consummation of the Offer, which
shall not have been cured prior to 10 days following notice of such breach
(provided, however, that if any of the representations and warranties is
already qualified in any respect by materiality or as to a material adverse
effect for purposes of this Section 7.1(g) such materiality or material adverse
effect qualification will be in all respects ignored (but subject to the
overall standard as to materiality set forth immediately prior to this
proviso)), or (ii) there shall have been a material breach of any covenant or
agreement in this Agreement on the part of Parent or Sub which materially
adversely affects the consummation of the Offer which shall not have been cured
prior to 10 days following notice of such breach; or
(h) by the Company if (i) after 90 days from the date of this
Agreement any government agency shall commence and be continuing any formal or
informal investigation of the transactions contemplated by this Agreement, and
(ii) the Company shall deliver written notice to Parent or Sub of its intent to
terminate the Agreement pursuant to this Section 7.1(h) and Parent and Sub
shall fail to resolve the government agency investigation within 10 business
days of receipt of such notice.
SECTION 7.2 Fees and Expenses. Except as set forth in this
Agreement, whether or not the Merger is consummated, all legal and other costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses; provided, however, that if:
(i) the Company terminates this Agreement in accordance with
Section 7.1(d)(ii), then the Company shall pay to Parent $2.2 million
within three business days thereafter;
(ii) the Company terminates this Agreement in accordance with
Section 7.1(d)(ii) and a Third Party Transaction with the Company is
consummated within nine months from the date of termination of this
Agreement, then the Company shall pay Parent an additional fee in the
amount of $2.2 million within three business days of the consummation
of such Third Party Transaction;
30
<PAGE> 31
which in each event shall constitute liquidated damages and thereby serve as
Parent's and Sub's sole and exclusive remedy and compensation for any such
termination.
SECTION 7.3 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 7.1 hereof, this
Agreement shall forthwith become void and have no effect, without any liability
on the part of any party or its directors, officers or stockholders, other than
the provisions of the last sentences of Sections 1.2(c) and 5.2(b) and Sections
5.8, 7.2 and 8.9 and under the Letter Agreement. Nothing contained in this
Section 7.3 shall relieve the Company, Parent or Sub from liability for any
breach of this Agreement.
SECTION 7.4 Amendment. Subject to Section 5.9(c), to the extent
permitted by applicable law, this Agreement may be amended by action taken by
the Company, Parent and Sub (and the stockholders of the Company, if required
by applicable law) at any time before or after adoption of this Agreement by
the stockholders of the Company, but, after the purchase of Shares pursuant to
the Offer, no amendment shall be made which decreases the price per Share,
changes the form of consideration to be received by the holders of Shares in
the Merger or which adversely affects the rights of stockholders of the Company
hereunder without the approval of such stockholders and, if required, the
Special Committee. This Agreement may not be amended except by an instrument
in writing signed on behalf of all the parties.
SECTION 7.5 Extension; Waiver. Subject to Section 5.9(c), at any
time prior to the Effective Time, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document, certificate or writing delivered pursuant
hereto or (c) waive compliance with any of the agreements or conditions
contained herein unless waiver is unlawful or specifically prohibited. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Non-Survival of Representations, Warranties and
Agreements. The representations and warranties made herein shall terminate at
the Effective Time or the earlier termination of this Agreement pursuant to
Section 7.1 as the case may be; provided, however, that if the Merger is
consummated, Sections 2.10, 5.5 (with respect to the penultimate sentence
thereof), 5.8 and 5.9 will survive the Effective Time to the extent
contemplated by such sections, and provided further that the last sentences of
Sections 1.2(c) and 5.2(b), and Sections 7.2 and 8.9 and the Letter Agreement
will in all events survive the termination of this Agreement.
SECTION 8.2 Entire Agreement; Assignment. This Agreement, the
Annexes and Schedules referred to herein, the letter(s) contemplated by Section
4.5 hereof and the Letter Agreement (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and
31
<PAGE> 32
supersede all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, provided that
Parent may assign its rights and obligations or those of Sub to any
wholly-owned, direct or indirect, subsidiary of Parent, but no such assignment
shall relieve Parent of its obligations hereunder if such assignee does not
perform such obligations.
SECTION 8.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 8.4 Notices. All notices and other communications among the
parties shall be in writing and shall be deemed to have been duly given when
(i) delivered in person, or (ii) one business day after delivery to a reputable
overnight courier service (i.e., Federal Express), postage pre-paid, or (iii)
delivered by telecopy and promptly confirmed by telephone and by delivery of a
copy in person or overnight as aforesaid, in each case with postage prepaid,
addressed as follows:
If to Parent or Sub:
FinishMaster, Inc.
54 Monument Circle
Indianapolis, Indiana 46204
Telecopy: (317) 237-5430
Attention: Andre B. Lacy, Chairman of the Board
with a copy to:
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
Telecopy: (317) 231-7433
Attention: Robert H. Reynolds, Esq.
If to the Company:
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Telecopy: 310/306-7313
Attention: Mortimer A. Kline, III
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Telecopy: 213/891-8763
Attention: Anthony J. Richmond, Esq.
32
<PAGE> 33
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 8.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
SECTION 8.6 Interpretation. When a reference is made in this
Agreement to subsidiaries of Parent, Sub or the Company, the word
"subsidiaries" means any corporation more than 50 percent of whose outstanding
voting securities, or any partnership, joint venture or other entity more than
50 percent of whose total equity interest, is directly or indirectly owned by
Parent, Sub or the Company, as the case may be. When a reference is made in
this Agreement to the "knowledge of the Company," such reference shall mean the
actual knowledge of the Chief Executive Officer and Chief Financial Officer of
the Company. For purposes of this Agreement neither the Company nor any
subsidiary of the Company shall not be deemed to be an affiliate or subsidiary
of Sub or Parent. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Inclusion of information in the Disclosure Schedule does not
constitute an admission or acknowledgment of the materiality of such
information. If an ambiguity or question of intent or interpretation arises,
then this Agreement will be construed as if drafted jointly by the parties to
this Agreement, and no presumption or burden of proof will arise favoring or
disfavoring any party to this Agreement by virtue of the authorship of any of
the provisions of this Agreement.
SECTION 8.7 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and except for the
provisions of Sections 2.7, 2.12, 2.13, 5.8 and 5.9, which are intended to be
for the benefit of the persons referred to therein and their beneficiaries, and
may be enforced by such persons as intended third-party beneficiaries), nothing
in this Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Agreement.
SECTION 8.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 8.9 Expenses. All costs and expenses incurred in connection
with the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
SECTION 8.10 Obligation of Parent. Whenever this Agreement requires
Sub to take any action, such requirement will be deemed to include an
undertaking on the part of Parent to cause Sub to take such action.
* * * * * * * * * *
33
<PAGE> 34
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
FINISHMASTER, INC.
("Parent")
By: /s/ Andre B. Lacy
-------------------------------------
Name: Andre B. Lacy
Title: Chairman of the Board
FMST ACQUISITION CORPORATION
("Sub")
By: /s/ Andre B. Lacy
-------------------------------------
Name: Andre B. Lacy
Title: Chairman of the Board
THOMPSON PBE, INC.
("Company")
By: /s/ Mortimer A. Kline, III
-------------------------------------
Name: Mortimer A. Kline, III
Title: Chief Executive Officer
34
<PAGE> 35
ANNEX A
The capitalized terms used in this Annex have the meanings set
forth in the Agreement and Plan of Merger to which this Annex is attached
except that the term "Merger Agreement" refers to the Agreement and "Purchaser"
refers to Sub.
* * * * * * * * *
Excerpt from the Offer to Purchase
Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment, purchase or pay for any Shares tendered
until the expiration or termination of any applicable waiting period under the
HSR Act, and Purchaser may terminate or, subject to the terms of the Merger
Agreement, amend the Offer and may postpone the purchase of, and payment for,
Shares if fewer than a majority of the Shares then issued and outstanding on a
fully diluted basis (including, without limitation, all Shares issuable upon
the conversion of any convertible securities or upon the exercise of any
options, warrants or rights) are validly tendered and not withdrawn prior to
the Expiration Date (the "Minimum Condition") or if, at any time on or after
the date of this Merger Agreement and prior to the time of acceptance of any
such Shares for payment, any of the following events shall occur and remain in
effect:
(a) an order shall have been entered in any action or
proceeding before any United States federal or state court or governmental
agency or other United States regulatory or administrative agency or commission
(an "Order"), or a preliminary or permanent injunction by a United States court
of competent jurisdiction shall have been issued and remain in effect (an
"Injunction"), which in either case (i) prohibits the making or consummation of
the Offer or the consummation of the Merger, (ii) significantly restricts the
ability of the Purchaser, or renders the Purchaser unable, to accept for
payment, pay for or purchase Shares sufficient to satisfy the Minimum Condition
in the Offer or the remaining Shares outstanding in the Merger (other than as a
result of the exercise of dissenters' rights and other than for delays or
restrictions that are not material to Parent and the Purchaser), (iii)
prohibits or restricts the ownership or operation by Parent or the Purchaser
(or any of their respective affiliates or subsidiaries) of any portion of its
or the Company's business or assets which is material to the business of the
Company and its subsidiaries taken as a whole or of Parent and its subsidiaries
taken as a whole or compels Parent or the Purchaser (or any of their respective
affiliates or subsidiaries) to dispose of or hold separate any portion of its
or the Company's business or assets which is material to the business of the
Company and its subsidiaries taken as a whole or of Parent and its
subsidiaries, taken as a whole, (iv) imposes material limitations on the
ability of the Purchaser effectively to acquire or to hold or to exercise full
rights of ownership of the Shares, including, without limitation, the right to
vote the Shares purchased by the Purchaser on all matters properly presented to
the stockholders of the Company, (v) imposes any material limitations on the
ability of Parent or the Purchaser or any of their respective affiliates or
subsidiaries
A-1
<PAGE> 36
effectively to control in any material respect the business and operations of
the Company and its subsidiaries, or (vi) which otherwise would result in a
Company Material Adverse Effect; provided, however, that Parent and Purchaser
shall have complied with Section 5.5 of this Agreement and that in order to
invoke this condition Parent and Purchaser shall have used their respective
reasonable best efforts to prevent such Order or Injunction or ameliorate the
effects thereof; and provided, further, that if the Order or Injunction is a
temporary restraining order or preliminary injunction of a court of competent
jurisdiction Purchaser may not by virtue of this condition alone amend or
terminate the Offer, but may only extend the Offer and thereby postpone
acceptance for payment or purchase of Shares; or
(b) there shall have been any United States federal or
state statute, rule or regulation enacted or promulgated after the date of the
Offer that would result in any of the material adverse consequences referred to
in paragraph (a) above; or
(c) there shall have occurred and be continuing (in any
event, for not less than two consecutive days) (i) any general suspension of,
or limitation on prices for, trading in securities on any national securities
exchange or Nasdaq National Market, (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) the commencement of a war, armed hostilities or other
international or national calamity directly involving the United States, (iv)
from the date of commencement of the Offer, a decline of at least 25 percent
in the Standard & Poor's 500 Index, (v) any limitation by any U.S. governmental
authority or agency that materially affects generally the extension of credit
by banks or other financial institutions or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof; or
(d) the Company shall have breached or failed to perform
in any material respect any of its obligations, covenants or agreements
contained in the Merger Agreement or any of the representations and warranties
of the Company set forth in the Merger Agreement (other than such breaches,
failures to perform or inaccuracies which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect); or
(e) the Merger Agreement shall have been terminated in
accordance with its terms; or
(f) the Board of Directors of the Company shall have
publicly withdrawn or modified in any manner adverse to Purchaser its
recommendation that stockholders accept the Offer; provided, however, that
Purchaser shall not be entitled to terminate the Offer pursuant to this
paragraph if, as a result of a Superior Offer, the Company withdraws or
modifies its approval or recommendation of the transactions contemplated hereby
by reason of taking, and disclosing to the Company's stockholders, a position
with respect to a tender offer contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act and if, within five business days of taking
and disclosing such position, the Company publicly reaffirms its recommendation
of the transactions contemplated by the Merger Agreement which in the
reasonable judgment of Parent with respect to each and every
A-2
<PAGE> 37
matter referred to above regardless of the circumstances (including any action
or inaction by Parent or Purchaser) giving rise to any such condition, makes it
advisable to proceed with the Offer or with such acceptance for payment or
payment.
The foregoing conditions set forth in paragraphs (a) through
(f) are for the sole benefit of Purchaser and may be asserted by Purchaser
regardless of the circumstances giving rise to any such conditions (including
any action or inaction by Purchaser) or, subject to the terms of the Merger
Agreement, may be waived by Purchaser in whole or in part. The failure by
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and such right shall be deemed a continuing
right which may be asserted at any time and from time to time.
A-3
<PAGE> 38
ANNEX B
LDI, Ltd.
54 MONUMENT CIRCLE
INDIANAPOLIS, INDIANA 46204
October 14, 1997
BY HAND
CONFIDENTIAL
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Attention: Board of Directors
Gentlemen:
As FinishMaster's majority shareholder, LDI Ltd. ("LDI") is fully
aware and supportive of the agreement by FinishMaster, Inc. ("FinishMaster")
and a subsidiary to acquire all of the outstanding shares of Thompson PBE, Inc.
("Thompson") for $8.00 per share in cash and assume, repay or refinance
Thompson's outstanding debt. With the approval of the Board of Directors of
our Managing General Partner, LDI has committed itself to advance to
FinishMaster the funds needed to complete the acquisition of Thompson and the
repayment of the indebtedness owed to a syndicate of financial institutions led
by Heller Financial, Inc. under Thompson's 1995 Credit Agreement. Because of
the commitment received by FinishMaster from a major bank lender, we expect the
amount of the funds to be advanced by LDI to complete the transaction and the
repayment of indebtedness to be less than the funds now available to LDI under
existing credit facilities. Should additional funds be needed, or should the
bank commitment not be funded, the funds necessary to complete the acquisition
and the repayment of indebtedness will be made available to FinishMaster by LDI
from LDI's cash and marketable securities portfolio, now worth in excess of
$150 million and which is currently unencumbered, free of liens and freely
tradeable. Thompson may rely on our commitment to FinishMaster to the same
extent as if it were made to Thompson. This commitment is a binding,
irrevocable and unconditional commitment.
Should you have any questions regarding the matters discussed in this
letter, please call the undersigned at (317) 237-2272.
Sincerely,
/s/ Andre B. Lacy
Andre B. Lacy
Chairman of the Board
B-1
<PAGE> 39
ANNEX C
FinishMaster to Acquire Thompson PBE
for $8.00 per Share In Cash Tender Offer
October 15, 1997
FinishMaster, Inc. ("FinishMaster") (Nasdaq National Market: FMST) and Thompson
PBE, Inc. ("Thompson") (Nasdaq National Market: THOM) jointly announced that
they have signed a definitive Agreement and Plan of Merger under which
FinishMaster will acquire each of the outstanding common shares of Thompson for
$8.00 in cash. Under the agreement, a wholly-owned subsidiary of FinishMaster
will promptly commence a tender offer to acquire all outstanding Thompson
shares for $8.00 per share. The transaction price represents a 73% premium
over Thompson's stock price on July 8th, the last trading day before Thompson
announced it would explore strategic alternatives to maximize shareholder
value. The transaction price is also equal to Thompson's 52-week high closing
price.
"We are very enthusiastic about the potential this combination presents
in supporting our long-term commitment to provide value and quality services to
the auto refinish industry," commented Andre B. Lacy, Chairman and Chief
Executive Officer of FinishMaster. "The combined company will be a significant
aftermarket distributor of automotive paint and related supplies. We will
service over 150 distribution sites and expect pro forma sales of approximately
$320 million. From a financial point of view, we believe this
is an excellent transaction for our shareholders. It is expected to enhance
earnings per share in calendar year 1998 on a pro forma basis and improve our
prospects for the future."
Thomas Young, President of FinishMaster and an industry veteran, added, "The
acquisition of Thompson will give FinishMaster enhanced national distribution
capabilities and permit us to better serve our customers."
Mort Kline, Chief Executive Officer of Thompson, stated that, "Combining
Thompson and FinishMaster is good for Thompson stockholders and employees
alike. We are pleased that our business will be in the hands of people who
have long-term perspective and fully understand all of our challenges and
opportunities."
The transaction is expected to be completed late in 1997, subject to customary
conditions, including receipt of regulatory approvals. The transaction is not
subject to any financing contingencies.
C-1
<PAGE> 40
There is minimal geographic overlap between the two businesses, which will
enable the combined company to serve its customers on a national scope. Both
FinishMaster and Thompson are distributors of automotive paints, coatings, and
paint-related accessories to the automotive collision repair industry.
FinishMaster currently serves customers from sites located throughout the
Mid-Atlantic, Southeast, and Midwest regions. Thompson, based in Marina del
Ray, California, supplies the automotive collision repair industry with
distribution sites throughout Southern California and the Northeast, Southeast,
Southwest, and Rocky Mountain regions.
Smith Barney Inc. acted as exclusive financial advisor to FinishMaster in this
transaction. Donaldson, Lufkin and Jenrette Securities Corporation acted as
exclusive financial advisor to Thompson.
This press release contains forward-looking statements regarding the
prospective effect of the proposed acquisition of Thompson by FinishMaster.
Actual results may differ materially from such forward-looking statements. The
forward looking statements relate to topics which involve risks and
uncertainties including, but not limited to, the conditions to the proposed
acquisition and general economic conditions which affect the business of
Thompson and FinishMaster.
For more information on FinishMaster via the Internet visit our Corporate News
on the Net page at http://www.businesswire.com/cnn/fmst.htm or via fax through
our NewsOnDemand service call 800/411-3989.
CONTACT: FinishMaster, Inc.
Thomas Young or Roger Sorokin, 616/949-7604
or
Seyferth & Associates, Inc.
Jeff Lambert or Steve Poole, 800/435-9539
C-2
<PAGE> 1
EXHIBIT 99.1
FINISHMASTER TO ACQUIRE THOMPSON PBE
FOR $8.00 PER SHARE IN CASH TENDER OFFER
October 15, 1997
FinishMaster, Inc. ("FinishMaster") (Nasdaq National Market: FMST) and Thompson
PBE, Inc. ("Thompson") (Nasdaq National Market: THOM) jointly announced that
they have signed a definitive Agreement and Plan of Merger under which
FinishMaster will acquire each of the outstanding common shares of Thompson for
$8.00 in cash. Under the agreement, a wholly-owned subsidiary of FinishMaster
will promptly commence a tender offer to acquire all outstanding Thompson shares
for $8.00 per share. The transaction price represents a 73% premium over
Thompson's stock price on July 8th, 1997 the last trading day before Thompson
announced it would explore strategic alternatives to maximize shareholder value.
The transaction price is also equal to Thompson's 52-week high closing price.
"We are very enthusiastic about the potential this opportunity presents in
supporting our long-term commitment to provide value and quality services to the
auto refinish industry," commented Andre B. Lacy, Chairman and Chief Executive
Officer of FinishMaster. "The combined company will be a significant aftermarket
distributor of automotive paint and related supplies. We will serve over 150
distribution sites and expect pro forma sales of approximately $320 million.
From a financial point of view, we believe this is an excellent transaction for
our shareholders. It is expected to enhance earnings per share in calendar year
1998 on a pro forma basis and improve our prospects for the future."
<PAGE> 2
Thomas Young, President of FinishMaster and an industry veteran, added, "The
acquisition of Thompson will give FinishMaster enhanced national distribution
capabilities and permit us to better serve our customers."
Mort Kline, Chief Executive Officer of Thompson, stated that, "Combining
Thompson and FinishMaster is good for Thompson stockholders and employees alike.
We are pleased that our business will be in the hands of people who have a
long-term perspective and fully understand all of our challenges and
opportunities."
The transaction is expected to be completed late in 1997, subject to customary
conditions, including receipt of required regulatory approvals. The transaction
is not subject to any financing contingencies.
There is minimal geographic overlap between the two businesses, which will
enable the combined company to serve its customers on a national scope. Both
FinishMaster and Thompson are distributors of automotive paints, coatings, and
paint-related accessories to the automotive collision repair industry.
FinishMaster currently serves customers from sites located throughout the
Mid-Atlantic, Southeast, and Midwest regions. Thompson, based in Marina del Rey,
California, supplies the automotive collision repair industry with distribution
sites throughout Southern California and the Northeast, Southeast, Southwest,
and Rocky Mountain regions.
<PAGE> 3
Smith Barney Inc. acted as exclusive financial advisor to FinishMaster in this
transaction. Donaldson, Lufkin and Jenrette Securities Corporation acted as
exclusive financial advisor to Thompson.
This news release contains forward-looking statements regarding the prospective
effect of the proposed acquisition of Thompson by FinishMaster. Actual results
may differ materially from such forward -looking statements. The forward looking
statements relate to topics which involve risks and uncertainties including, but
not limited to, the conditions to the proposed acquisition and general economic
conditions which affect the business of Thompson and FinishMaster.
<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
THOMPSON PBE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] 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
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:
---------------------------------------------------------------------
<PAGE> 2
THOMPSON PBE, INC.
4553 GLENCOE AVENUE, SUITE 200
MARINA DEL REY, CALIFORNIA 90292
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 26, 1997
------------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Thompson PBE, Inc. (the "Company") will be held at the Company's
offices located at 4553 Glencoe Avenue, Suite 200, Marina del Rey, California
90292, on Wednesday, February 26, 1997 at 10:00 a.m., local time, for the
following purposes:
1. To elect a board of six directors for the ensuing year or until the
election and qualification of their respective successors; and
2. To transact such other business as may be properly come before the
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on December 30, 1996
as the record date for the determination of the stockholders entitled to notice
of, and to vote at, the Meeting or any adjournment or postponement thereof.
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY,
WHICH RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE DIRECTORS NOMINATED. Please
refer to the attached Proxy Statement, which forms a part of this Notice and is
incorporated herein by reference, for further information with respect to the
business to be transacted at the Meeting.
We hope you can attend the Meeting, but, if you cannot, please sign, date
and return promptly the enclosed proxy in the envelope provided so that your
shares will be represented at the Meeting.
By Order of the Board of Directors
MORTIMER A. KLINE, III
Chairman of the Board, President
and Chief Executive Officer
Marina del Rey, California
January 10, 1997
<PAGE> 3
THOMPSON PBE, INC.
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Thompson PBE, Inc. (the "Company") in connection with the Annual Meeting of
Stockholders of the Company (the "Meeting") to be held at 10:00 a.m. local time,
at the Company's offices located at 4553 Glencoe Avenue, Suite 200, Marina del
Rey, California 90292 on Wednesday, February 26, 1997, and any adjournment or
postponement thereof. At the Meeting, stockholders will be asked to vote upon
the following matters:
1. To elect a board of six directors for the ensuing year or until the
election and qualification of their respective successors; and
2. To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
Only stockholders of record of shares of Common Stock at the close of
business on December 30, 1996, the record date for the Meeting fixed by the
Board of Directors, are entitled to vote at the Meeting. On that date, there
were outstanding and entitled to vote at the Meeting 8,640,354 shares of Common
Stock, each of which is entitled to one vote at the Meeting. It is expected that
this Proxy Statement and accompanying proxy card will first be mailed to
stockholders on or about January 13, 1997.
The cost of soliciting proxies will be paid by the Company. Proxies may be
solicited by directors, officers and employees of the Company by mail, telephone
or facsimile transmission, but such persons will not be specially compensated
therefor.
The Company's executive offices are located at 4553 Glencoe Avenue, Suite
200, Marina del Rey, California 90292, telephone (310) 306-7112. References
herein to the "Company" refer to Thompson PBE, Inc. and its subsidiaries, unless
the context otherwise requires.
VOTING AND REVOCATION OF PROXIES
All shares represented by the accompanying proxy, if the proxy is properly
executed, returned and not revoked, will be voted as specified by the
stockholder. If no contrary instructions are given, such shares will be voted
FOR the election of the six director nominees named herein.
Any stockholder has the power to revoke his or her proxy at any time before
it has been voted by filing with the Corporate Secretary of the Company an
instrument revoking it, by submitting a substitute proxy bearing a later date or
by voting in person at the Meeting.
A majority of the outstanding shares of Common Stock, represented in person
or by proxy, will constitute a quorum at the Meeting. Shares represented by
proxies that reflect abstentions or "broker non-votes" will be counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. However, proxies that reflect abstentions as to a particular
proposal will be treated as voted for purposes of determining the approval of
the proposal and will have the same effect as a vote against that proposal,
while proxies that reflect broker non-votes will be treated as unvoted for
purposes of determining approval and will not be counted as votes for or against
that proposal. The affirmative vote of a plurality of the votes cast by the
holders of shares entitled to vote thereon present in person or by proxy at the
Meeting is required to elect each director.
<PAGE> 4
ELECTION OF DIRECTORS
GENERAL
Directors are elected at each Annual Meeting of Stockholders and hold
office until their resignation or removal and until their successors are duly
elected and qualified at the next Annual Meeting of Stockholders. The Company's
Bylaws provide that the Board of Directors shall consist of no fewer than one or
more than eight directors, with the exact number to be fixed by the Board of
Directors. Pursuant to a resolution adopted by the Board of Directors, the
authorized number of members of the Board of Directors has been set at seven.
There is currently one vacancy on the Board of Directors. Proxies cannot be
voted for a greater number of persons than the number of nominees named.
Each nominee for director has indicated his willingness to serve if
elected. Proxies received by the Board of Directors will be voted for the
nominees. Although the Board of Directors does not anticipate that any nominee
will be unavailable for election, in the event of such occurrence the proxies
will be voted for such substitute, if any, as the Board of Directors may
designate.
Each of the Company's nominees for election to the Board of Directors
currently serves as a director of the Company. Each of the Company's nominees,
other than Messrs. Simpson and Roach, first became a director of the predecessor
to the Company in the year set forth below and has continually served as a
director since then. Mr. Simpson was appointed to the board in August 1995 and
Mr. Roach was appointed in December 1995. Both have continually served as
directors since then. The following table sets forth the names of, and certain
information with respect to, the six persons nominated by the Company at the
Meeting. References to service with the Company include service with its
predecessor.
<TABLE>
<CAPTION>
DIRECTOR POSITIONS CURRENTLY
NOMINEES FOR DIRECTOR AGE SINCE HELD WITH THE COMPANY
- ------------------------------ ---- --------- --------------------------------
<S> <C> <C> <C>
Mortimer A. Kline, III 37 1989 Chairman of the Board, President
and Chief Executive Officer
Frank C. Alexander(1)(2)(3) 63 1989 Director
David L. Ferguson(1)(2)(3) 41 1992 Director
D. Hunt Ramsbottom, Jr. 39 1989 Director
John D. Roach(1)(2)(3) 53 1995 Director
Louis A. Simpson(1)(2)(3) 60 1995 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
MORTIMER A. KLINE, III incorporated the Company on April 4, 1989. From
April 1989 to the present, Mr. Kline has served as President and Chief Operating
Officer of the Company. In November 1996, he was named to the additional
positions of Chairman of the Board and Chief Executive Officer. In addition, Mr.
Kline served as Chief Financial Officer of the Company from its inception until
December 1993. From February 1987 to November 1988, Mr. Kline served as Chief
Financial Officer of Kellow-Brown Company, a commercial printing company based
in Los Angeles.
FRANK C. ALEXANDER has served as a director of the Company since May 1989.
From April 1991 to May 1992, and from March 1994 to the present, Mr. Alexander
has been a self-employed consultant. From May 1992 to March 1994, Mr. Alexander
was a Vice President of M&A Capital, an investment bank. From 1981 until his
retirement in April 1991, Mr. Alexander served as Executive Vice President and
Chief Financial Officer of Intermark, Inc., a corporation which filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code on
October 19, 1992.
DAVID L. FERGUSON has served as a director of the Company since June 1992.
Since June 1990, Mr. Ferguson has been a General Partner of Chase Capital
Partners (formerly Chemical Venture Partners), a New York general partnership
("CCP"), which is the general partner of Chase Venture Capital Associates, L.P.
2
<PAGE> 5
("Chase Ventures"), a venture capital fund. From September 1989 to June 1990,
Mr. Ferguson was a Vice President of CCP. Mr. Ferguson is also a director of
Wild Oats Markets, Inc. and numerous private companies.
D. HUNT RAMSBOTTOM, JR. incorporated the Company on April 4, 1989. From
April 1989 to November 1996, Mr. Ramsbottom served as the Company's Chairman of
the Board, Chief Executive Officer and Secretary. He is presently a private
investor with interests in the collision repair industry. Prior to forming the
Company, Mr. Ramsbottom was President of Kellow-Brown Company.
JOHN D. ROACH has served as a director of the Company since December 1995.
Since July 1991, Mr. Roach has been Chairman, President and Chief Executive
Officer of Fibreboard Corporation, a manufacturer of building and industrial
products and an owner/operator of ski resorts. From 1988 to 1991, Mr. Roach was
Executive Vice President of Manville Corporation, a manufacturer of building
products, paperboard packaging, fiberglass and industrial minerals, where from
1990 to 1991 he served as President of its Mining and Minerals Group and
President of Celite Corporation, a wholly-owned Manville subsidiary. In
addition, from 1988 to 1989, Mr. Roach served as president of Manville Sales
Corporation, now known as Schuller International, and the Fiberglass and
Specialty Products Group, and from 1987 to 1988, as Chief Financial Officer of
Manville Corporation.
LOUIS A. SIMPSON has served as a director of the Company since August 1995.
Mr. Simpson has been President and Chief Executive Officer -- Capital Operations
of GEICO Corporation, an insurance holding company, since 1993, having served as
Vice Chairman of the Board from 1985 to 1993. In addition to GEICO Corporation,
Mr. Simpson is also a director of Salomon Inc, Potomac Electric Power Company,
Pacific American Income Shares, Inc. and Cohr Inc.
BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended September 30, 1996, the Board of Directors
held seven meetings. All directors attended at least 75% of all meetings of the
Board of Directors and of all committees on which such person served during such
period.
The Compensation Committee for the Board of Directors is presently
comprised of Messrs. Alexander, Ferguson, Roach and Simpson. Mr. Ferguson chairs
the committee. This Committee reviews and approves executive salaries, considers
awards to be granted under the Company's Incentive Compensation Plan for Senior
Executives and performs other related functions upon request of the Board of
Directors. See "Executive Compensation -- Employment Contracts; Incentive
Compensation Program" and "Executive Compensation -- Report of the Compensation
Committee on Executive Compensation." This Committee also awards and administers
stock option grants under the Company's 1994 Stock Option Plan (the "1994
Plan"). The Compensation Committee met once during the fiscal year ended
September 30, 1996.
The Audit Committee of the Board of Directors is presently comprised of
Messrs. Alexander, Ferguson, Roach and Simpson. Mr. Alexander chairs the
committee. The functions of the Audit Committee include reviewing and making
recommendations to the Board of Directors with respect to the engagement or re-
engagement of an independent accounting firm to audit the Company's financial
statements for the then current fiscal year; the policies and procedures of the
Company and management in maintaining the Company's books and records and
furnishing information necessary to the independent auditors; the adequacy and
implementation of the Company's internal controls and the adequacy and
competency of the related personnel; and such other matters relating to the
Company's financial affairs and accounts as the Committee may in its discretion
deem desirable. The Audit Committee met five times during the fiscal year ended
September 30, 1996.
The Nominating Committee of the Board of Directors is presently comprised
of Messrs. Alexander, Ferguson, Roach and Simpson. Mr. Simpson chairs the
committee. This Committee advises and makes recommendations to the Board on all
matters concerning the selection of candidates as nominees for election as
directors. The Committee did not meet during the last fiscal year as all actions
regarding the nomination of directors were presented to the full Board of
Directors. Stockholders wishing to nominate new directors may
3
<PAGE> 6
do so only by giving timely written notice to the Corporate Secretary at 4553
Glencoe Avenue, Suite 200, Marina del Rey, California 90292.
The compensation of directors is described under "Executive
Compensation -- Director Compensation."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation provides that a
director of the Company will not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except in certain cases where liability is mandated by the Delaware
General Corporation Law. The provision has no effect on any non-monetary
remedies that may be available to the Company or its stockholders, nor does it
relieve the Company or its directors from compliance with federal or state
securities laws. The Company's Bylaws generally provide that the Company shall
indemnify, to the fullest extent permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, investigation, administrative hearing or any other
proceeding (each, a "Proceeding") by reason of the fact that he is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another entity, against
expenses (including attorneys' fees) and losses, claims, liabilities, judgments,
fines and amounts paid in settlement actually incurred by him in connection with
such Proceeding. The Company has entered into agreements to provide
indemnification for the Company's directors and certain of its executive
officers in addition to the indemnification provided for in the Bylaws. These
agreements, among other things, will indemnify such directors and executive
officers for certain expenses (including attorney's fees), and all losses,
claims, liabilities, judgments, fines and settlement amounts incurred by such
person arising out of or in connection with such person's service as a director
or executive officer of the Company to the fullest extent permitted by
applicable law.
VOTE REQUIRED
The election of each director requires a plurality of the votes cast by the
holders of shares entitled to vote thereon. THE COMPANY'S BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE DIRECTORS NOMINATED.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth certain information as of December 30, 1996
with respect to the beneficial ownership of the Company's Common Stock, which
constitutes the Company's only outstanding class of voting securities, by (i)
each person who, to the knowledge of the Company, beneficially owned more than
5% of the Common Stock, (ii) each director of the Company, (iii) the Named
Executive Officers (as defined below) and (iv) all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1)
------------------------------------------------ -------------------- ----------
<S> <C> <C>
Wasatch Advisors, Inc.(2) 1,826,719 21.1%
Chase Venture Capital Associates, L.P.(3) 1,101,432 12.8
David L. Ferguson(3) 1,101,432 12.8
Mortimer A. Kline, III(4)(5) 547,339 6.2
D. Hunt Ramsbottom, Jr.(4)(6) 547,339 6.2
Louis A. Simpson(4)(7)(8) 116,167 1.3
John D. Roach(4)(7) 5,000 *
Frank C. Alexander(4)(7) 1,667 *
Thomas E. Case(4)(9) 29,017 *
Steven E. Kise(4)(9) 11,667 *
Courtlandt D. Gates(4)(9)(10) 10,750 *
All directors and executive officers
as a group (12 persons)(11) 1,275,285 14.1
</TABLE>
- ---------------
* Less than 1%.
(1) Shares which each identified stockholder has the right to acquire within
the 60 days of the date of the table set forth above are deemed to be
outstanding in calculating the percentage ownership of such stockholder,
but are not deemed to be outstanding as to any other person. Except as
otherwise noted, the Company believes that each such stockholder has sole
voting and investment power over the shares beneficially owned by such
stockholder.
(2) Based solely on a filing on Schedule 13G, dated June 10, 1996, in which
Wasatch Advisors, Inc., 68 South Main Street, Suite 400, Salt Lake City,
Utah 84101, reported sole voting and dispositive power with respect to such
shares of Common Stock.
(3) Excludes an aggregate of 72,644 shares for which Chase Ventures has granted
options to Messrs. Ramsbottom and Kline (which options are presently
exercisable) and includes an aggregate of 47,806 shares issuable upon
exercise of a warrant which is presently exercisable. The general partner
of Chase Ventures is CCP, of which Mitchell J. Blutt, Arnold L. Chavkin,
David L. Ferguson (a director of the Company), Donald J. Hofmann, Stephen
P. Murray, Brian J. Richmand, Shahan D. Soghikian, Jeffrey C. Walker, CCP
Principals, L.P., a Delaware limited partnership, and Chemical Capital
Corporation ("CCC") are general partners. CCC is a wholly-owned subsidiary
of Chase Manhattan Corp. Each of such individuals, partnerships and
corporations, other than CCP, disclaims beneficial ownership of the shares
owned by Chase Ventures. The mailing addresses for Chase Ventures and Mr.
Ferguson are, respectively, 380 Madison Avenue, 12th Floor, New York, NY
10017 and c/o CVP Management Corp., 840 Apollo Street, Suite 223, El
Segundo, CA 90245.
(4) The mailing address for such person is: c/o Thompson PBE, Inc., 4553
Glencoe Avenue, Suite 200, Marina del Rey, CA 90292.
(5) Includes (i) 11,817 shares for which Mr. Kline has options to purchase from
Wedbush Capital Partners ("WCP") and 36,322 shares for which Mr. Kline has
options to purchase from Chase Ventures, in each case at an exercise price
of $0.91 per share, all of which options are presently exercisable, and
(ii) 111,739 shares which Mr. Kline has the right to acquire within 60 days
of the date of this table by exercise of stock options vested pursuant to
the Company's Plan. Also includes 17,241 shares over which Mr. Kline
exercises the right to vote but which are otherwise held beneficially by an
individual who is
5
<PAGE> 8
neither an employee nor an affiliate of the Company. Does not include
options to purchase 92,612 shares of Common Stock issued under the 1994
Plan, none of which are exercisable within 60 days of the date of this
table.
(6) Includes (i) 11,817 shares for which Mr. Ramsbottom has options to purchase
from WCP and 36,322 shares for which Mr. Ramsbottom has options to purchase
from Chase Ventures, in each case at an exercise price of $0.91 per share,
all of which options are presently exercisable, and (ii) 111,739 shares
which Mr. Ramsbottom has the right to acquire within 60 days of the date of
this table by exercise of stock options vested pursuant to the Plan. Does
not include options to purchase 92,612 shares of Common Stock issued under
the 1994 Plan, none of which are exercisable within 60 days of the date of
this table.
(7) Include options to purchase 6,667, 5,000 and 1,667 shares of Common Stock
for Messrs. Simpson, Roach and Alexander, respectively, issued under the
Outside Director Plan which are exercisable within 60 days of the date of
this table. Does not include options to purchase 13,333, 10,000 and 3,333
shares of Common Stock issued to Messrs. Simpson, Roach and Alexander,
respectively, under the Outside Director Plan, none of which are
exercisable within 60 days of the date of this table.
(8) Includes 9,500 shares which Mr. Simpson owns beneficially as a trustee.
(9) Includes 26,017, 11,667 and 10,000 shares for Messrs. Case, Kise and Gates,
respectively, for which they have the right to acquire within 60 days of
the date of this table upon exercise of stock options vested pursuant to
the 1994 Plan. Does not include options to purchase 13,007, 23,333 and
20,000 shares of Common Stock issued to Messrs. Case, Kise and Gates,
respectively, issued under the 1994 Plan, none of which are exercisable
within 60 days of the date of this table.
(10) Includes 500 shares owned by the children of Mr. Gates.
(11) Includes beneficial ownership of an aggregate of 385,613 shares of Common
Stock subject to options granted pursuant to the Outside Director Plan and
the 1994 Plan, as well as the options granted to Messrs. Ramsbottom and
Kline by certain stockholders of the Company, all of which are exercisable
within 60 days of the date of this table. Excludes beneficial ownership of
Mr. Ferguson in relation to shares owned by Chase Ventures.
6
<PAGE> 9
CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
Set forth below is certain information regarding each of the executive
officers of the Company as of December 30, 1996. Further information about Mr.
Kline is presented under "Election of Directors." Officers are appointed by and
serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- ---- --------------------------------------
<S> <C> <C>
Mortimer A. Kline, III 37 Chairman of the Board, President and
Chief Executive Officer
Charles E. Barrantes 44 Executive Vice President and Chief
Financial Officer
Thomas E. Case 51 Executive Vice President and General
Manager, California Division
Steven E. Kise 47 Executive Vice President, Sales and
Strategic Development
Glen R. Thompson 46 Executive Vice President, Operations
Courtlandt D. Gates 37 Executive Vice President, Corporate
Development
Michael O'Donovan 38 Vice President, Corporate Controller
</TABLE>
The principal occupations and positions for the past five years, and in
certain cases prior years, of the directors and executive officers named above,
other than Mr. Kline, are as of follows. References to service with the Company
include service with its predecessors.
CHARLES E. BARRANTES, a certified public accountant, joined the Company in
March 1996 as Executive Vice President and Chief Financial Officer. From January
1991 through March 1996, he was employed by Superior Industries International,
Inc., a NYSE-listed entity, whose principal business is the design and
production of cast aluminum wheels for original equipment manufacturers and
custom road wheels and accessories for the automotive aftermarket. At the time
of his departure from Superior Industries, Mr. Barrantes was the Vice President,
Corporate Controller and Secretary. Prior to that, Mr. Barrantes was an
independent financial consultant from June 1990 until January 1991 and Vice
President, Finance for MICA Resources Ltd. from January 1989 until May 1990.
From May 1977 until January 1989, Mr. Barrantes was employed by the
international accounting firm of Arthur Andersen where he was promoted to audit
manager in 1982.
THOMAS E. CASE became Executive Vice President and General Manager,
California Division of the Company in February 1996. From May 1994 through
February 1996, he served as Executive Vice President and General Manager,
Southern California Division. Prior to that and since 1984, Mr. Case was Vice
President, Sales of the Company.
STEVEN E. KISE became Executive Vice President, Sales and Strategic
Development of the Company in April 1996. From August 1995 through April 1996,
he served as Vice President, Marketing. Prior to that and since April 1993, Mr.
Kise was Director of Sales of the Automotive Refinishes Division of AKZO Nobel,
a Dutch conglomerate and manufacturer of Sikkens paint. From March 1987 to April
1993, Mr. Kise held various other positions in the Automotive Refinishes
Division of AKZO Nobel, including National Sales Manager, Director of Marketing
and Manager of Operations.
GLEN R. THOMPSON became Executive Vice President, Operations of the Company
in December 1996. From February 1996 through December 1996, he served as Vice
President of Operations, California Division. Prior to that and since 1989, Mr.
Thompson was Vice President of Operations, Southern California Division.
COURTLANDT D. GATES became Executive Vice President of Corporate
Development in February 1996. Previously, Mr. Gates was Vice President and
General Manager, Northern California Division upon the acquisition of the
business of SEV Corporation ("SEV") in May 1995. From January 1, 1991 through
May 1995, Mr. Gates was Chairman and held certain other senior executive
positions with SEV, an independent aftermarket distributor of automotive paint
and related supplies based in the San Francisco area. Prior to that and since
May 1986, Mr. Gates was a self-employed investor. From November 1989 to
September 1994,
7
<PAGE> 10
Mr. Gates also served as a director and president of Triangle Food Service, Inc.
which, together with its subsidiary, filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code on September 30, 1994.
MICHAEL O'DONOVAN has served as Vice President, Corporate Controller since
December 1994. From June 1991 to December 1994, Mr. O'Donovan served as Director
of Accounting of Retix, a publicly held multi-national computer hardware and
software manufacturer and distributor. From January 1985 to June 1991, Mr.
O'Donovan was employed by Price Waterhouse in its Entrepreneurial Services
Group.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer during the fiscal year ended
September 30, 1996 (Mr. Ramsbottom) and the four other executive officers of the
Company who earned more than $100,000 (salary and bonus) (the "Named Executive
Officers") for all services rendered in all capacities to the Company during the
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------ --------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#) COMPENSATION
- ------------------------------- ---- -------- ------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mortimer A. Kline, III(2) 1996 $235,000 $ -- $ -- -- --
(Chief Executive Officer, 1995 232,500 50,000 185,934(3) 121,733 --
President and Chairman 1994 226,305 55,000 -- 100,000 --
of the Board)
D. Hunt Ramsbottom, Jr.(2)(4) 1996 235,000 -- -- -- --
1995 232,500 50,000 185,934(3) 121,733 --
1994 226,305 55,000 -- 100,000 --
Thomas E. Case 1996 125,000 17,000 -- -- --
(Executive Vice President and 1995 125,000 25,000 -- 12,800 --
General Manager, 1994 129,327 35,000 -- 26,224 --
California Division)
Courtlandt D. Gates(5) 1996 99,660 29,000 -- -- --
(Executive Vice President,
Corporate Development)
Steven E. Kise(6) 1996 121,923 15,000 -- 10,000 --
(Executive Vice President,
Sales and Strategic
Development)
</TABLE>
- ---------------
(1) With respect to each of the executive officers named in the table, the
aggregate amount of perquisites and other personal benefits, securities or
property received was less than either $50,000 or 10% of the total annual
salary and bonus reported for such executive officer.
(2) In termination of a Securities Purchase and Sale Agreement entered into in
1989, in June 1994 WCP transferred 19,131 shares of Common Stock to each of
Messrs. Ramsbottom and Kline.
(3) Represents the excess of the fair market value of securities purchased from
the Company in May 1995 over the price paid for such securities.
(4) Mr. Ramsbottom resigned as an executive officer of the Company effective
January 1, 1997.
(5) Mr. Gates commenced his employment with the Company in May 1995.
(6) Mr. Kise commenced his employment with the Company in August 1995.
8
<PAGE> 11
Stock Options Granted in Fiscal 1996. The following table sets forth
information concerning individual grants of stock options made by the Company
during the fiscal year ended September 30, 1996, to each of the Named Executive
Officers.
OPTION GRANTS IN THE FISCAL YEAR SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE
GRANTED TO APPRECIATION
EMPLOYEES EXERCISE OR FOR OPTION TERM
IN FISCAL BASE PRICE EXPIRATION ------------------
NAME GRANTED(1) YEAR 1996(2) (PER SHARE) DATE(3) 5%(4) 10%(4)
- -------------------------------- ---------- -------------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven E. Kise.................. 10,000 11% $12.50 2/22/06 $78,600 $199,200
</TABLE>
- ---------------
(1) These options were granted pursuant to the Plan. One-third of the total
number of options granted are exercisable on the first anniversary of the
option grant date and, thereafter, an additional one-third of the total
number of options granted are exercisable on each of the second and third
anniversaries of the option grant date. Under the 1994 Plan, vesting may be
accelerated in certain circumstances.
(2) In fiscal 1996, the Company granted a total of 94,000 options under the 1994
Plan and this number was used in calculating the percentage above.
(3) The options granted under the 1994 Plan expire on the tenth anniversary of
the date of grant.
(4) Reported net of the option exercise price. The assumed 5% and 10% annual
rates of appreciation over the term of the options are set forth in
accordance with rules and regulations adopted by the Commission and do not
represent the Company's estimate of stock price appreciation.
During the fiscal year ended September 30, 1996, none of the Named
Executive Officers received any awards under any long-term incentive plan.
Additionally, none of the Named Executive Officers exercised any stock options
during the fiscal year ended September 30, 1996 and the Company does not have a
pension plan. Accordingly, the following tables are omitted: "Aggregated Option
Exercise Table," "Long-Term Incentive Plan Awards Table" and "Pension Plan
Table." In addition, certain stockholders and officers of the Company are party
to a stock option arrangement among such persons. See "Other Option
Arrangements."
DIRECTOR COMPENSATION
Directors of the Company who are also employees are not separately
compensated for their services as directors. David L. Ferguson does not
presently receive any fees or additional compensation for serving on the
Company's Board of Directors or any committee thereof, but is reimbursed for his
reasonable out-of-pocket expenses arising from attendance at meetings of the
Board of Directors or committees thereof or in respect of related Company
business. Non-Employee Directors of the Company received during the fiscal year
ended September 30, 1996, $1,000 per meeting attended, $1,000 per month and $500
per committee meeting attended for all services as a director of the Company.
Effective December 1, 1996, all non-employee directors will receive $1,500 per
month and $1,000 per committee meeting. Prior to January 1994, Mr. Alexander was
granted options to purchase shares of Common Stock under the Company's 1989
Stock Option Plan in connection with his service as a director of the Company.
There are presently no stock options outstanding under the 1989 Stock Option
Plan which was terminated by the Board of Directors in August 1995. Also in
August 1995, the Board of Directors approved the Outside Director Plan, which
was approved by stockholders at the 1996 Annual Meeting.
OTHER OPTION ARRANGEMENTS
Each of Messrs. Ramsbottom and Kline has a presently exercisable option to
acquire an aggregate of 48,139 shares of Common Stock from Chase Ventures and
WCP at a purchase price of $0.91 per share. These options were granted on June
29, 1994, and the Company has not, and will not, incur any obligation in
connection with such arrangements.
9
<PAGE> 12
EMPLOYMENT CONTRACTS; INCENTIVE COMPENSATION PROGRAM
The Company has entered into an employment agreement (the "Employment
Agreement"), dated as of October 14, 1993, as amended, with Mortimer A. Kline,
III, pursuant to which Mr. Kline agreed to serve as President of the Company. On
November 20, 1996, he was named to the additional positions of Chairman of the
Board and Chief Executive Officer. Mr. Kline will receive such compensation,
non-monetary perquisites and benefits as determined from time-to-time by the
Board of Directors of the Company. The term of employment pursuant to the
Employment Agreement is on a month-to-month basis until terminated. Upon any
termination of employment of Mr. Kline by the Company other than for "cause" (as
defined), he will have the right to receive from the Company for the next twelve
months after such termination all salary, non-monetary perquisites and other
benefits received by him for the twelve months immediately preceding such
termination.
The Company has also entered into an employment agreement (the "Gates
Employment Agreement"), dated as of May 31, 1995, with Courtlandt D. Gates,
pursuant to which Mr. Gates agreed to serve, at that time, as Vice President and
General Manager, Northern California Division. Mr. Gates will receive an annual
salary of not less than $90,000 and such bonus, non-monetary prerequisites and
benefits as determined from time-to-time by the Board of Directors of the
Company. Mr. Gates was also granted options to purchase 30,000 shares of Common
Stock pursuant to the 1994 Plan. Mr. Gates is also entitled to receive
additional amounts under the Gates Employment Agreement upon the consummation of
certain acquisitions by the Company. The Gates Employment Agreement will
terminate on May 31, 1997, unless earlier terminated as provided thereunder.
The Compensation Committee also administers an incentive compensation
program pursuant to which certain eligible senior executives of the Company may
receive bonus compensation. The Compensation Committee establishes from time to
time objectives to be utilized in its evaluation which, presently, are based on
(i) earnings growth, (ii) revenue growth, (iii) return on capital and (iv) in
the Compensation Committee's discretion, the attainment of non-financial
objectives. The award of bonuses under this program is fully within the
discretion of the Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the Compensation Committee of the Board of Directors of
the Company consisted of Frank C. Alexander, David L. Ferguson, John D. Roach
and Louis A. Simpson, none of whom (i) is a present or former officer or
employee of the Company or any of its subsidiaries or (ii) engaged in any
transactions described under "Certain Transactions," although Chase Ventures, an
affiliate of Mr. Ferguson, has engaged in certain financing transactions with
the Company in prior years.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
General. The Company's executive compensation program is administered by
the Compensation Committee of the Board of Directors (the "Committee"). During
fiscal 1996, the Committee was composed of Frank C. Alexander, David L.
Ferguson, John D. Roach and Louis A. Simpson, each of whom was an independent
non-employee director of the Company.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a federal income tax deduction to any publicly-held corporation for
compensation paid to the chief executive officer and the four most highly
compensated executive officers to the extent that such compensation in a taxable
year exceeds $1,000,000. Section 162(m) does not, however, disallow a deduction
for qualified "performance-based compensation" and such compensation would be
deductible. The Company has structured the 1994 Plan in such a manner that the
remuneration attributable to stock options granted thereunder should not be
subject to the $1,000,000 limitation. The Committee intends generally to design
executive compensation programs that conform with the requirements of Section
162(m), although the Company's Incentive Compensation Plan for Senior Executives
does not satisfy such requirements. Nonetheless, the Committee does not expect
that Section 162(m) will limit the ability of the Company to deduct any
compensation expense for federal income tax purposes in the immediate future.
10
<PAGE> 13
Compensation Philosophy. The Company's executive compensation program is
designed to (i) attract and retain qualified executives and to reward them for
superior performance in achieving the Company's business goals and enhancing
stockholder value and (ii) provide incentives for creation of long-term
stockholder value and align management's interests with those of the
stockholders. The key elements of executive compensation are base salary, annual
performance bonus and stock options. The Committee reviews and approves policies
and practices relating to executive compensation including (i) base salary
levels, (ii) incentive compensation plans and related performance objectives and
awards and (iii) long-term incentives, principally stock option awards.
Base Salaries. Base salaries for executive officers are set at levels which
reflect base salaries for positions of similar responsibility at other public
companies and also take into account the unique talents and skills which may be
required in particular positions. Base salaries are adjusted annually to account
for such factors as individual past performance, changes in responsibilities,
changes in competitive pay levels and inflation. These conclusions have
generally been reached by the Committee on a subjective basis. In addition, the
Committee has from time to time, as it deemed appropriate, referred to outside
survey data and consulted with independent compensation specialists in
evaluating the Company's executive officer base salary levels. Aspects of the
compensation payable to certain executive officers of the Company (including Mr.
Kline) are also governed by employment contracts with such persons. See
"-- Employment Contracts; Incentive Compensation Program."
During fiscal 1996, the Chief Executive Officer, Mr. Ramsbottom, and Mr.
Kline, were each paid a yearly base compensation of $235,000, the same base
salary as the prior year. Effective November 20, 1996, Mr. Kline's base salary
was increased to $250,000 per annum in conjunction with being named Chairman of
the Board and Chief Executive Officer of the Company. This increase reflects,
among other things, the increased responsibility as the senior officer of the
Company as it continues to grow. During the current fiscal year, revenues of the
Company were $178 million, a 35% increase over the prior year. The determination
of base salary for Mr. Kline involves subjectivity on the part of the Committee,
however considerable weight is given by the Committee to the vision and unique
abilities believed possessed by him.
Incentive Compensation Plan. The Committee administers the Company's
Incentive Compensation Plan for Senior Executives (the "Incentive Plan"),
pursuant to which the Committee determines the amount of incentive compensation
payable upon attainment of specified Company performance objectives, subject to
the discretion of the Committee. Incentive compensation opportunities, which are
limited to a maximum of 100% of an executive's base salary, are set by the
Committee for each eligible executive, taking into account the executive's level
of responsibility and ability to affect overall Company financial performance.
The performance objectives, which are measures believed by the Committee to have
the greatest positive effect on the Company's stockholder value, are: (i)
earnings growth, (ii) revenue growth and (iii) return on invested capital. The
incentive opportunity available to be earned by an eligible executive under the
Incentive Plan is a specified percentage of the executive's base salary as of
the end of the fiscal year. To the extent the Company's performance against the
objectives meets or exceeds certain threshold levels, an incentive bonus is
earned by the executive. Accordingly, an executive's incentive compensation
correlates to the Company's actual performance within a given range of financial
performance objectives. The Committee may also adjust an incentive bonus, in the
Committee's discretion, based on the achievement of non-financial objectives.
For fiscal year 1996 the Company did not accrue bonuses for either of
Messrs. Ramsbottom or Kline.
Long-Term Incentives. The Company uses stock option grants to provide
additional incentives for creation of, and increase in, long-term stockholder
value and to link management and stockholder interests. From the Company's
initial public offering in November 1994 through the end of fiscal 1996, the
Committee has awarded to the Company's Named Executive Officers options to
purchase 548,690 shares of the Company's common stock pursuant to the 1994 Plan,
of which options on 222,333 shares were awarded to each of Messrs. Ramsbottom
and Kline.
The Committee administers the 1994 Plan and is responsible for determining,
among other things, eligibility to participate, the terms of the options and the
number of shares subject to option grants. Option grants to executives in fiscal
1996 are based primarily on assessment of the contribution by each executive to
11
<PAGE> 14
the Company's success, as well as such executive's prospects for the future and
value to the Company, and also take into account the amount of options or stock
already owned by the executive. There were no option awards to Messrs.
Ramsbottom and Kline in fiscal 1996.
December 30, 1996
<TABLE>
<S> <C>
Frank C. Alexander John D. Roach
David L. Ferguson Louis A. Simpson
</TABLE>
The Board Compensation Committee Report on Executive Compensation shall not
be deemed incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933,
as amended (the "Securities Act"), or the Exchange Act, and shall not otherwise
be deemed filed under such Acts.
12
<PAGE> 15
STOCK PERFORMANCE GRAPH
The Stock Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
The following graph compares the Company's cumulative total stockholder
return on its Common Stock (no dividends have been paid thereon) with the
cumulative total return, assuming reinvestment of dividends, of (i) the Center
for Research in Security Prices ("CRSP") Index for Nasdaq Stock Market (US
companies) and (ii) the CRSP Index for the Nasdaq Stock Market -- Nonfinancial
Companies. The presentation assumes $100 was invested on November 8, 1994 (the
date the Common Stock commenced trading on the Nasdaq National Market). The
lines shown present quarterly index levels derived from daily returns that
include all dividends.
The historical stock price performance of the Common Stock shown on the
Stock Performance Graph set forth below is not necessarily indicative of future
stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ - US NASDAQ -
(FISCAL YEAR COVERED) THOMPSON COMPANIES NON-FINANCIAL COMPANIES
<S> <C> <C> <C>
11/7/94 100 100 100
DEC-94 122 99 99
MAR-95 132 108 108
JUN-95 150 123 125
SEP-95 156 136 139
DEC-95 127 140 138
MAR-96 120 146 145
JUN-96 109 158 158
SEP-96 91 164 162
</TABLE>
13
<PAGE> 16
CERTAIN TRANSACTIONS
In connection with his resignation as an officer of the Company and each of
its subsidiaries, the Company and D. Hunt Ramsbottom, Jr. are parties to an
executive separation agreement pursuant to which Mr. Ramsbottom will receive
$5,000 per month from January 1, 1997 through December 31, 1998 and will also be
entitled to continue to receive benefits under the Company's stock plans. The
Company has also agreed, under certain circumstances, to register the resale of
up to 48,139 shares of Common Stock which Mr. Ramsbottom may acquire pursuant to
outstanding options. In addition, Mr. Ramsbottom, will be entitled to receive
standard compensation as a non-employee member of the Board of Directors. See
"Executive Compensation -- Director Compensation."
The Company has loaned to Mr. Ramsbottom an aggregate of $146,016. The
loans are evidenced by notes bearing interest at 7.5% per annum on $125,000 of
such amount and 6.0% on the balance. As of September 30, 1996, $146,016 was
outstanding at the foregoing interest rates. All amounts due and owing under
such notes are scheduled to be repaid on or before March 31, 1997.
Subsequent to September 30, 1996, a limited liability company of which Mr.
Ramsbottom is the sole managing member (the "Ramsbottom LLC") participated in
the recapitalization of a customer of the Company in connection with which the
Ramsbottom LLC acquired a significant minority interest in, and Mr. Ramsbottom
became an officer and director of, the customer. During fiscal 1996, purchases
made by the customer accounted for less than one percent of the Company's
revenues on arms-length terms. Mr. Kline is a non-voting member in the
Ramsbottom LLC and has no right to participate in the management of that entity
or the customer; his indirect beneficial interest represents less than 10
percent of the customer's fully diluted equity.
During fiscal 1996, the Company sold substantially all of the assets of the
wholesale distribution business of its wholly-owned Florida subsidiary, Central
PBE, Inc., to National PBE, Inc., an entity in which Robert B. Smithwick, a
former officer of the Company, and the brother-in-law of Mr. Ramsbottom, have an
interest in. The Company received $120,000 in cash and a promissory note for
$1,080,000, which note bears interest at 7% per annum and is due and payable in
full on January 31, 1997. The note is collateralized in part by the pledge by
Mr. Smithwick of Common Stock in the Company held by him and the maturity date
can be extended for two, ninety-day periods under certain conditions. Among
other things, the sales agreement requires that the Company make annual
purchases of at least $5,000,000 from National PBE, Inc. through fiscal year
2000.
14
<PAGE> 17
COMPLIANCE WITH SECTION 16(A) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities ("Insiders"), to file with the
Commission initial reports of changes in ownership of Common Stock. Insiders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) reports filed by such persons.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company, during the fiscal year ended September
30, 1996 all Section 16(a) filing requirements applicable to Insiders were
complied with.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's auditors for the fiscal year ended September 30, 1996, were
Deloitte & Touche LLP. A representative of Deloitte & Touche LLP will be present
at the Meeting, will have an opportunity to make a statement if he so desires
and is expected to be available to respond to appropriate questions.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended
September 30, 1996, (the "1996 Annual Report") is being mailed to stockholders
with this proxy statement. The 1996 Annual Report contains consolidated
financial statements for the Company and its subsidiaries and the report thereon
of Deloitte & Touche LLP, independent accountants.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
In order for a stockholder proposal to be included in the Board of
Directors' Proxy Statement for the 1998 Annual Meeting of Stockholders, such
proposal must be received at 4553 Glencoe Avenue, Suite 200, Marina del Rey,
California 90292, Attention: Corporate Secretary, no later than the close of
business on September 15, 1997 and must otherwise comply with the applicable
provisions of the Exchange Act and the Company's Bylaws. In addition, the
Company's Bylaws also contain provisions requiring advance notice of any matters
to be brought before an annual meeting by stockholders.
OTHER MATTERS
The Board of Directors does not know of any other matter which will be
brought before the Meeting. However, if any other matter properly comes before
the Meeting, or any adjournment or postponement thereof, which may properly be
acted upon, the proxies hereby will be voted on such matter in accordance with
the discretion of the proxy holders named therein.
You are urged to sign, date and return the enclosed proxy in the envelope
provided. No further postage is required if the envelope is mailed within the
United States. If you subsequently decide to attend the Meeting and wish to vote
your shares, you may do so. Your cooperation in giving this matter your prompt
attention will be appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
Mortimer A. Kline, III
Chairman of the Board, President and
Chief Executive Officer
January 10, 1997
15
<PAGE> 18
PROXY
THOMPSON PBE, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Thompson PBE, Inc., a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated January 10,
1997, and appoints Mortimer A. Kline, III and Charles E. Barrantes, or either
of them, proxies with full power of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of the Company to be held Wednesday, February 26, 1997, at
10:00 A.M. (local time) at the Company's offices located at 4553 Glencoe
Avenue, Suite 200, Marina del Rey, California 90292 and at any adjournment or
postponement thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if personally present on the matters set
forth below:
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR AT ANY ADJOURNMENT
OR POSTPONEMENT THEREOF. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF THE NAMED DIRECTORS.
COMMENTS/ADDRESS CHANGE: Please mark comment/address box on reverse side
(Continued and to be signed on other side)
- ------------------------------------------------------------------------------
-- Fold and Detach Here --
<PAGE> 19
Please mark ---
your votes as
indicated in X
this example. ___
WITHHELD
FOR FOR ALL
Election of directors duly nominated: ----- -----
Mortimer A. Kline, III, David L. Ferguson,
D. Hunt Ramsbottom, Jr., ----- -----
Louis A. Simpson, Frank C. Alexander,
John D. Roach
WITHHELD FOR: (Write that nominee's name
in the space provided below).
_________________________________________
-----
I PLAN TO ATTEND MEETING
_____
COMMENTS/ADDRESS CHANGE -----
Please mark this box if you
have written comments/ _____
address change on the
reverse side.
This proxy will be voted as directed or, if no
contrary direction is indicated, will be voted
FOR the election of the directors.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY
CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
Signature(s)_______________________________________________ Date _____________
NOTE: Please sign exactly as shown at left. If stock is jointly held, each
owner should sign. Executors, administrators, trustees, guardians, attorneys
and corporate officers should indicate their fiduciary capacity or full title
when signing.
- -------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE> 1
June 27, 1997
CONFIDENTIAL
Finishmaster, Inc.
4259 40th Street, SE
Kentwood, Michigan 49512
LDI AutoPaints, Inc.
Lacy Distribution, Inc.
LDI, Ltd
LDI Management, Inc.
Andre B. Lacy
54 Monument Circle
Indianapolis, Indiana 46204
Ladies and Gentlemen:
Finishmaster, Inc. ("Finishmaster") and LDI Autopaints, Inc.
(collectively with Finishmaster, Lacy Distribution, Inc., LDI, Ltd., LDI
Management, Andre B. Lacy and the affiliates, subsidiaries and divisions of the
foregoing, "LDI" or "you") has requested information concerning Thompson PBE,
Inc. (together with its subsidiaries, the "Company") to be used in connection
with consideration of a possible negotiated transaction (a "Proposed
Transaction"). In consideration of, and as a condition to, furnishing LDI with
such information, the Company hereby requests your agreement as follows:
Confidentiality; Evaluation Material. You hereby agree to treat all
information, whether written or oral, concerning the Company or any of its
affiliates, which the Company or any of its directors, officers, employees,
agents, financial advisors or representatives (collectively, its
"Representatives") furnishes, whether before or after the date of this letter
agreement, to you or your directors, officers, employees, agents, legal
counsel, financial advisors, accountants or representatives (collectively, your
"Representatives"), together with all reports, analyses, compilations, data,
studies and other materials which contain or otherwise reflect or are generated
from such information (collectively, the "Evaluation Material") confidentially
and in accordance with the provisions of this letter agreement.
Notwithstanding the foregoing, the term "Evaluation Material" shall not for the
purposes of this letter agreement include any information which (a) at the time
of disclosure or thereafter is generally available to and known by the public
other than as a result of a disclosure by you or your Representatives, (b) was
or becomes available to you on a nonconfidential basis from a source other than
the Company or any of its Representatives, provided that such source is not
bound by a confidentiality agreement with, or other contractual, legal or
fiduciary obligation to, the Company, or (c) has been independently acquired or
developed by you without violating any of the obligations of you or your
Representatives under this letter agreement.
Highly Confidential Evaluation Material. The term "Highly
Confidential Evaluation Material" as used in this letter agreement shall mean
all Evaluation Material which contains or discusses competitively sensitive
price, promotional and marketing information with regard to any market in which
the Company and Finishmaster directly or indirectly compete. Highly
Confidential Evaluation Material shall be disclosed only on a need to know
basis to
<PAGE> 2
officers or Representatives of you with no involvement in sales and marketing,
and under no circumstances shall be disclosed to any other person, particularly
to any person with direct or indirect responsibility for pricing, marketing,
sales or promotional activity of Finishmaster. Before disclosure, the identity
of the person(s) receiving the Highly Confidential Evaluation Material shall be
confirmed to the Company in writing and shall be acceptable to the Company in
its discretion. The purpose and intent of this paragraph 2 is to prevent the
disclosure of information that may be competitively sensitive to any person
employed by you with responsibility for pricing or promoting any products which
may be deemed competitive with the Company for antitrust law purposes.
Non-Disclosure. Subject to paragraph 9 below, the Evaluation Material
will be kept confidential by you and your Representatives and will not, without
the prior written consent of the Company (which it may grant or withhold in its
sole discretion), be disclosed, in whole or in part, to any third party by you
or by any of your Representatives in any manner whatsoever, and will not be
used by you or by any of your Representatives, directly or indirectly, for any
purpose other than in connection with your evaluation of a Proposed Transaction
or in any way directly or indirectly detrimental to the Company. In addition,
you hereby agree to disclose that you are evaluating a Proposed Transaction and
to transmit Evaluation Material to only those of your Representatives who need
to know the information for the purpose of evaluating the Proposed Transaction
and are informed by you of the confidential nature of the information and agree
to be bound by the terms of this agreement to the same extent as if they were
parties hereto, it being understood, however, that you shall be responsible for
any actions by your Representatives which are not in accordance with the
agreements contained herein.
No Public Announcement. Except as otherwise expressly permitted
hereby, without the prior written consent of the Company, you will not, and
will direct your Representatives not to, disclose to any person the fact that
any discussions (or any other discussions between or involving you and the
Company) with respect to the matters contemplated hereby are taking or have
taken place or other facts with respect to such discussions, including the
status thereof, or the fact (if such becomes the case) that any Evaluation
Material has been made available to you, nor otherwise make any public
disclosure, whether written or oral, with respect to this agreement or the
actions or transactions contemplated hereby, except and only to the extent such
disclosure is expressly permitted hereunder. No request or proposal to amend,
modify or waive any provision of this agreement (other than a request or
proposal made or solicited by the Company) shall be made or solicited except in
a non-public and confidential manner. The term "person" as used in this letter
shall be broadly interpreted to include, without limitation, any corporation,
company, partnership or individual.
Federal Securities Laws. You hereby acknowledge that you and your
Representatives are (a) aware that the United States securities laws prohibit
any person who has material, non-public information concerning a company from
purchasing or selling securities of such company or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities, and
(b) familiar with the Securities and Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (collectively, the "Exchange
Act").
Company Contact; No Solicitation. It is understood that Mort Kline
will arrange on your behalf for appropriate contacts with the Company for due
diligence purposes. Unless otherwise agreed to by the Company, all (a)
communications regarding any possible transaction, (b) requests for additional
information, (c) requests for facility tours or management meetings and (d)
discussions or questions regarding procedures, timing and terms, will be
submitted or directed only to (i) Mort Kline, (ii) representatives of the
Company's financial advisors identified by Mr. Kline or (iii) a member of the
Board of Directors of the Company. As partial consideration of the Evaluation
Material being furnished to you, you hereby agree that, for a period of one
year from the date hereof, neither you nor any of your affiliates will,
directly or indirectly, solicit to employ any of the current employees of the
Company; provided, however, that this sentence shall not prohibit (1) general
advertisements of employment positions by you in any trade publication or other
publication of general circulation or (2) the employment of any current
employee of the Company by you if
-2-
<PAGE> 3
such person initiates contact with you without any prior solicitation by you or
on your behalf (other than that permitted by clause (1) hereto).
Standstill Agreement. You hereby further acknowledge that the
Evaluation Material is being furnished to you in consideration of your
agreement that neither you (including any person or entity directly or
indirectly, through one or more intermediaries, controlling you or controlled
by you or under common control with you) nor any of your Representatives,
acting alone or as part of any group, will, for a period of two years from the
date of this letter agreement, directly or indirectly, unless specifically
requested to do so in writing in advance by the Company's Board of Directors:
acquire or agree, offer, seek or propose to acquire, or cause to
be acquired, ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Exchange Act) of any of
the securities or assets of the Company (including any evidence of
indebtedness), or any rights or options to acquire any such ownership,
or
make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the Securities
and Exchange Commission) to vote or seek to advise or influence in any
manner whatsoever any person or entity with respect to the voting of
any securities of the Company, or
form, join, or in any way participate in a "group" (within the
meaning of Section 13d(3) of the Exchange Act) with respect to any
voting securities of the Company, or
arrange, or in any way participate in, any financing for the
purchase of any voting securities or assets or securities convertible
or exchangeable into or exercisable for any voting securities or
assets of the Company, or
otherwise act, whether alone or in concert with others, to seek
to propose to the Company or any of its stockholders any merger,
business combination, restructuring, recapitalization or similar
transaction to or with the Company or otherwise act, whether alone or
in concert with others, to seek to control, change or influence the
management, Board of Directors or policies of the Company, or nominate
any person as a Director of the Company who is not nominated by the
then incumbent Directors, or propose any matter to be voted upon by
the stockholders of the Company, or
solicit, negotiate with, or provide any information to, any
person (other than the Company and its Representatives on a
confidential basis regarding a negotiated Proposed Transaction) with
respect to a merger, exchange offer or liquidation of the Company or
any other acquisition of the Company or any other similar transaction,
or
announce an intention to, or enter into any discussion,
negotiations, arrangements or understandings with any third party with
respect to, any of the foregoing, or
disclose any intention, plan or arrangement inconsistent with
the foregoing, or
advise, assist or encourage any other person in connection with
any of the foregoing.
In addition, you also agree during such two-year period not to (i)
request the Company (or any of the Representatives), directly or indirectly, to
amend or waive any provision of this paragraph 7 (including this sentence) or
(ii) take any action that might require the Company to make a public
announcement regarding a possible transaction (other than, with respect to this
clause (ii), in connection with any Proposed Transaction).
-3-
<PAGE> 4
Record of Evaluation Material. You and your Representatives will keep
a written record of the location of the Evaluation Material and will, promptly
upon the request of the Company, return to the Company all copies of the
Evaluation Material furnished to you and in your possession or in the
possession of your Representatives, without retaining a copy thereof. You and
your Representatives will destroy any analyses, compilations, studies or other
documents prepared by or for your, or your Representatives', internal use which
include, utilize or reflect the Evaluation Material. Such destruction will be
confirmed by you, upon request, in writing.
Required Disclosure. In the event that you or any of your
Representatives are requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar legal process) to disclose (a) any Evaluation Material, (b) any
information relating to the opinion, judgment or recommendation of any such
person concerning the Company, its affiliates or subsidiaries, or (c) any other
information supplied to you in the course of your, or your Representatives',
dealings with the Company, you will immediately notify the Company of such
request or requirement prior to disclosure so that the Company may seek an
appropriate protective order or waive compliance with the provisions of this
agreement, and/or take any other mutually agreed action. If, in the absence of
a protective order or the receipt of a waiver hereunder, you or any of your
Representatives are, in the reasonable written opinion of such person's
counsel, legally compelled to disclose information, you or such Representative
may disclose that portion of the requested information which such person's
counsel advises such person in writing that such person is compelled to
disclose. In any event, you and your Representatives will furnish only that
portion of the information which is legally required and will exercise your
best efforts to obtain reliable assurance that confidential treatment will be
accorded the information. In addition, neither you nor any of your
Representatives will oppose action by the Company to obtain an appropriate
protective order or other reliable assurance that such confidential treatment
will be so accorded.
No Agreement Relating to Proposed Transaction. You agree that unless
and until a definitive agreement between the Company and you with respect to
any Proposed Transaction has been executed and delivered, neither the Company
nor you will be under any legal obligation of any kind whatsoever with respect
to any such transaction by virtue of this or any written or oral expression
with respect to such a transaction by any of your or our respective directors,
officers, employees, advisors, partners or agents or any other Representatives
except, in the case of this letter, for the matters specifically agreed to
herein. Without limiting the generality of the foregoing, you further
acknowledge that (a) the Company and its Representatives shall be free to
conduct any process for any transaction involving the Company, if and as they
in their sole discretion shall determine (including, without limitation,
negotiating with any other interested parties and entering into a definitive
agreement without prior notice to you or any other person) and (b) any
procedures relating to such process or transaction may be changed at any time
without notice to you or any other person.
No Representations or Warranties Regarding Evaluation Material. You
hereby acknowledge that neither the Company nor any of its Representatives
makes any representation or warranty as to the accuracy or completeness of the
Evaluation Material. You agree that you shall assume full responsibility for
all conclusions you derive from the Evaluation Material and that neither the
Company nor any of its Representatives shall have any liability with respect to
the Evaluation Material or any use thereof.
Specific Performance. You agree that money damages would not be a
sufficient remedy for any breach of this letter agreement by you or any of your
Representatives, and that, in addition to all other remedies, the Company shall
be entitled to specific performance and injunctive or other equitable relief as
a remedy for any such breach, and you further agree to waive and to use your
best efforts to cause your
-4-
<PAGE> 5
Representatives to waive, any requirement for the securing or posting of any
bond in connection with any such remedy. As provided in paragraph 3, you agree
to be responsible for any breach of this agreement by any of your
Representatives.
No Waiver. You understand and agree that no failure or delay by the
Company or any of its Representatives in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power, or privilege hereunder. The agreements set forth
herein may only be waived or modified by an agreement in writing signed on
behalf of the parties hereto.
Successors. This agreement shall inure to the benefit of and be
enforceable by the Company and its successors.
Validity. In case provisions of this agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of the agreement shall not in any way be affected or
impaired thereby.
Governing Law; Forum. This agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to the choice of law provisions thereof.
Counterparts. This agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same agreement.
* * * * * * * * *
Please acknowledge your agreement to the foregoing by countersigning
this letter in the place provided below and returning it to the undersigned.
Very truly yours,
THOMPSON PBE, INC.
By: /s/ Mortimer A. Kline, III
--------------------------
Mortimer A. Kline, III
Chief Executive Officer
Executed and Agreed to as of
the date first set forth above:
Finishmaster, Inc.
LDI AutoPaints, Inc.
Lacy Distribution, Inc.
LDI, Ltd.
LDI Management, Inc.
Andre B. Lacy
By: /s/ Andre B. Lacy
-----------------
Andre B. Lacy
Authorized Signatory
-5-
<PAGE> 1
THOMPSON PBE LOGO
October 21, 1997
Dear Stockholder:
On behalf of the Board of Directors of Thompson PBE, Inc. ("Thompson"), I
am pleased to inform you that on October 14, 1997, Thompson entered into an
Agreement and Plan of Merger (the "Agreement") with FinishMaster, Inc.
("FinishMaster") and FMST Acquisition Corporation, a wholly owned subsidiary of
FinishMaster ("Purchaser"), pursuant to which Purchaser has commenced today a
tender offer to purchase all of the outstanding shares of Thompson's common
stock, along with the stock purchase rights associated therewith (collectively,
the "Shares"), at a price of $8.00 per Share in cash (the "Tender Offer"). The
Tender Offer is currently scheduled to expire at 12:00 midnight, New York City
time, on Tuesday, November 18, 1997.
Following the successful completion of the Tender Offer and upon approval
by stockholder vote, if required, Purchaser will be merged with and into
Thompson (the "Merger"), and all Shares not purchased pursuant to the Tender
Offer will be converted into the right to receive $8.00 per Share in cash.
THE BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE TENDER OFFER AND
THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THOMPSON AND ITS
STOCKHOLDERS, HAS APPROVED THIS TENDER OFFER, THE AGREEMENT AND THE MERGER, AND
RECOMMENDS THAT YOU ACCEPT THE TENDER OFFER AND TENDER YOUR SHARES PURSUANT TO
THIS TENDER OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the enclosed
Solicitation/Recommendation Statement on Schedule 14D-9 which is being filed
with the Securities and Exchange Commission. Among other things, the Board
considered the opinion of Donaldson, Lufkin & Jenrette Securities Corporation to
the effect that the consideration of $8.00 per Share to be received by the
stockholders of Thompson pursuant to the Tender Offer and Merger is fair, from a
financial point of view, to such stockholders. The enclosed Schedule 14D-9
describes the Board's decision and contains other important information relating
to that decision. I urge you to read it carefully.
On behalf of the Board of Directors, I thank you for the support you have
given to Thompson.
Sincerely,
MORTIMER A. KLINE, III
Mortimer A. Kline, III
Chief Executive Officer
<PAGE> 1
[DONALDSON, LUFKIN & JENRETTE LOGO]
October 14, 1997
Board of Directors
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, CA 90292
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Thompson PBE, Inc. (the "Company") of the
consideration to be received by such stockholders pursuant to the terms of the
proposed Agreement and Plan of Merger, dated as of October 14, 1997 (the
"Agreement"), by and among FinishMaster, Inc. ("FinishMaster"), FMST Acquisition
Corporation ("Sub"), a wholly owned subsidiary of FinishMaster, and Thompson
pursuant to which Sub will be merged (the "Merger") with and into Thompson.
Pursuant to the Agreement, Sub will commence a tender offer for any and all
outstanding shares of the Company's common stock at a price of $8.00 per share
in cash (the "Tender Offer"). The Tender Offer is to be followed by the Merger
in which the shares of all stockholders who did not tender will be converted
into the right to receive $8.00 per share in cash.
In arriving at our opinion, we have reviewed the Agreement and the annexes
and exhibits thereto. We have also reviewed financial and other information that
was publicly available or furnished to us by the Company including information
provided during discussions with management. Included in the information
provided during discussions with management were certain financial projections
of the Company for the period beginning September 30, 1997 and ending September
30, 2001 prepared by the management of the Company. In addition, we have
compared certain financial and securities data of the Company with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the common stock of the Company, reviewed
prices and premiums paid in certain other business combinations and conducted
such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of any assets or liabilities
or for making any independent verification of any of the information reviewed by
us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the decision of
this Company's board of directors to proceed with the Merger. Our opinion does
not constitute a recommendation to any stockholder as to whether such
stockholder should tender its shares in the Tender Offer or how such stockholder
should vote on the Merger.
Donaldson, Lufkin & Jenrette Securities Corporation, as part of its
investment banking services, is regularly based in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
<PAGE> 2
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the stockholders of the
Company pursuant to the Agreement is fair to such stockholders from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: Marc Dien
------------------------------------
Marc Dien
Senior Vice President
<PAGE> 1
[DONALDSON, LUFKIN & JENRETTE LETTERHEAD]
June 2, 1997
PRIVATE AND CONFIDENTIAL
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Attention: Mortimer A. Kline, III
Chief Executive Officer
Gentlemen:
This letter agreement (the "Agreement") confirms our understanding that
Thompson PBE, Inc. (the "Company") has engaged Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") to act as its exclusive financial advisor for a
period of 9 months, commencing upon your acceptance of this Agreement, with
respect to the consideration by the Board of Directors of strategic alternatives
which, as indicated in the following paragraph, may include the sale, merger,
consolidation or any other extraordinary business combination, in one or a
series of transactions, involving all or a majority of the business, securities
or assets of the Company, any repurchase by the Company of a significant amount
of its equity securities, any recapitalization of the Company or any spin-off,
split-off or other extraordinary dividend of cash, securities or other assets to
stockholders of the Company (each, a "Transaction").
As discussed, we propose to undertake certain services on your behalf,
to the extent requested by you, which shall consist of the following: (a)
assist you, as exclusive financial advisor, in evaluating various plans,
strategies or transactions for maximizing the Company's value to its
stockholders and (b), in the event the Board elects to explore the sale of the
Company (i) assisting you in preparing an offering memorandum describing the
Company, its operations, its historical performance and its future prospects;
(ii) identifying and contacting selected qualified acquirors acceptable to you;
(iii) arranging for potential acquirors to conduct business investigations; (iv)
negotiating the financial aspects of any proposed Transaction under your
guidance; and (v) delivering an opinion to the Board of Directors of the
Company, if requested, as to the fairness from a financial point of view of the
consideration to be received by the stockholders of the Company in any proposed
Transaction and updates to such opinion. The scope, form and substance of the
opinion referred to in clause (v) shall be in customary form and, in the case of
a stock-for-stock merger, may be an opinion as to the fairness from a financial
point of view of the ratio to be applied for the exchange of common shares in
the merger. In addition, DLJ will provide a written presentation to the Board of
Directors regarding the exercise price under the Company's shareholders rights
plan.
As compensation for the services to be provided by DLJ hereunder, the
Company agrees (i) to pay to DLJ (a) a retainer fee of $100,000, payable
promptly upon execution of this Agreement,
<PAGE> 2
Page 2 June 2, 1997
(b) additional cash compensation as set forth below, (c) a fee of $250,000 at
the time DLJ, in response to a request from the Company's Board of Directors,
delivers DLJ's written opinion referred to in clause (v) of the preceding
paragraph, irrespective of the conclusion reached therein, and (d) an
additional fee of $50,000 for each written update of a prior opinion delivered
by DLJ with respect to a Transaction, and (ii) upon request by DLJ from time to
time, to reimburse DLJ promptly for all out-of-pocket expenses (including the
reasonable fees and expenses of counsel) incurred by DLJ in connection with its
engagement hereunder, whether or not a Transaction is consummated. As DLJ will
be acting on your behalf, the Company agrees to the indemnification and other
obligations set forth in Schedule 1 attached hereto, which Schedule is an
integral part hereof.
The additional cash compensation referred to in clause (i)(b) above
shall be in an amount equal to (i) one percent (1.00%) of the aggregate amount
of consideration received by the Company and/or its shareholders (treating any
shares issuable upon exercise of options, warrants or other rights of
conversion as outstanding, subject to reduction to give effect to the exercise
consideration on a "net spread" basis), plus the amount of any debt assumed,
acquired, remaining outstanding, retired or defeased or preferred stock
redeemed or remaining outstanding in connection with the Transaction (the
"Acquisition Price") in a Transaction in which the Acquisition Price is less
than or equal to $135,000,000 or (ii) $1,350,000 plus two percent (2%) of the
difference between the Acquisition Price and $135,000,000 in a Transaction in
which the Acquisition Price is greater than $135,000,000, less, in each case,
the amount paid by the Company pursuant to clauses (i)(a), (c) and (d) above.
The additional cash compensation referred to in clause (i)(b) above shall in no
case be less than $750,000, in connection with a Transaction, less the amount
paid by the Company pursuant to clauses (i)(a), (c) and (d) above. Such
additional compensation shall be payable in cash promptly upon consummation of
a Transaction. For purposes of this Agreement, a Transaction shall be deemed
to have been consummated upon the earliest of any of the following events to
occur; (a) the acquisition by another person of a majority of the outstanding
equity securities of the Company calculated on a fully-diluted basis; (b) a
merger or consolidation of the Company with another person; or (c) in the case
of any other Transaction, the consummation thereof.
In the event that the consideration received in a Transaction is paid
in whole or in part in the form of securities or other assets, the value of
such securities or other assets, for purposes of calculating our additional
compensation, shall be the fair market value thereof, as the parties hereto
shall mutually agree, on the day prior to the consummation of the Transaction;
provided, that if such consideration includes securities with an existing
public trading market, the value thereof shall be determined by the average
last sales price for such securities on the ten trading days thereof prior to
such consummation.
The Company shall make available to DLJ all financial and other
information concerning its business and operations that DLJ reasonably requests
as well as any other information relating to any Transaction prepared by the
Company or any of its other advisors (it being understood that the Company
shall not be required to waive any legal privilege). In performing its
services hereunder (including, without limitation, in giving an opinion of the
type referred to in the second paragraph hereof), DLJ shall be entitled to rely
without investigation upon all information that is available from public
sources as well as all other information supplied to it by or on behalf of the
Company or its advisors or an acquiror or its advisors and shall not in any
respect be responsible for the accuracy or completeness of, or have any
obligation to verify, the same or to conduct any appraisal of assets. To the
extent consistent with legal requirements, all information given to DLJ by the
Company, unless publicly available or otherwise available to DLJ without
restriction or breach of any confidentiality
<PAGE> 3
agreement, will be held by DLJ in confidence and will not be disclosed to
anyone other than DLJ's agents and advisors without the Company's prior
approval or used for any purpose other than those referred to in this
Agreement.
Any opinion requested by the Company and any advice, written or oral,
provided by DLJ pursuant to this Agreement will, to the extent consistent with
legal requirements, be treated by the Company as confidential, will be solely
for the information and assistance of the Company in connection with its
consideration of the Transaction and will not be reproduced,
summarized, described or referred to, or furnished to any other party or used
for any other purpose, except in each case with our prior written consent. It
is further understood and agreed that, in the event that any opinion of DLJ
pursuant to this Agreement is to be included in any tender offer materials,
proxy or other document filed with the Securities and Exchange Commission (the
"SEC") and/or mailed in of connection with the Transaction, the opinion will be
reproduced therein in full and any description of or reference to DLJ or any
summary of the opinion or presentation of DLJ included in such document shall
be in form and substance reasonably acceptable to DLJ and its legal counsel and
in compliance with the requirements of the SEC.
This Agreement may be terminated by either the Company or DLJ upon
receipt of written notice to that effect by the other party. Upon any
termination or expiration of this Agreement, DLJ will be entitled to prompt
payment of all fees accrued prior to such termination or expiration and
reimbursement of all out-of-pocket expenses as described above. The indemnity
and other provisions contained in Schedule I will also remain operative and in
full force and effect regardless of any termination or expiration of this
Agreement.
In addition, if at any time prior to 9 months after the termination or
expiration of this Agreement, a Transaction is consummated, or if at any time
prior to 12 months after the termination or expiration of this Agreement a
Transaction is consummated with any party contacted regarding a Transaction
during the period of our engagement, DLJ will be entitled to payment in full of
the compensation described in the fourth paragraph of this Agreement provided,
DLJ shall not be entitled to such compensation if DLJ terminates this Agreement
other than in good faith for reasonable cause (it being understood
that if DLJ terminates this Agreement because it loses interest in the
engagement or believes that it is not practicable to achieve a Transaction for
the Company, that will not constitute reasonable cause). Within 15 business
days following any termination or expiration of this Agreement, DLJ will
provide the Company with written notice of the parties contacted by DLJ
regarding a Transaction during the period of DLJ's engagement.
Please note that DLJ is a full service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of our trading
and brokerage activities, DLJ or its affiliates may at any time hold long or
short positions, and may trade or otherwise effect transactions, for our own
account or on the accounts of customers, in debt or equity securities of the
Company or other entities that may be involved in the Transaction. We
recognize our responsibility for compliance with Federal laws in connection
with any such activities.
The Company acknowledges and agrees that DLJ has been retained solely
to provide the advice or services set forth in this Agreement. DLJ shall act
as an independent contractor, and any duties of DLJ arising out of its
engagement hereunder shall be owed solely to the Company.
<PAGE> 4
This Agreement shall be binding upon and inure to the benefit of the
Company, DLJ, each Indemnified Person (as defined in Schedule I) and their
respective successors and assigns.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York.
The Company irrevocably and unconditionally submits to the exclusive
jurisdiction of any State or Federal court sitting in Los Angeles, California
over any suit, action or proceeding arising out of or relating to this letter
(including Schedule I). The Company hereby agrees that service of any process,
summons, notice or document by U.S. registered mail addressed to the Company
shall be effective service of process for any action, suit or proceeding
brought in any such court. The Company irrevocably and unconditionally waives
any objection to the laying of venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
The Company agrees that a final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon the Company and
may be enforced in any other courts to whose jurisdiction the Company is or may
be subject, by suit upon such judgment.
If any term, provision, covenant or restriction contained in this
Agreement, including Schedule I, is held by a court of competent jurisdiction
or other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
After reviewing this Agreement, please confirm that the foregoing is in
accordance with your understanding by signing and returning to me the duplicate
of this letter attached hereto, whereupon it shall be our binding Agreement.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: Marc Dien
-------------------------
Marc Dien
Senior Vice President
Accepted and agreed to
as of the first date set forth above
Thompson PBE, Inc.
By: Mortimer A. Kline III
---------------------------------
Mortimer A. Kline III
Chief Executive Officer
<PAGE> 5
SCHEDULE 1
This Schedule I is a part of and is incorporated into that certain
letter agreement (together, the "Agreement"), dated June 2, 1997 by and between
Thompson P.B.E., Inc. (the "Company") and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ").
The Company agrees to identify and hold harmless DLJ and its
affiliates, and the respective directors, officers, agents and employees of DLJ
and its affiliates (DLJ and each such entity or person, an "Identified Person")
from and against any losses, claims, damages, judgments, assessments, costs and
other liabilities (collectively "Liabilities"), and will reimburse each of
counsel) (collectively, "Expenses") as they are incurred in investigating,
preparing, pursuing or defending any claim, action, proceeding or
investigation, whether or not in connection with pending or threatened
litigation or arbitration and whether or not any Indemnified Person is a party
rendered by any Indemnified Person pursuant to this Agreement, the transactions
contemplated hereby or any Indemnified Person's actions or inactions in
connection with any such advice, services or transactions; provided that the
Company will not be responsible for any Liabilities or Expenses of any
Indemnified Person that are determined by a judgment of a court of competent
jurisdiction which is no longer subject to appeal or further review to have
resulted primarily from such Indemnified Person's gross negligence or willful
misconduct in connection with any of the advice, actions, inactions or services
referred to above. The Company also agrees to reimburse each Indemnified
Person's rights under this Agreement (including, without limitation, its rights
under this Schedule I); provided, however, that such Expenses shall be repaid
if such Indemnified Person does not prevail in the assertion of such rights.
Upon receipt by an Indemnified Person of actual notice of an Action
against such Indemnified Person with respect to which indemnity may be sought
under this Agreement, such Indemnified Person shall promptly notify the Company
in writing; provided that failure so to notify the Company shall not relieve
the Company from any liability which the Company may have on account of this
indemnity or otherwise, except to the extent the Company shall have been
materially prejudiced by such failure. The Company shall, if requested by DLJ,
assume the defense of any such Action including the employment of counsel
reasonably satisfactory to DLJ. Any Indemnified Person shall have the right to
employ separate counsel in any such Action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless; (i) the Company has failed promptly to assume
the defense and employ counsel or (ii) the named parties to any such Action
(including any impleaded parties) include such Indemnified Person and the
Company, and such Indemnified Person shall have been advised by counsel that
there may be one or more significant legal defenses available to it which are
different from or in addition to those available to the Company; provided that
the Company shall not in such event be responsible hereunder for the fees and
expenses of more than one firm of separate counsel for all Indemnified Persons
in connection with any Action. In addition to any required local counsel. The
Company shall not be liable for any settlement of any Action effected without
its written consent. In addition, the Company will not, without prior written
consent of DLJ, settle, compromise or consent to the entry of any judgment in
or otherwise seek to terminate any pending or threatened Action in respect of
which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Person is a party thereto) unless such settlement, compromise,
<PAGE> 6
consent or termination includes an unconditional release of each Indemnified
Person from all Liabilities arising out of such Action.
In the event that the foregoing indemnity is unavilable to an
Indemnified Person other than in accordance with this Agreement, the Company
shall contribute to the Liabilities and Expenses paid or payable by such
Indemnified Person in such proportion as is appropriate to reflect (i) the
relative benefits to the Company and its shareholders, on the one hand, and to
DLJ, on the other hand, of the matters contemplated by this Agreement or (ii) if
the allocation provided by the immediately preceding clause is not permitted by
the applicable law, not only such relative benefits but also the relative fault
of the Company, on the one hand, and DLJ, on the other hand, in connection with
the matters as to which such Liabilities or Expenses relate, as well as any
other relevant equitable considerations; provided that in no event shall the
Company contribute less than the amount necessary to ensure that all
Indemnified Persons, in the aggregate, are not liable for any Liabilities and
Expenses in excess of the amount of fees actually received by DLJ pursuant to
this Agreement. For purposes of this paragraph, the relative benefits to the
Company and its shareholders, on the one hand, and to DLJ, on the other hand, of
the matters contemplated by this Agreement shall be deemed to be in the same
proportion as (a) the total value paid or contemplated to be paid or received
or contemplated to be received by the Company or the Company's shareholders, as
the case may be, in the transaction or transactions that are within the scope
of this Agreement, whether or not any such transaction is consummated, bears to
(b)the fees paid to DLJ under this Agreement.
The Company also agrees that no Indemnified Person shall have any
liability (whether director or indirect, in contract or tort or otherwise) to
the Company for or in connection with advice or services rendered or to
be rendered by any Indemnified Person pursuant to this Agreement, the
transactions contemplated hereby or any Indemnified Person's actions or
inactions in connection with any such advice, services or transactions except
for Liabilities (and related Expenses) of the Company that are determined by a
judgment of a court of competent jurisdiction which is no longer subject to
appeal or further review to have resulted primarily from such Indemnified
Person's gross negligence or willful misconduct in connection with any such
advice, actions, inactions or services.
The reimbursement, indemnity and contribution obligations of the
Company set forth herein shall apply to any modification of this Agreement and
shall remain in full force and effect regardless of any termination of, or the
completion of any Indemnified Person's services under or in connection with,
this Agreement.
2
<PAGE> 1
INDEMNIFICATION AGREEMENT
This Agreement is made as of the _______ day of _____________
199__, by and between Thompson PBE, Inc., a Delaware corporation (the
"Company"), and the undersigned prospective [OFFICER/DIRECTOR] of the Company,
___________________ (the "Indemnitee"), with reference to the following facts:
The Indemnitee is willing, under certain circumstances, to serve as
an [OFFICER/DIRECTOR] of the Company. The Indemnitee has indicated that he
does not regard the indemnities available under the Company's Bylaws as
adequate to protect him against the risks associated with his service to the
Company. In this connection, the Company and the Indemnitee now agree that
they should enter into this Indemnification Agreement in order to provide
greater protection to Indemnitee against such risks of service to the Company.
Section 145 of the General Corporation Law of the State of
Delaware, under which Law the Company is organized, empowers corporations to
indemnify a person serving as a director, officer, employee or agent of the
Company and a person who serves at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, and said Section 145 and the Bylaws of the Company
specify that the indemnification set forth in said Section 145 and in the
Bylaws, respectively, shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
In order to induce the Indemnitee to serve as a[N]
[OFFICER/DIRECTOR] of the Company and in consideration of his continued
service, the Company hereby agrees, as of the date first set forth above, to
indemnify the Indemnitee as follows:
1. Indemnity. The Company will indemnify the Indemnitee,
his executors, administrators or assigns, for any Expenses (as
defined below) which the Indemnitee is or becomes legally obligated
to pay in connection with any Proceeding. As used in this
Agreement the term "Proceeding" shall include any threatened,
pending or completed claim, action, suit or proceeding, whether
brought by or in the right of the Company or otherwise and whether
of a civil, criminal, administrative or investigative nature, in
which the Indemnitee may be or may have been involved as a party or
otherwise, by reason of the fact that Indemnitee is or was, or has
agreed to become, a director or officer of the Company, by reason
of any actual or alleged error or misstatement or misleading
statement made or suffered by the Indemnitee, by reason of any
action taken by him or of any inaction on his part while acting as
such director or officer, or by reason of the fact that he was
serving at the request of the Company as a director, trustee,
officer, employee or agent of the Company or
<PAGE> 2
another corporation, partnership, joint venture, trust or other
enterprise; provided, that in each such case Indemnitee acted in
good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company, and, in the case
of a criminal proceeding, in addition had no reasonable cause to
believe that his conduct was unlawful. As used in this Agreement,
the term "other enterprise" shall include (without limitation)
employee benefit plans and administrative committees thereof, and
the term "fines" shall include (without limitation) any excise tax
assessed with respect to any employee benefit plan.
2. Expenses. As used in this Agreement, the term
"Expenses" shall include (without limitation) damages, judgments,
fines, penalties, settlements and costs, attorneys' fees and
disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to
indemnification under this Agreement.
3. Enforcement. If a claim or request under this
Agreement is not paid by the Company, or on its behalf, within
thirty days after a written claim or request has been received by
the Company, the Indemnitee may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim or
request and if successful in whole or in part, the Indemnitee shall
be entitled to be paid also the Expenses of prosecuting such suit.
The Company shall have the right to recoup from the Indemnitee the
amount of any item or items of Expenses theretofore paid by the
Company pursuant to this Agreement, to the extent such Expenses are
not reasonable in nature or amounts; provided, however, that the
Company shall have the burden of proving such Expenses to be
unreasonable. The burden of proving that the Indemnitee is not
entitled to indemnification for any other reason shall be upon the
Company.
4. Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who
shall execute all papers required and shall do everything that may
be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit
to enforce such rights.
5. Exclusions. The Company shall not be liable under this
Agreement to pay any Expenses in connection with any claim made
against the Indemnitee:
(a) to the extent that payment is actually
made to the Indemnitee under a valid, enforceable and
collectible insurance policy;
2
<PAGE> 3
(b) to the extent that the Indemnitee is
indemnified and actually paid otherwise than pursuant to
this Agreement;
(c) in connection with a judicial action by or
in the right of the Company, in respect of any claim, issue
or matter as to which the Indemnitee shall have been
adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company unless and only to
the extent that any court in which such action was brought
shall determine upon application that, despite the
adjudication of liability but in view of all the
circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses as such
court shall deem proper;
(d) if it is proved by final judgment in a
court of law or other final adjudication to have been based
upon or attributable to the Indemnitee's in fact having
gained any personal profit or advantage to which he was not
legally entitled;
(e) for a disgorgement of profits made from
the purchase and sale by the Indemnitee of securities
pursuant to Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any
state statutory law or common law;
(f) brought about or contributed to by the
dishonesty of the Indemnitee seeking payment hereunder;
however, notwithstanding the foregoing, the Indemnitee
shall be protected under this Agreement as to any claims
upon which suit may be brought against him by reason of any
alleged dishonesty on his part, unless a judgment or other
final adjudication thereof adverse to the Indemnitee shall
establish that he committed (i) acts of active and
deliberate dishonesty, (ii) with actual dishonest purpose
and intent, (iii) which acts were material to the cause of
action so adjudicated; or
(g) for any judgment, fine or penalty which
the Company is prohibited by applicable law from paying as
indemnity or for any other reason.
6. Indemnification of Expenses of Successful Party.
Notwithstanding any other provision of this Agreement, to the
extent that the Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding or in defense of any claim,
issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against any and all Expenses
incurred in connection therewith.
3
<PAGE> 4
7. Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification
by the Company for some or a portion of Expenses, but not, however,
for the total amount thereof, the Company shall nevertheless
indemnify the Indemnitee for the portion of such Expenses to which
the Indemnitee is entitled.
8. Advance of Expenses. Expenses incurred by the
Indemnitee in connection with any Proceeding, except the amount of
any settlement, shall be paid by the Company in advance upon
request of the Indemnitee that the Company pay such Expenses. The
Indemnitee hereby undertakes to repay to the Company the amount of
any Expenses theretofore paid by the Company to the extent that it
is ultimately determined that such Expenses were not reasonable or
that the Indemnitee is not entitled to indemnification.
9. Approval of Expenses. No Expenses for which
indemnity shall be sought under this Agreement, other than those in
respect of judgments and verdicts actually rendered, shall be
incurred without the prior consent of the Company, which consent
shall not be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition
precedent to his right to be indemnified under this Agreement,
shall give to the Company notice in writing as soon as practicable
of any claim made against him for which indemnity will or could be
sought under this Agreement. Notice to the Company shall be given
at its principal office and shall be directed to the Corporate
Secretary (or such other address as the Company shall designate in
writing to the Indemnitee); notice shall be deemed received if sent
by prepaid mail properly addressed, the date of such notice being
the date postmarked. In addition, the Indemnitee shall give the
Company such information and cooperation as it may reasonably
require and as shall be within the Indemnitee's power.
11. Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall
constitute one instrument.
12. Indemnification Hereunder Not Exclusive. Nothing
herein shall be deemed to diminish or otherwise restrict the
Indemnitee's right to indemnification under any provision of the
Certificate of Incorporation or Bylaws of the Company and
amendments thereto or under law.
13. Governing Law. This Agreement shall be governed
by and construed in accordance with Delaware law, without regard to
the conflicts of law provisions thereof.
4
<PAGE> 5
14. Saving Clause. Wherever there is conflict between
any provision of this Agreement and any applicable present or
future statute, law or regulation contrary to which the Company and
the Indemnitee have no legal right to contract, the latter shall
prevail, but in such event the affected provisions of this
Agreement shall be curtailed and restricted only to the extent
necessary to bring them within applicable legal requirements.
15. Coverage. The provisions of this Agreement shall
apply with respect to the Indemnitee's service as a prospective
[OFFICER/DIRECTOR] of the Company prior to the date of this
Agreement and with respect to all periods of such service after the
date of this Agreement, even though the Indemnitee may have ceased
to be a[N] [OFFICER/DIRECTOR] of the Company.
(Signature Page Follows)
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and signed as of the day and year first above written.
THOMPSON PBE, INC.
By__________________________
Authorized Officer
"INDEMNITEE"
____________________________
Name:
6
<PAGE> 1
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
September 1, 1997
Mr. Mortimer A. Kline, III
c/o Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Re: Severance Agreement
Dear Mr. Kline:
Thompson PBE, Inc. (the "Corporation") considers it essential to the
best interests of its stockholders to foster the continuous employment of key
management personnel. In connection with this, the Corporation's Board of
Directors (the "Board") recognizes that the possibility of a change in control
of the Corporation exists and that such possibility, and the uncertainty and
questions that it may raise among management, could result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders. In order to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including yourself, to
their assigned duties without distraction arising from the possibility of a
change in control of the Corporation, and to induce you to remain in its
employ, the Corporation hereby agrees that after this letter agreement (this
"Agreement") has been fully executed, you shall receive the severance benefits
set forth in this Agreement in the event your employment with the Corporation
is terminated under the circumstances described below subsequent to a "Change
in Control" (as defined in Section 2).
1. Term of Agreement. This Agreement shall commence on September 1,
1997 and shall continue in effect through August 31, 1999; provided, however,
that if a Change in Control (as defined in Section 2) occurs during the term of
this Agreement, this Agreement shall continue in effect for a period of
twenty-four (24) months after the last day of the month in which such Change in
Control occurred.
2. Change in Control.
No benefits shall be payable hereunder unless there has been a Change
in Control. For purposes of this Agreement, a Change in Control shall be
deemed to occur if:
(i) any Person (as defined below) becomes the Beneficial Owner
(as defined below), directly or indirectly, of securities of the
Corporation representing a majority or more of the combined voting
power of the Corporation's then outstanding securities. For purposes
of this Agreement, (A) the term "Person" is used as such term is
<PAGE> 2
used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); provided, however, that
unless this Agreement provides to the contrary, the term shall not
include the Corporation, any trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation, or any
corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as their ownership
of stock of the Corporation, and (B) the term "Beneficial Owner" shall
have the meaning given to such term in Rule 13d-3 under the Exchange
Act;
(ii) during any period of two consecutive years following the
execution of this Agreement, individuals who at the beginning of such
period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with
the Corporation to effect a transaction described in Sections 2(i),
(iii) or (iv)) whose election by the Board or nomination for election
by the Corporation's stockholders was approved by a vote of at least a
majority of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved (hereinafter
referred to as "Continuing Directors"), cease for any reason to
constitute at least a majority thereof;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation (or other
entity), other than a merger or consolidation which would result in
the voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more
than a majority of the combined voting power of the voting securities
of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation; or
(iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale
or disposition by the Corporation to an unrelated third party or
parties of all or substantially all of the Corporation's assets.
3. Termination Following Change in Control.
(i) General. If any of the events described in Section 2
constituting a Change in Control shall have occurred, you shall be
entitled to the benefits provided in Section 4(iii) upon the
subsequent termination of your employment during the term of this
Agreement, unless such termination is (a) because of your death,
Disability (as defined in Section 3(ii)) or retirement, (b) by the
Corporation for Cause, or (c) by you other than for Good Reason. In
the event your employment with the Corporation is terminated for any
reason and subsequently a Change in Control occurs, you shall not be
entitled to any benefits hereunder.
(ii) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability."
2
<PAGE> 3
(iii) Cause. Termination by the Corporation of your employment for
"Cause" shall mean termination (a) upon your willful and continued failure to
substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after your issuance of a Notice of
Termination (as defined in Section 3(v)) for Good Reason (as defined in Section
3(iv)), after a written demand for substantial performance is delivered to you
by the Board, which demand identifies the manner in which the Board believes
that you have not substantially performed your duties, which you do not cure
within 30 days of the date you receive such written demand or (b) upon there
being substantial evidence that you are guilty of a crime classified as a
felony (or the equivalent thereof) under applicable law, or that you have been
convicted of such a crime. For purposes of this Section 3(iii), no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith. Notwithstanding the foregoing, you shall
not be deemed terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than 662/3% of the entire membership of the Board (excluding yourself,
if then a member of the Board) at a meeting of the Board (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the Board's good faith opinion you
were guilty of conduct set forth above in this Section 3(iii) and specifying
the particulars thereof in reasonable detail.
(iv) Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence after a Change in Control
of any of the following circumstances unless such circumstances are fully
corrected prior to the Date of Termination (as defined in Section 3(vi))
specified in the Notice of Termination (as defined in Section 3(v)) given in
respect thereof:
(a) a significant adverse alteration in the nature or status
of your responsibilities or the conditions of your employment from
those in effect immediately prior to such Change in Control; provided,
however, that such a significant adverse alteration shall in any event
be deemed to have occurred if: (i) the operations of the Company are
not consolidated with the operating activities of another significant
business in connection with such Change of Control and (ii) you cease
to be the Chief Executive Officer of the Company or its successor;
(b) the Corporation's reduction of your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time except for proportional across-the-board salary reductions
similarly affecting all management personnel of the Corporation and
all management personnel of any Person in control of the Corporation;
(c) the relocation of the Corporation's offices at which you
are principally employed immediately prior to the Change in Control to
a location more than 50 miles from such location or the Corporation's
requiring you to be based anywhere other than the Corporation's
offices at such location except for required travel on the
3
<PAGE> 4
Corporation's business to an extent substantially consistent
with your present business travel obligations;
(d) the Corporation's failure to pay to you any portion of
your current compensation or to pay to you any portion of an
installment of deferred compensation under any deferred compensation
program of the Corporation within thirty (30) days of the date such
compensation is due;
(e) the Corporation's failure to continue in effect any
material compensation or benefit plan in which you participate or to
arrange for you to receive any perquisites to which you are entitled
immediately prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the Corporation's failure
to continue your participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the time
of the Change in Control;
(f) the Corporation's failure to continue to provide you with
benefits substantially similar to those enjoyed by you under any of
the Corporation's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change in Control, the taking of any action by the Corporation which
would directly or indirectly materially reduce any of such benefits,
or the failure by the Corporation to provide you with the number of
paid vacation days to which you are entitled on the basis of years of
service with the Corporation in accordance with the Corporation's
normal vacation policy in effect at the time of the Change in Control;
(g) the Corporation's failure to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5;
(h) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(v) hereof (and, if applicable, the
requirements of Section 3(iii) hereof), which purported termination
shall not be effective for purposes of this Agreement; or
(i) the continuation or repetition, after written notice of
objection from you, of harassing or denigrating treatment of you
inconsistent with your position with the Corporation.
Your continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstances constituting Good Reason
hereunder.
(v) Notice of Termination. Any purported termination of your
employment by the Corporation or by you (other than termination due to death
which shall terminate your employment automatically) shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 6. "Notice of Termination" shall mean a notice that shall
4
<PAGE> 5
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(vi) Date of Termination, Etc. "Date of Termination" shall mean (a)
if your employment is terminated due to your death, the date of your death; (b)
if your employment is terminated for Disability thirty (30) days after Notice
of Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30)-day period), and
(c) if your employment is terminated pursuant to Section 3(iii) or Section
3(iv) or for any other reason (other than death or Disability), the date
specified in the Notice of Termination (which, in the case of a termination for
Cause shall not be less than thirty (30) days from the date such Notice of
Termination is given, and in the case of a termination for Good Reason shall
not be less than fifteen (15) nor more than thirty (30) days from the date such
Notice of Termination is given).
4. Compensation Upon Termination or During Disability. Following a
Change in Control, you shall be entitled to the benefits described below during
a period of disability, or upon termination of your employment, as the case may
be, provided that such period or termination occurs during the term of this
Agreement. The benefits to which you are entitled, subject to the terms and
conditions of this Agreement (including, without limitation, Section 4(vii),
are:
(i) During any period during which you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in effect
at the commencement of any such period, together with all compensation payable
to you under any disability plan or program or other similar plan maintained by
the Corporation during such period, until this Agreement is terminated pursuant
to Section 3(ii) hereof. Thereafter, or in the event your employment is
terminated by reason of your death, your benefits shall be determined under the
Corporation's retirement, insurance and other compensation programs then in
effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Corporation for
Cause or by you other than for Good Reason, the Corporation shall pay you your
full base salary, when due, through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due and shall arrange for you to receive, through the
Date of Termination (through direct payment, reimbursement to you of expenses
reasonably incurred, or otherwise) any perquisites that you were receiving
immediately prior to the Notice of Termination, and the Corporation shall have
no further obligations to you under this Agreement.
(iii) If your employment by the Corporation shall be terminated by you
for Good Reason or by the Corporation other than for Cause or Disability, then,
subject to Section 4(vii), you shall be entitled to the benefits provided
below:
(a) the Corporation shall pay to you your full base salary,
when due, through the Date of Termination at the rate in effect at the
time Notice of Termination is given, at the time specified in Section
4(v), plus all other amounts to which you are
5
<PAGE> 6
entitled under any compensation plan of the Corporation at the
time such payments are due;
(b) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you, at the time specified in Section 4(v), a lump
sum severance payment (together with the payments provided in Sections
4(iii)(c),(d) and (e) below, the "Severance Payments") equal to 200%
of your annual salary as in effect as of the Date of Termination or
immediately prior to the Change in Control, whichever is greater;
(c) the Corporation shall pay to you all legal fees and
expenses reasonably incurred by you as a result of such termination
(including all such fees and expenses, if any, reasonably incurred in
contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement (as set
forth in Section 10 of this Agreement) or in connection with any tax
audit or proceeding to the extent attributable to the application of
section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), to any payment or benefit provided hereunder);
(d) for a twenty-four (24) month period after such
termination, the Corporation shall arrange to provide you with life,
accident and group health insurance benefits substantially similar to
those that you were receiving immediately prior to the Notice of
Termination. Benefits otherwise receivable by you pursuant to this
Section 4(iii)(d) shall be reduced to the extent comparable benefits
are actually received by you during the twenty-four (24) month period
following your termination, and any such benefits actually received by
you shall be reported to the Corporation; and
(e) for a twenty-four month period after such termination, the
Corporation shall arrange for you to receive (through direct payment,
reimbursement to you of expenses reasonably incurred, or otherwise)
any perquisites (including, without limitation, automobile allowances
and club memberships) that you were receiving immediately prior to the
Notice of Termination.
(iv) If by reason of Section 280G of the Code any payment or benefit
received or to be received by you in connection with a Change in Control or the
termination of your employment (whether payable pursuant to the terms of this
Agreement ("Contract Payments") or any other plan, arrangements or agreement
with the Corporation or an Affiliate (as defined below) (collectively with the
Contract Payments, "Total Payments") would not be deductible (in whole or part)
by the Corporation, an Affiliate or other person making such payment or
providing such benefit, then the Severance Payments shall be reduced (to zero
if necessary) and, if Severance Payments are reduced to zero, other Contract
Payments shall be reduced (to zero if necessary) and, if Contract Payments are
reduced to zero, other Total Payments shall be reduced (to zero if necessary)
until no portion of the Total Payments is not deductible by reason of Section
280G. For purposes of this limitation, (a) no portion of the Total Payments
the receipt or enjoyment of which you shall have effectively waived in writing
prior to the date of payment of the Severance Payments shall be taken into
account; (b) no portion of the Total Payments shall be taken into account which
in the opinion of the Corporation's counsel does not constitute a "parachute
payment" within the meaning of Code Section 280G(b)(2) (without regard to
6
<PAGE> 7
subsection (A)(ii) thereof); (c) the Severance Payments (and, thereafter, other
Contract Payments and other Total Payments) shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(a) and (b) of Section 4(iii)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of Code Section
280G(b)(4), in the opinion of the counsel referred to in clause (b), and (d)
the value of any noncash benefit or any deferred payment or benefit included in
the Total Payments shall be determined by the Corporation's independent
auditors in accordance with the principles of Code Sections 280G(d)(3) and (4).
For purposes of this Section 4(iv), the term "Affiliate" means the
Corporation's successors, any Person whose actions result in a Change in
Control or any corporation affiliated (or which, as a result of the completion
of the transactions causing a Change in Control shall become affiliated) with
the Corporation within the meaning of Code Section 1504.
(v) The payment provided for in Section 4(iii)(a) shall be made not
later than the fifteenth day following the Date of Termination. The payment
provided for in Section 4(iii)(b) shall be made not later than the thirtieth
day following the Date of Termination; provided, however, that if the amounts
of such payments cannot be finally determined on or before such day, the
Corporation shall pay to you on such day an estimate, as determined in good
faith by the Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the rate provided in
Code Section 1274(b)(2)(B)) as soon as the amount thereof can be determined but
in no event later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the
Corporation to you, payable on the fifth day after demand by the Corporation
(together with interest at the rate provided in Code Section 1274(b)(2)(B)).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise nor,
except as provided in Section 4(iii)(d), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment or by
retirement benefits.
(vii) If benefits shall be payable to you hereunder, such benefits
shall constitute the sole and exclusive benefit payable to you upon termination
of your employment unless, within ten days of the Date of Termination, you
advise the Corporation in writing that you: (i) waive all of your rights under
this Agreement and (ii) in lieu thereof, agree to accept as the sole and
exclusive benefit payable to you upon termination of your employment those
benefits provided for in Section 5 of the Employment Agreement, dated as of
October 14, 1993, between you and Thompson Capital Corporation (as predecessor
to the Corporation), as amended (the "1993 Agreement"). Unless such election
to have the 1993 Agreement apply is made as provided for in the immediately
preceding sentence, this Agreement shall expressly be deemed to have superseded
Section 5 of the 1993 Agreement in any instance in which both agreements would
apply. The 1993 Agreement shall remain in full force and effect in the event
that this Agreement shall not apply to a given termination of employment.
7
<PAGE> 8
5. Successors; Binding Agreement. (i) The Corporation shall, upon your
written request, require that any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Corporation expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of any such successor to assume and agree to perform this
Agreement within 30 days of such written request upon such successor to assume
and agree to perform this Agreement shall be a breach of this Agreement and
shall entitle you to terminate your employment and receive compensation from
the Corporation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason following a
Change in Control. For purposes of implementing the foregoing, the date which
is 30 days after the Corporation makes a written request upon a successor to
assume and agree to perform this Agreement shall be deemed the Date of
Termination. Where the context requires,"Corporation" shall mean the
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by FedEx or United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the last page of this
Agreement, provided that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation, or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by
the other party hereto of or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of California without regard to its conflicts
of law principles. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the
8
<PAGE> 9
Corporation under Section 4 shall survive the expiration of the term of this
Agreement. The section headings contained in this Agreement are for
convenience only, and shall not affect the interpretation of this Agreement.
8. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
10. Arbitration; Dispute Resolution.
(i) Arbitration Procedure. Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the interpretation of
this Agreement or any arrangements relating to this Agreement or contemplated
in this Agreement or the breach, termination or invalidity thereof shall be
settled by arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA")
(except as otherwise provided in this Agreement) in Los Angeles County,
California. The arbitration shall be conducted before the AAA or such other
arbitration service as you and the Corporation may, by mutual agreement,
select. The parties to the arbitration jointly shall directly appoint such
arbitrator within thirty (30) days of initiation of arbitration. If the
parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
The arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. You and the Corporation
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having
jurisdiction thereof. The Corporation shall pay all fees and expenses of the
Arbitrator regardless of the result and shall provide all witnesses and
evidence reasonably required by you to present your case. The Corporation
shall pay to you all reasonable arbitration expenses and legal fees incurred by
you as a result of a termination of your employment in seeking to obtain or
enforce any right or benefit provided by this Agreement (whether or not you are
successful in obtaining or enforcing such right or benefit). Such payments
shall be made within five (5) days after the your request for payment
accompanied with such evidence of fees and expenses incurred as the Corporation
reasonably may require. If any part of this paragraph is found to be void as a
matter of law or public policy, the remainder of the paragraph will continue to
be in full force and effect.
(ii) Compensation During Dispute. Your compensation during any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(a) If a purported termination by you for Good Reason occurs
or is deemed to occur following a Change in Control and during the
term of this Agreement, and such termination is disputed in accordance
with Section 10(i) of this Agreement, the Corporation shall continue
to pay you the full compensation in effect when the notice
9
<PAGE> 10
giving rise to the dispute was given (including, but not
limited to, salary), continue you as a participant in all
compensation, benefit and insurance plans in which you were
participating when the notice giving rise to the dispute was given and
continue to arrange for you to receive any perquisites to which you
were entitled when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with Section
10(i). Amounts paid under this Section 10(ii)(a) are in addition to
all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement. You
agree to remain in the employ of the Corporation during the resolution
of the dispute and to continue to provide services unless your
employment is terminated earlier by death, Disability or retirement,
or by action of the Corporation. If the dispute is resolved by a
determination that you did not have Good Reason, this Agreement, in
accordance with its terms, shall continue to apply to the terms of
your employment by the Corporation and any termination thereof.
(b) If there is a termination by the Corporation followed by a
dispute as to whether you are entitled to the payments and other
benefits provided under this Agreement, then, during the period of
that dispute the Corporation shall pay you fifty percent (50%) of the
amount specified in Sections 4(iii)(a) and 4(iii)(b) hereof, and the
Corporation shall provide you with the other benefits provided in
Section 4(iii) of this Agreement, if, but only if, you agree in
writing that if the dispute is resolved against you, you shall
promptly refund to the Corporation all payments you receive under
Sections 4(iii)(a) and 4(iii)(b) of this Agreement plus interest at
the rate provided in Code Section 1274(d), compounded quarterly. If
the dispute is resolved in your favor, promptly after resolution of
the dispute the Corporation shall pay you the sum that was withheld
during the period of the dispute plus interest at the rate provided in
Code Section 1274(d), compounded quarterly.
11. Entire Agreement. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior
agreement of the parties hereto in respect of the subject matter contained
herein, is hereby terminated and cancelled.
(Signature page follows)
10
<PAGE> 11
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which shall then constitute our agreement on this subject.
Sincerely,
THOMPSON PBE, INC.
By /s/ Authorized Signatory
--------------------------
Name:
Title:
Accepted and agreed to effective
as of the first date set forth above.
/s/ Mortimer A. Kline, III
- --------------------------------------
MORTIMER A. KLINE, III
Address for Notice:
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
11
<PAGE> 1
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
September 1, 1997
Mr. Michael O'Donovan
c/o Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Re: Severance Agreement
Dear Mr. O'Donovan:
Thompson PBE, Inc. (the "Corporation") considers it essential to
the best interests of its stockholders to foster the continuous employment of
key management personnel. In connection with this, the Corporation's Board of
Directors (the "Board") recognizes that the possibility of a change in control
of the Corporation exists and that such possibility, and the uncertainty and
questions that it may raise among management, could result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders. In order to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including yourself, to
their assigned duties without distraction arising from the possibility of a
change in control of the Corporation, and to induce you to remain in its
employ, the Corporation hereby agrees that after this letter agreement (this
"Agreement") has been fully executed, you shall receive the severance benefits
set forth in this Agreement in the event your employment with the Corporation
is terminated under the circumstances described below subsequent to a "Change
in Control" (as defined in Section 2).
1. Term of Agreement. This Agreement shall commence on
September 1, 1997 and shall continue in effect through August 31, 1999;
provided, however, that if a Change in Control (as defined in Section 2) occurs
during the term of this Agreement, this Agreement shall continue in effect for
a period of twenty-four (24) months after the last day of the month in which
such Change in Control occurred.
2. Change in Control.
No benefits shall be payable hereunder unless there has been a
Change in Control. For purposes of this Agreement, a Change in Control shall
be deemed to occur if:
(i) any Person (as defined below) becomes the Beneficial
Owner (as defined below), directly or indirectly, of securities of the
Corporation representing a majority or more of the combined voting power
of the Corporation's then outstanding securities. For purposes of this
Agreement, (A) the term "Person" is used as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the
<PAGE> 2
"Exchange Act"); provided, however, that unless this Agreement provides
to the contrary, the term shall not include the Corporation, any trustee
or other fiduciary holding securities under an employee benefit plan of
the Corporation, or any corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation, and (B) the term "Beneficial
Owner" shall have the meaning given to such term in Rule 13d-3 under the
Exchange Act;
(ii) during any period of two consecutive years following the
execution of this Agreement, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the
Corporation to effect a transaction described in Sections 2(i), (iii) or
(iv)) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least a majority
of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved (hereinafter referred to as "Continuing
Directors"), cease for any reason to constitute at least a majority
thereof;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation (or other
entity), other than a merger or consolidation which would result in the
voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than
a majority of the combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation to an unrelated third party or parties of
all or substantially all of the Corporation's assets.
3. Termination Following Change in Control.
(i) General. If any of the events described in Section 2
constituting a Change in Control shall have occurred, you shall be entitled to
the benefits provided in Section 4(iii) upon the subsequent termination of your
employment during the term of this Agreement, unless such termination is (a)
because of your death, Disability (as defined in Section 3(ii)) or retirement,
(b) by the Corporation for Cause, or (c) by you other than for Good Reason. In
the event your employment with the Corporation is terminated for any reason and
subsequently a Change in Control occurs, you shall not be entitled to any
benefits hereunder.
(ii) Disability. If, as a result of your incapacity due to physical
or mental illness, you shall have been absent from the full-time performance of
your duties with the Corporation for six (6) consecutive months, and within
thirty (30) days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability."
2
<PAGE> 3
(iii) Cause. Termination by the Corporation of your employment for
"Cause" shall mean termination (a) upon your willful and continued failure to
substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after your issuance of a Notice of
Termination (as defined in Section 3(v)) for Good Reason (as defined in Section
3(iv)), after a written demand for substantial performance is delivered to you
by the Board, which demand identifies the manner in which the Board believes
that you have not substantially performed your duties, which you do not cure
within 30 days of the date you receive such written demand or (b) upon there
being substantial evidence that you are guilty of a crime classified as a
felony (or the equivalent thereof) under applicable law, or that you have been
convicted of such a crime. For purposes of this Section 3(iii), no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith. Notwithstanding the foregoing, you shall
not be deemed terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than 66K% of the entire membership of the Board (excluding yourself,
if then a member of the Board) at a meeting of the Board (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the Board's good faith opinion you
were guilty of conduct set forth above in this Section 3(iii) and specifying
the particulars thereof in reasonable detail.
(iv) Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence after a Change in Control
of any of the following circumstances unless such circumstances are fully
corrected prior to the Date of Termination (as defined in Section 3(vi))
specified in the Notice of Termination (as defined in Section 3(v)) given in
respect thereof:
(a) a significant adverse alteration in the nature or status of
your responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control;
(b) the Corporation's reduction of your annual base salary as in
effect on the date hereof or as the same may be increased from time to
time except for proportional across-the-board salary reductions similarly
affecting all management personnel of the Corporation and all management
personnel of any Person in control of the Corporation;
(c) the relocation of the Corporation's offices at which you are
principally employed immediately prior to the Change in Control to a
location more than 50 miles from such location or the Corporation's
requiring you to be based anywhere other than the Corporation's offices
at such location except for required travel on the Corporation's business
to an extent substantially consistent with your present business travel
obligations;
(d) the Corporation's failure to pay to you any portion of your
current compensation or to pay to you any portion of an installment of
deferred compensation
3
<PAGE> 4
under any deferred compensation program of the Corporation within thirty
(30) days of the date such compensation is due;
(e) the Corporation's failure to continue in effect any material
compensation or benefit plan in which you participate immediately prior
to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the Corporation's failure to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control;
(f) the Corporation's failure to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Corporation's life insurance, medical, health and accident, or disability
plans in which you were participating at the time of the Change in
Control, the taking of any action by the Corporation which would directly
or indirectly materially reduce any of such benefits, or the failure by
the Corporation to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Corporation in accordance with the Corporation's normal vacation policy
in effect at the time of the Change in Control;
(g) the Corporation's failure to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5;
(h) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Section 3(v) hereof (and, if applicable, the requirements of Section
3(iii) hereof), which purported termination shall not be effective for
purposes of this Agreement; or
(i) the continuation or repetition, after written notice of
objection from you, of harassing or denigrating treatment of you
inconsistent with your position with the Corporation.
Your continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason hereunder.
(v) Notice of Termination. Any purported termination of your employment
by the Corporation or by you (other than termination due to death which shall
terminate your employment automatically) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 6.
"Notice of Termination" shall mean a notice that shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(vi) Date of Termination, Etc. "Date of Termination" shall mean (a) if
your employment is terminated due to your death, the date of your death; (b) if
your employment is
4
<PAGE> 5
terminated for Disability thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the full-time performance of your
duties during such thirty (30)-day period), and (c) if your employment is
terminated pursuant to Section 3(iii) or Section 3(iv) or for any other reason
(other than death or Disability), the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than fifteen (15)
nor more than thirty (30) days from the date such Notice of Termination is
given).
4. Compensation Upon Termination or During Disability. Following a
Change in Control, you shall be entitled to the benefits described below during
a period of disability, or upon termination of your employment, as the case may
be, provided that such period or termination occurs during the term of this
Agreement. The benefits to which you are entitled are:
(i) During any period during which you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in effect
at the commencement of any such period, together with all compensation payable
to you under any disability plan or program or other similar plan maintained by
the Corporation during such period, until this Agreement is terminated pursuant
to Section 3(ii) hereof. Thereafter, or in the event your employment is
terminated by reason of your death, your benefits shall be determined under the
Corporation's retirement, insurance and other compensation programs then in
effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Corporation for
Cause or by you other than for Good Reason, the Corporation shall pay you your
full base salary, when due, through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due and the Corporation shall have no further
obligations to you under this Agreement.
(iii) If your employment by the Corporation shall be terminated by you
for Good Reason or by the Corporation other than for Cause or Disability you
shall be entitled to the benefits provided below:
(a) the Corporation shall pay to you your full base salary, when
due, through the Date of Termination at the rate in effect at the time
Notice of Termination is given, at the time specified in Section 4(v),
plus all other amounts to which you are entitled under any compensation
plan of the Corporation at the time such payments are due;
(b) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you, at the time specified in Section 4(v), a lump sum
severance payment (together with the payments provided in Sections
4(iii)(c) and (d) below, the "Severance Payments") equal to 200% of your
annual salary as in effect as of the Date of Termination or immediately
prior to the Change in Control, whichever is greater;
5
<PAGE> 6
(c) the Corporation shall pay to you all legal fees and expenses
reasonably incurred by you as a result of such termination (including all
such fees and expenses, if any, reasonably incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement (as set forth in Section 10
of this Agreement) or in connection with any tax audit or proceeding to
the extent attributable to the application of section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder); and
(d) for a twenty-four (24) month period after such termination,
the Corporation shall arrange to provide you with group health insurance
benefits substantially similar to those that you were receiving
immediately prior to the Notice of Termination. Benefits otherwise
receivable by you pursuant to this Section 4(iii)(d) shall be reduced to
the extent comparable benefits are actually received by you during the
twenty-four (24) month period following your termination, and any such
benefits actually received by you shall be reported to the Corporation.
(iv) If by reason of Section 280G of the Code any payment or benefit
received or to be received by you in connection with a Change in Control or the
termination of your employment (whether payable pursuant to the terms of this
Agreement ("Contract Payments") or any other plan, arrangements or agreement
with the Corporation or an Affiliate (as defined below) (collectively with the
Contract Payments, "Total Payments") would not be deductible (in whole or part)
by the Corporation, an Affiliate or other person making such payment or
providing such benefit, then the Severance Payments shall be reduced (to zero
if necessary) and, if Severance Payments are reduced to zero, other Contract
Payments shall be reduced (to zero if necessary) and, if Contract Payments are
reduced to zero, other Total Payments shall be reduced (to zero if necessary)
until no portion of the Total Payments is not deductible by reason of Section
280G. For purposes of this limitation, (a) no portion of the Total Payments
the receipt or enjoyment of which you shall have effectively waived in writing
prior to the date of payment of the Severance Payments shall be taken into
account; (b) no portion of the Total Payments shall be taken into account which
in the opinion of the Corporation's counsel does not constitute a "parachute
payment" within the meaning of Code Section 280G(b)(2) (without regard to
subsection (A)(ii) thereof); (c) the Severance Payments (and, thereafter, other
Contract Payments and other Total Payments) shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(a) and (b) of Section 4(iii)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of Code Section
280G(b)(4), in the opinion of the counsel referred to in clause (b), and (d)
the value of any noncash benefit or any deferred payment or benefit included in
the Total Payments shall be determined by the Corporation's independent
auditors in accordance with the principles of Code Sections 280G(d)(3) and (4).
For purposes of this Section 4(iv), the term "Affiliate" means the
Corporation's successors, any Person whose actions result in a Change in
Control or any corporation affiliated (or which, as a result of the completion
of the transactions causing a Change in Control shall become affiliated) with
the Corporation within the meaning of Code Section 1504.
(v) The payment provided for in Section 4(iii)(a) shall be made not
later than the fifteenth day following the Date of Termination. The payment
provided for in Section 4(iii)(b) shall be made not later than the thirtieth
day following the Date of Termination;
6
<PAGE> 7
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on such day
an estimate, as determined in good faith by the Corporation, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Code Section 1274(b)(2)(B)) as soon as
the amount thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Corporation to you, payable on the
fifth day after demand by the Corporation (together with interest at the rate
provided in Code Section 1274(b)(2)(B)).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise nor,
except as provided in Section 4(iii)(d), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment or by
retirement benefits.
(vii) It is expressly agreed and understood between you and the
Corporation that any benefit payable under this Agreement shall constitute the
sole and exclusive benefit payable to you upon termination of your employment
and this Agreement shall expressly be deemed to supersede any other plan,
agreement or contract of employment in its entirety, whether oral or in writing
between you and the Corporation or between you and Thompson Capital Corporation
(as predecessor to the Corporation) with respect to any benefit payable to you
upon the termination of your employment. Notwithstanding the foregoing, any
such other plan, agreement or contract of employment shall remain in full force
and effect in the event that this Agreement shall not apply to a given
termination of employment.
5. Successors; Binding Agreement. (i) The Corporation shall, upon
your written request, require that any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Corporation expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of any such successor to assume and agree to perform this
Agreement within 30 days of such written request upon such successor to assume
and agree to perform this Agreement shall be a breach of this Agreement and
shall entitle you to terminate your employment and receive compensation from
the Corporation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason following a
Change in Control. For purposes of implementing the foregoing, the date which
is 30 days after the Corporation makes a written request upon a successor to
assume and agree to perform this Agreement shall be deemed the Date of
Termination. Where the context requires, "Corporation" shall mean the
Corporation as defined herein and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be
7
<PAGE> 8
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by FedEx or United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the last page of this
Agreement, provided that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation, or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by
the other party hereto of or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of California without regard to its conflicts
of law principles. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Corporation
under Section 4 shall survive the expiration of the term of this Agreement.
The section headings contained in this Agreement are for convenience only, and
shall not affect the interpretation of this Agreement.
8. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
10. Arbitration; Dispute Resolution.
(i) Arbitration Procedure. Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the interpretation of
this Agreement or any arrangements relating to this Agreement or contemplated
in this Agreement or the breach, termination or invalidity thereof shall be
settled by arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA")
(except as otherwise provided in this Agreement) in Los Angeles County,
California. The arbitration shall be conducted before the AAA or such other
arbitration service as you and the Corporation may, by mutual agreement,
select. The parties to the arbitration jointly shall directly appoint such
arbitrator within thirty (30) days of initiation of arbitration. If
8
<PAGE> 9
the parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
The arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. You and the Corporation
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having
jurisdiction thereof. The Corporation shall pay all fees and expenses of the
Arbitrator regardless of the result and shall provide all witnesses and
evidence reasonably required by you to present your case. The Corporation
shall pay to you all reasonable arbitration expenses and legal fees incurred by
you as a result of a termination of your employment in seeking to obtain or
enforce any right or benefit provided by this Agreement (whether or not you are
successful in obtaining or enforcing such right or benefit). Such payments
shall be made within five (5) days after the your request for payment
accompanied with such evidence of fees and expenses incurred as the Corporation
reasonably may require. If any part of this paragraph is found to be void as a
matter of law or public policy, the remainder of the paragraph will continue to
be in full force and effect.
(ii) Compensation During Dispute. Your compensation during any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(a) If a purported termination by you for Good Reason occurs or is
deemed to occur following a Change in Control and during the term of this
Agreement, and such termination is disputed in accordance with Section
10(i) of this Agreement, the Corporation shall continue to pay you the
full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue you as a
participant in all compensation, benefit and insurance plans in which you
were participating when the notice giving rise to the dispute was given
until the dispute is finally resolved in accordance with Section 10(i).
Amounts paid under this Section 10(ii)(a) are in addition to all other
amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement. You agree to remain
in the employ of the Corporation during the resolution of the dispute and
to continue to provide services unless your employment is terminated
earlier by death, Disability or retirement, or by action of the
Corporation. If the dispute is resolved by a determination that you did
not have Good Reason, this Agreement, in accordance with its terms, shall
continue to apply to the terms of your employment by the Corporation and
any termination thereof.
(b) If there is a termination by the Corporation followed by a
dispute as to whether you are entitled to the payments and other benefits
provided under this Agreement, then, during the period of that dispute
the Corporation shall pay you fifty percent (50%) of the amount specified
in Sections 4(iii)(a) and 4(iii)(b) hereof, and the Corporation shall
provide you with the other benefits provided in Section 4(iii) of this
Agreement, if, but only if, you agree in writing that if the dispute is
resolved against you, you shall promptly refund to the Corporation all
payments you receive under Sections 4(iii)(a) and 4(iii)(b) of this
Agreement plus interest at the rate provided in Code Section 1274(d),
compounded quarterly. If the dispute is resolved in your favor, promptly
after resolution of the dispute the Corporation shall pay you the sum
that was withheld during
9
<PAGE> 10
the period of the dispute plus interest at the rate provided in Code
Section 1274(d), compounded quarterly.
11. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior
agreement of the parties hereto in respect of the subject matter contained
herein, is hereby terminated and canceled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which shall then constitute our agreement on this subject.
Sincerely,
THOMPSON PBE, INC.
By /s/ Authorized Signatory
------------------------------
Name:
Title:
Accepted and agreed to effective
as of the first date set forth above.
/s/ Michael O'Donovan
- --------------------------------------
MICHAEL O'DONOVAN
Address for Notice:
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
10
<PAGE> 1
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
September 1, 1997
Mr. Thomas E. Case
c/o Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Re: Severance Agreement
-------------------
Dear Mr. Case:
Thompson PBE, Inc. (the "Corporation") considers it essential to the
best interests of its stockholders to foster the continuous employment of key
management personnel. In connection with this, the Corporation's Board of
Directors (the "Board") recognizes that the possibility of a change in control
of the Corporation exists and that such possibility, and the uncertainty and
questions that it may raise among management, could result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders. In order to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including yourself, to
their assigned duties without distraction arising from the possibility of a
change in control of the Corporation, and to induce you to remain in its employ,
the Corporation hereby agrees that after this letter agreement (this
"Agreement") has been fully executed, you shall receive the severance benefits
set forth in this Agreement in the event your employment with the Corporation is
terminated under the circumstances described below subsequent to a "Change in
Control" (as defined in Section 2).
1. Term of Agreement. This Agreement shall commence on September
1, 1997 and shall continue in effect through August 31, 1999; provided, however,
that if a Change in Control (as defined in Section 2) occurs during the term of
this Agreement, this Agreement shall continue in effect for a period of twelve
(12) months after the last day of the month in which such Change in Control
occurred.
2. Change in Control.
No benefits shall be payable hereunder unless there has been a Change
in Control. For purposes of this Agreement, a Change in Control shall be deemed
to occur if:
(i) any Person (as defined below) becomes the Beneficial
Owner (as defined below), directly or indirectly, of securities of the
Corporation representing a majority or more of the combined voting
power of the Corporation's then outstanding securities. For purposes
of this Agreement, (A) the term "Person" is used as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the
<PAGE> 2
"Exchange Act"); provided, however, that unless this Agreement provides to
the contrary, the term shall not include the Corporation, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation, or any corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation, and (B) the term "Beneficial
Owner" shall have the meaning given to such term in Rule 13d-3 under the
Exchange Act;
(ii) during any period of two consecutive years following the
execution of this Agreement, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the
Corporation to effect a transaction described in Sections 2(i), (iii) or
(iv)) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least a majority of
the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved (hereinafter referred to as "Continuing Directors"),
cease for any reason to constitute at least a majority thereof;
(ii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation (or other
entity), other than a merger or consolidation which would result in
the voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more
than a majority of the combined voting power of the voting securities
of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation; or
(iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation to an unrelated third party or parties of
all or substantially all of the Corporation's assets.
3. Termination Following Change in Control.
(i) General. If any of the events described in Section 2
constituting a Change in Control shall have occurred, you shall be entitled to
the benefits provided in Section 4(iii) upon the subsequent termination of your
employment during the term of this Agreement, unless such termination is (a)
because of your death, Disability (as defined in Section 3(ii)) or retirement,
(b) by the Corporation for Cause, or (c) by you other than for Good Reason. In
the event your employment with the Corporation is terminated for any reason and
subsequently a Change in Control occurs, you shall not be entitled to any
benefits hereunder.
(ii) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability."
2
<PAGE> 3
(iii) Cause. Termination by the Corporation of your
employment for "Cause" shall mean termination (a) upon your willful and
continued failure to substantially perform your duties with the Corporation
(other than any such failure resulting from your incapacity due to physical or
mental illness or any such actual or anticipated failure after your issuance of
a Notice of Termination (as defined in Section 3(v)) for Good Reason (as defined
in Section 3(iv)), after a written demand for substantial performance is
delivered to you by the Board, which demand identifies the manner in which the
Board believes that you have not substantially performed your duties, which you
do not cure within 30 days of the date you receive such written demand or (b)
upon there being substantial evidence that you are guilty of a crime classified
as a felony (or the equivalent thereof) under applicable law, or that you have
been convicted of such a crime. For purposes of this Section 3(iii), no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith. Notwithstanding the foregoing, you shall
not be deemed terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than 66K% of the entire membership of the Board (excluding yourself, if
then a member of the Board) at a meeting of the Board (after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Board), finding that in the Board's good faith opinion you were
guilty of conduct set forth above in this Section 3(iii) and specifying the
particulars thereof in reasonable detail.
(iv) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination (as defined in Section 3(vi))
specified in the Notice of Termination (as defined in Section 3(v)) given in
respect thereof:
(a) a significant adverse alteration in the nature or
status of your responsibilities or the conditions of your employment
from those in effect immediately prior to such Change in Control;
(b) the Corporation's reduction of your annual base salary
as in effect on the date hereof or as the same may be increased from
time to time except for proportional across-the-board salary
reductions similarly affecting all management personnel of the
Corporation and all management personnel of any Person in control of
the Corporation;
(c) the relocation of the Corporation's offices at which
you are principally employed immediately prior to the Change in
Control to a location more than 50 miles from such location or the
Corporation's requiring you to be based anywhere other than the
Corporation's offices at such location except for required travel on
the Corporation's business to an extent substantially consistent with
your present business travel obligations;
(d) the Corporation's failure to pay to you any portion of
your current compensation or to pay to you any portion of an
installment of deferred compensation
3
<PAGE> 4
under any deferred compensation program of the Corporation within thirty
(30) days of the date such compensation is due;
(e) the Corporation's failure to continue in effect any
material compensation or benefit plan in which you participate immediately
prior to the Change in Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made with respect to
such plan, or the Corporation's failure to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided
and the level of your participation relative to other participants, as
existed at the time of the Change in Control;
(f) the Corporation's failure to continue to provide you
with benefits substantially similar to those enjoyed by you under any of
the Corporation's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the Change
in Control, the taking of any action by the Corporation which would
directly or indirectly materially reduce any of such benefits, or the
failure by the Corporation to provide you with the number of paid vacation
days to which you are entitled on the basis of years of service with the
Corporation in accordance with the Corporation's normal vacation policy in
effect at the time of the Change in Control;
(g) the Corporation's failure to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement,
as contemplated in Section 5;
(h) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 3(v) hereof (and, if applicable, the requirements of Section 3(iii)
hereof), which purported termination shall not be effective for purposes of
this Agreement; or
(i) the continuation or repetition, after written notice of
objection from you, of harassing or denigrating treatment of you
inconsistent with your position with the Corporation.
Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstances constituting Good Reason hereunder.
(v) Notice of Termination. Any purported termination of your
employment by the Corporation or by you (other than termination due to death
which shall terminate your employment automatically) shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 6. "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(vi) Date of Termination, Etc. "Date of Termination" shall mean
(a) if your employment is terminated due to your death, the date of your death;
(b) if your employment is
4
<PAGE> 5
terminated for Disability thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the full-time performance of your
duties during such thirty (30)-day period), and (c) if your employment is
terminated pursuant to Section 3(iii) or Section 3(iv) or for any other reason
(other than death or Disability), the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than fifteen (15)
nor more than thirty (30) days from the date such Notice of Termination is
given).
4. Compensation Upon Termination or During Disability.
Following a Change in Control, you shall be entitled to the benefits described
below during a period of disability, or upon termination of your employment, as
the case may be, provided that such period or termination occurs during the term
of this Agreement. The benefits to which you are entitled are:
(i) During any period during which you fail to perform your
full-time duties with the Corporation as a result of incapacity due to physical
or mental illness, you shall continue to receive your base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to you under any disability plan or program or other similar plan
maintained by the Corporation during such period, until this Agreement is
terminated pursuant to Section 3(ii) hereof. Thereafter, or in the event your
employment is terminated by reason of your death, your benefits shall be
determined under the Corporation's retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Corporation
for Cause or by you other than for Good Reason, the Corporation shall pay you
your full base salary, when due, through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due and the Corporation shall have no further obligations
to you under this Agreement.
(iii) If your employment by the Corporation shall be terminated
by you for Good Reason or by the Corporation other than for Cause or Disability
you shall be entitled to the benefits provided below:
(a) the Corporation shall pay to you your full base
salary, when due, through the Date of Termination at the rate in effect at
the time Notice of Termination is given, at the time specified in Section
4(v), plus all other amounts to which you are entitled under any
compensation plan of the Corporation at the time such payments are due;
(b) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you, at the time specified in Section 4(v), a lump sum
severance payment (together with the payments provided in Sections
4(iii)(c) and (d) below, the "Severance Payments") equal to 100% of your
annual salary as in effect as of the Date of Termination or immediately
prior to the Change in Control, whichever is greater;
5
<PAGE> 6
(c) the Corporation shall pay to you all legal fees and expenses
reasonably incurred by you as a result of such termination (including all
such fees and expenses, if any, reasonably incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right
or benefit provided by this Agreement (as set forth in Section 10 of this
Agreement) or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), to any payment or benefit provided
hereunder); and
(d) for a twelve (12) month period after such termination, the
Corporation shall arrange to provide you with group health insurance
benefits substantially similar to those that you were receiving immediately
prior to the Notice of Termination. Benefits otherwise receivable by you
pursuant to this Section 4(iii)(d) shall be reduced to the extent
comparable benefits are actually received by you during the twelve (12)
month period following your termination, and any such benefits actually
received by you shall be reported to the Corporation.
(iv) If by reason of Section 280G of the Code any payment or benefit
received or to be received by you in connection with a Change in Control or the
termination of your employment (whether payable pursuant to the terms of this
Agreement ("Contract Payments") or any other plan, arrangements or agreement
with the Corporation or an Affiliate (as defined below) (collectively with the
Contract Payments, "Total Payments") would not be deductible (in whole or part)
by the Corporation, an Affiliate or other person making such payment or
providing such benefit, then the Severance Payments shall be reduced (to zero if
necessary) and, if Severance Payments are reduced to zero, other Contract
Payments shall be reduced (to zero if necessary) and, if Contract Payments are
reduced to zero, other Total Payments shall be reduced (to zero if necessary)
until no portion of the Total Payments is not deductible by reason of Section
280G. For purposes of this limitation, (a) no portion of the Total Payments the
receipt or enjoyment of which you shall have effectively waived in writing prior
to the date of payment of the Severance Payments shall be taken into account;
(b) no portion of the Total Payments shall be taken into account which in the
opinion of the Corporation's counsel does not constitute a "parachute payment"
within the meaning of Code Section 280G(b)(2) (without regard to subsection
(A)(ii) thereof); (c) the Severance Payments (and, thereafter, other Contract
Payments and other Total Payments) shall be reduced only to the extent necessary
so that the Total Payments (other than those referred to in clauses (a) and (b)
of Section 4(iii)) in their entirety constitute reasonable compensation for
services actually rendered within the meaning of Code Section 280G(b)(4), in the
opinion of the counsel referred to in clause (b), and (d) the value of any
noncash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Corporation's independent auditors in
accordance with the principles of Code Sections 280G(d)(3) and (4). For purposes
of this Section 4(iv), the term "Affiliate" means the Corporation's successors,
any Person whose actions result in a Change in Control or any corporation
affiliated (or which, as a result of the completion of the transactions causing
a Change in Control shall become affiliated) with the Corporation within the
meaning of Code Section 1504.
(v) The payment provided for in Section 4(iii)(a) shall be made not
later than the fifteenth day following the Date of Termination. The payment
provided for in Section 4(iii)(b) shall be made not later than the thirtieth day
following the Date of Termination;
6
<PAGE> 7
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on such day
an estimate, as determined in good faith by the Corporation, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Code Section 1274(b)(2)(B)) as soon as the
amount thereof can be determined but in no event later than the thirtieth day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Corporation to you, payable on the fifth
day after demand by the Corporation (together with interest at the rate provided
in Code Section 1274(b)(2)(B)).
(vi) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise
nor, except as provided in Section 4(iii)(d), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment or by
retirement benefits.
(vii) It is expressly agreed and understood between you and the
Corporation that any benefit payable under this Agreement shall constitute the
sole and exclusive benefit payable to you upon termination of your employment
and this Agreement shall expressly be deemed to supersede any other plan,
agreement or contract of employment in its entirety, whether oral or in writing
between you and the Corporation or between you and Thompson Capital Corporation
(as predecessor to the Corporation) with respect to any benefit payable to you
upon the termination of your employment. Notwithstanding the foregoing, any
such other plan, agreement or contract of employment shall remain in full force
and effect in the event that this Agreement shall not apply to a given
termination of employment.
5. Successors; Binding Agreement. (i) The Corporation
shall, upon your written request, require that any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of any such successor to assume and agree
to perform this Agreement within 30 days of such written request upon such
successor to assume and agree to perform this Agreement shall be a breach of
this Agreement and shall entitle you to terminate your employment and receive
compensation from the Corporation in the same amount and on the same terms to
which you would be entitled hereunder if you terminate your employment for Good
Reason following a Change in Control. For purposes of implementing the
foregoing, the date which is 30 days after the Corporation makes a written
request upon a successor to assume and agree to perform this Agreement shall be
deemed the Date of Termination. Where the context requires, "Corporation" shall
mean the Corporation as defined herein and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by you and your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein, shall be
7
<PAGE> 8
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by FedEx or
United States certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the last page of
this Agreement, provided that all notices to the Corporation shall be directed
to the attention of the Board with a copy to the Secretary of the Corporation,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Corporation under
Section 4 shall survive the expiration of the term of this Agreement. The
section headings contained in this Agreement are for convenience only, and shall
not affect the interpretation of this Agreement.
8. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
10. Arbitration; Dispute Resolution.
(i) Arbitration Procedure. Any disagreement, dispute,
controversy or claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this Agreement
or contemplated in this Agreement or the breach, termination or invalidity
thereof shall be settled by arbitration in accordance with the Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") (except as otherwise provided in this Agreement) in Los
Angeles County, California. The arbitration shall be conducted before the AAA
or such other arbitration service as you and the Corporation may, by mutual
agreement, select. The parties to the arbitration jointly shall directly
appoint such arbitrator within thirty (30) days of initiation of arbitration.
If
8
<PAGE> 9
the parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
The arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. You and the Corporation
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having jurisdiction
thereof. The Corporation shall pay all fees and expenses of the Arbitrator
regardless of the result and shall provide all witnesses and evidence reasonably
required by you to present your case. The Corporation shall pay to you all
reasonable arbitration expenses and legal fees incurred by you as a result of a
termination of your employment in seeking to obtain or enforce any right or
benefit provided by this Agreement (whether or not you are successful in
obtaining or enforcing such right or benefit). Such payments shall be made
within five (5) days after the your request for payment accompanied with such
evidence of fees and expenses incurred as the Corporation reasonably may
require. If any part of this paragraph is found to be void as a matter of law
or public policy, the remainder of the paragraph will continue to be in full
force and effect.
(ii) Compensation During Dispute. Your compensation during any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(a) If a purported termination by you for Good Reason
occurs or is deemed to occur following a Change in Control and during the
term of this Agreement, and such termination is disputed in accordance with
Section 10(i) of this Agreement, the Corporation shall continue to pay you
the full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue you as a
participant in all compensation, benefit and insurance plans in which you
were participating when the notice giving rise to the dispute was given
until the dispute is finally resolved in accordance with Section 10(i).
Amounts paid under this Section 10(ii)(a) are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement. You agree to remain in the
employ of the Corporation during the resolution of the dispute and to
continue to provide services unless your employment is terminated earlier
by death, Disability or retirement, or by action of the Corporation. If
the dispute is resolved by a determination that you did not have Good
Reason, this Agreement, in accordance with its terms, shall continue to
apply to the terms of your employment by the Corporation and any
termination thereof.
(b) If there is a termination by the Corporation followed
by a dispute as to whether you are entitled to the payments and other
benefits provided under this Agreement, then, during the period of that
dispute the Corporation shall pay you fifty percent (50%) of the amount
specified in Sections 4(iii)(a) and 4(iii)(b) hereof, and the Corporation
shall provide you with the other benefits provided in Section 4(iii) of
this Agreement, if, but only if, you agree in writing that if the dispute
is resolved against you, you shall promptly refund to the Corporation all
payments you receive under Sections 4(iii)(a) and 4(iii)(b) of this
Agreement plus interest at the rate provided in Code Section 1274(d),
compounded quarterly. If the dispute is resolved in your favor, promptly
after resolution of the dispute the Corporation shall pay you the sum that
was withheld during
9
<PAGE> 10
the period of the dispute plus interest at the rate provided in Code
Section 1274(d), compounded quarterly.
11. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein, is
hereby terminated and canceled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which shall then constitute our agreement on this subject.
Sincerely,
THOMPSON PBE, INC.
By /s/ Authorized Signatory
------------------------------
Name:
Title:
Accepted and agreed to effective
as of the first date set forth above.
/s/ Thomas E. Case
- -----------------------------
THOMAS E. CASE
Address for Notice:
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
10
<PAGE> 1
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
September 1, 1997
Mr. Victor J. Jedlicka
c/o Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Re: Severance Agreement
-------------------
Dear Mr. Jedlicka:
Thompson PBE, Inc. (the "Corporation") considers it essential to the
best interests of its stockholders to foster the continuous employment of key
management personnel. In connection with this, the Corporation's Board of
Directors (the "Board") recognizes that the possibility of a change in control
of the Corporation exists and that such possibility, and the uncertainty and
questions that it may raise among management, could result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders. In order to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including yourself, to
their assigned duties without distraction arising from the possibility of a
change in control of the Corporation, and to induce you to remain in its employ,
the Corporation hereby agrees that after this letter agreement (this
"Agreement") has been fully executed, you shall receive the severance benefits
set forth in this Agreement in the event your employment with the Corporation is
terminated under the circumstances described below subsequent to a "Change in
Control" (as defined in Section 2).
1. Term of Agreement. This Agreement shall commence on September
1, 1997 and shall continue in effect through August 31, 1999; provided, however,
that if a Change in Control (as defined in Section 2) occurs during the term of
this Agreement, this Agreement shall continue in effect for a period of twelve
(12) months after the last day of the month in which such Change in Control
occurred.
2. Change in Control.
No benefits shall be payable hereunder unless there has been a Change
in Control. For purposes of this Agreement, a Change in Control shall be deemed
to occur if:
(i) any Person (as defined below) becomes the Beneficial
Owner (as defined below), directly or indirectly, of securities of the
Corporation representing a majority or more of the combined voting power of the
Corporation's then outstanding securities. For purposes of this Agreement, (A)
the term "Person" is used as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the
<PAGE> 2
"Exchange Act"); provided, however, that unless this Agreement provides to the
contrary, the term shall not include the Corporation, any trustee or other
fiduciary holding securities under an employee benefit plan of the Corporation,
or any corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as their ownership of stock of
the Corporation, and (B) the term "Beneficial Owner" shall have the meaning
given to such term in Rule 13d-3 under the Exchange Act;
(ii) during any period of two consecutive years following the
execution of this Agreement, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the
Corporation to effect a transaction described in Sections 2(i), (iii) or
(iv)) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least a majority of
the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved (hereinafter referred to as "Continuing Directors"),
cease for any reason to constitute at least a majority thereof;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation (or other
entity), other than a merger or consolidation which would result in the
voting securities of the Corporation outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation to an unrelated third party or parties of
all or substantially all of the Corporation's assets.
3. Termination Following Change in Control.
(i) General. If any of the events described in Section 2
constituting a Change in Control shall have occurred, you shall be entitled to
the benefits provided in Section 4(iii) upon the subsequent termination of your
employment during the term of this Agreement, unless such termination is (a)
because of your death, Disability (as defined in Section 3(ii)) or retirement,
(b) by the Corporation for Cause, or (c) by you other than for Good Reason. In
the event your employment with the Corporation is terminated for any reason and
subsequently a Change in Control occurs, you shall not be entitled to any
benefits hereunder.
(ii) Disability. If, as a result of your incapacity due to physical
or mental illness, you shall have been absent from the full-time performance of
your duties with the Corporation for six (6) consecutive months, and within
thirty (30) days after written notice of termination is given you shall not have
returned to the full-time performance of your duties, your employment may be
terminated for "Disability."
2
<PAGE> 3
(iii) Cause. Termination by the Corporation of your employment for
"Cause" shall mean termination (a) upon your willful and continued failure to
substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after your issuance of a Notice of
Termination (as defined in Section 3(v)) for Good Reason (as defined in Section
3(iv)), after a written demand for substantial performance is delivered to you
by the Board, which demand identifies the manner in which the Board believes
that you have not substantially performed your duties, which you do not cure
within 30 days of the date you receive such written demand or (b) upon there
being substantial evidence that you are guilty of a crime classified as a felony
(or the equivalent thereof) under applicable law, or that you have been
convicted of such a crime. For purposes of this Section 3(iii), no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith. Notwithstanding the foregoing, you shall
not be deemed terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than 66K% of the entire membership of the Board (excluding yourself, if
then a member of the Board) at a meeting of the Board (after reasonable notice
to you and an opportunity for you, together with your counsel, to be heard
before the Board), finding that in the Board's good faith opinion you were
guilty of conduct set forth above in this Section 3(iii) and specifying the
particulars thereof in reasonable detail.
(iv) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination (as defined in Section 3(vi))
specified in the Notice of Termination (as defined in Section 3(v)) given in
respect thereof:
(a) a significant adverse alteration in the nature or
status of your responsibilities or the conditions of your employment from
those in effect immediately prior to such Change in Control;
(b) the Corporation's reduction of your annual base salary
as in effect on the date hereof or as the same may be increased from time
to time except for proportional across-the-board salary reductions
similarly affecting all management personnel of the Corporation and all
management personnel of any Person in control of the Corporation;
(c) the relocation of the Corporation's offices at which you
are principally employed immediately prior to the Change in Control to a
location more than 50 miles from such location or the Corporation's
requiring you to be based anywhere other than the Corporation's offices at
such location except for required travel on the Corporation's business to
an extent substantially consistent with your present business travel
obligations;
(d) the Corporation's failure to pay to you any portion of your
current compensation or to pay to you any portion of an installment of
deferred compensation
3
<PAGE> 4
under any deferred compensation program of the Corporation within thirty
(30) days of the date such compensation is due;
(e) the Corporation's failure to continue in effect any
material compensation or benefit plan in which you participate immediately
prior to the Change in Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made with respect to
such plan, or the Corporation's failure to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided
and the level of your participation relative to other participants, as
existed at the time of the Change in Control;
(f) the Corporation's failure to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Corporation's life insurance, medical, health and accident, or disability
plans in which you were participating at the time of the Change in Control,
the taking of any action by the Corporation which would directly or
indirectly materially reduce any of such benefits, or the failure by the
Corporation to provide you with the number of paid vacation days to which
you are entitled on the basis of years of service with the Corporation in
accordance with the Corporation's normal vacation policy in effect at the
time of the Change in Control;
(g) the Corporation's failure to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement,
as contemplated in Section 5;
(h) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 3(v) hereof (and, if applicable, the requirements of Section 3(iii)
hereof), which purported termination shall not be effective for purposes of
this Agreement; or
(i) the continuation or repetition, after written notice of
objection from you, of harassing or denigrating treatment of you
inconsistent with your position with the Corporation.
Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstances constituting Good Reason hereunder.
(v) Notice of Termination. Any purported termination of your
employment by the Corporation or by you (other than termination due to death
which shall terminate your employment automatically) shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 6. "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(vi) Date of Termination, Etc. "Date of Termination" shall mean (a)
if your employment is terminated due to your death, the date of your death; (b)
if your employment is
4
<PAGE> 5
terminated for Disability thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the full-time performance of your
duties during such thirty (30)-day period), and (c) if your employment is
terminated pursuant to Section 3(iii) or Section 3(iv) or for any other reason
(other than death or Disability), the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than fifteen (15)
nor more than thirty (30) days from the date such Notice of Termination is
given).
4. Compensation Upon Termination or During Disability.
Following a Change in Control, you shall be entitled to the benefits described
below during a period of disability, or upon termination of your employment, as
the case may be, provided that such period or termination occurs during the term
of this Agreement. The benefits to which you are entitled are:
(i) During any period during which you fail to perform your
full-time duties with the Corporation as a result of incapacity due to physical
or mental illness, you shall continue to receive your base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to you under any disability plan or program or other similar plan
maintained by the Corporation during such period, until this Agreement is
terminated pursuant to Section 3(ii) hereof. Thereafter, or in the event your
employment is terminated by reason of your death, your benefits shall be
determined under the Corporation's retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Corporation
for Cause or by you other than for Good Reason, the Corporation shall pay you
your full base salary, when due, through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due and the Corporation shall have no further obligations
to you under this Agreement.
(iii) If your employment by the Corporation shall be terminated
by you for Good Reason or by the Corporation other than for Cause or Disability
you shall be entitled to the benefits provided below:
(a) the Corporation shall pay to you your full base
salary, when due, through the Date of Termination at the rate in effect at
the time Notice of Termination is given, at the time specified in Section
4(v), plus all other amounts to which you are entitled under any
compensation plan of the Corporation at the time such payments are due;
(b) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you, at the time specified in Section 4(v), a lump sum
severance payment (together with the payments provided in Sections
4(iii)(c) and (d) below, the "Severance Payments") equal to 100% of your
annual salary as in effect as of the Date of Termination or immediately
prior to the Change in Control, whichever is greater;
5
<PAGE> 6
(c) the Corporation shall pay to you all legal fees and
expenses reasonably incurred by you as a result of such termination
(including all such fees and expenses, if any, reasonably incurred in
contesting or disputing any such termination or in seeking to obtain or
enforce any right or benefit provided by this Agreement (as set forth in
Section 10 of this Agreement) or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), to any payment
or benefit provided hereunder); and
(d) for a twelve (12) month period after such termination, the
Corporation shall arrange to provide you with group health insurance
benefits substantially similar to those that you were receiving immediately
prior to the Notice of Termination. Benefits otherwise receivable by you
pursuant to this Section 4(iii)(d) shall be reduced to the extent
comparable benefits are actually received by you during the twelve (12)
month period following your termination, and any such benefits actually
received by you shall be reported to the Corporation.
(iv) If by reason of Section 280G of the Code any payment or
benefit received or to be received by you in connection with a Change in Control
or the termination of your employment (whether payable pursuant to the terms of
this Agreement ("Contract Payments") or any other plan, arrangements or
agreement with the Corporation or an Affiliate (as defined below) (collectively
with the Contract Payments, "Total Payments") would not be deductible (in whole
or part) by the Corporation, an Affiliate or other person making such payment or
providing such benefit, then the Severance Payments shall be reduced (to zero if
necessary) and, if Severance Payments are reduced to zero, other Contract
Payments shall be reduced (to zero if necessary) and, if Contract Payments are
reduced to zero, other Total Payments shall be reduced (to zero if necessary)
until no portion of the Total Payments is not deductible by reason of Section
280G. For purposes of this limitation, (a) no portion of the Total Payments the
receipt or enjoyment of which you shall have effectively waived in writing prior
to the date of payment of the Severance Payments shall be taken into account;
(b) no portion of the Total Payments shall be taken into account which in the
opinion of the Corporation's counsel does not constitute a "parachute payment"
within the meaning of Code Section 280G(b)(2) (without regard to subsection
(A)(ii) thereof); (c) the Severance Payments (and, thereafter, other Contract
Payments and other Total Payments) shall be reduced only to the extent necessary
so that the Total Payments (other than those referred to in clauses (a) and (b)
of Section 4(iii)) in their entirety constitute reasonable compensation for
services actually rendered within the meaning of Code Section 280G(b)(4), in the
opinion of the counsel referred to in clause (b), and (d) the value of any
noncash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Corporation's independent auditors in
accordance with the principles of Code Sections 280G(d)(3) and (4). For purposes
of this Section 4(iv), the term "Affiliate" means the Corporation's successors,
any Person whose actions result in a Change in Control or any corporation
affiliated (or which, as a result of the completion of the transactions causing
a Change in Control shall become affiliated) with the Corporation within the
meaning of Code Section 1504.
(v) The payment provided for in Section 4(iii)(a) shall be made not
later than the fifteenth day following the Date of Termination. The payment
provided for in Section 4(iii)(b) shall be made not later than the thirtieth day
following the Date of Termination;
6
<PAGE> 7
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on such day
an estimate, as determined in good faith by the Corporation, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Code Section 1274(b)(2)(B)) as soon as the
amount thereof can be determined but in no event later than the thirtieth day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Corporation to you, payable on the fifth
day after demand by the Corporation (together with interest at the rate provided
in Code Section 1274(b)(2)(B)).
(vi) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise
nor, except as provided in Section 4(iii)(d), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment or by
retirement benefits.
(vii) It is expressly agreed and understood between you and the
Corporation that any benefit payable under this Agreement shall constitute the
sole and exclusive benefit payable to you upon termination of your employment
and this Agreement shall expressly be deemed to supersede any other plan,
agreement or contract of employment in its entirety, whether oral or in writing
between you and the Corporation or between you and Thompson Capital Corporation
(as predecessor to the Corporation) with respect to any benefit payable to you
upon the termination of your employment. Notwithstanding the foregoing, any
such other plan, agreement or contract of employment shall remain in full force
and effect in the event that this Agreement shall not apply to a given
termination of employment.
5. Successors; Binding Agreement. (i) The Corporation
shall, upon your written request, require that any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of any such successor to assume and agree
to perform this Agreement within 30 days of such written request upon such
successor to assume and agree to perform this Agreement shall be a breach of
this Agreement and shall entitle you to terminate your employment and receive
compensation from the Corporation in the same amount and on the same terms to
which you would be entitled hereunder if you terminate your employment for Good
Reason following a Change in Control. For purposes of implementing the
foregoing, the date which is 30 days after the Corporation makes a written
request upon a successor to assume and agree to perform this Agreement shall be
deemed the Date of Termination. Where the context requires, "Corporation" shall
mean the Corporation as defined herein and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by you and your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein, shall be
7
<PAGE> 8
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by FedEx or
United States certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the last page of
this Agreement, provided that all notices to the Corporation shall be directed
to the attention of the Board with a copy to the Secretary of the Corporation,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Corporation under
Section 4 shall survive the expiration of the term of this Agreement. The
section headings contained in this Agreement are for convenience only, and shall
not affect the interpretation of this Agreement.
8. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
10. Arbitration; Dispute Resolution.
(i) Arbitration Procedure. Any disagreement, dispute,
controversy or claim arising out of or relating to this Agreement or the
interpretation of this Agreement or any arrangements relating to this Agreement
or contemplated in this Agreement or the breach, termination or invalidity
thereof shall be settled by arbitration in accordance with the Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") (except as otherwise provided in this Agreement) in Los
Angeles County, California. The arbitration shall be conducted before the AAA
or such other arbitration service as you and the Corporation may, by mutual
agreement, select. The parties to the arbitration jointly shall directly
appoint such arbitrator within thirty (30) days of initiation of arbitration.
If
8
<PAGE> 9
the parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
The arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. You and the Corporation
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having jurisdiction
thereof. The Corporation shall pay all fees and expenses of the Arbitrator
regardless of the result and shall provide all witnesses and evidence reasonably
required by you to present your case. The Corporation shall pay to you all
reasonable arbitration expenses and legal fees incurred by you as a result of a
termination of your employment in seeking to obtain or enforce any right or
benefit provided by this Agreement (whether or not you are successful in
obtaining or enforcing such right or benefit). Such payments shall be made
within five (5) days after the your request for payment accompanied with such
evidence of fees and expenses incurred as the Corporation reasonably may
require. If any part of this paragraph is found to be void as a matter of law
or public policy, the remainder of the paragraph will continue to be in full
force and effect.
(ii) Compensation During Dispute. Your compensation during any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(a) If a purported termination by you for Good Reason
occurs or is deemed to occur following a Change in Control and during the
term of this Agreement, and such termination is disputed in accordance with
Section 10(i) of this Agreement, the Corporation shall continue to pay you
the full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue you as a
participant in all compensation, benefit and insurance plans in which you
were participating when the notice giving rise to the dispute was given
until the dispute is finally resolved in accordance with Section 10(i).
Amounts paid under this Section 10(ii)(a) are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement. You agree to remain in the
employ of the Corporation during the resolution of the dispute and to
continue to provide services unless your employment is terminated earlier
by death, Disability or retirement, or by action of the Corporation. If
the dispute is resolved by a determination that you did not have Good
Reason, this Agreement, in accordance with its terms, shall continue to
apply to the terms of your employment by the Corporation and any
termination thereof.
(b) If there is a termination by the Corporation followed by a
dispute as to whether you are entitled to the payments and other benefits
provided under this Agreement, then, during the period of that dispute the
Corporation shall pay you fifty percent (50%) of the amount specified in
Sections 4(iii)(a) and 4(iii)(b) hereof, and the Corporation shall provide
you with the other benefits provided in Section 4(iii) of this Agreement,
if, but only if, you agree in writing that if the dispute is resolved
against you, you shall promptly refund to the Corporation all payments you
receive under Sections 4(iii)(a) and 4(iii)(b) of this Agreement plus
interest at the rate provided in Code Section 1274(d), compounded
quarterly. If the dispute is resolved in your favor, promptly after
resolution of the dispute the Corporation shall pay you the sum that was
withheld during
9
<PAGE> 10
the period of the dispute plus interest at the rate provided in Code
Section 1274(d), compounded quarterly.
11. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein, is
hereby terminated and canceled.
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Corporation the enclosed copy of this
letter, which shall then constitute our agreement on this subject.
Sincerely,
THOMPSON PBE, INC.
By /s/ Authorized Signatory
------------------------------
Name:
Title:
Accepted and agreed to effective
as of the first date set forth above.
/s/ Victor J. Jedlicka
- ---------------------------
VICTOR J. JEDLICKA
Address for Notice:
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
10
<PAGE> 1
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
September 1, 1997
Mr. Walter M. Lacher
c/o Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Re: Severance Agreement
Dear Mr. Lacher:
Thompson PBE, Inc. (the "Corporation") considers it essential to
the best interests of its stockholders to foster the continuous employment of
key management personnel. In connection with this, the Corporation's Board of
Directors (the "Board") recognizes that the possibility of a change in control
of the Corporation exists and that such possibility, and the uncertainty and
questions that it may raise among management, could result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders. In order to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including yourself, to
their assigned duties without distraction arising from the possibility of a
change in control of the Corporation, and to induce you to remain in its
employ, the Corporation hereby agrees that after this letter agreement (this
"Agreement") has been fully executed, you shall receive the severance benefits
set forth in this Agreement in the event your employment with the Corporation
is terminated under the circumstances described below subsequent to a "Change
in Control" (as defined in Section 2).
1. Term of Agreement. This Agreement shall commence on
September 1, 1997 and shall continue in effect through August 31, 1999;
provided, however, that if a Change in Control (as defined in Section 2) occurs
during the term of this Agreement, this Agreement shall continue in effect for
a period of twelve (12) months after the last day of the month in which such
Change in Control occurred.
2. Change in Control.
No benefits shall be payable hereunder unless there has been a
Change in Control. For purposes of this Agreement, a Change in Control shall
be deemed to occur if:
(i) any Person (as defined below) becomes the
Beneficial Owner (as defined below), directly or indirectly, of
securities of the Corporation representing a majority or more of the
combined voting power of the Corporation's then outstanding securities.
For purposes of this Agreement, (A) the term "Person" is used as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); provided, however, that unless
this Agreement provides to the contrary,
<PAGE> 2
the term shall not include the Corporation, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation, or any corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation, and (B) the term "Beneficial
Owner" shall have the meaning given to such term in Rule 13d-3 under the
Exchange Act;
(ii) during any period of two consecutive years following
the execution of this Agreement, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the
Corporation to effect a transaction described in Sections 2(i), (iii) or
(iv)) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least a majority
of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved (hereinafter referred to as "Continuing
Directors"), cease for any reason to constitute at least a majority
thereof;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation (or other
entity), other than a merger or consolidation which would result in the
voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than
a majority of the combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation to an unrelated third party or parties of
all or substantially all of the Corporation's assets.
3. Termination Following Change in Control.
(i) General. If any of the events described in Section 2
constituting a Change in Control shall have occurred, you shall be entitled to
the benefits provided in Section 4(iii) upon the subsequent termination of your
employment during the term of this Agreement, unless such termination is (a)
because of your death, Disability (as defined in Section 3(ii)) or retirement,
(b) by the Corporation for Cause, or (c) by you other than for Good Reason. In
the event your employment with the Corporation is terminated for any reason and
subsequently a Change in Control occurs, you shall not be entitled to any
benefits hereunder.
(ii) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability."
(iii) Cause. Termination by the Corporation of your employment for
"Cause" shall mean termination (a) upon your willful and continued failure to
substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to
2
<PAGE> 3
physical or mental illness or any such actual or anticipated failure after your
issuance of a Notice of Termination (as defined in Section 3(v)) for Good
Reason (as defined in Section 3(iv)), after a written demand for substantial
performance is delivered to you by the Board, which demand identifies the
manner in which the Board believes that you have not substantially performed
your duties, which you do not cure within 30 days of the date you receive such
written demand or (b) upon there being substantial evidence that you are guilty
of a crime classified as a felony (or the equivalent thereof) under applicable
law, or that you have been convicted of such a crime. For purposes of this
Section 3(iii), no act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith.
Notwithstanding the foregoing, you shall not be deemed terminated for Cause
unless and until there shall have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than 66K% of the entire
membership of the Board (excluding yourself, if then a member of the Board) at
a meeting of the Board (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board), finding that in
the Board's good faith opinion you were guilty of conduct set forth above in
this Section 3(iii) and specifying the particulars thereof in reasonable
detail.
(iv) Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence after a Change in Control
of any of the following circumstances unless such circumstances are fully
corrected prior to the Date of Termination (as defined in Section 3(vi))
specified in the Notice of Termination (as defined in Section 3(v)) given in
respect thereof:
(a) a significant adverse alteration in the nature or status of
your responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control;
(b) the Corporation's reduction of your annual base salary as in
effect on the date hereof or as the same may be increased from time to
time except for proportional across-the-board salary reductions similarly
affecting all management personnel of the Corporation and all management
personnel of any Person in control of the Corporation;
(c) the relocation of the Corporation's offices at which you are
principally employed immediately prior to the Change in Control to a
location more than 50 miles from such location or the Corporation's
requiring you to be based anywhere other than the Corporation's offices
at such location except for required travel on the Corporation's business
to an extent substantially consistent with your present business travel
obligations;
(d) the Corporation's failure to pay to you any portion of your
current compensation or to pay to you any portion of an installment of
deferred compensation under any deferred compensation program of the
Corporation within thirty (30) days of the date such compensation is due;
(e) the Corporation's failure to continue in effect any material
compensation or benefit plan in which you participate immediately prior
to the Change in
3
<PAGE> 4
Control, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan,
or the Corporation's failure to continue your participation therein (or
in such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level
of your participation relative to other participants, as existed at the
time of the Change in Control;
(f) the Corporation's failure to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Corporation's life insurance, medical, health and accident, or disability
plans in which you were participating at the time of the Change in
Control, the taking of any action by the Corporation which would directly
or indirectly materially reduce any of such benefits, or the failure by
the Corporation to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Corporation in accordance with the Corporation's normal vacation policy
in effect at the time of the Change in Control;
(g) the Corporation's failure to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5;
(h) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Section 3(v) hereof (and, if applicable, the requirements of Section
3(iii) hereof), which purported termination shall not be effective for
purposes of this Agreement; or
(i) the continuation or repetition, after written notice of
objection from you, of harassing or denigrating treatment of you
inconsistent with your position with the Corporation.
Your continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason hereunder.
(v) Notice of Termination. Any purported termination of your
employment by the Corporation or by you (other than termination due to death
which shall terminate your employment automatically) shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 6. "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so indicated.
(vi) Date of Termination, Etc. "Date of Termination" shall mean (a)
if your employment is terminated due to your death, the date of your death; (b)
if your employment is terminated for Disability thirty (30) days after Notice
of Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30)-day period), and
(c) if your employment is terminated pursuant to Section 3(iii) or Section
3(iv) or for any other reason (other than death or Disability), the date
specified in the Notice of Termination (which, in the case of a termination for
Cause shall not be less than thirty (30) days from the date such Notice of
Termination is given, and in the case of a termination for Good Reason shall
not
4
<PAGE> 5
be less than fifteen (15) nor more than thirty (30) days from the date such
Notice of Termination is given).
4. Compensation Upon Termination or During Disability. Following a
Change in Control, you shall be entitled to the benefits described below during
a period of disability, or upon termination of your employment, as the case may
be, provided that such period or termination occurs during the term of this
Agreement. The benefits to which you are entitled, subject to the terms and
conditions of this Agreement are:
(i) During any period during which you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in effect
at the commencement of any such period, together with all compensation payable
to you under any disability plan or program or other similar plan maintained by
the Corporation during such period, until this Agreement is terminated pursuant
to Section 3(ii) hereof. Thereafter, or in the event your employment is
terminated by reason of your death, your benefits shall be determined under the
Corporation's retirement, insurance and other compensation programs then in
effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Corporation for
Cause or by you other than for Good Reason, the Corporation shall pay you your
full base salary, when due, through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due and the Corporation shall have no further
obligations to you under this Agreement.
(iii) If your employment by the Corporation shall be terminated by you
for Good Reason or by the Corporation other than for Cause or Disability you
shall be entitled to the benefits provided below:
(a) the Corporation shall pay to you your full base salary, when
due, through the Date of Termination at the rate in effect at the time
Notice of Termination is given, at the time specified in Section 4(v),
plus all other amounts to which you are entitled under any compensation
plan of the Corporation at the time such payments are due;
(b) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you, at the time specified in Section 4(v), a lump sum
severance payment (together with the payments provided in Sections
4(iii)(c) and (d) below, the "Severance Payments") equal to 50% of your
annual salary as in effect as of the Date of Termination or immediately
prior to the Change in Control, whichever is greater;
(c) the Corporation shall pay to you all legal fees and expenses
reasonably incurred by you as a result of such termination (including all
such fees and expenses, if any, reasonably incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement (as set forth in Section 10
of this Agreement) or in connection with any tax audit or proceeding to
the extent attributable to the application of section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder); and
5
<PAGE> 6
(d) for a six (6) month period after such termination, the
Corporation shall arrange to provide you with group health insurance
benefits substantially similar to those that you were receiving
immediately prior to the Notice of Termination. Benefits otherwise
receivable by you pursuant to this Section 4(iii)(d) shall be reduced to
the extent comparable benefits are actually received by you during the
six (6) month period following your termination, and any such benefits
actually received by you shall be reported to the Corporation.
(iv) If by reason of Section 280G of the Code any payment or
benefit received or to be received by you in connection with a Change in
Control or the termination of your employment (whether payable pursuant to the
terms of this Agreement ("Contract Payments") or any other plan, arrangements
or agreement with the Corporation or an Affiliate (as defined below)
(collectively with the Contract Payments, "Total Payments") would not be
deductible (in whole or part) by the Corporation, an Affiliate or other person
making such payment or providing such benefit, then the Severance Payments
shall be reduced (to zero if necessary) and, if Severance Payments are reduced
to zero, other Contract Payments shall be reduced (to zero if necessary) and,
if Contract Payments are reduced to zero, other Total Payments shall be reduced
(to zero if necessary) until no portion of the Total Payments is not deductible
by reason of Section 280G. For purposes of this limitation, (a) no portion of
the Total Payments the receipt or enjoyment of which you shall have effectively
waived in writing prior to the date of payment of the Severance Payments shall
be taken into account; (b) no portion of the Total Payments shall be taken into
account which in the opinion of the Corporation's counsel does not constitute a
"parachute payment" within the meaning of Code Section 280G(b)(2) (without
regard to subsection (A)(ii) thereof); (c) the Severance Payments (and,
thereafter, other Contract Payments and other Total Payments) shall be reduced
only to the extent necessary so that the Total Payments (other than those
referred to in clauses (a) and (b) of Section 4(iii)) in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of Code Section 280G(b)(4), in the opinion of the counsel referred to
in clause (b), and (d) the value of any noncash benefit or any deferred payment
or benefit included in the Total Payments shall be determined by the
Corporation's independent auditors in accordance with the principles of Code
Sections 280G(d)(3) and (4). For purposes of this Section 4(iv), the term
"Affiliate" means the Corporation's successors, any Person whose actions result
in a Change in Control or any corporation affiliated (or which, as a result of
the completion of the transactions causing a Change in Control shall become
affiliated) with the Corporation within the meaning of Code Section 1504.
(v) The payment provided for in Section 4(iii)(a) shall be made
not later than the fifteenth day following the Date of Termination. The
payment provided for in Section 4(iii)(b) shall be made not later than the
thirtieth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day,
the Corporation shall pay to you on such day an estimate, as determined in good
faith by the Corporation, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the rate provided in
Code Section 1274(b)(2)(B)) as soon as the amount thereof can be determined but
in no event later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the
Corporation to you, payable on the fifth day after demand by the Corporation
(together with interest at the rate provided in Code Section 1274(b)(2)(B)).
6
<PAGE> 7
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise nor,
except as provided in Section 4(iii)(d), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment or by
retirement benefits.
(vii) It is expressly agreed and understood between you and the
Corporation that any benefit payable under this Agreement shall constitute the
sole and exclusive benefit payable to you upon termination of your employment
and this Agreement shall expressly be deemed to supersede any other plan,
agreement or contract of employment in its entirety, whether oral or in writing
between you and the Corporation or between you and Thompson Capital
Corporation (as predecessor to the Corporation) with respect to any benefit
payable to you upon the termination of your employment. Notwithstanding the
foregoing, any such other plan, agreement or contract of employment shall
remain in full force and effect in the event that this Agreement shall not
apply to a given termination of employment.
5. Successors; Binding Agreement. (i) The Corporation shall, upon
your written request, require that any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Corporation expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of any such successor to assume and agree to perform this
Agreement within 30 days of such written request upon such successor to assume
and agree to perform this Agreement shall be a breach of this Agreement and
shall entitle you to terminate your employment and receive compensation from
the Corporation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason following a
Change in Control. For purposes of implementing the foregoing, the date which
is 30 days after the Corporation makes a written request upon a successor to
assume and agree to perform this Agreement shall be deemed the Date of
Termination. Where the context requires, "Corporation" shall mean the
Corporation as defined herein and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by FedEx or United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the last page of this
Agreement, provided that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation, or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
7
<PAGE> 8
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by
the other party hereto of or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of California without regard to its conflicts
of law principles. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Corporation
under Section 4 shall survive the expiration of the term of this Agreement.
The section headings contained in this Agreement are for convenience only, and
shall not affect the interpretation of this Agreement.
8. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
10. Arbitration; Dispute Resolution.
(i) Arbitration Procedure. Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the interpretation of
this Agreement or any arrangements relating to this Agreement or contemplated
in this Agreement or the breach, termination or invalidity thereof shall be
settled by arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA")
(except as otherwise provided in this Agreement) in Los Angeles County,
California. The arbitration shall be conducted before the AAA or such other
arbitration service as you and the Corporation may, by mutual agreement,
select. The parties to the arbitration jointly shall directly appoint such
arbitrator within thirty (30) days of initiation of arbitration. If the
parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
The arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. You and the Corporation
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having
jurisdiction thereof. The Corporation shall pay all fees and expenses of the
Arbitrator regardless of the result and shall provide all witnesses and
evidence reasonably required by you to present your case. The Corporation
shall pay to you all reasonable arbitration expenses and legal fees incurred by
you as a result of a termination of your employment in seeking to obtain or
enforce any right or benefit provided by this Agreement (whether or not you are
successful in obtaining or enforcing such right or benefit). Such payments
shall be made within five (5) days after the your request for
8
<PAGE> 9
payment accompanied with such evidence of fees and expenses incurred as the
Corporation reasonably may require. If any part of this paragraph is found to
be void as a matter of law or public policy, the remainder of the paragraph
will continue to be in full force and effect.
(ii) Compensation During Dispute. Your compensation during any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(a) If a purported termination by you for Good Reason occurs or is
deemed to occur following a Change in Control and during the term of this
Agreement, and such termination is disputed in accordance with Section
10(i) of this Agreement, the Corporation shall continue to pay you the
full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue you as a
participant in all compensation, benefit and insurance plans in which you
were participating when the notice giving rise to the dispute was given
until the dispute is finally resolved in accordance with Section 10(i).
Amounts paid under this Section 10(ii)(a) are in addition to all other
amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement. You agree to remain
in the employ of the Corporation during the resolution of the dispute and
to continue to provide services unless your employment is terminated
earlier by death, Disability or retirement, or by action of the
Corporation. If the dispute is resolved by a determination that you did
not have Good Reason, this Agreement, in accordance with its terms, shall
continue to apply to the terms of your employment by the Corporation and
any termination thereof.
(b) If there is a termination by the Corporation followed by a
dispute as to whether you are entitled to the payments and other benefits
provided under this Agreement, then, during the period of that dispute
the Corporation shall pay you fifty percent (50%) of the amount specified
in Sections 4(iii)(a) and 4(iii)(b) hereof, and the Corporation shall
provide you with the other benefits provided in Section 4(iii) of this
Agreement, if, but only if, you agree in writing that if the dispute is
resolved against you, you shall promptly refund to the Corporation all
payments you receive under Sections 4(iii)(a) and 4(iii)(b) of this
Agreement plus interest at the rate provided in Code Section 1274(d),
compounded quarterly. If the dispute is resolved in your favor, promptly
after resolution of the dispute the Corporation shall pay you the sum
that was withheld during the period of the dispute plus interest at the
rate provided in Code Section 1274(d), compounded quarterly.
11. Entire Agreement. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior
agreement of the parties hereto in respect of the subject matter contained
herein, is hereby terminated and canceled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which shall then constitute our agreement on this subject.
9
<PAGE> 10
Sincerely,
THOMPSON PBE, INC.
By /s/ Authorized Signatory
------------------------------
Name:
Title:
Accepted and agreed to effective
as of the first date set forth above.
/s/ Walter M. Lacher
- ---------------------------------------
WALTER M. LACHER
Address for Notice:
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
10
<PAGE> 1
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
September 1, 1997
Mr. Glen R. Thompson
c/o Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
Re: Severance Agreement
-------------------
Dear Mr. Thompson:
Thompson PBE, Inc. (the "Corporation") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In connection with this, the Corporation's Board of
Directors (the "Board") recognizes that the possibility of a change in control
of the Corporation exists and that such possibility, and the uncertainty and
questions that it may raise among management, could result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders. In order to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including yourself, to
their assigned duties without distraction arising from the possibility of a
change in control of the Corporation, and to induce you to remain in its
employ, the Corporation hereby agrees that after this letter agreement (this
"Agreement") has been fully executed, you shall receive the severance benefits
set forth in this Agreement in the event your employment with the Corporation
is terminated under the circumstances described below subsequent to a "Change
in Control" (as defined in Section 2).
1. Term of Agreement. This Agreement shall commence on September 1,
1997 and shall continue in effect through August 31, 1999; provided, however,
that if a Change in Control (as defined in Section 2) occurs during the term of
this Agreement, this Agreement shall continue in effect for a period of twelve
(12) months after the last day of the month in which such Change in Control
occurred.
2. Change in Control.
No benefits shall be payable hereunder unless there has been a Change
in Control. For purposes of this Agreement, a Change in Control shall be
deemed to occur if:
(i) any Person (as defined below) becomes the Beneficial Owner (as
defined below), directly or indirectly, of securities of the Corporation
representing a majority or more of the combined voting power of the
Corporation's then outstanding securities. For purposes of this
Agreement, (A) the term "Person" is used as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
<PAGE> 2
"Exchange Act"); provided, however, that unless this Agreement provides
to the contrary, the term shall not include the Corporation, any trustee
or other fiduciary holding securities under an employee benefit plan of
the Corporation, or any corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation, and (B) the term "Beneficial
Owner" shall have the meaning given to such term in Rule 13d-3 under the
Exchange Act;
(ii) during any period of two consecutive years following
the execution of this Agreement, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the
Corporation to effect a transaction described in Sections 2(i), (iii) or
(iv)) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least a majority
of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved (hereinafter referred to as "Continuing
Directors"), cease for any reason to constitute at least a majority
thereof;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation (or other
entity), other than a merger or consolidation which would result in the
voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than
a majority of the combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately after such
merger or consolidation; or
(iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation to an unrelated third party or parties of
all or substantially all of the Corporation's assets.
3. Termination Following Change in Control.
(i) General. If any of the events described in Section 2 constituting a
Change in Control shall have occurred, you shall be entitled to the benefits
provided in Section 4(iii) upon the subsequent termination of your employment
during the term of this Agreement, unless such termination is (a) because of
your death, Disability (as defined in Section 3(ii)) or retirement, (b) by the
Corporation for Cause, or (c) by you other than for Good Reason. In the event
your employment with the Corporation is terminated for any reason and
subsequently a Change in Control occurs, you shall not be entitled to any
benefits hereunder.
(ii) Disability. If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Corporation for six (6) consecutive months, and within
thirty (30) days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability."
2
<PAGE> 3
(iii) Cause. Termination by the Corporation of your employment for
"Cause" shall mean termination (a) upon your willful and continued failure to
substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after your issuance of a Notice of
Termination (as defined in Section 3(v)) for Good Reason (as defined in Section
3(iv)), after a written demand for substantial performance is delivered to you
by the Board, which demand identifies the manner in which the Board believes
that you have not substantially performed your duties, which you do not cure
within 30 days of the date you receive such written demand or (b) upon there
being substantial evidence that you are guilty of a crime classified as a
felony (or the equivalent thereof) under applicable law, or that you have been
convicted of such a crime. For purposes of this Section 3(iii), no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith. Notwithstanding the foregoing, you shall
not be deemed terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than 66K% of the entire membership of the Board (excluding yourself,
if then a member of the Board) at a meeting of the Board (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the Board's good faith opinion you
were guilty of conduct set forth above in this Section 3(iii) and specifying
the particulars thereof in reasonable detail.
(iv) Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence after a Change in Control
of any of the following circumstances unless such circumstances are fully
corrected prior to the Date of Termination (as defined in Section 3(vi))
specified in the Notice of Termination (as defined in Section 3(v)) given in
respect thereof:
(a) a significant adverse alteration in the nature or status of your
responsibilities or the conditions of your employment from those in
effect immediately prior to such Change in Control;
(b) the Corporation's reduction of your annual base salary as in
effect on the date hereof or as the same may be increased from time to
time except for proportional across-the-board salary reductions similarly
affecting all management personnel of the Corporation and all management
personnel of any Person in control of the Corporation;
(c) the relocation of the Corporation's offices at which you are
principally employed immediately prior to the Change in Control to a
location more than 50 miles from such location or the Corporation's
requiring you to be based anywhere other than the Corporation's offices
at such location except for required travel on the Corporation's business
to an extent substantially consistent with your present business travel
obligations;
(d) the Corporation's failure to pay to you any portion of your
current compensation or to pay to you any portion of an installment of
deferred compensation
3
<PAGE> 4
under any deferred compensation program of the Corporation within thirty
(30) days of the date such compensation is due;
(e) the Corporation's failure to continue in effect any material
compensation or benefit plan in which you participate immediately prior
to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the Corporation's failure to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control;
(f) the Corporation's failure to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Corporation's life insurance, medical, health and accident, or disability
plans in which you were participating at the time of the Change in
Control, the taking of any action by the Corporation which would directly
or indirectly materially reduce any of such benefits, or the failure by
the Corporation to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Corporation in accordance with the Corporation's normal vacation policy
in effect at the time of the Change in Control;
(g) the Corporation's failure to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5;
(h) any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Section 3(v) hereof (and, if applicable, the requirements of Section
3(iii) hereof), which purported termination shall not be effective for
purposes of this Agreement; or
(i) the continuation or repetition, after written notice of
objection from you, of harassing or denigrating treatment of you
inconsistent with your position with the Corporation.
Your continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason hereunder.
(v) Notice of Termination. Any purported termination of your employment
by the Corporation or by you (other than termination due to death which shall
terminate your employment automatically) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 6.
"Notice of Termination" shall mean a notice that shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(vi) Date of Termination, Etc. "Date of Termination" shall mean (a) if
your employment is terminated due to your death, the date of your death; (b) if
your employment is
4
<PAGE> 5
terminated for Disability thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the full-time performance of your
duties during such thirty (30)-day period), and (c) if your employment is
terminated pursuant to Section 3(iii) or Section 3(iv) or for any other reason
(other than death or Disability), the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than fifteen (15)
nor more than thirty (30) days from the date such Notice of Termination is
given).
Compensation Upon Termination or During Disability. Following a Change in
Control, you shall be entitled to the benefits described below during a period
of disability, or upon termination of your employment, as the case may be,
provided that such period or termination occurs during the term of this
Agreement. The benefits to which you are entitled are:
(i) During any period during which you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in effect
at the commencement of any such period, together with all compensation payable
to you under any disability plan or program or other similar plan maintained by
the Corporation during such period, until this Agreement is terminated pursuant
to Section 3(ii) hereof. Thereafter, or in the event your employment is
terminated by reason of your death, your benefits shall be determined under the
Corporation's retirement, insurance and other compensation programs then in
effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the Corporation for Cause
or by you other than for Good Reason, the Corporation shall pay you your full
base salary, when due, through the Date of Termination at the rate in effect at
the time Notice of Termination is given, plus all other amounts to which you
are entitled under any compensation plan of the Corporation at the time such
payments are due and the Corporation shall have no further obligations to you
under this Agreement.
(iii) If your employment by the Corporation shall be terminated by you for
Good Reason or by the Corporation other than for Cause or Disability you shall
be entitled to the benefits provided below:
(a) the Corporation shall pay to you your full base salary, when
due, through the Date of Termination at the rate in effect at the time
Notice of Termination is given, at the time specified in Section 4(v),
plus all other amounts to which you are entitled under any compensation
plan of the Corporation at the time such payments are due;
(b) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you, at the time specified in Section 4(v), a lump sum
severance payment (together with the payments provided in Sections
4(iii)(c) and (d) below, the "Severance Payments") equal to 100% of your
annual salary as in effect as of the Date of Termination or immediately
prior to the Change in Control, whichever is greater;
5
<PAGE> 6
(c) the Corporation shall pay to you all legal fees and expenses
reasonably incurred by you as a result of such termination (including all
such fees and expenses, if any, reasonably incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement (as set forth in Section 10
of this Agreement) or in connection with any tax audit or proceeding to
the extent attributable to the application of section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder); and
(d) for a twelve (12) month period after such termination, the
Corporation shall arrange to provide you with group health insurance
benefits substantially similar to those that you were receiving
immediately prior to the Notice of Termination. Benefits otherwise
receivable by you pursuant to this Section 4(iii)(d) shall be reduced to
the extent comparable benefits are actually received by you during the
twelve (12) month period following your termination, and any such
benefits actually received by you shall be reported to the Corporation.
(iv) If by reason of Section 280G of the Code any payment or benefit
received or to be received by you in connection with a Change in Control or the
termination of your employment (whether payable pursuant to the terms of this
Agreement ("Contract Payments") or any other plan, arrangements or agreement
with the Corporation or an Affiliate (as defined below) (collectively with the
Contract Payments, "Total Payments") would not be deductible (in whole or part)
by the Corporation, an Affiliate or other person making such payment or
providing such benefit, then the Severance Payments shall be reduced (to zero
if necessary) and, if Severance Payments are reduced to zero, other Contract
Payments shall be reduced (to zero if necessary) and, if Contract Payments are
reduced to zero, other Total Payments shall be reduced (to zero if necessary)
until no portion of the Total Payments is not deductible by reason of Section
280G. For purposes of this limitation, (a) no portion of the Total Payments
the receipt or enjoyment of which you shall have effectively waived in writing
prior to the date of payment of the Severance Payments shall be taken into
account; (b) no portion of the Total Payments shall be taken into account which
in the opinion of the Corporation's counsel does not constitute a "parachute
payment" within the meaning of Code Section 280G(b)(2) (without regard to
subsection (A)(ii) thereof); (c) the Severance Payments (and, thereafter, other
Contract Payments and other Total Payments) shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(a) and (b) of Section 4(iii)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of Code Section
280G(b)(4), in the opinion of the counsel referred to in clause (b), and (d)
the value of any noncash benefit or any deferred payment or benefit included in
the Total Payments shall be determined by the Corporation's independent
auditors in accordance with the principles of Code Sections 280G(d)(3) and (4).
For purposes of this Section 4(iv), the term "Affiliate" means the
Corporation's successors, any Person whose actions result in a Change in
Control or any corporation affiliated (or which, as a result of the completion
of the transactions causing a Change in Control shall become affiliated) with
the Corporation within the meaning of Code Section 1504.
(v) The payment provided for in Section 4(iii)(a) shall be made not later
than the fifteenth day following the Date of Termination. The payment provided
for in Section 4(iii)(b) shall be made not later than the thirtieth day
following the Date of Termination;
6
<PAGE> 7
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on such day
an estimate, as determined in good faith by the Corporation, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Code Section 1274(b)(2)(B)) as soon as
the amount thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Corporation to you, payable on the
fifth day after demand by the Corporation (together with interest at the rate
provided in Code Section 1274(b)(2)(B)).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise nor,
except as provided in Section 4(iii)(d), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment or by
retirement benefits.
(vii) It is expressly agreed and understood between you and the
Corporation that any benefit payable under this Agreement shall constitute the
sole and exclusive benefit payable to you upon termination of your employment
and this Agreement shall expressly be deemed to supersede any other plan,
agreement or contract of employment in its entirety, whether oral or in writing
between you and the Corporation or between you and Thompson Capital Corporation
(as predecessor to the Corporation) with respect to any benefit payable to you
upon the termination of your employment. Notwithstanding the foregoing, any
such other plan, agreement or contract of employment shall remain in full force
and effect in the event that this Agreement shall not apply to a given
termination of employment.
5. Successors; Binding Agreement. (i) The Corporation shall, upon your
written request, require that any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Corporation expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of any such successor to assume and agree to perform this
Agreement within 30 days of such written request upon such successor to assume
and agree to perform this Agreement shall be a breach of this Agreement and
shall entitle you to terminate your employment and receive compensation from
the Corporation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason following a
Change in Control. For purposes of implementing the foregoing, the date which
is 30 days after the Corporation makes a written request upon a successor to
assume and agree to perform this Agreement shall be deemed the Date of
Termination. Where the context requires, "Corporation" shall mean the
Corporation as defined herein and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be
7
<PAGE> 8
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by FedEx or United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the last page of this
Agreement, provided that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation, or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by
the other party hereto of or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of California without regard to its conflicts
of law principles. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Corporation
under Section 4 shall survive the expiration of the term of this Agreement.
The section headings contained in this Agreement are for convenience only, and
shall not affect the interpretation of this Agreement.
8. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
10. Arbitration; Dispute Resolution.
(i) Arbitration Procedure. Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the interpretation of
this Agreement or any arrangements relating to this Agreement or contemplated
in this Agreement or the breach, termination or invalidity thereof shall be
settled by arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA")
(except as otherwise provided in this Agreement) in Los Angeles County,
California. The arbitration shall be conducted before the AAA or such other
arbitration service as you and the Corporation may, by mutual agreement,
select. The parties to the arbitration jointly shall directly appoint such
arbitrator within thirty (30) days of initiation of arbitration. If
8
<PAGE> 9
the parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
The arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. You and the Corporation
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having
jurisdiction thereof. The Corporation shall pay all fees and expenses of the
Arbitrator regardless of the result and shall provide all witnesses and
evidence reasonably required by you to present your case. The Corporation
shall pay to you all reasonable arbitration expenses and legal fees incurred by
you as a result of a termination of your employment in seeking to obtain or
enforce any right or benefit provided by this Agreement (whether or not you are
successful in obtaining or enforcing such right or benefit). Such payments
shall be made within five (5) days after the your request for payment
accompanied with such evidence of fees and expenses incurred as the Corporation
reasonably may require. If any part of this paragraph is found to be void as a
matter of law or public policy, the remainder of the paragraph will continue to
be in full force and effect.
(ii) Compensation During Dispute. Your compensation during any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(a) If a purported termination by you for Good Reason occurs or is
deemed to occur following a Change in Control and during the term of this
Agreement, and such termination is disputed in accordance with Section
10(i) of this Agreement, the Corporation shall continue to pay you the
full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue you as a
participant in all compensation, benefit and insurance plans in which you
were participating when the notice giving rise to the dispute was given
until the dispute is finally resolved in accordance with Section 10(i).
Amounts paid under this Section 10(ii)(a) are in addition to all other
amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement. You agree to remain
in the employ of the Corporation during the resolution of the dispute and
to continue to provide services unless your employment is terminated
earlier by death, Disability or retirement, or by action of the
Corporation. If the dispute is resolved by a determination that you did
not have Good Reason, this Agreement, in accordance with its terms, shall
continue to apply to the terms of your employment by the Corporation and
any termination thereof.
(b) If there is a termination by the Corporation followed by a
dispute as to whether you are entitled to the payments and other benefits
provided under this Agreement, then, during the period of that dispute
the Corporation shall pay you fifty percent (50%) of the amount specified
in Sections 4(iii)(a) and 4(iii)(b) hereof, and the Corporation shall
provide you with the other benefits provided in Section 4(iii) of this
Agreement, if, but only if, you agree in writing that if the dispute is
resolved against you, you shall promptly refund to the Corporation all
payments you receive under Sections 4(iii)(a) and 4(iii)(b) of this
Agreement plus interest at the rate provided in Code Section 1274(d),
compounded quarterly. If the dispute is resolved in your favor, promptly
after resolution of the dispute the Corporation shall pay you the sum
that was withheld during
9
<PAGE> 10
the period of the dispute plus interest at the rate provided in Code
Section 1274(d), compounded quarterly.
Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of the
parties hereto in respect of the subject matter contained herein, is hereby
terminated and canceled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which shall then constitute our agreement on this subject.
Sincerely,
THOMPSON PBE, INC.
By /s/ Authorized Signatory
-----------------------------
Name:
Title:
Accepted and agreed to effective
as of the first date set forth above.
/s/ Glen R. Thompson
- -----------------------------------
GLEN R. THOMPSON
Address for Notice:
Thompson PBE, Inc.
4553 Glencoe Avenue, Suite 200
Marina del Rey, California 90292
10
