<PAGE>
================================================================================
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[X] Filed by the Registrant
[_] 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 (S)240.14a-11(c) or (S)240.14a-12
ADCO TECHNOLOGIES INC.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
ADCO TECHNOLOGIES INC.
----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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:
(4) Proposed maximum aggregate value of Transaction:
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $10,557.50
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: Adco Technologies Inc.
4) Date Filed: August 13, 1996
<PAGE>
ADCO TECHNOLOGIES INC.
4401 Page Avenue
P.O. Box 457
Michigan Center, MI 49254
September 6, 1996
Dear Stockholder:
You are invited to attend the Special Meeting of Stockholders of Adco
Technologies Inc. (the "Company") to be held on September 26, 1996 at 2:00 p.m.,
local time at the Crowne Plaza Hotel, 66 Hale Avenue, White Plains, New York.
The purpose of the Special Meeting is to consider and vote upon approval
and adoption of the Agreement and Plan of Merger and the merger to be effected
thereby (the "Merger"), and all related transactions (collectively, with the
Merger, the "Transactions"), pursuant to which a wholly-owned subsidiary of
Astor Corporation (the "Buyer") will be merged with and into the Company (the
"Merger Proposal"). If the Merger is consummated, the Company will become a
wholly-owned subsidiary of the Buyer, and each share (collectively, the
"Shares") of Common Stock, par value $0.01 per share, of the Company (the
"Common Stock") that is issued and outstanding at the effective time of the
Merger (other than Shares held by stockholders who properly exercise appraisal
rights) will be converted automatically into the right to receive an amount, in
cash, without interest, equal to $10.25 per Share (the "Merger Consideration").
The attached Proxy Statement includes the Agreement and Plan of Merger as Annex
A.
Approval and adoption of the Merger Proposal requires the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock entitled
to vote at the Special Meeting. Ten stockholders of the Company, holding
approximately 49.7% of the outstanding Common Stock, have entered into a
Stockholders Agreement obligating them to vote their Common Stock in favor of
the Merger. Detailed information concerning the Merger is set forth in the
attached Proxy Statement, which we urge you to read carefully.
The Board of Directors of the Company has unanimously approved and adopted
the Merger Proposal and recommends that you vote FOR approval and adoption of
the Merger Proposal. In reaching its determination, the Board considered, among
other things, the oral opinion of Schroder Wertheim & Co. Incorporated
("Schroder Wertheim"), the Company's financial advisor, delivered to the Board
of Directors of the Company on July 12, 1996 and subsequently confirmed in a
written opinion dated the date of the attached Proxy Statement, to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated in the attached Proxy Statement, the Merger Consideration was
fair, from a financial point of view, to the holders of the Shares. The
attached Proxy Statement includes the written opinion of Schroder Wertheim as
Annex C thereto and should be read carefully in its entirety.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of Common Stock you own, we urge you to
complete, sign, date and return the enclosed proxy card promptly in the
accompanying prepaid envelope. You may, of course, attend the Special Meeting
and vote in person, even if you have previously returned your proxy card.
Sincerely,
Robert J. Simon
Chairman of the Board
The transaction to be considered at the Special Meeting involves a matter
of great importance to the stockholders of the Company. Accordingly,
stockholders are urged to read and carefully consider the information presented
in the attached Proxy Statement, and to complete, date, sign and promptly return
the enclosed proxy card in the enclosed prepaid envelope.
Stock certificates should not be sent with the enclosed proxy card. If the
Merger is consummated, stockholders will be furnished instructions for
exchanging their Shares for cash.
<PAGE>
ADCO TECHNOLOGIES INC.
4401 Page Avenue
P.O. Box 457
Michigan Center, MI 49254
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 26, 1996
------------------------
To the Stockholders of Adco Technologies Inc.:
Notice is hereby given that a Special Meeting of Stockholders of Adco
Technologies Inc., a Delaware corporation (the "Company"), will be held on
September 26, 1996 at 2:00 p.m., local time, at the Crowne Plaza Hotel, 66 Hale
Avenue, White Plains, New York, for the following purposes:
1. To consider and vote upon approval and adoption of the Agreement
and Plan of Merger, dated as of July 12, 1996 among the Company, Astor
Corporation (the "Buyer"), and AAC Acquisition Corp., a wholly-owned
subsidiary of the Buyer (the "Acquisition Company"), and the merger to be
effected thereby (the "Merger"), and all related transactions
(collectively, with the Merger, the "Transactions"), pursuant to which (a)
the Acquisition Company will be merged with and into the Company, and the
Company will become a wholly-owned subsidiary of the Buyer; and (b) each
share of Common Stock, par value $0.01 per share, of the Company (the
"Common Stock") that is issued and outstanding at the effective time of the
Merger (other than Shares held by stockholders who exercise their appraisal
rights) will be canceled and extinguished and converted automatically into
the right to receive an amount, in cash, without interest, equal to $10.25
per share (the "Merger Proposal").
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The attached Proxy Statement and the Annexes attached thereto more fully
describe the Merger Proposal and other related matters.
Holders of shares of Common Stock have the right to dissent from the
Merger and obtain payment for their stock by following the procedures set forth
in Section 262 of Delaware General Corporation Law, which is attached as Annex D
to, and summarized under "Appraisal Rights of Stockholders" in, the attached
Proxy Statement.
The Board of Directors has fixed the close of business on August 27, 1996
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Special Meeting and any adjournment and
postponement thereof (the "Record Date"). Only holders of record of shares of
Common Stock at the close of business on the Record Date will be entitled to
vote at the Special Meeting and at any adjournment or adjournments thereof. As
of the Record Date, 5,150,000 shares of Common Stock, held by approximately 82
stockholders of record, were issued and outstanding. A list of stockholders as
of the close of business on the Record Date will be available for inspection
during normal business hours from September 15, 1996 to September 26, 1996 at
the Crown Plaza Hotel, 66 Hale Avenue, White Plains, New York.
By Order of the Board of Directors,
David J. Fuchs
Secretary
Michigan Center, Michigan
September 6, 1996
<PAGE>
ADCO TECHNOLOGIES INC.
4401 Page Avenue
P.O. Box 457
Michigan Center, MI 49254
-------------------
PROXY STATEMENT
-------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 26, 1996
This proxy statement (the "Proxy Statement") is being furnished to the
stockholders of Adco Technologies Inc. (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at a
Special Meeting of Stockholders to be held on September 26, 1996 at 2:00 p.m.,
local time, at the Crowne Plaza Hotel, 66 Hale Avenue, White Plains, New York,
and at any adjournment or postponement thereof (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, dated as of July 12, 1996
(the "Agreement"), among the Company, Astor Corporation (the "Buyer"), and AAC
Acquisition Corp., a wholly-owned subsidiary of the Buyer (the "Acquisition
Company"), and the merger to be effected thereby (the "Merger"), and all related
transactions (collectively, with the Merger, the "Transactions"), pursuant to
which the Acquisition Company will be merged with and into the Company (the
"Merger Proposal"). Upon consummation of the Merger, the Company will become a
wholly-owned subsidiary of the Buyer, and each share (collectively, the
"Shares") of Common Stock, par value $0.01 per share, of the Company (the
"Common Stock") that is issued and outstanding at the effective time of the
Merger (other than Shares held by stockholders who properly exercise appraisal
rights) will be converted into the right to receive an amount, in cash, without
interest, equal to $10.25 per share. As a result of the Merger, all
stockholders of the Company will cease to have an equity interest in, or possess
any rights as stockholders of, the Company. See "THE MERGER -General." This
Proxy Statement includes the Agreement as Annex A. The summaries of the
portions of the Agreement set forth in this Proxy Statement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the text of the Agreement.
The Board of Directors of the Company has unanimously approved and adopted
the Merger Proposal and recommends that you vote FOR approval and adoption of
the Merger Proposal.
-------------------
This Proxy Statement and the accompanying form of proxy are first being mailed
to the Company's
stockholders on or about September 6, 1996.
-------------------
The date of this Proxy Statement is September 6, 1996
<PAGE>
Table of Contents
-----------------
Page
----
SUMMARY...................................................................... 3
INTRODUCTION................................................................. 8
VOTING AND PROXIES........................................................... 8
Record Date; Solicitation of Proxies; The Stockholders Agreement..... 8
Vote Required........................................................ 8
The Stockholders Agreement........................................... 9
Stock Ownership of Management and Certain Beneficial Owners.......... 10
THE MERGER................................................................... 12
General.............................................................. 12
Background of the Merger............................................. 12
Recommendation of the Board of Directors; Reasons for the Merger;
Opinion of Schroder Wertheim......................................... 14
Interests of Certain Persons in the Merger........................... 18
Effective Time of the Merger......................................... 18
Payment for the Shares............................................... 18
Effect of Merger on Control-Share Acquisition and Other
Anti-takeover Restrictions......................................... 19
Certain Other Effects of the Merger.................................. 19
Antitrust Matters.................................................... 19
Accounting Treatment................................................. 19
Terms of the Merger.................................................. 20
Conditions to Consummation of the Merger; Representations
and Warranties..................................................... 20
Conduct of the Business Prior to the Effective Time;
Certain Covenants; Inquiries and Negotiations...................... 21
Company Stock Options; Option Purchase Agreements.................... 24
Termination; Termination Fees and Expenses........................... 24
Source and Amount of Funds........................................... 25
No Further Transfer of Shares........................................ 26
Federal Income Tax Consequences of the Merger........................ 26
Appraisal Rights of Stockholders..................................... 26
ADCO TECHNOLOGIES INC........................................................ 30
LEGAL PROCEEDINGS............................................................ 35
MARKET PRICES AND DIVIDENDS.................................................. 35
HISTORICAL AND PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA................ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................... 37
ADDITIONAL INFORMATION....................................................... 42
Independent Public Accountants....................................... 42
Available Information................................................ 42
OTHER MATTERS................................................................ 42
LEGAL OPINIONS............................................................... 42
INDEX TO FINANCIAL STATEMENTS................................................F-1
ANNEXES
Annex A: Agreement and Plan of Merger................................ A
Annex B: The Stockholders Agreement.................................. B
Annex C: Opinion of Schroder Wertheim & Co. Incorporated............. C
Annex D: Section 262 of Delaware General Corporation Law............. D
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This Summary does not purport to be complete and should
be read in conjunction with, and is qualified in its entirety by reference to,
the more detailed information appearing elsewhere in this Proxy Statement and
the Annexes hereto. Stockholders are urged to read this Proxy Statement and the
Annexes in their entirety. Unless the context otherwise requires, the "Company"
refers to Adco Technologies Inc. and its wholly-owned subsidiary, Adco Products,
Inc. ("Adco").
Parties To The Merger
Adco Technologies Inc.
The Company formulates and produces specialty chemical products in the form
of sealants and adhesives for use in the roofing, automotive original equipment
manufacturing, windshield replacement, window manufacturing and concrete pipe
and vault industrial markets. The Company's expertise is focused on butyl
rubber, urethane and ultraviolet-cured acrylic technologies. The Company
currently manufactures and sells more than 650 sealant and adhesive products to
over 800 customers. The Company's Common Stock is traded on the Nasdaq National
Market. The mailing address of the Company's principal executive offices is 4401
Page Avenue, Michigan Center, Michigan 49254, and its telephone number is (517)
764-0334. See "ADCO TECHNOLOGIES INC."
Astor Corporation
The Buyer is a Delaware corporation. The mailing address of the Buyer's
principal executive offices is 8521 Six Forks Road, Suite 105, Raleigh, North
Carolina, 27615 and its telephone number is (919) 846-8011.
AAC Acquisition Corp.
The Acquisition Company is a corporation recently organized by the Buyer
for the purpose of effecting the Merger. It has no material assets and has not
engaged in any activities except in connection with such proposed transaction.
The mailing address of the Acquisition Company's executive office is 8521 Six
Forks Road, Suite 105, Raleigh, North Carolina, 27615 and its telephone number
is (919) 846-8011.
Effect of the Merger
In the Merger, each share of Common Stock outstanding at the effective time
of the Merger (other than shares held by stockholders who exercise their
appraisal rights) will be canceled and extinguished and converted automatically
into the right to receive an amount, in cash, without interest, equal to $10.25
per share (the "Merger Consideration"). This Proxy Statement includes the
Agreement and Plan of Merger as Annex A. See "THE MERGER - General."
Vote Required; Record Date; The Stockholders Agreement
Approval and adoption of the Merger Proposal requires the affirmative vote
of the holders of a majority of the outstanding Common Stock entitled to vote
thereon. Only holders of Common Stock of record at the close of business on
August 27, 1996 (the "Record Date") are entitled to vote at the Special Meeting
or any adjournment or postponement thereof. As of the Record Date, 5,150,000
shares of Common Stock, held by approximately 82 holders of record, were
outstanding and entitled to vote at the Special Meeting. See "VOTING AND
PROXIES - Record Date; Solicitation of Proxies; The Stockholders Agreement."
As of the Record Date, the executive officers and directors of the Company
beneficially owned a total of 218,275 shares of the outstanding Common Stock,
constituting approximately 4.2% of the outstanding Common Stock entitled to vote
at the Special Meeting. These shares of Common Stock exclude 284,318 shares of
Common Stock subject to stock options which will be sold to the Company pursuant
to option cancellation acknowledgments (the "Option Cancellation
Acknowledgments"). In order to induce the Buyer to enter into the Agreement,
ten stockholders of the Company (including five executive officers and the
Chairman of the Board), holding approximately 49.7% of the outstanding shares of
Common Stock entitled to vote at
3
<PAGE>
the Special Meeting, executed a Stockholders Agreement dated as of July 12, 1996
(the "Stockholders Agreement"), pursuant to which each such stockholder has
agreed with the Buyer to, among other things, vote the shares of Common Stock
owned by such stockholder in favor of the adoption of the Merger Proposal at
each meeting or meetings of stockholders of the Company. See "VOTING AND
PROXIES - Stock Ownership of Management and Certain Beneficial Owners." See
"VOTING AND PROXIES- Vote Required," "THE MERGER - Interests of Certain Persons
in the Merger," and "THE MERGER - Company Stock Options; Option Purchase
Agreements."
The Merger
Recommendation of the Board of Directors; Reasons for the Merger
The Board of Directors of the Company, at a special meeting held on July
12, 1996, unanimously approved and adopted the Merger Proposal and directed that
it be submitted to the stockholders for their approval and adoption. The Board
of Directors has determined that the Merger Proposal is fair to and in the best
interests of the Company and its stockholders and recommends that you vote FOR
approval and adoption of the Merger Proposal. For a discussion of the factors
considered by the Board in reaching its determination, see "THE MERGER -
Background of the Merger;" and "THE MERGER - Recommendation of the Board of
Directors; Reasons for the Merger; Opinion of Schroder Wertheim."
Opinion of Schroder Wertheim
Schroder Wertheim & Co. Incorporated ("Schroder Wertheim") has acted as
financial advisor to the Company in connection with the Merger and, on July 12,
1996, delivered its oral opinion to the Board of Directors of the Company to the
effect that, as of such date and based upon and subject to certain matters
stated in connection therewith, the Merger Consideration was fair, from a
financial point of view, to the holders of the Shares. Such oral opinion was
subsequently confirmed by Schroder Wertheim in a written opinion dated the date
of this Proxy Statement. The full text of such written opinion, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex C to this Proxy Statement and should be read
carefully in its entirety. Such opinion is directed only to the fairness of the
Merger Consideration to the holders of Shares from a financial point of view,
does not address any other aspect of the Transactions and does not constitute a
recommendation to any stockholder as to how such stockholder should vote at the
Special Meeting. See "THE MERGER - Recommendation of the Board of Directors;
Reasons for the Merger; Opinion of Schroder Wertheim."
Effective Time of the Merger; Payment for the Shares
The Merger will become effective upon the filing and acceptance of a
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Effective Time"), pursuant to Section 251 of the Delaware General Corporation
Law (the "DGCL"). The Certificate of Merger will be presented for filing as
soon as practicable after the satisfaction or waiver of all conditions to
consummation of the Merger. See "THE MERGER - Conditions to Consummation of the
Merger; Representations and Warranties." Detailed instructions with regard to
the surrender of certificates, together with a letter of transmittal, will be
forwarded to holders of certificates formerly evidencing Shares as promptly as
practicable following the Effective Time by StockTrans, Inc. (the "Paying
Agent"). Payment will be made to such former holders of Shares as promptly as
practicable following receipt by the Paying Agent of certificates for their
Shares and other required documents. No interest will be paid or accrued on the
cash payable upon the surrender of certificates. See "THE MERGER - Payment for
the Shares."
Market Price of the Common Stock Prior to Public Announcements
On May 8, 1996, the last full trading day prior to the Company's public
announcement that it had retained Schroder Wertheim to explore strategic
alternatives for the Company, the highest reported sales price for the Common
Stock on the Nasdaq National Market was $8.00 per share, the lowest reported
sales price for the Common Stock was $7.00 per share, and the last reported
sales price for the Common Stock was $7.13 per share. On July 12, 1996, the
last full trading day prior to the public announcement by the Company regarding
the Agreement, the highest reported sales price for the Common Stock on the
Nasdaq National Market was $9.25 per share, the lowest reported sales price for
the Common Stock was $8.63 per share and the last reported sales price for the
Common Stock was $8.63 per share.
4
<PAGE>
Certain Other Effects of the Merger
If the Merger is consummated, the Company's stockholders will not have the
opportunity to continue their equity interest in the Company as an ongoing
corporation and therefore will not share in any future earnings and growth of
the Company. Moreover, if the Merger is consummated, public trading of the
Common Stock will cease, the Common Stock will cease to be listed on the Nasdaq
National Market, and the registration of the Common Stock under the Securities
Exchange Act of 1934, as amended, will be terminated. See "ADDITIONAL
INFORMATION - Available Information."
Conditions to Consummation of the Merger
The obligations of the Buyer and the Acquisition Company to consummate the
Merger are subject to the satisfaction, at or before the Effective Time, of
certain conditions, including approval of the holders of the Company's Common
Stock. See "THE MERGER - Conditions to Consummation of the Merger;
Representations and Warranties."
Termination; Fees and Expenses
The Agreement may be terminated at any time prior to the Closing Date (a)
by mutual written consent of the Company and the Buyer; (b) by either the
Company or the Buyer, if the Closing has not occurred by October 31, 1996 and
the failure of the Closing to occur by such date has not been caused by, or
resulted from, the failure of such party to fulfill any of its obligations under
the Agreement; (c) by either the Company or the Buyer, if there shall be any
Court Order (as defined in the Agreement) enjoining the Buyer or the Company
from consummating the Transactions is entered and such Court Order shall become
final and nonappealable; (d) by the Company if the Buyer shall have breached any
material covenant contained in the Agreement or if the representations and
warranties of the Buyer contained in the Agreement shall not be true and correct
in any material respect and such breach or misrepresentation is not cured by the
earlier of 20 days after notice or October 31, 1996; (e) by the Buyer if the
Company shall have breached any covenant contained in the Agreement or if the
representations and warranties of the Company contained in the Agreement shall
not be true and correct, in either case, where such breach, failure or
misrepresentation, individually or in the aggregate, results or would reasonably
be expected to result in a Material Adverse Effect (as defined in the
Agreement); (f) by the Buyer or the Company if the stockholders do not approve
and adopt the Merger Proposal; or (g) by the Buyer if, prior to stockholder
approval, as a result of a written Acquisition Proposal (as defined in the
Agreement), the Board of Directors determines in good faith that its fiduciary
duties under applicable law require acceptance of such Acquisition Proposal and
certain other conditions set forth in the Agreement are satisfied. See "THE
MERGER -Termination; Termination Fees and Expenses."
Under the terms of the Agreement, neither the Company nor any of its
representatives may engage or solicit any other potential offers to purchase the
Shares, or to acquire the Company or any substantial part of its assets,
although the Company may respond to unsolicited proposals under certain
circumstances. See "THE MERGER - Conduct of the Business Prior to the Effective
Time; Certain Covenants; Inquiries and Negotiations."
If the Agreement is terminated due to certain circumstances and events
related to a potential acquisition of the Company, the Company shall pay the
Buyer a termination fee equal to $2 million plus the Buyer's reasonable out-of-
pocket expenses incurred in connection with the preparation and negotiation of
the Agreement and the Transactions, including certain financing costs of the
Buyer. If the Agreement is terminated by the Buyer as a result of the Company's
breach of any covenant, representation or warranty, then the Company shall pay
to the Buyer a termination fee equal to the Buyer's reasonable out-of-pocket
expenses incurred in connection with the preparation and negotiation of the
Agreement and the Transactions including certain financing costs of the Buyer;
provided, that if such termination is due to (i) a breach existing on July 12,
1996 that was known to exist on such date by the Company or (ii) a wilful breach
by the Company, such termination fee shall be increased by an amount equal to $2
million. In calculating the Buyer's reasonable expenses, such expenses shall
include any fees, costs or other expenses related to the Buyer Financing (as
defined in the Agreement) other than the 1% commitment fee with respect to the
Bridge Financing (as defined in the Agreement) to the extent that such
commitment fee exceeds $600,000. If the Agreement is terminated by the Company
as a result of the Buyer's breach of any covenant, representation or warranty,
then the Buyer shall pay to the Company a termination fee equal to the Company's
reasonable out-of-pocket expenses incurred in connection with the preparation
and negotiation of the Agreement and the Transactions; provided, that if such
termination is due to (i) a breach existing on July 12, 1996 that was known to
exist on such date by any Buyer Party; (ii) a wilful breach by any Buyer Party;
or (iii) the unavailability of the Buyer Financing, such termination fee shall
be increased by an amount equal to $2 million. All termination fees are payable
within ten days after the date of termination.
5
<PAGE>
Federal Income Tax Consequences
The receipt of cash for the Shares pursuant to the Merger or pursuant to
the exercise of appraisal rights under the DGCL will be a taxable transaction
for United States federal income tax purposes and may also be a taxable
transaction for state, local, foreign and other tax purposes. See "THE MERGER -
Federal Income Tax Consequences of the Merger." Stockholders are urged to
consult their own tax advisors as to the particular tax consequences to them of
the Merger, including the applicability and effect of state, local, foreign and
other taxes.
Appraisal Rights
Stockholders who comply with the requirements of Section 262 of the DGCL
are entitled to appraisal rights with respect to the Merger. Stockholders
electing to exercise their appraisal rights under Section 262 must not vote for
the Merger. If a stockholder returns a signed proxy but does not specify a vote
against the Merger or a direction to abstain, the proxy will be voted for the
Merger, which will have the effect of waiving that stockholder's appraisal
rights. See "THE MERGER - Appraisal Rights of Stockholders" and this Proxy
Statement includes a copy of the text of Section 262 of the DGCL as Annex D.
6
<PAGE>
Selected Financial Data
The following selected consolidated financial data of the Company for the
periods ended June 30, 1996 and 1995, the years ended December 31, 1995 and 1994
and the period from May 14, 1993 to December 31, 1993 are derived from the
Company's financial statements. The selected financial data of Adco Products,
Inc. ("Adco") for the two years ended December 31, 1992 and the period from
January 1, 1993 to May 13, 1993 are derived from Adco's financial statements.
<TABLE>
<CAPTION>
Adco Products, Inc.(1) The Company
---------------------------------- -----------------------------------------------------------
Year Ended Period Period Year Ended Six Months
December 31, Jan. 1- May 14- December 31, Ended June 30,
------------------ May 13, Dec. 31, ------------------ ---------------------
1991 1992 1993 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales................... $23,473 $27,299 $11,020 $20,325 $38,749 $47,411 $24,097 $24,954
Cost of products sold....... 17,253 19,547 8,064 14,448 27,057 33,318 16,729 18,200
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................ 6,220 7,752 2,956 5,877 11,692 14,093 7,368 6,754
Selling general and
administrative............ 3,730 4,275 1,698 2,749 4,846 5,720 2,929 2,780
Research and development.... 816 920 387 631 1,265 1,351 679 733
------- ------- ------- ------- ------- ------- ------- -------
Operating Income............ 1,674 2,557 871 2,497 5,581 7,022 3,760 3,241
Interest expense............ 55 16 -- 405 596 105 105 --
Dividends on preferred
stock of subsidiary....... -- -- -- 140 280 280 140 140
Other (income) expense -
net........................ (74) 21 37 (124) 116 (105) (17) (184)
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes......... 1,693 2,520 834 2,076 4,589 6,742 3,532 3,285
Income taxes................ 714 987 202 811 1,740 2,470 1,302 1,206
------- ------- ------- ------- ------- ------- ------- -------
Net income.................. $ 979 $ 1,533 $ 632 $ 1,265 $ 2,849 $ 4,272 $ 2,230 $ 2,079
======= ======= ======= ======= ======= ======= ======= =======
Net income per common
share..................... $ 0.33 $ 0.72 $ 0.84 $ 0.45 $ 0.40
======= ======= ======= ======= =======
Weighted avg. share
outstanding............... 3,819,603 3,937,825 5,065,847 4,939,191 5,259,313
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, As of May 13, As of December 31, June 30,
------------------ ------------- -------------------------------- ---------------------
1991 1992 1993 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash....................... $ 321 $ 3,082 $ 290 $ 497 $ 337 $ 3,798 $ 798 $ 3,558
Working capital............ 4,069 5,827 5,714 4,084 5,053 11,110 9,216 13,138
Total assets............... 25,312 27,644 26,693 24,313 26,184 31,118 30,784 34,481
Notes payable, including
current position......... 549 8,471 6,008
Total liabilities.......... 3,230 4,030 3,246 11,747 10,254 4,071 5,754 5,391
Redeemable preferred stock
stock of subsidiary...... 3,570 3,710 3,850 3,780 3,920
Total shareholders' equity. 22,082 23,614 23,447 8,996 12,220 23,197 21,250 25,170
</TABLE>
(1) The Company's business was started in 1971 by Adco. Adco was acquired by
Nalco Chemical Company in July 1985. Nalco, which operated Adco on a stand-
alone basis as a separate subsidiary, sold Adco to the Company on May 14, 1993.
7
<PAGE>
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of the Company
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at a Special Meeting to be held on September 26, 1996 at 2:00
p.m., local time, at the Crowne Plaza Hotel, White Plains, New York and at any
adjournment or postponement thereof. This Proxy Statement, the attached Notice
of Special Meeting and the enclosed form of proxy are first being mailed to
stockholders of the Company entitled to notice of and to vote at the Special
Meeting on or about September 6, 1996.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Agreement among the Company, the Buyer, and the
Acquisition Company, a wholly-owned subsidiary of the Buyer, and the Merger, and
the Transactions, pursuant to the Merger Proposal. The Company will be the
surviving corporation in the Merger (the "Surviving Corporation"). Upon
consummation of the Merger, the Company will become a wholly-owned subsidiary of
the Buyer, and each Share that is issued and outstanding at the effective time
of the Merger (other than Shares held by stockholders who properly exercise
their appraisal rights) will be converted into the right to receive an amount,
in cash, without interest, equal to $10.25 per Share. As a result of the
Merger, all stockholders of the Company will cease to have an equity interest
in, or possess any rights as stockholders of, the Company. See "THE MERGER -
General." This Proxy Statement includes the Agreement as Annex A. The
summaries of the portions of the Agreement set forth in this Proxy Statement do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the text of the Agreement.
The Board of Directors of the Company has unanimously approved and adopted
the Merger Proposal and recommends that you vote FOR approval and adoption of
the Merger Proposal.
VOTING AND PROXIES
Record Date; Solicitation of Proxies; The Stockholders Agreement
The Board of Directors of the Company has fixed the close of business on
August 27, 1996 as the Record Date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. Accordingly, only
holders of shares of Common Stock of record on the books of the Company at the
close of business on the Record Date will be entitled to vote at the Special
Meeting. At the close of business on the Record Date, 5,150,000 shares of
Common Stock entitled to vote at the Special Meeting, held by approximately 84
holders of record, were issued and outstanding. Holders of shares of Common
Stock entitled to vote are entitled to one vote at the Special Meeting for each
share of Common Stock held of record at the Record Date.
In addition to soliciting proxies by mail, officers and employees of the
Company, without receiving additional compensation therefor, may solicit proxies
personally or by telephone, telegram or other forms of wire or facsimile
communication. Any questions or requests for assistance regarding proxies and
related materials may be directed to David J. Fuchs, at Adco Technologies Inc.,
4401 Page Avenue, P.O. Box 457, Michigan Center, MI 49254 or by telephone at
(517) 764-0334. The Company will bear the cost of the Special Meeting and of
soliciting proxies therefor, including the cost of printing and mailing of this
Proxy Statement and related materials, and the reasonable expenses incurred by
brokerage houses, custodians, nominees and fiduciaries in forwarding proxy
material to the beneficial owners of Common Stock.
Vote Required
A majority of the outstanding Common Stock entitled to vote, represented in
person or by proxy, is required for a quorum at the Special Meeting. Provided
that a quorum is present at the Special Meeting, the
8
<PAGE>
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock as of the Record Date is required for approval and adoption of the
Merger Proposal.
Shares which are represented by properly executed proxies, unless such
proxies shall have previously been properly revoked, will be voted in accordance
with the instructions indicated in such proxies. If no contrary instructions
are indicated, such Shares will be voted FOR approval and adoption of the Merger
Proposal and in the discretion of the proxy holder as to any other matter which
may properly come before the Special Meeting. Under the rules of National
Association of Securities Dealers (the "NASD"), brokers may not give a proxy to
vote without instructions from beneficial owners when the matter to be voted
upon involves a merger. Accordingly, brokers will not be entitled to give a
proxy to vote Shares on the Merger Proposal without instructions from the
applicable beneficial owner of the Shares. Any other matter which may properly
come before the Special Meeting at which a quorum is present for such purpose
requires the affirmative vote of the majority of the votes cast on the matter
unless a greater vote is required by law or the Certificate of Incorporation or
Bylaws of the Company. If a proxy is marked as "abstain" on the Merger
Proposal, or if specific instructions are given that no vote be cast on such
proposal (a "specified non-vote"), the Shares represented by such proxy will not
be voted on the Merger Proposal. Accordingly, abstentions and specified non-
votes will have the same effect as casting a vote against the Merger Proposal.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise at the Special Meeting by (i) delivering a written notice of revocation
of the proxy being revoked, (ii) by submission of a properly executed proxy
bearing a later date than the proxy being revoked, to the Secretary of the
Company at 4401 Page Avenue, P.O. Box 457, Michigan Center, MI 49254 or to the
Secretary of the Special Meeting, or (iii) by voting the Common Stock covered
thereby in person at the Special Meeting.
Stockholders have the right to dissent from the Merger Proposal and,
subject to certain conditions provided under the DGCL, to receive payment for
the fair value of their Shares. See "THE MERGER - Appraisal Rights of
Stockholders" and Annex D hereto.
As of the Record Date, the executive officers and directors of the Company
beneficially owned a total of 218,275 outstanding shares of Common Stock
(excluding 284,318 shares of Common Stock subject to stock options),
constituting approximately 4.2% of the outstanding Common Stock entitled to vote
at the Special Meeting. See "Stock Ownership of Management and Certain
Beneficial Owners." Because the 284,318 unexercised options were not exercised
as of the Record Date, the underlying Common Stock cannot be voted at the
Special Meeting. See "THE MERGER - Interests of Certain Persons in the Merger."
The transaction to be considered at the Special Meeting involves a matter
of great importance to the stockholders of the Company. Accordingly,
stockholders are urged to read and carefully consider the information presented
in this Proxy Statement, and to complete, date, sign and promptly return the
enclosed proxy card in the enclosed prepaid envelope. Stock certificates should
not be sent with the enclosed proxy card. If the Merger is consummated,
stockholders will be furnished instructions for exchanging their Shares for
cash.
The Stockholders Agreement
As an inducement to the Buyer to enter into the Agreement, the Company's
five executive officers, the Chairman of the Board, two individual stockholders,
Bradford Venture Partners, L.P. ("BVP") and Overseas Equity Investors Partners,
L.P. ("OEIP") (collectively, the "Significant Stockholders"), holding an
aggregate of 2,559,308 shares of Common Stock (equal to 49.7% of the outstanding
Common Stock as of the Record Date) entered into the Stockholders Agreement,
dated as of July 12, 1996 (the "Stockholders Agreement"), copies of which are
included in this Proxy Statement as Annex B, with the Buyer. The Stockholders
Agreement provides, among other things, that each of the Significant
Stockholders will vote, or cause to be voted, the shares of Common Stock owned
by the Significant Stockholder (i) in favor of the adoption of the Agreement and
the approval of the Merger, (ii) except as permitted by the Agreement, against
the approval of any extraordinary corporate transaction, such as a merger or
9
<PAGE>
business combination, any sale of assets outside the ordinary course of business
or of material assets, any reorganization, recapitalization, dissolution or
liquidation, any change in a majority of directors, any change in
capitalization, charter or bylaws, any other material change in the Company's
corporate structure or business, or any other action which could reasonably be
expected to impede or materially adversely affect the Merger and the
transaction contemplated by the Agreement, and (iii) against any transaction
which is inconsistent with the obligations of the Company under the Agreement.
The Stockholders Agreement also provides that each Significant Stockholder will
not, except as contemplated by the terms of the Stockholders Agreement, sell or
otherwise voluntarily dispose of any of the shares of Common Stock owned by such
Significant Stockholder or take any voluntary action which would have the effect
of removing such Significant Stockholder's power to vote his or its shares or
which would be inconsistent with the Stockholders Agreement.
Each of the directors and executive officers of the Company have advised
the Company that he intends to vote or direct the vote of all shares of Common
Stock over which he has voting control in favor of approval and adoption of the
Merger Proposal.
The Company does not know whether the holders of any other significant
blocks of Common Stock intend to vote in favor of or against the approval and
adoption of the Merger Proposal.
Stock Ownership of Management and Certain Beneficial Owners
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date (i) by each person
known by the Company to own beneficially 5% or more of the outstanding Common
Stock, (ii) by each executive officer and director of the Company, and (iii) by
all executive officers and directors as a group. Percentages of less than one
percent have been designated by an asterisk. Each of such stockholders has sole
voting and investment power as to shares shown unless otherwise noted. The
number of stockholders of the Company at August 27, 1996 was 82.
<TABLE>
<CAPTION>
Number of
Shares Percent
------------ --------
Executive Officers
<S> <C> <C>
Charles E. Sax(1) 126,212 2.4%
Philip D. Beery(1) 85,159 1.6%
Brian J. Briddell(1) 85,159 1.6%
James R. McCowan(1) 89,159 1.7%
David J. Fuchs(1) 75,159 1.4%
5% Stockholders
Bradford Venture Partners, L.P.(2)(3)
(Other beneficial owners: Barbara M. Henagan,
Bradford Mills and Robert J. Simon) 1,150,170 22.3%
Overseas Equity Investors Partners, L.P.(4)(5)
(Other beneficial owners: Barbara M. Henagan
and Robert J. Simon) 1,150,170 22.3%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Percent
Directors --------- -------
<S> <C> <C>
Robert J. Simon(2)(4)(6) 20,431 *
Thomas L. Ferguson(6) 5,314 *
Seymour S. Preston III(6) 8,000 *
David P. Kollock(6) 4,000 *
Lee R. Miskowski(6) 4,000 *
All Executive Officers and Directors as
a Group(11 persons)(6)(7) 502,593 9.2%
</TABLE>
----------------------------
* Less than one percent.
(1) The amounts shown include 78,106 shares for Mr. Sax, 49,053 shares for each
of Messrs. Beery, McCowan and Briddell and 39,053 for Mr. Fuchs, which are
subject to options that are currently exercisable or are exercisable within
60 days. Because these options were not exercised as of the Record Date,
the underlying shares cannot be voted at the Special Meeting.
(2) Shares are owned of record by Bradford Venture Partners, L.P. ("BVP").
Messrs. Mills and Simon, Ms. Henagan and their partnership, Bradford
Associates, may be deemed to share beneficial ownership of shares due to
their having voting and dispositive power over such shares. Bradford
Associates, a general partnership of which such three persons are the only
partners, is the sole general partner of BVP and, as such, holds a 1%
interest in that partnership.
(3) The stockholder's address is 22 Chambers Street, Princeton, New Jersey
08542.
(4) Shares are owned of record by Overseas Equity Investors Partners, L.P.
("OEIP"). Mr. Simon and Ms. Henagan may be deemed to share beneficial
ownership of such shares due to having voting power over such shares. Mr.
Simon and Ms. Henagan serve as Co-Chairmen of the Board of Directors of the
corporation that acts as the managing partner of OEIP. Mr. Simon and Ms.
Henagan are also directors of such corporate managing partner. Bradford
Associates holds a one percent partnership interest in OEIP, which may
increase upon the satisfaction of certain contingencies related to the
overall performance of OEIP's investment portfolio. BVL, an affiliate of
Bradford Associates, acts as an investment advisor for OEIP.
(5) The stockholder's address is Clarendon House, Church Street, Hamilton 5-31,
Bermuda.
(6) The amount shown includes 4,000 shares of Common Stock subject to
exercisable options pursuant to the Director Plan.
(7) The amount shown includes an aggregate of 264,318 shares of Common Stock
subject to options held by five executive officers, but excludes shares
beneficially owned by Mr. Simon due to his relationship with BVP. See
note 3.
11
<PAGE>
THE MERGER
General
The following information with respect to the Merger is qualified in its
entirety by reference to the complete text of the Agreement, a copy of which is
included in this Proxy Statement as Annex A. The Agreement sets forth the terms
and conditions upon which the Merger is to be accomplished. If the Merger
Proposal is approved and adopted by the affirmative vote of the holders of a
majority of the outstanding Common Stock entitled to vote at the Special Meeting
at which a quorum is present and all other conditions to the obligations of the
parties thereto are satisfied or waived, the Merger will be consummated. At the
Effective Time, the Acquisition Company will merge with and into the Company.
The Company will be the Surviving Corporation in the Merger and will thereby
become a wholly-owned subsidiary of the Buyer. Pursuant to the Merger, each
Share that is issued and outstanding at the Effective Time (other than Shares
held by stockholders who exercise their statutory appraisal rights) will be
canceled and extinguished and converted automatically into the right to receive
the Merger Consideration. Upon consummation of the Merger, holders of Shares
will possess no further interest in, or rights as stockholders of, the Company.
Following the Merger, it is anticipated that the Company will be merged into the
Buyer.
Background of the Merger
In early 1996, the Board of Directors of the Company discussed the fact
that the price of the Company's Common Stock had not significantly increased
above the price of its initial public offering in February 1995. The Board
decided to consider exploring strategic alternatives for the Company, including
a sale of the Company, as a means of increasing stockholder value. On February
6, 1996, the Company met with Schroder Wertheim to initiate discussions on ways
to enhance shareholder value. At a meeting of the Board of Directors in
February 1996 , the Board authorized Robert J. Simon, the Chairman of the Board
of the Company, to continue discussions with Schroder Wertheim. At a specially
scheduled Board meeting on March 7, 1996, the Board considered certain materials
presented by Schroder Wertheim with respect to a possible sale (including likely
buyers) of the Company and formally retained Schroder Wertheim. Between March
7, 1996 and May 8, 1996, Schroder Wertheim contacted a number of potential
buyers. Following the Board meeting on May 8, 1996, the Company issued a press
release announcing that it had retained Schroder Wertheim to explore strategic
alternatives for the Company. On May 8, 1996, the last full trading day prior
to the Company's public announcement of the retention of Schroder Wertheim, the
last reported sales price for the Common Stock was $7.13 per share.
Between March 1996 and July 1996, approximately 64 potential buyers for the
Company, both strategic and financial, were contacted to determine whether such
parties would be interested in acquiring or merging with the Company.
By early June the Buyer emerged as a likely acquisition partner for the
Company and, on June 12, 1996, the Company received a written acquisition
proposal from the Buyer for $10.00 per share cash. This acquisition proposal
was not accepted by the Board as a result of several factors, including
concerns regarding the Buyer's financial resources to complete its proposed
acquisition. Shortly thereafter, Schroder Wertheim contacted the other
potential bidders and suggested that they move quickly as the Company was close
to reaching an agreement.
On July 3, 1996, the Company received a revised acquisition proposal from
the Buyer in which the Buyer advised the Company that it had obtained a
financing commitment from an affiliate of Donaldson, Lufkin & Jenrette
Securities Corp. ("DLJ") to provide the necessary proceeds to complete the
transaction and to refinance other debt of the Buyer (the "Bridge Financing").
12
<PAGE>
On July 8, 1996, the Board met with Schroder Wertheim and the Company's
legal counsel to review, among other things, the status of negotiations with the
Buyer and with the other potential bidders. Schroder Wertheim informed the
Board that there were five potential bidders, including the Buyer, for the
Company and
discussed the status of each such bidder in the process, including due
diligence, financial resources and other terms. With respect to the four
potential bidders other than the Buyer, Schroder Wertheim informed the Board
that only one potential bidder had indicated that it would not require a
financing contingency and that all four potential bidders were far behind in the
process and would likely require substantially more time before being prepared
to make a written offer to the Company. The Board discussed the financing
contingency contained in the Buyer's revised offer and instructed Schroder
Wertheim to obtain more information about the terms associated with the Bridge
Financing and to attempt to negotiate changes to such commitment whereby the
commitment would be limited to the proceeds necessary to complete the Merger,
rather than the refinancing of the Buyer's indebtedness, and to limit DLJ's due
diligence investigation to only include the Company. Schroder Wertheim informed
the Board that the Buyer had indicated that it would abandon its offer to
purchase the Company if the Board did not accept its offer quickly. The Board
instructed Schroder Wertheim to negotiate further with the potential bidder that
represented that it had sufficient cash to complete a transaction and to
encourage the other potential bidders to make offers promptly, if they were
going to do so.
On July 9, 1996, in a conference with representatives of the Company, the
Buyer, Schroder Wertheim and the Company's legal counsel, DLJ reviewed the
Bridge Financing and informed the Company's representatives that it had nearly
completed its due diligence investigation of the Buyer and the Company and that
it would likely conclude such investigation by July 12, 1996. DLJ agreed to
remove its due diligence contingency by July 12, 1996, provided it completed its
investigation by such date. In that same conference, the Buyer raised its offer
to $10.25 per share in cash. The due diligence contingency was removed by July
12, 1996.
On July 10, 1996, the Board conducted a special meeting to discuss the
status of the bids and the negotiations with the Buyer. Schroder Wertheim
reviewed the status of all of the potential bidders and the range of their
respective preliminary bids. Schroder Wertheim informed the Board that the
potential bidder that had sufficient cash to complete the transaction would
require at least one month to complete its due diligence investigation of the
Company and was unwilling to specify a dollar bid at that time. Schroder
Wertheim advised the Board that two other potential bidders were at a very early
stage of negotiations and due diligence and that any bids by them would include
a financing contingency. Schroder Wertheim also informed the Board of a
preliminary bid by one of the other potential bidders (the "Other Bidder") of
$9.00 per share plus stock in a newly formed company. Schroder Wertheim
further advised the Board that the Other Bidder would need financing and
additional time to complete its due diligence of the Company. Schroder Wertheim
informed the Board that the Buyer had requested that the Company agree to
negotiate exclusively with the Buyer through July 12 and that it would otherwise
be unwilling to continue negotiations. Since the Board did not believe any
other bids were imminent, the Board agreed to provide the Buyer with exclusivity
through July 12 provided the Buyer agreed to certain remaining open issues
contained in the draft merger agreement.
On July 12, 1996, the Board conducted a special meeting to review the
Buyer's bid as well as a revised bid received from the Other Bidder on July 12,
1996. Schroder Wertheim advised the Board that the Other Bidder had increased
the cash portion of its bid to $10.25 per share. The Board determined that the
Buyer's bid was still preferable to the Other Bidder's bid principally because
(i) the Other Bidder's bid was subject to financing, (ii) the Other Bidder would
require further due diligence and (iii) no information had been provided
regarding the subsidiary which the Other Bidder proposed to create. Schroder
Wertheim further advised the Board that the Other Bidder had only begun its due
diligence investigation of the Company and had not visited the due diligence
data room made available by Schroder Wertheim and the Company. Schroder
Wertheim advised the Board that the contingencies imposed by the Other Bidder
created significant risks that a transaction could be completed with the Other
Bidder. After discussion, the Board authorized management and the Company's
legal and financial advisors to proceed with the transaction proposed by the
Buyer. Legal counsel then reviewed with the Board the terms and conditions of
the Agreement and the Board's fiduciary obligations in connection with the
proposed transaction.
13
<PAGE>
Schroder Wertheim then made a financial presentation to the Board and, on July
12, 1996, rendered an oral opinion, which was subsequently confirmed by delivery
of a written opinion dated the date of this Proxy Statement to the effect that,
as of such date and based upon and subject to the matters stated in connection
therewith, the Merger Consideration was fair, from a financial point of view, to
the holders of the Shares. After discussion, the Board of Directors then
approved the Agreement and the Merger. The parties executed the Agreement, and
public announcement of such execution was made on July 12, 1996.
The Company received from the Other Bidder on July 18, 1996 an inquiry
regarding the continuation of negotiations between the Other Bidder and the
Company. Consistent with applicable restrictions in the Merger Agreement, the
Company responded to the Other Bidder by providing it with the terms of the
Merger Agreement setting forth the conditions under which the Company would be
able to continue further discussions with the Other Bidder.
Recommendation of the Board of Directors; Reasons for the Merger; Opinion of
Schroder Wertheim
Recommendations of the Board of Directors; Reasons for the Merger
At a special meeting of the Board on July 12, 1996, the Company's Board of
Directors unanimously approved the Agreement and determined that the Merger is
fair to, and in the best interests of, the Company and its stockholders. The
Board of Directors of the Company unanimously recommends that the Company's
stockholders vote FOR approval and adoption of the Merger Proposal. Certain
members of the Board of Directors have certain interests which may present them
with possible conflicts of interest in connection with the Merger. See "THE
MERGER - Interests of Certain Persons in the Merger."
The determination of the Board of Directors to approve the Merger Proposal
was based upon consideration of a number of factors, the material factors of
which were the following:
(1) The fact that approximately 64 potential buyers for the Company
had been contacted, resulting in one bidder submitting a final written
proposal;
(2) The fact that the Company's stock performance was adversely
affected by several factors, including concentrated ownership of the
Common Stock and the absence of a strong institutional investor
presence;
(3) The fact that the Merger Consideration represents a premium,
based on closing sale prices for the Common Stock on February 14, 1995
(the date of the Company's initial public offering), April 8, 1996 (30
days prior to public announcement by the Company that it was exploring
strategic alternatives), May 8, 1996 (the date on which the Company
publicly announced that it was exploring strategic alternatives) and
July 12, 1996 (the last day prior to public announcement of the Merger)
of approximately 46.4%, 60.8%, 43.9% and 18.8%, respectively;
(4) The significant risks associated with the Other Bidder's
preliminary bid;
(5) The fact that the Agreement permits the Board, under certain
circumstances as provided in the Agreement, to negotiate with third
parties and to accept more favorable proposals. See "THE MERGER -Conduct
of the Business Prior to the Effective Time; Certain Covenants;
Inquiries and Negotiation;." and
(6) A financial presentation of Schroder Wertheim with its oral
opinion as of July 12, 1996 as to the fairness, from a financial point
of view, of the Merger Consideration to the holders of the Shares. See
"Opinion of Schroder Wertheim" below.
14
<PAGE>
The Board of Directors recognizes that the Merger will deprive stockholders
of the opportunity to continue their equity interest in any future growth of the
Company as an independent entity. See "THE MERGER - Certain Other Effects of the
Merger." However, the Board of Directors placed special consideration on the
fact that (i) the Merger Consideration represents a premium over the price at
which the shares of Common Stock had been trading the day prior to the public
announcement of the Merger Proposal, and (ii) the prospect of generating a
return for stockholders greater than the Merger Consideration has been
decreasing in light of several factors, including the concentrated ownership of
the Common Stock and the lack of a strong institutional investor presence. See
"SUMMARY - Selected Financial Data."
Schroder Wertheim
On July 12, 1996, Schroder Wertheim delivered its oral opinion, which was
subsequently confirmed in a written opinion dated the date of this Proxy
Statement (collectively, the "Opinions"), to the Board of Directors of the
Company to the effect that as of such dates, the Merger Consideration was fair,
from a financial point of view, to the holders of Shares. Schroder Wertheim, as
part of its investment banking business, is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. The Company's Board of Directors selected Schroder Wertheim on the
basis of such experience. In requesting the Opinions, neither the Company nor
the Board of Directors gave any special instructions to Schroder Wertheim or
imposed any limitations upon the scope of the investigation that Schroder
Wertheim deemed necessary to enable it to deliver its Opinions.
The full text of the opinion of Schroder Wertheim dated the date of this
Proxy Statement, which sets forth the assumptions made, matters considered and
limits on the review undertaken by Schroder Wertheim, is attached as Annex C to
this Proxy Statement and incorporated by reference herein. Stockholders are
urged to read this opinion in its entirety.
Schroder Wertheim's Opinions are directed only to the fairness, from a
financial point of view, to the holders of Shares of the Merger Consideration
and does not address the Company's underlying business decision to effect the
Merger. Schroder Wertheim's Opinions were rendered only to the Board of
Directors and were not rendered with a view toward serving as or constituting a
recommendation to any stockholders of the Company as to how such stockholder
should vote with respect to the Merger.
In connection with rendering its Opinions, Schroder Wertheim, among other
things, (i) reviewed the Annual Report to Stockholders and Annual Report on Form
10-K of the Company filed with the SEC for the fiscal year ended December 31,
1995, (ii) reviewed the Company's initial public offering prospectus dated
February 14, 1995 filed with the SEC, (iii) reviewed the Quarterly Report on
Form 10-Q of the Company for the fiscal quarter ended March 31, 1996 filed with
the SEC, (iv) discussed the past and current operations, financial condition and
prospects of the Company with its management, which discussions included a
review of historical sales by segment and projected sales for the years ending
December 31, 1996 through December 31, 2000, (v) reviewed 1995 and year-to-date
1996 performance of the Company on a monthly basis, (vi) reviewed news stories
as they pertained to the Company, (vii) reviewed the reported prices and trading
activity for the Shares and compared them with those of certain companies which
research analysts have deemed to be similar to the Company, (viii) compared the
results of operations and financial condition of the Company with those of
certain companies which Schroder Wertheim deemed to be similar to the Company,
(ix) reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions which Schroder Wertheim deemed to be comparable, (x)
participated in discussions and negotiations among representatives of the
Company, representatives of the Buyer and their respective legal advisors, (xi)
reviewed execution copies of the Agreement and the Stockholders Agreement, (xii)
performed such other analyses and reviewed and analyzed such other information
as Schroder Wertheim deemed appropriate and (xiii) in the case of the opinion
dated the date of this Proxy Statement, reviewed the Quarterly Report on Form
10-Q of the Company for the fiscal quarter ended June 30, 1996, filed with the
SEC. In addition, Schroder Wertheim solicited
15
<PAGE>
proposals from and held discussions with potential buyers of the Company during
the period of March 1996 through July 1996. Such discussions were terminated
when the Company entered into the Agreement.
In rendering its Opinions, Schroder Wertheim did not assume responsibility
for independently verifying the accuracy and completeness of the information
concerning the Company furnished by the Company, or the publicly available
information regarding other comparable companies and economic data. Schroder
Wertheim also relied on the assurance of management of the Company that they
were not aware of any facts that would make such information inaccurate or
misleading. Schroder Wertheim did not undertake an independent appraisal of the
assets or liabilities of the Company nor was Schroder Wertheim furnished with
any such appraisals. With respect to financial forecasts for the Company,
Schroder Wertheim was advised by management of the Company, and has assumed
without independent verification, that such forecasts have been reasonably
prepared and reflect the best currently available estimates of management as to
the future financial performance of the Company. Schroder Wertheim's Opinions
were necessarily based upon economic, market and other conditions as they
existed and were disclosed to Schroder Wertheim on, and the information made
available to Schroder Wertheim as of, the dates thereof. Schroder Wertheim
expressed no opinion on matters of a legal, regulatory, tax or accounting nature
related to the Transactions as set forth in the Agreement.
The preparation of a fairness opinion is a complex project and is not
necessarily susceptible to partial or summary description. No single analytical
methodology used by Schroder Wertheim was critical to its overall conclusions,
as each analytical technique has inherent strengths and weaknesses. The nature
of available information may further affect the value of any particular
methodology or technique. Schroder Wertheim's conclusions are based upon all
the analyses and factors that it considered, taken as a whole, and also on the
application of Schroder Wertheim's experience and judgment. Schroder Wertheim's
conclusions involve significant elements of subjective judgment and qualitative
analysis. No single technique was assigned any special value, merit or weight.
Accordingly, Schroder Wertheim believes that its analyses must be considered as
a whole and that to focus upon specific portions of such analyses and factors
would create an incomplete and misleading view of the process underlying the
preparation of its Opinions. Schroder Wertheim's analyses and the Opinions are
based in part upon forecasts and projections of future results of operations of
the Company provided by management of the Company. These forecasts and
projections may not be indicative of actual results, which may be significantly
more or less favorable than the projected or forecasted results. In preparing
its analyses Schroder Wertheim did make numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond Schroder Wertheim's control and are inherently
imprecise.
The following is a brief summary of certain of the analyses performed by
Schroder Wertheim in connection with rendering the Opinions.
Market Premium Analysis. Schroder Wertheim calculated the average premium
paid over market prices in acquisitions of publicly traded companies in the
United States since the beginning of 1992. This analysis considered 765
transactions. This analysis showed that, based on a $10.25 per share
acquisition price in the Merger, the Buyer is paying a premium equal to 39.0%
over the $7.38 market price per share of the Common Stock on May 8, 1996, the
day prior to the announcement that Schroder Wertheim had been retained by the
Company, compared to an average premium over the market price on the day prior
to announcement in such transactions of 34.4%. Using market prices one week and
four weeks prior to announcement, respectively, Schroder Wertheim calculated
premiums of 51.9% and 70.8% for the Company, compared to average premiums of
38.8% and 44.8% for such transactions.
Comparable Merger and Acquisition Transaction Analysis. Schroder Wertheim
reviewed 62 specialty chemical merger and acquisition transactions announced
since January 1, 1985. The primary ratio considered for purposes of comparison
was the multiple of the purchase price paid in such transactions to the acquired
company's earnings before interest, taxes, and depreciation and amortization
("EBITDA") for the latest twelve months. In most of the transactions
considered, the multiple was in the range of 6.0 to 8.0 times. This valuation
range would imply a
16
<PAGE>
purchase price for the Company of $47.9 million to $64.0 million, or $9.05 to
$12.01 per share. Many of the transactions considered involved purchase prices
of approximately 0.9 times to 1.1 times latest twelve month sales. This would
result in an equity valuation of $41.9 million to $51.3 million, or $7.94 to
$9.67 per share.
Discounted Cash Flow Analysis. Schroder Wertheim used a discounted cash
flow analysis to estimate the present value of the future cash flow that the
Company could produce under various assumptions in accordance with forecasts
prepared by management. Schroder Wertheim calculated the estimated present
value of the cash flow as the sum of (i) the aggregate discounted cash flow
(using various discount rates based on a weighted average cost of capital and
the Company's expected growth rates) for each of the years 1996 through 2000,
plus (ii) a range of the discounted value (using such discount rates) of the
estimated "terminal value" of the Company, which was determined by applying a
range of multiples of projected EBITDA of the Company for the year 2000 to
derive a value of the Company at that time. This analysis resulted in an implied
equity value range for the Company of $54.1 million to $72.8 million, or $10.19
to $13.63 per share.
Leveraged Buyout Analysis. Schroder Wertheim performed a leveraged buyout
analysis in order to determine the purchase price which a buyer could pay for
the Company in a transaction primarily financed by borrowings. The amount of
the various funding instruments used to purchase the Company is dependent upon
prevailing credit availability. This analysis assumed, among other things, that
senior debt could not exceed 3.0 times EBITDA for the relevant periods and that
mezzanine level investors would require returns of approximately 20%. In
addition, the analysis assumed that the buyer of the Company would require an
internal rate of return in the mid-20% range. Based on these assumed debt level
and rate of return requirements, the projected cash flow of the Company through
the year 2000, the estimated "terminal value" of the Company at that time and
certain other assumptions, Schroder Wertheim calculated an implied equity value
range for the Company of $8.25 to $9.25 per share.
Comparable Company Analysis. Schroder Wertheim reviewed certain
information regarding publicly traded adhesives companies. While there are
several public companies with which the Company competes, Schroder Wertheim
believes there is no company which operates in all of the same segments in which
the Company operates. In addition, Schroder Wertheim believes there are no
publicly traded competitors of similar size and/or performance. The companies
selected were chosen because they have been cited by research analysts as
comparable to the Company. The companies used in this analysis were the
following: Avery Dennison Corporation, H.B. Fuller Company, Lilly Industries
Inc., Loctite Corporation and RPM, Inc. For the latest twelve month period, the
average revenue of this group was $1.3 billion, as compared with the $47.0
million for the Company. In addition, at July 10, 1996, the average market
capitalization of the companies in this group was $1.3 billion, as compared with
$43.8 million for the Company. As a result of the significant differences in
size and scope between the Company and those companies, Schroder Wertheim placed
less emphasis on this analysis in determining a value for the Company.
Based upon and subject to the foregoing considerations, Schroder Wertheim
concluded, in its written opinion that as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the holders of the
Shares.
The terms of the engagement of Schroder Wertheim by the Board of Directors
are set forth in a letter agreement, dated March 7, 1996, between Schroder
Wertheim and the Company (the "Schroder Wertheim Engagement Letter"). Pursuant
to the terms of the Schroder Wertheim Engagement Letter, the Company agreed to
pay Schroder Wertheim, in consideration of certain advisory services with
respect to the sale of the Company, a fee equal to 1.5% of the aggregate amount
of cash, stock, notes or other evidence of indebtedness to be received by the
Company or its stockholders upon consummation of the Merger. The Company also
agreed to reimburse Schroder Wertheim for its reasonable out-of-pocket expenses.
In connection with the Schroder Wertheim Engagement Letter, Schroder Wertheim
also received from the Company an indemnification letter dated March 7, 1996
(the "Schroder Wertheim Indemnification Letter"). Pursuant to the Schroder
Wertheim Indemnification Letter, the Company
17
<PAGE>
agreed to indemnify Schroder Wertheim against certain liabilities relating to or
arising out of the engagement, including liabilities under Federal securities
laws.
Interests of Certain Persons in the Merger
The Stockholders Agreement. The Stockholders Agreement was executed by the
Significant Stockholders. Robert J. Simon, the Chairman of the Board of the
Company, is a partner of the general partner of BVP and a director of the
partner of OEIP. Pursuant to the Stockholders Agreement, each Significant
Stockholder agreed with the Buyer, among other things, to vote the Significant
Stockholder's shares of Common Stock in favor of the Agreement and the approval
of the Merger at the stockholders meeting of the Company. See "VOTING AND
PROXIES - The Stockholders Agreement", and "VOTING AND PROXIES - Stock Ownership
of Management and Certain Beneficial Owners."
Effective Time of the Merger
The Effective Time of the Merger will be upon the filing and acceptance of
a Certificate of Merger with the Secretary of State of the State of Delaware,
pursuant to Section 251 of the DGCL. The Certificate of Merger is expected to
be presented for filing as soon as practicable after the approval and adoption
of the Merger Proposal by the Company's stockholders at the Special Meeting and
upon satisfaction or waiver of all other conditions to consummation of the
Merger. See "THE MERGER - Conditions to Consummation of the Merger;
Representations and Warranties."
Payment for the Shares
As a result of the Merger, holders of certificates formerly representing
the Shares will cease to have any equity interest in the Company. After
consummation of the Merger, all certificates formerly evidencing the Shares
(other than Shares held in the treasury of the Company or Shares in respect of
which appraisal rights have been properly exercised) will be required to be
surrendered to the Paying Agent in order to receive the Merger Consideration to
which holders thereof will be entitled as a result of the Merger. No interest
will be paid or accrued on the cash payable upon the surrender of such
certificates. Detailed instructions with regard to the surrender of
certificates, together with a letter of transmittal, will be forwarded to former
holders of the Shares by the Paying Agent as promptly as practicable following
the Effective Time. Holders of the Shares should not submit their certificates
to the Paying Agent until they have received such materials. Upon surrender of
stock certificates and other required documents to the Paying Agent, the Paying
Agent will distribute by bank check the Merger Consideration for each share
represented by such stock certificates to the holder thereof. See "THE MERGER -
Terms of the Merger." If payment in respect of canceled Shares is to be made to
a person other than the person in whose name a surrendered certificate or
instrument is registered, it shall be a condition to such payment that the
certificate or instrument so surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer or other taxes required by reason of such
payment in a name other than that of the registered holder of the certificate or
instrument surrendered or shall have established to the satisfaction of the
Surviving Corporation or the Paying Agent that such tax either has been paid or
is not payable. STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS
TIME.
18
<PAGE>
Effect of Merger on Control-Share Acquisition and Other Anti-takeover
Restrictions
The DGCL has a business combination statute, Section 203 thereof, which
provides that any person who acquires 15% or more of a corporation's voting
stock (thereby becoming an "interested stockholder") may not engage in certain
"business combinations" with the target corporation for a period of three years
following the date the person became an interested stockholder, unless (1) the
board of directors of the corporation has approved, prior to the date such
person acquires 15% or more of the voting stock, either the business combination
or the transaction that resulted in the person becoming an interested
stockholder, (2) upon consummation of the transaction that resulted in the
person becoming an interested stockholder, that person owns at least 85% of the
corporation's voting stock outstanding at the time the transaction is commenced
(excluding shares owned by persons who are both directors and officers and
shares owned by employee stock plans in which participants do not have the right
to determine confidentially whether shares will be tendered in a tender or
exchange offer), or (3) the business combination is approved by the board of
directors and authorized by the affirmative vote (at an annual or special
meeting and not by written consent) of at least 66-2/3% of the outstanding
voting stock not owned by the interested stockholder. The Board of Directors of
the Company approved the proposed Merger for purposes of Section 203 of the
DGCL. Accordingly, Section 203 of the DGCL will not apply to the Merger.
Certain Other Effects of the Merger
If the Merger is consummated, the Company's stockholders will not have an
opportunity to continue their equity interest in the Company as an ongoing
corporation and therefore will not share in future earnings and growth of the
Company.
If the Merger is consummated, public trading of the Common Stock will
cease, the Common Stock will cease to be listed on the Nasdaq National Market,
and the registration of the Common Stock under the Exchange Act, will be
terminated. See "ADDITIONAL INFORMATION - Available Information" for
information concerning the effect of the Merger on the Surviving Corporation's
obligation to file periodic reports and other information with the Commission.
For information concerning the income tax consequences of the Merger, see
"THE MERGER - Federal Income Tax Consequences of the Merger."
Antitrust Matters
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder (collectively, the "HSR Act") provide that
certain acquisition transactions (including the Merger) may not be consummated
unless certain information has been furnished to the Antitrust Division of the
Department of Justice ("Justice") and the Federal Trade Commission (the "FTC")
and certain waiting period requirements have been satisfied. The required
information was supplied by the Company and by the Buyer on August 21, 1996 and
the applicable waiting period under the HSR Act expires on September 20, 1996.
At any time before or after the consummation of the Merger, Justice, the FTC, or
some other person could seek to enjoin or rescind the Merger on antitrust
grounds. See "THE MERGER - Conditions to Consummation of the Merger;
Representations and Warranties."
Accounting Treatment
The Merger, if consummated as proposed, will be accounted for by the Buyer
as a "purchase" for accounting and financial reporting purposes.
19
<PAGE>
Terms of the Merger
The Company has agreed in the Agreement to submit the Merger Proposal to
its stockholders for approval and adoption at a meeting to be held as soon as
practicable in accordance with the DGCL and the Company's Certificate of
Incorporation and By-laws and, in connection therewith, to prepare and file a
proxy statement and cause the proxy statement to be mailed to the Company's
stockholders as soon as practicable. If the Merger Proposal is approved and
adopted by the stockholders, and the other conditions contained in the Agreement
are satisfied or waived, the Acquisition Company will be merged with and into
the Company. Upon the filing of the Certificate of Merger, or at such later
time as specified in such filing, each Share (other than Shares held by
stockholders of the Company who have properly exercised their appraisal rights
under applicable law) will be converted into the right to receive $10.25 in
cash, without interest, and each share of common stock of the Acquisition
Company will be converted into one share of Common Stock of the Company. The
obligations of the Company, the Buyer and the Acquisition Company to effect the
Merger are subject to the fulfillment of certain conditions set forth in the
Agreement, including the approval and adoption of the Merger Proposal by the
holders of a majority of the outstanding Common Stock of the Company. See "THE
MERGER - Conditions to Consummation of the Merger; Representations and
Warranties."
The terms of the Merger are set forth in the Agreement, which appears as
Annex A to this Proxy Statement, and the description of the Merger Proposal
contained herein is qualified in its entirety by reference to the Agreement.
Stockholders are urged to review the Agreement carefully.
The Agreement may be amended at any time prior to the filing of the
Certificate of Merger by written agreement of the Boards of Directors of the
Buyer, the Acquisition Company and the Company; provided, however, that the
Agreement may only be amended without approval of the stockholders of the
Company and the Acquisition Company to the extent permitted by applicable law.
In addition, each party may waive any condition provided in the Agreement for
its benefit.
Conditions to Consummation of the Merger; Representations and Warranties
Conditions to Consummation of the Merger. The obligations of the Company
to consummate the Merger is subject to, among other matters, satisfaction of the
following conditions (unless waived where permissible): (a) approval of the
Merger by the Company's stockholders; (b) the representations and warranties of
the Buyer Parties shall be true and correct, in all material respects, at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except for such inaccuracies or breaches of warranty as to
which the Company had actual knowledge on or prior to July 12, 1996; (c) no
Court Order (as defined in the Agreement) shall have been issued or entered that
would prohibit the consummation of the Merger; (d) the Buyer shall have
performed, in all material respects, all covenants and agreements required by
the Agreement; (e) receipt of a legal opinion from counsel to the Buyer
regarding certain matters; (f) all applicable waiting periods (and any
extensions thereof), if any, applicable to the Merger under the HSR Act shall
have been terminated or shall have expired; (g) no action shall have been taken,
and no statute, rule or law shall have been enacted, by any state, federal or
foreign government or governmental agency which would prevent the consummation
of the Merger; and (h) the delivery of a certificate from an executive officer
of the Buyer regarding the accuracy of representations and warranties and the
satisfaction of covenants. The obligations of the Buyer and the Acquisition
Company to consummate the Merger are subject to, among other matters,
satisfaction of the following conditions (unless waived where permissible): (a)
approval of the Merger by the Company's stockholders and the holders of not more
than ten percent of the Shares shall have perfected their appraisal rights under
the DGCL prior to the Closing Date; (b) the representations and warranties of
the Company shall be true and correct, in all material respects, at and as of
the Closing Date as though such representations and warranties were made at and
as of such time, except for such inaccuracies or breaches of warranty as to
which the Buyer had actual knowledge on or prior to July 12, 1996 and such
inaccuracies or breaches of warranty as would not, individually or in the
aggregate, have a Material Adverse Effect (as defined in the
20
<PAGE>
Agreement); (c) no Court Order shall have been issued or entered that would
prohibit the consummation of the Merger; (d) the Company shall have performed,
in all material respects, all covenants and agreements required by the Agreement
except for any breaches thereof do not or would not reasonably be expected to
have, individually or in the aggregate, have a Material Adverse Effect; (e)
receipt of a legal opinion from counsel to the Company regarding certain
matters; (f) all applicable waiting periods (and any extensions thereof), if
any, applicable to the Merger under the HSR Act shall have been terminated or
shall have expired and all governmental consents and approvals legally required
for the consummation of the Merger and the Transactions contemplated thereby
shall have been obtained and be in effect at the effective time of the Merger on
terms and conditions that would not have a material adverse effect on the
Company; (g) no action shall have been taken, and no statute, rule or law shall
have been enacted, by any state, federal or foreign government or governmental
agency which would prevent the consummation of the Merger; and (h) the delivery
of a certificate from an executive officer of the Company regarding the accuracy
of representations and warranties and the satisfaction of covenants.
Representations and Warranties. The Agreement contains various customary
representations and warranties by the Company relating to, among other things,
(a) proper corporate organization; (b) proper corporate organization of
subsidiaries; (c) the authorization, performance and enforceability of the
Agreement; (d) status of capital structure; (e) approval of its Board of
Directors; (f) governmental authorizations required to effect the Merger; (g)
financial statements; (h) the absence of false or misleading statements in the
Proxy Statement and compliance thereof with applicable provisions of the
securities laws; (i) documents filed with the Securities and Exchange
Commission; (j) absence of undisclosed liabilities; (k) taxes; (l) title to
assets; (m) interests in real property; (n) subsidiaries; (o) legal proceedings;
(p) compliance with applicable laws; (q) contracts and commitments; (r) employee
relations; (s) benefit plans; (t) intellectual property rights; (u) absence of
material changes or other specified events; (v) government permits; (w)
corporate records; and (x) fees payable to third parties arising from the
Agreement. The Agreement contains various customary representations and
warranties by each Buyer Party relating to, among other things, (a) proper
corporate organization; (b) the authorization, performance and enforceability of
the Agreement; (c) governmental authorizations required to effect the Merger;
(d) adequate funds; and (e) fees payable to third parties arising from the
Agreement.
The representations and warranties of the Company and of the Buyer and the
Acquisition Company are included in Sections 3 and 4, respectively, of the
Agreement, a copy of which is included in this Proxy Statement as Annex A.
Conduct of the Business Prior to the Effective Time; Certain Covenants;
Inquiries and Negotiations
Conduct of the Business Prior to the Effective Time. Pursuant to the
Agreement, the Company agreed that it and its subsidiary will carry on their
respective businesses in the ordinary course consistent with past practice.
Without limiting the foregoing, under the Agreement, the Company agreed that it
will not permit its subsidiary (without the Buyer's prior written consent) to:
(1) amend or propose to amend its Certificate of Incorporation or
Bylaws;
(2) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including any stock
options or stock appreciation rights), except as required by the options that
are outstanding and in effect as of July 12, 1996, or amend any of the terms of
any such securities or agreements that are outstanding as of the date hereof;
(3) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
except for the payment of dividends in accordance with past practice, or redeem
or otherwise acquire any of its securities or any securities of its
subsidiaries;
21
<PAGE>
(4) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to the Company and its
subsidiary taken as a whole; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and the
Subsidiary, taken as a whole, (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than loans or
advances to employees in the ordinary course of business consistent with past
practice and in amounts not material to the maker of such loan or advance); (iv)
pledge or otherwise encumber shares of capital stock of the Company or its
subsidiary; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material encumbrance thereupon;
(5) except as may be required by applicable law, enter into, adopt or
amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any director, officer or
employee in any manner, or (except for normal increases in the ordinary course
of business consistent with past practice that, in the aggregate, do not result
in a material increase in benefits or compensation expense to the Company, and
as required under existing agreements or in the ordinary course of business
generally consistent with past practice) increase in any manner the compensation
or fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including the granting of stock appreciation rights);
(6) acquire, sell, lease or dispose of any assets outside the
ordinary course of business or any assets that in the aggregate are material to
the Company and its subsidiary taken as a whole, or enter into any commitment or
transaction outside the ordinary course of business consistent with past
practice which would be material to the Company and its subsidiary taken as a
whole;
(7) except as may be required as a result of a change in law or in
generally acceptable accounting principles, change in any material respect any
of the accounting principles or practices used by it;
(8) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts receivables
other than in the ordinary course of business;
(9) (i) 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; (ii) enter into any Material Contract
(as defined in the Agreement) other than in the ordinary course of business
consistent with past practice; (iii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $500,000 or, in the aggregate,
are in excess of $1,000,000; provided that none of the foregoing shall limit any
capital expenditure already included in the Company's 1996 capital expenditure
budget previously provided to the Buyer; or (iv) enter into or amend any
Contract providing for the taking of any action that would be prohibited
hereunder;
(10) make any tax election or settle or compromise any income tax
liability material to the Company and its subsidiary taken as a whole;
(11) pay, discharge or satisfy Liabilities, other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in, or identified by specific reference in, the
Financial Statements (or the notes thereto) or incurred in the ordinary course
of business consistent with past practice;
(12) settle or compromise any pending or threatened suit, action or
claim relating to the Transactions; or
22
<PAGE>
(13) take, or agree in writing or otherwise to take, any of the
actions described in (1) through (12) or any action that would make any of the
representations or warranties of the Company contained in the Agreement untrue
or incorrect as of the date when made or would result in any of the conditions
set to consummation of the Merger.
Inquiries and Negotiations. Pursuant to, and except as otherwise provided
in, the Agreement, the Company agreed that, without the prior written consent of
the Buyer, the Company will not, and will not authorize subsidiaries, the
officers, directors, employees, attorneys, accountants, financial advisors,
other agents or affiliates of the Company or any party to the Stockholders
Agreement to, take any action to (a) encourage, solicit or initiate any
Acquisition Proposal, as defined below; (b) otherwise facilitate knowingly any
inquiries or the making of any proposal that constitutes or may reasonably be
expected to lead to an Acquisition Proposal, (c) accept any Acquisition
Proposal; (d) participate in any way in discussions or negotiations relating to
any Acquisition Proposals; or (e) make or authorize any statement,
recommendation or solicitation in support of any Acquisition Proposal. The
Company is permitted, prior to stockholder approval of the Agreement, to engage
in discussions or negotiations with and provide information to third parties
that have sought to initiate such discussions or negotiations provided that (a)
such third parties first have made a written Acquisition Proposal that is
financially superior to the Buyer's and has demonstrated that the funds
necessary for the Acquisition Proposal are reasonably likely to be available;
(b) the Company's Board of Directors shall conclude, on a basis set forth in the
Agreement, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable law; (c) the
Company provides prompt notice to the Buyer that the Company intends to enter
into discussions or negotiations or intends to provide information to such third
parties; and (d) the Company obtains executed confidentiality agreements from
such third parties. The Company may accept Acquisition Proposals upon proper
termination of the Agreement and is permitted to comply with Rule 14e-2 of the
Securities Exchange Act of 1934 with regard to tender or exchange offers. The
Company is required to report within 24 hours to the Buyer any inquiries, offers
or proposals, that are received by any Company Party, advising the Buyer of the
terms of any inquiry, offer or proposal, the identity of the Person making the
same (to the extent such disclosures of identity do not violate any
confidentiality agreements prior to the date of the Agreement), and the terms of
any written Acquisition Proposal. The Company has reported one such inquiry
regarding further negotiations that was received from the Other Bidder after the
execution of the Agreement. The Company shall give the Buyer five days advance
written notice prior to providing any information regarding the Company to, or
entering into any agreement with, any Person regarding an Acquisition Proposal.
For purposes of the Agreement, "Acquisition Proposal" shall mean any proposal
with respect to a tender or exchange offer, merger, consolidation or other
business combination involving the Company or any proposal to acquire in any
manner a substantial equity interest in, or all or any substantial part of the
assets of the Company. The Stockholders Agreement binds the Significant
Stockholders to a similar covenant.
Certain Covenants of the Buyer. Pursuant to the Agreement, the Buyer
agreed to use commercially reasonable efforts to obtain the Buyer Financing (as
defined in the Agreement) and to notify the Company promptly of any event or
circumstances that give the Buyer a reason to believe that the Buyer Financing
may not be available. In addition, for a period of six years after the Merger,
the Buyer agreed to cause the Surviving Corporation to (i) maintain in effect
the current provisions regarding indemnification of officers and directors
contained in the Certificate of Incorporation and Bylaws of each of the Company
and its subsidiary and any directors, officers or employees indemnification
agreements of any such party, and (ii) indemnify the directors and officers of
the Company and its subsidiary to the fullest extent to which they are permitted
to indemnify such officers and directors under their respective Certificate of
Incorporation and Bylaws and applicable law. For a period of four years after
the Merger, the Buyer shall cause the Surviving Corporation to maintain in
effect the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by any Company Party (provided that the
Buyer may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured in any material respect) with respect to claims
arising from facts or events which occurred on or before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend more than an amount per year equal to 200% of the
23
<PAGE>
current annual premiums paid by the Company (the "Premium Amount") to maintain
or procure insurance coverage pursuant hereto, and further provided that if the
Surviving Corporation is unable to obtain such insurance, the Surviving
Corporation will obtain as much comparable insurance as is available for the
Premium Amount per year. The Buyer will maintain, or cause the Surviving
Corporation to maintain, for a period of one year after the Merger, Benefit
Plans covering employees of any Company Parties that are no less favorable, in
the aggregate, to the employees covered by such plans than the Benefit Plans of
any Company Party in effect immediately prior to the Effective Time; provided,
however, that the foregoing obligation shall not apply to any Benefit Plans that
provide for the issuance of stock or stock options of any Company Party.
Pursuant to the Agreement, the Company will redeem on or before the Closing Date
all of the issued and outstanding Preferred Stock of Adco.
Company Stock Options; Option Purchase Agreements
Under the terms of the Agreement, each holder of Options (as defined in the
Agreement) has entered into an Option Cancellation Acknowledgment (as defined
in the Agreement) that provides that at the Effective Time, each Option subject
to an Option Cancellation Acknowledgment shall be converted into the right to
receive a net amount in cash equal to the difference between (x) $10.25,
multiplied by the number of shares of Common Stock covered by such Option minus
(y) the aggregate exercise price for the shares of Common Stock covered by such
Option.
Termination; Termination Fees and Expenses
Termination. The Agreement may be terminated at any time prior to the
Closing Date:
(a) By mutual written consent of the Company and the Buyer;
(b) By either the Company or the Buyer if the Merger shall not have been
consummated on or before October 31, 1996 (the "Termination Date"); provided,
however, that such right to terminate the Agreement shall not be available to
any party whose failure to fulfill any obligation under the Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before the Termination Date;
(c) By either the Company or the Buyer if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a Court Order (which Court Order the parties shall use
commercially reasonable efforts to lift) that permanently restrains, enjoins or
otherwise prohibits the Transactions, and such Court Order shall have become
final and nonappealable;
(d) By the Company or the Buyer if the required approvals of the
stockholders of the Company shall fail to have been obtained at a duly held
stockholders' meeting of the Company, including any adjournments thereof;
(e) By the Buyer if the Company shall have breached, or failed to comply
with, any of its obligations under this Agreement or any representation or
warranty made by the Company shall have been incorrect when made, and such
breach, failure or misrepresentation is not cured by the earlier of the
Termination Date or 20 days after notice thereof, and in either case, any such
breaches, failures or misrepresentations, individually or in the aggregate,
results or would reasonably be expected to result in a Material Adverse Effect;
(f) By the Company if the Buyer shall have breached, or failed to comply
with, in any material respect, any of its obligations under the Agreement or any
representation or warranty made by the Buyer shall have been incorrect in any
material respect when made, and such breach, failure or misrepresentation is not
cured by the earlier of the Termination Date or 20 days after notice thereof; or
(g) By the Company, prior to the approval of the Agreement by the
stockholders of the Company, upon five days' prior notice to the Buyer, if, as a
result of a written Acquisition Proposal received by the Company from a
24
<PAGE>
Person other than a party hereto or any of its Affiliates, the Board of
Directors of the Company determines in good faith that its fiduciary obligations
under applicable Law require that such Acquisition Proposal be accepted;
provided, however, that (i) such written Acquisition Proposal was received by
the Company without any solicitation, initiation, encouragement, discussion or
negotiation, directly or indirectly, by or with the Company or any Company
Representative in violation of the provisions of Section 5.4 of the Agreement,
(ii) such Acquisition Proposal is financially superior to the Transactions and
the Person proposing such Acquisition Proposal has demonstrated that the funds
necessary for such Acquisition Proposal are reasonably likely to be available
(as determined in good faith in each case by the Company's Board of Directors
after consultation with its financial advisors), and (iii) the Board of
Directors of the Company shall have concluded in good faith, after considering
applicable provisions of state law, on the basis of written advice of outside
counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable Law.
Termination Fees and Expenses. If the Agreement is terminated as a result
of certain circumstances and events related to a potential acquisition of the
Company, the Company shall pay the Buyer a termination fee equal to $2 million
plus the Buyer's reasonable out-of-pocket expenses related to the Transactions.
If the Agreement is terminated by the Buyer as a result of the Company's breach
of any covenant, representation or warranty, then the Company shall pay to the
Buyer a termination fee equal to the Buyer's reasonable out-of-pocket expenses
related to the Transactions; provided, that if such termination is due to (i) a
breach existing on July 12, 1996 that was known to exist on such date by the
Company or (ii) a wilful breach by the Company, such termination fee shall be
increased by an amount equal to $2 million. In calculating the Buyer's
reasonable expenses, such expenses shall include any fees, costs or other
expenses related to the Buyer Financing other than the 1% commitment fee with
respect to the Bridge Financing (as defined in the Agreement) to the extent that
such commitment fee exceeds $600,000. If the Agreement is terminated by the
Company as a result of the Buyer's breach of any covenant, representation or
warranty, then the Buyer shall pay to the Company a termination fee equal to the
Company's reasonable out-of-pocket expenses related to the Transactions;
provided, that if such termination is due to (i) a breach existing on July 12,
1996 that was known to exist on such date by any Buyer Party, (ii) a wilful
breach by any Buyer Party or (iii) the unavailability of the Buyer Financing,
such termination fee shall be increased by an amount equal to $2 million. All
termination fees are payable within ten days after the date of termination.
Source and Amount of Funds
The Buyer will require approximately $54,430,000 to pay the Merger
Consideration for all of the outstanding Shares. The Buyer has received a
commitment letter from DLJ for the Bridge Financing (as defined in the
Agreement) which is available to provide the Buyer Financing to fulfill the
obligations of the Buyer and the Acquisition Company under the Agreement if the
Buyer is unable to successfully complete an offering of its securities under
Rule 144A promulgated under the Securities Act to "qualified institutional
buyers" (as defined in Rule 144A). The Buyer has further indicated to the
Company that it anticipates that the Buyer Financing will be provided through
such a Rule 144A offering.
Pursuant to the Agreement, any portion of the funds deposited with the
Paying Agent (as defined in the Agreement), which remain undistributed to the
holders of Shares or Options for six months after the Effective Time shall be
delivered to the Surviving Corporation, upon demand, and any holder of Shares or
Options who has not complied with the terms of the Agreement regarding the
delivery of Certificates representing the Shares and a duly executed letter of
transmittal in the form provided by the Company, in the case of a holder of
Shares and delivery of a duly completed Option Cancellation Acknowledgment, in
the case of a holder of Options, shall thereafter look only to the Surviving
Corporation for payment of any sums to which such holder is entitled. Neither
the Buyer nor the Surviving Corporation shall be liable to any holder of Shares
or Options for any cash delivered by the Paying Agent or the Surviving
Corporation in good faith to a public official pursuant to an applicable
abandoned property, escheat or similar law. The Buyer or the Surviving
Corporation (or the Paying Agent on their behalf) shall be entitled to deduct
and withhold from the consideration payable pursuant to the Agreement as the
Buyer or Surviving
25
<PAGE>
Corporation is required to deduct and withhold with respect to the making of
such payment under any law related to Taxes.
No Further Transfer of Shares
After the Effective Time, holders of Shares will not be able to transfer
Shares that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates for Shares are presented to the Surviving
Corporation for transfer, they shall be canceled and exchanged for cash as
provided in the Agreement.
Federal Income Tax Consequences of the Merger
The discussion set forth below concerning federal income tax consequences
to a particular stockholder may vary depending upon such stockholder's
particular circumstances. For example, the following discussion may not be
applicable to a stockholder who acquired Common Stock pursuant to the exercise
of stock options or otherwise as compensation. Each stockholder is urged to
consult such stockholder's own tax advisor with respect to the particular tax
consequences to such stockholder of the Merger or the exercise of appraisal
rights, including the applicability and effect of state, local, foreign and
other taxes.
Exchange of Shares pursuant to the Merger (and the receipt of cash in
respect of the exercise of appraisal rights) will be taxable transactions for
federal income tax purposes under the Internal Revenue Code of 1986, as amended,
and may also be taxable transactions under applicable state, local and other tax
laws. For federal income tax purposes, each holder whose Shares are exchanged
in the Merger will generally recognize gain or loss equal to the difference
between the amount of cash received by such stockholder in the Merger and such
stockholder's tax basis in such Shares. Gain or loss recognized will be treated
as a long-term capital gain or loss if the Shares are held as capital assets and
if the Shares exchanged have a holding period of more than one year at the
Effective Time.
If a noncorporate stockholder recognizes a capital loss in connection with
the sale of Shares, the stockholder may offset such capital loss against any
other capital gains realized by such stockholder in the taxable year and against
up to $3,000 of such stockholder's ordinary income (for individuals filing joint
returns). Any excess loss may be carried forward indefinitely. A corporate
stockholder may use a capital loss recognized in connection with the Merger to
offset any capital gains realized by it in the same taxable year but not to
offset ordinary income. Any unused capital loss of a corporation may generally
be carried back to its three preceding taxable years and then, to the extent
unused, forward for five succeeding taxable years, in each case to offset
capital gains, if any.
Appraisal Rights of Stockholders
When the Merger is effected, stockholders of the Company who comply with
the procedures prescribed in Section 262 of the DGCL ("Section 262") will be
entitled to a judicial determination of the "fair value" of their Shares
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive from the Company payment of such fair
value in cash. Shares which are outstanding immediately prior to the Effective
Time and with respect to which appraisal shall have been properly demanded in
accordance with Section 262 shall not be converted into the right to receive the
Merger Consideration at or after the Effective Time unless and until the holder
of such Shares withdraws his or her demand for such appraisal or becomes
ineligible for such appraisal.
The following is a brief summary of the statutory procedures to be followed
by a stockholder of the Company in order to dissent from the Merger and perfect
appraisal rights under the DGCL. This Summary is not intended to be complete
and is qualified in its entirety by reference to Section 262, the text of which
is
26
<PAGE>
included as Annex D of this Proxy Statement. Any stockholder considering
demanding appraisal is advised to consult legal counsel.
A written demand for appraisal of the Shares must be delivered to the
Company by a stockholder seeking appraisal before the taking of the vote on the
Agreement. This written demand must be separate from any proxy or vote
abstaining from or voting against approval of the Agreement. Voting against
approval of the Agreement, abstaining from voting or failing to vote with
respect to approval of the Agreement will not constitute a demand for appraisal
within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights under Section 262
must not vote for approval of the merger Agreement. A vote by a stockholder
against approval of the Agreement is not required in order for that stockholder
to exercise appraisal rights. However, if a stockholder returns a signed proxy
but does not specify a vote against approval of the Agreement or a direction to
abstain, the proxy, if not revoked, will be voted for approval of the Agreement,
which will have the effect of waiving that stockholder's appraisal rights.
A written demand for appraisal must reasonably inform the Company of the
identity of the stockholder of record and that such stockholder intends thereby
to demand appraisal. Accordingly, a demand for appraisal should be executed by
or for the stockholder of record, fully and correctly, as such stockholder's
name appears on the stock certificates. If Shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by the fiduciary. If, for example, a stockholder holds Shares
through a broker, who in turn holds Shares through a central securities
depository nominee, such as Cede & Co., a demand for appraisal of such Shares
must be made by or on behalf of such depository nominee. If Shares are owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand, he
is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which the holder is the record owner.
In such case, the written demand must set forth the number of Shares covered by
such demand. Where the number of Shares is not expressly stated, the demand
will be presumed to cover all Shares outstanding in the name of such record
owner. Beneficial owners who are not record owners and who intend to exercise
appraisal rights should instruct the record owner to comply strictly with the
statutory requirements with respect to the delivery of written demand prior to
the taking of the vote on the Merger.
A Company stockholder who elects to exercise appraisal rights must mail or
deliver the written demands for appraisal to: David J. Fuchs at Adco
Technologies Inc., 4401 Page Avenue, Michigan Center, MI 49254, or should
deliver such demand to the Company in person at the Special Meeting. The
written demand for appraisal should specify the stockholder's name and mailing
address and the number of Shares covered by the demand, and should state that
the stockholder is thereby demanding appraisal in accordance with Section 262.
Within ten days after the Effective Time, the Company must provide notice
as to the date of effectiveness of the Merger to all stockholders who have duly
and timely delivered demands for appraisal and who have not voted for approval
of the Agreement.
Within 120 days after the Effective Time, any dissenting stockholder is
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of Shares not voted in favor of approval of the
Agreement and with respect to which demands for appraisal have been received by
the Company and the number of holders of such Shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the Company.
27
<PAGE>
Within 120 days after the Effective Time, either the Company or any
dissenting stockholder may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of the Shares of all dissenting
stockholders. If a petition for an appraisal is timely filed, after a hearing
on such petition, the Delaware Court of Chancery will determine which of the
Company stockholders are entitled to appraisal rights and thereafter will
appraise the Shares owned by such stockholders, determining the fair value of
such Shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with the fair rate of interest to be
paid, if any, upon the amount determined to be fair value. In determining fair
value, the Delaware Court of Chancery is to take into account all relevant
factors. In Weinberger v. UOP, Inc., et al., the Delaware Supreme Court
-------------------------------
discussed the factors that could be considered in determining fair value in an
appraisal proceeding, stating that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered and the "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court and the appraiser may consider "all factors and elements
which reasonably might enter into the fixing of value," including "market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which were known or which could be ascertained as of the date of the
merger and which throw any light on future prospects of the merged
corporation...." The Delaware Supreme Court has construed Section 262 to mean
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." However, such court noted that
Section 262 provides that fair value is to be determined "exclusive of any
element of value arising from the accomplishment or expectation of the merger."
Stockholders considering whether to seek appraisal should bear in mind that
the fair value of their Shares determined under Section 262 could be more than,
the same as, or less than the value of the Merger Consideration to be exchanged
in the Merger, and that opinions of investment banking firms as to fairness from
a financial point of view are not necessarily opinions as to fair value under
Section 262. Moreover, the Company reserves the right to assert in any
appraisal proceeding that, for purposes thereof, the "fair value" of the Shares
is less than the value of the Merger Consideration.
The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed upon the parties as the court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees, and the fees and expenses of experts, be
charged pro rata against the value of all Shares entitled to appraisal. In the
absence of such a determination or assessment, each party bears its own
expenses.
A dissenting stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote for any
purpose the Shares subject to such demand or to receive payment of dividends or
other distributions on such Shares, except for dividends or other distributions
payable to stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any dissenting
stockholder will have the right to withdraw his or her demand for appraisal and
to accept the Merger Consideration. After this period, a dissenting stockholder
may withdraw his or her demand for appraisal only with the consent of the
Company. If no petition for appraisal is filed with the Delaware Court of
Chancery within 120 days after the Effective Time, dissenting stockholders'
rights to appraisal shall cease and they shall be entitled only to receive the
Merger Consideration. Inasmuch as the Company has no obligation to file such a
petition, any stockholder who desires such a petition to be filed is advised to
file it on a timely basis. However, no petition timely filed in the Delaware
Court of Chancery demanding appraisal shall be dismissed as to any stockholder
without the approval of the Delaware Court of Chancery, and such approval may be
conditioned upon such terms as the Delaware Court of Chancery deems just.
28
<PAGE>
A vote for the Merger will constitute a waiver of appraisal rights. A
failure to vote against the Merger will not, under DGCL, constitute a waiver of
appraisal rights. If a stockholder returns a proxy which does not contain
instructions as to how it should be voted, such proxy will be voted in favor of
the Merger and, accordingly, appraisal rights will be waived. As described
above, a vote against the Merger is not sufficient to perfect appraisal rights.
A stockholder's failure to make the written demand prior to the Special Meeting
(under DGCL) as described above will constitute a waiver of appraisal rights.
Failure to take any required step in connection with the exercise of appraisal
rights may result in the termination or waiver of such rights.
Payments to dissenting stockholders, if any, of the Company will be taxable
transactions for federal income tax purposes. See "THE MERGER - Federal Income
Tax Consequences of the Merger."
The foregoing description of the rights of dissenters under Section 262 of
DGCL should be read in conjunction with Annex D to this Proxy Statement, and is
qualified in its entirety by the provisions of DGCL.
29
<PAGE>
ADCO TECHNOLOGIES INC.
Overview
The Company formulates and produces specialty chemical products in the form
of sealants and adhesives for use in the roofing, automotive original equipment
manufacturing ("OEM"), windshield replacement, window manufacturing and concrete
pipe and vault industrial markets. The Company's expertise is focused on butyl
rubber, urethane and ultraviolet-cured ("UV-cured") acrylic technologies. The
Company currently manufactures and sells more than 650 sealant and adhesive
products to over 800 customers.
Sealants are used to prevent the passage of air, water and noise between
two surfaces, while adhesives are used to bond materials. The Company
manufactures sealants and adhesives in various forms, including hot melts,
pumpables, and extruded products. Many of the Company's applied research and
product development activities are coordinated with its customers and are in
response to existing customer demands. The Company's existing products are used
to: (i) install rubber commercial roofing systems; (ii) reduce the passage of
unwanted air, moisture and noise in automobiles; (iii) attach trim components to
automobiles; (iv) install replacement windshields on automobiles; (v) seal, and
eliminate moisture between, insulated glass window panes; and (vi) seal concrete
construction pipes and burial vaults.
Adco was founded in 1971 primarily to manufacture extruded butyl compounds
and rubber-based caulks. In July 1985, Adco was acquired by Nalco Chemical
Company ("Nalco"), which continued to operate Adco as a stand-alone entity while
providing only certain administrative services. The Company was organized in
1993 to acquire Adco. On May 14, 1993, the Company acquired all of the
outstanding common stock of Adco from Nalco. The purchase price for the
Acquisition was $19.5 million, comprised of $16.0 million in cash plus $3.5
million of preferred stock issued by Adco. The cash purchase price for the
acquisition was funded from the proceeds of the offering of approximately $7.9
million in shares of Common Stock of the Company to the initial stockholders of
the Company, and loans in the aggregate amount of approximately $8.9 million
from First Fidelity Bank, National Association, New Jersey ("First Fidelity").
The initial stockholders of the Company consisted of a group of investors
assembled by Bradford Ventures, Ltd. ("BVL") and the executive officers of the
Company, Charles E. Sax, Philip D. Beery, David J. Fuchs, James R. McCowan and
Brian J. Briddell. Prior to the Acquisition, Messrs. Sax, Beery, Fuchs, McCowan
and Briddell had no affiliation with BVL. Prior to the Acquisition, the Company
did not engage in any activities other than those related to the Acquisition.
Since the Acquisition, the Company has conducted its operations through Adco,
its subsidiary.
In June 1993, as part of its continuing growth strategy, the Company
acquired urethane production equipment and technology from BASF Corporation
("BASF") for $1.5 million. The acquisition of this technology has enabled the
Company to manufacture urethane-based products in-house.
In February 1995, the Company completed an initial public offering of its
common stock, in which 2.3 million shares of the Company's Common Stock were
sold at a price of $7.00 per share. Of the shares sold, 1.15 million were sold
by the Company and 1.15 million were sold by certain shareholders.
Products and Markets
The Company serves customers mainly in the roofing, automotive OEM,
windshield replacement, window manufacturing and concrete pipe and vault
markets. The Company intends to maintain a diverse product offering to attract a
wide range of customers, increase sales and reduce exposure to the cyclicality
of any single market.
Roofing Market. The Company's products for the roofing market are used by
companies that manufacture large single-ply rubber commercial roofing systems to
seal seams, edges, joints and protrusions, or adhere the
30
<PAGE>
rubber roofing sheets to the roof. The Company's products for the roofing market
include: (i) seam tapes to seal and join overlap seams on single-ply rubber
commercial roofing systems; (ii) tapes to cover metal flashing and seal pipe
work and air vents; (iii) edge caulks and lap sealants to seal exposed sheet
edges or seams; (iv) primers to prepare the surface of the rubber before
applying adhesive tape; and (v) butyl-based liquid adhesives for both seaming
and fully-adhered bonding applications.
The Company has licensed some of its technology related to certain roofing
products to Firestone. This license enables Firestone to manufacture certain of
the Company's roofing products in exchange for royalties and other rights.
Firestone began manufacturing a certain roofing product in 1996. The Company
anticipates that for its roofing products line, the growth of sales will decline
or cease over the next several years as a result of Firestone's decision to
manufacture such product.
Automotive OEM Market. The Company's products for the automotive OEM
market are used by automotive manufacturers to reduce the passage of unwanted
air, moisture, and noise and to affix body side moldings and other trim
components to the automobile. The Company's products for the automotive OEM
market include: (i) hot melt sealants; (ii) acrylic trim attachment adhesives;
(iii) extrudable compounds; and (iv) butyl tapes. Approximately one-half of the
Company's sales to the automotive OEM market in 1995 were made directly to
General Motors and Ford, and the other one-half were made to their suppliers.
Windshield Replacement Market. The Company's windshield replacement
products include urethane sealants and butyl tapes used to install and seal
replacement glass in automobiles. The windshield replacement industry has
recently been moving away from traditional butyl-based sealants toward using
urethane sealants which provide quicker curing times and increased strength. In
June 1993, the Company acquired the urethane production facilities of BASF,
which was the Company's major supplier of urethane.
Window Manufacturing Market. The Company's products for this market
include extruded pressure-sensitive butyl tapes and liquid butyl pumpables used
to form seals between window glass and its frame and butyl hot melts which seal,
and form an insulated moisture barrier between, two panes of glass.
Concrete Pipe and Vault Market and Industrial Market. The Company offers
a line of construction-related products serving various industrial markets,
including the concrete pipe and the concrete burial vault markets. The Company
supplies products through a network of distributors. The Company's products in
these markets include large cross-section flexible tape sealants to form a
gasket-type seal when compressed between two concrete surfaces and butyl
solutions for use as intermediates.
Applied Research and Product Development
The Company maintains a strong commitment to applied research and product
development. The Company employs a research and development staff of 16, which
includes experienced chemists and laboratory technicians. The Company has
expended $1,019,000, $1,265,000 and $1,351,000 in 1993, 1994 and 1995,
respectively, in these efforts.
The Company's laboratory facilities have been certified by certain
customers and trade organizations. The Company uses sophisticated testing
equipment to determine, among other things, appropriate mixing and cure times,
extrusion properties and performance under extreme conditions. The Company
maintains a pilot plant to simulate the production cycle, allowing it to
minimize start-up costs and reduce the time generally required between the
research and development stage and the commercial manufacturing stage.
31
<PAGE>
Sales and Marketing
The Company currently has 12 full-time sales and marketing personnel who
work in coordination with product development and technical personnel to service
the Company's customers. The Company's sales personnel are compensated on a
base salary plus incentive bonus. The Company also utilizes manufactures
representatives in certain of its markets.
The Company has over 800 customers. One customer, Firestone, accounted for
22% of total sales for the year ended December 31, 1995, 20% for the year ended
December 31, 1994 and 12% for the year ended December 31, 1993.
Sales are generally made on an open account, with payment required within
30 days following shipment of goods.
Manufacturing
The manufacture of sealants and adhesives is a multi-stage process which
includes compounding, mixing, curing, extruding and packaging. Due to the
diversity in the Company's products, versatile, proprietary machinery and
equipment is needed to fulfill production requirements. The Company's
manufacturing personnel maintain and improve operating processes as well as
assist in the development of new processes for new products. The expertise of
these employees in the construction, installation and modification of existing
and new manufacturing systems is critical to the development of new products.
The Company seeks to obtain the best available equipment for the
manufacture of its products, and is often able to modify existing equipment
until it matches or exceeds the performance levels of new equipment, avoiding
unnecessary capital expenditures. The Company's newly acquired urethane
production facility is computer-controlled and has high-volume production
capabilities. The Company has a pressure-sensitive acrylic tape production line
capable of UV-curing high strength tape for automotive and industrial uses.
The primary raw materials used by the Company are butyl rubber, ethylene
propylene diene monomer rubber, polyisobutylenes, carbon black, isocyanates,
polyols, petroleum oils and release films. Some of these materials have limited
sources and the Company makes every effort to obtain secondary suppliers as well
as seek cost-effective alternatives for limited availability raw materials.
The Company's products are generally shipped in containers, cartridges or
drums by common carriers to customers in the United States and Canada.
Competition
The Company competes with a variety of other specialty chemical products
manufacturers in various markets, but is not aware of any competitor that
competes in all of the markets in which the Company does business. The sealants
and adhesives industry is fragmented, with many firms developing their expertise
in specialized niches.
The following competitors of the Company may be considered dominant with
respect to the various markets specified below: Ashland Oil, Inc. and Uniroyal
Adhesives Corporation with respect to roofing, Essex Corporation (a subsidiary
of Dow Chemical Company) with respect to the windshield replacement market and
H. B. Fuller Company with respect to the hot melts portions of the automotive
OEM and window glass market.
32
<PAGE>
The Company competes with other manufacturers based on a variety of
factors, including product performance, price and customer service. The Company
has developed many of its product formulations in conjunction with its
customers, which have worked closely with the Company during the design process.
The Company believes that its close working relationships with its customers
give it a competitive advantage.
Employees
As of June 30, 1996, the Company employed 213 full-time employees.
Management considers employee relations to be excellent.
Most of the Company's hourly employees are members of the International
Association of Machinists and Aerospace Workers (IAM). In May 1994, the Company
entered into a five-year labor agreement with the union. The Company has never
experienced a labor strike or other labor-related work stoppages.
Patents and Proprietary Information
The Company holds patents in the United States and certain patents in other
countries on adhesive and sealant compositions, methods of using such adhesives
and sealants and other technologies related to such products. The Company has
also applied for several other patents in foreign jurisdictions. There can be no
assurance that any other patents will be issued to the Company or that such
patents, if and when issued, will provide any protection or benefit to the
Company.
The Company holds U.S. patents in the following technologies: (i) an
adhesive composition and method for providing water tight joints in single-ply
roofing membranes, which expires 2010; (ii) a solvent-based adhesive composition
for roofing membranes, which expires in 2010; (iii) a sealant primer composition
and method, which expires in 2006; (iv) a vulcanized silicon polyurethane
polymer composition, which expires in 1997; (v) formulations of an acrylic ester
pressure sensitive adhesive, which expire in 2007 and 2011; (vi) manufacturing
processes for UV-cured acrylic, which expire in 2007 and 2010; (vii) a room
temperature moisture-curable primerless polyurethane-based adhesive composition
and method, which expires in 2009; (viii) a polyurethane-based adhesion
composition and method, which expires in 2010; (ix) a fast-cure polyurethane
sealant composition containing titanium ester accelerators, which expires in
2006; (x) a fast-cure polyurethane sealant composition containing silyl-
substituted piperazine accelerators, which expires in 2007; (xi) a fast-cure
polyurethane sealant composition containing silyl-substituted guanidine
accelerators, which expires in 2009; (xii) a polymer adhesive composition, which
expires in 2010; (xiii) a polyurethane block copolymer, which expires in 2011;
and (xiv) a caulking gun nozzle, which expires in 2008. The Company also holds
patents on many of these technologies in Europe and in other foreign countries
such as Canada, Korea and Australia.
The Company also relies upon trade secrets and other unpatented proprietary
information in its operations. While the Company believes that it has developed
unique production methods, which constitute patented or proprietary knowledge,
there can be no assurance that others will not develop similar or better
methods. Certain of the Company's employees have entered into agreements
providing for confidentiality. There can be no assurance that these types of
agreements will effectively prevent disclosure of the Company's confidential
information.
Environmental Matters
Specialty chemical companies such as the Company are subject to extensive
laws and regulations concerning, among other things, emissions to air,
discharges to land and surface water, the generation, handling, storage,
transportation, treatment and disposal of waste and other materials, and the
remediation of environmental pollution relating to such companies' properties
and operations ("Environmental Laws"). Costs and expenses under such laws
incidental to ongoing operations are generally included within operating
budgets. Costs and expenses may also be incurred in connection with the repair
or upgrade of facilities to meet existing or new requirements under
33
<PAGE>
Environmental Laws. Environmental Laws are constantly evolving and it is
impossible to predict accurately the effect they may have upon the capital
expenditures, earnings and competitive position of the Company in the future,
except that such Environmental Laws are becoming increasingly strict and can be
expected to result in increasing compliance costs. Under certain Environmental
Laws, including the federal Comprehensive Environmental Response, Compensation,
and Liability Act, as amended ("CERCLA"), and the Michigan Superfund Program,
specialty chemical and other manufacturing companies such as the Company may be
liable for the remediation of environmental pollution on their properties and at
off-site waste management areas.
The Company has been notified by the U.S. Environmental Protection Agency
("EPA") that it is a Potentially Responsible Party ("PRP") under CERCLA, at the
Jackson Drop Forge Superfund site (the "Jackson Site") in Jackson, Michigan. The
Company has responded to the EPA that it does not believe it ever conducted
business with, or sent any waste materials to, the Jackson Site. The clean up of
the Jackson Site may involve substantial sums of money and the amount of money,
if any, that the Company may be required to pay for clean up of the Jackson Site
cannot be determined at this time. Under an Agreement and Plan of Merger (the
"Merger Agreement") between Nalco and the Company, Nalco has agreed to indemnify
the Company for certain environmental liabilities. The Company believes that
Nalco is obligated to indemnify the Company in certain circumstances with
respect to environmental liabilities arising out of the Page Avenue Property (as
defined below), which is the alleged origin of some wastes found at the Jackson
Site. The indemnity is limited.
The Company has been notified by the EPA that it is a PRP under CERCLA at
the Frontier Chemical Superfund Site (the "Frontier Site") in Niagara Falls, New
York. The Frontier Site remediation has been divided into three stages: Phase I
(drum waste removal), Phase II (bulk tank waste removal), and Phase III (site
investigation). Many of the PRP's, including the Company, have organized into a
PRP group in order to negotiate the resolution of EPA's claims at the Frontier
Site. The Company has signed an administrative consent order and a PRP
participation agreement related to the Phase I removal action. Due to the
relatively small volume of drum waste contributed by the Company to the Site,
the Company has paid approximately $5,000 thus far to settle its share of
alleged liability for Phase I, which is virtually complete. On or about October
4, 1994, the Phase I removal action contractor hired by the PRP's filed suit in
New York state court against the PRP's and others seeking at least $2.8 million
in damages for claims arising as a result of difficulties in the removal action.
The PRP's have hired common counsel, which recently obtained a dismissal of all
claims except for one or more claims for an aggregate of approximately $250,000.
It is unclear whether appeal of this dismissal will be pursued, and what
exposure, if any, the Company has as a result of the suit. The EPA has
classified the Company as a de minimis PRP as to the Phase II removal work in
light of the minimal amount of wastes reportedly sent in bulk by the Company to
the Frontier Site. In connection with Phase II, the Company has paid its
allocated share, approximately $4,000, and has entered into a de minimis
settlement with the EPA. The Company may be required to pay additional amounts
attributable to defunct or non-viable PRP entities in either Phase I or II. The
Company cannot predict whether the EPA will propose further clean up requiring
additional expenditures of money, or whether the Company will be asked to
contribute toward future costs of investigation or subsequent clean up.
The Company has conducted a clean up of a drum storage area containing
buried containers of wastes located on Company property (the "Page Avenue
Property"). The Page Avenue Property was previously owned and operated by
various companies that produced, among other things, automotive and metal parts,
asphalt specialty materials, sealers and caulking materials. None of these
previous owners and operators of the Page Avenue Property are related to the
Company. The Page Avenue Property has been listed as a contaminated property
under the Michigan Superfund Program. The Company has been notified by the
Michigan Department of Natural Resources ("MDNR") that further clean up of the
Page Avenue Property is necessary because MDNR officials continue to have
concerns about residual soil and groundwater contamination. While management of
the Company has no reason to believe that the Company's exposure at the Page
Avenue Property will have a material adverse effect on the business and
financial condition of the Company, the Company has recorded a reserve of
$148,000 at June 30, 1996 as an estimate of the amount of loss that is
reasonably possible to be incurred for this site. There can be no assurance
that the Company will not incur significant liabilities in connection with this
matter or that the liability
34
<PAGE>
from related actions will not have a material adverse effect on the Company's
business and financial condition. The Company continues to investigate potential
sources and the extent of contamination, and expects to propose appropriate
remediation measures to MDNR. The Company believes that past owners and
operators of the Page Avenue Property are responsible in part for clean up
costs, and has proposed to MDNR that any past owners and operators be notified
of their potential responsibility for clean up. The Company is also
investigating the possibility that a formerly leaking underground storage tank
("UST"), which the Company removed in 1993, at the Page Avenue Property is
responsible for some of the contamination. If the Company is able to demonstrate
that a UST is responsible for the contamination, then the Company may be
eligible for partial reimbursement under the Michigan Underground Storage Tank
Financial Assistance Act. Under the Merger Agreement, Nalco has agreed to
indemnify the Company to a limited extent against losses incurred by the Company
arising out of the demand by MDNR to clean up the drum storage area and former
UST location at the Page Avenue Property.
Properties
The Company's primary facility is located on 45 acres and covers 170,000
square feet in Michigan Center, Michigan. This facility is used for
manufacturing, storage and administration, and is owned by the Company. The
Company leases a 90,000 square foot warehouse in Jackson, Michigan. The lease
expires in January 1998 with an option to extend the lease until January 2000.
This warehouse is approximately three miles from the main facility and is used
primarily to store finished goods.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the ordinary course
of its business, which are not anticipated to have a material adverse effect on
the Company's results of operations or financial condition.
MARKET PRICES AND DIVIDENDS
The Common Stock is traded on the Nasdaq National Market under the symbol
ADCO. The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices for the Common Stock:
<TABLE>
<CAPTION>
Fiscal 1996: High Low
------ ------
<S> <C> <C>
Fiscal 1996:
First Quarter ended March 31, 1996.............. $ 7.25 $5.75
Second Quarter ended June 30, 1996.............. 10.25 5.75
Third Quarter (through September 3, 1996)....... 9.88 8.50
Fiscal 1995:
February 14, 1995 through March 31, 1995........ $ 8.75 $7.25
Second Quarter ended June 30, 1995.............. 8.25 7.00
Third Quarter ended September 30, 1995.......... 8.00 6.25
Fourth Quarter ended December 31, 1995.......... 8.75 6.25
</TABLE>
On May 8, 1996, the last full trading day prior to the Company's public
announcement that it had retained Schroder Wertheim to explore strategic
alternatives for the Company, the highest reported sales price for the Common
Stock on the Nasdaq National Market was $8.00 per share, the lowest reported
sales price for the Common Stock was $7.00 per share, and the last reported
sales price for the Common Stock was $7.13 per share. On July 12, 1996, the
last full trading day prior to the public announcement by the Company regarding
the Agreement, the highest reported sales price for the Common Stock on the
Nasdaq National Market was $9.25 per share, the lowest reported sales price for
the Common Stock was $8.63 per share and the last reported sales price for the
Common Stock was $ 8.63 per share. Stockholders are urged to obtain current
market quotations for the Common Stock.
35
<PAGE>
HISTORICAL AND PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The following historical and pro forma consolidated financial data has been
prepared as if ATI's acquisition of Adco, which actually occurred on May 14,
1993, took place on January 1, 1993. The pro forma financial data for the year
ended December 31, 1993 combines the historical results of operations of Adco
for the period January 1, 1993 to May 13, 1993 and of the Company for the period
May 14, 1993 to December 31, 1993. For the pro forma period, adjustments were
made to (i) selling, general and administrative expense for different goodwill
amortization amounts, (ii) interest expense to reflect the debt as outstanding
beginning January 1, 1993, and (iii) income taxes for the tax effect of the
previous noted adjustments.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
Six Months Ended
Pro Forma June 30,
--------- ------------------------
1993 1994 1995 1995 1996
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Income Statement Data:
Net sales......................................... $ 31,345 $ 38,749 $ 47,411 $ 24,097 $ 24,954
Cost of products sold............................. 22,511 27,057 33,318 16,729 18,200
---------- ---------- ---------- ---------- ----------
Gross profit...................................... 8,834 11,692 14,093 7,368 6,754
Selling general and administrative................ 4,398 4,846 5,720 2,929 2,780
Research and development.......................... 1,019 1,265 1,351 679 733
---------- ---------- ---------- ---------- ----------
Operating income.................................. 3,417 5,581 7,022 3,760 3,241
Interest expense.................................. 648 596 105 105 --
Dividends on preferred stock of subsidiary........ 280 280 280 140 140
Other (income) expense - net...................... (87) 116 (105) (17) (184)
---------- ---------- ---------- ---------- ----------
Income before taxes............................... 2,576 4,589 6,742 3,532 3,285
Income taxes...................................... 1,035 1,740 2,470 1,302 1,206
---------- ---------- ---------- ---------- ----------
Net income........................................ $ 1,541 $ 2,849 $ 4,272 $ 2,230 $ 2,079
========== ========== ========== ========== ==========
Net income per common share....................... $.40 $.72 $.84 $.45 $.40
========== ========== ========== ========== ==========
Weighted avg. share used in computing earnings per
common share..................................... 3,819,603 3,937,825 5,065,847 4,939,191 5,259,313
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of June 30,
----------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.............................................. $ 497 $ 337 $ 3,798 $ 798 $ 3,558
Working capital................................... 4,084 5,053 11,110 9,216 13,138
Total assets...................................... 24,313 26,184 31,118 30,784 34,481
Notes payable, including current position......... 8,471 6,008 -- -- --
Total liabilities................................. 11,747 10,254 4,071 5,754 5,391
Redeemable preferred stock of subsidiary.......... 3,570 3,710 3,850 3,780 3,920
Total stockholders' equity........................ 8,996 12,220 23,197 21,250 25,170
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company formulates and produces specialty chemical products in the
form of sealants and adhesives for use in the roofing, automotive OEM,
windshield replacement, window manufacturing and concrete pipe and vault
industrial markets. The Company's net sales increased 51.3% from $31.3 million
in 1993 to $47.4 million in 1995, and increased 4.2% from $24.0 million for the
six month period ended June 30, 1995 to $25 million for the same period in 1996.
The Company's operating income more than doubled from 1993 to 1995, increasing
from $3.4 million, or 10.9% of sales, in 1993, to $7.0 million, or 14.8% of net
sales, in 1995. Operating income for the six month period ended June 30, 1996
decreased to $3.2 million from $3.8 million for the same period in 1995 (a
decrease of 15.8%).
The Company has experienced and expects to continue experiencing
shifts in the relative sales and growth of its various products over time. The
Company believes that such shifts are in the ordinary course of business and are
indicative of its focus on niche markets. The Company anticipates that for its
roofing products line, the growth of sales will decline or cease over the next
several years and that this product line will represent a smaller percentage of
the Company's total sales as a result of the decision by Firestone, a major
customer of the Company, to manufacture a certain roofing product that has
historically been manufactured by the Company. The growth in sales of roofing
tape products over the past three years is shown in the following table:
<TABLE>
<CAPTION>
Sales (in thousands)
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Sales increase $1,081 $4,942 $3,574
Percent increase from prior year 13.6% 108.1% 37.6%
</TABLE>
For the six month period ended June 30, 1996, sales from roofing tape
products increased $976,000 or 15.6% over the same period in 1995. In 1995,
the gross profit of the roofing products line was approximately 38% of sales.
The Company's gross profit reflects all direct product costs, quality
control and a substantial portion of the Company's depreciation expense.
Selling, general and administrative expenses are primarily composed of
salespersons' salaries and related expenses, commissions to sales
representatives, advertising costs, management compensation, corporate legal
expense, various state taxes and amortization of intangibles. Research and
development expenses include salaries of technical personnel, related
depreciation expense and consultant fees.
The following discussion is based on the table titled "Historical and
Pro Forma Selected Consolidated Financial Data." The pro forma financial
information should be read in conjunction with the financial statements and
notes thereto included elsewhere herein. The pro forma results are not
necessarily indicative of the combined results as they may be in the future or
as they might have been for the periods indicated had the acquisition of Adco
been consummated at January 1, 1993.
The six month period ended June 30, 1996 vs. the six month period
ended June 30, 1995
Net sales for the first six months of 1996 were $24.9 million, an
increase of $857,000, or 3.6% over sales of $24.1 million for the first six
months of 1995. The sales increase was primarily attributable to growth in the
roofing and construction markets, both of which recorded double digit sales
increases versus the first six months of 1995. The increase in the roofing
market was mainly due to double digit sales increases in the roofing tapes and
primer products.
37
<PAGE>
Window manufacturing and windshield replacement sales recorded single digit
sales increases versus the year earlier period.
Gross profit declined $615,000, or 8.3%, to $6.8 million in the first
six months of 1996 from $7.4 million in the first six months of 1995. Gross
profit as a percentage of sales decreased to 27.1% for the first six months of
1996 from 30.6% in the year earlier period. The decrease was mainly
attributable to increased raw material costs and a reduction in selling prices
in the roofing market to meet competitive pricing.
Selling, general and administrative expenses decreased $148,000, or
5.1%, to $2.8 million in the first six months of 1996 from $2.9 million in the
year earlier period. The decrease was mainly attributable to lower salaries and
advertising expenditures.
Research and development costs increased $54,000, or 8.0% to $733,000
for the first six months of 1996 from $679,000 for the first six months of 1996.
The increase was mainly the result of increased salary expense for research
personnel hired in the second half of 1995.
Operating income decreased $520,000, or 13.8%, to $3.2 million in the
first six months of 1996 from $3.8 million in the year earlier period.
Operating income as a percentage of sales declined to 13.0% for the first six
months of 1996 from 15.6% in the first six months of 1995.
There was no interest expense for the first six months of 1996. This
is down from $105,000 for the year earlier period. The decrease was
attributable to the repayment of all of the Company's outstanding bank debt from
the proceeds of the initial public offering of the Company's common stock in
February, 1995.
Income taxes decreased $96,000, or 7.4%, to $1.2 million in the first
months of 1996 from $1.3 million in the year earlier period. This was the
result of the decrease in taxable income. The effective tax rate decreased to
36.7% for the first six months of 1996 from 36.9% for the first six months of
1995.
Net income decreased $152,000, or 6.8%, to $2.1 million in the first
six months of 1996 from $2.2 million a year ago. Net income as a percentage of
sales decreased to 8.3% in the first six months of 1996 from 9.3% in the year
earlier period.
Year ended December 31, 1995 vs. year ended December 31, 1994
Net sales increased $8.7 million, or 22.4%, to $47.4 million in 1995
from $38.7 million in 1994. The gain in 1995 was mainly attributable to growth
in sales in the automotive OEM, roofing and the window manufacturing markets.
Roofing sales accounted for $4.3 million, or 49.4%, of the increase, as tape
sales increased with continued market acceptance. Automotive OEM sales
accounted for $2.5 million, or 28.8%, of the increase, mainly from sales of hot
melt products. Window manufacturing sales accounted for $699,000, or 8.1% of
the increase, due to increased sales of hot melt and matrix products.
Gross profit increased $2.4 million, or 20.5%, to $14.1 million in
1995 from $11.7 million in 1994 as a result of the greater net sales. Gross
profit as a percentage of sales declined slightly to 29.7% in 1995 from 30.2% in
1994. The decline in gross profit as a percentage of sales was mainly due to
credits issued to customers for a urethane product packaging problem.
Selling, general and administrative expenses increased $874,000, or
18%, to $5.7 million in 1995 from $4.8 million in 1994. The increase was due to
the hiring of an additional sales representative and commissions to outside
sales representatives, increased salesmen travel costs, increased legal and
other costs associated with being a public corporation and increased Michigan
single business tax.
38
<PAGE>
Research and development expenses increased $86,000, or 6.8%, to $1.4
million in 1995 from $1.3 million in 1994. The increase was attributable to the
hiring of additional technical personnel.
Operating income increased $1.4 million, or 25.8%, to $7.0 million in
1995 from $5.6 million in 1994. Operating income as a percentage of sales
increased to 14.8% in 1995 from 14.4% in 1994.
Interest expense decreased $491,000 to $105,000 in 1995 from $596,000
in 1994. Proceeds from the initial public offering in February 1995 were used
to repay all outstanding loans during 1995.
Income taxes increased $730,000 to $2.5 million in 1995 from $1.7
million in 1994. The effective tax rate for 1995 was 36.6% compared to 37.9% in
1994. The reduction in the effective tax rate was primarily the result of non-
deductible goodwill becoming a smaller percentage of income before taxes.
Net income increased $1.4 million, or 49.9%, to $4.3 million in 1995
from $2.8 million in 1994. Net income as a percentage of sales increased to
9.0% in 1995 from 7.4% in 1994.
Year ended December 31, 1994 vs. pro forma year ended December 31,
1993
Net sales increased $7.4 million, or 23.6%, to $38.7 million in 1994
from $31.3 million, in 1993. This increase was attributable to growth in sales
in the roofing and automotive OEM markets. Roofing sales accounted for $5.2
million, or 70.2% of the increase and automotive OEM sales accounted for $1.6
million, or 21.6% of the increase. In roofing, the increase resulted primarily
from expanded sales of roofing tape products. The automotive OEM increase was
primarily due to further penetration of hot melt products and the specification
of several of the Company's butyl tapes for new applications.
Gross profits increased $2.9 million, or 32.4%, to $11.7 million in
1994 from $8.8 million in 1993. Gross profit as a percentage of sales increased
to 30.2% in 1994 from 28.2% in 1993. The increase in gross profit as a
percentage of sales was attributable to a favorable change in product mix
towards higher margin roofing products, increased capacity utilization and
conversion to in-house urethane manufacturing, which lowered production costs.
Selling, general and administrative expenses increased $448,000 or
10.2% to $4.8 million in 1994 from $4.4 million in 1993. The increase was
primarily attributable to the hiring of additional salespersons, increased
advertising expenditures and increased sales commissions.
Research and development expenses increased $246,000 or 24.1% to $1.3
million in 1994 from $1.0 million in 1993. The increase was primarily
attributable to the hiring of technical personnel and legal costs associated
with the worldwide filing of certain urethane related patent applications.
Operating income increased $2.2 million or 63.3% to $5.6 million in
1994 from $3.4 million in 1993. Operating income as a percentage of sales
increased to 14.4% in 1994 from 10.9% in 1993.
Interest expense declined $52,000 or 8.0% to $596,000 in 1994 from
$648,000 in 1993.
Income taxes increased $705,000, or 68.1%, to $1.7 million in 1994
from $1.0 million in 1993. The effective tax rate in 1994 was 35.7% compared to
36.2% in 1993.
Net income increased $1.3 million or 84.9% to $2.8 million in 1994
from $1.5 million in 1993. Net income as a percentage of sales increased to
7.4% of sales in 1994 from 4.9% of sales in 1993.
39
<PAGE>
Liquidity and capital resources
The Company's primary source of working capital has been net cash
provided by operating activities. Net cash provided by operating activities was
$1.9 million, $3.2 million,$4.4 million and $490,000 for 1993, 1994, 1995 and
the six months ended June 30, 1996, respectively.
As of December 31, 1995, the Company had a cash balance of
approximately $3.6 million. The Company had available a $3.0 million
discretionary line of credit for general corporate purposes. There was nothing
outstanding on this facility as of June 30, 1996.
The Company's capital expenditures, excluding acquisitions, totaled
approximately $700,000, $1.1 million, $1.5 million and $692,000 for 1993, 1994,
1995 and the six months ended June 30, 1996, respectively. Major capital
projects during 1995 were improving manufacturing capabilities in roofing,
acrylic and urethane product operations, and building expansion and maintenance
for production facilities and administrative offices.
Trade accounts receivable were approximately $3.8 million, $4.6
million, $4.7 million and $7.6 million at December 31, 1993, 1994, 1995, and
June 30, 1996 respectively. Receivable collection periods were approximately 39
days, 40 days, 36 days and 46 days for 1993, 1994, 1995 and the six months ended
June 30, 1996, respectively. Collection periods were within management's
expectations.
Inventory was approximately $3.0 million, $4.2 million, $5.1 million
and $5.8 million at December 31, 1993, 1994, 1995 and June 30, 1996,
respectively. Inventories increased as a result of the increase in sales.
Inventory turnover was approximately 52 days, 49 days, 51 days and 55 days for
1993, 1994, 1995 and the six months ended June 30, 1996, respectively.
Trade accounts payable were approximately $900,000, $1.5 million,
$940,000 and $2.1 million at December 31, 1993, 1994, 1995 and June 30, 1996,
respectively. As a percentage of period ending inventory, payables were 30%,
35%, 19% and 36% at December 31, 1993, 1994, 1995 and June 30, 1996,
respectively.
On February 13, 1995, the Company sold 1.15 million shares of its
previously unissued Common Stock in a public offering. The net proceeds to the
Company were approximately $6.9 million. Of the net proceeds, $5.9 million was
used to repay all outstanding bank debt. The remaining $1.0 million was used
for general corporate purposes.
The Company believes that the net cash provided from operating
activities and the amounts available under the discretionary line of credit will
be sufficient to meet its needs for working capital and capital expenditures for
at least the next twelve months.
Environmental regulation
The Company is subject to various federal, state and local
environmental laws and regulations. The Company believes that its operations
currently comply in all material respects with applicable laws and regulations.
The Company believes that the trend in environmental litigation and regulation
is toward stricter standards, and that these stricter standards may result in
higher costs for the Company and its competitors. Historically such costs have
been minimal with respect to the on-going results of operations and the Company
does not anticipate any significant clean-up expenditures other than those
specifically discussed below. The Company has not made any capital expenditures
to limit or monitor hazardous substances or pollutants.
The EPA has notified the Company that it is a PRP at, and requested
that the Company provide information with respect to, two Superfund sites.
Regarding the first site, the Company has informed the EPA that it believes that
it is not responsible for any materials at the site and that the Company
believes that the previous owners of the property upon which the Company's
facility is located may be responsible for the materials in question located at
this site. The Company
40
<PAGE>
has not made and has not been requested to make any expenditures toward the
clean-up of this site, and has not been contacted further by the EPA. At the
second site, the Company has been notified by the EPA that it is the source of a
de minimis quantity of waste materials. The Company spent approximately $6,000
in clean-up costs at this site and the Company does not expect that its clean-up
costs will exceed $10,000.
The MDNR has identified the property on which the Company's plant is
located as a site of environmental contamination. The Company has recorded a
reserve of $148,000 at June 30, 1996, as an estimate of the amount of loss that
is reasonably possible to be incurred for this site. While management of the
Company does not believe that the Company's exposure in these matters will have
a material adverse effect on the business and financial condition of the
Company, there can be no assurance that the Company will not incur additional
significant liabilities in connection with these matters or that such
liabilities will not have a material adverse effect on the Company's business
and financial condition.
Regarding each of the above mentioned environmental matters, the
Company has notified Nalco that it may be responsible for indemnifying the
Company for expenditures made for the above matters. Pursuant to the terms of
an agreement entered into in connection with the Company's acquisition of Adco,
the Company is indemnified to a limited extent against certain environmental
liabilities by Nalco. In certain instances, the indemnification is limited by a
$100,000 deductible and a limitation on the amount of indemnification's, ranging
from $341,600 to $3.5 million depending upon the type of claim made, with an
aggregate limitation of $3.5 million for all such claims made.
Inflation
The Company believes that the relatively moderate inflation over the
last few years has not had a significant impact on the Company revenues or
profitability.
Seasonality
Net sales of the Company's roofing and concrete pipe and vault
products tend to be slightly seasonal, with higher sales occurring during the
Company's second and third quarters. This corresponds with the decline in
roofing and construction projects in the winter months. The Company's operating
income has historically experienced greater seasonality than net sales as a
result of fixed overhead charges and various operating expenses which do not
vary significantly from quarter to quarter. The Company's quarterly net sales
and operating income for the ten quarters ended June 30, 1996 are set forth
below:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------------
Mar 31, June 30, Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31, Mar 31, June 30,
------- -------- -------- ------- ------- -------- -------- ------- ------- --------
1994 1995 1996
---------------------------------- --------------------------------------- ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $7,691 $9,814 $11,415 $9,829 $11,388 $12,710 $12,833 $10,480 $10,959 $13,995
Operating income $ 566 $1,465 $ 2,205 $1,345 $ 1,556 $ 2,205 $ 2,173 $ 1,089 $ 1,078 $2,162
</TABLE>
New accounting standards
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective January 1, 1993. SAS 109
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial statement
carrying amount and the tax basis of assets and liabilities. There was no
material effect on the financial statements as a result of the adoption of SAS
109. The Company has also elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employers" (APB 25) and related
interpretations in accounting for its employee stock options.
41
<PAGE>
Under APB 25, compensation expense is recognized when the exercise price of
employee stock options is less than the market price of the underlying stock on
the date of the grant.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for Impairment of Long-Lived Assets" effective January 1,
1996. Based on current circumstances, this adoption has no effect on the
Company's income statement.
ADDITIONAL INFORMATION
Independent Public Accountants
A representative of Ernst & Young, LLP, independent accountants and
auditors of the Company's financial statements, is expected to be present at the
Special Meeting, will have an opportunity to make a statement if such
representative so desires and will be available to respond to appropriate
questions.
Available Information
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith file periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission at the Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661; and 7 World Trade Center, New York, New York 10048. In
addition, copies of such materials may also be obtained at prescribed rates from
the Public Reference Section of the Commission at its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. The Company's stock is traded on
the Nasdaq National Market, and such reports, proxy or information statements
concerning the Company can also be inspected at the offices of the NASD, 1735 K
Street, Washington, D.C. 20006.
After the Effective Time, the Common Stock will cease to be traded on
the Nasdaq National Market. Moreover, the Surviving Corporation will be relieved
of the obligation to file informational reports under the Exchange Act, such as
proxy statements, and its officers, directors and more than 10% stockholders
will be relieved of the reporting requirements under, and the "short-swing"
profit recapture provisions of, Section 16 of the Exchange Act.
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any
other matters before the Special Meeting and does not know of any other matters
that may be brought before the Special Meeting by others. If any other matter
should come before the Special Meeting, the persons named in the enclosed proxy
will have discretionary authority to vote the Common Stock thereby represented
in accordance with their best judgment.
LEGAL OPINIONS
Morgan, Lewis & Bockius LLP will render an opinion with respect to
certain matters related to the Merger on behalf of the Company.
42
<PAGE>
Adco Technologies Inc.
Index to Financial Statements
Report of Independent Auditors for Adco Technologies Inc. for the years
ended December 31, 1995 and 1994 and period May 14, 1993
(date of acquisition) to December 31, 1993 F-2
Consolidated balance sheets of Adco Technologies Inc. as of December 31,
1995 and 1994 F-3
Consolidated statements of income of Adco Technologies Inc. for the
years ended December 31, 1995 and 1994 and period ended May 14, 1993
(date of acquisition) to December 31, 1993 F-5
Consolidated statements of redeemable preferred stock of subsidiary and
stockholders' equity of Adco Technologies Inc. for the years ended
December 31, 1995 and 1994 and period May 14, 1993 (date of acquisition)
to December 31, 1993 F-6
Consolidated statements of cash flows of Adco Technologies Inc. for the
years ended December 31, 1995 and 1994 and period May 14, 1993 (date of
acquisition) to December 31, 1993 F-7
Notes to consolidated financial statements of Adco Technologies Inc. for
the years ended December 31, 1995 and 1994 and period May 14, 1993 (date
of acquisition) to December 31, 1993 F-8
Report of independent auditors for Adco Products, Inc. for the period
January 1, 1993 to May 13, 1993 F-19
Statement of income of Adco Products, Inc. for the period January 1, 1993
to May 13, 1993 (date of sale) F-20
Statement of stockholders' equity of Adco Products, Inc. for period
January 1, 1993 to May 13, 1993 (date of sale) F-21
Statement of cash flows of Adco Products, Inc. for the period January 1,
1993 to May 13, 1993 (date of sale) F-22
Notes to financial statements of Adco Products, Inc. for the period
January 1, 1993 to May 13, 1993 (date of sale) F-23
Consolidated balance sheet of Adco Technologies Inc. as of June 30, 1996
(unaudited) F-28
Consolidated statements of income of Adco Technologies Inc. for the three
months ended June 30, 1996 and June 30, 1995 and for the six months ended
June 30, 1996 and June 30, 1995 (unaudited) F-29
Consolidated statements of redeemable preferred stock of subsidiary and
stockholders' equity for the six month period ended June 30, 1996
(unaudited) F-30
Consolidated statements of cash flows of Adco Technologies Inc. for the
six months ended June 30, 1996 and June 30, 1995 (unaudited) F-31
Notes to financial statements of Adco Technologies Inc. for the period
ended June 30, 1996 F-32
F-1
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
Board of Directors
Adco Technologies Inc.
We have audited the accompanying consolidated balance sheets of Adco
Technologies Inc. and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, redeemable preferred stock of
subsidiary and stockholders' equity, and cash flows for the years ended
December 31, 1995 and 1994 and the period May 14, 1993 (date of acquisition of
Adco Products, Inc.) to December 31, 1993. Our audits also included the
financial statement schedule listed in the Index at F-1. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Adco Technologies
Inc. and subsidiary at December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for the years ended December 31, 1995
and 1994 and the period May 14, 1993 (date of acquisition of Adco Products,
Inc.) to December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Ernst & Young LLP
February 1, 1996
F-2
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE>
Adco Technologies Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash (Note 1) $ 2,888,428 $ 336,981
Short term investments (Note 1) 909,222
Trade accounts receivable, less
allowances ($140,000 and $150,000 at
December 31, 1995 and 1994, respectively) 4,672,127 4,590,553
Inventories (Note 1):
Raw materials and packaging 2,332,430 1,635,810
Finished goods 2,735,782 2,596,855
------------------------------------
5,068,212 4,232,665
Refundable income taxes 176,969 128,314
Deferred income taxes (Note 4) 319,374 170,233
Other current assets 139,358 89,025
------------------------------------
Total current assets 14,173,690 9,547,771
Property, plant, and equipment (Notes 1 and 2):
Land and improvements 351,512 307,456
Buildings 4,164,238 4,048,015
Machinery and equipment 5,547,493 5,059,746
Construction in process 965,584 137,664
------------------------------------
11,028,826 9,552,881
Less: Allowances for depreciation
and amortization (2,132,976) (1,245,299)
------------------------------------
8,895,851 8,307,582
Intangibles (Note 1) 8,034,994 8,316,843
Other assets 13,350 11,850
------------------------------------
$ 31,117,885 $ 26,184,046
====================================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
December 31
1995 1994
----------------------------
Liabilities and stockholders' equity
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 940,530 $ 1,501,438
Compensation and amounts withheld 1,014,730 746,538
State taxes payable 130,982 62,622
Other accrued expenses 977,878 1,077,470
Current portion of long-term
notes payable (Note 2) 1,106,462
----------------------------
Total current liabilities 3,064,120 4,494,530
Long-term notes payable (Note 2) 4,901,614
Deferred income taxes (Note 4) 1,006,570 858,215
Redeemable preferred stock of subsidiary (Note 5) 3,850,000 3,710,000
Stockholders' equity (Notes 1 and 6):
Preferred stock, par value $.01 per share--
Authorized 100,000; no shares issued
and outstanding
Common stock, par value $.01 per share--
Authorized 9,000,000; issued and outstanding
5,150,000 and 4,000,000 shares at
December 31, 1995 and 1994, respectively 51,500 40,000
Additional paid-in capital - common 15,140,750 8,275,000
Less receivable from management shareholders (150,000) (210,000)
Retained earnings 8,154,945 4,114,687
----------------------------
23,197,195 12,219,687
----------------------------
$31,117,885 $26,184,046
============================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Adco Technologies Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Period
May 14, 1993
(date of
acquisition of
Adco Products,
Inc.) to
Year ended December 31 December 31,
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Net sales $47,411,421 $38,749,168 $20,325,449
Cost of products sold 33,317,969 27,056,887 14,447,812
--------------------------------------------
Gross profit 14,093,452 11,692,281 5,877,637
Operating expenses:
Selling, general and
administrative
(Note 7) 5,720,330 4,845,815 2,749,201
Research and development 1,350,589 1,265,046 631,431
--------------------------------------------
Total operating expenses 7,070,919 6,110,861 3,380,632
--------------------------------------------
Operating income 7,022,533 5,581,420 2,497,005
Interest expense 105,020 596,297 404,790
Dividends on preferred
stock of subsidiary 280,000 280,000 140,000
Other expense (income)--net (104,495) 115,683 (123,632)
--------------------------------------------
Income before taxes 6,742,008 4,589,440 2,075,847
Income taxes (Note 4) 2,470,000 1,740,000 810,600
--------------------------------------------
Net income $4,272,008 $2,849,440 $1,265,247
============================================
Net income per common share .84 .72 $.33
============================================
Weighted average shares
outstanding
(Note 1) 5,065,847 3,937,825 3,819,603
</TABLE>
See accompanying notes.
F-5
<PAGE>
Adco Technologies Inc.
Consolidated Statements of Redeemable Preferred Stock of
Subsidiary and Stockholders' Equity
<TABLE>
<CAPTION>
Redeemable Prefered Stock of Subsidiary Stockholders' Equity
-------------------------------------------- -----------------------------------------------------------
Additional Additional Receivable
Series A Series B Paid-in Total Paid-in from Total
Preferred Preferred Capital Preferred Common Capital Management Retained Stockholders'
Stock Stock Preferred Stock Stock Common Shareholders Earnings Equity
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 14, 1993
(date of acquisition) $ 35 $3,499,965 $3,500,000 $38,196 $7,901,804 $(249,000) $ 7,691,000
Net income for the period
ended December 31, 1993 $1,265,247 1,265,247
Collection of receivable 39,000 39,000
Dividends on preferred
stock $ 70,000 70,000
---------------------------------------------------------------------------------------------------------
Balance at
December 31, 1993 35 70,000 3,499,965 3,570,000 38,196 7,901,804 (210,000) 1,265,247 8,995,247
Net income for the year
ended December 31, 1994 2,849,440 2,849,440
Issuance of stock 1,804 373,196 375,000
Dividends on preferred
stock 140,000 140,000
---------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 35 210,000 3,499,965 3,710,000 40,000 8,275,000 (210,000) 4,114,687 12,219,687
Net income for the year
ended December 31, 1995 4,272,008 4,272,008
Collection of receivable 60,000 60,000
Issuance of stock 11,500 6,865,750 6,877,250
Dividends on common stock (231,750) (231,750)
Dividends on preferred
stock 140,000 140,000
---------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 $35 $350,000 $3,499,965 $3,850,000 $51,500 $15,140,750 $ (150,000) $8,154,945 $23,197,195
=========================================================================================================
</TABLE>
F-6
See accompanying notes.
<PAGE>
Adco Technologies Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period
May 14, 1993
(date of
acquisition of
Adco Products,
Inc.) to
Year ended December 31 December 31,
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 4,272,008 $ 2,849,440 $ 1,265,247
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,169,526 1,143,350 552,472
Provision for dividends on preferred
stock of subsidiary 280,000 280,000 140,000
Deferred income taxes (786) 202,480 34,200
Changes in current assets and liabilities:
Trade accounts receivable (81,574) (783,029) 556,764
Inventories (835,547) (1,204,017) 1,705,964
Other current assets (50,333) 30,258 (109,120)
Other assets (1,500) 3,600 (1,567)
Trade accounts payable (560,908) 585,605 (723,417)
Taxes payable 19,705 (173,677) 36,663
Accrued salaries, wages, and
other expenses 168,600 265,246 193,936
Due to Nalco Chemical Company (46,819)
--------------------------------------------
Net cash provided by operating activities 4,379,191 3,199,256 3,604,323
Investing activities
Purchases of property, plant, and equipment (1,475,946) (1,131,458) (2,417,081)
Purchase of patents - - (472,500)
Other - - (39,170)
--------------------------------------------
Net cash used in investing activities (1,475,946) (1,131,458) (2,928,751)
Financing activities
Proceeds from notes payable - - 1,500,000
Payments of debt (6,008,076) (2,463,120) (1,958,804)
Issuance of capital stock 6,877,250 375,000 39,000
Decrease in receivable from management
shareholders 60,000 - -
Cash dividends paid on preferred stock
of subsidiary (140,000) (140,000) (70,000)
Cash dividends paid on common stock (231,750)
--------------------------------------------
Net cash provided by (used in)
financing activities 557,424 (2,228,120) (489,804)
--------------------------------------------
Increase (decrease) in cash and short-term
investments 3,460,669 (160,322) 185,768
Cash at beginning of period 336,981 497,303 311,535
--------------------------------------------
Cash and short-term investments at end of period $ 3,797,650 $ 336,981 $ 497,303
============================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Organization and Description of Business
Adco Technologies Inc. (the "Company"), was incorporated May 7, 1993. Adco
Products, Inc. was a wholly owned subsidiary of Nalco Chemical Company ("Nalco")
through May 13, 1993. Effective May 14, 1993, Nalco sold all of the outstanding
common stock of Adco Products, Inc. to the Company for $16,000,000 in cash and
$3,500,000 in preferred stock of Adco Products, Inc. (the "Acquisition").
Concurrently, Adco Products, Inc. borrowed $8,930,000 under a bank term note and
revolving line of credit to fund the purchase. The purchase price was allocated
to assets and liabilities based upon their respective fair market values. There
was no activity of the Company for the period from May 7, 1993 to May 13, 1993.
Following is the summarized balance sheet at date of acquisition:
<TABLE>
<S> <C>
Assets
Accounts receivable $ 4,364,000
Inventories 4,735,000
Equipment and other assets 6,330,000
Intangibles 8,132,000
------------
$ 23,561,000
============
Liabilities
Accounts payable and other liabilities $ 3,440,000
Acquisition debt 8,930,000
Redeemable preferred stock of subsidiary 3,500,000
Stockholders' equity 7,691,000
------------
$ 23,561,000
============
</TABLE>
In February, 1995 the Company registered 2,300,000 shares of common stock on
Form S-1. The Company sold 1,150,000 shares in an initial public offering, with
an additional 1,150,000 shares sold by existing shareholders, the net proceeds
to the Company of approximately $7,000,000 were used to payoff all outstanding
long-term debt. If this transaction had occurred as of May 14, 1993, the net
earnings per share for the year ended December 31, 1994 and the period May 14,
1993 to December 31, 1993, would have been $.63 and $.30 per share,
respectively.
The Company produces adhesives and sealants primarily for the roofing,
automotive original equipment manufacturing, windshield replacement, window
manufacturing, and concrete pipe and vault markets and is considered to operate
in one business segment.
F-8
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
The Company had sales to two customers during the year ended December 31, 1995
that exceeded 10% of total net sales. Net sales to the first customer, with
which the Company has a long-standing relationship, amounted to 22%, 20%, and
14% for the years ended December 31, 1995, and 1994, and the period May 14, 1993
to December 31, 1993, respectively. The second customer had net sales at 11%
and 9% for the years ended December 31, 1995 and 1994, respectively. The
Company generally does not require collateral from its customers. Credit
losses, which have been minimal, have been within management's expectations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Adco Products, Inc. Significant intercompany
accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and Short-term investments
Cash and short-term investments consist primarily of highly liquid money market
funds and government securities invested with quality financial institutions.
These investments are carried at cost, which approximates fair value, due to the
short period of time to maturity.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined using
the last in, first out (LIFO) method.
Current costs, based on the first-in, first out (FIFO) method would have
resulted in reported amounts approximately the same at December 31, 1995 and
1994.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets.
F-9
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Intangible Assets
Intangible assets are amortized by the straight-line method over periods ranging
from 5 to 40 years and consist of the following:
<TABLE>
<CAPTION>
December 31
1995 1994
-------------------------------
<S> <C> <C>
Goodwill $8,052,582 $8,052,582
Deferred organization costs 242,284 242,284
Deferred patent costs 472,500 472,500
-------------------------------
8,767,366 8,767,366
Less accumulated amortization (732,372) (450,523)
-------------------------------
$8,034,994 $8,316,843
===============================
</TABLE>
Amortization expense was $281,852, $287,982 and $162,541 for the years ended
December 31, 1995, 1994 and the period May 14, 1993 to December 31, 1993,
respectively.
Goodwill generally is amortized on a straight-line basis over 40 years,
organizational costs over 5 years and patent costs over 15 years. The carrying
value of goodwill will be reviewed if the facts and circumstances suggest that
it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value of
the goodwill will be reduced by the estimated shortfall of cash flows.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.E25
"Accounting for Stock Issued to Employers" (APBE25) and related interpretations
in accounting for its employee stock options. Under APBE25, compensation
expense is recognized when the exercise price of employee stock options is less
than the market price of the underlying stock on the date of the grant. See
Note 6, "Stockholders" Equity" for information regarding the Company's stock
options plans.
2. Notes Payable
A summary of the Adco Products notes payable as of December 31, 1994 is as
follows:
7.20% note to First Fidelity, NA, payable in
varying monthly amounts of $33,331 to $51,997
excluding interest through April, 2000, with
remaining balance plus accrued interest to be
paid in full May, 2000 $3,320,042
F-10
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
2. Notes Payable (continued)
Prime plus 1/2% (9.00% and 7.25% at
December 31, 1994 and 1993, respectively) note
to First Fidelity, NA, payable in varying
monthly amounts of $26,169 to $45,503
excluding interest through April, 2000 with
remaining balance plus accrued interest to be
paid in full May, 2000 $ 1,422,817
7.22% note to First Fidelity, NA, payable in
varying monthly amounts of $13,044 to $19,672
excluding interest through April, 2000 with
remaining balance plus accrued interest to be
paid in full May, 2000 $ 1,265,217
-----------
Total notes payable 6,008,076
Less current portion (1,106,462)
-----------
$ 4,901,614
===========
The Company repaid all of the notes payable outstanding at December 31, 1994
with proceeds from the issuance of common stock during 1995.
At December 31, 1995, Adco Products has an unused $3,000,000 discretionary line
of credit for general corporate purposes.
For the years ended December 31, 1995 and 1994, and the period May 14, 1993 to
December 31, 1993, the Company made interest payments of approximately $105,020,
$601,000 and $405,000, respectively.
3. Employee Benefit Plans
The Company has a noncontributory, defined-benefit pension plan covering union
employees. Benefits are based on length of service and a negotiated benefit
rate.
The Company's policy is to fund the plan between the minimum and maximum amounts
deductible for tax purposes under the Internal Revenue Code. The Company made
contributions of $34,596 to the plan for the year ended December 31, 1995 and no
contributions for the other periods presented.
Plan assets are invested in mutual funds and money market accounts.
F-11
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
3. Employee Benefit Plans (continued)
The following table sets forth the funded status and amounts recognized in the
balance sheet:
<TABLE>
<CAPTION>
December 31
1995 1994
----------------------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested $ 423,600 $ 302,249
Non-vested 9,755 35,863
----------------------------
Accumulated benefit obligation $ 433,355 $ 338,112
============================
Projected benefit obligation $ (433,355) $ (338,112)
Plan assets at fair value 313,581 313,625
----------------------------
Projected benefit obligation in excess of plan assets (119,774) (24,487)
Unrecognized net asset at transition (7,775) (8,552)
Unrecognized prior service cost 172,837 28,657
Additional minimum liability - (158,596)
Unrecognized net loss 57,248 138,491
----------------------------
Net pension asset (liability) $ 102,536 $ (24,487)
============================
</TABLE>
<TABLE>
<CAPTION>
Net pension expense was comprised of the following:
December 31
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Service cost $ 34,145 $ 29,358 $ 13,517
Interest cost on projected benefit obligation 36,640 27,517 13,669
Actual return on plan assets (28,016) (31,711) (14,170)
Net amortizations and deferrals 2,004 6,409 2,276
--------------------------------
Net pension expense $ 44,773 $ 31,573 $ 15,292
================================
</TABLE>
<TABLE>
<CAPTION>
The following assumptions were used in calculating the plan's funded status and the net pension expense:
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Weighted average discount rates 8.50% 7.50% 8.50%
Rates of return on plan assets 8.50 10.00 10.00
</TABLE>
During January 1993, Adco Products, Inc. terminated the pension plan covering
its salaried employees. This termination which was approved and completed in
1994, resulted in a gain to the Company of approximately $100,000 in 1994.
F-12
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
3. Employee Benefit Plans (continued)
The Company also sponsors a retirement savings plan which includes a defined-
contribution 401(k) plan and a discretionary profit sharing plan, which covers
substantially all nonunion employees. The Company's contribution to the 401(k)
plan is based on each participant's pretax contribution. For the years ended
December 31, 1995, 1994 and the period May 14, 1993 to December 31, 1993, the
Company contributed approximately $39,000, $35,900 and $19,800 to the 401(k)
plan, respectively. The profit sharing amount is determined annually by the
Board of Directors and was $250,000, $165,000 and $62,000, for the years ended
December 31, 1995, 1994 and the period May 14, 1993 to December 31, 1993,
respectively.
4. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
-------------------------------
<S> <C> <C>
Warranty and other expenses $ 176,865 $ 160,400
Tax over book depreciation (945,266) (854,900)
Reserve for doubtful accounts 47,712 51,100
Employee benefits 51,533 (25,900)
Other (18,040) (18,682)
-------------------------------
$(687,196) $(687,982)
===============================
</TABLE>
<TABLE>
<CAPTION>
Components of the provision for income taxes are as follows:
December 31
1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Current income taxes $2,470,786 $1,537,520 $776,400
Deferred income taxes (credit) (786) 202,480 34,200
----------------------------------
$2,470,000 $1,740,000 $810,600
==================================
</TABLE>
F-13
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
A reconciliation of the total federal income tax provision and the amount
computed by applying the statutory federal income tax rate to earnings before
income taxes for the periods ended are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
Taxes at U. S. statutory rates $2,291,400 $1,560,400 $705,800
Impact of nondeductible intangible
amortization 68,400 68,400 57,200
Impact of nondeductible preferred
stock dividend 95,200 95,200 47,600
Other 15,000 16,000 -
-------------------------------------
$2,470,000 $1,740,000 $ 810,600
=====================================
</TABLE>
The difference between the Company's effective income tax rate and the federal
statutory rate is primarily attributable to the effect of the amortization of
intangible assets (see Note 1) and the preferred stock dividend of subsidiary.
Income taxes paid by the Company approximated $2,520,000, $1,639,000 and
$803,000 for the years ended December 31, 1995, 1994 and the period May 14, 1993
to December 31, 1993, respectively.
5. Redeemable Preferred Stock of Subsidiary
The articles of incorporation of Adco Products, Inc. authorize 4,856 shares of
Series A Cumulative Redeemable Preferred Stock, non-voting, par value $.01 per
share (Series A) and 1,356 shares of Series B Redeemable Preferred Stock, non-
voting, par value $.01 per share (Series B). Nalco owned 3,500 shares of Series
A and 350 shares of Series B at December 31, 1995, and 3,500 shares of Series A
and 210 shares of Series B at December 31, 1994. The designated terms and
conditions of the preferred stock are as follows:
<TABLE>
<CAPTION>
Series A Series B
-------- --------
<S> <C> <C>
Shares outstanding at December 31, 1995 3,500 350
Dividend rate $ 80 *
Redemption price 1,000 $1,000
Liquidation preference 1,000 1,000
</TABLE>
*Dividends are not payable on Series B
F-14
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
5. Redeemable Preferred Stock of Subsidiary (continued)
The mandatory obligation to redeem both Series A and Series B begins
November 15, 2000 and ends May 15, 2003, with a specified fraction of the
outstanding shares redeemed each November and May.
A summary of the Series A and Series B Preferred stock and additional paid in
capital for Adco Products, Inc. is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
-------------------------------
<S> <C> <C>
Series A Preferred stock 35 35
Series B Preferred stock 350,000 210,000
Additional paid-in capital - preferred 3,499,965 3,499,965
</TABLE>
The Series A dividend is paid one-half in cash and one-half in shares of Series
B, bi-annually on May 15 and November 15. In each November and May of 1995 and
1994 and November 1993, 70 shares of Series B were issued as part of the
dividend to the Series A holders. These Series B shares were recorded at their
liquidation value of $1,000 per share.
6. Stockholders' Equity
The articles of incorporation of the Company authorize 100,000 shares of
preferred stock with a par value of $.01 per share. No preferred shares are
outstanding as of December 31, 1995 and 1994.
Effective May 14, 1993, the Company adopted the Adco Technologies Inc. 1993
Stock Option Plan, pursuant to which the Company has granted options to certain
officers of the Company to purchase an aggregate of 144,326 shares of common
stock of the Company. Under the plan these options become exercisable on
October 29, 2008 or at a sooner date if certain performance and cash return
targets were met. At December 31, 1994 25,414 of the options were exercisable.
An additional 48,112 shares became exercisable in 1995 bringing the total
options exercisable at December 31, 1995 to 73,526. Associated with the shares
issued in 1995 additional compensation expense of $257,500 was recorded. In
February 1995, the Company amended this option plan. In connection with the
plan amendment the remaining 70,800 shares become exercisable over the next 3 to
5 years. Prior to the amendment in February 1995, the Company had the option to
repurchase shares purchased upon exercise of the options upon termination of
employment for reasons other than for death, disability, or retirement at a
price calculated based on the book value of the Company. The amendment removed
the Company's option to repurchase the shares.
F-15
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
The Adco Technologies Inc. 1994 Non-Employee Director Stock Option Plan
("Director Plan") was adopted by the Company in December, 1994, and provides for
the grant of options covering up to 100,000 shares of common stock to non-
employee directors. Upon completion of the initial public offering and
subsequently on each date he or she is elected or re-elected, each non-employee
director shall receive options to purchase 4,000 shares of common stock. The
exercise price per share shall be the fair market value of the common stock as
determined in accordance with the Director Plan. The options are exercisable
immediately and for ten years from the date of grant. At December 31, 1995
24,000 options were outstanding as a result of the initial public offering in
February 1995 at a price of $7.00 per share.
The Adco Technologies Inc. 1994 Stock Option Plan was adopted by the Company in
December 1994, which provides for the grant of options covering up to 150,000
shares of common stock to certain members of management, employees and outside
consultants. This plan provides for the issuance of both incentive stock
options and non-qualified stock options. During 1995 and 1994 50,000 and 45,000
options were issued at an exercise price of $7.62 and $7.00 per share,
respectively. At December 31, 1995 a total of 95,000 options were issued and
exercisable.
7. Related Party Transactions
The Company has a consulting agreement with Bradford Ventures Limited ("BVL"), a
related party to certain shareholders, including the Company's two largest
shareholders and its chairman, whereby, BVL provides financial and advisory
services to the Company for a 10 year period, commencing May 14, 1993, at an
initial annual fee of $135,000, which increases annually by 7.5%. This
consulting fee is included in selling, general and administrative expenses and
approximated $151,500, $140,800 and $78,750 for the years ended December 31,
1995, 1994 and the period May 14, 1993 to December 31, 1993, respectively.
In May 1993, in connection with the Acquisition, the Company's executive
officers entered into separate agreements to purchase shares of the common stock
of the Company. The purchase price for the common stock was paid for by the
delivery of cash and promissory notes of the respective purchasers in favor of
the Company ranging in amounts from $50,000 to $60,000. Each note is payable in
full in May 1998, bearing interest at a rate of five percent per annum. The
purchaser's obligations under their respective notes are secured by pledges of
the common stock purchased with the notes. In September 1995, one officer
repaid the balance of a promissory note in the amount of $60,000.
F-16
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
8. Litigation and Regulation
There are judicial and administrative claims pending or contemplated against the
Company. Management believes that the resolution of these matters should not
have a material effect upon the Company's financial condition, results of
operations and cash flows.
The U.S. Environmental Protection Agency (EPA)has notified the Company that it
is a potentially responsible party at, and requested that the Company provided
information with respect to, two Superfund sites. Regarding the first site, the
Company has responded that it is not responsible for any materials at the site
and that the Company believes that the previous owners of the property upon
which the Company's facility is located may be responsible for the materials in
question located at this site. Clean-up of this site is underway, the Company
has not made and has not been requested to make any expenditures toward the
clean up of this site, and has not been contacted further by the EPA. At the
second site, Adco believes it is the source of a de minimis quantity of waste
materials.
The Michigan Department of Natural Resources has identified the property on
which the Company's plant is located as a site of environmental contamination.
Management has recorded a reserve of $148,478 at December 31, 1995, included in
other accrued expenses, as an estimate of the amount of loss that is reasonably
possible to be incurred for this site. While management of the Company does not
believe that the Company's exposure in these matters will have a material
adverse effect on the business and financial condition of the Company, there can
be no assurance that the Company will not incur additional significant
liabilities in connection with these matters or that such liabilities will not
have a material adverse effect on the Company's business and financial
condition.
Regarding each of the above mentioned environmental matters, the Company has
notified Nalco that Nalco may be responsible for indemnifying the Company for
expenditures made for the above matters. Pursuant to the terms of an agreement
entered into in connection with the Company's acquisition of Adco Products,
Inc., the Company is indemnified to a limited extent against certain
environmental liabilities by Nalco. In certain instances, the indemnification
is limited by a $100,000 deductible and a limitation on the amount of
indemnification's ranging from $341,600 to $3.5 million depending upon the type
of claim made, with an aggregate limitation of $3.5 million for all such claims
made.
F-17
<PAGE>
Adco Technologies Inc.
Notes to Consolidated Financial Statements (continued)
9. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Mar. 31 Jun. 31 Sept. 30 Dec. 31
----------------------------------------------
<S> <C> <C> <C> <C>
1995
Sales 11,387,715 12,709,679 12,833,654 10,480,373
Gross profit 3,378,311 3,990,230 3,934,356 2,790,555
Net income 883,494 1,346,961 1,336,998 704,555
Net income per common share .19 .26 .26 .14
1994
Sales 7,690,773 9,814,333 11,414,955 9,829,107
Gross profit 2,071,925 3,017,791 3,805,104 2,797,461
Net income 180,909 769,707 1,265,288 633,536
Net income per common share .05 .20 .32 .16
</TABLE>
F-18
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
Board of Directors
Adco Technologies, Inc.
We have audited the accompanying statements of income, stockholders' equity, and
cash flows of Adco Products, Inc. for the period from January 1, 1993 to May 13,
1993 (date of sale). Our audit also included the financial statement schedule
listed in the Index at F-1. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Adco
Products, Inc. for the period from January 1, 1993 to May 13, 1993 (date of
sale), in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/Ernst & Young LLP
March 18, 1994
F-19
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE>
Adco Products, Inc.
Statement of Income
<TABLE>
<CAPTION>
Period from
January 1, 1993
to May 13, 1993
(date of sale)
---------------
<S> <C>
Net sales $11,020,070
Cost of products sold 8,063,587
-----------
Gross profit 2,956,483
Operating expenses:
Selling, general and administrative 1,698,123
Research and development 387,485
-----------
Total operating expenses 2,085,608
-----------
Operating income 870,875
Interest expense
Other (income) expense-net 36,935
-----------
Income before taxes 833,940
Income taxes (Note 4) 201,470
-----------
Net income $ 632,470
===========
Net income per share $5.44
===========
Weighed average shares outstanding 116,189
</TABLE>
See accompanying notes.
F-20
<PAGE>
Adco Products, Inc.
Statement of Stockholders' Equity
<TABLE>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $116,189 $21,696,952 $1,801,269 $23,614,410
Net income for period from January 1,
1993 to May 13, 1993 (date of sale) 632,470 632,470
Cash dividends--$6.89 per share (800,000) (800,000)
----------------------------------------------
Balance at May 13, 1993 $116,189 $21,696,952 $1,633,739 $23,446,880
==============================================
</TABLE>
See accompanying notes.
F-21
<PAGE>
Adco Products, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
Period from
January 1, 1993
to May 13, 1993
(date of sale)
---------------
<S> <C>
Operating activities
Net income $ 632,470
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 401,985
Loss on sale of plant, property and equipment 92,696
Deferred income taxes (116,546)
Other
Changes in current assets and liabilities:
Advances to Nalco Chemical Company 77,458
Trade accounts receivable (1,489,288)
Inventories (646,606)
Other current assets 46,914
Trade accounts payable (75,679)
Income taxes payable (315,688)
Accrued salaries, wages, and other expenses (277,732)
Due to Nalco Chemical Company 1,733
-----------
Net cash used in operating activities (1,668,283)
Investing activities
Purchases of property, plant, and equipment, net (323,393)
Other
-----------
Net cash used in financing activities (323,393)
Financing activities
Cash dividends paid (800,000)
Payments of debt
-----------
Net cash used in financing activities (800,000)
-----------
Decrease in cash (2,791,676)
Cash at beginning of period 3,081,541
-----------
Cash at end of period $ 289,865
===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
Adco Products, Inc.
Notes to Financial Statements
Period from January 1, 1993 to May 13, 1993
1. Summary of Significant Accounting Policies
Organization and Description of Business
Adco Products, Inc. (the "Company") was a wholly owned subsidiary of Nalco
Chemical Company ("Nalco") through May 13, 1993. Effective May 14, 1993 Nalco
sold all of the outstanding common stock of the Company to Adco Technologies
Inc. for $16,000,000 in cash and $3,500,000 of preferred stock. Concurrently,
the Company borrowed $8,930,000 under a bank term note and revolving line of
credit to fund the purchase. The purchase price was allocated to assets and
liabilities based upon their respective fair market values. These financial
statements reflect activity of the Company through date of sale and do not
reflect the effect of any purchase price adjustments. Following is the
summarized balance sheet at date of acquisition:
<TABLE>
<S> <C>
Assets
Accounts receivable $ 4,364,000
Inventories 4,735,000
Equipment and other assets 6,330,000
Intangibles 8,132,000
-----------
$23,561,000
===========
Liabilities
Accounts payable and other liabilities $ 3,440,000
Acquisition debt 8,930,000
Redeemable preferred stock of subsidiary 3,500,000
Stockholders' equity 7,691,000
-----------
$23,561,000
===========
</TABLE>
The Company produces adhesives and sealants primarily for the roofing,
automotive original equipment manufacturing, windshield replacement, window
manufacturing, and concrete pipe and vault markets and is considered to operate
in one business segment.
Net sales to one customer, with which the Company has a long-standing
relationship amounted to 10% for the period from January 1, 1993 to May 13,
1993. The Company generally does not require collateral from its customers.
Credit losses, which have been minimal, have been within management's
expectations.
F-23
<PAGE>
Adco Products, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Inventory
Inventories are stated at the lower of cost or market. Cost is determined using
the last in, first out (LIFO) method.
Current costs, based on the first-in, first out (FIFO) method would have
resulted in reported amounts approximately $746,000 higher at May 13, 1993.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets.
Goodwill
Goodwill is amortized by the straight-line method over 40 years. Amortization
expense was $140,500 for the period January 1, 1993 to May 13, 1993.
3. Employee Benefit Plans
The Company has a noncontributory, defined-benefit pension plan covering union
employees. Benefits are based on length of service and a negotiated benefit
rate.
The Company's policy is to fund the plans between the minimum and maximum
amounts deducible for tax purposes under the Internal Revenue Code. The Company
made contributions to the plans of approximately $78,000 for the period January
1, 1993 to May 13, 1993.
Plan assets are invested in mutual funds and money market accounts.
Net pension expense was comprised of the following:
Period from
January 1, 1993 to
May 13, 1993
------------------
Service cost $8,110
Interest cost on projected benefit obligation 8,201
Actual return on plan assets (8,061)
Net amortizations and deferrals 1,365
-------
Net pension expense $9,615
=======
<PAGE>
Adco Products, Inc.
Notes to Financial Statements (continued)
3. Employee Benefit Plans (continued)
During January 1993, the Company terminated the pension plan covering its
salaried employees. This termination is not expected to have a significant
impact on the Company's financial position or results of operations.
The Company also sponsors a retirement savings plan which includes a
defined-contribution 401(k) plan and, beginning January 1, 1993, a discretionary
profit sharing plan which cover substantially all nonunion employees. The
Company's contribution to the 401(k) plan is based on each participant's pretax
contribution. During the 1993 period, the Company contributed $10,600, to the
plan. The profit sharing amount is determined annually by the Board of Directors
and approximated $38,000 for the period January 1, 1993 to May 13, 1993.
4. Income Taxes
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) at May 13, 1993 are as follows:
<TABLE>
<S> <C>
Warranty and other expenses $120,700
Tax over book depreciation (522,185)
Reserve for doubtful accounts 20,964
Employee benefits 43,737
Other 19,330
---------
$(317,454)
=========
</TABLE>
F-25
<PAGE>
Adco Products, Inc.
Notes to Financial Statements (continued)
4. Income Taxes (continued)
Significant components of the provision for income taxes are as follows:
Period from
January 1, 1993 to
May 13, 1993
------------------
Federal:
Current $427,072
Deferred (116,546)
Correction of prior years over accrual (109,056)
---------
$201,470
=========
A reconciliation of the total federal income tax provision and the amount
computed by applying the statutory federal income tax rate to earnings before
income taxes is as follows:
Period from
January 1, 1993 to
May 13, 1993
------------------
Tax at U.S. statutory rates $283,500
Impact of nondeductible goodwill
amortization 47,754
Correction of prior years over accrual (109,056)
Other (20,728)
---------
$201,470
=========
During the 1993 period, the Company made income tax payments of approximately
$444,000.
5. Related Party Transactions
Advances to Nalco Chemical Company are excess funds deposited with Nalco. These
funds bear interest and are repayable to the Company upon demand.
F-26
<PAGE>
Adco Products, Inc.
Notes to Financial Statements (continued)
5. Related Party Transactions (continued)
The following amounts were accrued or paid to Nalco for the period ended:
<TABLE>
<CAPTION>
Period from
January 1, 1993 to
May 13, 1993
--------------------
<S> <C>
Insurance $127,063
Service fee 52,900
Legal 3,617
Purchase of inventory 267
Salary and fringes 65,020
----------
$248,867
==========
</TABLE>
6. Litigation and Regulation
There are judicial and administrative claims pending or contemplated against the
Company, including those of an environmental nature. Management believes that
the resolution of these matters should not have a material effect upon the
Company's financial condition, results of operation or cash flows.
The U.S. Environmental Protection Agency has notified the Company that it is a
potentially responsible party at, and requested that the Company provided
information with respect to, two Superfund sites. The Company believes that the
previous owners of the property upon which the Company's facility is located may
be responsible for the materials in question located at one of the sites. At the
second site, Adco believes it is the source of a de minimis quantity of waste
materials. The Michigan Department of Natural Resources has identified the
property on which the Company's plant is located as a site of environmental
contamination. An estimate of the amount of the loss that is reasonably possible
to be incurred for these sites cannot be determined at this time. While
management of the Company does not believe that the Company's exposure in these
matters will have a material adverse effect on the business and financial
condition of the Company, there can be no assurance that the Company will not
incur significant liabilities in connection with these matters or that such
liabilities will not have a material adverse effect on the Company's business
and financial condition.
F-27
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996
(unaudited)
-----------------
<S> <C>
Assets
Current assets:
Cash and short-term investments $3,558,264
Trade accounts receivable, less allowances
($146,000 and $140,000 at June 30, 1996
and December 31, 1995, respectively) 7,601,085
Inventories:
Finished goods 2,563,322
Raw materials and packaging 3,218,307
-----------------
5,781,629
Refundable income taxes 0
Deferred income taxes 353,435
Other current assets 203,650
-----------------
Total current assets 17,498,063
Property, plant and equipment, net 9,075,418
Intangibles 7,894,360
Other assets 13,350
-----------------
$34,481,191
=================
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $2,054,388
Accrued compensation and other expenses 1,922,476
Federal income and state taxes 383,260
-----------------
Total current liabilities 4,360,124
Deferred income taxes 1,031,275
Redeemable preferred stock of subsidiary 3,920,000
Stockholders' equity:
Preferred stock, par value $.01 per share-
Authorized 100,000; no shares issued and outstanding 0
Common stock, par value $.01 per share
Authorized 9,000,000; issued and outstanding
5,150,000 shares at June 30, 1996 and
December 31, 1995 51,500
Additional paid-in-capital - common 15,140,750
Less receivable from management shareholders (50,000)
Retained earnings 10,027,542
-----------------
25,169,792
-----------------
$34,481,191
=================
</TABLE>
See notes to consolidated financial statements
F-28
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net sales: $13,995,266 $12,709,679 $24,953,992 $24,097,393
Cost of products sold 10,045,001 8,719,449 18,200,020 16,728,853
----------------------------- -----------------------------
Gross profit 3,950,265 3,990,230 6,753,972 7,368,540
Operating expenses:
Selling, general and administrative 1,424,159 1,449,499 2,780,472 2,923,840
Research and development 363,638 335,932 733,163 678,978
----------------------------- -----------------------------
Total operating expenses 1,787,797 1,785,431 3,513,635 3,607,818
----------------------------- -----------------------------
Operating income 2,162,468 2,204,799 3,240,337 3,760,722
Interest expense 0 0 0 105,020
Dividends on preferred stock of subsidiary 70,000 70,000 140,000 140,000
Other expense (income) - net (67,599) 13,838 (184,261) (16,753)
----------------------------- -----------------------------
Income before taxes 2,160,067 2,120,961 3,284,598 3,532,455
Income taxes 790,000 774,000 1,206,000 1,302,000
----------------------------- -----------------------------
Net income 1,370,067 1,346,961 2,078,598 2,230,455
============================= =============================
Net income per common and common equivalent share $0.26 $0.26 $0.40 $0.45
============================= =============================
Weighted average shares outstanding 5,259,313 5,225,103 5,259,313 4,939,191
----------------------------- -----------------------------
</TABLE>
See notes to consolidated financial statements
F-29
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK OF
SUBSIDIARY AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Redeemable Preferred Stock of Subsidiary
------------------------------------------------
Additional
Series A Series B Paid-In Total
Preferred Preferred Capital Preferred
Stock Stock Preferred Stock
------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $35 $350,000 $3,499,965 $3,850,000
Net income for the six month period
ended June 30, 1996
Repayment of management loan
Preferred stock dividend 70,000 $70,000
Dividends on common stock - $.04/share
------------------------------------------------
Balance at June 30, 1996 $35 $420,000 $3,499,965 $3,920,000
------------------------------------------------
<CAPTION>
Stockholders' Equity
---------------------------------------------------------------
Additional Receivable
Paid-In from Total
Common Capital Management Retained Stockholders'
Stock Common Shareholders Earnings Equity
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $51,500 $15,140,750 ($150,000) $8,154,945 $23,197,195
Net income for the six month period
ended June 30, 1996 2,218,597 $2,218,597
Repayment of management loan 100,000 $100,000
Preferred stock dividend (140,000) ($140,000)
Dividends on common stock - $.04/share (206,000) ($206,000)
---------------------------------------------------------------
Balance at June 30, 1996 $51,500 $15,140,750 ($50,000) $10,027,542 $25,169,792
---------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
ADCO TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1995
----------------------------
<S> <C> <C>
Operating Activities
Net income $2,078,598 $2,230,455
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 653,440 597,817
Deferred income taxes (9,356) (81,760)
Changes in current assets and liabilities:
Trade accounts receivable (2,928,958) (1,923,997)
Inventories (713,417) (1,926,746)
Other current assets 112,677 (175,844)
Other assets --- (14,100)
Trade accounts payable 1,113,858 1,074,084
Taxes payable 252,278 411,128
Accrued salaries, wages and other expenses (70,132) 107,366
----------------------------
Net cash provided by operating activities 488,988 298,403
Investing activities
Purchases of property, plant and equipment (692,374) (698,898)
Purchase of parents --- ---
Other --- ---
----------------------------
Net cash used in investing activities (692,374) (698,898)
Financing activities
Repayment of management loan 100,000 ---
Payment of debt --- (6,008,076)
Issuance of preferred stock 70,000 70,000
Issuance of capital stock --- 6,877,250
Cash dividend paid on common stock (206,000) (77,250)
----------------------------
Net cash provided by (used in) financing activities (36,000) 861,924
----------------------------
Increase (decrease) in cash (239,386) 461,429
Cash at beginning of period 3,797,650 336,981
----------------------------
Cash at end of period $3,558,264 $798,410
----------------------------
</TABLE>
See notes to consolidated financial statements
F-31
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Adco Technologies
Inc. annual report on Form 10-K for the year ended December 31, 1995.
The Company has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets" effective
January 1, 1996. Based on current circumstances this adoption has no effect on
the Company's income statement.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the last in, first out (LIFO) method. Current costs, based on the first in,
first out (FIFO) method would have resulted in reported amounts approximately
$109,000 higher at June 30, 1996 and approximately the same at December 31,
1995.
3. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
4. Litigation and Regulation
There are judicial and administrative claims pending or contemplated against the
Company. Management believes that the resolution of these matters should not
have a material effect upon the Company's financial condition, results of
operations and cash flows.
The Environmental Protection Agency ("EPA") has notified the Company that it is
a Potentially Responsible Party ("PRP") at, and requested that the Company
provide information with respect to, two Superfund sites. Regarding the first
site, the Company has informed the EPA that it believes that it is not
responsible for any materials at the site and that the Company believes that the
previous owners of the property upon which the Company's facility is located may
be responsible for the materials in question located at this site. The Company
has not made and has not been requested to make any expenditures toward the
clean-up of this site, and has not been contacted further by the EPA. At the
second site, the Company has been notified by the EPA that it is the source of a
de minimis quantity of waste materials. The Company spent approximately $6,000
in clean-up costs at this site and the Company does not expect that its clean-up
costs will exceed $10,000.
F-32
<PAGE>
ADCO TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (continued)
4. Litigation and Regulation (continued).
The Michigan Department of Natural Resources ("MDNR") has identified the
property on which the Company's plant is located as a site of environmental
contamination. The Company has recorded a reserve of $148,000 at June 30, 1996,
as an estimate of the amount of loss that is reasonably possible to be incurred
for this site. While management of the Company does not believe that the
Company's exposure in these matters will have a material adverse effect on the
business and financial condition of the Company, there can be no assurance that
the Company will not incur additional significant liabilities in connection with
these matters or that such liabilities will not have a material adverse effect
on the Company's business and financial condition.
Regarding each of the above-mentioned environmental matters, the Company has
notified Nalco Chemical Company ("Nalco") that Nalco may be responsible for
indemnifying ATI for expenditures made for the above matters. Pursuant to the
terms of an agreement entered into in connection with ATI's acquisition of Adco,
the Company is indemnified to a limited extent against certain environmental
liabilities by Nalco. In certain instances, the indemnification is limited by a
$100,000 deductible and a limitation on the amount of indemnification's ranging
from $341,600 to $3.5 million depending upon the type of claim made, with an
aggregate limitation of $3.5 million for all such claims made.
5. Subsequent Events
In July, the Company declared a quarterly dividend of $.02 per share, payable
on August 30, 1996, to the holders of common stock of record on August 15, 1996.
The aggregate amount of the common stock dividend will be approximately
$103,000.
On July 12, 1996, the Company, Astor Corporation, a Delaware corporation (the
"Buyer") and AAC Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of the Buyer (the "Acquisition Company"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") providing for the
Acquisition Company to merge with and into the Company (the "Merger") with the
Company continuing as the surviving corporation. In the Merger, each
outstanding share of common stock ("Common Stock") of the Company will be
converted into the right to receive $10.25 in cash (the "Merger Consideration")
and each option to purchase shares of Common Stock shall be converted into the
right to receive a net amount in cash equal to the Merger Consideration
allocable to the shares of Common Stock then subject to the option (the "Option
Shares") less the aggregate exercise price for the purchase of the Option
Shares.
Simultaneously with the execution and delivery of the Merger Agreement, Bradford
Venture Partners, LP, Overseas Equity Investors Partners, LP, Bradford Mills,
Robert Simon, Barbara Henagan, James McCowan, Philip Beery, David Fuchs, Charles
Sax and Brian Briddell (each a "Stockholder" and collectively the
"Stockholders"), each of whom is a Stockholder of the Company and certain of
whom are directors and executive officers of the Company, holding an aggregate
of 2,559,308 shares of Common Stock (equal to 49.75% of the outstanding voting
Common Stock as of July 12,1996) entered into Voting Agreements, dated as of
July 12, 1996 (the "Voting Agreements"), with the Buyer, which provide, among
other things, that each of the Stockholders will vote or will cause to be voted,
the shares of Common Stock owned by the Stockholder (i) in favor of the adoption
of the Merger Agreement and the approval of the Merger, (ii) against the
approval of any proposal relating to a competing merger or business combination
involving an acquisition of all or a substantial portion of the capital stock,
the
F-33
<PAGE>
assets of the Company or the assets or stock of any subsidiary of the
Company by any person or entity other than the Buyer or Acquisition Company or
an affiliate of the Buyer or Acquisition Company, and (iii) against any
transaction which is inconsistent with the obligation of the Company to
consummate the Merger in accordance with the Merger Agreement. The Voting
Agreements also provide that each Stockholder will not, except as contemplated
by the terms of the Voting Agreements, sell or otherwise voluntarily dispose of
any of the shares of Common Stock owned by such Stockholder or take any
voluntary action which would have the effect of removing such Stockholder's
power to vote his shares or which would be inconsistent with the Voting
Agreements.
For further information regarding the proposed merger, refer to Item 5, Other
Information.
F-34
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
among
ASTOR CORPORATION,
AAC ACQUISITION CORP.
and
ADCO TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Definitions..................................................... 1
2. The Merger...................................................... 6
3. Representations and Warranties of the Company................... 11
4. Representations and Warranties of the Buyer Parties............. 20
5. Covenants of the Company........................................ 21
6. Covenants of the Buyer Parties.................................. 26
7. Conditions Precedent to the Buyer Parties' Obligations.......... 27
8. Conditions Precedent to the Company's Obligations............... 28
9. Termination..................................................... 29
10. Public Announcements............................................ 31
11. General......................................................... 31
</TABLE>
Exhibits
- --------
A Certificate of Merger
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER is made as of the _____ day of July 1996
by and among ASTOR CORPORATION, a Delaware corporation (the "Buyer"), AAC
ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of the
Buyer (the "Acquisition Company" and, together with the Buyer, the "Buyer
Parties"), and ADCO TECHNOLOGIES INC., a Delaware corporation (the "Company").
Background
----------
The Boards of Directors of the Company, the Buyer and the Acquisition
Company, have approved a merger (the "Merger") of the Acquisition Company with
and into the Company in accordance with the Delaware General Corporation Law
(the "DGCL"), on the terms and conditions set forth herein.
WITNESSETH:
----------
In consideration of the mutual promises, representations and warranties,
covenants, payments and actions herein provided, the parties hereto, each
intending to be legally bound hereby, do agree as follows:
1. Definitions.
-----------
For convenience, certain terms used in this Agreement are listed in
alphabetical order and defined or referred to below (such terms as well as any
other terms defined elsewhere in this Agreement shall be equally applicable to
both singular and plural forms of the terms defined).
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" is defined in Section 5.4.
"Affiliates" means, with respect to a particular party, any Persons
controlling, controlled by or under common control with that party.
" Agreement" means this Agreement and Plan of Merger and the exhibits and
schedules hereto
"Assets" means all of the assets, properties and rights of every kind and
description, real and personal, tangible and intangible, that are owned by any
Company Parties, taken as a whole.
"Benefit Plans" means all employee benefit plans of any Company Party
within the meaning of Section 3(3) of ERISA and any related or separate
Contracts, plans, trusts, programs, policies, arrangements, practices, customs
and understandings that provide benefits of economic value to any
<PAGE>
present or former employee of any Company Party, or current or former
beneficiary, dependent or assignee of any such employee or former employee.
"Bridge Financing" is defined in Section 4.4.
"Business" means the entire business and operations of the Company Parties,
taken as a whole.
"Buyer" is defined above in the preamble.
"Buyer Financing" means the Bridge Financing and the Buyer Parties' Rule
144A financing for the Transactions.
"Buyer Parties" is defined above in the preamble.
"Certificate of Merger" is defined in Section 2.2.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 2.9.
"Closing Date" is defined in Section 2.9.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the issued and outstanding shares of Common Stock.
"Common Stock" means the Common Stock, par value $0.01 per share, of
the Company
"Company" is defined above in the preamble.
"Company Balance Sheet" is defined in Section 3.6.
"Company Balance Sheet Date" is defined in Section 3.6.
"Company Disclosure Documents" is defined in Section 3.8.
"Company Parties" means the Company and the Subsidiary.
"Company Representatives" means the Affiliates, officers, directors,
employees, attorneys, accountants, financial advisors and agents of any Company
Party and any other Person who has entered into the Stockholders Agreement with
Buyer on or about the date hereof.
-2-
<PAGE>
"Company's knowledge", "knowledge of the Company" and similar terms
relating to the knowledge of any Company Party mean the actual knowledge of any
officer or director of the Company.
"Confidential Information" means any confidential information or trade
secrets of any Company Party, including personnel information, know-how and
other technical information, customer lists, customer information and supplier
information.
"Contract" means any written or oral contract, agreement, lease, instrument
or other commitment that is binding on any Person or its property under
applicable Law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any Person or its property under applicable Law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or right to receive damages or payment of
penalties.
"DGCL" is defined above in the Background section.
"Disclosure Schedule" is defined in Section 3.
"Effective Time" is defined in Section 2.2.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other encumbrance on any
property or property interest.
"Environmental Law" means any Federal, State, interstate or local Law,
regulation, rule, requirement, administrative interpretation, directive,
judgment, decree, order, policy, guidance, permit or license pertaining to the
protection of human health or the environment, or the regulation of Hazardous
Substances, including without limitation, the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), the Clean Air Act, the Water Pollution Control Act,
the Safe Drinking Water Act, and the Toxic Substances Control Act ("TSCA").
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" is defined in Section 3.6.
-3-
<PAGE>
"GAAP" means generally accepted accounting principles.
"Governmental Entity" means any Federal, State, interstate or local
political subdivision, body, department, agency, or instrumentality.
"Governmental Permits" is defined in Section 3.14.
"Hazardous Substance" means any substance or material: (i) the presence of
which requires investigation or remediation under any Environmental Law; (ii)
the generation, storage, treatment, transportation, disposal, remediation,
removal, handling or management of which is regulated by any Environmental Law;
(iii) that is defined as a "hazardous waste" or "hazardous substance" under any
Environmental Law; or (iv) that contains gasoline, diesel fuel or other
petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos.
"Holder" is defined in Section 2.11(a).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"HSR Compliance" means compliance with the HSR Act.
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, trade secrets, know-how and other intellectual
property.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state or foreign governmental agency or body, including those covering
environmental, energy, safety, health, transportation, bribery, recordkeeping,
zoning, antidiscrimination, antitrust and wage and hour matters.
"Liability" means any liability, indebtedness, guaranty, endorsement or
other obligation of or by any Person, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition or results of operations of the Company Parties,
taken as a whole.
"Material Contracts" is defined in Section 3.15(a).
"Merger Consideration" is defined in Section 2.6(a).
"Option" is defined in Section 2.6(b).
"Option Cancellation Acknowledgement" is defined in Section 2.6(b).
-4-
<PAGE>
"Option Plans" means the Company's 1993 Stock Option Plan, the
Company's 1994 Stock Option Plan and the Company's 1994 Non-Employee Director
Stock Option Plan.
"Option Shares" is defined in Section 2.6(b).
"Patents" means all patents and patent applications.
"Paying Agent" means a financial institution that is reasonably acceptable
to the Buyer and the Company.
"Paying Agent Agreement" means an agreement among the Buyer, the Company
and the Paying Agent with respect to payment of the Merger Consideration, in a
form reasonably acceptable to the Company, the Buyer and the Paying Agent and
consistent with the terms hereof.
"Person" means any natural person, corporation, partnership, limited
liability company, proprietorship, association, trust, Governmental Entity or
other legal entity.
"Prime Rate" means the prime lending rate as announced from time to time in
The Wall Street Journal.
-----------------------
"Prior Confidentiality Agreement" means the Confidentiality Agreement,
dated March 29, 1996, between Aurora Capital Partners, L.P. and Schroder
Wertheim with respect to the Company.
"Real Property" is defined in Section 3.12.
"Returns" means any returns, reports, forms or statements (including any
information returns) required to be filed with any Taxing Authority.
"Schroder Wertheim" means Schroder Wertheim & Co. Incorporated.
"SEC" means the United States Securities and Exchange Commission.
"Securityholder Documents" is defined below in Section 2.11(a).
"Series A Subsidiary Preferred Stock" means the Series A Cumulative
Redeemable Preferred Stock, par value $0.01 per share, of the Subsidiary.
"Series B Subsidiary Preferred Stock" means the Series B Redeemable
Preferred Stock, par value $0.01 per share, of the Subsidiary.
"Severance Agreements" means the Change of Control Agreements, dated
February 13, 1996, between the Company and each of the Persons identified on the
Disclosure Schedule.
"Shares is defined in Section 2.6(a).
-5-
<PAGE>
"Subsidiary" means Adco Products, Inc., a Michigan corporation.
"Subsidiary Preferred Stock" means the Series A Subsidiary Preferred Stock
and the Series B Preferred Stock.
"Surviving Corporation" is the Company at the Effective Time.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, capital, sales, use, ad valorem, value
-- -------
added, franchise, bank shares, withholding, payroll, employment, disability,
workers' compensation, excise, property, alternative or add-on minimum,
environmental or other taxes, assessments, duties, fees, levies or other
governmental charges of any nature whatever, whether disputed or not, together
with any interest, penalties, additions to tax or additional amounts with
respect thereto.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction, or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Termination Date" is defined in Section 2.8(a).
"Transactions" means the Merger and the other transactions contemplated by
this Agreement.
"Transaction Document" means this Agreement, the Certificate of Merger and
any other documents contemplated hereby.
2. The Merger.
----------
2.1 The Merger. Upon the terms and subject to the conditions hereof, and
----------
in accordance with the relevant provisions of the DGCL, the Acquisition Company
shall be merged with and into the Company as soon as practicable, but in any
event within five business days, following the satisfaction or waiver of the
conditions set forth in Sections 7 and 8. Following the Merger, the Company
shall continue as the surviving corporation (the "Surviving Corporation") under
the name "Adco Technologies Inc." and shall continue its existence under the
laws of the State of Delaware, and the separate corporate existence of the
Acquisition Company shall cease.
2.2 Effective Time. The Merger shall be consummated by filing with the
--------------
Delaware Secretary of State a certificate of merger in the form attached hereto
as Exhibit A (the "Certificate of Merger"), as is required by, and executed in
accordance with, the relevant provisions of the DGCL. The Merger shall be
effective at the time of such filing (the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set forth in
---------------------
Section 259 of the DGCL.
-6-
<PAGE>
2.4 Certificate of Incorporation and Bylaws. The Certificate of
---------------------------------------
Incorporation of the Acquisition Company shall be the Certificate of
Incorporation of the Surviving Corporation. The Bylaws of the Acquisition
Company shall be the Bylaws of the Surviving Corporation.
2.5 Directors and Officers. The Disclosure Schedule sets forth the names
----------------------
of the Persons who shall be the directors and officers of the Surviving
Corporation at the Effective Time.
2.6 Conversion of Shares and Options.
--------------------------------
(a) Each Common Share issued and outstanding immediately prior to the
Effective Time (collectively, the "Shares") (other than Dissenting Shares, as
defined in Section 2.10) shall, by virtue of the Merger and without any action
on the part of the Holder (defined below) thereof, be converted into the right
to receive, except as otherwise provided in Section 2.11, $10.25 in cash (the
"Merger Consideration"). Any Common Share held in the treasury of the Company
shall be cancelled.
(b) Each option to acquire Common Shares that is outstanding
immediately prior to the Effective Time (an "Option") shall, by virtue of the
Merger and without any action on the part of the Holder thereof except as
provided below in this paragraph (b), be converted into the right to receive a
net amount in cash equal to the Merger Consideration allocable to the Common
Shares then subject to the Option (the "Option Shares") minus the aggregate
exercise price of the Option for acquisition of the Option Shares, upon delivery
of an executed acknowledgement of the cancellation of the Option (an "Option
Cancellation Acknowledgement"). All Options and any other rights that any other
Person may have under any of the Option Plans (except for the right to receive
cash as provided in this Section 2) shall terminate to the extent such Options
and any such other rights shall not have been exercised by the Effective Time.
(c) The aggregate Merger Consideration will be payable upon the
surrender of the certificates and other documentation specified in Section 2.11.
(d) The Buyer shall take all steps necessary to provide the Surviving
Corporation with funds, as of the Effective Time, in an amount sufficient to
make all the payments contemplated by this Section 2.6 at the Effective Time in
accordance with Section 2.9 and Section 2.11.
2.7 Conversion of Acquisition Company Capital Stock. Each share of
-----------------------------------------------
capital stock of the Acquisition Company 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 (defined below) thereof, be converted into the
right to receive one share of common stock of the Surviving Corporation.
2.8 Stockholders' Meetings; Securities and Exchange Commission Filings.
------------------------------------------------------------------
(a) Consistent with applicable law, the Company shall cause a meeting
of its stockholders to be duly called and held as soon as reasonably practicable
(and in any event before October 31, 1996 (the "Termination Date")) for the
purpose of considering and taking action upon this Agreement and the Merger (the
"Special Meeting"). Subject to the fiduciary duties of the Board
-7-
<PAGE>
of Directors of the Company, under applicable Law, as determined by such
directors, in good faith after consultation with and based upon the written
advice of independent legal counsel, the Board of Directors of the Company will
recommend that its stockholders approve this Agreement and the Merger and the
Board of Directors of the Company and the Company shall use commercially
reasonable efforts to obtain stockholder approval of this Agreement and the
Merger.
(b) The Buyer will promptly prepare and file with the SEC and all
securities exchanges, if any, on which the Company's shares are listed for
trading the documents, schedules and amendments and supplements thereto required
to be filed with respect to the Transactions. In connection with approval of
this Agreement and the Merger, the Company will promptly prepare and file with
the SEC a preliminary proxy statement relating to the Transactions, which shall
consist of proxy materials for use in soliciting the vote of the stockholders of
the Company (the "Preliminary Proxy Statement"), and will use all reasonable
efforts to respond to the comments of the SEC after consultation with the Buyer
and to cause a definitive proxy statement (such proxy statement and any
amendments or supplements thereto are referred to herein as the "Definitive
Proxy Statement") to be mailed to the Company's stockholders as soon as
reasonably practicable. The Preliminary Proxy Statement submitted to the SEC
and the Definitive Proxy Statement mailed to the Company's stockholders shall be
subject to prior review by and approval of the Buyer, which approval may not be
unreasonably withheld.
(c) The stockholder vote required for the adoption of this Agreement
and the Merger by the Company shall be the vote required by the DGCL. Subject
to the fiduciary duties of the Board of Directors of the Company under
applicable Law, as determined by such directors, in good faith after
consultation with and based upon the written advice of independent legal
counsel,, (i) the Definitive Proxy Statement shall contain the determinations
and recommendations of the Board of Directors of the Company set forth in
Section 3.5 hereof and (ii) the Company shall use commercially reasonable
efforts to solicit from holders of Common Shares proxies in favor of adoption
and approval of this Agreement and the Merger, and shall take all other
reasonable action necessary or helpful to secure the vote of holders of Common
Stock required by the DGCL to effect the Merger.
(d) The Buyer, as the sole stockholder of the Acquisition Company,
hereby approves the Merger and this Agreement.
2.9 Closing.
-------
(a) As soon as practicable, but in any event after September 15, 1996
and within five business days, after the satisfaction or waiver of the
conditions set forth in Sections 7 and 8, a closing (the "Closing") will be held
at the offices of Gibson, Dunn & Crutcher, 200 Park Avenue, New York, New York
10166 (or such other place as the parties may agree). The date on which the
Closing occurs is hereinafter referred to as the "Closing Date." At the
Closing, the respective designated parties thereto shall deliver (i) the
documents referred to in Sections 7 and 8, and (ii) the Certificate of Merger,
executed and otherwise prepared for filing. The Surviving Corporation shall
also deliver at the Closing by a wire transfer of same day funds the Merger
Consideration payable to those Holders who have delivered the appropriate
documents under Section 2.11 and to the Paying
-8-
<PAGE>
Agent the aggregate Merger Consideration that may be payable in accordance with
the Paying Agent Agreement to all other Holders upon delivery of the appropriate
documents under Section 2.11.
(b) Contemporaneously with the Closing, the Surviving Corporation
shall deliver to the Delaware Secretary of State a duly executed and verified
Certificate of Merger, as required by the DGCL, and the parties shall take all
such other and further actions as may be required by applicable Law to make the
Merger effective upon the terms and subject to the conditions hereof.
2.10 Dissenting Shares. Notwithstanding anything in this Agreement to the
-----------------
contrary, the Shares that are issued and outstanding immediately prior to the
Effective Time and that are held by a stockholder who did not vote in favor of
the Merger and who complies with all of the relevant provisions of Section 262
of the DGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration, unless and until such Holder shall have failed
to perfect or shall have effectively withdrawn or lost such Holder's rights to
appraisal under the DGCL; and any such Holder shall have only such rights in
respect of the Dissenting Shares owned by such Holder as are provided by Section
262 of the DGCL. If any such Holder shall have failed to perfect or shall have
effectively withdrawn or lost such right, such Holder's Dissenting Shares shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Time, for the right to receive the Merger Consideration
without any interest thereon, pursuant to the terms of Section 2.6. The Company
shall give the Buyer prompt notice of any demand received by the Company for
appraisal of Shares, and, prior to the Effective Time, the Buyer shall have the
right to direct all negotiations and proceedings with respect to such demands.
Prior to the Effective Time, the Company will not, except with the prior written
consent of the Buyer, voluntarily make any payment with respect to, or settle or
offer to settle, any claim made by any Holders owning the Dissenting Shares.
2.11 Exchange of Shares and Options.
------------------------------
(a) At and after the Effective Time, the Surviving Corporation shall
pay to each record holder (a "Holder"), as of the Effective Time, of (i) an
outstanding certificate or certificates that immediately prior to the Effective
Time represented Shares (the "Certificates"), or (ii) an Option, upon the
Holder's delivery of the respective Securityholder Documents (defined below), an
amount in same day funds equal to the product of the number of Shares
represented by such Certificate, or Option Shares subject to such Option,
multiplied by the Merger Consideration. In the case of an Option, however, the
aggregate exercise price for the Option Shares shall be deducted from such
payment. The documents to be delivered by Holders of Shares or Options at and
after the Effective Time (the "Securityholder Documents") shall be (A) in the
case of Shares, the Certificates representing the Shares and a duly executed
letter of transmittal in the form provided by the Company, and (B) in the case
of the Options, a duly executed Option Cancellation Acknowledgement. All such
surrendered Certificates shall be cancelled upon their delivery. Except as
provided in Section 2.11(c), the Surviving Corporation shall pay any transfer or
similar taxes required by reason of the exchange of Shares and Options.
(b) With respect to each Certificate not so surrendered at the
Closing, the Surviving Corporation shall promptly thereafter mail to the Holder
thereof, a letter of transmittal
-9-
<PAGE>
(which shall specify that delivery shall be effected, and risk of loss of title
to such Certificate shall pass, only upon proper delivery of the Certificate and
such letter of transmittal to the Surviving Corporation) and instructions for
delivering such Certificate in exchange for payment of the Merger Consideration.
Upon delivery to the Surviving Corporation of such Certificate, together with
such letter of transmittal, the Holder of the Certificate shall be paid in
exchange therefor cash in an amount equal to the product of the number of Shares
represented by such Certificate multiplied by the Merger Consideration, and such
Certificate shall then be cancelled. The Company shall follow a similar
procedure with respect to any Options to the extent that the respective
Securityholder Documents shall not have been delivered at the Effective Time.
(c) No interest will be paid or accrued on the amounts payable upon
the surrender of the Securityholder Documents. If payment is to be made to a
Person other than the Person in whose name a 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 similar
taxes required by reason of the payment to a Person other than the Holder of the
Certificate surrendered or shall 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 2.11, each Certificate (other
than Certificates evidencing Dissenting Shares) shall represent for all
purposes, and until the respective Securityholder Documents are delivered with
respect to Options, such Option shall represent for all purposes, the right to
receive payment of the amounts specified in Section 2.6 in respect of such
Shares or Options.
(d) Any portion of the funds deposited with the Paying Agent which
remain undistributed to the Holders of Shares or Options for six months after
the Effective Time shall be delivered to the Surviving Corporation, upon demand,
and any Holder of Shares or Options who has not theretofore complied with this
Section 2.11 shall thereafter look only to the Surviving Corporation for payment
of the sums to which such Holder is entitled pursuant to this Agreement.
(e) Neither the Buyer nor the Surviving Corporation shall be liable to
any Holder of Shares or Options for any cash delivered by the Paying Agent or
the Surviving Corporation in good faith to a public official pursuant to an
applicable abandoned property, escheat or similar law.
(f) The Buyer or the Surviving Corporation (or the Paying Agent on
their behalf) shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any Holder of Shares or Options
such amounts, if any, as the Buyer or the Surviving Corporation is required to
deduct and withhold with respect to the making of such payment under the Code or
any provisions of any Law related to Taxes. To the extent that amounts are so
withheld by the Buyer or the Surviving Corporation (or the Paying Agent on their
behalf), such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Holder of the relevant Shares or Options in
respect of which such deduction and withholding was made by the Buyer or the
Surviving Corporation (or the Paying Agent on their behalf).
2.12 No Further Transfer of Shares. After the Effective Time, there
-----------------------------
shall be no transfers of Shares that were outstanding immediately prior to the
Effective Time on the stock transfer books
-10-
<PAGE>
of the Surviving Corporation. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for transfer, they shall be cancelled and
exchanged for cash as provided in this Section 2. At the Effective Time, the
stock ledger of the Company shall be closed.
3. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to the Buyer and the Acquisition
Company as follows, except to the extent specified on the disclosure schedule
that the Company has provided to the Buyer on the date hereof (the "Disclosure
Schedule") or to the extent specified in the Company Disclosure Documents
(defined below):
3.1 Corporate. Each Company Party is a corporation duly organized
---------
validly existing and in good standing under the Laws under which it was
incorporated. Each Company Party is qualified to do business as a foreign
corporation in any jurisdiction where it is required to be so qualified, except
where the failure to so qualify would not have a Material Adverse Effect. The
Charter Documents and Bylaws of each Company Party that have been delivered to
the Buyer have been duly adopted and are current, correct and complete. Each
Company Party has all necessary power and authority to own, lease and operate
its properties and other assets and to carry on the Business as it is now being
conducted. The Disclosure Schedule lists (or the Company Disclosure Documents
list) with respect to each Company Party its name, jurisdiction of
incorporation, officers and directors and the states in which qualified to do
business as a foreign corporation.
3.2 Authorization. The Company has the requisite corporate power and
-------------
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by the Company have been duly authorized by all
necessary corporate action, other than stockholder approval in accordance with
the DGCL. Each Transaction Document executed and delivered by the Company as of
the date hereof has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms. Any Transaction Document executed and
delivered by the Company after the date hereof will be duly executed and
delivered by the Company and will constitute a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
3.3 Validity of Contemplated Transactions. Except for HSR Compliance
-------------------------------------
and for any items specified in the Disclosure Schedule, neither the execution
and delivery by the Company of the respective Transaction Documents to which it
is or will be a party, nor the consummation of the Transactions, will require
any filing, consent or approval under or constitute a Default under (a) any
Regulation or Court Order to which either Company Party is subject, (b) the
Charter Documents or Bylaws of either Company Party or (c) any material Contract
or other material document to which either Company Party is a party or by which
any of its Assets may be subject.
3.4 Capitalization and Stock Ownership. As of the date hereof, (a)
----------------------------------
the total authorized capital stock of the Company consists of (i) 9,000,000
shares of Common Stock, of which 5,150,000 shares are issued and outstanding,
and (ii) 100,000 shares of Preferred Stock, par value $0.01 per share, no shares
of which are issued and outstanding, and (b) Options to acquire 293,318 Option
-11-
<PAGE>
Shares are outstanding. Except as set forth in the immediately preceding
sentence, there are outstanding (i) no shares of capital stock or voting
securities of the Company, (ii) no securities of either Company Party
convertible into, or exercisable for the purchase of, or exchangeable for shares
of capital stock or voting securities of the Company, (iii) no options or other
rights to acquire from either Company Party, and no obligations of the Company
to issue, any capital stock, voting securities or securities convertible into,
or exercisable for the purchase of, or exchangeable for capital stock or voting
securities of the Company and (iv) no equity equivalents, interest in the
ownership or earnings of the Company or other similar rights. The outstanding
shares of Common Stock are all duly and validly authorized and issued, fully
paid and non-assessable. The Options are owned of record by the Persons listed
in the Disclosure Schedule or the Company Disclosure Documents, in the amounts
shown therein and with the respective option prices set forth therein. There
are no outstanding obligations of either Company Party to repurchase, redeem or
otherwise acquire any Shares.
3.5 Board Recommendation. By a vote of the directors present at a
--------------------
meeting of the Company's Board of Directors (which meeting was duly called and
held and at which a quorum was present), the Board of Directors of the Company
unanimously (a) approved and adopted this Agreement, including the Merger and
the other Transactions, and determined that the Merger is fair to the
stockholders of the Company, (b) resolved to recommend approval and adoption of
this Agreement, including the Merger and the other Transactions, by the
stockholders of the Company, (c) took all corporate actions required to be taken
by the Board of Directors for the consummation of the Transactions and all
actions required to render the provisions of Section 203 of the DGCL restricting
business combinations with interested stockholders inapplicable to the Merger.
Schroder Wertheim has delivered to the Company's Board of Directors its oral
opinion on the date hereof to the effect that on such date, the Merger
Consideration is fair to the holders of the Common Shares from a financial point
of view.
3.6 Financial Statements. The Company has delivered to the Buyer audited
--------------------
financial statements of the Company consisting of consolidated balance sheets as
of the end of its fiscal year in 1994 and 1995 and the related statements of
income, retained earnings, stockholders' equity and cash flows for the fiscal
years then ended, certified by Ernst & Young LLP (the "Audited Statements"). The
Company has also delivered to the Buyer an unaudited balance sheet, and
statements of income and cash flows as of March 31, 1996 and for the fiscal
quarterly period then ended (the "Interim Statements"). The Audited and Interim
Statements are referred to herein as the "Financial Statements." The Audited
Financial Statements and the Interim Statements have been prepared in conformity
with GAAP consistently applied, and when read together with any related notes
thereto, the Audited Financial Statements and the Interim Statements fairly
present in all material respects the financial position of the Company at such
dates and the results of operations for the periods ended on such dates, subject
in the case of the Interim Statements to normal year-end audit adjustments,
which adjustments will not in the aggregate be materially adverse to the
consolidated financial position or results of operations of the Company. For
purposes of this Agreement, the balance sheet of the Company as of March 31,
1996 is referred to as the "Company Balance Sheet" and the date thereof is
referred to as the "Company Balance Sheet Date."
3.7 Proxy Materials. The Definitive Proxy Statement will not, at
---------------
the date when the Definitive Proxy Statement is first mailed to the Company's
stockholders and at the date of the
-12-
<PAGE>
Special Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty regarding information with respect to the Buyer or
any of its officers, directors or affiliates or associates (as such terms are
defined in Rule 12b-2 of the Exchange Act). At the date the Definitive Proxy
Statement is mailed to the Company's stockholders, the Definitive Proxy
Statement will comply, as to form, in all material respects, with the
requirements of all applicable Laws, including the 1934 Act and the rules and
regulations promulgated by the SEC thereunder.
3.8 Company Disclosure Documents. The Company has filed all required
----------------------------
forms, reports, statements, schedules and other documents with the SEC since the
effective date of the Company's first Registration Statement on Form S-1
(collectively, the "Company Disclosure Documents"). The Company has furnished to
the Buyer such Registration Statement on Form S-1, including its final
prospectus dated February 14, 1995 and the Exhibits to such Registration
Statement, its Annual Report on Form 10-K for the fiscal year ended December 31,
1995, and its Quarterly Report on Form 10-Q for the period ending March 31,
1996, which are part of the Company Disclosure Documents. The Company has not
held any meetings of its stockholders (whether annual or special) since February
14, 1995. Each of such Company Disclosure Documents, at the time it was filed,
complied in all material respects with all applicable requirements of the 1933
Act and the 1934 Act, and with the forms, rules and regulations of the SEC
promulgated thereunder, and did not contain at the time filed 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, except for the
omission of the Severance Agreements therefrom.
3.9 Absence of Undisclosed Liabilities. There are no Liabilities of
----------------------------------
any Company Party except (a) to the extent reflected in the Company Balance
Sheet, (b) those Liabilities described in this Agreement, the Disclosure
Schedule or the Company Disclosure Documents, (c) those Liabilities incurred in
the ordinary course of business since the Company Balance Sheet Date, (d) those
Liabilities not required under GAAP to be reflected in the Financial Statements
and that would not, individually or in the aggregate, have a Material Adverse
Effect and (e) Liabilities related to this Agreement and the Transactions.
3.10 Taxes. (a) Except for Returns for Taxes or Tax Assessments
-----
that are not material, each Company Party has duly filed all Returns required to
be filed, and has paid all Taxes that have become due pursuant to such returns
or pursuant to any assessment received by any Company Party.
(b) Each Company Party has duly withheld or collected all material
taxes and other assessments and levies that such Company Party has been required
by law to withhold or to collect, and such Company Party has paid over such
amounts to the proper governmental authorities or is properly holding such
amounts for such payment.
(c) To the knowledge of the Company, there are no proceedings or other
actions for the assessment and collection of additional Taxes of any kind for
any period for which returns have or should have been filed.
-13-
<PAGE>
(d) The reserves for Taxes (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) in
the Financial Statements are sufficient for all unpaid Taxes, whether or not
disputed, of any Company Party.
(e) Except as described in the Disclosure Schedule, no Company Party
is a party to an agreement extending the time within which to file any Tax
Return or extending the statute of limitations for any period with respect to
any Tax to which any Company Party may be subject. No claim has ever been made
by any Taxing Authority in a jurisdiction in which any Company Party does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction
except for any such case where the amount of such taxation would not be
material.
(f) The Company has delivered to the Buyer complete and correct copies
of all federal, state, local and foreign income Tax Returns filed, and all Tax
examination reports and statements of deficiencies assessed against or agreed
to, by any Company Party for all taxable periods ended on or after December 31,
1991.
(g) No Company Party has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
require it to make any payments, that are not deductible under Section 280G of
the Code.
(h) There are no material Encumbrances of any sort on the Assets of
any Company Party except for Encumbrances for Taxes not yet due and payable.
The Company has no knowledge of any reasonable basis for the assertion of any
claim relating or attributable to Taxes that, if adversely determined, would
result in any material Encumbrance on the Assets of any Company Party.
(i) None of the Assets of any Company Party constitutes tax-exempt
bond financed property or tax-exempt use property, with the meaning of Section
168 of the Code. No Company Party is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue Code as
in effect prior to the Tax Reform Act of 1986, or to any "long-term contract"
within the meaning of Section 460 of the Code.
(j) No Company Party is a "consenting corporation" within the meaning
of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the Assets of any Company Party is subject to an election
under Section 341(f) of the Code or comparable provisions of any state statutes.
(k) The Company is not a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes.
(l) Except as described in the Disclosure Schedule, no Company Party
is a party to a tax sharing or allocation agreement nor does any Company Party
have any obligation to pay any amounts under any such agreements. No Company
Party has any Liability for Taxes of any Person (i) under Section 1.1502-6 of
the Treasury Regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by Contract or (iv) otherwise.
-14-
<PAGE>
(m) The Company is not a party to any written, oral or implied
agreement or obligation to provide any "covered employee," as defined in Section
162(m)(3) of the Code, with remuneration in excess of $1 million, that would be
disallowed as a deduction for federal income tax purposes pursuant to Section
162(m) of the Code.
(n) The tax basis of the Assets of all Company Parties for purposes of
determining future amortization, depreciation, and other federal income tax
deductions is properly reflected, in all material respects, on the Company's tax
books and records.
3.11 Title to Assets and Related Matters. Each Company Party has
-----------------------------------
good and marketable title to all of its Assets, free from any Encumbrances
except (a) items specified in the Disclosure Schedule, (b) items described in
any notes to the Financial Statements, (c) minor matters that, in the aggregate,
would not have a Material Adverse Effect, and (d) constitutional and statutory
liens arising from the obligation to pay for the provision of materials or
services not yet in Default and state and local taxes not yet due.
3.12 Real Property. The Disclosure Schedule describes (or the
-------------
Company Disclosure Documents describe) all real estate owned or leased by any
Company Party and used in the operation of the Business as well as any other
real estate that is in the possession of or leased by any Company Party (as
tenant or landlord) (collectively, the "Real Property"). Except as set forth in
the Disclosure Schedule, each Company Party has good and marketable title to any
Real Property listed on the Disclosure Schedule as owned by such Company Party,
free and clear of any Encumbrances other than minor matters that, in the
aggregate, would not have a Material Adverse Effect. In addition, except as set
forth in the Disclosure Schedule, (a) none of the buildings or structures
located on any Real Property nor any appurtenances thereto or equipment thereon,
nor the operation or maintenance thereof, violates in any material respect any
restrictive covenants or encroaches in any material respect on any property
owned by others; (b) nor does any building or structure of third parties
encroach in any material respect upon any such Real Property; (c) each Real
Property complies in all material respects with applicable zoning, building and
occupancy codes relating to the current operations thereon; (d) no Real Property
contains any material defect that would prevent the continued use and operation
of such Real Property; (e) there are no material Defaults by the tenant, or to
the Company's knowledge by the landlord under any lease of any portion of the
Real Property; and (f) the copies of such leases delivered pursuant to the terms
hereof are true, correct and complete in all material respects, except in the
case of any of such items in clauses (a) through (f) where such violations,
encroachments, events of non-compliance, defects, Defaults or inaccuracies,
individually and in the aggregate, would not have a Material Adverse Effect.
3.13 Subsidiaries. Except for the Company's ownership of the
------------
Subsidiary, no Company Party owns, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, limited
liability company, business trust, joint venture or other legal entity. The
total authorized capital stock of the Subsidiary consists of (a) 150,000 shares
of common stock, par value $1.00 per share, of which 116,189 shares are issued
and outstanding (the "Subsidiary Common Shares"), (b) 4,856 shares of Series A
Subsidiary Preferred Stock, of which 3,500 shares are issued and outstanding and
(c) 1,356 shares of Series B Subsidiary Preferred Stock, of which 420
-15-
<PAGE>
shares are issued and outstanding. The Company owns all of the issued and
outstanding Subsidiary Common Shares, free and clear of any Encumbrances, and
Nalco Chemical Company owns of record all of the issued and outstanding
Subsidiary Preferred Stock. The Company has delivered to the Buyer true and
correct copies of the [Certificate of Designation] for the Series A Subsidiary
Preferred Stock and the Series B Subsidiary Preferred Stock. As of May 14, 1996
the aggregate redemption price for all such shares was $3,920,000 and such
aggregate redemption price increases by $767.12 each day after May 14, 1996 that
such shares remain outstanding. Except as set forth in the immediately preceding
sentence, there are outstanding (i) no shares of capital stock or voting
securities of the Subsidiary, (ii) no securities of either Company Party
convertible into, or exercisable for the purchase of, or exchangeable for shares
of capital stock or voting securities of the Subsidiary, (iii) no options or
other rights to acquire from either Subsidiary Party, and no obligations of the
Subsidiary to issue, any capital stock, voting securities or securities
convertible into, or exercisable for the purchase of, or exchangeable for
capital stock or voting securities of the Subsidiary and (iv) no equity
equivalents, interest in the ownership or earnings of the Subsidiary or other
similar rights. All of the Subsidiary Common Shares are duly and validly
authorized and issued, fully paid and non-assessable. There are no outstanding
obligations of either Company Party to repurchase, redeem or otherwise acquire
any capital stock or voting securities of the Subsidiary.
3.14 Legal Proceedings; Compliance with Law; Governmental Permits.
------------------------------------------------------------
(a) Except as described in the Disclosure Schedule, there is no
Litigation that is pending or, to the Company's knowledge, threatened against
any Company Party or any of their respective Assets. To the Company's
knowledge, there has been no Default under any Laws applicable to any Company
Party, except for any Defaults that would not have a Material Adverse Effect.
There has been no Default with respect to any Court Order applicable to any
Company Party. Except as described in the Disclosure Schedule, neither Company
Party is subject to any Court Order which, insofar as can be reasonably
foreseen, individually or in the aggregate, in the future would have a Material
Adverse Effect or would prevent or delay the consummation of the Transactions.
(b) Without limiting the generality of Section 3.14(a), except as
described on the Disclosure Schedule and except for those situations that,
individually or in the aggregate, would not have a Material Adverse Effect:
(i) all Company Parties are in compliance with all orders,
permits, conditions, standards, requirements and schedules required or imposed
under any Environmental Law;
(ii) no Company Party has received any notice, claim, subpoena,
or summons, or been threatened with any notice, claim, subpoena or summons from
any Person alleging: (a) any liability of any Company Party under any
Environmental Law or (b) any violation by any Company Party of any Environmental
Law;
(iii) there are and have been no facts, circumstances or
conditions (including any Hazardous Substances that have been released, disposed
of, emitted, treated, stored, generated, placed, deposited, discharged, or
spilled at, upon or under any facility owned, operated or leased by
-16-
<PAGE>
any Company Party or any facility to which any Company Party has sent any
Hazardous Substance) that are reasonably likely to give rise to (x) any
Liability of any Company Party under any Environmental Law or (y) any violation
by any Company Party of any Environmental Law;
(iv) all Company Parties have all permits required under any
Environmental Law; and
(v) all Company Parties have delivered to Buyer all
environmental studies and reports in their possession with respect to any
facilities or real property ever owned, operated or leased by any Company Party.
(c) Each Company Party has complied, in all material respects, with
all of its governmental permits, licenses, registrations, certificates of
occupancy, approvals and other authorizations (the "Governmental Permits").
3.15 Contracts and Commitments.
-------------------------
(a) All Contracts described in Item 601(b)(10) of Regulation S-K to
which any Company Party is a party or may be bound ("Material Contracts") have
been filed as exhibits to, or incorporated by reference in, the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 except for the
Severance Agreements. To the Company's knowledge, no Company Party has
committed a Default under any Material Contract, except for Defaults that,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect. The Company has delivered or made available to the
Buyer true and complete copies of all Material Contracts.
(b) The Disclosure Schedule describes any Contract to which any
Company Party is a party or may be bound that limits or restrains any Company
Party from engaging or competing in any business or that creates a partnership,
joint venture, "teaming arrangement" or other similar arrangement.
(c) The Disclosure Schedule describes the Company's good faith
estimate of the fees and expenses that it will incur in connection with the
Transactions, including fees and expenses for its investment banker, accountants
and lawyers, printing, transfer agent, mailing and filing with the SEC.
3.16 Employee Relations. Except as described in the Disclosure
------------------
Schedule, no Company Party is (a) a party to, involved in or, to the Company's
knowledge, threatened by, any labor dispute or unfair labor practice charge, or
(b) currently negotiating any collective bargaining agreement, and no Company
Party has experienced any work stoppage during the last three years. The
Company has delivered to the Buyer a complete and correct list of the names and
salaries, bonus and other cash compensation of all employees (including
officers) of the Company Parties whose total cash compensation for 1995
exceeded, or whose total compensation for 1996 is expected to exceed, $100,000.
-17-
<PAGE>
3.17 ERISA.
-----
(a) Except as set forth in the Disclosure Schedule, there are no
employment, consulting, severance pay, continuation pay, termination pay or
indemnification agreements or other similar agreements of any nature whatsoever
(collectively, "Employment Agreements") between either Company Party and any
current or former stockholder, officer, director, employee or Affiliate or
either Company Party are currently in effect. The Disclosure Schedule also
contains a complete list of all Benefit Plans sponsored or maintained by any
Company Party or under which any Company Party may be obligated. The Company
has delivered to the Buyer (i) accurate and complete copies of all Employment
Agreements and all Benefit Plan documents and of any summary plan descriptions,
summary annual reports and insurance contracts relating thereto, (ii) accurate
and complete detailed summaries of all unwritten Benefit Plans, (iii) accurate
and complete copies of the most recent financial statements and actuarial
reports with respect to all Benefit Plans for which financial statements or
actuarial reports are required or have been prepared and (iv) accurate and
complete copies of all annual reports for all Benefit Plans (for which annual
reports are required) prepared within the last two years. Except as
specifically disclosed in the Disclosure Schedule, there are no Employment
Agreements or any other similar agreements to which either Company Party is a
party under which the Merger or Transactions (i) will require any payment by
either Company Party or any consent or waiver from any stockholder, officer,
director, employee, consultant or other Person or (ii) will result in any change
in the nature of any rights of any stockholder, officer, director, employee or
agent of either Company Party as a result of the Merger or consummation of the
Transactions. Except as specifically disclosed in the Disclosure Schedule, no
individual shall accrue or receive additional benefits, service or accelerated
rights to payments of benefits under any Benefit Plan, including the right to
receive any "parachute payment," as defined in Section 280G of the Code, or
become entitled to severance, termination allowance or similar payments as a
direct result of the Merger or the Transactions.
(b) Except as described in the Disclosure Schedule, all Benefit Plans
conform in all material respects to, and are being administered and operated in
material compliance with, the requirements of ERISA, the Code and all other
applicable Laws. There have not been any "prohibited transactions," as such
term is defined in Section 4975 of the Code or Section 406 of ERISA involving
any of the Benefit Plans, that could subject any Company Party to any material
penalty or tax imposed under the Code or ERISA.
(c) Except as set forth in the Disclosure Schedule, any Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code has been determined by the Internal
Revenue Service to be so qualified, and such determination remains in effect and
has not been revoked. Nothing has occurred since the date of any such
determination that is reasonably likely to affect adversely such qualification
or exemption, or result in the imposition of excise taxes or income taxes on
unrelated business income under the Code or ERISA with respect to any Benefit
Plan.
(d) Except as set forth in the Disclosure Schedule, no Company Party
has a current or contingent obligation to contribute to any multiemployer plan
(as defined in Section 3(37) of ERISA).
-18-
<PAGE>
(e) There are no pending or, to the knowledge of the Company,
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of any Company Party or any of such party's
officers, directors or employees under ERISA or any other applicable Laws, or
claiming benefit payments other than those made in the ordinary operation of
such plans. To the Company's knowledge, the Benefit Plans are not the subject
of any investigation, audit or action by the Internal Revenue Service, the
Department of Labor or the Pension Benefit Guaranty Corporation ("PBGC"). Each
Company Party has made all required contributions under the Benefit Plans
including the payment of any premiums payable to the PBGC and other insurance
premiums.
(f) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act and the applicable
provisions of the Social Security Act, (iv) all Welfare Plans may be amended or
terminated at any time on or after the Closing Date, and (v) no such plan
provides benefits to retirees or the former employees of either Company Party or
the dependents of any of the foregoing.
3.18 Patents, Trademarks, etc. The Disclosure Schedule sets forth a
------------------------
complete and correct list of each patent, patent application and docketed
invention, and all items which either Company Party claims as a trademark, trade
name or copyright, and all trade name registrations or applications, copyright
registrations or application for copyright registration, and each license or
licensing agreement for any of the foregoing to which either Company Party is a
party or by which either is bound. To the Company's knowledge, no Company Party
infringes upon or unlawfully or wrongfully uses any Intellectual Property owned
or claimed by another Person. Each Company Party either owns the entire right,
title and interest in, to and under, or has a valid license to use, any and all
Intellectual Property which is material to the conduct of the Business in the
manner that the Business is conducted.
3.19 Absence of Certain Changes. Since the Balance Sheet Date, the
--------------------------
Company Parties have conducted the Business in the ordinary course, and except
as described on the Disclosure Schedule, there has not been with respect to any
Company Party:
(a) any material adverse change in its Business, Liabilities,
consolidated results of operations or consolidated financial condition;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise;
-19-
<PAGE>
(c) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for merit and seniority
increases for non-officer employees made in the ordinary course of
business, nor any other change in any employment or consulting arrangement;
(d) any sale, assignment or transfer of Assets, or any additions to or
transactions involving any Assets, other than those made in the ordinary
course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(f) any material change by either Company Party in its accounting
principles, methods or practices or the manner in which it keeps its books
and records or any material change by either Company Party of its current
general practices with regard to sales, receivables, payables or accrued
expenses.
(g) any Material Contract entered into by either Company Party, or
any waiver, amendment, termination or cancellation of any Material Contract
by either Company Party or any relinquishment of any rights thereunder by
either Company Party, other than, in each such case, actions taken in the
ordinary course of business consistent with past practice; or
(h) any loan to or guarantee or assumption of any loan or obligation
on behalf of any director, officer, stockholder or employee or either
Company Party, except for travel advances occurring in the ordinary course
of business.
3.20 Corporate Records. The minute books of the Company contain accurate,
-----------------
complete and current copies of all Charter Documents and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders. The stock record books of the Company are also complete, correct
and current.
3.21 Finder's Fees. Except for Schroder Wertheim, the arrangements with
-------------
which have been disclosed to the Buyer in writing, no Person is or will be
entitled to any commission, finder's or other payment in connection with the
Transactions based on arrangements made by or on behalf of either Company Party.
4. Representations and Warranties of the Buyer Parties.
---------------------------------------------------
The Buyer and the Acquisition Company, jointly and severally, represent and
warrant to the Company as follows, and all such representations and warranties
shall be true and correct at and as of the Closing Date as though then made:
4.1 Corporate. Each Buyer Party is a corporation duly organized, validly
---------
existing and in good standing under which it was incorporated.
-20-
<PAGE>
4.2 Authorization. Each Buyer Party has the requisite corporate power and
-------------
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by each Buyer Party have been duly authorized by all
necessary corporate action, including any stockholder approval that may be
required under applicable Law. Each Transaction Document executed and delivered
by any Buyer Party of the date hereof has been duly executed and delivered by
such Buyer Party and constitutes a valid and binding obligation of such Buyer
Party, enforceable against such Buyer Party in accordance with its terms. Any
Transaction Document executed and delivered by any Buyer Party after the date
hereof will be duly executed and delivered by such Buyer Party and will
constitute a valid and binding obligation of such Buyer Party, enforceable
against such Buyer Party in accordance with its terms.
4.3 Validity of Contemplated Transactions. Except for HSR Compliance,
-------------------------------------
neither the execution and delivery by any Buyer Party of the Transaction
Documents to which it is or will be a party, nor the performance of the
Transactions to be performed by any Buyer Party, will require any filing,
consent or approval under or constitute a Default under (a) any Law or Court
Order to which any Buyer Party is subject, (b) the Charter Documents or Bylaws
of any Buyer Party or (c) any material Contract or other material document to
which any Buyer Party is a party.
4.4 Available Funds. The Buyer Parties have provided the Company with a
---------------
true, correct and complete copy of a commitment letter from a financial
institution regarding the Buyer Parties' "bridge" financing for the Transactions
(the "Bridge Financing").
4.5 Finder's Fees . No Person is or will be entitled to any commission,
--------------
finder's or other payment from any Seller Party in connection with the
Transactions based on arrangements made by or on behalf of any Buyer Party.
5. Covenants of the Company.
------------------------
5.1 Closing Conditions. At and prior to the Closing, the Company shall
------------------
use commercially reasonable efforts to fulfill the conditions specified in
Section 7 to the extent that the fulfillment of such conditions is within its
control, except that the Company shall not be required to pay or expend any
material amount of funds that may be necessary to correct any Default under its
representations and warranties or to fulfill any of such conditions. The
foregoing obligation includes refraining from any actions that would cause the
Company's representations and warranties to be inaccurate in any material
respect as of the Closing, executing and delivering the agreements and other
documents referred to in Section 7 and using commercially reasonable efforts to
prepare all necessary documentation. The Company shall give the Buyer prompt
written notice of any event or development that occurs or fails to occur (and
that is known to the Company) that gives the Company reason to believe that the
conditions set forth in Section 7 will not be satisfied prior to the Termination
Date.
5.2 Conduct of the Business. Except as otherwise expressly provided in
-----------------------
this Agreement, during the period from the date hereof to the Effective Time,
neither Company Party will conduct its operations otherwise than in the ordinary
course of business consistent with past practice. Without
-21-
<PAGE>
limiting the generality of the foregoing, and except as otherwise contemplated
by this Agreement, neither Company Party will, without the prior written consent
of the Buyer:
(a) amend or propose to amend its Charter Documents or Bylaws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including any stock
options or stock appreciation rights), except as required by the Options that
are outstanding and in effect as of the date hereof, or amend any of the terms
of any such securities or agreements that are outstanding as of the date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
except for the payment of dividends in accordance with past practice, or redeem
or otherwise acquire any of its securities or any securities of its
subsidiaries;
(d) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to the Company and the
Subsidiary taken as a whole; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and the
Subsidiary, taken as a whole, (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than loans or
advances to employees in the ordinary course of business consistent with past
practice and in amounts not material to the maker of such loan or advance); (iv)
pledge or otherwise encumber shares of capital stock of the Company or the
Subsidiary; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Encumbrance thereupon;
(e) except as may be required by applicable Law, enter into, adopt or
amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any director, officer or
employee in any manner, or (except for normal increases in the ordinary course
of business consistent with past practice that, in the aggregate, do not result
in a material increase in benefits or compensation expense to the Company, and
as required under existing agreements or in the ordinary course of business
generally consistent with past practice) increase in any manner the compensation
or fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including the granting of stock appreciation rights);
(f) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets that in the aggregate are material to the
Company and the Subsidiary taken as a whole, or enter into any commitment or
transaction outside the ordinary course of business
-22-
<PAGE>
consistent with past practice which would be material to the Company and its
subsidiaries taken as a whole;
(g) except as may be required as a result of a change in Law or in
GAAP, change in any material respect any of the accounting principles or
practices used by it;
(h) revalue in any material respect any of its Assets, including
writing down the value of inventory or writing-off notes or accounts receivables
other than in the ordinary course of business;
(i) (i) 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; (ii) enter into any Material Contract
other than in the ordinary course of business consistent with past practice;
(iii) authorize any new capital expenditure or expenditures which, individually,
is in excess of $500,000 or, in the aggregate, are in excess of $1,000,000;
provided that none of the foregoing shall limit any capital expenditure already
included in the Company's 1996 capital expenditure budget previously provided to
the Buyer; or (iv) enter into or amend any Contract providing for the taking of
any action that would be prohibited hereunder;
(j) make any Tax election or settle or compromise any income tax
liability material to the Company Parties taken as a whole;
(k) pay, discharge or satisfy Liabilities, other than the payment,
discharge or satisfaction in the ordinary course of business of Liabilities
reflected or reserved against in, or identified by specific reference in, the
Financial Statements (or the notes thereto) or incurred in the ordinary course
of business consistent with past practice;
(l) settle or compromise any pending or threatened suit, action or
claim relating to the Transactions; or
(m) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.2(a) through 5.2(l) or any action that would make any of
the representations or warranties of the Company contained in this Agreement
untrue or incorrect as of the date when made or would result in any of the
conditions set forth in Section 7 not being satisfied.
Nothing contained in this Agreement shall give the Buyer Parties, directly or
indirectly, the right to control or direct any Company Party's operations prior
to the Effective Time. Prior to the Effective Time, each Company Party shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision over its operations.
5.3 Access to Information. The Company shall, and shall cause the
---------------------
Subsidiary to, give the Buyer and its representatives (including the Buyer's
accountants, counsel and employees), upon reasonable notice and during normal
business hours, full access to the properties, contracts, books, records and
affairs of the Company and the Subsidiary. The Company shall cause its officers
and employees, and the officers and employees of the Subsidiary, to furnish to
the Buyer all documents,
-23-
<PAGE>
records and information (and copies thereof) as the Buyer may reasonably
request; it being understood that (a) the Company, in its sole discretion may
deny or restrict any access (i) involving possible breaches of applicable
confidentiality agreements with third parties, or possible waivers of any
applicable attorney-client privileges or (ii) if any Buyer Party is in material
breach of this Agreement, (b) such investigations shall not under any
circumstances interfere with the Company's or the Subsidiary's operations,
activities or employees, and (c) such investigations shall not be of a nature
that in the opinion of the Company may violate applicable antitrust or similar
laws. If this Agreement is terminated pursuant to Section 9.1, (x) the Buyer
Parties shall, and shall cause their representatives to, keep confidential any
Confidential Information obtained from any Company Party (except as may be
specifically (and only to the extent) required to be disclosed by applicable Law
or administrative or legal process or pursuant to any securities exchange
rules), it being understood that the Buyer Parties will notify the Company in
writing prior to any proposed disclosure of such Confidential Information in
order to enable the Company to seek an appropriate protective order; and (y) the
Buyer Parties shall return to the Company Parties all documents (and
reproductions thereof) supplied to any Buyer Party by any Company Party. The
foregoing covenants relating to confidentiality are in addition to those
included in the Prior Confidentiality Agreement.
5.4 No Solicitation. From and after the date hereof, the Company, without
---------------
the prior written consent of the Buyer, will not, and will not authorize any of
the Company Representatives to, directly or indirectly, solicit, initiate or
encourage (including by way of furnishing information) or take any other action
to facilitate knowingly any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to an Acquisition Proposal
(defined below) from any Person, or engage in any discussion or negotiations
relating thereto or accept any Acquisition Proposal or make or authorize any
statement, recommendation or solicitation in support of any Acquisition
Proposal; provided, however, that notwithstanding any other provision hereof,
the Company may (a) at any time prior to the time the Company's stockholders
shall have voted to approve this Agreement, engage in discussions or
negotiations with a third party who (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with the
Company or any Company Representative after the date hereof) seeks to initiate
such discussions or negotiations and may furnish such third party information
concerning the Company, the Business or the Assets if, and only to the extent
that, (i)(x) the third party has first made an Acquisition Proposal in writing
that is financially superior to the Transactions and has demonstrated that the
funds necessary for the Acquisition Proposal are reasonably likely to be
available (as determined in good faith in each case by the Company's Board of
Directors after consultation with its financial advisors) and (y) the Company's
Board of Directors shall conclude in good faith, after considering applicable
provisions of state law, on the basis of written advice of outside counsel, that
such action is necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law and (ii) prior to
furnishing such information to or entering into discussions or negotiations with
such Person, the Company (x) provides prompt notice to the Buyer to the effect
that it is furnishing information to or entering into discussions or
negotiations with such Person and (y) receives from such Person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such Person than the terms contained in
Section 5.3 and the Prior Confidentiality Agreement; (b) comply with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer, or
(c) provided the Company terminates this Agreement pursuant to Section 9.1(g),
accept an Acquisition Proposal from a third party. The Company shall
-24-
<PAGE>
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any Persons conducted
heretofore by the Company or any Company Representatives with respect to the
foregoing. The Company shall not release any third party from, or waive any
provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made, or who may
reasonably be considered likely to make, an Acquisition Proposal, unless its
Board of Directors shall conclude in good faith, after considering applicable
provisions of state law, on the basis of oral or written advice of outside
counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties. The Company shall notify the Buyer
orally and in writing of any such inquiries, offers or proposals (including the
terms and conditions of any such proposal, the identity of the Person making it
and a copy of any written Acquisition Proposal), within 24 hours of the receipt
thereof, shall keep the Buyer informed of the status and details of any such
inquiry, offer or proposal, and shall give the Buyer five days' advance notice
of any agreement to be entered into with, or any information to be supplied to,
any Person making such inquiry, offer or proposal. This Section 5.4, however,
shall not require the Company to identify any Person to whom it furnishes
information or enters into discussion or negotiations nor any Person who makes
any such inquiries, offers or proposals to the extent that identifying any such
Person would violate the terms of a confidentiality agreement with such Person
that was entered into prior to the date hereof. As used herein, "Acquisition
Proposal" shall mean a proposal or offer (other than by a Buyer Party) for a
tender or exchange offer, merger, consolidation or other business combination
involving any Company Party or any proposal to acquire in any manner a
substantial equity interest in, or all or any substantial part of the Assets of,
any Company Party.
5.5 Additional Agreements. The Company will comply in all material
---------------------
respects with all applicable Laws in connection with its execution, delivery and
performance of this Agreement and the Transactions. The Company shall use
commercially reasonable efforts to obtain in a timely manner all necessary
waivers, consents and approvals required under any Laws and to effect all
necessary registrations and filings under any Laws, and to use commercially
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions.
Without limiting the generality of the foregoing, the Company shall promptly
prepare and file a premerger notification in accordance with the HSR Act, shall
promptly comply with any requests for additional information, and shall use
commercially reasonable efforts to obtain termination of the waiting period
thereunder as promptly as practicable.
5.6 Subsidiary Preferred Stock. The Company shall cause the Subsidiary to
--------------------------
redeem on or before the Closing Date all of the issued and outstanding
Subsidiary Preferred Stock in accordance with the terms thereof as in effect on
the date of this Agreement.
6. Covenants of the Buyer Parties.
------------------------------
6.1 Closing Conditions. At and prior to the Closing, each Buyer Party
------------------
shall use commercially reasonable efforts to fulfill the conditions specified in
Section 8 to the extent that the fulfillment of such conditions is within its
control, except that no Buyer Party shall be required to pay or expend any
material amount of funds that may be necessary to correct any Default under its
-25-
<PAGE>
representations and warranties or to fulfill any of such conditions. The
foregoing obligation includes refraining from any actions that would cause any
Buyer Party's representations and warranties to be inaccurate in any material
respect as of the Closing, executing and delivering the agreements and other
documents referred to in Section 8 and using commercially reasonable efforts to
prepare all necessary documentation. The Buyer shall give the Company prompt
written notice of any event or development that occurs or fails to occur (and
that is known to any Buyer Party) that gives the Buyer reason to believe that
the conditions set forth in Section 8 will not be satisfied prior to the
Termination Date.
6.2 Buyer Financing. The Buying Parties shall use commercially reasonable
---------------
efforts to obtain the Buyer Financing and shall notify the Company promptly of
any event or circumstances that give any Buyer Party a reason to believe that
the Buyer Financing may not be available.
6.3 Indemnification, Directors' and Officers' Insurance.
---------------------------------------------------
(a) For a period of six years after the Effective Time, the Buyer
shall cause the Surviving Corporation to (i) maintain in effect the current
provisions regarding indemnification of officers and directors contained in the
Charter Documents and Bylaws of each Company Party and any directors, officers
or employees indemnification agreements of any Company Party, and (ii) indemnify
the directors and officers of any Company Party to the fullest extent to which
any Company Party are permitted to indemnify such officers and directors under
their respective Charter Documents and Bylaws and applicable Law. The Buyer
hereby unconditionally and irrevocably guarantees for the benefit of such
directors, officers and employees the obligations of each Company Party under
the foregoing indemnification arrangements.
(b) For a period of four years after the Effective Time, the Buyer
shall cause the Surviving Corporation to maintain in effect the current policies
of directors' and officers' liability insurance and fiduciary liability
insurance maintained by any Company Party (provided that the Buyer may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured in any material respect) with respect to claims
arising from facts or events which occurred on or before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend more than an amount per year equal to 200% of the current annual
premiums paid by the Company (the "Premium Amount") to maintain or procure
insurance coverage pursuant hereto, and further provided that if the Surviving
Corporation is unable to obtain the insurance called for by this Section 6.3(b),
the Surviving Corporation will obtain as much comparable insurance as is
available for the Premium Amount per year.
6.4 Benefit Plans. The Buyer will maintain, or cause the Surviving
-------------
Corporation to maintain, for a period of one year after the Effective Time,
Benefit Plans covering employees of any Company Parties that are no less
favorable, in the aggregate, to the employees covered by such plans than the
Benefit Plans of any Company Party in effect immediately prior to the Effective
Time; provided, however, that the foregoing obligation shall not apply to any
Benefit Plans that provide for the issuance of stock or stock options of any
Company Party.
-26-
<PAGE>
6.5 Additional Agreements. Each Buyer Party will comply in all material
---------------------
respects with all applicable Laws in connection with its execution, delivery and
performance of this Agreement and the Transactions. Each Buyer Party shall use
commercially reasonable efforts to obtain in a timely manner all necessary
waivers, consents and approvals required under any Laws and to effect all
necessary registrations and filings under any Laws, and to use commercially
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions.
Without limiting the generality of the foregoing, the Buyer shall promptly
prepare and file a premerger notification in accordance with the HSR Act, shall
promptly comply with any requests for additional information, and shall use
commercially reasonable efforts to obtain termination of the waiting period
thereunder as promptly as practicable.
7. Conditions Precedent to the Buyer Parties' Obligations.
------------------------------------------------------
All obligations of the Buyer and the Acquisition Company to be performed on
the Closing Date shall be subject to the satisfaction (or waiver by the Buyer or
the Acquisition Company), prior thereto, of the following conditions:
7.1 Representations True at Closing. The representations and warranties
-------------------------------
of the Company set forth in this Agreement shall be true and correct in all
material respects, on and as of the date of this Agreement and on and as of the
Effective Time as if made on and as of such date except for (a) such
inaccuracies or breaches of warranty as to which the Buyer had actual knowledge
on or prior to the date hereof and (b) such inaccuracies or breaches of warranty
as would not, individually or in the aggregate, have a Material Adverse Effect.
7.2 Performance of Covenants. The Company shall have performed, in all
------------------------
material respects, all covenants and agreements that are to be performed by it
under this Agreement on or prior to the Closing Date except for any breaches
thereof that do not or would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
7.3 Litigation Affecting Closing. No Court Order shall have been issued
----------------------------
or entered that prohibits consummation of the Merger.
7.4 Regulatory Compliance and Approvals. All applicable waiting periods
-----------------------------------
under the HSR Act shall have expired or early termination thereof shall have
been granted with respect to the consummation of the Merger, and all
governmental consents and approvals legally required for the consummation of the
Merger and the Transactions contemplated hereby shall have been obtained and be
in effect at the Effective Time on terms and conditions that would not have a
material adverse effect on the Surviving Corporation.
7.5 Certificates. The Company shall have delivered a certificate of an
------------
executive officer of the Company to the effect that the conditions set in
Sections 7.1 and 7.2 have been satisfied.
-27-
<PAGE>
7.6 Opinion of Counsel to the Company. Morgan, Lewis & Bockius LLP,
---------------------------------
counsel to the Company, shall have delivered to the Buyer their opinion, dated
the Closing Date, with respect to those matters reasonably requested by the
Buyer.
7.7 Stockholder Approval. This Agreement and the Transactions shall have
--------------------
been approved and adopted by the requisite vote of the stockholders of the
Company pursuant to the DGCL and holders of not more than 10% of the Shares
shall have perfected their dissenter rights under the DGCL prior to the Closing
Date.
7.8 No Regulatory Action. No action shall have been taken, and no
--------------------
statute, rule or law shall have been enacted, by any state, federal or foreign
government or governmental agency which would prevent the consummation of the
Merger.
8. Conditions Precedent to the Company's Obligations.
-------------------------------------------------
All obligations of the Company to be performed on the Closing Date shall be
subject to the satisfaction (or waiver by the Company), prior thereto, of each
of the following conditions:
8.1 Representations True at Closing. The representations and warranties
-------------------------------
of the Buyer Parties set forth in this Agreement shall be true and correct in
all material respects, on and as of the date of this Agreement and on and as of
the Effective Time as if made on and as of such date except for such
inaccuracies or breaches of warranty as to which the Company had actual
knowledge on or prior to the date hereof.
8.2 Performance of Covenants. The Buyer shall have performed in all
------------------------
material respects all covenants and agreements that are to be performed by it
under this Agreement on or prior to the Closing Date.
8.3 Litigation Affecting Closing. No Court Order shall have been issued
----------------------------
or entered that prohibits consummation of the Merger.
8.4 Regulatory Compliance and Approvals. All applicable waiting periods
-----------------------------------
under the HSR Act shall have expired or early termination thereof shall have
been granted with respect to the consummation of the Merger.
8.5 Certificates. The Buyer shall have delivered a certificate of an
------------
executive officer of the Buyer to the effect that the conditions set in Sections
8.1 and 8.2 have been satisfied.
8.6 Approval of Merger. The Merger shall have been approved by the
------------------
stockholders of the Company in accordance with the DGCL.
8.7 Opinion of Counsel to the Buyer Parties. Gibson, Dunn & Crutcher,
---------------------------------------
counsel to the Buyer Parties, shall have delivered to the Company their opinion,
dated the Closing Date, with respect to those matters reasonably requested by
the Company.
-28-
<PAGE>
8.8 Stockholder Approval. This Agreement and the Transactions shall have
--------------------
been approved and adopted by the requisite vote of the stockholders of the
Company pursuant to the DGCL.
8.9 No Regulatory Action. No action shall have been taken, and no
--------------------
statute, rule or law shall have been enacted, by any state, federal or foreign
government or governmental agency that would prevent the consummation of the
Merger.
9. Termination.
-----------
9.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
before the Effective Time, in each case as authorized by the respective Board of
Directors of the Company and the Buyer:
(a) By mutual written consent of each of the Company and the Buyer;
(b) By either the Company or the Buyer if the Merger shall not have
been consummated on or before the Termination Date; provided, however, that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before the Termination Date;
(c) By either the Company or the Buyer if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a Court Order (which Court Order the parties shall use
commercially reasonable efforts to lift) that permanently restrains, enjoins or
otherwise prohibits the Transactions, and such Court Order shall have become
final and nonappealable;
(d) By the Company or the Buyer if the required approvals of the
stockholders of the Company shall fail to have been obtained at a duly held
stockholders' meeting of the Company, including any adjournments thereof;
(e) By the Buyer if the Company shall have breached, or failed to
comply with, any of its obligations under this Agreement or any representation
or warranty made by the Company shall have been incorrect when made, and such
breach, failure or misrepresentation is not cured by the earlier of the
Termination Date or 20 days after notice thereof, and in either case, any such
breaches, failures or misrepresentations, individually or in the aggregate,
results or would reasonably be expected to result in a Material Adverse Effect;
(f) By the Company if the Buyer shall have breached, or failed to
comply with, in any material respect, any of its obligations under this
Agreement or any representation or warranty made by the Buyer shall have been
incorrect in any material respect when made, and such breach, failure or
misrepresentation is not cured by the earlier of the Termination Date or 20 days
after notice thereof; or
-29-
<PAGE>
(g) By the Company, prior to the approval of this Agreement by the
stock holders of the Company, upon five days' prior notice to the Buyer, if, as
a result of a written Acquisition Proposal received by the Company from a Person
other than a party hereto or any of its Affiliates, the Board of Directors of
the Company determines in good faith that its fiduciary obligations under
applicable Law require that such Acquisition Proposal be accepted; provided,
however, that (i) such written Acquisition Proposal was received by the Company
without any solicitation, initiation, encouragement, discussion or negotiation,
directly or indirectly, by or with the Company or any Company Representative in
violation of the provisions of Section 5.4 of this Agreement, (ii) such
Acquisition Proposal is financially superior to the Transactions and the Person
proposing such Acquisition Proposal has demonstrated that the funds necessary
for such Acquisition Proposal are reasonably likely to be available (as
determined in good faith in each case by the Company's Board of Directors after
consultation with its financial advisors), and (iii) the Board of Directors of
the Company shall have concluded in good faith, after considering applicable
provisions of state law, on the basis of written advice of outside counsel, that
such action is necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable Law.
9.2 Effect of Termination.
---------------------
(a) If this Agreement is terminated under Section 9.1 hereof, this
Agreement shall become void and there shall be no Liability on the part of any
of the parties, except as set forth in this Section 9.2 and for any breach of
Sections 3.21, 4.5 or 11 or of the confidentiality covenants in Section 5.3.
(b) If this Agreement is terminated by the Company under Section
9.1(f) as a result of any Buyer Party's breach, the Buyer shall pay to the
Company a termination fee in an amount equal to the reasonable out-of-pocket
expenses of the Company Parties related to the Transactions, except that in the
case of a termination due to a breach existing on the date hereof that was known
to exist on the date hereof by any Buyer Party or a termination due to a wilful
breach by any Buyer Party or the unavailability of the Buyer Financing, the
Buyer shall pay to the Company a termination fee in an amount equal to such
expenses plus $2.0 million, in either case, in cash within 10 days after the
date on which the Agreement is terminated.
(c) If this Agreement is terminated by the Company under Section
9.1(g) hereof, the Company shall pay to the Buyer a termination fee in an amount
equal to the reasonable out-of-pocket expenses of the Buyer Parties related to
the Transactions plus $2.0 million, in cash within 10 days after the date on
which the Agreement is terminated. Such out-of-pocket expenses shall include
any fees, costs or other expenses related to the Buyer Financing other than the
1% commitment fee with respect to the Bridge Financing to the extent that it
relates to financing of amounts greater than $60 million.
(d) If this Agreement is terminated by the Buyer under Section 9.1(e)
as a result of the Company's breach, the Company shall pay to the Buyer a
termination fee in amount equal to the reasonable out-of-pocket expenses of the
Buyer Parties related to the Transactions, except that in the case of a
termination due to a breach existing on the date hereof that was known to exist
on the date hereof by either Company Party or a termination due to a wilful
breach by any Company
-30-
<PAGE>
Party, the Company shall pay to the Buyer a termination fee in an amount equal
to such expenses plus $2.0 million, in either case, in cash within 10 days after
the date on which the Agreement is terminated. Such out-of-pocket expenses shall
include any fees, costs or other expenses related to the Buyer Financing other
than the 1% commitment fee with respect to the Bridge Financing to the extent
that it relates to financing of amounts greater than $60 million.
(e) The agreements contained in Sections 9.2(b), (c) and (d) are an
integral part of the Transactions and constitute liquidated damages and not a
penalty. If one party fails to promptly pay to the other any fee due under such
Sections 9.2(b), (c) or (d), the defaulting party shall pay the costs and
expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the Prime
Rate plus 200 basis points from the date such fee was required to be paid.
10. Public Announcements.
--------------------
The Buyer and the Company will consult with each other before issuing any
press release or making any public statement with respect to this Agreement and
the Transactions and, except as may be required by applicable law or stock
exchange regulations, will not issue any such press release or make any such
public statement prior to such consultation.
11. General.
-------
11.1 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Delaware.
11.2 Further Assurances. The parties hereto shall execute and deliver any
------------------
and all documents and take such other actions as may be necessary to complete
the Transactions.
11.3 Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto and their respective successors and assigns; provided, however, that this
Agreement and all rights hereunder may not be assigned by any party hereto
without the written consent of the other parties. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person other than the Buyer
Parties and the Company Parties any rights or remedies of any nature whatsoever.
11.4 Waiver of Conditions. Any party hereto may waive any condition
--------------------
provided in this Agreement for its benefit.
11.5 Exhibits. All of the Exhibits attached to this Agreement and the
--------
Disclosure Schedule and any Revised Disclosure Schedule are hereby incorporated
herein and made a part hereof.
11.6 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the Transactions shall be paid by the party incurring such costs
and expenses.
-31-
<PAGE>
11.7 Entire Agreement. This Agreement, the Prior Confidentiality Agreement
----------------
and the other Transaction Documents contain the entire agreement among the
parties hereto, and there are no agreements, representations or warranties which
are not set forth in such documents. All prior negotiations, agreements and
understandings are superseded hereby. This Agreement may not be amended or
revised except by a writing signed by all parties hereto.
11.8 Notices. Any notice, authorization, request or demand required or
-------
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given on the earlier of the date when received at, or the fifth day
after the date when sent by registered or certified mail to, the respective
addresses or telecopy numbers specified for the parties below.
TO THE BUYER:
Astor Corporation
8521 Six Forks Road, Suite 105
Raleigh, North Carolina 27615
Attention: Boyd D. Wainscott
Chairman and Chief Executive Officer
Telecopy: 919-846-8283
With a copy to:
Aurora Capital Partners L.P.
Suite 1000
1880 Century Park East
Los Angeles, California 90067
Attention: Richard K. Roeder
Managing Director
Telecopy: 310-277-5591
and
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
Attention: Bruce D. Meyer, Esquire
Telecopy: 213-229-7520
TO THE COMPANY:
Adco Products, Inc.
4401 Page Avenue
Michigan Center, MI 49254
Attention: Charles E. Sax, President
Telecopy: 517-764-2550
-32-
<PAGE>
With a copy to:
Robert J. Simon
Bradford Ventures, Ltd.
1212 Avenue of the Americas
New York, NY 10036
Telecopy: 212-764-3467
and
Thomas J. Sharbaugh, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Telecopy: 215-963-5299
11.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be binding as of the date first written above.
Each such copy shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
11.10 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties and agreements contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time except
for the representations, warranties and agreements set forth in Sections 2 or
11.
11.11 Amendment. This Agreement may be amended by the Boards of Directors
---------
of the parties hereto at any time prior to the filing of the Certificate of
Merger, and any such amendment shall be by a written instrument signed by the
parties hereto; provided, however, that this Agreement may only be amended
without approval of the stockholders of the Company and the Acquisition Company
to the extent permitted by applicable law.
11.12 Interpretation.
--------------
Unless the context of this Agreement clearly requires otherwise, (a) "or"
has the inclusive meaning frequently identified with the phrase "and/or," (b)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (c) references to one gender include all genders. The
section and other headings contained in this Agreement are for reference
purposes only and shall not control or affect the construction of this Agreement
or the interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise
-33-
<PAGE>
specified. Each accounting term used herein that is not specifically defined
herein shall have the meaning given to it under GAAP.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
Attest: ADCO TECHNOLOGIES INC.
By:
- ------------------------------ ---------------------------
Attest: ASTOR CORPORATION
By:
- ------------------------------ ---------------------------
Attest: AAC ACQUISITION CORP.
By:
- ------------------------------ ---------------------------
-34-
<PAGE>
ANNEX B
THE STOCKHOLDERS AGREEMENT
B-1
<PAGE>
STOCKHOLDERS AGREEMENT
AGREEMENT, dated July , 1996 (this "Agreement'), by and among ASTOR
---
CORPORATION, a Delaware corporation ("Parent"), and each of the other parties
signatory hereto (each, a "Stockholder" and, collectively, the "Stockholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, concurrently herewith, Parent, AAC ACQUISITION CORP., a Delaware
corporation and an indirect wholly-owned subsidiary of Parent ("Merger Sub"),
and ADCO TECHNOLOGIES INC., a Delaware corporation (the "Company"), are entering
into an Agreement and Plan of Merger (as such agreement may hereafter be amended
from time to time, the "Merger Agreement;" capitalized terms used and not
defined herein have the respective meanings ascribed to them in the Merger
Agreement) pursuant to which Merger Sub will be merged with and into the Company
(the "Merger");
WHEREAS, each of the Stockholders Beneficially Owns (as defined herein) the
number of shares, par value $.01 per share, of common stock of the Company
("Company Common Stock") set forth opposite such Stockholder's name on Schedule
I hereto (the "Shares");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholders agree, and the Stockholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
------------------------------------------
agrees that during the period commencing on the date hereof and continuing until
the first to occur of the Effective Time or termination of the Merger Agreement
in accordance with its terms, at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, such Stockholder shall vote (in the case of Shares for
which the Stockholder has exclusive voting and dispositive power) or cause to be
voted (in the case of Shares which the Stockholder "Beneficially Owns" (as
defined below) but for which the Stockholder does not have exclusive voting and
dispositive power) the Shares held of record or Beneficially Owned (as defined
below) by such Stockholder, whether heretofore owned or hereafter acquired, (i)
in favor of approval of the Merger Agreement and any actions required in
furtherance thereof and hereof; (ii) against any action or agreement that would
result in a breach in any respect of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Merger Agreement
(after giving effect to any materiality or similar qualifications contained
therein); and (iii) except as permitted by the Merger Agreement or as otherwise
agreed to in writing in advance by Parent, against the following actions (other
than the Merger and the transactions contemplated by the Merger Agreement): (A)
any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the
<PAGE>
Company or any of its subsidiaries; (B) a sale, lease transfer or disposition of
any assets outside the ordinary course of business or any as assets which in the
aggregate are material to the Company and its subsidies taken as a whole, or a
reorganization, recapitalization, dissolution or liquidation of the Company; (C)
(1) any change in a majority of the persons who constitute the board of
directors of the Company; (2) any change in the present capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or By-
Laws; (3) any other material change in the Company's corporate structure or
business; or (4) any other action which, in the case of each of the matters
referred to in clauses C (1), (2) or (3) is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, or materially adversely
affect the Merger and the transactions contemplated by this Agreement and the
Merger Agreement. Such Stockholder shall not enter into any agreement or
understanding with any Person (as defined below) the effect of which would be
inconsistent or violative of the provisions and agreements contained in Section
1 or 2 hereof. For purposes of this Agreement, "Beneficially Own" or "Beneficial
Ownership" with respect to any securities shall mean having "beneficial
ownership" of such securities (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act. For purposes of
this Agreement, "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
2. Other Covenants, Representations and Warranties. Each Stockholder
-----------------------------------------------
hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Stockholder is the record and
-------------------
Beneficial Owner of the number of Shares set forth opposite such Stockholder's
name on Schedule I hereto. On the date hereof, the Shares set forth opposite
such Stockholder's name on Schedule I hereto constitute all of the Shares owned
of record or Beneficially Owned by such Stockholder. Schedule I discloses the
number of Shares Beneficially Owned by the Stockholder for which the Stockholder
shares voting or dispositive power with another Person and identifies such other
Person or Persons. Except as referenced in the preceding sentence and Schedule
I, such Stockholder has sole voting power and sole power to issue instructions
with respect to the matters set forth in Section 1 hereof, sole power of
disposition, sole power to demand appraisal rights and sole power to agree to
all of the matters set forth in this Agreement, in each case with respect to all
of the Shares set forth opposite such Stockholder's name on Schedule I hereto,
with no limitations, qualifications or restrictions on such rights.
(b) Power; Binding Agreement. Such Stockholder has the legal
------------------------
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party including, without limitation,
any voting agreement, stockholder agreement or voting trust. This Agreement has
been duly and validly executed and delivered by such Stockholder and constitutes
a valid and binding agreement of such Stockholder, enforceable against such
Stockholder in accordance with
2
<PAGE>
its terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder is Trustee who is not a
party to this Agreement and whose consent is required for the execution and
delivery of this Agreement or the consummation by such Stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, such Stockholder's spouse, enforceable against such person in
accordance with its terms.
(c) No Conflicts. No filing with, and no permit, authorization, consent or
------------
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by such Stockholder and the consummation by such
Stockholder of the transactions contemplated hereby. None of the execution and
delivery of this Agreement by such Stockholder, the consummation by such
Stockholder of the transactions contemplated hereby or compliance by such
Stockholder with any of the provisions hereof shall (1) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's properties or assets may be bound, or
(2) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to such Stockholder or any of such Stockholder's
properties or assets.
(d) No Finder's Fees. Other than existing financial advisory and
----------------
investment banking arrangements and agreements between the Company and Schroder
Wertheim & Co. Incorporated which have been disclosed in writing to Parent, no
broker, investment banker, financial adviser or other person is entitled to any
broker's, finder's, financial adviser's or other similar fee or commission in
connection with the transactions contemplated by the Merger Agreement based upon
arrangements made by or on behalf of such Stockholder or any of its affiliates
or, to the knowledge of such Stockholder, the Company or any of its affiliates.
(e) Other Potential Acquirors. Such Stockholder (i) shall immediately
-------------------------
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, the Company or its
subsidiaries or any business combination with the Company or its subsidiaries,
in his, her or its capacity as such, and (ii) from and after the date hereof
until termination of the Merger Agreement, unless and until the Company is
permitted to take such actions under Section 5.4 of the Merger Agreement, shall
not, in such capacity, directly or indirectly, initiate, solicit or knowingly
encourage (including by way of furnishing , nonpublic information or
assistance), or take any other action to facilitate knowingly, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any such transaction or acquisition, or agree to or endorse any such
transaction or acquisition, or authorize or permit any of such Stockholder's
agents to do so, and such Stockholder shall promptly notify Parent or Merger Sub
of any proposal and shall provide a copy of any such written proposal and a
summary of any oral proposal to Parent or Merger Sub immediately after receipt
thereof (and shall specify the material
3
<PAGE>
terms and conditions of such proposal and identify the person making such
proposal) and thereafter keep Parent or Merger Sub promptly advised of any
development with respect thereto.
(f) Restriction on Transfer, Proxies and Non-Interference. Except as
-----------------------------------------------------
contemplated by the Merger Agreement, such Stockholder shall not, directly or
indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition of, any
or all of such Stockholder's Shares or any interest therein; (ii) grant any
proxies or powers of attorney, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares; or (iii) take any action
that would make any representation or warranty of such Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling such
Stockholder from performing such Stockholder's obligations under this Agreement.
(g) Reliance by Parent. Such Stockholder understands and acknowledges
------------------
that Parent is entering into, and causing Merger Sub to enter into, the Merger
Agreement in reliance upon such Stockholder's execution and delivery of this
Agreement.
3. Further Assurances. From time to time, at the other party's request
------------------
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
4. Stop Transfer, Restrictive Legend. (a) Each Stockholder agrees with,
---------------------------------
and covenants to, Parent that such Stockholder shall not request that the
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Shares, unless
such transfer is made in compliance with this Agreement. In the event of a
stock dividend or distribution, or any change in the Company Common Stock by
reason of any stock dividend, split-up, recapitalization, combination, exchange
of Shares or the like, the term "Shares" shall be deemed to refer to and include
the Shares as well as all such stock dividends and distributions and any Shares
into which or for which any or all of the Shares may be changed or exchanged.
(b) Upon the written request of Parent, all certificates representing
any of such Stockholder's Shares shall contain the following legend:
"The securities represented by this certificate, including certain
voting and transfer rights with respect thereto, are subject to the
terms of a Stockholders Agreement, dated July , 1996, among Astor
Corporation and the parties listed on the signature pages thereto, a
copy of which is on file in the principal office of the Issuer."
5. Termination. Except as otherwise provided herein, the covenants and
-----------
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
or (b) the Effective Time.
4
<PAGE>
6. Stockholder Capacity. No person executing this Agreement who is or
--------------------
becomes during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. Each Stockholder
signs solely in his or her capacity as the record and/or beneficial owner of
such Stockholder's Shares.
7. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement and the Merger Agreement
----------------
constitute the entire agreement between the Parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) Certain Events. Each Stockholder agrees that this Agreement and
--------------
the obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, such Stockholder's heirs, guardians, administrators or successors.
Notwithstanding any transfer of Shares, the transferor shall remain liable for
the performance of all obligations under this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of
----------
law or otherwise by any Stockholder without the prior written consent of Parent
or by Parent without the prior written consent of each Stockholder; provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
------------------------
changed, supplemented, waived or otherwise modified or terminated, with respect
to any one or more Stockholders, except upon the execution and delivery of a
written agreement executed by Parent and such affected Stockholder or
Stockholders; provided that Schedule I hereto may be supplemented by Parent by
--------
adding the name and other relevant information concerning any Stockholder of the
Company who agrees to be bound by the terms of this Agreement without the
agreement of any other party hereto, and thereafter such added Stockholder shall
be treated as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
5
<PAGE>
If to any Stockholder: At the addresses set forth on
Schedule I hereto
If to Parent
or Merger Sub: Astor Corporation
8521 Six Forks Road
Suite 105
Raleigh, NC 27615
Telephone: (919) 846-8011
Facsimile: (919) 846-8283
Attention: Boyd D. Wainscott
with a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Bruce D. Meyer, Esq.
Telephone: (213) 229-7000
Facsimile: (213) 229-7520
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
------------
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
--------------------
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
-------------------
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
---------
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in
6
<PAGE>
equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to
----------------------------
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
(1) Descriptive Headings. The descriptive headings used herein are
--------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, Parent and each Stockholder have caused this Agreement
to be duly executed as of the day and year first above written.
ASTOR CORPORATION
By:
--------------------------------------------
Name:
Title:
BRADFORD VENTURE PARTNERS, L.P.
By: ________________________; its General Partner
By: ________________________
Name: ______________________
Title: ______________________
7
<PAGE>
OVERSEAS EQUITY INVESTORS PARTNERS, L.P.
By: ________________________; its General Partner
By: ________________________
Name: ______________________
Title: ______________________
_____________________________
Charles E. Sax
_____________________________
Philip D. Berry
_____________________________
Brian J. Briddell
_____________________________
James R. McCowan
_____________________________
David J. Fuchs
_____________________________
Bradford Mills
_____________________________
Robert J. Simon
_____________________________
Barbara M. Heneghan
8
<PAGE>
SCHEDULE I
STOCKHOLDERS AGREEMENT
STOCK OWNERSHIP OF ADCO TECHNOLOGIES INC.
<TABLE>
<S> <C>
Bradford Mills 32,862
Robert Simon 16,431
Barbara Henagan 13,145
James McCowan 40,106
Phillip Berry 36,106
David Fuchs 36,106
Charles Sax 48,106
Brian Briddell 36,106
Bradford Venture Partners L.P. 1,150,170
Overseas Equity Investors Partners, L.P. 1,150,170
</TABLE>
<PAGE>
ANNEX C
OPINION OF SCHRODER WERTHEIM & CO. INCORPORATED
C-1
<PAGE>
- --------------------------------------------------------------------------------
[LETTERHEAD OF SCHRODER WERTHEIM & CO. APPEARS HERE]
September 6, 1996
Board of Directors
Adco Technologies Inc.
4401 Page Avenue
P.O. Box 457
Michigan Center, MI 49254
Members of the Board:
We understand that Adco Technologies Inc. ("Adco" or the "Company") has entered
into an Agreement and Plan of Merger, dated as of July 12, 1996 (the "Merger
Agreement"), with Astor Corporation ("Astor"), and AAC Acquisition Corp., a
wholly-owned subsidiary of Astor ("Merger Sub"), pursuant to which Merger Sub
will be merged with and into the Company (the "Merger"). The Merger Agreement
provides, among other things, that each share of the common stock of Adco, par
value $.01 per share (the "Common Stock"), issued and outstanding immediately
prior to the effective time of the Merger (other than shares held by
stockholders who properly exercise appraisal rights) shall be converted and
become the right to receive a cash payment of $10.25. The Merger will be
considered at a special meeting of the stockholders of Adco. The terms of the
Merger are more fully set forth in the Merger Agreement.
We also understand that as a condition and inducement to Astor's willingness to
enter into the Merger Agreement, Bradford Venture Partners, L.P., Overseas
Equity Investors Partners, L.P. and certain individuals, who collectively own
49.7% of the outstanding Common Stock, have entered into a stockholder agreement
pursuant to which, among other things, they have agreed to vote all their shares
in favor of the approval of the Merger (the "Stockholders Agreement").
In accordance with the terms of the engagement letter dated March 7, 1996, you
have requested that Schroder Wertheim & Co. Incorporated ("Schroder Wertheim")
render an opinion (the "Opinion"), as investment bankers, as to the fairness,
from a financial point of view, of the consideration to be received by the
holders of the Common Stock in the Merger (the "Consideration"). It is
understood that (i) the Opinion shall be used by the Company solely in
connection with its recommendation of the Merger to the holders of the Common
Stock in accordance with the Merger Agreement, and (ii) the Company will not
furnish this Opinion or any other material prepared by Schroder Wertheim to any
other person or persons or use or refer to the Opinion or this letter for any
other purposes without Schroder Wertheim's prior written approval; provided,
however, that the Company may publish the Opinion in its entirety in the
definitive proxy statement distributed to holders of the Common Stock in
connection with the Merger.
Schroder Wertheim, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. We have acted as financial advisor to Adco in
connection with the transaction described in this letter and will receive a fee
for our services which is contingent upon the consummation of the Merger.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Board of Directors Schroder Wertheim & Co.
Adco Technologies Inc. -----------------------
September 6, 1996 Incorporated
Page 2
In connection with the Opinion, we have, among other things:
(i) reviewed the Annual Report to shareholders and Annual Report on
Form 10-K of Adco filed with the Securities and Exchange Commission
(the "Commission") for the fiscal year ended December 31, 1995;
(ii) reviewed Adco's prospectus with respect to its offering of Common
Stock dated February 14, 1995, as filed with the Commission;
(iii) reviewed the Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996 and June 30, 1996 filed with the Commission by
Adco;
(iv) discussed the past and current operations, financial condition and
prospects of Adco with its management, which discussions included a
review of historical sales by segment and projected segment sales
for the years ending December 31, 1996, 1997, 1998, 1999 and 2000;
(v) reviewed 1995 and year-to-date 1996 results of operations on a
monthly basis;
(vi) reviewed the reported prices and trading activity for the Common
Stock and compared them with those of certain companies which
research analysts have deemed to be similar to Adco;
(vii) compared the results of operations and financial condition of Adco
with those of certain companies which research analysts have deemed
to be similar to Adco;
(viii) reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which we deemed to be comparable;
(ix) participated in discussions and negotiations among representatives
of Adco, representatives of Astor, and their respective legal
advisors;
(x) reviewed execution copies of each of the Merger Agreement and the
Stockholders Agreement;
(xi) reviewed news releases issued by the Company;
(xii) performed an analysis of premiums paid on selected merger and
acquisition transactions since 1992;
(xiii) performed a discounted cash flow analysis; and
(xiv) performed such other analyses and reviewed and analyzed such other
information as we deemed appropriate.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Board of Directors Schroder Wertheim & Co.
Adco Technologies Inc. -----------------------
September 6, 1996 Incorporated
Page 3
In addition, we solicited proposals from and held discussions with potential
buyers of the Company during the period of March 1996 through July 1996. These
discussions were terminated when the Company entered into the Merger Agreement.
In rendering the Opinion, we have not assumed any responsibility for
independently verifying the accuracy and completeness of any information
supplied or otherwise made available to us, and we have not undertaken an
independent appraisal of the assets or liabilities of Adco or been furnished
with any such appraisals. Schroder Wertheim also relied on the assurance of
management of Adco that they were not aware of any facts that would make such
information inaccurate or misleading. With respect to financial forecasts for
Adco, we have been advised by Adco management, and we have assumed without
independent investigation, that they have been reasonably prepared and reflect
the best currently available estimates and judgment of management as to the
future financial performance of the Company. Schroder Wertheim expresses no
opinion on matters of a legal, regulatory, tax or accounting nature related to
the Merger and related transactions as set forth in the Merger Agreement.
The Opinion is necessarily based upon economic, market and other conditions as
they exist and have been disclosed to us on, and the information made available
to us as of, the date hereof. We disclaim any undertaking or obligation to
advise any person of any change in any fact or matter affecting the Opinion
which may come or be brought to our attention after the date hereof unless
specifically requested to do so.
This letter is provided solely for the use of the Board of Directors of Adco in
connection with its recommendation of the Merger pursuant to the Merger
Agreement and may not be relied upon by any other person or used for any other
purpose, reproduced, disseminated, quoted or referred to at any time, in any
manner or for any purpose without our prior written consent. The Opinion does
not constitute a recommendation to any stockholder with respect to whether to
vote in favor of the Merger and should not be relied upon by any stockholder as
such. The Opinion relates solely to the question of the fairness to the holders
of the Common Stock, from a financial point of view, of the Consideration. We
express no opinion herein as to the structure, terms or effect of any other
aspect of the Merger.
Based upon and subject to the foregoing, we are of the opinion, as investment
bankers, that as of the date hereof, the Consideration is fair, from a financial
point of view, to the holders of the Common Stock.
Very truly yours,
Schroder Wertheim & Co.
Incorporated
By: /s/ Schroder Wertheim & Co., Incorporated
-----------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANNEX D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
D-1
<PAGE>
(S) 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 (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his 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 (S) 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 (S) 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 (S)(S) 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.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 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.
D-2
<PAGE>
(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 (S) 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the 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.
(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
D-3
<PAGE>
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.
(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
D-4
<PAGE>
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.
D-5
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ADCO TECHNOLOGIES INC.
The undersigned hereby appoints as Proxies, each with power of substitution,
Robert J. Simon and Charles E. Sax, and each of them, to represent and vote the
stock of the undersigned at the Special Meeting of Stockholders of Adco
Technologies Inc. (the "Company") on September 26, 1996, at 2:00 p.m., and any
adjournment or postponement thereof, with all the powers the undersigned would
have if present in person, with respect to the following matter as described in
the Proxy Statement and, in their discretion, upon such other business as may
properly come before the meeting or any adjournment thereof:
(CONTINUED AND TO BE MARKED, DATED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
1. Approval and adoption of the Agreement and Plan of Merger dated as of July
12, 1996 among Astor Corporation, AAC Acquisition Corp. and Adco Technologies
Inc., and the merger to be effected thereby and all related transactions.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE LISTED PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHERE SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Dated ______________________, 1996
___________________________ [SEAL]
(SIGNATURE)
__________________________________
(SIGNATURE IF HELD JOINTLY)
PLEASE SIGN AND MAIL PROMPTLY. The Board of Directors recommends a vote FOR the
listed proposal.
