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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CHAMPION ROAD MACHINERY LIMITED
(Name of Subject Company)
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CHAMPION ROAD MACHINERY LIMITED
(Name of Person(s) Filing Statement)
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Common Shares, No Par Value Per Share
(Title of Class of Securities)
15864C 10 6
(CUSIP Number of Class of Securities)
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Arthur F. Church
President and Chief Executive Officer
Champion Road Machinery Limited
160 Maitland Avenue
Goderich, Ontario, Canada N7A 3Y6
(519) 884-6000
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
WITH COPIES TO:
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Patrick J. Foye, Esq. Gordon A. M. Currie, Esq.
Skadden, Arps, Slate, Meagher & Flom Blake, Cassels & Graydon
919 Third Avenue Box 25, Commerce Court West
New York, New York 10022 Toronto, Ontario, Canada M5L 1A9
(212) 735-3000 (416) 863-2400
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Champion Road Machinery Limited, a
corporation formed under the laws of Canada (the "Company"). The address of the
principal executive offices of the Company is 160 Maitland Road, Goderich,
Ontario, Canada N7A 346. The title of the class of equity securities to which
this Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9" or the "Statement") relates is the common shares, without par value, of
the Company (the "Common Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the tender offer by VCE Acquisition Inc., a
corporation organized under the laws of Canada (the "Purchaser") and a wholly
owned subsidiary of Volvo Construction Equipment N.V., a corporation organized
under the laws of The Netherlands ("Parent"), and an indirect, wholly owned
subsidiary of AB Volvo (publ), a corporation organized under the laws of the
Kingdom of Sweden ("Volvo"), disclosed in a Tender Offer Statement on Schedule
14D-1, dated February 24, 1997 (the "Schedule 14D-1"), to purchase all
outstanding Company Common Shares (the "Shares"), at CDN $15.00 per Share, net
to the seller in cash, upon the terms and subject to the conditions set forth in
the Purchaser's Offer to Purchase for Cash (including the related Circular)
dated February 24, 1997 (the "Offer to Purchase for Cash") and in the related
Letter of Transmittal (which, together with any amendments or supplements hereto
or thereto, collectively constitute the "Offer".)
The Offer is being made pursuant to an Acquisition Agreement, dated as of
February 20, 1997 (the "Acquisition Agreement"), between Parent and the Company
pursuant to which, as soon as practicable after completion of the Offer and
satisfaction or waiver, if permissible, of all conditions to the Offer, the
Company will become a wholly owned subsidiary of the Purchaser. If over 90% of
the outstanding Shares (exclusive of Shares currently held by Purchaser or an
affiliate or associate of the Purchaser (as defined in the Canada Business
Corporation Act (the "CBCA"))) are tendered in the Offer, the Offer will be
followed by the compulsory acquisition of the remaining Shares outstanding
pursuant to certain provisions of Canadian law and any Shares not owned by the
Purchaser or Parent will be purchased for CDN $15.00 per Share in cash (or any
higher price that may be paid in the Offer), without interest, as set forth in
the following section, "COMPULSORY ACQUISITION". If the foregoing statutory
right of acquisition is not available, then the Purchaser and Parent intend to
use other means of acquiring the remaining Shares in accordance with applicable
law, as described below under the heading "SUBSEQUENT ACQUISITION TRANSACTIONS".
The Offer is being made only for the Shares and is not being made for any
options, warrants or rights to purchase Shares. Any holder of such options,
warrants or rights who wishes to accept the Offer should, to the extent
permitted by the terms of such options, warrants or rights and applicable law,
exercise such options, warrants or rights in order to obtain certificates
representing Shares and tender such Shares in accordance with the terms of the
Offer. Subject to the approval of The Toronto Stock Exchange, the Montreal
Exchange and the Nasdaq National Market System, the Company's Board of Directors
(the "Board of Directors" or the "Board") has resolved to accelerate the vesting
of all outstanding options to acquire Shares or to make other arrangements
satisfactory to Purchaser to satisfy the conditions of the Offer with respect to
outstanding options. Each director and officer of the Company who holds options
to purchase Shares intends to exercise all options held by such person to
acquire Shares and intends to thereafter tender such Shares, and any other
Shares beneficially owned, in the Offer.
COMPULSORY ACQUISITION. If, within 120 days after the date of the Offer,
the Offer has been accepted by the holders of not less than 90% of the Shares,
other than Shares held at the date of the Offer by or on behalf of the Purchaser
or an affiliate or associate of the Purchaser, and the Purchaser has purchased
such Shares, then the Purchaser intends to, pursuant to the compulsory
acquisition provisions of the CBCA, acquire the Shares held by each shareholder
who did not accept the Offer (a "Non-Tendering Offeree") (which definition
includes any person who subsequently acquires any of such Shares), on the same
terms (including the Offer price) as the Shares acquired pursuant to the Offer
(a "compulsory acquisition").
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To exercise this statutory right, the Purchaser must give notice (the
"Purchaser's Notice") to each Non-Tendering Offeree and to the Director under
the CBCA of such proposed acquisition on or before the earlier of 60 days after
the expiration of the Offer and 180 days after the date of the Offer. Within 20
days after giving the Purchaser's Notice, the Purchaser must pay or transfer to
the Company the consideration the Purchaser would have had to pay or transfer to
the Non-Tendering Offerees if they had elected to accept the Offer to be held in
trust for the Non-Tendering Offerees. Within 20 days after receipt of the
Purchaser's Notice, each Non-Tendering Offeree must send the certificates
evidencing the Shares held by such Non-Tendering Offeree to the Company and may
elect either to transfer those shares to the Purchaser on the terms (including
the Offer price) on which the Purchaser acquired the Shares under the Offer or
to demand payment of the fair value of those Shares by so notifying the
Purchaser. If a Non-Tendering Offeree elects to demand payment of the fair value
of his Shares, the Purchaser may apply to a court of competent jurisdiction to
hear an application fix the fair value of such Shares. If the Purchaser fails to
apply to such court within 20 days after it made the payment or transferred the
consideration to the Company referred to above, the Non-Tendering Offeree may
then apply to the court within a further period of 20 days to have the court fix
the fair value of the Shares. If no such application is made by the
Non-Tendering Offeree within such period, the Non-Tendering Offeree will be
deemed to have elected to transfer his shares to the Purchaser on the same terms
(including the Offer price) as the Purchaser acquired the Shares under the
Offer. Any judicial determination of the fair value of the Shares could be more
or less than the amount paid pursuant to the Offer.
The foregoing is only a summary of the right of compulsory acquisition which
may become available to the Purchaser. The summary is not intended to be
complete and is qualified in its entirety by the provisions of the CBCA.
Shareholders should refer to the CBCA for the full text of the relevant
statutory provisions, and those who wish to be better informed about these
provisions should consult their legal advisors. The relevant sections in the
CBCA are complex and may require strict adherence to notice and timing
provisions, failing which such rights may be lost or altered.
SUBSEQUENT ACQUISITION TRANSACTIONS. If the foregoing statutory right of
acquisition is not available, then the Purchaser intends to consider other means
of acquiring, directly or indirectly, all of the Shares in accordance with
applicable law, including through a subsequent acquisition transaction. In order
to effect a subsequent acquisition transaction, the Purchaser may seek to cause
a special meeting of the necessary classes of securities of the Company and/or
the shareholders to be called to consider an amalgamation, merger, statutory
arrangement, capital reorganization or other transaction involving the Purchaser
and/or an affiliate of the Purchaser and the Company and/or the shareholders for
the purposes of the Company becoming, directly or indirectly, a wholly-owned
subsidiary of the Purchaser or effecting an amalgamation or merger of the
Company's business and assets with or into the Purchaser and/or an affiliate of
the Purchaser (referred to as a "subsequent acquisition transaction"). Depending
upon the nature and terms of the subsequent acquisition transaction, the
approval of at least 66 2/3% of the votes cast by holders of the outstanding
Shares may be required at a meeting duly called and held for the purpose of
approving the subsequent acquisition transaction.
In the event a subsequent acquisition transaction were to be consummated,
holders of Shares, under the CBCA, may have the right to dissent and demand
payment of the fair value of such Shares. This right, if the statutory
procedures are complied with, could lead to a judicial determination of the fair
value required to be paid to such dissenting holders for their Shares. The fair
value of Shares so determined could be more or less than the amount paid per
Share pursuant to the subsequent acquisition transaction or the Offer. Any such
judicial determination of the fair value of the Shares could be based upon
considerations other than, or in addition to, the market price of the Shares.
Shareholders should consult their legal advisors for a determination of
their legal rights with respect to any subsequent acquisition transaction.
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If the Purchaser decides not to effect a compulsory acquisition or propose a
subsequent acquisition transaction involving the Company, or proposes a
subsequent acquisition transaction but cannot promptly obtain any required
approval, then the Purchaser will evaluate its other alternatives. Such
alternatives could include, to the extent permitted by applicable law,
purchasing additional Shares in the open market, in privately negotiated
transactions, in another take-over bid or exchange offer or otherwise, or taking
no further action to acquire additional Shares. Alternatively, the Purchaser may
sell or otherwise dispose of any or all Shares acquired pursuant to the Offer or
otherwise. Such transactions may be effected on terms and prices then determined
by the Purchaser, which may vary from the terms and the price paid for Shares
under the Offer.
The Securities and Exchange Commission (the "Commission") has adopted Rule
13e-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which is applicable to certain going private transactions and which may
under certain circumstances be applicable to the proposed acquisition of Shares
not purchased in the Offer, whether acquired by statutory right of acquisition
under the CBCA, merger, amalgamation, statutory arrangement and/or other
business combination (each, a "Second-Step Transaction"). However, Rule 13e-3
would be inapplicable if (i) the Shares are deregistered under the Exchange Act
prior to the Second-Step Transaction or (ii) the Second-Step Transaction is
consummated within one year after the purchase of the Shares pursuant to the
Offer and the amount paid per Share in the Second-Step Transaction is at least
equal to the amount paid per Share in the Offer, provided disclosure of the
possible Second-Step Transaction is made at the time of the Offer. If
applicable, Rule 13e-3 requires, among other things, that certain financial
information concerning the fairness of the proposed transaction and the
consideration offered to minority shareholders in such transaction be filed with
the Commission and disclosed to shareholders prior to the consummation of the
transaction. The Purchaser does not believe that Rule 13e-3 will be applicable
to any Second-Step Transaction contemplated herein.
Shareholders should refer to the Offer to Purchase for Cash enclosed
herewith and filed as Exhibit 5 hereto and incorporated by reference herein, for
additional information with respect to any compulsory acquisition or subsequent
acquisition transaction, and the above summaries are qualified in their entirety
by reference to such summaries.
A copy of the Acquisition Agreement has been filed with the Commission as
Exhibit 1 to this Schedule 14D-9 and is incorporated herein by reference.
Based on the information in the Offer to Purchase for Cash, the address of
the principal executive offices of (i) Volvo is AB Volvo (publ), S-405 08
Goteborg, Sweden; (ii) Parent is Volvo Construction Equipment N.V., Group
Headquarters, Chausee de La Hulpe 130, B-1000 Brussels, Belgium, and (iii)
Purchaser is VCE Acquisition Inc., Suite 6600, 100 King Street West, Toronto,
Ontario M5X 1B8.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning the Purchaser, Parent,
Volvo or their affiliates, or actions or events with respect to any of them, was
provided by the Purchaser, Parent or Volvo, respectively, and the Company takes
no responsibility for such information.
(b) Each material contract, agreement, arrangement and understanding and
actual or potential conflict of interest between the Company or its affiliates
and (i) its executive officers, directors or affiliates and (ii) Parent, its
executive officers, directors or affiliates, is described below.
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THE ACQUISITION AGREEMENT
The following summarizes certain portions of the Acquisition Agreement which
relate to arrangements among the Company, Parent and the Company's executive
officers and directors. The summaries of the Acquisition Agreement contained in
each of the Offer to Purchase for Cash filed with the Commission as Exhibit 5
hereto, and the Directors' Circular, filed with the Commission as Exhibit 4
hereto, are incorporated herein by reference. The summaries of the Acquisition
Agreement contained in the Offer to Purchase for Cash, the Directors' Circular
and the following are each qualified in their entirety by reference to the
Acquisition Agreement, a copy of which has been filed with the Commission as
Exhibit 1 hereto and is incorporated herein by reference.
ACQUISITION OF SHARES. Pursuant to the Acquisition Agreement, Purchaser is
making a cash tender offer to purchase all of the outstanding Shares for CDN
$15.00 per Share. If over 90% of the outstanding Shares (exclusive of Shares
currently held by Purchaser or any associate or affiliate of Purchaser) are
tendered in the Offer, the Offer will be followed by the compulsory acquisition
of the remaining Shares outstanding pursuant to certain provisions of Canadian
law and any Shares not owned by the Purchaser or Parent will be purchased for
CDN $15.00 per Share in cash (or any higher price that may be paid in the
Offer), without interest, as described in Item 2 hereof. If less than 90% of the
Shares are tendered in the Offer, Purchaser and Parent may make subsequent
acquisitions of Shares as described in Item 2 hereof.
STOCK OPTIONS. The Offer is being made only for the Shares and is not being
made for any options, warrants or rights to purchase Shares. Any holder of such
options, warrants or rights who wishes to accept the Offer should, to the extent
permitted by the terms of such options, warrants or rights and applicable law,
exercise such options, warrants or rights in order to obtain certificates
representing Shares and tender such Shares in accordance with the terms of the
Offer. Subject to the approval of The Toronto Stock Exchange, the Montreal
Exchange and the Nasdaq National Market System, the Company's Board of Directors
has resolved to accelerate the vesting of all outstanding options to acquire
Shares or to make other arrangements satisfactory to Purchaser to satisfy the
conditions of the Offer with respect to outstanding options. Each director and
officer of the Company who holds options to purchase Shares intends to exercise
all options held by such person to acquire Shares and intends to thereafter
tender such Shares, and any other Shares beneficially owned, in the Offer.
BOARD REPRESENTATION. Pursuant to the Acquisition Agreement, provided that
at least a majority of the outstanding Shares on a fully diluted basis are
acquired pursuant to the Offer, the Company has agreed to use all reasonable
efforts to cause to the Board of Directors of the Company and any committees
thereof to consist of the number of Parent nominees proportionate to the
Purchaser's percentage voting power in the Company.
NO SOLICITATION; BREAK-UP FEE. Pursuant to the Acquisition Agreement, the
Company has agreed not to, and not to authorize or permit any of its officers,
directors or employees or any investment banker, financial adviser, lawyer,
accountant or other representative retained by it or any of its subsidiaries to,
initiate, solicit or encourage any inquiries, submissions or offers as to or in
connection with the making of, or provide information to, or respond to any
person making any offer or proposal with respect to, any take-over bid, tender
offer, (other than the Offer), exchange offer, merger, amalgamation, plan of
arrangement, reorganization, consolidation, business combination, reverse
take-over, sale of assets (other than in the ordinary course of business), sale
of securities, recapitalization, liquidation, dissolution, winding-up or similar
transaction involving the Company or any of its subsidiaries (each a
"Transaction Proposal"); provided, however, that the Board may (i) consider,
negotiate, approve or recommend to shareholders, or provide information to a
potential acquiror pursuant to, or take any necessary steps to implement, any
BONA FIDE written Transaction Proposal at a price exceeding CDN $15.00 per Share
which the Board determines in good faith would, if consummated in accordance
with its terms, result in a transaction more favorable to all shareholders than
the consummation of the Offer or (ii) take such action as may be
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required to fulfil its fiduciary or statutory duties; provided further that the
Board shall promptly inform Parent of the terms and conditions of such
Transaction Proposal and the identity of the person making it.
Provided that the Offer is not withdrawn or allowed to expire (other than as
a result of the failure to satisfy any of its conditions) and a Transaction
Proposal is announced, commenced or made at any time prior to 90 days after the
date hereof and is thereafter completed, the Company has agreed to pay Parent
upon completion of any such transaction a fee of CDN $5,000,000.
DIVIDENDS AND DISTRIBUTIONS. If, on or after February 24, 1997, the Company
should split, consolidate or otherwise change any of the Shares or its
capitalization, or shall disclose that it has taken or intends to take any such
action, then the Purchaser may, in its sole discretion and without prejudice to
its rights under the Acquisition Agreement, make such adjustments as it deems
appropriate to the purchase price or other terms of the Offer (including,
without limitation, the type of securities offered to be purchased and the
consideration payable therefor) to reflect such split, combination or other
change.
If the Company should declare or pay any cash dividend, stock dividend
(other than the declared dividend of the Company of CDN $0.05 per Share payable
April 2, 1997 to holders of record of the Company at March 12, 1997) or declare,
make or pay any other distribution or payment on or declare, allot, reserve or
issue any securities, rights or other interests with respect to any of the
Shares which is or are payable or distributable to the shareholders of record on
a record date which is prior to the date of transfer into the name of the
Purchaser or its nominees or transferees on the Company's share register of such
Shares following acceptance thereof for purchase pursuant to the Offer, then
without prejudice to the Purchaser's rights under the Acquisition Agreement, (i)
in the case of cash dividends, distributions or payments, the amount of the
dividends, distributions or payments shall be received and held by the tendering
shareholders for the account of the Purchaser until the Purchaser pays for such
Shares, and to the extent that such dividends, distributions or payments do not
exceed the purchase price per Share payable by the Purchaser pursuant to the
Offer, the purchase price per Share payable by the Purchaser pursuant to the
Offer will be reduced by the amount of any such dividend, distribution or
payment, and (ii) in the case of a non-cash dividend, distribution, payment,
right or other interest and in the case of any cash dividend, distribution or
payment in an amount that exceeds the purchase price per Share, the whole of any
such non-cash dividend, distribution, payment, right or other interest, and, in
the case of any cash dividend, distribution or payment in an amount that exceeds
the purchase price per Share, the whole of any such cash dividend, distribution
or payment, will be received and held by the tendering shareholders for the
account of the Purchaser and shall be required to be promptly remitted and
transferred by the tendering shareholders to the Depositary (as defined in the
Offer to Purchase for Cash) for the account of the Purchaser, accompanied by
appropriate documentation of transfer. Pending such remittance, the Purchaser
will be entitled to all rights and privileges as owner of any such dividend,
distribution, payment, right or other interest and may withhold the entire
purchase price payable by the Purchaser pursuant to this Offer or deduct from
the purchase price payable by the Purchaser pursuant to this Offer the amount of
value thereof, as determined by the Purchaser in its sole discretion.
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LOCK-UP AGREEMENT
Each of the Walsh Family 1989 Trust, the Ferris Family 1987 Trust, the Leach
Family 1980 Trust, Arthur F. Church, O'Brien Family Limited Partnership, R.
O'Brien & Mary Ann O'Brien Revocable Trust dated 7/24/84, Dennis W.
Vollmershausen, 3018202 Canada Inc., Allen & Company Incorporated, Harold M. Wit
and Caxton International Limited (collectively, the "Lock-Up Shareholders"),
holding in aggregate 3,805,048 Shares and in aggregate 148,000 options to
purchase Shares, totalling in aggregate 34.3% of the outstanding Shares on a
fully-diluted basis, have agreed with Parent to tender all of their Shares (and
to exercise any options to acquire Shares and tender such Shares) beneficially
owned by each of them under the Offer within three business days of the date on
which the Offer is made, pursuant to a Lock-Up Agreement entered into among the
Lock-Up Shareholders and the Purchaser on February 20, 1997.
Any Lock-Up Shareholder, when not in default in performance of its
obligations under the Lock-Up Agreement, may terminate the Agreement if (i) the
Acquisition Agreement is terminated by the Company or Parent by reason of any
court of competent jurisdiction or other governmental body located or having
jurisdiction within Canada or the United States having issued a final order,
decree or ruling or having taken any other final action restraining, enjoining
or otherwise prohibiting the Offer and such order, decree, ruling or other
action having become final and non-applicable, or (ii) if the Shares deposited
under the Offer have not, for any reason whatsoever, been taken up and paid for
on or before the earlier of (a) May 26, 1997 and (b) 90 days after the date of
mailing of the Offer. Pursuant to the Lock-Up Agreement, each Lock-Up
Shareholder has agreed not to initiate, solicit or encourage any inquiry,
submission or offer as to or in connection with the making of, or provide
information to, or respond to any person making, any offer or proposal with
respect to any Transaction Proposal or any acquisition of any Shares held by the
Lock-Up Shareholder; provided, however, that nothing in the Lock-Up Agreement
shall (i) prohibit a Lock-Up Shareholder who is a member of the Board from
considering, negotiating, approving or recommending to shareholders, or
providing information to any potential acquiror pursuant to, any bona fide
written Transaction Proposal at a price exceeding CDN $15.00 per Share which the
Board determines in good faith would, if consummated in accordance with its
terms, result in a transaction more favorable to all shareholders than the
consummation of the Offer, or (ii) require a Lock-Up Shareholder who is a member
of the Board to act in his fiduciary capacity as a director of the Company other
than in accordance with his fiduciary or statutory duties as a director of the
Company.
The foregoing description is qualified in its entirety by reference to the
Lock-Up Agreement, a copy of which is filed as Exhibit 2 hereto and is
incorporated herein by reference.
CONFIDENTIALITY AGREEMENT
On February 12, 1997 Parent and the Company entered into a letter agreement
(the "Confidentiality Agreement") pursuant to which Parent agreed, among other
things, to (a) keep confidential certain information concerning the Company to
be provided to Parent in connection with its evaluation of a possible
transaction involving the Company and (b) customary "standstill" provisions
limiting Parent's freedom of action with respect to proposals to acquire the
Shares of the Company and certain other actions that would affect control of the
Company. A copy of the Confidentiality Agreement has been filed with the
Commission as Exhibit 3 hereto and is incorporated herein by reference.
COMPENSATORY ARRANGEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
Certain compensatory arrangements with executive officers and directors of
the Company are described in the Company's Notice of Annual Meeting of
Shareholders (the "Notice of Annual Meeting"), dated March 22, 1996, previously
filed with the Commission, which descriptions are incorporated herein by
reference. Additional arrangements which are not described in the Notice of
Annual Meeting are described below.
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STOCK OPTION PLAN. The Company has an employee stock option plan (the
"Stock Option Plan") for directors, officers and key employees of the Company.
Pursuant to the Stock Option Plan, options to acquire Common Shares may be
granted by the Board to directors, officers and key employees at a price that is
not less than the closing price of the Common Shares on a Canadian stock
exchange on the day prior to the date of the grant of such option. A maximum
number of 550,000 Common Shares are issuable pursuant to the Stock Option Plan,
and the aggregate number of Common Shares reserved for issuance to any one
person pursuant to options granted under the Stock Option Plan shall not exceed
3% of the outstanding Common Shares. The Company believes the Stock Option Plan
helps to focus the interests of the directors and key employees on the long term
interests of the Company's shareholders. Schedule II hereto sets forth the
options granted under the Stock Option Plan during 1995 and 1996.
REMUNERATION OF DIRECTORS. Each director of the Company who is not a
salaried officer or employee of the Company is entitled to receive a quarterly
director's fee of $2,000. In addition, there is a $1,000 attendance fee for each
Board meeting attended. Messrs. Walsh and Ferris do not receive the quarterly or
meeting fees, but indirectly receive compensation for certain advisory and
consulting services provided by Sequoia Associates to the Company. See
"POTENTIAL OR ACTUAL CONFLICTS OF INTEREST -- AGREEMENTS BETWEEN THE COMPANY AND
ITS BOARD AND EXECUTIVE OFFICERS", below.
POTENTIAL OR ACTUAL CONFLICTS OF INTEREST
NO PRIOR RELATIONSHIP BETWEEN PARENT AND THE BOARD AND EXECUTIVE OFFICERS OF
THE COMPANY. None of the directors or executive officers of the Company are
directors or executive officers of Volvo, Parent or Purchaser or any subsidiary
of Volvo, Parent or Purchaser. There are no arrangements or agreements made or
currently proposed to be made between Volvo, Parent or Purchaser and any of the
directors or executive officers of the Company, including arrangements or
agreements with respect to compensation for loss of office or as to their
remaining in or retiring from office if the Offer is consummated.
OWNERSHIP OF SECURITIES OF PARENT. None of the Company, the directors or
executive officers of the Company or, to the knowledge of the directors and
senior officers of the Company, after reasonable inquiry, any affiliates of the
directors or executive officers of the Company, any person or company
beneficially owning more than 5% of any Shares or any person or company acting
jointly or in concert with the Company owns or exercises control or direction
over any securities of any class of Volvo or Parent or Purchaser.
AGREEMENTS BETWEEN THE COMPANY AND ITS BOARD AND EXECUTIVE OFFICERS. Except
as otherwise set forth herein, there are no arrangements or agreements made or
currently proposed to be made between the Company and any of the directors or
executive officers of the Company, including arrangements or agreements with
respect to compensation for loss of office or as to their remaining in or
retiring from office if the Offer is consummated.
Pursuant to a management services contract between the Company and Sequoia
Associates ("Sequoia"), Messrs. Walsh and Ferris, each of whom is a member of
the Board of the Company, provide on behalf of Sequoia certain management
advisory and consulting services to the Company relating to corporate strategy
and operations, financings, acquisitions and investor and lender relations. For
its services, Sequoia receives an annual fee of U.S. $250,000 and is reimbursed
for certain expenses. The management services agreement will be terminated three
months after the consummation of the Offer.
The Company has purchased liability insurance for the directors and officers
of the Company for an aggregate premium of approximately CDN $70,000. No part of
this premium was paid by the directors or officers of the Company. The aggregate
insurance coverage under the policy is limited to CDN $50 million per policy
year and a CDN $100,000 deductible is payable under the policy by the Company in
respect of any claim made against a director or officer for which the Company
has indemnified such director or officer.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD.
At the February 19, 1997 Board meeting, the Board unanimously expressed its
approval of a tender offer by Purchaser for all of the outstanding Shares at a
price of CDN $15.00 per Share, net to the seller in cash, and determined to
recommend that the shareholders of the Company tender their Shares pursuant to
the terms of such an Offer.
THEREFORE, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY TENDER ALL OF THEIR SHARES PURSUANT TO THE OFFER.
(B) BACKGROUND; REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
(1) BACKGROUND.
On January 6 and January 7, 1997, representatives of Parent met with
representatives of the Company, including Arthur Church (President of the
Company), to pursue earlier discussions between the parties as to the
appointment of Parent as the Company's exclusive distributor in Brazil. At the
conclusion of these meetings, the possibility of a joint venture arrangement or
other distribution agreements between the parties was introduced. In separate
discussions, Bengt Ovlinger, the President and Chief Executive Officer of
Parent, raised with Arthur Church the possibility of Parent acquiring the
Company. The Company's representatives subsequently agreed to visit Parent's
facilities in Sweden on January 28, 1997.
William Walsh (Chairman of the Company), Arthur Church and other
representatives of the Company met with representatives of Parent in Eskilstuna,
Sweden from January 28 to January 30, 1997 to discuss Parent's business and tour
certain facilities. A possible acquisition transaction was discussed generally
by the parties on January 30, 1997. Sten Langenius, Executive Chairman of Parent
and Executive Vice-President of Volvo, William Walsh pursued the possibility of
an acquisition of the Company by Parent and discussed Mr. Walsh's initial views
as to the pricing of such an acquisition.
The Company's representatives returned to Canada, and representatives of
Parent, together with its financial advisors, continued to review publicly
available information regarding the business of the Company and to consider a
potential acquisition.
Mr. Langenius continued discussions with Mr. Walsh on February 5 through
February 7, 1997 culminating in a general concurrence on a range of prices at
which Mr. Walsh might recommend the sale of the Shares controlled by Mr. Walsh,
all subject to Parent's need to complete a due diligence investigation of the
Company, obtain the approval by the Company's Board of Directors and to reach
agreement with a significant number of the Company's shareholders to the effect
that they would tender their Shares into a Parent offer for all of the Company's
outstanding shares.
It was agreed that Parent representatives would travel to Toronto to pursue
the discussions between Messrs. Langenius and Walsh. On February 7, 1997, on
being advised that Parent was seriously considering an offer to acquire all of
the Shares, the Company retained ScotiaMcLeod Inc. ("ScotiaMcLeod") to act as
its financial advisor in connection with the proposed offer.
Following discussions between Michael J. Mudler and Haken Jonssen, the
Senior Vice-President Finance and Administration and Vice-President and General
Counsel of Parent, respectively, and representatives of the Company, it was
agreed that the Company should, at its regularly scheduled Board meeting to be
held February 12, 1997, consider granting Parent access to the Company and its
books and records for due diligence purposes. At that Board meeting, the Board
approved such access and authorized the Company to enter into a confidentiality
agreement with Parent for such purpose.
At the February 12, 1997 Board meeting, the Board also ratified and approved
the appointment of ScotiaMcLeod as the Company's financial advisor in connection
with the proposed offer. ScotiaMcLeod was retained to provide advice with
respect to the proposed offer and its fairness to holders of Shares.
8
<PAGE>
ScotiaMcLeod is familiar with the Company, having provided certain investment
banking services to the Company from time to time and acted in its capacity as
co-underwriter of the Company's initial public and secondary offering of Common
Shares in 1994. For its services in connection with the Offer and the Fairness
Opinion described below, ScotiaMcLeod will be paid a fee. The fee is not in any
way contingent upon the result of the fairness opinion or the success of the
Offer, and ScotiaMcLeod has no financial interest in the Offer.
On February 12, 1997, the Company entered into the Confidentiality
Agreement, described in Item 3 hereof, with Parent under which Parent agreed to
keep confidential certain information to be made available to it relating to the
Company. Parent also agreed not to acquire any Common Shares of the Company
without the approval of the Board of the Company, unless the acquisition was
pursuant to an offer made to all shareholders or in response to a competing
acquisition transaction. Following the execution of the Confidentiality
Agreement, Parent representatives continued their due diligence review of the
Company.
The Lock-Up Agreement with certain shareholders of the Company and the
Acquisition Agreement between Parent and the Company, each of which are
described under Item 3 hereof, were negotiated during the period from February
10 to February 19, 1997 and were ultimately executed on February 20, 1997.
During this period, the parties agreed to the price of CDN $15.00 per Common
Share to be offered by Parent, through the Purchaser, in the Offer, subject to
the approval of the board of directors of Volvo and the Company's Board.
At a meeting of the board of directors of Volvo held on February 19, 1997,
the making of the Offer was approved.
On February 19, 1997, the Board of the Company met and reviewed, with the
assistance of their financial and legal advisors, the terms of the Offer. At the
meeting, the Board received reports from management and an opinion from
ScotiaMcLeod as to the fairness of the Offer to the Company's shareholders from
a financial point of view (the "Fairness Opinion"). ScotiaMcLeod has stated that
in its opinion the Offer is fair from a financial point of view to the Company's
shareholders. A copy of the Fairness Opinion is attached Schedule I hereto and
is incorporated by reference herein. At the meeting, the Board unanimously
resolved to recommend to the holders of Shares that they accept the Offer. The
Board reviewed the Acquisition Agreement and authorized the execution thereof on
behalf of the Company by the officers of the Company. Subsequent to the Board
meeting, the Acquisition Agreement and Lock-Up Agreement were executed and press
releases were made by each of Parent and the Company as to the Offer and the
Board's recommendation in respect thereof. A copy of the Company's press release
was filed with the Commission as Exhibit 7 hereto and is incorporated by
reference herein.
(2) REASONS FOR THE RECOMMENDATION.
In approving the Acquisition Agreement and the transactions contemplated
thereby and recommending that shareholders tender their Shares pursuant to the
Offer, the Board considered a number of factors, including:
(i) that the CDN $15.00 per Share tender offer price represents a
premium of CDN $6.60 or approximately 78.3% over the average closing sales
price of the Shares on the The Toronto Stock Exchange for the 20 trading
days ending on February 18, 1997, the last full trading day before the
cessation of trading in the Shares on February 19, 1997 pending the the
public announcement of the Offer;
(ii) the Fairness Opinion of ScotiaMcLeod, the Company's financial
advisor, a copy of which is attached hereto as Schedule I and is
incorporated by reference herein, to the effect that as of the date of the
Fairness Opinion the Offer is fair from a financial point of view to the
Company's shareholders;
9
<PAGE>
(iii) the fact that the holders of Shares totaling 34.3% of the
outstanding Shares on a fully-diluted basis have agreed with Parent to
tender all of such Shares held by each of them in the Offer;
(iv) that the Offer is for all Shares;
(v) the financial condition, results of operations, business and
prospects of the Company;
(vi) information regarding the industry in which the Company operates
and the financial, operating and Share price history of the Company in
comparison to selected comparable companies including certain of the
Company's competitors;
(vii) consideration of other possible acquirors of the Company;
(viii) that the Acquisition Agreement is structured to permit the Company,
upon the determination of the Board that such action would further the best
interests of the shareholders of the Company, to respond to unsolicited
Transaction Proposals at a price exceeding CDN $15.00 per Share and to
furnish information to and negotiate with such parties;
(ix) the terms and conditions of the Acquisition Agreement, including
that the Purchaser could under certain circumstances be entitled to a
termination fee of CDN $5,000,000;
(x) that the Offer is not subject to a financing condition;
(xi) that the Company would have access to Parent's technology and
componentry, research and development resources and distribution in the
markets where Parent is strong.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Acquisition
Agreement and the Offer, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.
A copy of the Fairness Opinion of ScotiaMcLeod delivered to the Board, which
sets forth certain assumptions made, matters considered and limits of the review
by ScotiaMcLeod in rendering its opinion, is attached as Schedule I hereto.
Shareholders are urged to read the Fairness Opinion carefully in its entirety.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained ScotiaMcLeod as financial advisor in connection
with the Offer. ScotiaMcLeod was retained to provide advice with respect to the
Offer and its fairness to shareholders. ScotiaMcLeod is familiar with the
Company, having provided certain investment banking services to the Company from
time to time and in its capacity as co-underwriter of the Company's 1994 Initial
Public and Secondary Offering. For the services rendered by ScotiaMcLeod in
connection with the transactions proposed herein, ScotiaMcLeod will be paid a
fee. The fee is not in any way contingent upon the result of the Fairness
Opinion or the success of the Offer, and ScotiaMcLeod has no financial interest
in the Offer.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer.
10
<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth on Schedule III hereto, to the knowledge of the
Company, no transactions in Shares have been effected during the past 60 days by
the Company or any of its executive officers, directors or their respective
affiliates.
(b) To the Company's knowledge, each executive officer, director and
affiliate of the Company currently intends to tender all Shares (including
Shares acquired upon the exercise of stock options granted under the Stock
Option Plan) over which he or she has sole dispositive power to the Purchaser
pursuant to the Offer, except for gifts of Shares to family members or
charitable organizations, if any, and except to the extent, if any, that the
sale of such Shares by any such person or entity could result in liability under
the short-swing profit recovery provisions of Section 16(b) of the Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in this Schedule 14D-9, to the knowledge of the
Company, no negotiation is being undertaken or is under way by the Company in
response to the Offer which relates to or would result in (i) any extraordinary
transaction, such as a merger or reorganization, involving the Company or any
affiliate or subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described in this Schedule 14D-9, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<C> <S>
Exhibit 1 Acquisition Agreement, dated as of February 20, 1997, between Volvo
Construction Equipment N.V. and Champion Road Machinery Limited.
Exhibit 2 Lock-Up Agreement, dated as of February 20, 1997, by and among Volvo
Construction Equipment N.V. and the persons identified on the
signature page thereof.
Exhibit 3 Confidentiality Agreement, dated February 12, 1997, between Volvo
Construction Equipment N.V. and Champion Road Machinery Limited.
Exhibit 4 Directors' Circular, dated as of February 24, 1997.
Exhibit 5 Offer to Purchase for Cash of VCE Acquisition Inc. (including the
accompanying Offering Circular), dated February 24, 1997.
Exhibit 6 Letter to the Company's shareholders dated February 24, 1997.(1)
Exhibit 7 Press Release dated February 20, 1997.
Exhibit 8 Fairness Opinion of ScotiaMcLeod Inc.(2)
</TABLE>
- ------------------------------
(1) Included in copies mailed to shareholders.
(2) Included herewith as Schedule I hereto.
11
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Dated: February 24, 1997
CHAMPION ROAD MACHINERY LIMITED
By: /s/ ARTHUR F. CHURCH
--------------------------------------
Name: Arthur F. Church
Title: President and Chief
Executive Officer
12
<PAGE>
SCHEDULE I
[LETTERHEAD]
February 24, 1997
The Board of Directors of
Champion Road Machinery Limited
180 Columbia St. W., Suite 2204
Waterloo, Ontario
N2L 3L3
Dear Sirs:
We understand that Volvo Construction Equipment N.V. ("Volvo") proposes to make
an offer (the "Offer"), directly or indirectly, to acquire all of the
outstanding common shares (the "Common Shares") of Champion Road Machinery
Limited ("Champion" or the "Company") at a price of $15.00 cash per share. The
terms of the Offer are more fully described in the Offer to Purchase and
Circular, dated February 24, 1997 to be mailed to holders of Common Shares in
connection with the Offer.
We further understand that, pursuant to an agreement dated February 20, 1997
(the "Lockup Agreement"), the Walsh Family 1989 Trust, the Ferris Family 1987
Trust, certain members of senior management and certain other shareholders of
Champion (the "Selling Shareholders") have agreed to deposit all of the
approximately 4.0 million Common Shares owned by them or under option
(approximately 34% of the Company's Common Shares on a fully diluted basis)
under the Offer.
SCOTIAMCLEOD'S ENGAGEMENT
On February 7, 1997, the board of directors of Champion (the "Board") retained
ScotiaMcLeod Inc. ("ScotiaMcLeod") as its financial advisor to provide an
opinion (the "Opinion") to the Board as to the fairness, from a financial point
of view, of the Offer to the holders of the Common Shares.
We have not been asked to prepare, and have not prepared, a formal valuation of
Champion or any of its material assets, and the Opinion should not be construed
as such. We have, however, conducted such analyses as we considered necessary
in the circumstances.
SCOTIAMCLEOD'S CREDENTIALS
ScotiaMcLeod is one of Canada's largest investment banking firms with operations
in all facets of corporate and government finance, mergers and acquisitions,
equity and fixed income sales and trading and investment research. ScotiaMcLeod
has participated in a significant number of transactions involving private and
public companies and has extensive experience in preparing fairness opinions.
The Opinion expressed herein is the opinion of ScotiaMcLeod as a firm. The form
and content of the Opinion have been approved for release by a committee of
directors and other professionals of ScotiaMcLeod, all of whom are experienced
in mergers and acquisitions and valuation matters.
SCOTIAMCLEOD'S INDEPENDENCE
ScotiaMcLeod believes that it is independent of Volvo and Champion, as
determined in accordance with Ontario Securities Commission Policy Statement No.
9.1. ScotiaMcLeod is not an insider, associate or affiliate (as such terms are
defined in the SECURITIES ACT (Ontario)) of Volvo or Champion, and neither
ScotiaMcLeod nor any of its affiliates acts as a financial advisor
I-1
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 2
to Volvo in respect of the Offer. During the past 24 months neither
ScotiaMcLeod nor any of its affiliates has acted as a lead or co-lead
underwriter of a distribution of securities of Volvo or Champion. Neither
ScotiaMcLeod nor any of its affiliates is a lead or co-lead lender or manager of
a lending syndicate in respect of the Offer, or a manager or co-manager of a
soliciting dealer group formed in respect of the Offer.
ScotiaMcLeod acts as a trader and dealer, both as principal and agent, in the
financial markets in Canada, the United States and elsewhere and as such has had
and may have positions in the securities of Champion or Volvo from time to time
and may have executed or may execute transactions on behalf of Champion or Volvo
or on behalf of other clients for which it receives compensation. As an
investment dealer, ScotiaMcLeod conducts research on securities and may, in the
ordinary course of business, provide research reports and investment advice to
its clients on investment matters, including the Offer.
SCOPE OF REVIEW
In preparing the Opinion, ScotiaMcLeod has reviewed and relied upon, among other
things:
a) The terms of the Offer as set out in a draft of the Offer to Purchase and
Circular (the "Circular") of the Offeror to be issued in connection with
the Offer;
b) A draft of the directors' circular to be issued in connection with the
Offer;
c) The Lockup Agreement;
d) The Acquisition Agreement between Volvo Construction Equipment N.V. and
Champion Road Machinery Limited dated February 20, 1997 (the "Acquisition
Agreement");
e) The Confidentiality and Standstill Agreement between Volvo and Champion
dated February 12, 1997;
f) The audited consolidated financial statements of Champion for each of the
fiscal years in the five year period ended December 31, 1996;
g) Other financial information obtained from management of Champion, including
interim management reports for the past three years;
h) Management prepared forecasts of the future financial and operating
performance of the Company as contained in the Champion 1997 Profit Plan
and the Champion 1997-1999 Operating Plan;
i) Minutes of the meetings of the Board and its committees for the past three
years;
j) Tours of the Company's premises and facilities in Goderich, Ontario and
Cambridge, Ontario;
k) Auditors' reports to management of Champion for each of the fiscal years
ended December 31, 1996, 1995 and 1994;
l) Tax returns of Champion and its subsidiaries for the past two years;
m) Representations from counsel to the Company regarding certain corporate
matters;
n) Agreements relating to dealer financing programs;
I-2
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 3
o) Discussions with senior management of Champion with respect to the
information referred to above, among other things;
p) Representations obtained from senior management of Champion as to matters
of fact relevant to our engagement;
q) Discussions with the accounting and legal advisors of Champion;
r) Relevant stock market and other trading information relating to the Common
Shares and the shares of similar companies, including data with respect to
the acquisition of other companies similar to Champion; and
s) Such other financial, market, technical and industry information and such
other analyses and reports as we considered relevant and appropriate in the
circumstances.
ScotiaMcLeod was granted access by Champion to its senior management and was
not, to its knowledge, denied any information which it requested.
ASSUMPTIONS AND LIMITATIONS
We have relied, without independent verification, upon all financial and other
information that was obtained by us from public sources or that was provided to
us by Champion and its affiliates and advisors or otherwise. We have assumed
that this information was complete and accurate and did not omit to state any
material fact or any fact necessary to be stated to make that information not
misleading. Our Opinion is conditional upon such completeness and accuracy. In
accordance with the terms of our engagement, but subject to the exercise of our
professional judgement, we have not conducted any independent investigation to
verify the completeness or accuracy of such information. With respect to the
financial forecasts and projections provided to us and used in our analysis, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgements of management of Champion as
to the matters covered thereby and in rendering our Opinion we express no view
as to the reasonableness of such forecasts or projections or the assumptions on
which they are based. Senior management of Champion have represented to us in a
certificate dated February 19, 1997 that, among other things, the information
provided to us relating to Champion and its affiliates was complete and correct
in all material respects and does not contain any untrue statement of a material
fact or omit to state any material fact necessary to make any such information
not misleading. Senior management of Champion has also represented that the
forecasts and projections provided to us were reasonably prepared on bases
reflecting the best currently available estimates and judgement of management of
Champion as to the matters covered thereby using the identified assumptions
which are, in the opinion of management of Champion, reasonable in the
circumstances.
Our Opinion is based on the securities markets, economic, general business and
financial conditions prevailing today and the conditions and prospects,
financial and otherwise, of Champion and its affiliates as they were reflected
in the information reviewed by us. Any changes therein may affect our Opinion
and, although we reserve the right to change or withdraw our Opinion in such
event, we disclaim any obligation to advise any person of any such change that
may come to our attention or update our Opinion after today.
We have assumed that all conditions precedent to the completion of the Offer can
be satisfied in due course, and that all consents, permissions, exemptions or
orders of relevant regulatory authorities will be obtained, without adverse
condition or qualification.
Our analysis must be considered as a whole. Selecting portions of our analysis
and of the factors considered by us, without considering all factors and
analyses together, could create a misleading view of the methodologies and
approaches underlying our Opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description, as doing so could lead to undue emphasis on any particular
factor or analysis.
I-3
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 4
FAIRNESS CONSIDERATIONS
The assessment of fairness, from a financial point of view, must be determined
in the context of the particular transaction. In assessing the fairness, from a
financial point of view, of the Offer to the holders of the Common Shares,
ScotiaMcLeod considered a number of matters, the most important of which are
summarized below.
PRECEDENT TRANSACTIONS REVIEW
ScotiaMcLeod conducted a search of heavy construction equipment manufacturer
acquisitions and identified transactions over the period from 1990 to the
present which we considered relevant. Such transactions included, among others:
- - Cascade Corp.'s acquisition of Kenhar Corporation in January, 1997;
- - Ingersoll-Rand Company's acquisition of Clark Equipment Company in May,
1995;
- - AB Volvo's acquisition of the 50% of VME Group N.V. it did not already own
in April, 1995; and
- - Clark Equipment Company's acquisition of Blaw-Knox Construction Equipment
Corporation in May, 1994.
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow approach involves discounting, at an appropriate rate,
an expected stream of future cash flows, as well as any residual or terminal
value beyond the projection period, in order to determine their present value.
The DCF approach takes into account the amount, timing and relative certainty of
the expected future cash flows to be generated by Champion and requires that
assumptions be made regarding future cash flows, discount rates and terminal
value. Such assumptions were based on, among other things, our review of
management's projections of the future financial and operating performance of
the business and such adjustments as we felt were appropriate in the
circumstances. The DCF analysis was adjusted for any assets or liabilities not
taken into account in the determination of free cash flows and terminal values.
STOCK MARKET TRADING ANALYSIS
The Common Shares are traded on The Toronto Stock Exchange, the Montreal
Exchange and the NASDAQ National Market. Prior to the announcement of the Offer
on February 20, 1997, the 52 week high closing price of the Common Shares was
$11.00 and the 52 week low was $7.00. The Common Shares have never traded above
the Offer price of $15.00, and since going public, the stock has generally
underperformed the TSE 300 Index, the TSE Fabricating and Engineering Subindex
as well as other peer group companies such as Caterpillar Inc., Case Corporation
and Deere & Company.
ScotiaMcLeod also conducted a review of stock market trading values of Canadian
and U.S. public heavy construction equipment manufacturers. Key trading value
parameters examined included enterprise value (after appropriate adjustments for
debt, excess cash, off-balance sheet financing and surplus assets) to earnings
before interest, taxes, depreciation and amortization ("EBITDA"), enterprise
value to earnings before interest and taxes ("EBIT"), price to earnings and
price to cash flow on a trailing and prospective basis.
BENEFITS TO VOLVO
We considered potential benefits to Volvo assuming the successful completion of
the Offer. Such benefits included expansion of Volvo's product line, strategic
fit, expanded distribution opportunities for the Champion product line,
purchasing synergies and administrative savings, among others. We incorporated
our assessment of these benefits into our assessment of the Common Shares to the
extent we felt was appropriate in the circumstances.
I-4
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 5
REVIEW OF PROCESS
We understand that the Company has been dealing with Volvo on an exclusive basis
and the terms of the Offer were determined based on negotiations between the
Board, Volvo and the Selling Shareholders. We understand that the Board may
consider, negotiate, approve or recommend, provide information to a potential
acquiror pursuant to, or take any necessary steps to implement any bona fide
written Transaction Proposal to acquire at least a majority of the Common Shares
at a price exceeding $15.00 per Common Share in accordance with its fiduciary
obligations.
PREMIUM TO HISTORIC TRADING PRICES
At $15.00, the Offer represents a 63.9% premium to the February 18, 1997 closing
price of $9.15 and a 78.3% premium to the twenty-day average closing price on
The Toronto Stock Exchange prior to February 19, 1997. We believe this premium
to historic trading prices of the Common Shares is reasonable in the context of
the current mergers and acquisitions market in Canada.
PRIOR VALUATIONS
We understand that no prior valuations (as defined for the purposes of Ontario
Securities Commission Policy Statement No. 9.1) have been carried out on
Champion in the past twenty-four months.
PRIOR OFFERS
We understand that, apart from the Offer, there have been no prior offers for
Champion or any of its material assets in the past twenty-four months.
MARKET LIQUIDITY
The Offer provides a level of liquidity to holders of the Common Shares with
larger positions in the Common Shares which may not otherwise be available.
FAIRNESS CONCLUSION
Based upon and subject to all of the foregoing, ScotiaMcLeod is of the opinion
that the Offer is fair, from a financial point of view, to the holders of the
Common Shares.
Yours very truly,
/s/ ScotiaMcLeod, Inc.
ScotiaMcLeod Inc.
I-5
<PAGE>
SCHEDULE II
OPTION GRANTS
The following tables set out the individual grants of options to purchase
Common Shares during the fiscal years ended December 31, 1996 and December 31,
1995 to the executive officers of the Company.
OPTIONS GRANTED DURING THE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MARKED VALUE OF
COMMON SHARES
EXERCISE OF UNDERLYING OPTIONS
COMMON SHARES % OF TOTAL OPTIONS BASE PRICE ON THE DATE OF
UNDER OPTIONS GRANTED TO EMPLOYEES (CDN$/ COMMON GRANT (CDN$/ COMMON
NAME GRANTED (#)(1) IN FINANCIAL YEAR SHARE) SHARE) EXPIRATION DATE
- --------------------------------- --------------- --------------------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
A. F. Church..................... 15,000 7.1% $ 10.00 $ 10.00 April 29, 2002..
S. E. Hall....................... 7,000 3.3% $ 10.00 $ 10.00 April 29, 2002
W. Legge......................... 6,000 2.8% $ 10.00 $ 10.00 April 29, 2002
K. Majeskie...................... 10,000 4.7% $ 9.25 $ 9.25 Jan. 3, 2002
W. Mason......................... 6,000 2.8% $ 10.00 $ 10.00 April 29, 2002
D. Vollmershausen................ 1,000 0.5% $ 10.00 $ 10.00 April 29, 2002
D. Vollmershausen................ 100,000 47.1% $ 7.60 $ 7.60 Sept. 6, 2002
</TABLE>
- ------------------------------
Notes:
(1) The options vest one-fifth per year on each anniversary of the date of
grant.
OPTIONS GRANTED DURING THE
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKED VALUE OF
COMMON SHARES
EXERCISE OF UNDERLYING OPTIONS
COMMON SHARES % OF TOTAL OPTIONS BASE PRICE ON THE DATE OF
UNDER OPTIONS GRANTED TO EMPLOYEES (CDN$/ COMMON GRANT (CDN$/ COMMON
NAME GRANTED (#)(1) IN FINANCIAL YEAR SHARE) SHARE) EXPIRATION DATE
- --------------------- --------------- --------------------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
A. F. Church......... 15,000 14.0% $ 11.50 $ 11.50 April 26, 2001
Scott E. Hall........ 7,000 6.5% $ 11.50 $ 11.50 April 26, 2001
Paul T. Perras....... 6,000 5.6% $ 11.50 $ 11.50 April 26, 2001
David A. Ross........ 6,000 5.6% $ 11.50 $ 11.50 April 26, 2001
Wayne D. Mason....... 5,000 4.7% $ 11.50 $ 11.50 April 26, 2001
</TABLE>
- ------------------------------
Notes:
(1) The options vest one-fifth per year on each anniversary of the date of
grant.
Subject to the approval of The Toronto Stock Exchange, the Montreal Exchange
and the Nasdaq National Market System, the Company's Board of Directors has
resolved to accelerate the vesting of all outstanding options to acquire Shares
or to make other arrangements satisfactory to Purchaser to satisfy the
conditions of the Offer with respect to outstanding options. Each director and
officer of the Company who holds options to purchase Shares intends to exercise
all options held by such person to acquire Shares and intends to thereafter
tender such Shares in the Offer.
II-1
<PAGE>
SCHEDULE III
TRANSACTIONS IN SHARES (OR OPTIONS TO ACQUIRE SHARES) BY THE COMPANY, ITS
EXECUTIVE OFFICERS AND
DIRECTORS AND THEIR RESPECTIVE AFFILIATES DURING THE PAST 60 DAYS
<TABLE>
<CAPTION>
NAME NATURE OF TRADE DATE OF TRADE SHARES TRADED PRICE PER SHARE
- -------------------------------------------------- --------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Mary Lazarevich(1)................................ purchase 1/21/97 3,300 $ 8.90
Mary Lazarevich(1)................................ purchase 1/22/97 3,300 $ 8.95
Mary Lazarevich(1)................................ purchase 1/27/97 3,700 $ 8.50
</TABLE>
- ------------------------------
(1) Under the CBCA, Ms. Lazarevich is an "associate" of Scott E. Hall.
III-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------------------------- ---------
<S> <C> <C>
Exhibit 1 Acquisition Agreement, dated as of February 20, 1997, between Volvo Construction
Equipment N.V. and Champion Road Machinery Limited.
Exhibit 2 Lock-Up Agreement, dated as of February 20, 1997, by and among Volvo Construction
Equipment N.V. and the persons identified on the signature page thereof.
Exhibit 3 Confidentiality Agreement, dated February 12, 1997, between Volvo Construction Equipment
N.V. and Champion Road Machinery Limited.
Exhibit 4 Directors' Circular, dated as of February 24, 1997.
Exhibit 5 Offer to Purchase for Cash of VCE Acquisition Inc. (including the accompanying Offering
Circular), dated February 24, 1997.
Exhibit 6 Letter to the Company's shareholders dated February 24, 1997.(1)
Exhibit 7 Press Release dated February 20, 1997.
Exhibit 8 Fairness Opinion of ScotiaMcLeod Inc.(2)
</TABLE>
- ------------------------------
(1) Included in copies mailed to shareholders.
(2) Included herewith as Schedule I hereto.
<PAGE>
ACQUISITION AGREEMENT
between
Volvo Construction Equipment N.V.
- and -
Champion Road Machinery Limited
DATED: as of February 20, 1997
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TABLE OF CONTENTS
PAGE NO.
ARTICLE I
THE OFFER
1.1 Covenants of the Purchaser 1
1.2 Approval of the Corporation 3
1.3 Shareholder Lists 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
2.1 Corporate Organization 4
2.2 Enforceability of Agreement 4
2.3 Conflicting Provisions 4
2.4 Consents 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
3.1 Corporate Organization 5
3.2 Enforceability of Agreement 5
3.3 Conflicting Provisions 5
3.4 Consents 5
3.5 Public Disclosure 6
3.6 Absence of Changes 7
3.7 Absence of Litigation 7
3.8 Environmental Matters 7
ARTICLE IV
COVENANTS
4.1 Conduct of Business of the Corporation 8
4.2 Board of Directors 9
4.3 Access to Information 9
4.4 No Solicitation 9
4.5 Further Action; Reasonable Best Efforts 10
4.6 Public Announcements 10
4.7 Regulatory Approvals 10
4.8 Take Up and Payment 10
4.9 Increase in Consideration 11
ARTICLE V
TERMINATION, AMENDMENT AND WAIVER
5.1 Termination 11
5.2 Effect of Termination 12
5.3 Fees and Expenses 12
5.4 Waiver 12
2
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ARTICLE VI
GENERAL PROVISIONS
6.1 Non-Survival of Representations, Warranties and Agreements 12
6.2 Notices 13
6.3 Certain Definitions and Rules of Construction 14
6.4 Severability 14
6.5 Entire Agreement; Assignment 15
6.6 Time 15
6.7 Currency 15
6.8 Amendments 15
6.9 Counterparts 15
6.10 Governing Law 15
SCHEDULE "B"
DEFINITIONS
3
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ACQUISITION AGREEMENT
ACQUISITION AGREEMENT, dated as of February 20, 1997 (this "Agreement"),
between Volvo Construction Equipment N.V., a corporation incorporated under the
laws of Holland (the "Purchaser") and Champion Road Machinery Limited, a
corporation incorporated under the CANADA BUSINESS CORPORATIONS ACT (the "CBCA")
(the "Corporation").
WHEREAS the Board of Directors of the Purchaser has approved this Agreement
and the transactions contemplated hereby;
WHEREAS the Board of Directors of the Corporation has approved this
Agreement and the transactions contemplated hereby;
WHEREAS certain of the shareholders of the Corporation have executed and
delivered a Lock-Up Agreement dated February 20, 1997 (the "Lock-Up Agreement")
with the Purchaser;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Purchaser and the Corporation hereby agree as follows:
ARTICLE
THE OFFER
COVENANTS OF THE PURCHASER
TIMING. The Purchaser agrees to cause a direct or indirect
wholly-owned subsidiary of AB Volvo (publ) (the "Offeror") to make an offer
(the "Offer") on the terms summarized in Schedule "A" forming part of this
Agreement for 100% of the Corporation's issued and outstanding common
shares, including any common shares which may become outstanding pursuant
to the exercise of outstanding options to acquire common shares of the
Corporation (the "Common Shares" or "Shares") at a cash price of $15.00 per
share on or before February 27, 1997 (the "Proposed Offer Date"), provided
that in the event that the Offeror shall not have been provided with such
of the lists referred to in paragraph 1.3 in order to allow the Offeror to
mail the Offer to holders of Common Shares or any of the conditions in
paragraph 1.1(d) has not been met to the satisfaction of the Offeror by the
Proposed Offer Date, the Proposed Offer Date shall be extended to the later
of: (a) the third business day following the obtaining of such lists and
(b) the third business day following the satisfaction of such conditions.
OFFER DOCUMENTS. The Purchaser shall prepare the Offer, the takeover
bid circular and the related letter(s) of transmittal and notice(s) of
guaranteed delivery (collectively, the "Offer Documents") with respect to
the Offer in compliance with the SECURITIES ACT (Ontario) (the "OSA") and
other applicable provincial securities laws, rules and regulations and
published policies thereunder and the securities laws, rules and
regulations and published policies thereunder of the United States and the
states thereof
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(collectively, the "Securities Laws"). The Corporation and its counsel
shall be given an opportunity to review the Offer Documents prior to their
being mailed to holders of record of Shares and filed with the applicable
securities regulatory authorities. The Purchaser shall provide each
Shareholder and the Corporation with a final copy of the Offer Documents
to be mailed to all shareholders. The Offeror shall file the Offer
Documents on a timely basis with the appropriate securities commissions and
other regulatory authorities in Canada and the United States (the
"Securities Authorities"). The Offer Documents, when filed with the
Securities Authorities and mailed to the Shareholders, shall contain all
information which is required to be included therein in accordance with any
applicable law, including, without limiting the generality of the
foregoing, the CANADA BUSINESS CORPORATIONS ACT (the "CBCA") and the
Securities Laws and shall in all material respects comply with the
requirements of applicable law, including the CBCA and Securities Laws.
The terms of the Offer shall comply with the terms of this Agreement. In
making the Offer, the Offeror shall comply in all material respects with
the provisions of applicable law, including Securities Laws.
DEALER MANAGER. The Purchaser shall appoint a dealer manager in
connection with the Offer and solicit acceptances of the Offer. The dealer
manager will be required to form a soliciting dealer group comprised of
members of the Investment Dealer Association of Canada and of the stock
exchanges in Canada to solicit acceptance of the Offer in Canada and the
United States.
CONDITIONS PRECEDENT. Notwithstanding paragraph 1.1(a), the Purchaser
shall not be required to cause the Offeror to make the Offer if at the time
the Offeror proposes to make the Offer and on the Proposed Offer Date (or
on any later day on which the Offer is required to be made under paragraph
1.1(a)):
any of the conditions set forth in paragraphs (e) to (g)
inclusive and paragraphs (i), (k) and (l) of section 3 of
Schedule "A" hereto have not been satisfied; or
any representation or warranty of the Corporation in Article III
shall not be, as of the date made, true and correct in all
respects which failure to be true and correct constitutes a
Material Adverse Effect, or the Corporation shall not have
performed in all respects any covenant or complied in all
respects with any agreement to be performed by the Corporation
under this Agreement prior to such date which failure to so
perform or comply constitutes a Material Adverse Effect.
The foregoing conditions are for the sole benefit of the Purchaser and may
be waived by the Purchaser in whole or in part at any time or from time to
time and shall be deemed to have been waived by the making of the Offer by
the Offeror.
APPROVAL OF THE CORPORATION
The Corporation hereby confirms that its Board of Directors, after
consultation with its advisers, by a resolution of such Board of Directors,
has unanimously (i)
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determined that the Offer is fair to the holders of the Shares from a
financial point of view and that this Agreement and the transactions
contemplated hereby are in the best interests of the Corporation and its
shareholders, (ii) approved this Agreement and the transactions
contemplated hereby, and (iii) resolved to recommend that the shareholders
of the Corporation accept the Offer and tender their Shares to the Offeror
thereunder.
The Corporation shall use its reasonable commercial efforts to mail,
concurrently with the mailing of the Offer Documents, to holders of record
of Shares, to each of the directors of the Corporation and to file with the
applicable securities regulatory authorities, a Directors' Circular
(together with all amendments, supplements and exhibits thereto, (the
"Directors' Circular") which shall reflect the determinations and
recommendation referred to in Section 1.2(a). The Corporation shall
comply with all Securities Laws in respect of the Offer. The Purchaser and
its counsel shall be given an opportunity to review the Directors' Circular
prior to its being mailed to holders of record of Shares and filed with the
applicable securities regulatory authorities. Each of the Purchaser and
the Corporation agrees to provide the other party and its counsel in
writing with any written comments, notice or communications either of them
or their respective counsel may receive from the Director under the CBCA
and the Securities Authorities with respect to the Offer, the Offer
Documents and the Directors' Circular promptly after the receipt of such
comments.
SHAREHOLDER LISTS - The Corporation shall or shall cause its transfer agent
to prepare a list of shareholders of the Corporation in accordance with section
21 of the CBCA and a list of holders of stock options and any other rights,
warrants or convertible or exchangeable securities currently outstanding (with
full particulars as to the purchase, exercise or conversion price and expiry
date), as well as a security position listing from each depositary including,
without limitation, The Canadian Depositary for Securities Limited and deliver
same to the Offeror as soon as practicable after the execution of this Agreement
and in as many days as possible before the expiry of the statutory ten day
period provided under the aforesaid section 21 of the CBCA, and to prepare
supplemental lists setting out any changes to the aforesaid lists for each
business day thereafter, and deliver same to the Offeror; all such aforesaid
deliveries shall be in both printed and computer readable form.
ARTICLE
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Corporation that:
CORPORATE ORGANIZATION - The Purchaser is, and the Offeror will be at the
date of the Offer, a corporation duly incorporated and validly existing under
the laws of its jurisdiction of incorporation and the Purchaser has, and the
Offeror will have at the date of the Offer, all necessary corporate power, and
authority, capacity and right, and the Purchaser has, and the Offeror will have
at the date of the Offer, received all requisite approvals (other than the
regulatory approvals referred to in paragraphs (b) and (c) of section 3 of
Schedule "A" hereto) to complete the transactions contemplated by this Agreement
and, in the case of the Purchaser, to enter into this Agreement.
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ENFORCEABILITY OF AGREEMENT - Upon the due execution and delivery of this
Agreement by the Corporation, this Agreement shall be a legally valid and
binding agreement enforceable by the Corporation against the Purchaser in
accordance with its terms, subject, however, to the usual limitations with
respect to enforcement imposed by law in connection with bankruptcy or similar
proceedings and the availability of equitable remedies.
CONFLICTING PROVISIONS - The Purchaser is not, and the Offeror at the date
of the Offer will not be, a party to, bound or affected by or subject to, any
agreement, charter or by-law provision, statute, regulation, judgement, order,
decree or law which would be violated, contravened, breached by, or under which
default would occur as a result of, the execution and delivery or performance of
this Agreement and which default, violation, contravention or breach would
materially impair or would prevent the Purchaser or the Offeror from
consummating the transactions contemplated hereby.
CONSENTS - No consent, waiver, approval, authorization, exemption,
registration, license or declaration of or by, or filing (other than pursuant to
the Securities Laws) with, or notification to any governmental agency or other
regulatory authority or administrative agency or commission is required to be
made or obtained by the Purchaser or the Offeror in connection with (i) the
execution and delivery by the Purchaser of this Agreement, or (ii) the
consummation by the Purchaser and the Offeror of any of the transactions
provided for herein, except for or in connection with the regulatory approvals
referred to in paragraphs (b) and (c) of section 3 of Schedule "A" hereto.
SUFFICIENT FUNDS - The Offeror will have at the date of the Offer
sufficient funds or financing arrangements in place to provide sufficient funds
to purchase all Common Shares tendered under the Offer.
ARTICLE
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation hereby represents and warrants to the Purchaser that:
CORPORATE ORGANIZATION - The Corporation is a corporation duly incorporated
and validly existing under the CBCA and has all necessary corporate power,
authority, capacity and right, to enter into this Agreement and to complete the
transactions contemplated hereby.
ENFORCEABILITY OF AGREEMENT - Upon due execution and delivery of this
Agreement by the Purchaser, this Agreement shall be a legally valid and binding
agreement enforceable by the Purchaser against the Corporation in accordance
with its terms, subject, however, to the usual limitations with respect to
enforcement, imposed by law in connection with bankruptcy or similar proceedings
and the availability of equitable remedies.
CONFLICTING PROVISIONS - The Corporation is not a party to, bound or
affected by or subject to, any agreement, charter or by-law provision, statute,
regulation, judgement, order, decree or law which would be violated,
contravened, breached by, or under which default would occur as a result of, the
execution and delivery or performance of this Agreement and which default,
violation, contravention or breach would constitute a Material Adverse Effect or
would
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prevent the Corporation from consummating the transactions contemplated hereby.
CONSENTS - No consent, waiver, approval, authorization, exemption,
registration, license or declaration of or by, or filing (other than pursuant to
the Securities Laws) with, or notification to any governmental agency or other
regulatory authority or administrative agency or commission is required to be
made or obtained by the Corporation in connection with (i) the execution and
delivery by the Corporation of this Agreement, or (ii) the consummation by the
Corporation of any of the transactions provided for herein, except for or in
connection with the regulatory approvals referred to in paragraphs (b) and (c)
of section 3 of Schedule "A" hereto.
PUBLIC DISCLOSURE
The Corporation has complied in all material respects with its
obligation to file all forms, reports, statements, schedules and documents
required to be filed with the Securities Authorities since April 12, 1994
(collectively, the "Reports"), each of which Reports complied in all
material respects with the applicable requirements of the Securities Laws,
as in effect on the date so filed. Except for the financial statements of
the Corporation as at and for the periods ended March 31, 1995 and June
30, 1995 which have been restated, none of such Reports (including any
financial statements, schedules, documents or exhibits included or
incorporated by reference therein) or the prospectus of the Corporation
dated April 12, 1994 when filed pursuant to the Securities Laws contained
any misrepresentation (as defined in the OSA). All such Reports,
(including any financial statements, schedules, documents or exhibits
included or incorporated by reference therein) and the prospectus of the
Corporation dated April 12, 1994 complied in all material respects with all
applicable requirements of law.
The audited consolidated financial statements of the Corporation
(including any related notes thereto) for the fiscal year ended December
31, 1996 which have previously been furnished to the Purchaser, have been
prepared in accordance with Canadian generally accepted accounting
principles, applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Corporation and its subsidiaries at
the date thereof and the consolidated results of its operations and changes
in cash flows for the period indicated.
Except as and to the extent set forth on or contemplated by the
consolidated balance sheet of the Corporation and its subsidiaries at
December 31, 1996, including the notes to the financial statements of the
Corporation for its fiscal year then ended, neither the Corporation nor any
of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which would be
required to be reflected on a balance sheet or in the notes thereto
prepared in accordance with Canadian generally accepted accounting
principles, except for liabilities or obligations incurred in the ordinary
course of business since December 31, 1996 which could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
ABSENCE OF CHANGES - Since December 31, 1996, except as set forth in the
Reports, there has not been:
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any change in the financial condition, operations (including
inventories) or prospects of the Corporation constituting a Material
Adverse Effect; or
any damage, destruction, loss, labour trouble or other event,
development or condition of any character (whether or not covered by
insurance) constituting a Material Adverse Effect.
ABSENCE OF LITIGATION - Except as disclosed to the Purchaser in writing
there are no suits, claims, actions, proceedings or investigations pending or,
to the knowledge of the Corporation, threatened against the Corporation or any
of its subsidiaries, or any properties, assets or rights of the Corporation or
any of its subsidiaries, before any court, arbitrator or administrative,
governmental or regulatory authority or body, that (i) individually or in the
aggregate, constitute a Material Adverse Effect or (ii) seek to delay or prevent
the consummation of the transactions contemplated hereby or by the Lock-Up
Agreements, and, to the knowledge of the Corporation, there are no bases or
grounds on which such a suit, claim, action, proceeding or investigation could
be commenced with a reasonable likelihood of success. As of the date hereof,
neither the Corporation nor any of its subsidiaries nor any of their respective
properties or assets is or are subject to any order, writ, judgment, injunction,
decree, determination or award which is a Material Adverse Effect or which could
prevent or delay the consummation of the transactions contemplated hereby.
ENVIRONMENTAL MATTERS - Except as disclosed to the Purchaser in writing and
except with respect to the facilities located in Charlotte, North Carolina which
are leased by the Corporation (in respect of which the Corporation has no
knowledge of environmental matters):
to the knowledge of the Corporation all operations of the Corporation
conducted on the owned and leased real properties of the Corporation and
such properties themselves are in compliance with all Environmental Laws
except where the failure to comply does not constitute a Material Adverse
Effect.
All Environmental Approvals required to be held by the Corporation
have been obtained, are valid and in full force and effect, except where
any failure to obtain such Environmental Approval or the failure of such
Environmental Approval to be valid and in full force and effect does not
constitute a Material Adverse Effect and there have been and are no
proceedings commenced or threatened to revoke or amend any Environmental
Approvals.
Neither the Corporation nor any of its operations has been or is now
the subject of any Remedial Order, nor does the Corporation have any
knowledge of any investigation or evaluation commenced as to whether any
such Remedial Order is necessary nor has any threat of any such Remedial
Order been made.
To the knowledge of the Corporation no part of the owned or leased
real properties of the Corporation (including properties previously owned
or leased) or any other assets of the Corporation has ever been used as a
landfill or for the disposal of waste.
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The Corporation has no knowledge of any Hazardous Substance in, on or
under the owned or leased real properties of the Corporation (including
properties previously owned or leased) at levels which exceed
decommissioning or remediation standards under any Environmental Laws or
standards published or administered by those Governmental Authorities
responsible for establishing or applying such standards.
The Corporation has no knowledge of any Hazardous Substance
originating from any neighbouring or adjoining properties which has
migrated onto, or is migrating towards any of the owned or leased real
properties of the Corporation at levels which exceed decommissioning or
remediation standards under any Environmental Laws or standards published
or administered by those Governmental Authorities responsible for
establishing or applying such standards.
ARTICLE
COVENANTS
CONDUCT OF BUSINESS OF THE CORPORATION - The Corporation covenants and
agrees that, during the period from the date of this Agreement to the time (the
"Effective Time") of the first appointment or election to the Board of Directors
of the Corporation (the "Board") of persons designated by the Purchaser, who at
the time of the designation, represent the Applicable Percentage (as defined in
Section 4.2) of the directors of the Corporation, except pursuant to the terms
hereof, or unless the Purchaser shall otherwise agree in writing, the businesses
of the Corporation and its subsidiaries shall be conducted only in, and the
Corporation and its subsidiaries shall not take any action except in, the
ordinary course of business and in a manner substantially consistent with past
practice and in compliance with applicable laws; and the Corporation and its
subsidiaries shall each use its reasonable efforts to preserve intact the
business organization of the Corporation and its subsidiaries and to preserve
the present relationships of the Corporation and its subsidiaries with
customers, suppliers and other persons with which the Corporation or any of its
subsidiaries has business relations. By way of amplification and not limitation,
neither the Corporation nor any of its subsidiaries shall, between the date of
this Agreement and the Effective Time, directly or indirectly do, or propose or
commit to do, anything which would cause any of the conditions set forth in
section 3 of Schedule "A" to not be satisfied.
BOARD OF DIRECTORS - Provided that at least a majority of the outstanding
Shares on a fully-diluted basis are acquired pursuant to the Offer, if requested
by the Purchaser, the Corporation shall, following the first take-up of and
payment for the Shares to be purchased pursuant to the Offer use all reasonable
efforts to cause the Applicable Percentage (as defined below) of directors (and
of members of each committee of the Board and members of the boards of directors
of each subsidiary) (rounded in each case to the next highest director or
member) of the Corporation to consist of persons designated or selected by the
Purchaser (whether, at the request of the Purchaser, by means of increasing the
size of the Board or seeking the resignation of directors and causing the
Purchaser's designees to be nominated for election). The "Applicable
Percentage" means the ratio of (i) the total voting power of all Shares accepted
for payment and taken up and paid for pursuant to the Offer to (ii) the total
voting power of the outstanding voting securities of the Corporation, rounded to
the nearest whole number and expressed as a percentage. The Purchaser intends
to proceed as expeditiously as is practicable to cause the
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Board of Directors of the Corporation (and the board of directors of each
subsidiary of the Corporation) to consist of persons designated or selected by
the Purchaser.
ACCESS TO INFORMATION - For the purpose resolving any issues which have
arisen during the course of the Purchaser's investigation of the business and
affairs of the Corporation, subject to the confidentiality agreement dated
February 12, 1997 between the Purchaser and the Corporation (the
"Confidentiality Agreement") following commencement of the Offer, the
Corporation shall, and shall cause its subsidiaries, officers and directors to,
and request its auditors and legal counsel to, afford the officers, employees,
auditors and other agents of the Purchaser, reasonable access at reasonable
times to its officers and facilities, as necessary, and to its books and
records, and shall furnish the Purchaser and such other persons with such
financial, operating and other data and information as the Purchaser, through
its officers, employees or agents, may from time to time reasonably request.
NO SOLICITATION - Neither the Corporation nor any of its subsidiaries
shall, nor shall it authorize or permit any of its officers, directors or
employees or any investment banker, financial adviser, lawyer, accountant or
other representative retained by it or any of its subsidiaries to initiate,
solicit or encourage any inquiries, submissions or offers as to or in connection
with the making of, or provide information to, or respond to any person making,
any offer or proposal with respect to a Transaction Proposal, provided that
nothing in this Agreement shall prohibit the board of directors of the
Corporation from (i) considering, negotiating, approving or recommending to
Shareholders, or providing information to a potential acquiror pursuant to, or
taking any necessary steps to implement any bona fide written Transaction
Proposal at a price exceeding $15.00 per Common Share which the Board determines
in good faith would, if consummated in accordance with its terms, result in a
transaction more favourable to all Shareholders than the consummation of the
Offer, or (ii) taking such action as may be required to fulfil its fiduciary or
statutory duties; PROVIDED, FURTHER, that the Board shall promptly inform the
Purchaser of the terms and conditions of such proposal and the identity of the
person making it.
FURTHER ACTION; REASONABLE BEST EFFORTS - Upon the terms and subject to the
conditions hereof, each of the parties hereto shall use its reasonable best
efforts to take, or cause to be taken, all appropriate action, and to do or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including:
cooperation in the preparation and filing of the Offer Documents and
the Directors' Circular and any required filings under the Competition Act,
and any amendments to any such filings; and
to diligently make all required regulatory filings and applications
and to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to
contracts with the Corporation and its subsidiaries as are necessary for
the consummation of the transactions contemplated by this Agreement and to
fulfil the conditions to the Offer.
PUBLIC ANNOUNCEMENTS - Prior to any announcement of a Transaction Proposal,
the
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Purchaser and the Corporation agree to consult with each other before issuing
any press release or otherwise making any public statements with respect to the
Offer. The Corporation further agrees not to make any public statements at any
time with respect to the business plans of the Purchaser for the Corporation
without the prior written consent of the Purchaser.
REGULATORY APPROVALS - The Purchaser shall, and shall cause the Offeror to
diligently pursue, all of the regulatory approvals referred to or contemplated
by paragraphs (b) and (c) of section 3 of Schedule "A" hereto, and shall keep
the Corporation informed with respect to the status of applications for all such
approvals, including providing all relevant documentation to the Corporation to
allow it to assess the status of such applications.
TAKE UP AND PAYMENT - Subject to the terms and conditions hereof, the
Purchaser agrees to cause the Offeror to take up the Common Shares deposited
under the Offer and pay for such Common Shares in accordance with applicable
Securities Laws.
INCREASE IN CONSIDERATION - The Purchaser covenants that, in the event the
Offeror increases the consideration per Common Share offered under the Offer
(but for greater certainty, excluding any greater consideration paid as a result
of any proceeding in respect of fair value under the CBCA or any other
subsequent acquisition transaction), the Offeror will pay such increased
consideration to each holder of Shares tendered, by such holder, notwithstanding
that such Common Shares have previously been taken up and paid for by the
Offeror.
ARTICLE
TERMINATION, AMENDMENT AND WAIVER
TERMINATION - This Agreement shall terminate at the Effective Time and may
be earlier terminated at any time prior to the Effective Time:
by the Corporation or the Purchaser if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within Canada or the United States, shall have issued a final order, decree
or ruling or taken any other final action restraining, enjoining or
otherwise prohibiting the Offer and such order, decree, ruling or other
action is or shall have become final and nonappealable; PROVIDED that such
right of termination shall not be available to any party if such party
shall have failed to make reasonable efforts to prevent or contest the
imposition of such injunction or action and such failure materially
contributed to such imposition;
by the Corporation if the Offer has not been made by the date
required in paragraph 1.1(a) hereof; the Offer (or any amendment thereto
other than as specifically contemplated by Schedule "A" hereto) does not
conform in all material respects with the description in Schedule "A"; or
Common Shares deposited under the Offer have not, for any reason whatsoever
been taken up and paid for on or before the earlier of (A) May 26, 1997,
and (B) 90 days after the date of mailing of the Offer to Shareholders of
the Corporation.
by the Purchaser if (i) the Offer has been terminated, withdrawn or
otherwise expires in accordance with its terms; or (ii) there shall have
been a material breach of any
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representation or warranty on the part of the Corporation contained herein;
for this purpose, a material breach is a breach that, individually or in
the aggregate, constitutes a Material Adverse Effect; (iii) there shall
have been a breach of any covenant or agreement on the part of the
Corporation contained herein which individually or in the aggregate,
constitutes a Material Adverse Effect (PROVIDED that in such case the
Purchaser shall give not less than five days prior notice to allow the
Corporation to cure any breach before exercising its right of termination);
or (iv) the Board shall have withdrawn or modified (including by amendment
of the Directors' Circular) in a manner determined by the Purchaser to be
adverse to the Purchaser or the Offeror its approval or recommendation of
the Offer, this Agreement or the transactions contemplated hereby or by the
Lock-Up Agreements or shall have approved or recommended a Transaction
Proposal, or shall have resolved to effect any of the foregoing.
EFFECT OF TERMINATION - In the event of the termination of this Agreement
pursuant to Section 5.1, this Agreement shall forthwith become void and there
shall be no liability on the part of any party hereto; PROVIDED, HOWEVER, that
nothing herein shall relieve any party from liability for any breach of any
provision of this Agreement which occurred on or before the date of such
termination. Notwithstanding the foregoing, if this Agreement is terminated,
the Corporation shall remain liable to the Purchaser pursuant to section 5.3.
The termination of this Agreement shall not affect the obligations of the
parties under the Confidentiality Agreement.
FEES AND EXPENSES - Provided that the Offer is made and is not withdrawn or
allowed to expire, other than as a result of the failure to satisfy any of the
conditions set forth in section 3 of Schedule "A" hereto, and a Transaction
Proposal is announced, commenced or made at any time prior to 90 days after the
date of mailing the Offer to the shareholders of the Corporation and is
thereafter completed (whether before or after the ninetieth day after the date
of mailing the Offer to the shareholders of the Corporation) the Corporation
will pay to the Purchaser forthwith upon the completion of such Transaction
Proposal a fee of $5,000,000. Except as otherwise set forth in this section
5.3, each party shall bear its own expenses in connection with this Agreement
and the transactions contemplated hereby.
WAIVER - At any time prior to the Effective Time, any party hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE
GENERAL PROVISIONS
NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS - The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Section
5.1, as the case may be, except as set forth in Section 5.2.
NOTICES - Any notice or other communication which may or is required to be
given
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pursuant to this Agreement shall be in writing and shall be sufficiently given
or made if delivered personally or sent by facsimile, in the case of:
the Purchaser or the Offeror, addressed as follows:
Volvo Construction Equipment N.V.
Coencoop 55
NL-2741 PH Waddinxveen
The Netherlands
Attention: The President
Telephone No.: 32 2 674 7611
Telecopy No.: 32 2 675 1532
with a copy to:
Osler, Hoskin & Harcourt
P.O. Box 50,
First Canadian Place,
Toronto, Ontario.
M5X 1B8
Attention: John F. Petch
Telephone No.: (416) 362-2111
Telecopy No.: (416) 862-6666
the Corporation, addressed as follows:
Champion Road Machinery Limited
Xerox Building, Suite 2204
180 Columbia St. W.
Waterloo, Ontario
N2L 3L3
Attention: Arthur F. Church
Telecopy No.: (519) 884-2662
Telephone No. : (519) 884-6000
with a copy to:
Sequoia Associates
3000 Sand Hill Road
Building II, Suite 140
Menlo Park, CA 94025
Telecopy No.: (415) 854-2364
Telephone No.: (415) 854-8500
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and to:
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario
M5L 1A9
Attention: Gordon Currie
Telecopy No.: (416) 863-2653
Telephone No.: (416) 863-2718
or to such other address as the relevant party may from time to time advise by
notice in writing given pursuant to this section. Any notice that is delivered
shall be deemed to be delivered on the date of delivery to such address if
delivered on a business day prior to 5:00 p.m. (local time at the place of
receipt) or on the next business day if delivered after 5:00 p.m. or on a
non-business day. Any notice telecopied shall be deemed to be delivered on the
date of transmission (for which confirmed receipt is provided to the sender) if
delivered on a business day prior to 5:00 p.m. (local time at the place of
receipt) or the next business day if delivered after 5:00 p.m. or on a
non-business day.
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION
For purposes of this Agreement, the terms defined in Schedule "B"
forming part of this Agreement shall have the meanings ascribed
thereto in Schedule "B".
The words "included", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation".
Unless otherwise specified, all references to money amounts are to
Canadian currency.
SEVERABILITY - If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
ENTIRE AGREEMENT; ASSIGNMENT - This Agreement, together with the
Confidentiality Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements
and undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of law or otherwise, except that the Purchaser may assign all or any
of its rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of AB Volvo
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(publ), PROVIDED that no such assignment shall relieve the Purchaser of its
obligations hereunder if such assignee does not perform such obligations.
TIME. Time shall be of the essence of this Agreement.
CURRENCY. All sums of money referred to in this Agreement shall mean
Canadian funds.
AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by all of the parties hereto.
COUNTERPARTS. This Agreement may be executed in one or more counterparts
which together shall be deemed to constitute one valid and binding agreement and
delivery of the counterparts may be effected by means of a telecopied
transmission. This Agreement may be executed by facsimile signature, and
execution thereby will constitute an original hereof.
GOVERNING LAW.
LAWS OF ONTARIO - This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
SUBMISSION TO JURISDICTION - The parties hereto irrevocably submit to
the non-exclusive jurisdiction of the courts of the Province of Ontario
solely in respect of the interpretation and enforcement of the provisions
of this Agreement, and in respect of the transactions contemplated herein,
and hereby waive, and agree not to assert, as a defense in any action for
the interpretation or enforcement hereof or of any such document, that it
is not subject thereto or that such action may not be brought or is not
maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any such document may not be enforced
in or by such courts, and the parties hereto irrevocably agree that final
judgment in any suit, action or proceeding brought in such a court shall be
conclusive and binding upon the parties and may be enforced in any other
court to the jurisdiction of which a party is subject by a suit upon such
judgment, provided that service of process is effected upon the parties in
a manner permitted by law; PROVIDED, HOWEVER, that the parties do not
waive, and the foregoing provisions of this clause shall not constitute or
be deemed to constitute a waiver of, (i) any right to appeal any such
judgment, to seek any stay or otherwise to seek reconsideration or review
of any such judgment or (ii) any stay of execution or levy pending an
appeal from, or a suit, action or proceeding for reconsideration or review
of, any such judgment.
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PROCEEDINGS IN OTHER JURISDICTION - Nothing in this section shall,
however, limit the right of any party to bring proceedings against any
party in the courts of any jurisdiction or jurisdictions.
IN WITNESS WHEREOF, the Purchaser and the Corporation have caused this
Agreement to be executed as of the date first written above by their respective
duly authorized officers.
VOLVO CONSTRUCTION EQUIPMENT N.V.
By:
Name:
Title:
By:
Name:
Title:
CHAMPION ROAD MACHINERY LIMITED
By:
Name:
Title:
By:
Name:
Title:
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SCHEDULE "B"
DEFINITIONS
"affiliate" has the meaning ascribed thereto in the CBCA;
"associate" has the meaning ascribed thereto in the CBCA;
"business day" shall mean a day other than a Saturday, Sunday or other day
on which commercial banks in Toronto are authorized or required by law,
regulation or executive order to close;
"Canadian generally accepted accounting principles" shall mean the
generally accepted accounting principles in Canada from time to time approved by
the Canadian Institute of Chartered Accountants;
"disclosed to the Purchaser in writing" means (i) disclosure set forth in
this Agreement, or the Corporation's filings (other than any filing made on a
confidential basis) with the Ontario Securities Commission made, and available
generally to the public, on or before the date hereof and (ii) disclosure set
forth in any written disclosure letter or notice addressed to the Purchaser and
received in the period from January 1, 1997 to February 19, 1997 by any officer
or employee of the Purchaser identified in the letter of even date herewith from
the Purchaser to the Corporation, to the extent such letter or notice on its
face discloses a specific breach of an express representation or warranty of the
Corporation in Article III of the Acquisition Agreement.
"Environment" means the environment or natural environment as defined in
any Environmental Law and includes, without limitation, air, surface, water,
ground water, land surface, soil, subsurface strata, a sewer system and the
environment in the workplace;;
"Environmental Approvals" means all permits, certificates, licences,
authorizations, consents, instructions, registrations, directions or approvals
issued or required by Governmental Authorities pursuant to Environmental Laws
with respect to the operation of the Corporation or its assets and includes,
without limitation, any sewer surcharge agreement;
"Environmental Laws" means all laws relating in full or in part to the
protection of the Environment, product liability, and employee and public health
and safety, and includes, without limitation, those Environmental Laws relating
to the storage, generation, use, handling, manufacture, processing, labelling,
advertising, sale, display, transportation, treatment, Release and disposal of
Hazardous Substances;
"Governmental Authorities" means any government, regulatory authority,
governmental department, agency, commission, board, tribunal, crown corporation,
or court or other law, rule or regulation-making entity having or purporting to
have jurisdiction on behalf of any nation, or province or state or other
subdivision thereof or
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any municipality, district or other subdivision thereof;
"Hazardous Substances" means any pollutant, contaminant, waste of any
nature, hazardous substance, hazardous material, toxic substance, dangerous
substance or dangerous good as defined, judicially interpreted or identified in
any Environmental Law;
"Material Adverse Effect" means any condition, event or development which is,
or could reasonably be expected to result in or represent, a material adverse
effect or material adverse change (or any condition, event or development
involving a prospective material adverse change) individually or in the
aggregate on or in the business, affairs, operations, assets, capitalization,
financial condition, rights, results of operations, or liabilities (including
without limitation any contingent liabilities that may arise through
outstanding, pending or threatened litigation or otherwise), whether contractual
or otherwise, of the Corporation and its subsidiaries considered as a whole
provided that none of the following shall either alone or in aggregate
constitute a Material Adverse Effect: (i) any change in general economic or
grader industry conditions; (ii) the payment by the Corporation of its regular
dividend of $0.05 per Common Share in April, 1997, (iii) payments of cash
bonuses to participants in the Corporation's employee stock option and deferred
profit sharing plans (the "Plans") in lieu of the granting of stock options and
the making of deferred profit sharing plan contributions in respect of such
Plans for the year ended December 31, 1996 in an aggregate amount not to exceed
$1.2 million, and (d) any departure from the Corporation of fewer than five of
the executive officers of the Corproation or its subsidiaires;
"Release" has the meaning prescribed in any Environmental Law and includes,
without limitation, any release, spill, leak, pumping, pouring, emission,
emptying, discharge, injection, escape, leaching, disposal, dumping, deposit,
spraying, burial, abandonment, incineration, seepage, or placement;
"Remedial Order" means any administrative complaint, direction, order or
sanction issued, filed or imposed by any Governmental Authority pursuant to any
Environmental Laws and includes, without limitation, any order requiring any
remediation or clean-up of any Hazardous Substance, or requiring that any
Release or any other activity be reduced, modified or eliminated;
"Reports" has the meaning ascribed thereto in Section 3.5; and
"Transaction Proposal" means any take-over bid, tender offer or exchange
offer other than the Offer, (which bid or offer, solely for purposes of section
5.3, is for at least a majority of the outstanding Shares on a fully diluted
basis) merger, amalgamation, plan of arrangement, reorganization, consolidation,
business combination, reverse take-over, sale of assets (other than in the
ordinary course of business), sale of securities, recapitalization, liquidation,
dissolution, winding-up, or similar transaction involving the Corporation or any
of its subsidiaries.
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LOCK-UP AGREEMENT
February 20, 1997
PRIVATE AND CONFIDENTIAL
The persons listed on
Schedule "A" hereto
Dear Sirs:
This letter agreement (the "Agreement") sets out the terms and conditions upon
which Volvo Construction Equipment N.V. (the "Purchaser") will cause a direct or
indirect wholly-owned subsidiary of AB Volvo (publ) (such subsidiary being
referred to herein as the "Offeror") to make an offer (the "Offer") on the terms
summarized in Schedule "B" forming part of this Agreement, for all of the issued
and outstanding common shares (the "Common Shares") of Champion Road Machinery
Limited (the "Corporation") including any outstanding Common Shares resulting
from the exercise of the currently outstanding options to acquire an additional
364,200 Common Shares.
This Agreement also sets out the terms and conditions of the agreement by each
of the persons listed on Schedule "A" hereto (each a "Shareholder" and
collectively, the "Shareholders") to deposit irrevocably and unconditionally
under the Offer the 3,805,048 Common Shares presently owned beneficially and of
record by such Shareholders in the aggregate and the 148,000 Common Shares in
the aggregate to be acquired upon the exercise of stock options currently
outstanding in favour of certain of such Shareholders and representing not less
than 34.3% of the outstanding Common Shares on a fully-diluted basis
(collectively, the "Shareholder Securities") and sets out the obligations and
commitments of each such Shareholder in connection therewith.
. THE OFFER
TIMING. The Purchaser agrees to cause the Offeror to make the Offer
for 100% of the Common Shares at a cash price of $15.00 per share on or before
February 27, 1997 (the "Proposed Offer Date"), provided that in the event that
the Offeror shall not have been provided with such of the lists referred to in
paragraph 3.2(b) in order to allow the Offeror to mail the Offer to holders of
Common Shares or any of the conditions in section 1.2 has not been met to the
satisfaction of the Offeror by the Proposed Offer Date, the Proposed Offer Date
shall be extended to the later of: (a) the third business day following the
obtaining of such lists and (b) the third business day following the
satisfaction of such conditions.
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CONDITIONS PRECEDENT. Notwithstanding section 1.1, the Purchaser
shall not be required to cause the Offeror to make the Offer if at the time the
Offeror proposes to make the Offer and on the Proposed Offer Date (or on any
later day on which the Offer is required to be made under section 1.1):
any of the conditions set forth in paragraphs (e) to (g) inclusive and
paragraphs (i), (k) and (l) of section 3 of Schedule "B" hereto have
not been satisfied; or
any representation or warranty of any Shareholder in section 2.1 shall
not be, as of the date made, true and correct in all material
respects, or any Shareholder shall not have performed in all material
respects any covenant or complied in all material respects with any
agreement to be performed or complied with by such Shareholder under
this Agreement on or prior to the Proposed Offer Date.
The foregoing conditions are for the sole benefit of the Purchaser and may be
waived by the Purchaser in whole or in part at any time or from time to time and
shall be deemed to have been waived by the making of the Offer by the Offeror.
. REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder
hereby severally, and not on a joint or a joint and several basis, represents
and warrants (on behalf of such Shareholder and not on behalf of or with respect
to any other Shareholder) to the Purchaser that:
if the Shareholder is a corporation, it is a corporation duly
incorporated and validly existing under the laws of its jurisdiction
of incorporation; has all necessary corporate power, authority,
capacity and right, and has received all requisite regulatory and
other approvals particular to the character or status of the
Shareholder (including any necessary approval of its respective
shareholders), to enter into this Agreement and to complete the
transactions contemplated hereby;
if the Shareholder is a trust, it is a trust duly formed and validly
existing under the laws of its jurisdiction of formation; has all
necessary power, authority, capacity and right, and has received all
requisite regulatory and other approvals particular to the character
or status of the Shareholder to enter into this Agreement, and to
complete the transactions contemplated hereby;
if the Shareholder is a partnership, it is a partnership duly formed
and validly existing under the laws of its jurisdiction of formation;
has all necessary power, authority, capacity and right, and has
received all requisite regulatory and other approvals particular to
the character or status of the Shareholder to enter into this
Agreement, and to complete the transactions contemplated hereby;
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upon the due execution and delivery of this Agreement by the Purchaser
this Agreement shall be a legally valid and binding agreement
enforceable by the Purchaser against the Shareholder in accordance
with its terms, subject, however, to the usual limitations with
respect to enforcement imposed by law in connection with bankruptcy or
similar proceedings and the availability of equitable remedies;
the Shareholder is, and at the time of deposit of the Shareholder
Securities under the Offer will be, the sole beneficial owner of the
Shareholder Securities listed opposite its name in Schedule "C" hereto
and has the unfettered ability, authorization, capacity and the
exclusive right to dispose of all such Shareholder Securities under
the Offer. The Shareholder is not a party to, bound or affected by or
subject to, any agreement, charter or by-law provision, statute,
regulation, judgment, order, decree or law which would be violated,
contravened, breached by, or under which default would occur as a
result of, the execution and delivery or performance of this Agreement
and which default, violation, contravention or breach would materially
impair or would prevent the Shareholder from consummating the
transactions contemplated hereby; the Common Shares listed in Schedule
"C" hereto opposite such Shareholder's name constitute all of the
shares or other securities in the capital of the Corporation owned
beneficially by such Shareholder on the date hereof, apart from stock
options unexercised on the date hereof disclosed in Schedule "C"
hereto and, in the case of Allen & Company Incorporated, apart from
certain shares not disclosed in Schedule "C" which are currently held
in a trading account for Allen & Company Incorporated;
the Shareholder Securities and the Common Shares issuable upon the
exercise of options held by certain of the Shareholders as set forth
in Schedule "C" (the "Option Shares") to be deposited by the
Shareholder under the Offer in accordance with this Agreement are (or,
in the case of the Option Shares, will be) beneficially owned by the
Shareholder with good and marketable title, free and clear of any and
all mortgages, liens, charges, pledges, encumbrances, claims, security
interests, restrictions or rights of others of any nature whatsoever
("Liens"), except any Lien created hereby or by the Purchaser or the
Offeror;
the Shareholder has not previously granted or agreed to grant any
proxy or other right to vote in respect of the Shareholder Securities
or entered into any voting trust, vote pooling or other agreement with
respect to the right to vote, call meetings of shareholders or give
consents or approvals of any kind as to the Shareholder Securities
except those which are no longer of any force or effect;
there is no claim, action, lawsuit, arbitration, mediation or other
proceeding pending or, to the best of the actual knowledge,
information and belief of the Shareholder, threatened against the
Shareholder, which relates to this Agreement or otherwise materially
impairs the ability of the Shareholder to consummate the
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transactions contemplated hereby; and
if the Shareholder has also executed this Agreement on behalf of
another Shareholder (the "Other Shareholder") pursuant to a power of
attorney granted by the Other Shareholder, such Shareholder has all
necessary power, authority, capacity and right to do so.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants that:
the Purchaser is, and the Offeror will be at the date of the Offer, a
corporation duly incorporated and validly existing under the laws of
its jurisdiction of incorporation;
the Purchaser has and the Offeror will have at the date of the Offer
all necessary power, authority, capacity and right, and received all
requisite approvals (other than the regulatory approvals referred to
in paragraphs (b) and (c) of section 3 of Schedule "B" hereto) to
complete the transactions contemplated by this Agreement, and in the
case of the Purchaser, to enter into this Agreement;
upon the due execution and delivery of this Agreement by each of the
Shareholders this Agreement shall be a valid and binding agreement
enforceable by the Shareholders against the Purchaser in accordance
with its terms subject however, to the usual limitations with respect
to enforcement imposed by law in connection with bankruptcy or similar
proceedings and the availability of equitable remedies;
the Purchaser is not, and the Offeror at the date of the Offer will
not be, a party to, bound or affected by or subject to, any agreement,
charter or by-law provision, statute, regulation, judgment, order,
decree or law which would be violated, contravened, breached by, or
under which default would occur as a result of, the execution and
delivery or performance of this Agreement and which default,
violation, contravention or breach would materially impair or would
prevent the Purchaser or the Offeror from consummating the
transactions contemplated hereby; and
the Offeror will have at the date of the Offer sufficient funds or
financing arrangements in place to provide sufficient funds to
purchase all Common Shares tendered under the Offer.
. COVENANTS OF THE SHAREHOLDERS
GENERAL. Each of the Shareholders hereby covenants that until the
Offeror has
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taken up and paid for the Common Shares under the Offer or terminated, withdrawn
or abandoned the Offer or this Agreement has been terminated pursuant to section
6.1, the Shareholder will:
not sell, transfer, pledge, encumber, grant a security interest in,
hypothecate or otherwise convey, directly or indirectly, the
Shareholder Securities to any person, or agree to any of the
foregoing;
not grant or agree to grant any proxy or other right to vote in
respect of the Shareholder Securities, or enter into any voting trust,
vote pooling or other agreement with respect to the right to vote the
Shareholder Securities, in each case, other than pursuant to the Offer
in accordance with the terms of this Agreement; and
not initiate, solicit or encourage any inquiries, submissions or
offers as to or in connection with the making of, or provide
information to, or respond to any person making, any offer or proposal
with respect to (i) any take-over bid, tender offer (other than the
Offer) or exchange offer, merger, amalgamation, plan of arrangement,
reorganization, consolidation, business combination, reverse
take-over, sale of assets, sale of securities, recapitalization,
liquidation, dissolution, winding-up, or similar transaction involving
the Corporation or any of its subsidiaries (each a "Transaction
Proposal"), or (ii) any acquisition of any Shareholder Securities (an
"Acquisition Proposal"), provided that nothing in this Agreement
shall:
prohibit the board of directors of the Corporation from
considering, negotiating, approving or recommending to
Shareholders, or providing information to a potential acquiror
pursuant to, any bona fide written Transaction Proposal at a
price exceeding $15.00 per Common Share which the Board
determines in good faith would, if consummated in accordance with
its terms, result in a transaction more favourable to all
Shareholders than the consummation of the Offer; or
require the Shareholder, if a director of the Corporation, to act
in his capacity as such a director other than in accordance with
his fiduciary or statutory duties as a director of the
Corporation;
notify the Purchaser and the Offeror within 24 hours of becoming aware
of and being provided with any written enquiry with regard to a
possible Transaction Proposal or a possible Acquisition Proposal and
inform the Offeror of the identity of the person making such written
enquiry and the material terms known to the Shareholder at that time
regarding such possible proposal;
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use its reasonable efforts to cause the Corporation to perform its
obligations under the acquisition agreement between the Purchaser and
the Corporation of even date herewith (the "Acquisition Agreement")
and request the Corporation to co-operate with the Offeror in the
making of all requisite regulatory filings, and to cooperate with the
Offeror in connection with any procedural matters necessary to
complete the purchase of the Common Shares; and
not do indirectly that which it may not do directly in respect of the
restrictions on its rights with respect to the Shareholder Securities
pursuant to this section 3.1 by the sale of any direct or indirect
holding company or the granting of a proxy on the shares of any direct
or indirect holding company and which would have, indirectly, any
effect prohibited by this section 3.1.
ADDITIONAL COVENANTS. Each of the Shareholders hereby covenants with
the Purchaser that until the Offeror has taken up and paid for the Common Shares
under the Offer or terminated, withdrawn or abandoned the Offer or this
Agreement has been terminated pursuant to section 6.1, the Shareholder will:
promptly notify the Offeror orally and in writing of any Material
Adverse Effect known to the Shareholder;
request the Corporation or the transfer agent(s) of the Corporation to
prepare a list of shareholders of the Corporation in accordance with
section 21 of the Canada Business Corporations Act and a list of
holders of stock options and any other rights, warrants or convertible
or exchangeable securities currently outstanding (with full
particulars as to the purchase, exercise or conversion or exercise
price and expiry date), as well as a security position listing from
each depositary, including without limitation The Canadian Depository
for Securities Limited, and deliver same to the Offeror as soon as
practicable after the execution of the Agreement and in as many days
as possible before the expiry of the statutory ten day period provided
under the aforesaid section 21 of the Canada Business Corporations
Act, and to prepare supplemental lists setting out any changes to the
aforesaid lists for each business day thereafter, and deliver same to
the Offeror; all such aforesaid deliveries to be in both printed form
and computer readable form; and
if the Shareholder is a director of the Corporation, or has a nominee
on the board of directors of the Corporation, to resign as a director
or to cause its nominee on the board of directors of the Corporation
to resign, effective at the time and in the manner requested by the
Offeror, after the Offeror takes up and pays for the Shareholder
Securities.
. COVENANTS OF THE PURCHASER
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GENERAL. The Purchaser hereby covenants to:
use, and to cause the Offeror to use, its reasonable best efforts to
successfully complete the transactions contemplated by this Agreement,
including the Offer, and in mailing or otherwise making the Offer to
holders of the Common Shares;
provide each Shareholder and the Corporation with a final copy of the
Offer, the takeover bid circular and the related letter(s) of
transmittal and notice(s) of guaranteed delivery as the same may be
amended from time to time (collectively, the "Offer Documents") to be
mailed to all shareholders. The Offeror shall file the Offer
Documents on a timely basis with the appropriate securities
commissions and other regulatory authorities in Canada and the United
States (the "Securities Authorities"). The Offer Documents, when
filed with the Securities Authorities and mailed to the Shareholders,
shall contain all information which is required to be included therein
in accordance with any applicable law, including, without limiting the
generality of the foregoing, the CANADA BUSINESS CORPORATIONS ACT (the
"CBCA"), provincial securities laws, rules, regulations and policy
statements published thereunder (the "Canadian Securities Laws") and
United States securities laws, rules, regulations and policy
statements published thereunder ("US Securities Laws"), and shall in
all material respects comply with the requirements of applicable law,
including the CBCA, Canadian Securities Laws and US Securities Laws.
The terms of the Offer shall comply with the terms of this Agreement.
In making the Offer, the Offeror shall comply in all material respects
with the provisions of applicable law, including Canadian Securities
Laws and US Securities Laws;
appoint a dealer manager in connection with the Offer and solicit
acceptances of the Offer. The dealer manager will be required to form
a soliciting dealer group comprised of members of the Investment
Dealer Association of Canada and of the stock exchanges in Canada to
solicit acceptance of the Offer in Canada and the United States; and
the Purchaser shall pursue, and shall cause the Offeror to diligently
pursue, all of the regulatory approvals referred to or contemplated by
paragraphs (b) and (c) of section 3 of Schedule "B" hereto which are
required in order to satisfy any conditions to the Offer not waived by
the Offeror.
. ACCEPTANCE OF OFFER
DEPOSIT. Each of the Shareholders hereby irrevocably and
unconditionally agrees to deposit the Shareholder Securities owned by it,
together with duly completed and executed letters of transmittal, under the
Offer as soon as practicable after the Offer has been made and, in any event, on
or before the third business day after the date of the Offer, subject however
with
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respect to the Common Shares issuable upon the exercise of the stock options
noted in Schedule "C" hereto to the receipt of the approval of The Toronto Stock
Exchange, The Montreal Exchange and NASDAQ to the acceleration of the vesting of
such stock options.
NO-WITHDRAWAL. Subject to section 6.1 hereof, each of the
Shareholders hereby irrevocably and unconditionally agrees not to withdraw or
take any action to withdraw any of the Shareholder Securities deposited under
the Offer notwithstanding any statutory rights or other rights under the terms
of the Offer or otherwise which it might have unless this Agreement is
terminated by the Shareholder in accordance with its terms prior to the taking
up of the Shareholder Securities under the Offer.
. TERMINATION
TERMINATION BY SHAREHOLDERS. Any of the Shareholders, when not in
default in performance of its obligations under this Agreement, may, without
prejudice to any other rights, terminate this Agreement by notice to the
Purchaser if:
the Acquisition Agreement has been terminated pursuant to, and in
accordance with, the provisions of paragraph (a) of section 5.1
thereof;
the Offer has not been made by the date required in section 1.1
hereof; the Offer (or any amendment thereto, other than as
specifically contemplated by Schedule "B" hereto) does not conform in
all material respects with the description in Schedule "B"; or
Common Shares deposited under the Offer have not, for any reason
whatsoever been taken up and paid for on or before the earlier of
(a) May 26, 1997 and (b) 90 days after the date of mailing of the Offer
to shareholders of the Corporation.
TERMINATION BY PURCHASER. The Purchaser, when not in default in
performance of its obligations under this Agreement, may, without prejudice to
any other rights, terminate this Agreement by notice to the Shareholders if:
the Acquisition Agreement has been terminated pursuant to, and in
accordance with, the provisions of paragraph (a) of section 5.1
thereof; or
the Offer has been withdrawn or terminated or otherwise expires in
accordance with its terms.
EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in section 6.1 or 6.2:
this Agreement shall forthwith become void; and
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there shall be no liability on the part of the Purchaser, the Offeror
or the Shareholders hereunder except that nothing contained in this
section 6.3 shall relieve any party from liability for any breach of
any provision of this Agreement which occurred on or before the date
of such termination.
. GENERAL
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Shareholders and the Purchaser contained herein shall not
survive the consummation of the Offer. No investigations made by or on behalf
of the Purchaser, the Offeror or any of their authorized agents at any time
shall have the effect of waiving, diminishing the scope of or otherwise
affecting any representation or warranty or covenant made by the Shareholders in
or pursuant to this Agreement.
DISCLOSURE. Except as required by any competent governmental or
judicial authority, none of the Shareholders shall make any public disclosure
of, or any announcement or statement with respect to, this Agreement without the
prior written approval of the Purchaser; provided, however, that this section
7.2 shall not restrict any Shareholder who is a director or officer of the
Corporation from authorizing or participating in any disclosure by the
Corporation which is in accordance with the provisions of section 4.4 and 4.6 of
the Acquisition Agreement.
ASSIGNMENT. The Purchaser may assign all or any part of its rights
under this Agreement to a direct or indirect wholly-owned subsidiary of AB Volvo
(publ), but, if such assignment takes place, the Purchaser shall continue to be
liable to the Shareholders for any default in performance by the assignee. This
Agreement shall not otherwise be assignable by any party hereto.
TIME. Time shall be of the essence of this Agreement.
CURRENCY. All sums of money referred to in this Agreement shall mean
Canadian funds.
GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable
therein.
The parties hereto irrevocably submit to the non-exclusive
jurisdiction of the courts of the Province of Ontario solely in
respect of the interpretation and enforcement of the provisions of
this Agreement, and in respect of the transactions contemplated
herein, and hereby waive, and agree not to assert, as a defense in any
action for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action may not
be brought or is not
<PAGE>
-10-
maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the parties hereto irrevocably
agree that final judgment in any suit, action or proceeding brought in
such a court shall be conclusive and binding upon the parties and may
be enforced in any other court to the jurisdiction of which a party is
subject by a suit upon such judgment, provided that service of process
is effected upon the parties in a manner permitted by law; PROVIDED,
HOWEVER, that the parties do not waive, and the foregoing provisions
of this clause shall not constitute or be deemed to constitute a
waiver of, (i) any right to appeal any such judgment, to seek any stay
or otherwise to seek reconsideration or review of any such judgment or
(ii) any stay of execution or levy pending an appeal from, or a suit,
action or proceeding for reconsideration or review of, any such
judgment.
Nothing in this section shall, however, limit the right of any party
to bring proceedings against any party in the courts of any
jurisdiction or jurisdictions.
ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between and among the parties hereto with respect to the subject
matter hereof and supersedes any prior agreement, representation or
understanding with respect thereto.
AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by all of the parties hereto.
DEFINITIONS. For the purposes of this Agreement the terms,
"Acquisition Agreement" means (i) the acquisition agreement of even
date herewith entered into between the Purchaser and the Corporation;
"disclosed to the Purchaser in writing" means (i) disclosure set forth
in this Agreement, or the Corporation's filings (other than any filing
made on a confidential basis) with the Ontario Securities Commission
made, and available generally to the public, on or before the date
hereof and (ii) disclosure set forth in any written disclosure letter
or notice addressed to the Purchaser and received in the period from
January 1, 1997 to February 19, 1997 by any officer or employee of the
Purchaser identified in the letter of even date herewith from the
Purchaser to the Corporation, to the extent such letter or notice on
its face discloses a specific breach of an express representation or
warranty of the Corporation in Article III of the Acquisition
Agreement.
"Material Adverse Effect" means any condition, event or development
which is, or could reasonably be expected to result in or represent, a
material adverse effect or material adverse change (or any condition,
event or development involving a
<PAGE>
-11-
prospective material adverse change) individually or in the aggregate
on or in the business, affairs, operations, assets, capitalization,
financial condition, rights, results of operations, or liabilities
(including without limitation any contingent liabilities that may
arise through outstanding, pending or threatened litigation or
otherwise), whether contractual or otherwise, of the Corporation and
its subsidiaries considered as a whole provided that none of the
following shall either alone or in aggregate constitute a Material
Adverse Effect: (i) any change in general economic or grader industry
conditions; (ii) the payment by the Corporation of its regular
dividend of $0.05 per Common Share in April, 1997, (iii) payments of
cash bonuses to participants in the Corporation's employee stock
option and deferred profit sharing plans (the "Plans") in lieu of the
granting of stock options and the making of deferred profit sharing
plan contributions in respect of such Plans for the year ended
December 31, 1996 in an aggregate amount not to exceed $1.2 million,
and (d) any departure from the Corporation of fewer than five of the
executive officers of the Corporation or its subsidiaries;
"subsidiary", "affiliate'' and "associate" shall have the respective
meanings ascribed thereto under the Securities Act (Ontario);
"material fact" and "misrepresentation" shall have the respective
meanings ascribed thereto in the Securities Act (Ontario); and
"Common Shares" includes any shares into which the Common Shares may
be reclassified, sub-divided, consolidated or converted and any rights
and benefits arising therefrom including any extraordinary
distributions of securities which may be declared in respect of the
Common Shares. In the event of any such reclassification, subdivision,
consolidation, conversion or extraordinary distributions, the
Shareholder acknowledges and agrees that the Offer Price shall be
correspondingly adjusted, provided that the Offer Price shall not be
adjusted downward to reflect the payment by the Corporation of its
regular dividend of $0.05 per Common Share in April, 1997.
SPECIFIC PERFORMANCE AND OTHER EQUITABLE RIGHTS. Each of the parties
recognizes and acknowledges that this Agreement is an integral part of the
transactions contemplated in the Offer, that the Purchaser would not contemplate
causing the Offer to be made and the Shareholders would not agree to the deposit
of Common Shares under the Offer unless this Agreement was executed and that a
breach by a party of any covenants or other commitments contained in this
Agreement will cause the other party to sustain injury for which it would not
have an adequate remedy at law for money damages. Therefore, each of the
parties agrees that in the event of any such breach, the aggrieved party shall
be entitled to the remedy of specific performance of such covenants or
commitments and preliminary and permanent injunctive and other equitable relief
in addition to any other remedy to which it may be entitled, at law or in
equity, and the parties further agree to waive any requirement for the securing
or
<PAGE>
-12-
posting of any bond in connection with the obtaining of any such injunctive or
other equitable relief.
NOTICES. Any notice or other communication which may or is required
to be given pursuant to this Agreement shall be in writing and shall be
sufficiently given or made if delivered personally or sent by facsimile, in the
case of:
the Purchaser or the Offeror, addressed as follows:
Volvo Construction Equipment N.V.
Coenecoop 55
NL-2741 PH Waddinxveen
The Netherlands
Attention: President
Telephone No.: + 31-182-62-21-80
Telecopy No.: + 31-182-62-21-84
with a copy to each of:
Volvo Construction Equipment S.A.
Chaussee de La Hulpe 130
B-1000 Brussels, Belgium
Attention: President
Telephone No.: + 32-2-674-7611
Telecopy No.: + 32-2-675-1532
Osler, Hoskin & Harcourt
P.O. Box 50,
First Canadian Place,
Toronto, Ontario.
M5X 1B8
Attention: John F. Petch
Telephone No.: (416) 362-2111
Telecopy No.: (416) 862-6666
any of the Shareholders, addressed as follows:
Sequoia Associates
3000 Sand Hill Road
Building II, Suite 140
<PAGE>
-13-
Menlo Park, CA 94025
Telephone No.: (415) 854-8500
Telecopy No.: (415) 854-2364
with a copy to:
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, ON M5L 1A9
Attention: Gordon A.M. Currie
Telephone No.: (416) 863-2718
Telecopy No.: (416) 863-2653
or to such other address as the relevant party may from time to time advise by
notice in writing given pursuant to this section. Any notice that is delivered
shall be deemed to be delivered on the date of delivery to such address if
delivered on a business day prior to 5:00 p.m. (local time at the place of
receipt) or on the next business day if delivered after 5:00 p.m. or on a
non-business day. Any notice telecopied shall be deemed to be delivered on the
date of transmission (for which confirmed receipt is provided to the sender) if
delivered on a business day prior to 5:00 p.m. (local time at the place of
receipt) or the next business day if delivered after 5:00 p.m. or on a
non-business day.
SEVERAL LIABILITY. It is understood and agreed that the rights and
obligations of each of the Shareholders under this Agreement shall be several
and not joint or joint and several and in no circumstances shall the action or
omission of one of the Shareholders arising in connection with this Agreement
constitute the action or omission of the other Shareholders or create any
liability whatsoever on the part of the other Shareholders or affect in any
respect the right of the other Shareholders to rely upon and enforce against the
Purchaser the provisions of this Agreement.
EXPENSES. Each of the parties shall pay its legal, financial advisory
and accounting costs and expenses incurred in connection with the preparation,
execution and delivery of this Agreement and all documents and instruments
executed or prepared pursuant hereto and any other costs and expenses whatsoever
and howsoever incurred.
BUSINESS DAY. A business day for the purpose of this Agreement shall
mean any day on which banks in the City of Toronto, Ontario are open for
business.
COUNTERPARTS. This Agreement may be executed in one or more
counterparts which together shall be deemed to constitute one valid and binding
agreement and delivery of the counterparts may be effected by means of a
telecopied transmission. This Agreement may be executed by facsimile signature,
and execution thereby will constitute an original hereof.
<PAGE>
-14-
If the terms and conditions of this letter are acceptable to you
please so indicate by executing and returning the enclosed copy hereof to the
undersigned prior to February 21, 1997, failing which this offer shall be null
and void.
Yours truly,
VOLVO CONSTRUCTION
EQUIPMENT N.V.
By:
Agreed and accepted this 20th day of February, 1997.
ALLEN & COMPANY INCORPORATED
by:
Name:
Title:
CAXTON INTERNATIONAL LIMITED
BY CAXTON ASSOCIATES LLC, ATTORNEY IN FACT
by:
Name:
Title:
Witness
HAROLD M. WIT
<PAGE>
-15-
WALSH FAMILY 1989 TRUST
by:
Name:
Title:
FERRIS FAMILY 1987 TRUST
by:
Name:
Title:
LEACH FAMILY 1980 TRUST
by:
Name:
Title:
O'BRIEN FAMILY LIMITED PARTNERSHIP
by:
Name:
Title:
R. O'BRIEN & MARY ANN O'BRIEN
REVOCABLE TRUST DATED 7/27/84
by:
Name:
Title:
<PAGE>
-16-
<PAGE>
-17-
Witness
ARTHUR F. CHURCH
Witness
DENNIS W. VOLLMERSHAUSEN
3018202 CANADA INC.
by:
Name: DENNIS W. VOLLMERSHAUSEN
Title:
<PAGE>
-18-
SCHEDULE "A"
NAMES AND ADDRESSES OF SHAREHOLDERS
Allen & Company Incorporated
Caxton International Limited
Harold M. Wit
c/o Allen & Company Incorporated
Walsh Family 1989 Trust
c/o William D. Walsh Trustee
Ferris Family 1987 Trust
Robert A. Ferris Trustee
Leach Family 1980 Trust
c/o Frank J. Leach
<PAGE>
-19-
O'Brien Family Limited Partnership
c/o R.F. O'Brien
R. O'Brien & Mary Ann O'Brien
Revocable Trust dated 7/27/84
c/o R.F. O'Brien
Arthur F. Church
Dennis W. Vollmershausen
Champion Road Machinery Limited
3018202 Canada Inc.
Attn. Richard Barracki
<PAGE>
-20-
SCHEDULE "B"
TERMS OF THE OFFER
GENERAL TERMS. The Offer shall be made by a circular bid to all
registered shareholders prepared in compliance with the Securities Act (Ontario)
and other applicable provincial securities laws and the securities laws of the
United States and the states thereof and in each case in compliance with the
rules, regulations and policy statements published thereunder. The Offer shall
expire on the 20th business day after the date of mailing of the Offer (and the
Offeror shall not take up and pay prior to such date), subject to such extension
of the expiry date and the deposit period by the Offeror in its discretion and
in accordance with applicable law as may be required to satisfy all of the
conditions set forth in section 3 below.
Upon the terms and subject to the conditions of the Offer, the Purchaser
will cause the Offeror to accept for payment, and to take up and pay for, all
Common Shares of the Corporation deposited and not withdrawn under the Offer
within the time periods prescribed by applicable securities laws.
The Purchaser shall have the right to vary the terms of the Offer solely to
effect one or more of the following:
increase the consideration offered for the Common Shares;
extend the period during which Common Shares may be deposited to the
Offer;
waive any condition of the Offer or reduce the minimum deposit
condition contained in paragraph 3(a) hereof; and
comply with applicable securities laws.
PRICE OF THE OFFER. The Offer Price shall be Cdn. $15.00 per Common
Share in cash.
CONDITIONS OF THE OFFER. The Offer shall not be subject to any
conditions other than the following:
that there are validly deposited under the Offer and not withdrawn at
the expiration thereof not less than 90% (or such lesser percentage of
the Common Shares as the Offeror shall establish in its sole
discretion in the Offer) of the Common Shares (on a fully-diluted
basis assuming that all rights to acquire Common Shares were exercised
in full) including the Common Shares deposited by the Shareholders;
<PAGE>
-21-
the Director of Investigation and Research (the "Director")
appointed under the Competition Act (Canada) shall have issued an
advance ruling certificate under section 102 of the said Act in
respect of the transaction (the "Transaction") which will result from
the Offer; or (ii) the applicable waiting period under section 123 of
the said Act shall have expired without the Director having advised
the Offeror in writing that he intends to apply to the Competition
Tribunal for an order under section 92 or section 100 of the Act in
respect of the Transaction or to commence an inquiry under section 10
of the Competition Act and no application under section 9 of the
Competition Act shall have been made in respect of the Transaction;
(i) any applicable waiting periods under the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended shall have terminated
or expired; and (ii) any applicable waiting periods under any
competition, merger control or similar law, rule, regulation, or
policy or any approval or consent of any governmental authority in
respect of competition or merger control matters having jurisdiction
over any party hereto or the Offer or any other transaction
contemplated herein, shall have terminated or expired or been
obtained, as the case may be, in respect of the Offer and such
transactions, excluding for purposes of clause (ii) hereof only,
however, any such law, rule, regulation or policy, or approval or
consent of a governmental authority, in a jurisdiction in respect of
which the Corporation derived annual revenues, directly or indirectly,
in any of the last three years representing less than 10% of the
Corporation's total revenues in any of such years;
(i) no act, action, suit or proceeding shall have been threatened or
taken before or by any domestic or foreign arbitrator, court or
tribunal or governmental agency or other regulatory authority or
administrative agency or commission by any elected or appointed public
official or private person (including, without limitation, any
individual, corporation, firm, group or other entity) in Canada or
elsewhere, whether or not having the force of law, and (ii) no law,
regulation or policy shall have been proposed, enacted, promulgated or
applied, in either case:
to cease trade, enjoin, prohibit or impose material limitations
or conditions on or make materially more costly the purchase by
or the sale to the Offeror of the Common Shares or the right of
the Offeror to own or exercise full rights of ownership over the
Common Shares or the consummation of any of the transactions
contemplated by the Offer or, solely as to paragraph 3(e)(ii), to
prevent the completion of a compulsory acquisition of the Common
Shares not deposited under the Offer or which could reasonably be
expected to have such an effect;
to prohibit or materially limit the ownership or operation by the
<PAGE>
-22-
Corporation or any of its subsidiaries, or by the Offeror or the
Purchaser, directly or indirectly, of all or any material portion
of the business or assets of the Corporation and its
subsidiaries, on a consolidated basis, or the Offeror or the
Purchaser as a result of the transactions contemplated by the
Offer or compel the Offeror or the Purchaser, directly or
indirectly, to dispose of or hold separate all or any material
portion of the business or assets of the Corporation and its
subsidiaries, on a consolidated basis, or the Offeror or the
Purchaser as a result of the transactions contemplated by the
Offer; or
which has had or would have a Material Adverse Effect;
provided, however, that in the case of any act, action, suit or
proceeding taken by a private person, the Offeror shall not be
required to consummate the Offer only if such act, action, suit or
proceeding shall have been instituted and not just threatened and
either resolved in favour of such private person as evidenced by an
order, ruling or decision by any domestic or foreign arbitrator, court
or tribunal or governmental agency or other regulatory authority or
administrative agency or commission in Canada or elsewhere, or if, in
the opinion of the Offeror, in its discretion, there is a reasonable
risk that such act, action, suit or proceeding will be so resolved in
favour of such private person;
there shall not exist any prohibition at law against the Offeror
making the Offer or taking up and paying for 100% of the Common Shares
under the Offer;
other than as has been disclosed to the Purchaser in writing by the
Corporation prior to the date of the Agreement, the Corporation or any
of its subsidiaries shall not, except with the prior written approval
of the Offeror, have authorized or proposed, or announced an intention
to do so, and shall not have entered into any agreement, arrangement
or understanding with respect to:
any action that would, individually or in the aggregate, cause a
Material Adverse Effect:
any acquisition of a material amount of assets or securities,
except in the ordinary course of its respective business;
any disposition of a material amount of assets or securities,
except in the ordinary course of its respective business;
any material change in its debt capitalization (including, but
not limited to, any material increase in the amount of its
borrowings) or any conversion of short term borrowings into long
term borrowings;
<PAGE>
-23-
any material capital expenditures, except in the ordinary course
of its respective business;
any material dealings of any nature whatsoever between it, on the
one hand, and any of the Shareholders or any of their respective
affiliates (or any insider of any of the foregoing), on the other
hand, except as specifically contemplated by this Agreement;
entering into, modifying or terminating any agreement or
arrangement with any of its senior officers or employees, except
in the ordinary course of its respective business and except for
the acceleration of the exercise time for currently outstanding
stock options as may be necessary to satisfy the condition in
paragraph (j) hereof;
any release or relinquishment of any material contractual rights,
except in the ordinary course of its respective business;
agreeing or committing to guarantee the payment of indebtedness
of a third party, other than any guarantee of subsidiary
indebtedness in the ordinary course of business;
instituting, cancelling or modifying any pension plan or other
employee benefit arrangement;
declaring or paying any dividend or declaring, authorizing or
making any distribution of or on any of its securities other than
a dividend of $0.05 per common share payable on April 12, 1997 to
shareholders of record on March 12, 1997;
the amendment of its articles or by-laws; or
the issuance or purchase or other acquisition of any shares of
its capital stock of any class or series or of securities
convertible into, or rights, warrants or options to acquire, any
such shares or other convertible securities (other than pursuant
to (A) the exercise in accordance with their current terms of
stock options currently outstanding or (B) the exercise in
accordance with the current terms of currently outstanding stock
options, as such terms may have been amended to accelerate the
exercise time thereunder in order to satisfy the condition in
paragraph (j) hereof);
any take-over bid or tender offer (including without limitation
an issuer bid or self tender offer) or exchange offer, merger,
amalgamation, plan of arrangement, reorganization, consolidation,
business combination, reverse
<PAGE>
-24-
take-over, sale of substantially all its assets, sale of
securities, recapitalization, liquidation, dissolution, winding
up or similar transaction involving the Corporation or any of its
subsidiaries or any other transaction the consummation of which
would or could reasonably be expected to impede, interfere with,
prevent or materially delay the consummation of the Offer or
which would or could reasonably be expected to materially dilute
the benefits to the Offeror and the Purchaser of the transactions
contemplated by the Offer or a compulsory acquisition or any
subsequent acquisition transaction;
there shall not have occurred (or if there shall have occurred prior
to the date hereof, there shall not have been generally disclosed or
the Purchaser shall not otherwise discover, if not previously
disclosed to the Purchaser in writing prior to the commencement of the
Offer) any Material Adverse Effect;
the Offeror shall have been provided with true copies of all documents
and shall have been given reasonably commensurate access, in a timely
manner, to all such non-public information relating to the Corporation
or any of its subsidiaries, including without limitation reasonably
commensurate access to such members of senior management of the
Corporation or any of its subsidiaries and to such of the operations
of the Corporation or any of its subsidiaries as may be given,
provided or made available by the Corporation or any of its
subsidiaries:
at any time after the announcement of the Offer, to any other
potential acquiror of the Common Shares or of a significant
portion of the assets of the Corporation or any of its
subsidiaries, or to any person considering (or seeking such
information in order to consider) any Transaction Proposal or any
Acquisition Proposal; or
at any time within 120 days prior to the announcement of the
Offer, to any person who, after the announcement of the Offer,
enters into an agreement relating to any Transaction Proposal or
any Acquisition Proposal or otherwise makes a competing offer;
on substantially the same terms and conditions as may be imposed on
such potential acquiror or person, provided that no such term or
condition shall be imposed on the Offeror that would be inconsistent
with, or render the Offeror unable to complete, the acquisition of the
Common Shares pursuant to the terms of the Offer;
the Offeror shall not become aware of any untrue statement of material
fact, or an omission to state a material fact that is required to be
stated or that is necessary to make a statement not misleading in the
light of the circumstances in which it
<PAGE>
-25-
was made and at the date it was made (after giving effect to all
subsequent filings prior to the date of this Agreement in relation to
all matters covered in earlier filings) in any document filed by or on
behalf of the Corporation with any securities commission or similar
securities regulatory authority in any of the provinces of Canada or
with the Securities and Exchange Commission prior to the date hereof,
including without limitation any annual information form, financial
statement, material change report or management proxy circular or in
any document so filed or released by the Corporation to the public on
or following the date hereof, the effect of which untrue statement or
omission constitutes a Material Adverse Effect;
all outstanding rights or entitlements of any type whatsoever to
purchase or otherwise acquire authorized and unissued Common Shares
shall have been exercised in full or irrevocably released, surrendered
and waived by the holders thereof;
(i) all representations and warranties of each of the members of the
Shareholder Group in sections 2.1 of this Agreement and corresponding
agreements with other members of the Shareholder Group (the
"Agreements") shall be, as of the date made, true and correct in all
material respects, and (ii) each member of the Shareholder Group
shall have performed in all material respects any covenant or complied
in all material respects with any agreement to be performed by it
under the Agreements; and
all representations and warranties of the Corporation in the
Acquisition Agreement shall be, as of the date made, true and correct
in all respects provided such representations and warranties shall be
deemed to be true and correct unless the failure to be true and
correct constitutes a Material Adverse Effect, and the Corporation
shall have performed in all respects any covenant or complied in all
respects with any agreement to be performed by it under the
Acquisition Agreement unless the failure to so perform or comply does
not constitute a Material Adverse Effect.
The foregoing conditions are for the exclusive benefit of the Offeror and may be
asserted by the Offeror regardless of the circumstances (including any action or
inaction by the Offeror) giving rise to such assertion or may be waived by the
Offeror in whole or in part at any time and from time to time, in its sole
discretion and shall be exclusive of any other right which the Offeror may have
under the Offer. The failure by the Offeror at any time to exercise or assert
any of the foregoing rights shall not be deemed to constitute a waiver of any
such right, the waiver of any such right with respect to particular facts or
other circumstances shall not be deemed a waiver with respect to any other facts
and circumstances and each such right shall be deemed an on-going right which
may be asserted at any time and from time to time by the Offeror. Any
<PAGE>
-26-
determination by the Offeror concerning the foregoing conditions shall be final
and binding upon all parties.
<PAGE>
-27-
SCHEDULE "C"
SHAREHOLDER SECURITIES
SHAREHOLDERS NUMBER OF SHARES NUMBER OF OPTIONS
- ------------ ---------------- -----------------
Allen & Company Incorporated 456,843 -
Caxton International Limited 530,000 -
Harold M. Wit 221,422 -
Walsh Family 1989 Trust 1,235,629 -
Ferris Family 1987 Trust 522,006 -
Leach Family 1980 Trust 103,807 -
O'Brien Family Limited Partnership 32,303 -
R. O'Brien & Mary Ann O'Brien
Revocable Trust dated 7/27/84 10,765 -
Arthur F. Church 501,922 45,000
Dennis W. Vollmershausen - 103,000
3018202 Canada Inc.
(Dennis W. Vollmershausen
holding company) 190,351 -
---------- ---------
TOTAL 3,805,048(A) 148,000(B)
<PAGE>
-1-
CONFIDENTIALITY AGREEMENT
February 12, 1997
Champion Road Machinery Limited
160 Maitland Road
Goderich, Ontario
N7A 3Y6
Dear Sirs:
Volvo Construction Equipment NV (the "Purchaser") has requested information
relating to Champion Road Machinery Limited (the "Corporation") in connection
with its possible interest in a purchase of securities of the Corporation or any
other business combination with the Corporation (each, a "Transaction"). All
information furnished to the Purchaser or any affiliate of the Purchaser or
their respective agents (including officers and directors of the Purchaser and
of affiliates of the Purchaser), representatives (including lawyers,
accountants and financial advisors) or employees (collectively,
"Representatives") which contains or reflects information which is either
non-public, confidential or proprietary in nature is hereinafter referred to as
the "Information". In consideration of the mutual covenants contained herein
(and other good and valuable consideration the receipt and adequacy of which are
hereby expressly acknowledged), the Corporation and the Purchaser agree as
follows:
PURCHASER COVENANTS
CONFIDENTIALITY - The Information will be kept confidential and shall
not, without the Corporation's prior written consent, be disclosed by
the Purchaser or by its Representatives in any manner whatsoever, in
whole or in part, and shall not be used by the Purchaser or its
Representatives other than in connection with the Purchaser's
evaluation of a possible Transaction. Moreover, the Purchaser agrees
to reveal the Information only to those of the Purchaser's
Representatives who need to know the Information for purposes of
evaluating a possible Transaction, who are informed by the Purchaser
of the confidential nature of the Information and who agree with the
Purchaser to act in accordance with the terms and conditions of this
Agreement. The Purchaser shall be responsible for any breach of this
Agreement by a Representative.
NON-DISCLOSURE - Without the prior written consent of the Corporation,
except as required by law or as is necessary for purposes of the
Purchaser formally initiating and completing a Transaction in
accordance with applicable law or making
<PAGE>
-2-
regulatory filings or submissions in preparation therefor, the
Purchaser and its Representatives will not make any public disclosure
of, or any announcement or statement with respect to, a potential
Transaction or this Agreement, including without limitation, that
discussions or negotiations are taking place or have taken place
concerning a possible Transaction involving the Purchaser and the
Corporation or its affiliates or shareholders or any of the terms,
conditions or other facts with respect to any such possible
Transaction, including the status thereof, nor disclose to any person
the fact that the Information has been made available, and, in
particular, the Purchaser shall not communicate in any manner with any
creditor of, supplier to or customer of, the Corporation or any of its
affiliates or any agents or representatives of any of the foregoing in
relation to any of the Information or any such potential Transaction.
INFORMATION - All copies of the Information, including that portion of
the Information which consists of analyses, compilations, forecasts,
studies or other documents prepared by the Purchaser or its
Representatives, will be destroyed upon the Corporation's request (and
we shall so certify).
EXCEPTION - The term Information shall not include such portions of
the Information which (i) are or become generally available to the
public other than as a result of non-authorized disclosure by the
Purchaser or its Representatives, (ii) are received from an
independent third party who, in the reasonable judgment of the
Purchaser, had obtained the information lawfully and was under no
obligation of confidentiality, (iii) were in the Purchaser's
possession before it received such Information from the Corporation,
or (iv) were independently developed by the Purchaser or on its behalf
by personnel having no access to the Information at the time of
independent development.
NO WARRANTY - The Purchaser acknowledges that none of the Corporation
or its affiliates, agents or advisors makes any express or implied
representation or warranty as to the accuracy or completeness of the
Information, and each of such parties expressly disclaims any and all
liability that may be based on the Information, errors therein or
omissions therefrom. The Purchaser agrees that it is not entitled to
rely on accuracy or completeness of the Information and that it shall
be entitled to rely solely on the representations and warranties made
to it in any final agreement regarding a Transaction.
REQUIRED DISCLOSURE - In the event that the Purchaser or anyone to
whom the Purchaser transmits the Information pursuant to this
Agreement become legally compelled to disclose any of the Information,
the Purchaser will provide the Corporation with prompt notice so that
the Corporation may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Agreement.
In the event that such protective order or other remedy is not
obtained, or that the Corporation waives compliance with the provisions
of this
<PAGE>
-3-
Agreement, the Purchaser will furnish only that portion of the
Information which it is advised by counsel is legally required and
shall seek assurances that such Information so disclosed shall be
accorded confidential treatment.
NON-SOLICITATION OF EMPLOYEES - The Purchaser agrees that, without the
Corporation's prior written consent, it will not for a period of two
years from the date hereof directly or indirectly solicit for
employment or employ any of the persons listed on Schedule "A" hereto
who is employed by the Corporation or one of its subsidiaries at the
time of such solicitation.
STANDSTILL/NO ACQUISITION OF INTERESTS - The Purchaser and its
associates and affiliates do not own (beneficially or otherwise) any
securities of the Corporation at the date hereof. The Purchaser
agrees that neither the Purchaser nor any of its associates or
affiliates will directly, indirectly or jointly or in concert with any
other person purchase, offer or agree to purchase or enter into any
option to purchase any shares or assets of the Corporation or of any
of the Corporation's affiliates or enter, offer or agree to enter into
any acquisition or other business combination transaction relating to
the Corporation or any of its affiliates, or propose any of the
foregoing, unless such purchase, transaction, offer, agreement or
proposal (i) shall have been previously approved by the Board of
Directors of the Corporation, (ii) constitutes an offer to all holders
of outstanding common shares of the Corporation to acquire all or any
of the outstanding common shares from holders who accept such offer on
a pro rata basis or acquisitions pursuant thereto, (iii) is in
response to an offer by a party unrelated to the Purchaser to acquire
in excess of 50% of the outstanding common shares of the Corporation
by formal take-over bid or tender offer, or by merger, statutory
arrangement, amalgamation or otherwise or to enter into any other
business combination transaction involving the Corporation, or
(iv) constitutes an offer, proposal or agreement with a shareholder or
shareholders of the Corporation to acquire shares of the Corporation
pursuant to the offer contemplated by clause (ii) hereof or in
response to any offer by a party unrelated to the Purchaser
contemplated by clause (iii) hereof.
CORPORATION NON-DISCLOSURE - Except as required by any competent
governmental or judicial authority or, on the advice of counsel, as
required to comply with the rules of any applicable stock exchange, the
Corporation shall not make any public disclosure of or disclosure to any
person of, or any announcement or statement with respect to, a potential
Transaction or this Agreement, including without limitation, that
discussions or negotiations are taking place or have taken place concerning
a possible Transaction involving the Purchaser and the Corporation or its
affiliates or shareholders or any of the terms, conditions or other facts
with respect to any such possible Transaction, including the status
thereof, without the prior written approval of the Purchaser. The
Corporation will make every effort to assure confidential treatment of the
identity of the Purchaser
<PAGE>
-4-
and, in the event that the Corporation becomes legally compelled to, or any
applicable stock exchange requires or requests the Corporation to, identify
the Purchaser in the context of a potential Transaction or discussions or
negotiations related thereto, the Corporation shall not do so before first
making every effort to provide the Purchaser with the opportunity to
negotiate or seek a legal remedy so as to keep confidential the identity of
the Purchaser.
SEVERABILITY - Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction only, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
GOVERNING LAW - This Agreement shall be governed and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
REMEDIES - The parties acknowledge that disclosure of the Information may
cause significant damage and harm to the Corporation and its affiliates and
subsidiaries and that disclosure in contravention of subsection 1(b) or
section 2 hereof may cause significant damage and harm to the Corporation
or the Purchaser, respectively, and that remedies at law may be inadequate
to protect against breach of this Agreement, and each party hereby in
advance agrees to the granting of injunctive relief in favour of the other
party without proof of actual damages, in addition to any other remedy to
which the other party may be entitled.
<PAGE>
-5-
SURVIVAL - The confidentiality and non-use obligations described in this
Agreement shall terminate 18 months from the date of this Agreement.
WAIVER - It is further understood and agreed that no failure or delay by
either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of
any right, power or privilege hereunder.
NON-ASSIGNMENT - Any assignment of this Agreement by either party without
the prior written consent of the other party shall be void.
ENTIRE AGREEMENT - This Agreement contains the entire agreement between the
parties concerning confidentiality of the Information, and no modification
of this Agreement or waiver of the terms and conditions hereof shall be
binding upon either party, unless approved in writing by each of the
parties.
COUNTERPARTS - This Agreement may be executed and delivered in
counterparts, each of which when executed and delivered shall be deemed to
be an original and both of which together shall be deemed to constitute one
and the same instrument.
If the terms and conditions of this letter are acceptable to the Corporation
please so indicate by executing and returning the enclosed copy hereof to the
undersigned prior to February 13, 1997.
Yours truly,
VOLVO CONSTRUCTION EQUIPMENT NV
By:
Michael J. Mudler
Senior Vice-President
Finance and Administration
Agreed and accepted this 12 day of February, 1997.
CHAMPION ROAD MACHINERY LIMITED
By:
<PAGE>
-6-
SCHEDULE "A"
OFFICERS
- --------
Art Church
Scott Hall
Dennis Vollmershausen
Dave Million
Kelly Majeskie
Wayne Mason
Bill Legge
Paul Perras
Dave Ross
OTHER
- -----
Scotty Kirkwood
Alan MacNamara
Ernie Palango
Ed Gooyers
Dave Harburn
Nibaldo Urzua
Scott Fisher
Hugh Latimer
Geoff Bedford
Tony Lopes
Mark Glassford
Denis Kuperschmidt
Bill Fritzley
<PAGE>
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. INQUIRIES
CONCERNING THE INFORMATION IN THIS DOCUMENT SHOULD BE DIRECTED TO CHAMPION ROAD
MACHINERY LIMITED TO THE ATTENTION OF SCOTT E. HALL, VICE-PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER AT (519) 884-6000.
[LOGO]
CHAMPION ROAD MACHINERY LIMITED
DIRECTORS' CIRCULAR
RELATING TO THE OFFER BY VCE ACQUISITION INC., A SUBSIDIARY OF
VOLVO CONSTRUCTION EQUIPMENT N.V.
TO PURCHASE ALL OF THE COMMON
SHARES OF
CHAMPION ROAD MACHINERY LIMITED
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF COMMON SHARES
ACCEPT THE OFFER
February 24, 1997
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
160 MAITLAND ROAD
GODERICH, ONTARIO
N7A 3Y6
DIRECTORS' CIRCULAR
This Directors' Circular is issued by the Board of Directors (the "Board")
of Champion Road Machinery Limited (the "Company" or "Champion") in connection
with the offer (the "Offer") made February 24, 1997 by VCE Acquisition Inc. (the
"Offeror"), a direct wholly-owned subsidiary of Volvo Construction Equipment
Corporation N.V. ("Volvo Construction Equipment"), to purchase for cash all of
the outstanding common shares of the Company (including common shares of the
Company issuable upon exercise of outstanding stock options) (collectively the
"Shares") upon the terms and conditions set forth in the Offer and accompanying
circular (the "Offering Circular") of the Offeror dated February 24, 1997. The
Offering Circular indicates that the Offer price is $15.00 per Share (the "Offer
Price").
The terms and conditions of the Offer, the method of acceptance of the Offer
and other information relating to the Offer, the Company, Volvo Construction
Equipment and the Offeror are set out in the Offer and the Offering Circular,
the Letter of Transmittal and the Notice of Guaranteed Delivery which accompany
the Offer.
All currency amounts in this document are expressed in Canadian dollars
unless otherwise indicated.
RECOMMENDATION OF THE BOARD
The Board has considered the Offer and reviewed it with ScotiaMcLeod Inc.,
its financial advisor. The Board is of the view that the Offer is fair to the
shareholders of the Company.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER.
REASONS FOR RECOMMENDATION OF THE BOARD
After considering the Offer and other matters it considered relevant, the
Board unanimously resolved to recommend to the holders of the Shares that they
accept the Offer.
In arriving at that conclusion, the Board relied upon and considered, among
other things, the following:
1. the Offer Price represents a premium of $6.60 or approximately 78.3%
over the average closing price of the Shares reported on The Toronto
Stock Exchange for the 20 trading days ended February 18, 1997, the last
full trading day prior to the cessation of trading in the Shares pending
the public announcement of the Offer;
2. the Fairness Opinion of ScotiaMcLeod Inc. described below and a copy of
which is attached hereto as Appendix A, to the effect that as of the date
of the Fairness Opinion the Offer is fair, from a financial point of
view, to the Company's shareholders;
3. the fact that holders of Shares aggregating 34.3% of the outstanding
Shares on a fully diluted basis have agreed with Volvo Construction
Equipment to tender all of such Shares under the Offer;
4. that the Offer is for all the Shares;
5. the financial condition, results of operations, business and prospects
of the Company;
6. information regarding the industry in which the Company operates and the
financial, operating and stock price history of the Company in comparison
to selected comparable companies including certain of the Company's
competitors;
7. consideration of other possible acquirors of the Company;
8. that the Acquisition Agreement described under "Agreements with Volvo
Construction Equipment" is structured to permit the Company, upon
determination of the Board that such action would further the
<PAGE>
best interests of the shareholders of the Company, to respond to any
unsolicited written Transaction Proposal (as hereinafter defined) at a
price exceeding $15.00 per Share and to furnish information to and
negotiate with any such party;
9. the terms and conditions of the Acquisition Agreement, including that
Volvo Construction Equipment could, under certain circumstances, be
entitled to a termination fee of $5,000,000;
10. that the Offer is not subject to a financing condition; and
11. that the Company would have access to Volvo Construction Equipment's
technology and componentry, research and development resources and
distribution in the markets where Volvo Construction Equipment is strong.
Shareholders should nevertheless consider the Offer carefully and come to
their own decision as to acceptance or rejection of the Offer. Shareholders who
are in doubt as to how to respond to the Offer should consult their investment
dealer, stockbroker, chartered accountant, lawyer or other professional advisor.
BACKGROUND TO THE OFFER
On January 6 and January 7, 1997, representatives of Volvo Construction
Equipment met with representatives of the Company, including Arthur Church and
Dennis Vollmershausen, the President and Executive Vice-President of the
Company, respectively, to pursue earlier discussions between the parties as to
the appointment of Volvo Construction Equipment as the Company's exclusive
distributor in Brazil. At the conclusion of these meetings, the possibility of a
joint venture arrangement or other distribution agreements between the parties
was introduced. In separate discussions, Bengt Ovlinger, the President and Chief
Executive Officer of Volvo Construction Equipment, raised with Arthur Church the
possibility of Volvo Construction Equipment acquiring Champion. Champion's
officers subsequently agreed to visit Volvo Construction Equipment's facilities
in Sweden on January 28, 1997.
William Walsh (Chairman of the Board of Champion), Arthur Church and other
representatives of the Company met with representatives of Volvo Construction
Equipment in Eskilstuna, Sweden from January 28, 1997 to January 30, 1997 to
discuss Volvo Construction Equipment's business and tour certain facilities. A
possible acquisition transaction was discussed generally by the parties on
January 30, 1997. Sten Langenius, Executive Chairman of Volvo Construction
Equipment and Executive Vice-President of AB Volvo (publ) (parent company of
Volvo Construction Equipment) and William Walsh pursued the possibility of an
acquisition of the Company by Volvo Construction Equipment and discussed Mr.
Walsh's initial views as to the pricing of such an acquisition.
The Company's representatives returned to Canada, and representatives of
Volvo Construction Equipment, together with its financial advisors, continued to
review publicly available information regarding the business of the Company and
to consider a potential acquisition.
Mr. Langenius continued discussions with Mr. Walsh on February 5 through
February 7, 1997 culminating in a general concurrence on a range of prices at
which Mr. Walsh might recommend the sale of the Shares controlled by Mr. Walsh,
all subject to Volvo Construction Equipment's need to complete a due diligence
investigation of the Company, obtain the approval of the Company's Board of
Directors and to reach agreement with a significant number of the Company's
shareholders to the effect that they would tender their Shares into an offer by
Volvo Construction Equipment for all of the Company's outstanding shares.
It was agreed that Volvo Construction Equipment representatives would travel
to Toronto to pursue the discussions between Messrs. Langenius and Walsh. On
February 7, 1997, on being advised that Volvo Construction Equipment was
seriously considering an offer to acquire all the Shares, the Company retained
ScotiaMcLeod Inc. ("ScotiaMcLeod") to act as its financial advisor in connection
with the Offer.
Following discussions between Michael J. Mudler and Haken Jonssen, the
Senior Vice-President Finance and Administration and Vice-President and General
Counsel of Volvo Construction Equipment, respectively, and representatives of
the Company, it was agreed that the Company should, at its regularly scheduled
Board meeting to be held February 12, 1997, consider granting Volvo Construction
Equipment access to the Company and its books and records for due diligence
purposes. At that Board meeting, the Board approved such access and
2
<PAGE>
authorized the Company to enter into a confidentiality agreement with Volvo
Construction Equipment for such purpose.
At the February 12, 1997 Board meeting, the Board also ratified and approved
the appointment of ScotiaMcLeod as the Company's financial advisor in connection
with the Offer. ScotiaMcLeod was retained to provide advice with respect to the
Offer and its fairness to holders of Shares. ScotiaMcLeod is familiar with the
Company, having provided certain investment banking services to the Company from
time to time and acted as co-underwriter of the Company's initial public and
secondary offering of common shares in 1994. For its services in connection with
the Offer and the Fairness Opinion described below, ScotiaMcLeod will be paid a
fee. The fee is not in any way contingent upon the result of the Fairness
Opinion or the success of the Offer, and ScotiaMcLeod has no financial interest
in the Offer.
On February 12, 1997, the Company entered into a confidentiality agreement
with Volvo Construction Equipment under which Volvo Construction Equipment
agreed to keep confidential certain information to be made available to it
relating to the Company. Volvo Construction Equipment also agreed not to acquire
any common shares of the Company without the approval of the Board, unless the
acquisition was pursuant to an offer made to all shareholders or in response to
a competing acquisition transaction. Following the execution of the
confidentiality agreement, Volvo Construction Equipment representatives
continued their due diligence review of the Company.
The Lock-Up Agreement with certain shareholders of the Company and the
Acquisition Agreement between Volvo Construction Equipment and the Company, each
of which is described herein under "Agreements with Volvo Construction
Equipment", were negotiated during the period from February 10 to February 20,
1997 and were ultimately executed on February 20, 1997. During this period, the
parties agreed to the price of $15.00 per Share to be offered by Volvo
Construction Equipment, through the Offeror, under the Offer, subject to the
approval of the board of directors of AB Volvo (publ) and the Company's Board.
The Company understands that at a meeting of the board of directors of AB
Volvo (publ) held on February 19, 1997, the making of the Offer was approved.
On February 19, 1997, the Board met and reviewed, with the assistance of
their financial and legal advisors, the terms of the Offer. At the meeting, the
Board received reports from management and an opinion from ScotiaMcLeod as to
the fairness of the Offer (the "Fairness Opinion"). ScotiaMcLeod has stated that
in its opinion the Offer is fair, from a financial point of view, to the holders
of Shares. A copy of the Fairness Opinion is attached to this Directors'
Circular as Appendix A. At the February 19, 1997 Board meeting, the Board
unanimously resolved to recommend to the holders of Shares that they accept the
Offer. The Board reviewed drafts of the Acquisition Agreement and this
Directors' Circular and authorized the execution thereof on behalf of Champion
by the directors and officers of the Company. Subsequent to the Board meeting,
the Acquisition Agreement and Lock-Up Agreement were executed and public
announcements were made by each of Volvo Construction Equipment and the Company
as to the Offer and the Board's recommendation in respect thereof.
SHAREHOLDERS SHOULD CAREFULLY REVIEW AND CONSIDER THE FAIRNESS OPINION IN
ITS ENTIRETY.
QUARTERLY DIVIDEND DECLARED FEBRUARY 12, 1997
On February 12, 1997, the Board approved a quarterly dividend of $0.05 per
Share, payable on April 2, 1997 to shareholders of record as of March 12, 1997.
The Offer Price will not be reduced by virtue of this quarterly dividend
payment.
AGREEMENTS WITH VOLVO CONSTRUCTION EQUIPMENT
THE ACQUISITION AGREEMENT
On February 20, 1997, the Company entered into an agreement with Volvo
Construction Equipment (the "Acquisition Agreement") pursuant to which Volvo
Construction Equipment agreed to cause the Offeror to make the Offer. The
Acquisition Agreement provides that the Offeror will offer to acquire all of the
outstanding Shares, including all common shares of the Company that may be
outstanding pursuant to the exercise of outstanding stock options under the
Company's Stock Option Plan (the "Plan"), at a price of $15.00 per Share.
3
<PAGE>
Pursuant to the Acquisition Agreement, the Company has agreed:
(a) to carry on its business in the ordinary course;
(b) provided that at least a majority of the outstanding Shares on a fully
diluted basis are acquired pursuant to the Offer, to use all reasonable
efforts to cause the Board and any committees thereof to consist of the
number of Volvo Construction Equipment nominees proportionate to the
Offeror's percentage voting power in the Company (the "Applicable
Percentage);
(c) to provide to the Purchaser reasonable access to the Company's officers,
facilities, books and records for the purpose of resolving any issues
which have arisen during the course of Volvo Construction Equipment's
diligence investigation;
(d) not to, and not to authorize or permit any of its officers, directors or
employees or any investment banker, financial adviser, lawyer, accountant
or other representative retained by it or any of its subsidiaries to,
initiate, solicit or encourage any inquiries, submissions or offers as to
or in connection with the making of, or provide information to, or
respond to any person making, any offer or proposal with respect to a
take-over bid, tender offer or exchange offer (other than the Offer),
merger, amalgamation, plan of arrangement, reorganization, consolidation,
business combination, reverse take-over, sale of assets (other than in
the ordinary course of business), sale of securities, recapitalization,
liquidation, dissolution, winding-up or similar transaction involving the
Company or any of its subsidiaries (each, a "Transaction Proposal");
provided, however, that the Board may (i) consider, negotiate, approve or
recommend to shareholders, or provide information to a potential acquiror
pursuant to, or take any necessary steps to implement any BONA FIDE
written Transaction Proposal at a price exceeding $15.00 per Share which
the Board determines in good faith would, if consummated in accordance
with its terms, result in a transaction more favourable to all
shareholders than the consummation of the Offer, or (ii) take such action
as may be required to fulfil its fiduciary or statutory duties; provided
further that the Board shall promptly inform Volvo Construction Equipment
of the terms and conditions of any such Transaction Proposal and the
identity of the person making it; and
(e) provided that the Offer is not withdrawn or allowed to expire, other
than as a result of the failure to satisfy any of its conditions, and a
take-over bid, tender offer or exchange offer (other than the Offer) for
at least a majority of the outstanding Shares on a fully diluted basis,
merger, amalgamation, plan of arrangement, reorganization, consolidation,
business combination, reverse take-over, sale of assets (other than in
the ordinary course of business), sale of securities, recapitalization,
liquidation, dissolution, winding-up, or similar transaction involving
the Company or any of its subsidiaries is announced, commenced or made at
any time prior to 90 days after the date of mailing of the Offer and is
thereafter completed, to pay Volvo Construction Equipment forthwith upon
completion of any such transaction a fee of $5,000,000.
The Acquisition Agreement terminates automatically when Volvo Construction
Equipment nominees representing the Applicable Percentage are first elected to
the Board and may be terminated prior to such time: (i) by the Company or Volvo
Construction Equipment, if any court of competent jurisdiction or other
governmental body located or having jurisdiction within Canada or the United
States shall have issued a final order, decree or ruling or taken any other
final action restraining, enjoining or otherwise prohibiting the Offer and such
order, decree, ruling or other action is or shall have become final and
non-appealable; (ii) by the Company, if the Shares deposited under the Offer
have not, for any reason whatsoever, been taken up and paid for on or before the
earlier of (a) May 26, 1997; and (b) 90 days after the date of mailing of the
Offer; or (iii) by Volvo Construction Equipment, if (a) the Offer has been
terminated, withdrawn or otherwise expires in accordance with its terms, (b)
there is a material breach of any representation or warranty of the Company in
the Acquisition Agreement or a breach of any covenant of the Company in the
Acquisition Agreement which, in either case, is or could reasonably be expected
to result in or represent a material adverse effect or material adverse change
individually or in the aggregate on the business, affairs, operations, assets,
capitalization, financial condition, rights, results of operations or
liabilities, whether contractual or otherwise, of the Company and its
subsidiaries considered as a whole, or (c) the Board shall have withdrawn or
modified its approval or recommendation of the Offer or shall have approved or
recommended another Transaction Proposal.
4
<PAGE>
THE LOCK-UP AGREEMENT
Each of the Walsh Family 1989 Trust, the Ferris Family 1987 Trust, the Leach
Family 1980 Trust, Arthur F. Church, the O'Brien Family Limited Partnership, the
R. O'Brien & Mary Ann O'Brien Revocable Trust dated 7/24/84, Dennis W.
Vollmershausen, 3018202 Canada Inc., Allen & Company Incorporated, Harold M. Wit
and Caxton International Limited (collectively, the "Depositing Shareholders"),
holding in aggregate 3,805,048 Shares and in aggregate 148,000 options to
purchase Shares, totalling in aggregate 34.3% of the outstanding Shares on a
fully diluted basis, has agreed, pursuant to a Lock-Up Agreement dated February
20, 1997 between the Depositing Shareholders and Volvo Construction Equipment
(the "Lock-Up Agreement"), to deposit all Shares (including any Shares that may
be outstanding pursuant to the exercise of outstanding options under the Plan)
beneficially owned by each of them under the Offer within three business days
after the date of the Offer. Such Shares will remain on deposit until they are
taken up and paid for by the Offeror pursuant to the Offer or until the Lock-Up
Agreement is terminated.
Any Depositing Shareholder, when not in default in performance of its
obligations under the Lock-Up Agreement, may terminate its obligations under the
Lock-Up Agreement if (i) the Acquisition Agreement is terminated by the Company
or Volvo Construction Equipment by reason of any court of competent jurisdiction
or other governmental body located or having jurisdiction within Canada or the
United States having issued a final order, decree or ruling or having taken any
other final action restraining, enjoining or otherwise prohibiting the Offer and
such order, decree, ruling or other action having become final and
non-appealable, or (ii) if the Shares deposited under the Offer have not, for
any reason whatsoever, been taken up and paid for on or before the earlier of
(a) May 26, 1997 and (b) 90 days after the date of mailing of the Offer.
Pursuant to the Lock-up Agreement, each Depositing Shareholder has agreed:
(a) not to sell, transfer, pledge, encumber, grant a security interest in,
hypothecate or otherwise convey, directly or indirectly, its Shares to
any person, or agree to any of the foregoing;
(b) not to grant or agree to grant any proxy or other right to vote in
respect of its Shares, or enter into any voting trust, vote pooling or
other agreement with respect to the right to vote its Shares, in each
case, other than pursuant to the Offer in accordance with the terms of
the Lock-up Agreement;
(c) not to initiate, solicit or encourage any inquiries, submissions or
offers as to or in connection with the making of, or provide information
to, or respond to any person making, any offer or proposal with respect
to (i) any Transaction Proposal, or (ii) any acquisition of any of its
Shares (an "Acquisition Proposal"), provided that nothing in the Lock-up
Agreement shall (a) prohibit the Board from considering, negotiating,
approving or recommending to shareholders, or providing information to a
potential acquiror pursuant to, any BONA FIDE written Transaction
Proposal at a price exceeding $15.00 per Share which the Board determines
in good faith would, if consummated in accordance with its terms, result
in a transaction more favourable to all shareholders than the
consummation of the Offer, or (b) require the Depositing Shareholder, if
a director of the Company, to act in his capacity as such a director
other than in accordance with his fiduciary or statutory duties as a
director of the Company; and
(d) to notify Volvo Construction Equipment and the Offeror within 24 hours
of becoming aware of and being provided with any written enquiry with
regard to a possible Transaction Proposal or a possible Acquisition
Proposal and inform the Offeror of the identity of the person making such
written enquiry and the material terms known to the Depositing
Shareholder at that time regarding such possible prosposal.
BOARD OF THE COMPANY
The members of the Board of Champion are William D. Walsh, Robert A. Ferris,
Arthur F. Church, J. Frank Leach, Richard W. LeVan, Ronald A. McKinlay, Raymond
F. O'Brien, David J. Sharpless and Dennis W. Vollmershausen.
5
<PAGE>
OWNERSHIP OF SHARES OF CHAMPION BY DIRECTORS AND OFFICERS
The following table sets forth the number and percentage of Shares of the
Company (excluding stock options) owned, or over which control or direction is
exercised, by each director and senior officer of the Company and by each
associate thereof. The number of Shares (excluding those issuable upon the
exercise of outstanding stock options) owned by the following directors and
officers of the Company aggregates 2,777,592 representing approximately 24.9% of
the outstanding Shares on an undiluted basis. No securities of the Company are
owned, directly or indirectly, or controlled by any person acting jointly or in
concert with the Company.
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF SHARES
OWNED OR OVER WHICH CONTROL OR
DIRECTORS POSITION WITH THE COMPANY DIRECTION IS EXERCISED
- ----------------------------------------- ------------------------------------------ -------------------------------
<S> <C> <C> <C>
William D. Walsh(1)...................... Chairman of the Board 1,235,629 11.1%
Robert A. Ferris(2)...................... Secretary and Director 522,006 4.7%
Arthur F. Church(3)...................... President, Chief Executive Officer and 510,622 4.6%
Director
Colleen Church......................... (Associate of Arthur F. Church) 76,140 LESS THAN1%
J. Frank Leach(4)........................ Director 103,807 LESS THAN1%
Richard W. LeVan......................... Director Nil -
Ronald A. McKinlay....................... Director 6,091 LESS THAN1%
Raymond F. O'Brien(5).................... Director 43,068 LESS THAN1%
David J. Sharpless....................... Director Nil -
Barbara Sharpless...................... (Associate of David J. Sharpless) 1,500 LESS THAN1%
Dennis W. Vollmershausen(6).............. Executive Vice-President and Director 190,351 1.7%
SENIOR OFFICERS
- -----------------------------------------
Scott E. Hall............................ Vice-President, Finance and Chief 2,586 LESS THAN1%
Financial Officer
Mary Lazarevich........................ (Associate of Scott E. Hall) 10,300 LESS THAN1%
William J. Legge......................... Vice-President, Operations 1,300 LESS THAN1%
Motor Grader Division
Kalvin A. Majeskie....................... Vice-President and General Manager Pro-Pav Nil -
Division
Wayne D. Mason........................... Vice-President and General Manager 69,627 LESS THAN1%
Champion Road Machinery Sales Ltd.
David R. Million......................... Vice-President and General Manager 35,225 LESS THAN1%
Cambridge Division
Paul T. Perras........................... Vice-President, Manufacturing Cambridge 6,140 LESS THAN1%
Division
David A. Ross............................ Vice-President, Engineering 51,140 LESS THAN1%
Motor Grader Division
</TABLE>
- ------------------------------
(1) Mr. Walsh exercises control or direction over the Walsh Family 1989 Trust, a
party to the Lock-Up Agreement.
(2) Mr. Ferris exercises control or direction over the Ferris Family 1987 Trust,
a party to the Lock-Up Agreement.
(3) Mr. Church is a party to the Lock-Up Agreement.
(4) Mr. Leach exercises control or direction over the Leach Family 1980 Trust, a
party to the Lock-Up Agreement.
(5) Mr. O'Brien exercises control or direction over the O'Brien Family Limited
Partnership and the R. O'Brien & Mary Ann O'Brien Revocable Trust dated
7/24/84, both of which are parties to the Lock-Up Agreement.
(6) Mr. Vollmershausen exercises control or direction over 3018202 Canada Inc.
Both Mr. Vollmershausen and 3018202 Canada Inc. are parties to the Lock-Up
Agreement.
To the knowledge of the Board, no director or officer of the Company intends
to purchase Shares during the period of time that the Offer remains open.
6
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES OF THE COMPANY
To the knowledge of the Board, after reasonable inquiry, no person or
company beneficially owns or exercises control or direction over or holds more
than 10% of the Shares on an undiluted basis, other than as set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OWNED OR OVER WHICH
CONTROL OR DIRECTION PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON SHARES IS EXERCISED OUTSTANDING SHARES
- ----------------------------------------------------------------------------- -------------------- ------------------
<S> <C> <C>
Walsh Family 1989 Trust...................................................... 1,235,629 11.1%
Caisse de Depot et placement du Quebec....................................... 1,126,000 10.1%
</TABLE>
ACCEPTANCE OF OFFER
Certain members of the Board and certain of their associates have agreed to
deposit, in aggregate, 2,744,783 Shares owned by them or over which they
exercise control or direction under the Offer. See "Agreements with Volvo
Construction Equipment -- The Lock-Up Agreement".
In addition, to the knowledge of the Board, each of the other directors and
senior officers of Champion and their respective associates who own Shares
intend to deposit under the Offer all Shares owned by such person, and, to the
knowledge of the Board, each director and senior officer who holds options to
purchase Shares under the Plan intends to exercise all options held by such
person to acquire Shares and thereafter deposit to the Offer all Shares so
owned.
PRICE RANGE AND TRADING VOLUME OF SHARES
The Shares are listed and posted for trading in Canada under the symbol
"CHN" on The Toronto Stock Exchange (the "TSE") and the Montreal Exchange (the
"ME"). The Shares also trade in the United States in the over-the-counter market
and prices are quoted on the National Association of Securities Dealers
Automated Quotation National Market System (the "Nasdaq-NMS") under the symbol
"CRMLF". The approximate volume of trading and price ranges of the Shares on
each of the TSE, the ME and the Nasdaq-NMS, according to published sources, are
set forth in the following table for the periods indicated:
<TABLE>
<CAPTION>
TSE ME
------------------------------- -------------------------------
TRADING TRADING
HIGH LOW CLOSE VOLUME HIGH LOW CLOSE VOLUME
$ $ $ (100'S) $ $ $ (100'S)
------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
1st Quarter.................. 11.625 10.125 11.000 1,295 11.625 10.125 11.125 781
2nd Quarter.................. 13.625 10.750 13.500 5,795 13.750 11.000 13.500 1,008
3rd Quarter.................. 14.000 12.375 13.000 1,910 14.000 12.375 13.000 2,886
4th Quarter.................. 13.500 9.000 9.375 6,115 13.500 8.500 9.125 3,961
1996
1st Quarter.................. 11.250 8.875 10.375 5,798 11.250 8.750 10.375 1,270
2nd Quarter.................. 10.500 8.800 8.800 4,879 10.500 8.850 8.850 4,375
July......................... 9.000 7.150 8.100 2,974 8.850 7.250 7.900 2,093
August....................... 8.200 7.000 8.000 856 8.050 7.000 7.800 1,232
September.................... 8.750 7.550 8.750 4,726 9.750 7.600 8.750 449
October...................... 9.000 8.000 8.150 1,674 8.950 8.000 8.200 1,627
November..................... 8.900 8.250 8.500 1,024 8.900 8.300 8.400 102
December..................... 9.500 7.000 8.100 3,160 9.300 7.100 8.100 1,445
1997
January...................... 8.950 7.450 8.250 1,099 8.650 7.300 8.100 491
February (to Feb. 21)........ 14.800 8.100 14.750 9,914 14.900 8.150 14.750 923
<CAPTION>
NASDAQ - NMS (U.S.$)
------------------------------
TRADING
HIGH LOW CLOSE VOLUME
$ $ $ (100'S)
------ ----- ------ -------
<S> <C> <C> <C> <C>
1995
1st Quarter.................. -- -- -- --
2nd Quarter.................. 9.750 9.750 9.750 9,557(1)
3rd Quarter.................. 10.500 9.250 10.000 2,618
4th Quarter.................. 9.938 5.750 6.750 5,830
1996
1st Quarter.................. 8.125 6.375 7.688 2,562
2nd Quarter.................. 8.000 6.250 6.453 3,649
July......................... 6.391 5.234 5.922 416
August....................... 5.875 5.125 5.875 877
September.................... 6.250 5.469 6.000 358
October...................... 6.266 6.000 6.000 16
November..................... 6.594 6.250 6.594 21
December..................... 6.875 5.125 6.000 1,329
1997
January...................... 6.750 5.375 6.125 794
February (to Feb. 21)........ 11.250 6.000 10.750 2,292
</TABLE>
- ------------------------------
(1) The Shares commenced trading on the Nasdaq-NMS on June 21, 1995.
On February 18, 1997, the last full trading day prior to the public
announcement of the Offer on February 20, 1997, the closing price of the Shares
was $9.15 on the TSE and $9.20 on the ME and the last reported sale price on the
Nasdaq-NMS was U.S.$6.67.
7
<PAGE>
TRADING IN SHARES OF THE COMPANY
During the six months preceding the date hereof, none of the Company, the
directors or senior officers of the Company or, to the knowledge of the Board,
after reasonable inquiry, any associates of the directors or senior officers of
the Company, any person or company who beneficially owns, exercises control or
direction over or holds more than 10% of the Shares (except that no
representation is made or knowledge expressed with respect to Caisse de Depot et
placement du Quebec) or any person or company acting jointly or in concert with
the Company, has traded any securities of the Company except for the trades
indicated below:
<TABLE>
<CAPTION>
NATURE OF SHARES PRICE RANGE PER
NAME TRADE DATE OF TRADE TRADED SHARE
- ------------------------------------------------------------------- ----------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
Scott E. Hall...................................................... sold Sept. 9/96 1,000 $ 7.70
Scott E. Hall...................................................... sold Sept. 10/96 23,000 7.55-7.62
William G. Legge................................................... bought Aug. 16/96 1,300 7.40
Paul T. Perras..................................................... sold Sept. 26/96 1,000 8.65
Paul T. Perras..................................................... sold Sept. 27/96 14,000 8.00-8.30
Mary Lazarevich(1)................................................. bought Jan. 21/97 3,300 8.90
Mary Lazarevich(1)................................................. bought Jan. 22/97 3,300 8.95
Mary Lazarevich(1)................................................. bought Jan. 27/97 3,700 8.50
</TABLE>
- ------------------------------
(1) Associate of Scott E. Hall
During the two year period preceding the date hereof, the Company did not
issue any Shares or any securities convertible into Shares to its directors or
senior officers except for grants of options under the Plan as set forth below:
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING THE YEAR OPTIONS GRANTED DURING THE YEAR
ENDED DECEMBER 31, 1995 ENDED DECEMBER 31, 1996
-------------------------------- --------------------------------
COMMON SHARES COMMON SHARES
UNDER OPTIONS UNDER OPTIONS
GRANTED EXERCISE PRICE GRANTED EXERCISE PRICE
NAME (#)(1) ($) (#)(1) ($)
- ------------------------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
W. Walsh............................................... 1,000 11.50 1,000 10.00
R. Ferris.............................................. 1,000 11.50 1,000 10.00
A. Church.............................................. 15,000 11.50 15,000 10.00
F. Leach............................................... 1,000 11.50 1,000 10.00
R. McKinlay............................................ 1,000 11.50 1,000 10.00
R. O'Brien............................................. 1,000 11.50 1,000 10.00
D. Sharpless........................................... 1,000 11.50 1,000 10.00
D. Vollmershausen...................................... 1,000 11.50 100,000 7.60
1,000 10.00
S. Hall................................................ 7,000 11.50 7,000 10.00
W. Legge............................................... 10,000 11.00 6,000 10.00
K. Majeski............................................. 0 -- 10,000 9.25
W. Mason............................................... 5,000 11.50 6,000 10.00
D. Million............................................. 2,500 11.50 2,500 10.00
7,500 7.74
P. Perras.............................................. 6,000 11.50 6,000 10.00
D. Ross................................................ 6,000 11.50 6,000 10.00
</TABLE>
- ------------------------------
(1) All options granted under the Plan vest one-fifth per year on each
anniversary of the date of grant. Subject to the receipt of required
regulatory approvals, it is anticipated that the vesting of all outstanding
options to acquire Shares will be accelerated to facilitate the exercise
thereof and the tendering into the Offer of the Shares issuable upon such
exercise or other arrangements satisfactory to the Offeror will be
implemented to satisfy the conditions of the Offer respecting outstanding
options.
8
<PAGE>
OWNERSHIP OF SECURITIES OF VOLVO CONSTRUCTION EQUIPMENT
None of the Company, the directors or senior officers of the Company, any
associates of the directors or senior officers of the Company or, to the
knowledge of the Board, after reasonable inquiry, any person or company
beneficially owning, exercising control or direction over or holding more than
10% of any Shares of the Company (except that no representation is made or
knowledge expressed with respect to Caisse de Depot et placement du Quebec) or
any person or company acting jointly or in concert with the Company, owns or
exercises control or direction over any securities of Volvo Construction
Equipment or the Offeror.
RELATIONSHIP BETWEEN VOLVO CONSTRUCTION EQUIPMENT AND
THE DIRECTORS AND SENIOR OFFICERS OF THE COMPANY
None of the directors or senior officers of the Company are directors or
senior officers of Volvo Construction Equipment or any subsidiary of Volvo
Construction Equipment, including the Offeror. There are no arrangements or
agreements made or currently proposed to be made between Volvo Construction
Equipment or the Offeror and any of the directors or senior officers of the
Company, including arrangements or agreements with respect to compensation for
loss of office or as to their remaining in or retiring from office, if the Offer
is consummated.
AGREEMENTS BETWEEN THE COMPANY AND ITS DIRECTORS AND OFFICERS
Except as described below, there are no arrangements or agreements made or
currently proposed to be made between the Company and any of the directors or
senior officers of the Company, including arrangements or agreements with
respect to compensation for loss of office or as to their remaining in or
retiring from office, if the Offer is consummated. Except as described below,
there are no service contracts of directors and officers of the Company or any
of its affiliates with more than a 12 month period remaining.
Pursuant to a management services contract (the "Management Services
Agreement") with Sequoia Associates ("Sequoia"), Messrs. Walsh and Ferris, two
directors of the Company, provide on behalf of Sequoia, certain management,
advisory and consulting services to the Company relating to corporate strategy
and operations, financings, acquisitions and investor and lender relations. For
its services, Sequoia receives an annual fee of U.S. $250,000 and is reimbursed
for certain expenses. The Management Services Agreement expires on December 31,
1998. The Company and Sequoia have agreed with Volvo Construction Equipment
pursuant to an agreement dated February 20, 1997, that the Management Services
Agreement shall terminate three months after the date that the Offeror takes up
and pays for a majority of the Shares. Upon such termination, no further amounts
shall be payable under the Management Services Agreement.
FINANCIAL STATEMENTS
Set out in Appendix B are the consolidated balance sheets of the Company as
at December 31, 1996 and December 31, 1995 and the consolidated statements of
income and retained earnings and cash flows for each of the three years in the
period ended December 31, 1996, together with the notes thereto and the report
thereon dated January 24, 1997 of Price Waterhouse, Chartered Accountants, the
auditors of the Company.
STATUTORY RIGHTS
Securities legislation in certain of the provinces and territories of Canada
provides holders of the Shares with, in addition to any other rights they may
have at law, rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or a notice that is required to be delivered to
the holders of the Shares. However, such rights must be exercised within
prescribed time limits. Holders of the Shares should refer to the applicable
provisions of the securities legislation of their province or territory for
particulars of those rights or consult with a lawyer.
APPROVAL OF THE DIRECTORS' CIRCULAR
The contents of this Directors' Circular have been approved, and the
delivery of this Directors' Circular has been authorized, by the Board of
Directors of the Company.
9
<PAGE>
CONSENTS
To: The Board of Directors of Champion Road Machinery Limited
We hereby consent to the discussion of and to all references to our Fairness
Opinion dated February 24, 1997 in the Directors' Circular of Champion Road
Machinery Limited dated February 24, 1997 and we consent to the inclusion of
such Fairness Opinion as Appendix A to that Directors' Circular.
[SIGNATURE]
Toronto, Ontario SCOTIAMCLEOD INC.
February 24, 1997
To: The Board of Directors of Champion Road Machinery Limited
We hereby consent to the reference to our report dated January 24, 1997
under the heading "Financial Statements" in the Directors' Circular of Champion
Road Machinery Limited dated February 24, 1997 and we consent to the inclusion
of our auditors' report as part of Appendix B to that Directors' Circular.
[SIGNATURE]
London, Ontario PRICE WATERHOUSE
February 24, 1997 Chartered Accountants
10
<PAGE>
CERTIFICATE
Dated: February 24, 1997
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in light of the circumstances in which it is
made. The forgoing does not contain any misrepresentation likely to affect the
value or the market price of the securities subject to the Offer within the
meaning of the SECURITIES ACT (Quebec).
On behalf of the Board of Directors
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
ARTHUR F. CHURCH DENNIS W. VOLLMERSHAUSEN
Director Director
</TABLE>
11
<PAGE>
APPENDIX A
[LETTERHEAD]
February 24, 1997
The Board of Directors of
Champion Road Machinery Limited
180 Columbia St. W., Suite 2204
Waterloo, Ontario
N2L 3L3
Dear Sirs:
We understand that Volvo Construction Equipment N.V. ("Volvo") proposes to make
an offer (the "Offer"), directly or indirectly, to acquire all of the
outstanding common shares (the "Common Shares") of Champion Road Machinery
Limited ("Champion" or the "Company") at a price of $15.00 cash per share. The
terms of the Offer are more fully described in the Offer to Purchase and
Circular, dated February 24, 1997 to be mailed to holders of Common Shares in
connection with the Offer.
We further understand that, pursuant to an agreement dated February 20, 1997
(the "Lockup Agreement"), the Walsh Family 1989 Trust, the Ferris Family 1987
Trust, certain members of senior management and certain other shareholders of
Champion (the "Selling Shareholders") have agreed to deposit all of the
approximately 4.0 million Common Shares owned by them or under option
(approximately 34% of the Company's Common Shares on a fully diluted basis)
under the Offer.
SCOTIAMCLEOD'S ENGAGEMENT
On February 7, 1997, the board of directors of Champion (the "Board") retained
ScotiaMcLeod Inc. ("ScotiaMcLeod") as its financial advisor to provide an
opinion (the "Opinion") to the Board as to the fairness, from a financial point
of view, of the Offer to the holders of the Common Shares.
We have not been asked to prepare, and have not prepared, a formal valuation of
Champion or any of its material assets, and the Opinion should not be construed
as such. We have, however, conducted such analyses as we considered necessary
in the circumstances.
SCOTIAMCLEOD'S CREDENTIALS
ScotiaMcLeod is one of Canada's largest investment banking firms with operations
in all facets of corporate and government finance, mergers and acquisitions,
equity and fixed income sales and trading and investment research. ScotiaMcLeod
has participated in a significant number of transactions involving private and
public companies and has extensive experience in preparing fairness opinions.
The Opinion expressed herein is the opinion of ScotiaMcLeod as a firm. The form
and content of the Opinion have been approved for release by a committee of
directors and other professionals of ScotiaMcLeod, all of whom are experienced
in mergers and acquisitions and valuation matters.
SCOTIAMCLEOD'S INDEPENDENCE
ScotiaMcLeod believes that it is independent of Volvo and Champion, as
determined in accordance with Ontario Securities Commission Policy Statement No.
9.1. ScotiaMcLeod is not an insider, associate or affiliate (as such terms are
defined in the SECURITIES ACT (Ontario)) of Volvo or Champion, and neither
ScotiaMcLeod nor any of its affiliates acts as a financial advisor
12
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 2
to Volvo in respect of the Offer. During the past 24 months neither
ScotiaMcLeod nor any of its affiliates has acted as a lead or co-lead
underwriter of a distribution of securities of Volvo or Champion. Neither
ScotiaMcLeod nor any of its affiliates is a lead or co-lead lender or manager of
a lending syndicate in respect of the Offer, or a manager or co-manager of a
soliciting dealer group formed in respect of the Offer.
ScotiaMcLeod acts as a trader and dealer, both as principal and agent, in the
financial markets in Canada, the United States and elsewhere and as such has had
and may have positions in the securities of Champion or Volvo from time to time
and may have executed or may execute transactions on behalf of Champion or Volvo
or on behalf of other clients for which it receives compensation. As an
investment dealer, ScotiaMcLeod conducts research on securities and may, in the
ordinary course of business, provide research reports and investment advice to
its clients on investment matters, including the Offer.
SCOPE OF REVIEW
In preparing the Opinion, ScotiaMcLeod has reviewed and relied upon, among other
things:
a) The terms of the Offer as set out in a draft of the Offer to Purchase and
Circular (the "Circular") of the Offeror to be issued in connection with
the Offer;
b) A draft of the directors' circular to be issued in connection with the
Offer;
c) The Lockup Agreement;
d) The Acquisition Agreement between Volvo Construction Equipment N.V. and
Champion Road Machinery Limited dated February 20, 1997 (the "Acquisition
Agreement");
e) The Confidentiality and Standstill Agreement between Volvo and Champion
dated February 12, 1997;
f) The audited consolidated financial statements of Champion for each of the
fiscal years in the five year period ended December 31, 1996;
g) Other financial information obtained from management of Champion, including
interim management reports for the past three years;
h) Management prepared forecasts of the future financial and operating
performance of the Company as contained in the Champion 1997 Profit Plan
and the Champion 1997-1999 Operating Plan;
i) Minutes of the meetings of the Board and its committees for the past three
years;
j) Tours of the Company's premises and facilities in Goderich, Ontario and
Cambridge, Ontario;
k) Auditors' reports to management of Champion for each of the fiscal years
ended December 31, 1996, 1995 and 1994;
l) Tax returns of Champion and its subsidiaries for the past two years;
m) Representations from counsel to the Company regarding certain corporate
matters;
n) Agreements relating to dealer financing programs;
13
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 3
o) Discussions with senior management of Champion with respect to the
information referred to above, among other things;
p) Representations obtained from senior management of Champion as to matters
of fact relevant to our engagement;
q) Discussions with the accounting and legal advisors of Champion;
r) Relevant stock market and other trading information relating to the Common
Shares and the shares of similar companies, including data with respect to
the acquisition of other companies similar to Champion; and
s) Such other financial, market, technical and industry information and such
other analyses and reports as we considered relevant and appropriate in the
circumstances.
ScotiaMcLeod was granted access by Champion to its senior management and was
not, to its knowledge, denied any information which it requested.
ASSUMPTIONS AND LIMITATIONS
We have relied, without independent verification, upon all financial and other
information that was obtained by us from public sources or that was provided to
us by Champion and its affiliates and advisors or otherwise. We have assumed
that this information was complete and accurate and did not omit to state any
material fact or any fact necessary to be stated to make that information not
misleading. Our Opinion is conditional upon such completeness and accuracy. In
accordance with the terms of our engagement, but subject to the exercise of our
professional judgement, we have not conducted any independent investigation to
verify the completeness or accuracy of such information. With respect to the
financial forecasts and projections provided to us and used in our analysis, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgements of management of Champion as
to the matters covered thereby and in rendering our Opinion we express no view
as to the reasonableness of such forecasts or projections or the assumptions on
which they are based. Senior management of Champion have represented to us in a
certificate dated February 19, 1997 that, among other things, the information
provided to us relating to Champion and its affiliates was complete and correct
in all material respects and does not contain any untrue statement of a material
fact or omit to state any material fact necessary to make any such information
not misleading. Senior management of Champion has also represented that the
forecasts and projections provided to us were reasonably prepared on bases
reflecting the best currently available estimates and judgement of management of
Champion as to the matters covered thereby using the identified assumptions
which are, in the opinion of management of Champion, reasonable in the
circumstances.
Our Opinion is based on the securities markets, economic, general business and
financial conditions prevailing today and the conditions and prospects,
financial and otherwise, of Champion and its affiliates as they were reflected
in the information reviewed by us. Any changes therein may affect our Opinion
and, although we reserve the right to change or withdraw our Opinion in such
event, we disclaim any obligation to advise any person of any such change that
may come to our attention or update our Opinion after today.
We have assumed that all conditions precedent to the completion of the Offer can
be satisfied in due course, and that all consents, permissions, exemptions or
orders of relevant regulatory authorities will be obtained, without adverse
condition or qualification.
Our analysis must be considered as a whole. Selecting portions of our analysis
and of the factors considered by us, without considering all factors and
analyses together, could create a misleading view of the methodologies and
approaches underlying our Opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description, as doing so could lead to undue emphasis on any particular
factor or analysis.
14
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 4
FAIRNESS CONSIDERATIONS
The assessment of fairness, from a financial point of view, must be determined
in the context of the particular transaction. In assessing the fairness, from a
financial point of view, of the Offer to the holders of the Common Shares,
ScotiaMcLeod considered a number of matters, the most important of which are
summarized below.
PRECEDENT TRANSACTIONS REVIEW
ScotiaMcLeod conducted a search of heavy construction equipment manufacturer
acquisitions and identified transactions over the period from 1990 to the
present which we considered relevant. Such transactions included, among others:
- - Cascade Corp.'s acquisition of Kenhar Corporation in January, 1997;
- - Ingersoll-Rand Company's acquisition of Clark Equipment Company in May,
1995;
- - AB Volvo's acquisition of the 50% of VME Group N.V. it did not already own
in April, 1995; and
- - Clark Equipment Company's acquisition of Blaw-Knox Construction Equipment
Corporation in May, 1994.
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow approach involves discounting, at an appropriate rate,
an expected stream of future cash flows, as well as any residual or terminal
value beyond the projection period, in order to determine their present value.
The DCF approach takes into account the amount, timing and relative certainty of
the expected future cash flows to be generated by Champion and requires that
assumptions be made regarding future cash flows, discount rates and terminal
value. Such assumptions were based on, among other things, our review of
management's projections of the future financial and operating performance of
the business and such adjustments as we felt were appropriate in the
circumstances. The DCF analysis was adjusted for any assets or liabilities not
taken into account in the determination of free cash flows and terminal values.
STOCK MARKET TRADING ANALYSIS
The Common Shares are traded on The Toronto Stock Exchange, the Montreal
Exchange and the NASDAQ National Market. Prior to the announcement of the Offer
on February 20, 1997, the 52 week high closing price of the Common Shares was
$11.00 and the 52 week low was $7.00. The Common Shares have never traded above
the Offer price of $15.00, and since going public, the stock has generally
underperformed the TSE 300 Index, the TSE Fabricating and Engineering Subindex
as well as other peer group companies such as Caterpillar Inc., Case Corporation
and Deere & Company.
ScotiaMcLeod also conducted a review of stock market trading values of Canadian
and U.S. public heavy construction equipment manufacturers. Key trading value
parameters examined included enterprise value (after appropriate adjustments for
debt, excess cash, off-balance sheet financing and surplus assets) to earnings
before interest, taxes, depreciation and amortization ("EBITDA"), enterprise
value to earnings before interest and taxes ("EBIT"), price to earnings and
price to cash flow on a trailing and prospective basis.
BENEFITS TO VOLVO
We considered potential benefits to Volvo assuming the successful completion of
the Offer. Such benefits included expansion of Volvo's product line, strategic
fit, expanded distribution opportunities for the Champion product line,
purchasing synergies and administrative savings, among others. We incorporated
our assessment of these benefits into our assessment of the Common Shares to the
extent we felt was appropriate in the circumstances.
15
<PAGE>
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 5
REVIEW OF PROCESS
We understand that the Company has been dealing with Volvo on an exclusive basis
and the terms of the Offer were determined based on negotiations between the
Board, Volvo and the Selling Shareholders. We understand that the Board may
consider, negotiate, approve or recommend, provide information to a potential
acquiror pursuant to, or take any necessary steps to implement any bona fide
written Transaction Proposal to acquire at least a majority of the Common Shares
at a price exceeding $15.00 per Common Share in accordance with its fiduciary
obligations.
PREMIUM TO HISTORIC TRADING PRICES
At $15.00, the Offer represents a 63.9% premium to the February 18, 1997 closing
price of $9.15 and a 78.3% premium to the twenty-day average closing price on
The Toronto Stock Exchange prior to February 19, 1997. We believe this premium
to historic trading prices of the Common Shares is reasonable in the context of
the current mergers and acquisitions market in Canada.
PRIOR VALUATIONS
We understand that no prior valuations (as defined for the purposes of Ontario
Securities Commission Policy Statement No. 9.1) have been carried out on
Champion in the past twenty-four months.
PRIOR OFFERS
We understand that, apart from the Offer, there have been no prior offers for
Champion or any of its material assets in the past twenty-four months.
MARKET LIQUIDITY
The Offer provides a level of liquidity to holders of the Common Shares with
larger positions in the Common Shares which may not otherwise be available.
FAIRNESS CONCLUSION
Based upon and subject to all of the foregoing, ScotiaMcLeod is of the opinion
that the Offer is fair, from a financial point of view, to the holders of the
Common Shares.
Yours very truly,
/s/ ScotiaMcLeod, Inc.
ScotiaMcLeod Inc.
16
<PAGE>
APPENDIX B
AUDITORS' REPORT
To the Shareholders of Champion Road Machinery Limited
We have audited the consolidated balance sheets of Champion Road Machinery
Limited as at December 31, 1996 and 1995, and the consolidated statements of
income and retained earnings and cash flow for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1996 and 1995, and the results of its operations and the changes in its
financial position for each of the three years in the period ended December 31,
1996, in accordance with Canadian generally accepted accounting principles.
[LOGO]
PRICE WATERHOUSE
Chartered Accountants
January 24, 1997
London, Ontario
17
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash............................................................................................ $ 483 $ --
Accounts receivable............................................................................. 16,981 30,775
Notes receivable................................................................................ 178 1,688
Income taxes recoverable........................................................................ 1,682 --
Inventories (Note 2)............................................................................ 41,422 38,009
Prepaid expenses................................................................................ 1,685 1,181
Deferred income taxes recoverable............................................................... 990 --
--------- ---------
63,421 71,653
Property, plant and equipment (Note 3)............................................................ 25,132 15,791
Deferred income taxes recoverable................................................................. 551 --
Other assets (Note 4)............................................................................. 1,399 1,203
--------- ---------
$ 90,503 $ 88,647
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (Note 6)...................................................................... $ -- $ 2,213
Accounts payable and accrued liabilities........................................................ 29,222 29,715
Income taxes payable............................................................................ -- 503
Current portion of long term debt (Note 7)...................................................... 275 --
--------- ---------
29,497 32,431
Long term debt (Note 7)........................................................................... 5,416 --
Deferred income taxes............................................................................. -- 73
--------- ---------
34,913 32,504
--------- ---------
Shareholders' equity
Share capital (Note 8).......................................................................... 30,694 30,694
Retained earnings............................................................................... 24,896 25,449
--------- ---------
55,590 56,143
--------- ---------
$ 90,503 $ 88,647
--------- ---------
--------- ---------
</TABLE>
CONTINGENCIES AND COMMITMENTS (NOTE 15)
Approved on behalf of the Board of Directors
(Signed) William D. Walsh (Signed) David J. Sharpless
DIRECTOR DIRECTOR
18
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.......................................................................... $ 200,003 $ 225,741 $ 176,335
Cost of sales (Note 9)............................................................. 167,353 185,637 139,396
---------- ---------- ----------
Gross profit....................................................................... 32,650 40,104 36,939
Selling, general and administrative (Note 10)...................................... 28,048 24,920 21,761
Restructuring (Note 9)............................................................. 1,300 -- --
---------- ---------- ----------
Operating income................................................................... 3,302 15,184 15,178
Interest expense (income)
Long term debt................................................................... 152 -- 164
Other............................................................................ 247 (168) 160
---------- ---------- ----------
Income before income taxes......................................................... 2,903 15,352 14,854
Income tax expense (recovery) (Note 12)
Current.......................................................................... 2,838 5,771 5,281
Deferred......................................................................... (1,614) 79 280
---------- ---------- ----------
1,224 5,850 5,561
---------- ---------- ----------
Net income......................................................................... $ 1,679 $ 9,502 $ 9,293
---------- ---------- ----------
---------- ---------- ----------
Retained earnings, beginning of year............................................... $ 25,449 $ 18,069 $ 11,932
Net income......................................................................... 1,679 9,502 9,293
Share issuance costs, net of tax recoveries (Note 8)............................... -- -- (1,640)
Dividends.......................................................................... (2,232) (2,122) (1,516)
---------- ---------- ----------
Retained earnings, end of year..................................................... $ 24,896 $ 25,449 $ 18,069
---------- ---------- ----------
---------- ---------- ----------
Earnings per share (Note 13)
Basic............................................................................ $ 0.15 $ 0.85 $ 0.90
---------- ---------- ----------
---------- ---------- ----------
Fully diluted.................................................................... $ 0.15 $ 0.84 $ 0.89
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
19
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOW
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash provided by (used in)
OPERATIONS
Net income........................................................................ $ 1,679 $ 9,502 $ 9,293
Add (deduct): Charges (credits) not involving cash
Depreciation and amortization................................................... 3,375 3,240 2,543
Gain on sale of property, plant and equipment................................... (22) (76) (5)
Deferred income taxes........................................................... (1,614) 21 280
---------- ---------- ----------
3,418 12,687 12,111
Net change in non-cash working capital items (Note 14)............................ 8,984 (1,469) (24,198)
---------- ---------- ----------
Total from (used in) operations................................................... 12,402 11,218 (12,087)
---------- ---------- ----------
INVESTMENTS
Business acquisitions (Note 5).................................................... -- (5,020) (365)
Additions to property, plant and equipment........................................ (12,922) (5,398) (4,195)
Proceeds from sale of property, plant and equipment............................... 32 95 98
---------- ---------- ----------
(12,890) (10,323) (4,462)
---------- ---------- ----------
FINANCING
Increase (repayment) of long-term debt............................................ 5,416 -- (5,286)
Issue of common shares (Note 8)................................................... -- 14 29,102
Share issue costs (Note 8)........................................................ -- -- (2,523)
Dividends......................................................................... (2,232) (2,122) (1,516)
---------- ---------- ----------
3,184 (2,108) 19,777
---------- ---------- ----------
Net increase (decrease) in cash during the year..................................... 2,696 (1,213) 3,228
Bank indebtedness, beginning of year................................................ (2,213) (1,000) (4,228)
---------- ---------- ----------
Cash balance (bank indebtedness), end of year....................................... $ 483 $ (2,213) $ (1,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
20
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Champion Road Machinery Limited
have been prepared by management in accordance with Canadian generally
accepted accounting principles. Significant accounting policies are
summarized below:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the operations of Champion
Road Machinery Limited and its wholly-owned subsidiaries, Champion Road
Machinery Sales Ltd. and Champion Road Machinery Inc. (collectively, the
"Company").
INVENTORIES
Purchased materials are stated at the lower of cost and replacement cost.
Work in process, manufactured materials, parts and equipment for resale and
finished goods are stated at the lower of cost and net realizable value,
with cost being determined on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated over
their estimated useful lives using the straight-line method at the following
annual rates:
<TABLE>
<S> <C>
Buildings............................................................................................ 5%
Property improvements................................................................................ 10%
Machinery and equipment.............................................................................. 10% to 30%
</TABLE>
Expenditures for maintenance and repairs are charged to expense as incurred;
major renewals and betterments are capitalized.
INTANGIBLE ASSETS
Goodwill is being amortized over twenty years on a straight-line basis. The
costs of acquiring product design rights are amortized over ten years on a
straight-line basis.
RESEARCH AND DEVELOPMENT
The Company incurs costs in research and development of new products.
Research costs are expensed as incurred. Development costs are expensed
unless they meet generally accepted criteria for deferral and amortization,
which are stringently applied.
REVENUE RECOGNITION
Revenue is recognized when goods have been completed and are shipped,
pursuant to a firm, irrevocable sales order for which normal payment terms
have been arranged.
WARRANTY COSTS
Provision is made in the financial statements, at the time the products are
sold, for the estimated cost of providing service and replacement parts
during the term of warranty agreements.
INCOME TAXES
The deferral method is followed to provide for income taxes. Timing
differences giving rise to deferred income taxes relate primarily to
depreciation and amortization and provision for future warranty costs.
Investment tax credits are recorded as a reduction of the related capital
asset or research and development costs.
FOREIGN CURRENCY TRANSLATION
Transactions denominated in foreign currencies are recorded in Canadian
dollars at exchange rates in effect at the related transaction dates.
Monetary assets and liabilities denominated in foreign currencies are
adjusted to reflect year end exchange rates at the balance sheet date, or at
the hedge rates if effectively hedged by forward exchange contracts. The
resulting exchange gains and losses are included
21
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in the determination of income. Non-monetary assets and liabilities
denominated in foreign currencies are translated at historical rates of
exchange.
For integrated foreign operations current assets, current liabilities and
long-term monetary assets and liabilities are translated at the rates in
effect at the balance sheet date; whereas other assets and other liabilities
are translated at rates prevailing at the respective transaction dates;
revenues and expenses are translated at average rates prevailing during the
year. Currency gains and losses are reflected in net income of the year.
PENSION COSTS AND OBLIGATIONS
DEFINED BENEFIT PLANS
Pension costs for the defined benefit plans are determined each year using
the projected benefit actuarial cost method and management's best estimate
assumptions. Earnings are charged with the cost of benefits earned by
employees as services are rendered. Adjustments arising from plan
amendments, changes in actuarial assumptions, experience gains and losses,
and any difference between the actuarial present value of accrued pension
obligations and the market value of pension fund assets are amortized on a
straight-line basis over the expected average remaining service lives of the
employee group.
DEFINED CONTRIBUTION PLAN
Contributions under a defined contribution plan for management employees are
expensed when payable.
OTHER POSTEMPLOYMENT BENEFITS
The Company provides group healthcare and other benefits to retired
employees. The cost of providing benefits is charged to expense when
incurred.
2. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Purchased and manufactured materials........................................................... $ 15,393 $ 13,378
Work in process................................................................................ 3,361 3,167
Parts for resale............................................................................... 6,406 4,146
Finished goods................................................................................. 11,507 13,011
Used equipment for resale/rental............................................................... 4,755 4,307
--------- ---------
$ 41,422 $ 38,009
--------- ---------
--------- ---------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------
1996 1995
------------------------------------- -----------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
--------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Land................................................................. $ 1,645 $ -- $ 1,645 $ 1,222
Buildings & property improvements.................................... 17,394 6,912 10,482 5,394
Machinery & equipment................................................ 30,532 17,527 13,005 9,175
--------- ------------- ----------- -----------
$ 49,571 $ 24,439 $ 25,132 $ 15,791
--------- ------------- ----------- -----------
--------- ------------- ----------- -----------
</TABLE>
22
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
4. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Goodwill (net of accumulated amortization of $136; 1995 -- $96)................................ $ 474 $ 514
Patents, trademarks, product design rights & other (net of accumulated amortization of $93;
1995 -- $39).................................................................................. 925 689
--------- ---------
$ 1,399 $ 1,203
--------- ---------
--------- ---------
</TABLE>
5. BUSINESS ACQUISITIONS
1995
In 1995, the Company acquired the Canadian assets of the Frink snow removal
equipment business and the assets of the Ingersoll-Rand Company asphalt
paving division. The details of the purchases are as follows:
<TABLE>
<S> <C>
Working capital........................................................................................ $ 2,755
Manufacturing equipment................................................................................ 617
Land................................................................................................... 800
Building............................................................................................... 300
Patents, trademarks & design rights.................................................................... 548
-----------
Total consideration financed by cash..................................................................... $ 5,020
-----------
-----------
</TABLE>
1994
In 1994, the Company acquired the design rights and inventory for a line of
asphalt compaction equipment. :
<TABLE>
<S> <C>
Net assets acquired
Working capital........................................................................................ $ 185
Product design rights and other........................................................................ 180
-----
Total consideration financed by cash..................................................................... $ 365
-----
-----
</TABLE>
The results of operations have been included in these financial statements
from the dates of acquisition.
6. BANK INDEBTEDNESS
The Company has arranged a maximum operating credit line of $ 50 million,
international dealer financing facilities of US$ 40 million, $ 6 million for
commercial letters of credit and US$ 95 million with respect to forward
exchange contracts.
Collateral provided under the credit facilities includes pledging current
assets and assignment of insurance. Under the terms of the lending
agreement, the Company has agreed to certain covenants and restrictions and
to the maintenance of specific financial ratios.
7. LONG TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
State of Pennsylvania Economic Development Revenue Bond, US$4,143 repayable on April 1, 2017;
variable rate................................................................................... $ 5,691 $ --
Less: current portion............................................................................ 275 --
--------- ---------
$ 5,416 $ --
--------- ---------
--------- ---------
</TABLE>
The interest rate at December 31, 1996 was 4.25%. The Bond is secured by a
letter of credit. The Company is obligated to make sinking fund payments of
US$200,000 for each of the next five years.
23
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
8. SHARE CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Authorized
Unlimited number of non-cumulative, non-voting, preference shares
Unlimited number of common shares
Outstanding
Nil preference shares........................................................................ $ -- $ --
11,171,200 common shares..................................................................... 30,694 30,694
--------- ---------
$ 30,694 $ 30,694
--------- ---------
--------- ---------
</TABLE>
Effective April 8, 1994, the articles of the Company were amended to
subdivide the common shares on a 1.4:1 basis, to delete the existing class
of non-cumulative preference shares and to create a new class of non-voting
preference shares issuable in series. The Board of Directors will determine,
before the issuance thereof, the number of preference shares of each series
and their rights, restrictions and conditions.
The Company issued 2,420,000 common shares for gross proceeds of $
29,040,000 pursuant to a prospectus dated April 12, 1994. Commissions and
other direct expenses relating to the share issue costs amounted to $
2,523,000 before deferred tax recoveries of $ 883,000. These share issue
costs, net of tax recoveries, were charged to retained earnings.
During 1996, nil shares (1995 -- 1,200 shares) were issued from treasury
upon the exercise of stock options.
9. RESTRUCTURING & WRITE DOWN OF INVENTORY
During December 1996, the Company decided to significantly downsize the
Frink Snow and Ice control equipment product line and streamline the Pro-Pav
paving equipment product offering. Accordingly, in 1996 a restructuring
charge of $1.3 million was recorded to provide for staff reductions.
Included in cost of sales is a further charge of $2.7 million to write down
inventory for the reduction of product lines. On an after-tax basis earnings
have been impacted by $2.5 million or $0.22 per share.
At December 31, 1996, a balance of $924,000 for unpaid severance costs
remains outstanding and is included in accounts payable and accrued
liabilities.
10. SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses include the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Research & development costs................................................................ $ 793 $ 755 $ 1,129
--------- --------- ---------
--------- --------- ---------
</TABLE>
11. EMPLOYEE INCENTIVE PLANS
PROFIT SHARING PLAN
Under the Company profit sharing plan, employees are eligible to share a
percentage of operating profit minus a 15% charge on average operating
capital assets employed in the business. This plan is subject to annual
review by the Board of Directors.
DEFERRED PROFIT SHARING PLAN
On April 12, 1994, the Board of Directors approved a deferred profit sharing
plan. All full time employees of the Company and its subsidiaries who have
been employed for at least one year (other than employees eligible to
participate in the Company's employee stock option plan) are eligible to
participate in such deferred profit sharing plan. At the beginning of each
year, each employee may elect whether to have amounts allocated to the
deferred profit sharing plan or to participate in the employees' profit
sharing plan for that year. In the event that the employee elects to have
amounts allocated to the deferred profit sharing plan, the Company will,
pursuant to the
24
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
11. EMPLOYEE INCENTIVE PLANS (CONTINUED)
plan, make contributions on such employee's behalf to the plan. The plan
will use such contributions primarily to purchase common shares of the
Company in the open market.
EMPLOYEE STOCK OPTION PLAN
Effective April 12, 1994, the Company adopted an employee stock option plan.
Under the terms of the plan, which is available only to directors and
certain employees, options to purchase common shares may be granted at a
price not less than the closing price of the common shares on a Canadian
stock exchange on the day prior to the date the option is granted. Options
will have a maximum term of six years from the date of grant. A maximum
number of 550,000 common shares are issuable under the plan. As at December
31, 1996, 366,000 stock options (1995 -- 194,300 stock options) were issued
and outstanding.
12. INCOME TAXES
The difference between the income tax provision recorded and the provision
obtained by applying the Canadian federal and provincial income tax rates to
income before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
% % %
--------- --------- ---------
<S> <C> <C> <C>
Statutory income tax rate.................................................................... 44.6 44.6 44.3
Manufacturing and processing profits deduction............................................... (3.6) (7.5) (7.9)
Other........................................................................................ 1.2 1.0 1.0
--------- --------- ---------
Effective income tax rate.................................................................... 42.2 38.1 37.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
13. EARNINGS PER SHARE
Basic earnings per share have been calculated on the basis of net income
divided by the weighted average number of common shares outstanding adjusted
to reflect the subdivision of common shares on a 1.4:1 basis and the
issuance of 2,420,000 common shares pursuant to the initial public offering
in 1994.
Fully diluted earnings per share give effect to the issuance of 366,000
stock options (1995 -- 194,300 and 1994 -- 91,000) under the employee stock
option plan.
14. NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
The net change in non-cash working capital items consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Decrease (increase) in current assets
Accounts receivable................................................................ $ 13,794 $ 3,453 $ (19,377)
Notes receivable................................................................... 1,510 (1,384) 1,246
Inventories........................................................................ (3,413) (9,122) (5,672)
Prepaid expenses................................................................... (504) (251) (619)
Income taxes recoverable........................................................... (1,682) -- --
--------- --------- ---------
9,705 (7,304) (24,422)
--------- --------- ---------
Increase (decrease) in current liabilities
Accounts payable & accrued liabilities............................................. (493) 7,732 2,942
Current portion of long term debt.................................................. 275 -- (2,788)
Income taxes payable............................................................... (503) (1,897) 70
--------- --------- ---------
(721) 5,835 224
--------- --------- ---------
$ 8,984 $ (1,469) $ (24,198)
--------- --------- ---------
--------- --------- ---------
</TABLE>
25
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
15. CONTINGENCIES AND COMMITMENTS
(a) The Company's only foreign currency transactions are in U.S. dollars.
The Company enters into forward exchange contracts with major financial
institutions to protect against the risk that the eventual U.S. dollar
net cash inflows will be adversely affected by changes in exchange
rates. The Company purchases forward exchange contracts to hedge
approximately two-thirds of its forecasted 12 month U.S. dollar
exposure. At December 31, 1996, the Company had entered into forward
exchange contracts totaling US$ 25,500,000 at rates ranging from 1.311
to 1.385 with maturities from January to December 1997. The Company does
not hold or issue financial instruments for trading purposes.
(b) The Company has issued letters of credit of $ 909,000 as at December 31,
1996 (1995 -- $ 1,559,000).
(c) The aggregate minimum rental payments under various operating leases
during the next five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------
<S> <C>
1997............................................................ $ 39
1998............................................................ 32
1999............................................................ 22
2000............................................................ --
2001............................................................ --
</TABLE>
(d) Under an agreement with Sequoia Associates (Note 17), the Company is
committed to make annual payments of US$ 250,000 for the next two years.
16. PENSION PLANS
The Company's defined benefit pension plans were last valued at January 1,
1995 and the estimated aggregate pension plan deficit was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Pension fund assets, at estimated market......................................................... $ 10,895 $ 8,859
Accrued pension benefits......................................................................... 13,302 12,888
--------- ---------
Deficit.......................................................................................... $ (2,407) $ (4,029)
--------- ---------
--------- ---------
</TABLE>
17. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Management fee and expenses.................................................................... $ 371 $ 400 $ 408
--------- --------- ---------
</TABLE>
The Company is party to a management services agreement with Sequoia
Associates, a corporation controlled by certain directors, pursuant to which
management fees and expense reimbursements are remitted monthly.
The agreement is in the normal course of operations and fees are based on
consideration established and agreed to by the related parties.
At December 31, 1996 and 1995, no balance was due to related parties in
respect of the above services.
26
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
18. SEGMENTED INFORMATION
The Company's operations are primarily in Canada and the United States. The
Company operates in one business segment, the design, manufacture and
distribution of road machinery and related equipment.
Financial information, by geographic location, for the Company's operations
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------
UNITED
CANADA STATES CONSOLIDATED
--------- ----------- ------------
<S> <C> <C> <C>
External sales................................................................... $ 181,592 $ 18,411 $ 200,003
Intersegment sales............................................................... 11,947 1,105 --
--------- ----------- ------------
Total revenue.................................................................... 193,539 19,516 $ 200,003
--------- ----------- ------------
Segment operating profit......................................................... 3,774 (472) 3,302
--------- ----------- ------------
--------- -----------
Interest expense................................................................. 399
Income taxes..................................................................... 1,224
------------
Net income....................................................................... $ 1,679
--------- ----------- ------------
------------
Net identifiable assets.......................................................... $ 66,321 $ 24,182 $ 90,503
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------
UNITED
CANADA STATES CONSOLIDATED
--------- ----------- ------------
<S> <C> <C> <C>
External sales................................................................... $ 216,408 $ 9,333 $ 225,741
Intersegment sales............................................................... 18,112 -- --
--------- ----------- ------------
Total revenue.................................................................... 234,520 9,333 $ 225,741
--------- ----------- ------------
Segment operating profit......................................................... 14,115 1,269 15,184
--------- ----------- ------------
--------- -----------
Interest income.................................................................. 168
Income taxes..................................................................... 5,850
------------
Net income....................................................................... $ 9,502
--------- ----------- ------------
------------
Net identifiable assets.......................................................... $ 76,926 $ 11,721 $ 88,647
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
In 1994, business operations were located primarily in Canada.
Transfers between geographic segments are accounted for at prices comparable
to open market prices for similar products and services. Intersegment sales
and profit in inventory are eliminated upon consolidation.
Canadian operations include export sales as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
United States........................................................................ $ 69,142 $ 70,605 $ 53,613
Other................................................................................ 40,147 67,116 52,758
--------- --------- ---------
Total export sales................................................................... $ 109,289 $ 137,721 $ 106,371
--------- --------- ---------
--------- --------- ---------
</TABLE>
19. UNITED STATES ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which differ from United
States GAAP.
27
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
19. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
If presented in accordance with U.S. GAAP, the effect of these differences
would be:
(A) INCOME ADJUSTMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(in $000s Cdn, except per share
data)
<S> <C> <C> <C>
Net income, as reported under Canadian GAAP................................................ $ 1,679 $ 9,502 $ 9,293
Employee post-retirement benefits expense (i).............................................. 120 17 (197)
Compensation costs relating to share issue................................................. -- -- (437)
Pension expense (ii)....................................................................... -- -- (84)
Income tax expense -- Difference in Canadian
GAAP....................................................................................... (24) 11 54
U.S. taxes related to U.S.
GAAP income statement...................................................................... (48) (10) 100
--------- --------- ---------
Net income, as adjusted to U.S. GAAP....................................................... $ 1,727 $ 9,520 $ 8,729
--------- --------- ---------
Earnings per share, as adjusted to U.S. GAAP............................................... $ 0.15 $ 0.85 $ 0.84
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) BALANCE SHEET ADJUSTMENTS
If presented in accordance with U.S. GAAP, the balance sheets as at the
indicated dates would be adjusted as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1996 1995
-------------------- --------------------
CDN GAAP U.S. GAAP CDN GAAP U.S. GAAP
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current assets................................................................ $ 63,421 $ 63,421 $ 71,653 $ 71,653
Property, plant and equipment................................................. 25,132 25,132 15,791 15,791
Deferred income taxes (iii)................................................... 551 826 -- 274
Other assets (ii)............................................................. 1,399 3,902 1,203 5,198
--------- --------- --------- ---------
$ 90,503 $ 93,281 $ 88,647 $ 92,916
--------- --------- --------- ---------
--------- --------- --------- ---------
Current liabilities........................................................... $ 29,497 $ 29,497 $ 32,431 $ 32,431
Pension and post-retirement accruals (i,ii)................................... -- 3,997 -- 5,609
Long term debt................................................................ 5,416 5,416 -- --
Deferred income taxes (iii)................................................... -- -- 73 --
Shareholders' equity (iv)..................................................... 55,590 54,371 56,143 54,876
--------- --------- --------- ---------
$ 90,503 $ 93,281 $ 88,647 $ 92,916
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(i) In addition to providing pension benefits, the Company also provides
health and life insurance benefits to its retirees. The Company's cost of
providing these benefits is expensed when paid. Under U.S. GAAP, these costs
are recognized evenly over the service life of employees.
(ii) The Company has applied FAS 87, employers' accounting for pensions,
effective January 1, 1993. The transition obligation of $1,613,000 is being
amortized over seventeen years. An intangible asset is recognized for the
unamortized pension costs under FAS 87.
(iii) The Company follows the deferral method of accounting for income
taxes. Under U.S. GAAP, the liability method is used. Under the liability
method, deferred taxes are determined based on enacted tax laws and rates
which are applied to the differences between the financial statement bases
and tax bases of assets and liabilities.
28
<PAGE>
CHAMPION ROAD MACHINERY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(TABULAR DATA IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS NOTED)
19. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(iv) The shareholders' equity adjustment reflects the cumulative adjustments
outlined above. Under Canadian GAAP, the share issue costs relating to the
April, 1994 initial public offering, net of income taxes were charged to
retained earnings. Under U.S. GAAP, the net share issue costs would be
charged against the net proceeds of the share issue.
(v) The Company follows APB 25 whereby the compensation cost for stock
options is the excess, if any, of the market price of company shares at the
grant date over the amount an employee must pay to acquire the stock.
29
<PAGE>
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN
DOUBT AS TO HOW TO DEAL WITH IT, YOU SHOULD CONSULT YOUR INVESTMENT DEALER,
BROKER, BANK MANAGER, LAWYER OR OTHER ADVISOR.
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING COMMON SHARES OF
CHAMPION ROAD MACHINERY LIMITED
AT A PRICE OF
CDN$15.00 PER SHARE BY
VOLVO CONSTRUCTION EQUIPMENT N.V.
A WHOLLY-OWNED SUBSIDIARY OF AB VOLVO (PUBL), THROUGH
VCE ACQUISITION INC.
A WHOLLY-OWNED SUBSIDIARY OF VOLVO CONSTRUCTION EQUIPMENT N.V.
This offer to purchase (the "Offer") by VCE Acquisition Inc. (the "Offeror")
all of the common shares (the "Shares") of Champion Road Machinery Limited (the
"Corporation") will be open for acceptance until 12:00 midnight (Toronto time)
on March 21, 1997, unless the Offer is extended or withdrawn. The Offer is
subject to certain conditions, including that there are validly deposited under
the Offer and not withdrawn as at the Expiry Time a number of Shares which
represents not less than 70% of the Shares outstanding (calculated on a fully
diluted basis) as at the Expiry Time. See Section 4 of the Offer, "Conditions of
the Offer."
Each of the Offeror and Volvo Construction Equipment N.V. ("Volvo
Construction Equipment") are wholly-owned subsidiaries of AB Volvo (publ)
("Volvo").Volvo Construction Equipment has entered into an agreement with
certain security holders of the Corporation pursuant to which such holders have
agreed to deposit under the Offer an aggregate of 3,953,048 Shares, including
148,000 Shares issuable upon exercise of outstanding options, constituting
approximately 34.3% of the outstanding Shares on a fully diluted basis.
THE BOARD OF DIRECTORS OF THE CORPORATION HAS UNANIMOUSLY RECOMMENDED THAT
HOLDERS OF SHARES ACCEPT THE OFFER.
Shareholders of the Corporation ("Shareholders") who wish to accept the
Offer must properly complete and execute the accompanying Letter of Transmittal
(printed on green paper) or a manually signed facsimile thereof and deposit it,
together with certificates representing their Shares, in accordance with the
instructions in the accompanying Letter of Transmittal. Alternatively,
Shareholders may follow the procedures for guaranteed delivery set forth in
Section 3 of the Offer, "Manner of Acceptance." The Offer may also be accepted
in the United States by following the procedures for book-entry transfer set
forth in Section 3 of the Offer, "Manner of Acceptance." Shareholders whose
Shares are registered in the name of a nominee should contact their broker,
investment dealer, bank, trust company or other nominee for assistance.
The Shares are listed and posted for trading in Canada under the symbol CHN
on The Toronto Stock Exchange (the "TSE") and the Montreal Exchange (the "ME").
The Shares also trade in the United States in the over-the-counter market and
prices are quoted on the National Association of Securities Dealers Automated
Quotation National Market System (the "NASDAQ-NMS") under the symbol CRMLF. The
Offer represents a 78.3% premium over the average of the closing prices reported
on the TSE for the 20 trading days ended February 18, 1997, the last full
trading day prior to the date Volvo Construction Equipment announced its
intention to make the Offer. See "Price Range and Trading Volume of Shares" in
the Circular.
------------------------
THE DEALER MANAGERS FOR THE OFFER ARE:
<TABLE>
<S> <C>
IN THE UNITED STATES IN CANADA
MERRILL LYNCH & CO. TD SECURITIES INC.
</TABLE>
February 24, 1997
<PAGE>
Questions and requests for assistance may be directed to Merrill Lynch & Co.
in the United States or TD Securities Inc. in Canada (the "Dealer Managers"),
Montreal Trust Company of Canada (the "Depositary"), The Bank of Nova Scotia
Trust Company of New York (the "U.S. Forwarding Agent") and Georgeson & Company
Inc. (the "Information Agent"), at their respective addresses and telephone
numbers set forth on the back cover of this document. Additional copies of this
document, the Letter of Transmittal and the Notice of Guaranteed Delivery
(printed on blue paper) may also be obtained without charge on request from
those listed above.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT LAWFUL. THE OFFER
IS NOT BEING MADE TO, NOR WILL DEPOSITS BE ACCEPTED FROM OR ON BEHALF OF,
SHAREHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE OFFER
WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, THE
OFFEROR MAY, IN ITS SOLE DISCRETION, TAKE SUCH ACTION AS IT MAY DEEM NECESSARY
TO EXTEND THE OFFER TO SHAREHOLDERS IN SUCH JURISDICTION.
In any jurisdiction in which the Offer is required to be made by a licenced
broker or dealer, the Offer shall be made on behalf of the Offeror by brokers or
dealers licensed under the laws of that jurisdiction.
ALL DOLLAR REFERENCES IN THE OFFER AND THE CIRCULAR ARE IN CANADIAN DOLLARS,
UNLESS OTHERWISE INDICATED. ON FEBRUARY 21, 1997, THE RATE OF EXCHANGE FOR THE
CANADIAN DOLLAR, EXPRESSED IN U.S. DOLLARS, BASED ON THE BANK OF CANADA NOON
SPOT RATE OF EXCHANGE, WAS CDN$1.00 = US$0.7341.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS...................................................................................................... 4
SUMMARY.......................................................................................................... 7
OFFER............................................................................................................ 10
1. The Offer................................................................................................. 10
2. Time for Acceptance....................................................................................... 10
3. Manner of Acceptance...................................................................................... 10
4. Conditions of the Offer................................................................................... 13
5. Extension and Variation of the Offer...................................................................... 17
6. Payment for Deposited Securities.......................................................................... 18
7. Withdrawal of Deposited Securities........................................................................ 19
8. Return of Deposited Securities............................................................................ 20
9. Dividends and Distributions............................................................................... 20
10. Mail Service Interruption................................................................................. 21
11. Notice and Delivery....................................................................................... 21
12. Acquisition of Securities not Deposited................................................................... 21
13. Market Purchases and Sales of Shares...................................................................... 22
14. Other Terms of the Offer.................................................................................. 22
CIRCULAR......................................................................................................... 23
VOLVO CONSTRUCTION EQUIPMENT, THE OFFEROR AND VOLVO.............................................................. 23
THE CORPORATION.................................................................................................. 25
BACKGROUND TO THE OFFER.......................................................................................... 25
ARRANGEMENTS WITH THE CORPORATION................................................................................ 27
ARRANGEMENTS WITH CERTAIN SHAREHOLDERS OF THE CORPORATION........................................................ 28
PURPOSE OF THE OFFER AND OFFEROR'S PLANS FOR THE CORPORATION..................................................... 30
Purpose of the Offer........................................................................................... 30
Plans for the Corporation...................................................................................... 30
SOURCE OF FUNDS.................................................................................................. 30
EFFECT OF THE OFFER ON MARKET AND LISTINGS....................................................................... 30
PRICE RANGE AND TRADING VOLUME OF SHARES......................................................................... 31
DIVIDEND RECORD OF THE CORPORATION............................................................................... 32
PRIOR DISTRIBUTIONS.............................................................................................. 32
ACQUISITION OF SHARES NOT DEPOSITED.............................................................................. 32
Compulsory Acquisition......................................................................................... 32
Subsequent Acquisition Transactions............................................................................ 33
REGULATORY MATTERS............................................................................................... 35
Competition Act................................................................................................ 35
United States Hart-Scott-Rodino Antitrust Improvements Act of 1976............................................. 35
BENEFICIAL OWNERSHIP AND TRADING IN SECURITIES OF THE CORPORATION................................................ 36
COMMITMENTS TO ACQUIRE SECURITIES OF THE CORPORATION............................................................. 37
ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS....................................................................... 37
MATERIAL CHANGES AND OTHER INFORMATION........................................................................... 37
DEPOSITARY, U.S. FORWARDING AGENT & INFORMATION AGENT............................................................ 37
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
FINANCIAL ADVISOR, DEALER MANAGERS & SOLICITING DEALER GROUP..................................................... 38
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS............................................................... 38
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES..................................................................... 41
DIRECTORS' APPROVAL.............................................................................................. 43
ACCEPTANCE OF THE OFFER.......................................................................................... 43
STATUTORY RIGHTS................................................................................................. 43
MISCELLANEOUS.................................................................................................... 43
CONSENTS......................................................................................................... 44
Consents of Counsel............................................................................................ 44
APPROVAL AND CERTIFICATE......................................................................................... 45
SCHEDULE "A"..................................................................................................... 46
</TABLE>
3
<PAGE>
DEFINITIONS
In the Offer and the Circular, unless the subject matter or context is
inconsistent therewith, the following terms shall have the meanings set forth
below.
"AFFILIATE" has the meaning ascribed thereto in the CBCA or the SECURITIES Act
(Ontario), as the circumstances may require.
"ACQUISITION AGREEMENT" means the agreement dated as of February 20, 1997
between Volvo Construction Equipment and the Corporation.
"ACQUISITION PROPOSAL" means any acquisition of any Shareholder Securities.
"ASSOCIATE" has the meaning ascribed thereto in the CBCA or the SECURITIES Act
(Ontario), as the circumstances may require.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a federal holiday
in the United States.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT.
"CIRCULAR" means the take-over bid circular accompanying the Offer and forming
part hereof.
"COMPULSORY ACQUISITION" has the meaning ascribed thereto under "Acquisition of
Shares Not Deposited -- Compulsory Acquisition" in the Circular.
"CORPORATION" means Champion Road Machinery Limited, a corporation incorporated
under the CBCA.
"DEALER MANAGERS" means Merrill Lynch in the United States and TD Securities
Inc. in Canada.
"DEPOSITARY" means Montreal Trust Company of Canada.
"DISCLOSED TO VOLVO CONSTRUCTION EQUIPMENT IN WRITING" means (i) disclosure set
forth in the Lock-up Agreement, the Acquisition Agreement or the Corporation's
filings (other than any filing made on a confidential basis) with the OSC made,
and available generally to the public, on or before February 20, 1997 and (ii)
disclosure set forth in any written disclosure letter or notice addressed to
Volvo Construction Equipment and received in the period from January 1, 1997 to
February 19, 1997 by any officer or employee of Volvo Construction Equipment
identified in the letter of February 20, 1997 from Volvo Construction Equipment
to the Corporation, to the extent such letter or notice on its face discloses a
specific breach of an express representation or warranty of the Corporation in
Article III of the Acquisition Agreement.
"ELIGIBLE INSTITUTION" means a Canadian chartered bank, a major Canadian trust
company, a member of a recognized Canadian stock exchange or a member of the
Securities Transfer Agents Medallion Program.
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended.
"EXPIRY TIME" means 12:00 midnight (Toronto time) on March 21, 1997, or such
later time and date as may be fixed by the Offeror from time to time pursuant to
Section 5 of the Offer, "Extension and Variation of the Offer".
"FULLY DILUTED BASIS" means, with respect to the number of outstanding Shares at
any time, such number of outstanding Shares calculated assuming that all
outstanding options, warrants and other rights to purchase Shares are exercised.
"GOING PRIVATE TRANSACTION" has the meaning ascribed thereto in Policy 9.1,
unless otherwise defined.
"HSR ACT" has the meaning ascribed thereto under "Regulatory Matters" in the
Circular.
"INFORMATION AGENT" means Georgeson & Company Inc.
"LETTER OF TRANSMITTAL" means a letter of transmittal printed on green paper in
the form accompanying the Offer and the Circular.
"LOCK-UP AGREEMENT" means the agreement dated February 20, 1997 between Volvo
Construction Equipment and each of the Tendering Shareholders.
4
<PAGE>
"MATERIAL ADVERSE EFFECT" means any condition, event or development which is, or
could reasonably be expected to result in or represent, a material adverse
effect or material adverse change (or any condition, event or development
involving a prospective material adverse change) individually or in the
aggregate on or in the business, affairs, operations, assets, capitalization,
financial condition, rights, results of operations, or liabilities (including
without limitation any contingent liabilities that may arise through
outstanding, pending or threatened litigation or otherwise), whether contractual
or otherwise, of the Corporation and its subsidiaries considered as a whole
provided that none of the following shall either alone or in aggregate
constitute a Material Adverse Effect: (i) any change in general economic or
grader industry conditions; (ii) the payment by the Corporation of its regular
dividend of $0.05 per Share in April, 1997, (iii) payment of cash bonuses to
participants in the Corporation's employee stock option and deferred profit
sharing plans (the "Plans") in lieu of the granting of stock options and the
making of deferred profit sharing plan contributions in respect of such Plans
for the year ended December 31, 1996 in an aggregate amount not to exceed $1.2
million, and (iv) any departure from the Corporation of fewer than five of the
executive officers of the Corporation or its subsidiaries.
"MATERIAL FACT" has the meaning ascribed thereto in the SECURITIES ACT
(Ontario), as amended, except as otherwise provided.
"ME" means the Montreal Exchange.
"MERRILL LYNCH" means Merrill Lynch & Co.
"MINIMUM CONDITION" has the meaning ascribed thereto in subsection (a) of
Section 4 of the Offer, "Conditions of the Offer".
"NASDAQ-NMS" means the National Association of Securities Dealers Automated
Quotation National Market System.
"NOTICE OF GUARANTEED DELIVERY" means a notice of guaranteed delivery printed on
blue paper in the form accompanying the Offer and the Circular.
"OFFER" means the offer to purchase Shares made hereby to Shareholders.
"OFFEROR" means VCE Acquisition Inc., a corporation incorporated under the CBCA
and a wholly-owned subsidiary of Volvo Construction Equipment.
"OFFER PERIOD" means the period commencing on February 24, 1997 and ending at
the Expiry Time.
"OSC" means the Ontario Securities Commission.
"POLICY 9.1" means Policy Statement No. 9.1 of the OSC.
"POLICY Q-27" means Policy Q-27 of the QSC.
"QSC" means Commission des valeurs mobilieres du Quebec.
"SEC" means the United States Securities and Exchange Commission.
"SHAREHOLDER SECURITIES" means the 3,953,048 Shares in aggregate which the
Tendering Shareholders have agreed to irrevocably deposit and not withdraw under
the Offer pursuant to and in accordance with the provisions of the Lock-up
Agreement.
"SHAREHOLDERS" means the holders of Shares.
"SHARES" means the Shares in the capital of the Corporation, as constituted on
the date hereof.
"SOLICITING DEALER" has the meaning ascribed thereto under "Financial Advisor,
Dealer Managers and Soliciting Dealer Group" in the Circular.
"SUBSEQUENT ACQUISITION TRANSACTION" has the meaning ascribed thereto under
"Acquisition of Shares Not Deposited -- Subsequent Acquisition Transactions" in
the Circular.
"SUBSIDIARY" has the meaning ascribed thereto in the SECURITIES ACT (Ontario),
as amended.
5
<PAGE>
"TAX ACT" means the INCOME TAX ACT (Canada), as amended.
"TENDERING SHAREHOLDERS" means Allen & Company Incorporated, Caxton
International Limited, Harold M. Wit, Walsh Family 1989 Trust, Ferris Family
1987 Trust, Leach Family 1980 Trust, O'Brien Family Limited Partnership, R.
O'Brien & Mary Ann O'Brien Revocable Trust Dated 7/27/84, Arthur F. Church,
Dennis W. Vollmershausen and 3018202 Canada Inc.
"TRANSACTION PROPOSAL" means any offer or proposal with respect to any take-over
bid, tender offer or exchange offer (other than the Offer), merger,
amalgamation, plan of arrangement, reorganization, consolidation, business
combination, reverse take-over, sale of assets (other then in the ordinary
course of business), sale of securities, recapitalization, liquidation,
dissolution, winding-up, or similar transaction involving the Corporation or any
of its subsidiaries.
"TSE" means The Toronto Stock Exchange.
"U.S. FORWARDING AGENT" means The Bank of Nova Scotia Trust Company of New York.
"VOLVO" means AB Volvo (publ), a company organized under the laws of Sweden.
"VOLVO CONSTRUCTION EQUIPMENT" means Volvo Construction Equipment N.V., a
company organized under the laws of The Netherlands and a wholly-owned
subsidiary of Volvo.
ALL DOLLAR REFERENCES IN THE OFFER AND THE CIRCULAR ARE IN CANADIAN DOLLARS
UNLESS OTHERWISE INDICATED.
6
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY ONLY AND IS QUALIFIED BY THE DETAILED PROVISIONS
CONTAINED IN THE OFFER AND THE CIRCULAR. EXCEPT AS OTHERWISE INDICATED, THE
INFORMATION CONCERNING THE CORPORATION CONTAINED IN THE OFFER AND THE CIRCULAR
HAS BEEN TAKEN FROM OR IS BASED UPON PUBLICLY AVAILABLE DOCUMENTS AND RECORDS ON
FILE WITH CANADIAN SECURITIES REGULATORY AUTHORITIES, THE SEC AND OTHER PUBLIC
SOURCES OR WAS PROVIDED BY THE CORPORATION TO THE OFFEROR.
THE OFFER
The Offeror is offering, upon the terms and subject to the conditions
described herein, to purchase all of the issued and outstanding Shares,
including Shares which may become outstanding on the exercise of currently
outstanding options, warrants or rights to purchase Shares, at a price of
Cdn$15.00 in cash for each Share. The obligation of the Offeror to take up and
pay for Shares pursuant to the Offer is subject to certain conditions. See
Section 4 of the Offer, "Conditions of the Offer." Shareholders will be entitled
to receive the declared dividend of the Corporation of $0.05 per share payable
April 2, 1997 to holders of record of the Corporation at March 12, 1997 whether
or not they deposit their Shares under the Offer.
TIME FOR ACCEPTANCE
The Offer is open for acceptance until 12:00 midnight (Toronto time) on
March 21, 1997, unless the Offer is extended or withdrawn.
MANNER OF ACCEPTANCE
A Shareholder wishing to accept the Offer must deposit the certificate
representing the Shares, together with a properly completed Letter of
Transmittal or a manually signed facsimile thereof, at any one of the offices of
the Depositary or the U.S. Forwarding Agent specified in the Letter of
Transmittal at or prior to the Expiry Time. Instructions are contained in the
Letter of Transmittal which accompanies the Offer. A Shareholder whose Shares
are held in the name of a nominee should contact such holder's broker,
investment dealer, bank, trust company or other nominee for assistance. If a
Shareholder wishes to deposit Shares pursuant to the Offer and the certificate
representing the Shares is not immediately available, or such person cannot
deliver the certificate to the Depositary or the U.S. Forwarding Agent at or
prior to the Expiry Time, such securities may nevertheless be deposited in
compliance with the procedures for guaranteed delivery. A Shareholder may also
accept the Offer in the United States by following the procedures for book-entry
transfer. See Section 3 of the Offer, "Manner of Acceptance."
WITHDRAWAL OF DEPOSITED SHARES
Shares deposited under the Offer may be withdrawn at any time before the
Expiry Time and at such other times and in such other circumstances as are set
out in Section 7 of the Offer, "Withdrawal of Deposited Shares."
CONDITIONS OF THE OFFER
The Offeror reserves the right to withdraw or terminate the Offer and not
take up and pay for any Shares deposited under the Offer unless the conditions
described in Section 4 of the Offer, "Conditions of the Offer," are satisfied or
waived. The Offer is subject to certain conditions, including:
(a) that there are validly deposited under the Offer and not withdrawn as at
the Expiry Time a number of Shares which represents not less than 70% of
the Shares (calculated on a fully diluted basis) outstanding as at the
Expiry Time; and
(b) there shall not have occurred (or, if there shall have occurred prior to
the commencement of the Offer, there shall not have been generally
disclosed or Volvo Construction Equipment shall not otherwise discover,
if not previously disclosed to Volvo Construction Equipment in writing
prior to the commencement of the Offer) any Material Adverse Effect.
7
<PAGE>
For a complete description of the conditions of the Offer, see Section 4 of
the Offer, "Conditions of the Offer."
PAYMENT FOR DEPOSITED SHARES
If all the conditions referred to in Section 4 of the Offer, "Conditions of
the Offer," are satisfied or waived, the Offeror will be obligated to take up
and pay for all Shares validly deposited under the Offer and not withdrawn
promptly after the Expiry Time. See Section 6 of the Offer, "Payment for
Deposited Securities."
LOCK-UP AGREEMENT
The Tendering Shareholders have agreed, pursuant to and in accordance with
the provisions of the Lock-up Agreement, to deposit under the Offer and not
withdraw an aggregate of 3,953,048 Shares, including 148,000 Shares issuable
upon exercise of outstanding options, constituting approximately 34.3% of the
outstanding Shares on a fully diluted basis.
PURPOSE OF THE OFFER
The purpose of the Offer is to enable the Offeror to acquire all of the
Shares. See "Purpose of the Offer and Offeror's Plans for the Corporation" in
the Circular.
ACQUISITION OF SHARES NOT DEPOSITED
If within 120 days after the date of the Offer, the Offer has been accepted
by holders of not less than 90% of the Shares (other than Shares held at the
date hereof by or on behalf of the Offeror or its affiliates or associates), the
Offeror intends to acquire the remaining Shares pursuant to the compulsory
acquisition provisions of the CBCA. If the Offeror takes up and pays for Shares
validly deposited under the Offer and the compulsory acquisition provisions of
the CBCA are not available, the Offeror anticipates that it will propose an
amalgamation, statutory arrangement or other transaction as a consequence of
which the interest of any Shareholder whose Shares have not been taken up and
paid for may be terminated without the consent of such Shareholder. See
"Acquisition of Shares Not Deposited" in the Circular.
VOLVO CONSTRUCTION EQUIPMENT, THE OFFEROR AND VOLVO
Volvo Construction Equipment, a company organized under the laws of The
Netherlands, is a major manufacturer of construction equipment, providing
products and support to customers in over 100 countries. Volvo Construction
Equipment is a wholly-owned subsidiary of Volvo, a company organized under the
laws of Sweden.
The Offeror is a corporation incorporated under the CBCA and is a
wholly-owned subsidiary of Volvo Construction Equipment and an indirect,
wholly-owned subsidiary of Volvo. The Offeror was organized for the purpose of
making the Offer and has not carried on any activities to date other than those
incident to its formation and the commencement of the Offer.
Volvo and its subsidiaries are an international automotive and transport
vehicle group, with 70,000 employees and production facilities in more than 20
countries. Volvo has sales and provides services worldwide. Volvo provides a
range of transportation related products and services. Volvo occupies a strong
position as a car producer within its segment and is among the world leaders in
heavy commercial vehicles such as trucks, buses and construction equipment as
well as in drive systems for marine and industrial applications. In the aircraft
engine field, Volvo has substantial resources for the overhaul of engines and
the development of engine components.
See "Volvo Construction Equipment, the Offeror and Volvo" in the Circular.
8
<PAGE>
CERTAIN INCOME TAX CONSIDERATIONS
The sale of Shares pursuant to the Offer will be a taxable disposition for
Canadian federal income tax purposes. In general, Canadian residents who hold
their Shares as capital property will realize a capital gain (or capital loss)
to the extent that the proceeds of disposition received for the Shares, net of
disposition costs, exceed (or are less than) the adjusted cost base thereof. See
"Certain Canadian Federal Income Tax Considerations" in the Circular.
The sale of Shares pursuant to the Offer will be a taxable transaction for
United States federal income tax purposes and may also be a taxable transaction
under the applicable tax laws of various states and localities within the United
States. In general, subject to certain assumptions, Shareholders that are U.S.
Holders (as defined in the Circular under "Certain U.S. Federal Income Tax
Consequences") will recognize gain or loss on the sale of Shares pursuant to the
Offer equal to the difference, if any, between (i) the amount of cash received
by such U.S. Holders on the sale and (ii) such U.S. Holders' tax basis in the
Shares exchanged therefor. See "Certain U.S. Federal Income Tax Consequences" in
the Circular.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM OF A SALE OF SHARES PURSUANT TO THE OFFER OR
OF ANY SUBSEQUENT ACQUISITION TRANSACTION.
DEPOSITARY, U.S. FORWARDING AGENT AND INFORMATION AGENT
Montreal Trust Company of Canada is acting as Depositary under the Offer and
The Bank of Nova Scotia Trust Company of New York is acting as U.S. Forwarding
Agent. The Depositary and the U.S. Forwarding Agent will receive deposits of
certificates representing the Shares and accompanying Letters of Transmittal at
the offices specified in the Letter of Transmittal. The Depositary will receive
Notices of Guaranteed Delivery at the offices specified therein. The Depositary
will be responsible for giving certain notices, if required, and for making
payment for all Shares purchased by the Offeror under the Offer. The Offeror has
retained Georgeson & Company Inc. to act as Information Agent in connection with
the Offer. See "Depositary, U.S. Forwarding Agent and Information Agent" in the
Circular.
FINANCIAL ADVISOR, DEALER MANAGERS AND SOLICITING DEALER GROUP
Merrill Lynch Canada Inc. has been retained to act as financial advisor for
Volvo Construction Equipment in connection with the Offer. Merrill Lynch and TD
Securities Inc. have been retained to act as Dealer Managers in connection with
the Offer in the United States and Canada, respectively. Merrill Lynch will
solicit acceptances of the Offer in the United States. TD Securities Inc. will
solicit acceptances of the Offer in Canada and will form the Soliciting Dealer
Group to solicit acceptances of the Offer in Canada. See "Financial Advisor,
Dealer Managers and Soliciting Dealer Group" in the Circular.
9
<PAGE>
OFFER
TO: THE HOLDERS OF COMMON SHARES OF CHAMPION ROAD MACHINERY LIMITED
1. THE OFFER
The Offeror hereby offers to purchase, upon the terms and subject to the
conditions hereinafter specified, all of the issued and outstanding Shares,
including any Shares which may become outstanding after the date of the Offer
upon the exercise of currently outstanding options, warrants or rights to
purchase Shares, at a price of Cdn$15.00 in cash for each Share.
The Offer is made only for the Shares and is not made for any options,
warrants or rights to purchase Shares. Any holder of such options, warrants or
rights who wishes to accept the Offer should, to the extent permitted by the
terms thereof, exercise the options, warrants or rights in order to obtain
certificates representing Shares and deposit the same in accordance with the
Offer.
Shareholders of record of the Corporation at March 12, 1997 will be entitled
to receive the declared dividend of the Corporation of $0.05 per Share payable
April 2, 1997 to holders of record of the Corporation at March 12, 1997 whether
or not they deposit their Shares under the Offer.
The Corporation has advised the Offeror that as of February 21, 1997, there
were 11,171,200 Shares issued and outstanding and outstanding stock options and
rights to purchase 364,500 Shares.
Shares accepted for purchase will be paid for in Canadian dollars, unless
the person tendering such Shares elects to receive payment in United States
dollars by checking the appropriate box in the Letter of Transmittal deposited
with the Shares. The amount payable in United States dollars will be determined
on the basis of the rate of exchange available to the Depositary from a Canadian
chartered bank on the day upon which payment is made (net of any applicable
commissions or exchange charges).
THE ACCOMPANYING CIRCULAR, LETTER OF TRANSMITTAL AND NOTICE OF GUARANTEED
DELIVERY ARE INCORPORATED INTO AND FORM PART OF THE OFFER AND CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE MAKING A DECISION WITH RESPECT
TO THE OFFER.
2. TIME FOR ACCEPTANCE
The Offer is open for acceptance until 12:00 midnight (Toronto time) on
March 21, 1997 or such later time and date as may be fixed by the Offeror from
time to time pursuant to Section 5 of the Offer, "Extension and Variation of the
Offer", unless withdrawn or terminated by the Offeror.
3. MANNER OF ACCEPTANCE
The Offer may be accepted by delivering the following items to the
Depositary or to the U.S. Forwarding Agent at any of the offices listed in the
Letter of Transmittal so as to arrive there not later than the Expiry Time:
(a) the certificate or certificates representing the Shares in respect of
which the Offer is being accepted;
(b) a Letter of Transmittal, or a manually signed facsimile thereof, duly
completed and executed as required by the instructions set out in the
Letter of Transmittal; and
(c) any other relevant document required by the instructions set out in the
Letter of Transmittal (including for Shareholders with a registered
address in the United States, a properly completed Substitute Form W-9
included in the Letter of Transmittal).
Except as otherwise provided in the instructions to the Letter of
Transmittal, all signatures on the Letter of Transmittal must be guaranteed by
an Eligible Institution.
If a Letter of Transmittal is executed by a person other than the registered
holder of the Shares represented by the certificates deposited therewith, or if
certificates representing Shares in respect of which the Offer has not
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been accepted are to be issued to a person other than the registered owner, then
each certificate must be endorsed or be accompanied by an appropriate share
transfer power of attorney duly and properly completed by the registered holder,
with the signature on the endorsement panel or share transfer power of attorney
guaranteed by an Eligible Institution.
In addition, Shares may be deposited in compliance with the procedures set
forth below for guaranteed delivery or, in the United States, for book-entry
transfer, at or prior to the Expiry Time.
PROCEDURE FOR GUARANTEED DELIVERY
If a Shareholder wishes to deposit Shares pursuant to the Offer and (i) the
certificates representing such Shares are not immediately available, or (ii) the
Shareholder is not able to deliver the certificates and all other required
documents to the Depositary or the U.S. Forwarding Agent at or prior to the
Expiry Time or (iii) the Shareholder cannot comply with the procedures for
delivery by book-entry transfer of Shares on a timely basis, such Shares may
nevertheless be deposited under the Offer provided that all of the following
conditions are met:
(a) such deposit is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery, or
a manually signed facsimile thereof, is received by the Depositary at its
principal office in Toronto as set forth on the Notice of Guaranteed
Delivery, at or prior to the Expiry Time; and
(c) the certificate(s) representing deposited Shares in proper form for
transfer (or a Book-Entry Confirmation (as defined below) of transfer of
Shares into the Depositary's account at The Depository Trust Company),
together with a properly completed and duly executed Letter of
Transmittal, or a manually signed facsimile thereof, with any required
signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message (as defined below)) and all other documents required by
the Letter of Transmittal, are received by the Depositary at its
principal office in Toronto as set forth in the Notice of Guaranteed
Delivery at or before 4:30 p.m. (Toronto time) on the third trading day
on the TSE after the Expiry Time. To constitute delivery for the purpose
of satisfying a guranteed delivery, the Letter of Transmittal (or, in the
case of a book-entry transfer, an Agent's Message) and accompanying Share
certificates (or Book-Entry Confirmation (as defined below)) must be
delivered to the Depositary's principal office in Toronto.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Depositary at its principal office in
Toronto as set forth on the Notice of Guaranteed Delivery and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
ACCEPTANCE BY BOOK-ENTRY TRANSFER IN THE UNITED STATES
Shareholders may also accept the Offer in the United States by following the
procedures for book-entry transfer, provided that confirmation of a book-entry
transfer of such Shares (a "Book-Entry Confirmation") into the Depositary's
account at The Depository Trust Company, together with a properly completed and
duly executed Letter of Transmittal, or a manually signed facsimile thereof,
covering such Shares with any required signature guarantees (or an Agent's
Message in connection with a book-entry transfer) and any other required
documents, are received by the Depositary at one of the offices set out in the
Letter of Transmittal prior to the Expiry Time. The Depositary has established
an account at The Depository Trust Company for the purpose of the Offer. Any
financial institution that is a participant in The Depository Trust Company's
system may cause The Depository Trust Company to make a book-entry transfer of
the holder's Shares into the Depositary's account in accordance with The
Depository Trust Company's procedures for such transfer. Although delivery of
Shares may be effected through book-entry transfer into the Depositary's account
at The Depository Trust Company, a Letter of Transmittal or a manually signed
facsimile thereof covering such Shares with any required signature guarantees
(or an Agent's Message in connection with a book-entry transfer) and any other
required documents must, in any case, be received by the Depositary at one of
the offices set forth in the Letter of Transmittal at or prior to the
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Expiry Time. DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY IN ACCORDANCE
WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by The Depository
Trust Company to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that The Depository Trust Company has
received an express acknowledgement from the participant in The Depository Trust
Company depositing the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal as if executed by such participant and that
the Offeror may enforce such agreement against such participant.
GENERAL
In all cases, payment for the Shares deposited and taken up by the Offeror
will be made only after timely receipt by the Depositary or the U.S. Forwarding
Agent of (i) the certificates representing the Shares (or, in the case of the
Depositary, a Book-Entry Confirmation of the transfer of such Shares into the
Depositary's account at The Depository Trust Company), (ii) a properly completed
and duly executed Letter of Transmittal, or a manually signed facsimile thereof,
in respect of such Shares with the signatures guaranteed, if required, in
accordance with the instructions set out in the Letter of Transmittal (or, in
the case of the Depositary, an Agent's Message in connection with a book-entry
transfer) and (iii) any other required documents.
THE METHOD OF DELIVERY OF CERTIFICATES REPRESENTING SHARES, THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE
PERSON DEPOSITING THE SAME. THE OFFEROR RECOMMENDS THAT ALL SUCH DOCUMENTS BE
DELIVERED BY HAND TO THE DEPOSITARY OR THE U.S. FORWARDING AGENT AND THAT A
RECEIPT BE OBTAINED, OR IF MAILED, THAT REGISTERED MAIL, WITH RETURN RECEIPT
REQUESTED, BE USED AND THAT PROPER INSURANCE BE OBTAINED.
Shareholders whose Shares are registered in the name of a nominee should
contact their broker, investment dealer, bank, trust company or other nominee
for assistance in depositing their Shares.
The execution of a Letter of Transmittal irrevocably appoints certain senior
officers of the Offeror, and each of them, and any other person designated by
the Offeror in writing, as the true and lawful agent, attorney and
attorney-in-fact and proxy of the holder of the Shares covered by the Letter of
Transmittal with respect to Shares registered in the name of the holder of such
Shares on the register of holders maintained by the Corporation and deposited
under the Offer and purchased by the Offeror (the "Purchased Shares"), and with
respect to any and all securities, rights, warrants or other interests issued,
transferred or distributed on or in respect of the Purchased Shares on or after
the date of the Offer (collectively, the "Other Securities"), effective from and
after the date that the Offeror takes up and pays for the Purchased Shares (the
"Effective Date"), with full power of substitution, in the name and on behalf of
such Shareholders (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to (a) register or record, transfer and enter
the transfer of Purchased Shares and any Other Securities on the appropriate
register of holders of such Purchased Shares and Other Securities and the
accounts books maintained by the Corporation and/or The Depository Trust
Company; (b) except as may otherwise be agreed, to exercise any and all of the
rights of the holder of the Purchased Shares and Other Securities, including,
without limitation, the right to vote, execute and deliver any and all
instruments of proxy, authorizations or consents in respect of any or all of the
Purchased Shares and any or all Other Securities, revoke any such instrument,
authorization or consent given prior to, on or after the Effective Date,
designate in any such instruments of proxy any person or persons as the proxy or
the proxy nominee or nominees of the Shareholder in respect of such Purchased
Shares and such Other Securities for all purposes including, without limiting
the generality of the foregoing, in connection with any meeting (whether annual,
special or otherwise) of holders of securities of the Corporation (or any
adjournment thereof), and execute, endorse and negotiate, for and in the name of
and on behalf of the registered holder of Purchased Shares and Other Securities,
any and all cheques or other instruments respecting any distribution payable to
or to the order of such registered holder (other than the declared dividend of
the Corporation of $0.05 per Share payable April 2, 1997 to holders of record of
the Corporation at March 12, 1997), and (c) exercise any and all rights of the
holder in respect of the Purchased Shares or Other Securities, all as set forth
in the Letter of Transmittal. Further, a holder of Purchased Shares or Other
Securities who executes a Letter of Transmittal agrees, effective from the
Effective Date, not to vote any of the
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Purchased Shares or Other Securities at any meeting (whether annual, special or
otherwise) of holders of Shares or Other Securities and not to exercise any or
all of the other rights or privileges attached to any or all instruments of
proxy, authorizations or consents in respect of any or all of the Purchased
Shares or Other Securities, and to designate in any such instruments of proxy
the person or persons specified by the Offeror as the proxy or the proxy nominee
or nominees of the holder in respect of the Purchased Shares or Other
Securities. Upon such appointment, all prior proxies given by the holder of such
Purchased Shares or Other Securities with respect thereto shall be revoked and
no subsequent proxies may be given by such person with respect thereto. A holder
of Purchased Shares or Other Securities who executes the Letter of Transmittal
covenants to execute, upon request, any additional documents necessary or
desirable to complete the sale, assignment and transfer of the Purchased Shares
and Other Securities to the Offeror and acknowledges that all authority therein
conferred or agreed to be conferred shall survive the death or incapacity,
bankruptcy or insolvency of the holder and all obligations of the holder therein
shall be binding upon the heirs, personal representatives, successors and
assigns of the holder.
All questions as to the validity, form, eligibility (including timely
receipt) and acceptance of any Shares deposited pursuant to the Offer will be
determined by the Offeror in its sole discretion. Depositing Shareholders agree
that such determination shall be final and binding. The Offeror reserves the
absolute right to reject any and all deposits which it determines not to be in
proper form or which, in the opinion of its counsel, may be unlawful to accept
under the laws of any jurisdiction. The Offeror reserves the absolute right to
waive any defects or irregularities in the deposit of any Shares. There shall be
no duty or obligation on the Offeror, Volvo Construction Equipment, Volvo, the
Dealer Managers, any Soliciting Dealer, the Depositary, the U.S. Forwarding
Agent, the Information Agent or any other person to give notice of any defects
or irregularities in any deposit and no liability shall be incurred by any of
them for failure to give such notice. Subject to the provisions of the
Acquisition Agreement and the Lock-Up Agreement, the Offeror's interpretation of
the terms and conditions of the Offer (including without limitation the
Circular, the Letter of Transmittal and the Notice of Guaranteed Delivery) shall
be final and binding.
The deposit of Shares pursuant to the procedures herein will constitute a
binding agreement between the depositing Shareholder and the Offeror upon the
terms and subject to the conditions of the Offer, including the depositing
Shareholder's representation and warranty that (i) such Shareholder has full
power and authority to deposit, sell, assign and transfer the Shares (and any
Other Securities) being deposited and has not sold, assigned or transferred or
agreed to sell, assign or transfer any of such Purchased Shares or Other
Securities to any other person; (ii) such Shareholder owns the Shares (and any
Other Securities) which are being deposited within the meaning of applicable
securities laws, (iii) the deposit of such Shares (and any Other Securities)
complies with applicable securities laws and (iv) when such Shares (and any
Other Securities) are taken up and paid for by the Offeror, the Offeror will
acquire good title thereto free and clear of all liens, restrictions, charges,
encumbrances, claims and equities whatsoever.
The Offeror reserves the right to permit the Offer to be accepted in a
manner other than that set out above.
TO PREVENT UNITED STATES FEDERAL BACKUP WITHHOLDING TAX WITH RESPECT TO
PAYMENTS TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED
PURSUANT TO THE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY OR THE
U.S. FORWARDING AGENT WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER AND CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP WITHHOLDING
TAX BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED AS PART OF THE LETTER OF
TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE
DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENT MADE TO SUCH SHAREHOLDER.
SEE INSTRUCTION 8 OF THE LETTER OF TRANSMITTAL.
4. CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer and subject to Rule
14e-1(c) of the Exchange Act (which requires an offeror to pay the consideration
offered or return the securities deposited promptly after termination or
withdrawal), the Offeror will have the right to withdraw or terminate the Offer
and not take up and pay for any Shares deposited under the Offer, and may extend
the period of time during which the Offer is open and postpone
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taking up and paying for any Shares deposited under the Offer, if any of the
following conditions have not been satisfied or waived by the Offeror at or
prior to the Expiry Time:
(a) there are validly deposited under the Offer and not withdrawn as at the
Expiry Time a number of Shares which represents not less than 70% of the
Shares outstanding (on a fully diluted basis) as at the Expiry Time (the
"Minimum Condition").
(b) (i) the Director of Investigation and Research (the "Director")
appointed under the COMPETITION ACT (Canada) shall have issued an advance
ruling certificate under section 102 of such Act in respect of the
transaction (the "Transaction") which will result from the Offer; or (ii)
the applicable waiting period under section 123 of such Act shall have
expired without the Director having advised the Offeror in writing that
he intends to apply to the Competition Tribunal for an order under
section 92 or section 100 of such Act in respect of the Transaction or to
commence an inquiry under section 10 of such Act and no application under
section 9 of such Act shall have been made in respect of the Transaction;
(c) (i) any applicable waiting periods under the HSR Act shall have
terminated or expired; and (ii) any applicable waiting periods under any
competition, merger control or similar law, rule, regulation, or policy
or any approval or consent of any governmental authority in respect of
competition or merger control matters having jurisdiction over any party
to the Lock-up Agreement or the Offer or any other transaction
contemplated in the Lock-up Agreement, shall have terminated or expired
or been obtained, as the case may be, in respect of the Offer and such
transactions, excluding for purposes of clause (ii) hereof only, however,
any such law, rule, regulation or policy, or approval or consent of a
governmental authority, in a jurisdiction in respect of which the
Corporation derived annual revenues, directly or indirectly, in any of
the last three years representing less than 10% of the Corporation's
total revenues in any of such years;
(d) (i) no act, action, suit or proceeding shall have been threatened or
taken before or by any domestic or foreign arbitrator, court or tribunal
or governmental agency or other regulatory authority or administrative
agency or commission by any elected or appointed public official or
private person (including, without limitation, any individual,
corporation, firm, group or other entity) in Canada or elsewhere, whether
or not having the force of law, and (ii) no law, regulation or policy
shall have been proposed, enacted, promulgated or applied, in either
case:
(A) to cease trade, enjoin, prohibit or impose material limitations or
conditions on or make materially more costly the purchase by or the
sale to the Offeror of the Shares or the right of the Offeror to own
or exercise full rights of ownership over the Shares or the
consummation of any of the transactions contemplated by the Offer or,
solely as to paragraph (d)(ii), to prevent the completion of a
compulsory acquisition of the Shares not deposited under the Offer or
which could reasonably be expected to have such an effect;
(B) to prohibit or materially limit the ownership or operation by the
Corporation or any of its subsidiaries or by the Offeror or Volvo
Construction Equipment, directly or indirectly, of all or any
material portion of the business or assets of the Corporation and its
subsidiaries, on a consolidated basis, or the Offeror or Volvo
Construction Equipment as a result of the transactions contemplated
by the Offer or compel the Offeror or Volvo Construction Equipment,
directly or indirectly, to dispose of or hold separate all or any
material portion of the business or assets of the Corporation and its
subsidiaries, on a consolidated basis, or the Offeror or Volvo
Construction Equipment as a result of the transactions contemplated
by the Offer; or
(C) which has had or would have a Material Adverse Effect;
provided, however, that in the case of any act, action, suit or
proceeding taken by a private person, the Offeror shall not be required
to consummate the Offer only if such act, action, suit or proceeding
shall have been instituted and not just threatened and either resolved in
favour of such private person as evidenced by an order, ruling or
decision by any domestic or foreign arbitrator, court or tribunal or
governmental agency or other regulatory authority or administrative
agency or commission in Canada or
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elsewhere, or if, in the opinion of the Offeror, in its discretion, there
is a reasonable risk that such act, action, suit or proceeding will be so
resolved in favour of such private person;
(e) there shall not exist any prohibition at law against the Offeror making
the Offer or taking up and paying for 100% of the Shares under the Offer;
(f) other than as has been disclosed to Volvo Construction Equipment in
writing by the Corporation prior to February 20, 1997, the Corporation or
any of its subsidiaries shall not, except with the prior written approval
of the Offeror, have authorized or proposed, or announced an intention to
do so, and shall not have entered into any agreement, arrangement or
understanding with respect to:
(i) any action that would, individually or in the aggregate, cause a
Material Adverse Effect:
(ii) any acquisition of a material amount of assets or securities,
except in the ordinary course of its respective business;
(iii) any disposition of a material amount of assets or securities,
except in the ordinary course of its respective business;
(iv) any material change in its debt capitalization (including, but not
limited to, any material increase in the amount of its borrowings)
or any conversion of short term borrowings into long term
borrowings;
(v) any material capital expenditures, except in the ordinary course of
its respective business;
(vi) any material dealings of any nature whatsoever between it, on the
one hand, and any of the Tendering Shareholders or any of their
respective affiliates (or any insider of any of the foregoing), on
the other hand, except as specifically contemplated by the Lock-up
Agreement;
(vii) entering into, modifying or terminating any agreement or
arrangement with any of its senior officers or employees, except in
the ordinary course of its respective business and except for the
acceleration of the exercise time for currently outstanding stock
options as may be necessary to satisfy the condition in paragraph
(j) hereof;
(viii) any release or relinquishment of any material contractual rights,
except in the ordinary course of its respective business;
(ix) agreeing or committing to guarantee the payment of indebtedness of
a third party, other than any guarantee of subsidiary indebtedness
in the ordinary course of business;
(x) instituting, cancelling or modifying any pension plan or other
employee benefit arrangement;
(xi) declaring or paying any dividend or declaring, authorizing or
making any distribution of or on any of its securities other than a
dividend of $0.05 per Share payable on April 2, 1997 to
Shareholders of record on March 12, 1997;
(xii) the amendment of its articles or by-laws; or
(xiii) the issuance or purchase or other acquisition of any shares of its
capital stock of any class or series or of securities convertible
into, or rights, warrants or options to acquire, any such shares or
other convertible securities (other than pursuant to (A) the
exercise in accordance with their current terms of stock options
currently outstanding or (B) the exercise in accordance with the
current terms of currently outstanding stock options, as such terms
may have been amended to accelerate the exercise time thereunder in
order to satisfy the condition in paragraph (j) hereof);
(xiv) any take-over bid or tender offer (including without limitation an
issuer bid or self tender offer) or exchange offer, merger,
amalgamation, plan of arrangement, reorganization, consolidation,
business combination, reverse take-over, sale of substantially all
its assets, sale of securities, recapitalization, liquidation,
dissolution, winding up or similar transaction involving the
Corporation or any of its subsidiaries or any other transaction the
consummation of which would or could reasonably be
15
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expected to impede, interfere with, prevent or materially delay the
consummation of the Offer or which would or could reasonably be
expected to materially dilute the benefits to the Offeror and Volvo
Construction Equipment of the transactions contemplated by the
Offer or a compulsory acquisition or any subsequent acquisition
transaction;
(g) there shall not have occurred (or if there shall have occurred prior to
the commencement of the Offer, there shall not have been generally
disclosed or Volvo Construction Equipment shall not otherwise discover,
if not previously disclosed to Volvo Construction Equipment in writing
prior to the commencement of the Offer) any Material Adverse Effect;
(h) the Offeror shall have been provided with true copies of all documents
and shall have been given reasonably commensurate access, in a timely
manner, to all such non-public information relating to the Corporation or
any of its subsidiaries, including without limitation reasonably
commensurate access to such members of senior management of the
Corporation or any of its subsidiaries and to such of the operations of
the Corporation or any of its subsidiaries as may be given, provided or
made available by the Corporation or any of its subsidiaries:
(i) at any time after the announcement of the Offer, to any other
potential acquiror of the Shares or of a significant portion of the
assets of the Corporation or any of its subsidiaries, or to any
person considering (or seeking such information in order to
consider) any Transaction Proposal or any Acquisition Proposal; or
(ii) at any time within 120 days prior to the announcement of the Offer,
to any person who, after the announcement of the Offer, enters into
an agreement relating to any Transaction Proposal or any
Acquisition Proposal or otherwise makes a competing offer;
on substantially the same terms and conditions as may be imposed on such
potential acquiror or person, provided that no such term or condition
shall be imposed on the Offeror that would be inconsistent with, or
render the Offeror unable to complete, the acquisition of the Shares
pursuant to the terms of the Offer;
(i) the Offeror shall not become aware of any untrue statement of material
fact, or an omission to state a material fact that is required to be
stated or that is necessary to make a statement not misleading in the
light of the circumstances in which it was made and at the date it was
made (after giving effect to all subsequent filings prior to February 20,
1997 in relation to all matters covered in earlier filings) in any
document filed by or on behalf of the Corporation with any securities
commission or similar securities regulatory authority in any of the
provinces of Canada or with the SEC prior to February 20, 1997, including
without limitation any annual information form, financial statement,
material change report or management proxy circular or in any document so
filed or released by the Corporation to the public on or following the
date hereof, the effect of which untrue statement or omission constitutes
a Material Adverse Effect;
(j) all outstanding rights or entitlements of any type whatsoever to
purchase or otherwise acquire authorized and unissued Shares shall have
been exercised in full or irrevocably released, surrendered and waived by
the holders thereof;
(k) (i) all representations and warranties of each of the Tendering
Shareholders in section 2.1 of the Lock-up Agreement shall be, as of the
date made, true and correct in all material respects, and (ii) each of
the Tendering Shareholders shall have performed in all material respects
any covenant or complied in all material respects with any agreement to
be performed by it under the Lock-up Agreement; and
(l) all representations and warranties of the Corporation in the Acquisition
Agreement shall be, as of the date made, true and correct in all respects
provided such representations and warranties shall be deemed to be true
and correct unless the failure to be true and correct constitutes a
Material Adverse Effect, and the Corporation shall have performed in all
respects any covenant or complied in all respects with any
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agreement to be performed by it under the Acquisition Agreement unless
the failure to so perform or comply does not constitute a Material
Adverse Effect.
The foregoing conditions are for the exclusive benefit of the Offeror and
may be asserted by the Offeror regardless of the circumstances (including any
action or inaction by the Offeror) giving rise to such assertion or may be
waived by the Offeror, in whole or in part at any time and from time to time, in
its sole discretion and shall be exclusive of any other right which the Offeror
may have under the Offer. The failure by the Offeror at any time to exercise or
assert any of the foregoing rights shall not be deemed to constitute a waiver of
any such right, the waiver of any such right with respect to particular facts or
other circumstances shall not be deemed a waiver with respect to any other facts
and circumstances, and each such right shall be deemed an on-going right which
may be asserted at any time and from time to time by the Offeror. Any
determination by the Offeror concerning the foregoing conditions shall be final
and binding upon all parties. If the Offeror waives a material condition of the
Offer and the Offer is scheduled to expire within five business days thereof,
the Offeror will extend the Offer so that it remains open for at least five
business days from the date of such waiver.
Any waiver of a condition or the withdrawal of the Offer shall be effective
on the day on which written notice or other communication confirmed in writing
by the Offeror to that effect is given to the Depositary at its principal office
in Toronto. The Offeror, forthwith after giving any such notice, shall make a
public announcement of such waiver or withdrawal, shall cause the Depositary, if
required by law, as soon as practicable thereafter to notify the Shareholders in
the manner set forth in Section 11 of the Offer, "Notice and Delivery," and
shall provide a copy of the aforementioned notice to the TSE, the ME and the
NASDAQ-NMS. If the Offer is withdrawn, then the Offeror shall not be obligated
to take up or pay for any Shares deposited under the Offer and the Depositary
will promptly return all certificates for deposited Shares, Letters of
Transmittal, Notices of Guaranteed Delivery and related documents to the parties
by whom they were deposited.
5. EXTENSION AND VARIATION OF THE OFFER
The Offer is open for acceptance until, but not after, the Expiry Time.
Subject to applicable laws, rules, regulations and interpretive positions
with respect thereto of appropriate governmental authorities, the Offeror
reserves the right, in its sole discretion, at any time and from time to time
during the Offer Period (or otherwise as permitted by applicable law) to extend
the Expiry Time or to vary the Offer by giving written notice or other
communication confirmed in writing of such extension or variation to the
Depositary at its principal office in Toronto, and by causing the Depositary to
provide as soon as practicable thereafter a copy of such notice, in the manner
set forth in Section 11 of the Offer, "Notice and Delivery," to all holders of
Shares. In accordance with the provisions of the Lock-up Agreement and the
Acquisition Agreement, the Offeror may vary the terms of the Offer solely to
effect one or more of the following: (i) an increase in the consideration
offered for the Shares; (ii) an extension of the period during which Shares may
be deposited under the Offer; (iii) a waiver of any condition of the Offer or a
reduction in the percentage of Shares required to be deposited pursuant to the
Minimum Condition; and (iv) compliance with applicable securities laws. The
Offeror shall, as soon as practicable after giving notice of an extension or
variation to the Depositary, make a public announcement of the extension or
variation, in the case of an extension, no later than 9:00 a.m., Toronto time,
on the next business day after the previously scheduled Expiry Time. During any
such extension or variation, all Shares previously deposited and not withdrawn
will remain subject to the Offer, subject to the right of a depositing
Shareholder to withdraw such holder's Shares. Subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
Shareholders in connection with the Offer be promptly disseminated to
Shareholders in a manner reasonably designed to inform Shareholders of such
change) and without limiting the manner in which the Offeror may choose to make
any public announcement, the Offeror shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service. The Offeror will provide a copy
of the notice of extension or variation to the TSE, the ME and the NASDAQ-NMS.
Subject to the foregoing, any notice of extension or variation will be deemed to
have been given and to be effective on the day on which it is delivered or
otherwise communicated to the Depositary at its principal office in Toronto.
Where the terms of the Offer are varied, the period during which Shares may
be deposited pursuant to the Offer shall not expire before ten calendar days
after the notice of variation has been mailed, delivered or otherwise
17
<PAGE>
properly communicated to Shareholders, or, in the case of an increase in the
consideration offered in the Offer, ten business days, from and including the
date the notice of variation has been given to Shareholders, unless otherwise
permitted by applicable law. The Offeror confirms that if it makes a material
variation in the terms of the Offer or the information concerning the Offer, the
Offeror will extend the Offer to the extent required under applicable law.
During any such extension or in the event of any variation, all Shares
previously deposited and not taken up or withdrawn will remain subject to the
Offer and may be accepted for purchase by the Offeror in accordance with the
terms hereof, subject to Section 6 of the Offer, "Payment for Deposited
Securities," and to Section 7 of the Offer, "Withdrawal of Deposited
Securities." An extension of the Expiry Time or a variation of the Offer does
not constitute a waiver by the Offeror of its rights under Section 4 of the
Offer, "Conditions of the Offer."
If the consideration being offered for the Shares under the Offer is
increased, the increased consideration will be paid to all depositing
Shareholders whose Shares are taken up and paid for under the Offer.
6. PAYMENT FOR DEPOSITED SECURITIES
If all the conditions referred to in Section 4 of the Offer, "Conditions of
the Offer," have been satisfied or waived by the Offeror at the Expiry Time, the
Offeror will become obligated to take up and pay for all Shares validly
deposited under the Offer (and not withdrawn not later than the Expiry Time) and
to pay for the Shares taken up promptly, but in any event not later than three
days after taking up the Shares.
Subject to applicable laws, rules and regulations, the Offeror expressly
reserves the right in its sole discretion to delay taking up or paying for any
Shares or to terminate the Offer and not take up or pay for any Shares if any
condition specified in Section 4 of the Offer, "Conditions of the Offer," is not
satisfied or waived by the Offeror, in whole or in part, by giving written
notice thereof or other communication confirmed in writing to the Depositary at
its principal office in Toronto. The Offeror will be deemed to have taken up and
accepted for payment Shares validly deposited and not withdrawn pursuant to the
Offer if, as and when the Offeror gives written notice or other communication
confirmed in writing to the Depositary at its principal office in Toronto of its
acceptance for payment of such Shares pursuant to the Offer.
The Offeror will pay for Shares validly deposited pursuant to the Offer and
not withdrawn and taken up by providing the Depositary with sufficient funds (by
bank transfer or other means satisfactory to the Depositary) for transmittal to
the holders of such Shares.
Under no circumstances will interest accrue or be paid by the Offeror or the
Depositary to persons depositing Shares on the purchase price of Shares
purchased by the Offeror, regardless of any delay in making such payment.
The Depositary will act as the agent of persons who have deposited Shares in
acceptance of the Offer for the purposes of receiving payment from the Offeror
and transmitting payment to such persons, and receipt of payment by the
Depositary will be deemed to constitute receipt of payment by persons depositing
Shares.
Settlement will be made by the Depositary issuing or causing to be issued a
cheque payable in Canadian dollars unless the person who deposits the Shares
elects payment in United States dollars by checking the currency election box
provided for in the Letter of Transmittal, in which case the cheque will be in
United States dollars, in each case in the amount to which such Shareholder is
entitled. The amount payable in United States dollars will be determined on the
basis of the rate of exchange available to the Depositary from a Canadian
chartered bank on the day upon which payment is made (net of any applicable
commissions or exchange charges). See Section 1 of the Offer, "The Offer".
Unless otherwise directed by the Letter of Transmittal, the cheque will be
issued in the name of the registered holder of the Shares so deposited. Unless
the person depositing the Shares instructs the Depositary to hold the cheque for
pick-up by checking the appropriate box in the Letter of Transmittal, cheques
will be forwarded by first class mail to such persons at the address specified
in the Letter of Transmittal. If no address is specified, cheques will be
forwarded to the address of the holder as shown on the registers maintained by
the Corporation.
Depositing Shareholders will not be obligated to pay brokerage fees or
commissions if they accept the Offer by depositing their Shares directly with
the Depositary or the U.S. Forwarding Agent or if they use the services of the
Dealer Managers or a Soliciting Dealer to accept the Offer. Transfer taxes, if
any, on the purchase of Shares will be paid by the Offeror.
18
<PAGE>
TO PREVENT UNITED STATES FEDERAL BACKUP WITHHOLDING TAX WITH RESPECT TO
PAYMENT TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED
PURSUANT TO THE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY OR THE
U.S. FORWARDING AGENT WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER AND CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP WITHHOLDING
TAX BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED AS PART OF THE LETTER OF
TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE
DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER.
SEE INSTRUCTION 8 OF THE LETTER OF TRANSMITTAL.
7. WITHDRAWAL OF DEPOSITED SECURITIES
Except as otherwise stated in this Section 7 of the Offer, all deposits of
Shares pursuant to the Offer are irrevocable. Any Shares deposited in acceptance
of the Offer may be withdrawn by or on behalf of the depositing Shareholder
(unless otherwise required or permitted by applicable law):
(a) at any time before the Expiry Time; and
(b) at any time after April 10, 1997, provided that the Shares have not been
taken up and paid for by the Offeror prior to the receipt by the
Depositary or the U.S. Forwarding Agent of the notice of withdrawal in
respect of such Shares.
In addition, if after the Expiry Time but before the expiry of all rights of
withdrawal in respect of the Offer, a change occurs in the information contained
in the Offer or the Circular, as amended from time to time, that would
reasonably be expected to affect the decision of a Shareholder to accept or
reject the Offer, unless such change is not within the control of the Offeror or
of any affiliate of the Offeror, any Shares deposited under the Offer and not
taken up and paid for by the Offeror at such time may be withdrawn by or on
behalf of the depositing Shareholder, as the case may be, at the place of
deposit at any time until the expiration of ten calendar days after the date
upon which the notice of such change is mailed, delivered or otherwise
communicated, subject to abridgement of that period pursuant to such order or
orders as may be granted by Canadian courts or securities regulatory
authorities.
In order for any withdrawal to be made, notice of the withdrawal must be in
writing (which includes a telegraphic communication or notice by electronic
means that produces a printed copy), and must be actually received by the
Depositary or the U.S. Forwarding Agent at the place of deposit of the
applicable Shares (or Notice of Guaranteed Delivery in respect thereof) within
the period permitted for withdrawal. Any such notice of withdrawal must be (i)
signed by or on behalf of the person who signed the Letter of Transmittal that
accompanied the Shares to be withdrawn (or Notice of Guaranteed Delivery in
respect thereof), and (ii) specify such person's name, the number of Shares to
be withdrawn, the name of the registered holder and the certificate number shown
on each certificate representing the Shares to be withdrawn. Any signature on a
notice of withdrawal must be guaranteed by an Eligible Institution in the same
manner as in the Letter of Transmittal (as described in the instructions set out
in such letter), except in the case of Shares deposited for the account of an
Eligible Institution. The withdrawal shall take effect upon receipt of the
written notice by the Depositary or the U.S. Forwarding Agent. If Shares have
been deposited pursuant to the procedures for book-entry transfer in the United
States as set forth in Section 3 of the Offer, "Manner of Acceptance --
ACCEPTANCE BY BOOK-ENTRY TRANSFER IN THE UNITED STATES," any notice of
withdrawal must also specify the name and number of the account at The
Depository Trust Company to be credited with the withdrawn Shares.
All questions as to the validity (including timely receipt) and form of
notices of withdrawal shall be determined by the Offeror, in its sole
discretion, and such determination shall be final and binding. There shall be no
duty or obligation on the Offeror, Volvo Construction Equipment, Volvo, the
Depositary, the Dealer Managers, any Soliciting Dealer, the U.S. Forwarding
Agent, the Information Agent or any other person to give notice of any defect or
irregularity in any notice of withdrawal and no liability shall be incurred by
any of them for failure to give any such notice.
If the Offeror extends the Offer, is delayed in taking up or paying for
Shares or is unable to take up or pay for Shares for any reason, then, without
prejudice to the Offeror's other rights, Shares deposited under the Offer may be
retained by the Depositary or the U.S. Forwarding Agent on behalf of the Offeror
except to the extent that
19
<PAGE>
depositing holders thereof are entitled to withdrawal rights as set forth in
this Section 7 or pursuant to applicable law.
Shares withdrawn will be deemed not validly deposited for the purposes of
the Offer, but may be redeposited at any subsequent time on or prior to the
Expiry Time by following any of the applicable procedures described in Section 3
of the Offer, "Manner of Acceptance."
In addition to the foregoing rights of withdrawal, Shareholders in certain
provinces of Canada are entitled to statutory rights of rescission in certain
circumstances. See "Statutory Rights" in the Circular.
8. RETURN OF DEPOSITED SECURITIES
Any deposited Shares not taken up and paid for by the Offeror for any
reason, or if certificates are submitted for more Shares than are deposited,
certificates for Shares not deposited, will be returned at the Offeror's expense
by either sending new certificates representing Shares not purchased or by
returning the deposited certificates (and other relevant documents) or, in the
case of Shares deposited by book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company pursuant to the procedures
set forth in Section 3 of the Offer, "Manner of Acceptance -- ACCEPTANCE BY
BOOK-ENTRY TRANSFER IN THE UNITED STATES," such Shares will be credited to the
depositing holder's account maintained with The Depository Trust Company.
The certificates (and other relevant documents) will be forwarded by first
class mail in the name of and to the address specified by the Shareholder in the
Letter of Transmittal or, if such name or address is not so specified, in such
name and to such address as shown on the registers maintained by the Corporation
as soon as practicable following the Expiry Time or withdrawal or termination of
the Offer, as the case may be.
9. DIVIDENDS AND DISTRIBUTIONS
If, on or after February 20, 1997, the Company should split, consolidate or
otherwise change any of the Shares or its capitalization, or shall disclose that
it has taken or intends to take any such action, then the Offeror may, in its
sole discretion and without prejudice to its rights under Section 4 of the
Offer, "Conditions of the Offer," make such adjustments as it deems appropriate
to the purchase price or other terms of the Offer (including, without
limitation, the type of securities offered to be purchased and the consideration
payable therefor) to reflect such split, combination or other change.
Shares acquired pursuant to the Offer shall be transferred by the
Shareholder and acquired by the Offeror free and clear of all liens, charges,
encumbrances, claims and equities and together with all rights and benefits
arising therefrom including, without limitation, the right to all dividends
(other than the declared dividend of the Corporation of $0.05 per Share payable
April 2, 1997 to holders of record of the Corporation at March 12, 1997),
distributions, payments, securities, rights, assets or other interests which may
be declared, paid, issued, distributed, made or transferred on or after February
20, 1997 on or in respect of the Shares. Subject to the foregoing, if the
Company should declare or pay any cash dividend (other than the declared
dividend of the Corporation of $0.05 per Share payable April 2, 1997 to holders
of record of the Corporation at March 12, 1997) or stock dividend, or declare,
make or pay any other distribution or payment on or declare, allot, reserve or
issue any securities, rights or other interests with respect to any of the
Shares which is or are payable or distributable to the Shareholders of record on
a record date which is prior to the date of transfer into the name of the
Offeror or its nominees or transferees on the Company's share register of such
Shares following acceptance thereof for purchase pursuant to the Offer, then
without prejudice to the Offeror's rights under Section 4 of the Offer,
"Conditions of the Offer," (i) in the case of cash dividends, distributions or
payments, the amount of the dividends, distributions or payments shall be
received and held by the depositing Shareholders for the account of the Offeror
until the Offeror pays for such Shares, and to the extent that such dividends,
distributions or payments do not exceed the purchase price per Share payable by
the Offeror pursuant to the Offer, the purchase price per Share payable by the
Offeror pursuant to this Offer will be reduced by the amount of any such
dividend, distribution or payment, and (ii) in the case of non-cash dividends,
distributions, payments, rights or other interests, the whole of any such
non-cash dividend, distribution, payment, right or other interest, and in the
case of any cash dividends, distributions or payments in an amount that exceeds
the purchase price per Share, the whole of any such cash dividend, distribution
or payment, will be received and held by the depositing Shareholders for the
account of the Offeror and shall be required to be promptly remitted and
transferred by the depositing Shareholders to the Depositary for the account of
the
20
<PAGE>
Offeror, accompanied by appropriate documentation of transfer. Pending such
remittance, the Offeror will be entitled to all rights and privileges as owner
of any such dividend, distribution, payment, right or other interest and may
withhold the entire purchase price payable by the Offeror pursuant to this Offer
or deduct from the purchase price payable by the Offeror pursuant to this Offer
the amount of value thereof, as determined by the Offeror in its sole
discretion.
10. MAIL SERVICE INTERRUPTION
Notwithstanding the provisions of the Offer, the Circular, the Letter of
Transmittal or the Notice of Guaranteed Delivery, cheques in payment for Shares
purchased pursuant to the Offer and certificates representing Shares to be
returned will not be mailed if the Offeror determines that delivery thereof by
mail may be delayed. Persons entitled to cheques which are not mailed for the
foregoing reason may take delivery thereof at the office of the Depositary or
the U.S. Forwarding Agent at which the Shares for which the cheques are being
issued were deposited, upon application to the Depositary or the U.S. Forwarding
Agent, until such time as the Offeror has determined that delivery by mail will
no longer be delayed. The Offeror shall provide notice of any such determination
not to mail made under this Section 10 as soon as reasonably practicable after
the making of such determination and in accordance with Section 11 of the Offer,
"Notice and Delivery." Notwithstanding Section 6 of the Offer, "Payment for
Deposited Securities," the deposit of cheques with the Depositary or the U.S.
Forwarding Agent for delivery to the depositing Shareholders in such
circumstances shall constitute delivery to the persons entitled thereto and the
Shares shall be deemed to have been paid for immediately upon such deposit.
11. NOTICE AND DELIVERY
Without limiting any other lawful means of giving notice and except as
otherwise expressly provided herein, any notice that the Offeror or the
Depositary or the U.S. Forwarding Agent may give or cause to be given under the
Offer will be deemed to have been properly given if it is mailed by first class
mail, postage prepaid, to the registered holders of Shares at their respective
addresses as shown on the registers maintained by the Corporation and will be
deemed to have been received on the first day following the date of mailing
which is not a Saturday, Sunday or statutory holiday. These provisions apply
notwithstanding any accidental omission to give notice to any one or more
holders of Shares and notwithstanding any interruption of postal service in
Canada, the United States or elsewhere following mailing. In the event of any
interruption of postal service following mailing, the Offeror intends to make
reasonable efforts to disseminate the notice by other means, such as
publication. Except as otherwise required or permitted by law, if post offices
in Canada, the United States or elsewhere are not open for the deposit of mail,
or there is reason to believe there is or could be a disruption in all or part
of the postal service, any notice which the Offeror, the Depositary or the U.S.
Forwarding Agent may give or cause to be given under the Offer, except as
otherwise provided herein, will be deemed to have been properly given and to
have been received by holders of Shares if: (i) it is given to the TSE, the ME
and the NASDAQ-NMS for dissemination through their facilities; (ii) it is
published once in the National Edition of The Globe and Mail, in The Wall Street
Journal and in daily newspapers of general circulation in each of the French and
English languages in the city of Montreal, provided that if the National Edition
of The Globe and Mail is not being generally circulated, publication shall be
made in The Financial Post or any other daily newspaper of general circulation
published in the city of Toronto; or (iii) it is given to the Dow Jones News
Service.
Wherever the Offer calls for documents to be delivered to the Depositary or
the U.S. Forwarding Agent, such documents will not be considered delivered
unless and until they have been physically received at any one of the addresses
listed for the Depositary or the U.S. Forwarding Agent in the Letter of
Transmittal or Notice of Guaranteed Delivery, as applicable. Wherever the Offer
calls for documents to be delivered to a particular office of the Depositary or
the U.S. Forwarding Agent, such documents will not be considered delivered
unless and until they have been physically received at that particular office at
the address listed in the Letter of Transmittal or Notice of Guaranteed
Delivery, as applicable.
12. ACQUISITION OF SECURITIES NOT DEPOSITED
If, within 120 days after the date of the Offer, the Offer has been accepted
by holders of not less than 90% of the issued and outstanding Shares (other than
Shares held at the date hereof by or on behalf of the Offeror or its
21
<PAGE>
affiliates or associates), then the Offeror intends to acquire the remaining
Shares pursuant to the compulsory acquisition provisions of the CBCA. If the
Offeror takes up and pays for Shares validly deposited under the Offer and the
compulsory acquisition provisions of the CBCA are not available, then the
Offeror anticipates that it will propose an amalgamation, statutory arrangement
or other transaction as a consequence of which the interest of any Shareholder
whose Shares have not been taken up and paid for may be terminated without the
consent of such Shareholder. See "Acquisition of Shares Not Deposited" in the
Circular.
13. MARKET PURCHASES AND SALES OF SHARES
The Offeror has no present intention of purchasing Shares in the market
while the Offer is outstanding.
14. OTHER TERMS OF THE OFFER
The Offer and all contracts resulting from acceptance hereof shall be
governed by and construed in accordance with the laws of the Province of Ontario
and the laws of Canada applicable therein. Each party to any agreement resulting
from the acceptance of the Offer unconditionally and irrevocably attorns to the
jurisdiction of the courts of the Province of Ontario and the courts of appeal
therefrom.
NO BROKER, DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF THE OFFEROR, VOLVO
CONSTRUCTION EQUIPMENT OR VOLVO NOT CONTAINED HEREIN OR IN THE CIRCULAR, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NO BROKER, DEALER, SALESPERSON OR OTHER PERSON SHALL BE
DEEMED TO BE THE AGENT OF THE OFFEROR, VOLVO CONSTRUCTION EQUIPMENT, VOLVO, THE
DEPOSITARY, THE DEALER MANAGERS, ANY SOLICITING DEALER, THE U.S. FORWARDING
AGENT OR THE INFORMATION AGENT FOR THE PURPOSE OF THE OFFER. IN ANY JURISDICTION
IN WHICH THE OFFER IS REQUIRED TO BE MADE BY A LICENSED BROKER OR DEALER, THE
OFFER SHALL BE MADE ON BEHALF OF THE OFFEROR BY BROKERS OR DEALERS LICENSED
UNDER THE LAWS OF SUCH JURISDICTION.
Subject to the provisions of the Acquisition Agreement and the Lock-up
Agreement, the Offeror shall, in its sole discretion, be entitled to make a
final and binding determination of all questions relating to the interpretation
of the Offer, the Circular, the Letter of Transmittal and the Notice of
Guaranteed Delivery, the validity of any acceptance of the Offer and the
validity of any withdrawals of Shares, including, without limitation, the
satisfaction or non-satisfaction of any condition, the validity, time and effect
of any deposit of Shares or notice of withdrawal of Shares, and the due
completion and execution of Letters of Transmittal and Notices of Guaranteed
Delivery. The Offeror reserves the right to waive any defect in acceptance with
respect to any particular Share or any particular Shareholder. There shall be no
obligation on the Offeror, Volvo Construction Equipment, Volvo, the Dealer
Managers, any Soliciting Dealer, the Depositary, the U.S. Forwarding Agent or
the Information Agent to give notice of any defects or irregularities in
acceptance and no liability shall be incurred by any of them for failure to give
any such notification.
The Offer is not being made to, nor will deposits be accepted from or on
behalf of, holders of Shares in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Offeror may, in its sole discretion, take such action
as it may deem necessary to extend the Offer to holders of Shares in any such
jurisdiction.
The accompanying Circular together with the Offer constitute the take-over
bid circular required under Canadian provincial securities legislation with
respect to the Offer.
DATED at Toronto, Ontario, February
24, 1997.
VCE Acquisition Inc.
By: (Signed) Bengt Ovlinger
President
22
<PAGE>
CIRCULAR
The following information is supplied with respect to the accompanying Offer
dated February 24, 1997 by the Offeror, comprising an offer to purchase all of
the issued and outstanding Shares, including Shares which may become outstanding
on the exercise of currently outstanding options, warrants or rights to acquire
Shares at a price of Cdn$15.00 in cash for each Share.
The information concerning the Corporation contained in the Offer and this
Circular has been taken from or is based upon publicly available documents and
records on file with Canadian securities regulatory authorities, the SEC and
other public sources or was provided by the Corporation. Although none of Volvo
Construction Equipment, the Offeror or Volvo has any knowledge that would
indicate that any statements contained herein taken from or based upon such
documents and records are untrue or incomplete, none of Volvo Construction
Equipment, the Offeror, Volvo or any of their respective directors or officers
takes any responsibility for the accuracy or completeness of the information
taken from or based upon such documents and records, or for any failure by the
Corporation to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to Volvo
Construction Equipment, the Offeror or Volvo.
The terms and provisions of the Offer are incorporated into and form part of
this Circular and holders of Shares should refer to the Offer for details of the
terms and conditions of the Offer, including details as to payment and
withdrawal rights. Terms defined in the Offer but not defined in this Circular
have the same meaning herein as in the Offer unless the context otherwise
requires.
VOLVO CONSTRUCTION EQUIPMENT, THE OFFEROR AND VOLVO
VOLVO CONSTRUCTION EQUIPMENT
Volvo Construction Equipment, a company organized under the laws of The
Netherlands, is a major manufacturer of construction equipment. Volvo
Construction Equipment's product range has approximately 80 different models,
used primarily by customers in construction, sand and gravel operations,
quarries, industrial handling, rental/plant hire and mining. Volvo Construction
Equipment provides products and support to a wide range of customers in
approximately 100 countries. Volvo Construction Equipment is a wholly-owned
subsidiary of Volvo. The registered office of Volvo Construction Equipment is
located at Coenecoop 55, NL - 2741 Waddinxveen, The Netherlands (telephone
number: 31-182-62-21-80).
THE OFFEROR
The Offeror was incorporated under the CBCA on February 7, 1997 and is a
wholly-owned subsidiary of Volvo Construction Equipment and an indirect,
wholly-owned subsidiary of Volvo. The Offeror was organized for the purposes of
making the Offer and has not carried on any activities to date other than those
incident to its formation and the commencement of the Offer. The registered
office of the Offeror is located at Suite 6600, 100 King Street West, Toronto,
Ontario, M5X 1B8 (telephone number: 416-362-2111).
VOLVO
Volvo, a company organized under the laws of Sweden, and its subsidiaries
are an international automotive and transport vehicle group, with 70,000
employees, production facilities in more than 20 countries and has sales and
provides services worldwide. Volvo provides a range of transportation related
products and services. Volvo occupies a strong position as a car producer within
its segment and is among the world leaders in heavy commercial vehicles such as
trucks, buses and construction equipment as well as in drive systems for marine
and industrial applications. In the aircraft engine field, Volvo has substantial
resources for the overhaul of engines and the development of engine components.
Volvo's Class A and B shares are listed on the Stockholm Stock Exchange. Volvo's
Class B Shares are listed on the London, Frankfurt am Main, Dusseldorf, Hamburg,
Paris, Brussels, Antwerpen, Tokyo, Zurich, Basel, and Geneva Stock Exchanges.
American Depositary Receipts representing
23
<PAGE>
Volvo's Class B shares trade on the NASDAQ-NMS. The principal executive office
of Volvo is located at Volvo Bergegards vag, Goteborg, Sweden (telephone number:
46-31-59-00-00).
Volvo is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports and other
information with the SEC relating to its business, financial condition and other
matters. Information, as of particular dates, concerning Volvo's business,
operating results, financial condition, directors and executive officers, and
other matters is required to be disclosed in annual and other reports filed with
the SEC. Such reports and other information may be inspected at the SEC's public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, and may
also be available for inspection at the following regional offices of the SEC: 7
World Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and copies may be obtained, by
mail, for prescribed rates from the principal office of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549.
The name, citizenship, business address, present principal occupation or
employment and certain additional information required pursuant to the Exchange
Act and the rules and regulations promulgated thereunder with respect to each of
the directors and the executive officers of Volvo, Volvo Construction Equipment
and the Offeror are set out in Schedule "A" hereto.
The selected consolidated financial data of Volvo set forth below have been
derived from the audited consolidated financial statements of Volvo for each of
the years in the three-year period ended December 31, 1995 and the unaudited
consolidated financial statements of Volvo for the nine-month periods ended
September 30, 1996 and 1995. The selected consolidated financial data set forth
below should be read in conjunction with and are qualified in their entirety by
the financial statements and accompanying notes contained in Volvo's Annual
Report on Form 20-F for the year ended December 31, 1995 and the financial
information contained in Volvo's Reports on Form 6-K filed with the SEC since
January 1, 1996 which are hereby incorporated by reference herein.
The Volvo financial statements are presented in Swedish Kronor ("SEK") and
are prepared in accordance with the Swedish Companies Act ("Swedish reporting"),
which differ in certain respects from generally accepted accounting principles
in the United States ("U.S. GAAP"). For a discussion of the differences between
Swedish reporting and U.S. GAAP, which materially affects Volvo's net income and
shareholders' equity, see Volvo's Annual Report on Form 20-F for the year ended
December 31, 1995.
(IN MILLIONS OF SEK, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income statement data:
Sales.......................................................... 113,640 129,124 171,511 155,866 111,155
Net income (loss).............................................. 10,668 7,509 9,262 13,230 (3,466)
Net income (loss) per share.................................... 26.70 22.40 20.20 31.80 (8.90)
Amounts in accordance with US GAAP
Net income (loss).............................................. N/A N/A 12,935 14,122 2,938
Net income (loss) per share.................................... N/A N/A 28.20 34.60 7.90
Balance sheet data (at end of period):
Total current assets........................................... 80,977 82,910 76,141 78,374 70,256
Total assets................................................... 137,482 145,670 138,699 138,582 134,516
Long-term debt................................................. 24,094 25,360 27,125 22,200 25,784
Total shareholders' equity..................................... 55,561 50,439 51,200 43,332 27,088
Amounts in accordance with US GAAP
Total shareholders' equity..................................... N/A N/A 68,859 50,953 28,836
</TABLE>
24
<PAGE>
On February 19, 1997, Volvo announced that net income of the Volvo Group in
1996 increased to SEK 12.5 billion, compared with net income of SEK 9.3 billion
in 1995, and income per share in 1996 increased to SEK 26.90, compared to SEK
20.20 in 1995.
THE CORPORATION
The Corporation, a corporation incorporated under the laws of Canada, is a
manufacturer of road building and maintenance equipment. The Corporation's
product lines include road graders, compaction rollers, asphalt pavers and snow
and ice removal equipment. The Corporation markets its products through a
worldwide network of 178 independent dealers operating over 330 sales and
service outlets in 90 countries. The Corporation also operates five retail
outlets in Ontario, Canada, through a wholly-owned subsidiary, Champion Road
Machinery Sales Ltd. The address of the Corporation's principal executive office
is Xerox Building, Suite 2204, 180 Columbia Street West, Waterloo, Ontario, N2L
3L3 (telephone number: (519) 884-6000).
The Corporation is subject to the information and reporting requirements of
the Exchange Act and in accordance therewith is obligated to file reports and
other information with the SEC relating to its business, financial condition and
other matters. Information, as of particular dates, concerning the Corporation's
business, operating results, financial condition, and other matters, is filed
with the SEC. Such reports and other information may be examined at, and copies
may be obtained from the SEC.
Set forth below is certain selected consolidated financial information
relating to the Corporation and its subsidiaries which has been excerpted or
derived from the financial statements of the Corporation provided by the
Corporation to the Offeror for the fiscal year ended December 31, 1996. More
comprehensive financial information is included in financial statements filed by
the Corporation with certain Canadian securities regulatory authorities and the
SEC. The financial information that follows is qualified in its entirety by
reference to such financial and other documents and all the financial
information (including any related notes) contained therein. Such reports and
other documents may be examined at, and copies may be obtained from, the SEC.
The Corporation's financial statements are presented in Canadian dollars and
are prepared in accordance with Canadian GAAP, which differs in certain respects
from U.S. GAAP.
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Statement of Operations Data:
Net sales........................................................................ $ 200,003 $ 225,741 $ 176,335
Operating income................................................................. 3,302 15,184 15,178
Net income....................................................................... 1,679 9,502 9,293
Earnings per share
Basic.......................................................................... 0.15 0.85 0.90
Fully diluted.................................................................. 0.15 0.84 0.89
Balance Sheet Data (at period end):
Total current assets............................................................. $ 63,421 $ 71,653
Total assets..................................................................... 90,503 88,647
Total current liabilities........................................................ 29,497 32,431
Long-term debt................................................................... 5,416 --
Total shareholders' equity....................................................... 55,590 56,143
</TABLE>
BACKGROUND TO THE OFFER
On January 6 and January 7, 1997 representatives of Volvo Construction
Equipment met with representatives of the Corporation, including Arthur Church
and Dennis Vollmershausen, the President and Executive Vice-
25
<PAGE>
President of the Corporation, respectively, to pursue earlier discussions
between the parties as to the appointment of Volvo Construction Equipment as the
Corporation's exclusive distributor in Brazil. At the conclusion of these
meetings, the possibility of a joint venture arrangement or other distribution
agreements between the parties was introduced. In separate discussions, Bengt
Ovlinger, the President of Volvo Construction Equipment raised with Arthur
Church the possibility of Volvo Construction Equipment acquiring the
Corporation. The parties subsequently agreed to visit Volvo Construction
Equipment's facilities in Sweden on January 28, 1997.
William Walsh, Chairman of the board of directors of the Corporation, Arthur
Church and other representatives of the Corporation met with representatives of
Volvo Construction Equipment in Eskilstuna, Sweden from January 28, 1997 to
January 30, 1997 to discuss Volvo Construction Equipment's business and tour
certain facilities. A possible acquisition transaction was discussed generally
by the parties and, on January 30, 1997, Sten Langenius, Executive Chairman of
Volvo Construction Equipment and Executive Vice-President of Volvo and William
Walsh discussed further the possibility of an acquisition of the Corporation by
Volvo Construction Equipment and discussed Mr. Walsh's initial views as to the
pricing of such an acquisition.
The Corporation's representatives returned to Canada, and representatives of
Volvo Construction Equipment, together with its financial advisors, continued to
review publicly available information regarding the business of the Corporation
and to consider a potential acquisition.
Mr. Langenius continued discussions by telephone with Mr. Walsh on February
5, 1997 through February 7, 1997 culminating in a general concurrence on a range
of prices at which Mr. Walsh might recommend the sale of the Shares controlled
by Mr. Walsh, all subject to Volvo Construction Equipment's need to complete a
due diligence investigation as to the business of the Corporation, approval by
the board of directors of Volvo, Volvo Construction Equipment and the
Corporation, respectively, and agreement from a significant number of the
Shareholders that they would tender their Shares into a proposed Volvo
Construction Equipment offer to be made by way of a public take-over bid for all
of the Corporation's outstanding Shares.
It was agreed that Volvo Construction Equipment representatives would travel
to Toronto to continue the discussions between Messrs. Langenius and Walsh.
Following discussions between Michael J. Mudler and Hakan Jonsson, the
Senior Vice President, Finance & Administration and Vice-President and General
Counsel of Volvo Construction Equipment, respectively, and representatives of
the Corporation, it was agreed that the board of directors of the Corporation
would consider, at its regularly scheduled board meeting to be held on February
12, 1997, granting Volvo Construction Equipment access to the Corporation and
its books and records for due diligence purposes. On February 12, 1997, Volvo
Construction Equipment and the Corporation entered into a confidentiality
agreement.
Pursuant to the confidentiality agreement, Volvo Construction Equipment
agreed to keep confidential certain information relating to the Corporation to
be made available to it. Volvo Construction Equipment also agreed not to acquire
any Shares of the Corporation without the approval of the board of directors of
the Corporation, unless the acquisition was pursuant to an offer made to all
Shareholders or in response to a competing acquisition transaction. Following
the execution of the confidentiality agreement, Volvo Construction Equipment's
representatives commenced a review of the books and records of the Corporation
made available to them.
The Lock-up Agreement with certain Shareholders of the Corporation described
under "Arrangements with Certain Shareholders of the Corporation" and the
Acquisition Agreement described under "Arrangements with the Corporation" were
negotiated during the period from February 10, 1997 to February 20, 1997 and
ultimately executed on February 20, 1997. During this period, the parties agreed
to a price of Cdn$15.00 per Share to be offered by Volvo Construction Equipment
under the Offer, subject to the approval of the respective boards of directors
of Volvo Construction Equipment and Volvo and the Corporation's board of
directors.
At a meeting of the board of directors of Volvo held on February 19, 1997
the making of the Offer was approved. The Offeror understands that at a
subsequently held meeting of the board of directors of the Corporation on
February 19, 1997, the Corporation approved the execution and delivery of the
Acquisition Agreement and unanimously resolved to recommend to the holders of
the Shares that they accept the Offer. Subsequent to this
26
<PAGE>
meeting, the Lock-up Agreement and the Acquisition Agreement described under
"Arrangements with Certain Shareholders of the Corporation" and "Arrangements
with the Corporation" respectively, were executed and public announcements with
respect to the Offer were made by Volvo Construction Equipment and the
Corporation.
ARRANGEMENTS WITH THE CORPORATION
The Acquisition Agreement sets forth the terms and conditions upon and
subject to which the Offer is to be effected. The conditions permitted by the
Acquisition Agreement to be contained in the Offer are the conditions set forth
in Section 4 of the Offer.
Volvo Construction Equipment and the Corporation have agreed in the
Acquisition Agreement that the terms of the Offer may be varied solely to (i)
increase the consideration offered for the Shares, (ii) extend the period during
which Shares may be deposited under the Offer, (iii) waive any condition of the
Offer or reduce the Minimum Condition, or (iv) comply with applicable securities
laws.
Volvo Construction Equipment has agreed in the Acquisition Agreement that,
subject to the terms and upon the conditions of the Acquisition Agreement, it
shall cause the Offeror to take up the Shares deposited under the Offer and pay
for such Shares in accordance with applicable Canadian and U.S. securities laws.
In the Acquisition Agreement, the Corporation has agreed that, provided at
least a majority of the outstanding Shares on a fully diluted basis are acquired
pursuant to the Offer, if requested by Volvo Construction Equipment, the
Corporation shall, following the take up of and payment for the Shares to be
purchased pursuant to the Offer, use all reasonable efforts to cause the
Applicable Percentage (as defined below) of directors of the Corporation (and of
members of each committee of the board of directors of the Corporation and
members of the boards of directors of each subsidiary of the Corporation) to
consist of persons designated or selected by Volvo Construction Equipment. The
"Applicable Percentage" means the ratio of (i) the total voting power of all
Shares accepted for payment and taken up and paid for pursuant to the Offer to
(ii) the total voting power of the outstanding voting securities of the
Corporation, rounded to the nearest whole number and expressed as a percentage.
The Acquisition Agreement contains certain representations and warranties of
Volvo Construction Equipment, the Offeror and the Corporation. The
representations and warranties of the Corporation relate to: corporate
organization and qualification; authority relative to agreements; conflicts and
required filings and consents; securities regulatory authorities filings and
financial statements; absence of certain changes or events; absence of
litigation; and environmental matters. The representations and warranties of
Volvo Construction Equipment relate to: corporate organization; authority
relative to agreements; conflicts and required filings and consents; and the
availability of sufficient funds.
Pursuant to the Acquisition Agreement, the Corporation has agreed that,
during the period from February 20, 1997 to the time (the "Effective Time") of
the first appointment or election to the board of directors of the Corporation
of persons designated by Volvo Construction Equipment, unless Volvo Construction
Equipment shall otherwise agree, the Corporation shall conduct the business and
affairs of the Corporation and its subsidiaries in the ordinary course and in a
manner consistent with past practice and in compliance with applicable laws and
the Corporation shall use its reasonable efforts to preserve intact the business
organization of the Corporation and its subsidiaries and to preserve the present
relationships of the Corporation and its subsidiaries with customers, suppliers
and other persons with which the Corporation or any of its subsidiaries have
business relations. By way of amplification, the Corporation has agreed not to
directly or indirectly do, or propose or commit to do, anything which would
cause any of the conditions to the Offer to not be satisfied.
Pursuant to the Acquisition Agreement, the Corporation has agreed that
neither it nor any of its subsidiaries shall, nor shall the Corporation or any
of its subsidiaries authorize or permit any of its officers, directors or
employees or representatives, to solicit or encourage any inquiries, submissions
or offers as to or in connection with the making of, or provide information to,
or respond to any person making, any offer or proposal with respect to a
Transaction Proposal.
27
<PAGE>
The Acquisition Agreement does not prohibit the board of directors of the
Corporation from (i) considering, negotiating, approving or recommending to
Shareholders, or providing information to a potential acquiror pursuant to, or
taking any necessary steps to implement any BONA FIDE written Transaction
Proposal at a price exceeding $15.00 per Share which the board of directors of
the Corporation determines in good faith would, if consummated in accordance
with its terms, result in a transaction more favourable to all Shareholders than
the consummation of the Offer, or (ii) taking such action as may be required to
fulfill its fiduciary or statutory duties. The Corporation has agreed to
promptly inform Volvo Construction Equipment of the terms and conditions of such
Transaction Proposal and the identity of the person making it.
The Acquisition Agreement terminates at the Effective Time and may be
earlier terminated prior to the Effective Time:
(a) by Volvo Construction Equipment or the Corporation if any court of
competent jurisdiction or other governmental body located or having
jurisdiction within Canada or the United States shall have issued a final
order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Offer and such order, decree,
ruling or other action is or shall have become final and nonappealable;
provided that such right of termination shall not be available to any
party if such party shall have failed to make reasonable efforts to
prevent or contest the imposition of such injunction or action and such
failure materially contributed to such imposition;
(b) by the Corporation if Shares deposited under the Offer have not, for any
reason whatsoever been taken up and paid for on or before May 25, 1997;
and
(c) by Volvo Construction Equipment if (i) the Offer has been terminated,
withdrawn or otherwise expires in accordance with its terms; or (ii)
there shall have been a material breach of any representation or warranty
on the part of the Corporation contained in the Acquisition Agreement;
for this purpose, a material breach is a breach that, individually or in
the aggregate, constitutes a Material Adverse Effect; (iii) there shall
have been a breach of any covenant or agreement on the part of the
Corporation contained in the Acquisition Agreement which individually or
in the aggregate, constitutes a Material Adverse Effect (provided that in
such case Volvo Construction Equipment shall give not less than five days
prior notice to allow the Corporation to cure any breach before
exercising its right of termination); or (iv) the board of directors of
the Corporation shall have withdrawn or modified (including by amendment
of the Directors' Circular) in a manner determined by Volvo Construction
Equipment to be adverse to Volvo Construction Equipment or the Offeror
its approval or recommendation of the Offer, the Acquisition Agreement or
the transactions contemplated thereby or by the Lock-Up Agreement or
shall have approved or recommended a Transaction Proposal, or shall have
resolved to effect any of the foregoing.
Except as specifically provided below, Volvo Construction Equipment shall
each bear its own expenses in connection with the Acquisition Agreement and the
transactions contemplated thereby. Provided that the Offer is made and is not
withdrawn or allowed to expire, other than as a result of the failure to satisfy
any of the conditions to the Offer, and a Transaction Proposal (which for such
purpose shall include a take-over bid, tender offer or exchange offer only if
such offer is for at least a majority of the outstanding Shares on a fully
diluted basis) is announced, commenced or made at any time prior to May 25, 1997
and is thereafter completed (whether before or after May 25, 1997), the
Corporation will pay to Volvo Equipment Corporation a fee of $5,000,000.
ARRANGEMENTS WITH CERTAIN SHAREHOLDERS OF THE CORPORATION
Simultaneously with the execution of the Acquisition Agreement, Volvo
Construction Equipment and the Tendering Shareholders entered into the Lock-up
Agreement. The Tendering Shareholders include (i) Walsh Family 1989 Trust, over
which William D. Walsh, Chairman of the board of directors of the Corporation,
exercises control or direction, (ii) Ferris Family 1987 Trust, over which Robert
A. Ferris, Secretary and a director of the Corporation, exercises control or
direction, (iii) Leach Family 1980 Trust, over which J. Frank Leach, a director
of the Corporation, exercises control or direction, (iv) O'Brien Family Limited
Partnership and the R. O'Brien and Mary Ann O'Brien Revocable Trust dated
7/24/84, over each of which Raymond F. O'Brien, a director of the
28
<PAGE>
Corporation, exercises control or direction, (v) Arthur F. Church, President,
Chief Executive Officer and a director of the Corporation, (vi) Dennis W.
Vollmershausen, Executive Vice-President and a director of the Corporation, and
(vii) 3018202 Canada Inc., over which Mr. Vollmershausen exercises control or
direction.
Under the Lock-up Agreement, the Tendering Shareholders have irrevocably and
unconditionally agreed to deposit under the Offer and not withdraw an aggregate
of 3,805,048 Shares owned by the Tendering Shareholders and 148,000 Shares to be
acquired upon the exercise of outstanding stock options.
Each of the Tendering Shareholders also agreed under the Lock-up Agreement
that it will (i) not sell, transfer, pledge, encumber, grant a security interest
in, hypothecate or otherwise convey the Shareholder Securities to any person;
(ii) not grant or agree to grant any proxy or other right to vote in respect of
the Shareholder Securities and (iii) not initiate, solicit or encourage any
inquiries, submissions or offers as to or in connection with the making of, or
provide information to, or respond to any person making, any offer or proposal
with respect to a Transaction Proposal or Acquisition Proposal, provided that
the Lock-up Agreement does not (A) prohibit the board of directors of the
Corporation from considering, negotiating, approving or recommending to
Shareholders, or providing information to a potential acquiror pursuant to, any
BONA FIDE written Transaction Proposal at a price exceeding Cdn $15.00 per Share
which the board of directors determines in good faith would, if consummated in
accordance with its terms, result in a transaction more favourable to all
Shareholders than the consummation of the Offer; or (B) require the Shareholder,
if a director of the Corporation, to act in his capacity as such a director
other than in accordance with his fiduciary or statutory duties as a director of
the Corporation; (iv) notify Volvo Construction Equipment and the Offeror within
24 hours of becoming aware of and being provided with any written enquiry with
regard to a possible Transaction Proposal or Acquisition Proposal and inform the
Offeror of the identity of the person making such written enquiry and the
material terms known to the Tendering Shareholder at that time regarding such
possible proposal; (v) use its reasonable best efforts to cause the Corporation
to perform its obligations under the Acquisition Agreement and request the
Corporation to co-operate with the Offeror in the making of all requisite
regulatory filings and to co-operate with the Offeror in connection with any
procedural matters necessary to complete the purchase of the Shares under the
Offer; and (vi) not do indirectly that which it cannot do directly in respect of
the restrictions on its rights with respect to the Shareholder Securities.
Any Tendering Shareholder who is a director of the Corporation or has a
nominee on the board of directors of the Corporation also agreed, pursuant to
the Lock-up Agreement, to resign or cause its nominee to resign as a director of
the Corporation effective at the time and in the manner requested by the Offeror
after the Offeror takes up and pays for the Shareholder Securities.
The Lock-up Agreement contains customary representations and warranties by
Volvo Construction Equipment and each of the Tendering Shareholders thereunder.
The Lock-up Agreement may be terminated by any of the Tendering Shareholders
when not in default in performance of its obligations under the Lock-up
Agreement if:
(a) the Acquisition Agreement has been terminated in accordance with its
terms as a result of a final order, decree or other action taken by a
court of competent jurisdiction or other governmental body; or
(b) Shares deposited under the Offer have not, for any reason whatsoever,
been taken up and paid for on or before May 25, 1997.
The Lock-up Agreement may be terminated by Volvo Construction Equipment,
when not in default in performance of its obligation thereunder, if:
(a) the Acquisition Agreement has been terminated in accordance with its
terms as a result of a final order, decree or other action taken by a
court of competent jurisdiction or other governmental body; or
(b) the Offer has been withdrawn or terminated or otherwise expires in
accordance with its terms.
29
<PAGE>
PURPOSE OF THE OFFER AND OFFEROR'S PLANS FOR THE CORPORATION
PURPOSE OF THE OFFER
The purpose of this Offer is to enable the Offeror to acquire all of the
Shares.
PLANS FOR THE CORPORATION
If the Offer is successful, Volvo Construction Equipment intends to effect
certain changes with respect to the composition of the board of directors of the
Corporation to allow designees of Volvo Construction Equipment to become members
of the board of directors and to represent a majority of the board of directors.
Further, upon the acquisition of all of the Shares, Volvo Construction Equipment
intends to integrate the businesses carried on by Volvo Construction Equipment
and the Corporation. It is expected that integration of the two companies'
operations would not involve a significant change in the Corporation's
operations. Under the new ownership structure, the Corporation would have the
support of the entire Volvo Construction Equipment organization, including
access to technology and componentry, research and distribution in countries
where Volvo Construction Equipment is well established and the Corporation does
not yet participate.
If permitted by applicable law, subsequent to the completion of the Offer or
a compulsory acquisition or any subsequent acquisition transaction, if
necessary, the Offeror intends to delist the Shares from the TSE and the ME and,
if there are fewer than fifteen securityholders of the Corporation in any
province, to cause the Corporation to cease to be a reporting issuer under the
securities laws of each such province. The Shares may also cease to be quoted on
the NASDAQ-NMS. See "Effect of the Offer on Market and Listings."
Except as indicated in the Offer, the Offeror does not have any current
plans or proposals which relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Corporation or any of its subsidiaries, a sale or transfer of a material amount
of assets of the Corporation or any of its subsidiaries or any material change
in the Corporation's capitalization or dividend policy or any other material
changes in the Corporation's corporate structure or business, or the composition
of the Corporation's board of directors or management.
SOURCE OF FUNDS
The Offeror estimates that if it acquires all of the Shares (on a fully
diluted basis) pursuant to the Offer, the total cash amount required under the
Offer to purchase such Shares will not exceed Cdn $173,031,000 (exclusive of
fees and expenses estimated at approximately Cdn$3,000,000). Volvo will provide
such funding from the internal cash reserves of Volvo and its subsidiaries.
EFFECT OF THE OFFER ON MARKET AND LISTINGS
The purchase of Shares by the Offeror pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly, as well as the number of
holders of Shares, and, depending on the number of Shares deposited and not
withdrawn by the holders and the number of depositing holders, could adversely
affect the liquidity and market value of the remaining Shares held by the
public. After the purchase of the Shares under the Offer, the Corporation may
cease to be subject to the public reporting and proxy solicitation requirements
of the CBCA and the securities laws of certain provinces of Canada and the
public reporting and other requirements under the Exchange Act and the rules and
regulations promulgated thereunder.
The rules and regulations of the TSE, the ME and the NASDAQ-NMS establish
certain criteria which, if not met, could lead to the delisting of the Shares
from such exchanges or cessation of quotation of the Shares through the
NASDAQ-NMS. Among such criteria are the number of holders of Shares, the number
of Shares publicly held and the aggregate market value of the Shares publicly
held. Depending on the number of Shares purchased pursuant to the Offer, it is
possible that the Shares would fail to meet the criteria for continued listing
on such exchanges or quotation through the NASDAQ-NMS. It is the intention of
the Offeror to apply to delist the Shares from the TSE and the ME and cease
quotation through the NASDAQ-NMS as soon as practicable after completion of the
Offer or a compulsory acquisition or any subsequent acquisition transaction, if
required.
30
<PAGE>
The Shares are presently "margin securities" under the rules of the Board of
Governors of the U.S. Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing U.S. brokers to extend
credit on the collateral of such securities for the purpose of buying, carrying
or trading in securities ("Purpose Loans"). In the event that the Shares were no
longer quoted through the NASDAQ-NMS as set forth above, it is possible the
Shares may no longer constitute "margin securities" for purposes of the Federal
Reserve Board's margin regulations and, therefore, could no longer be used as
collateral for Purpose Loans made by brokers. In addition, if registration of
the Shares under the Exchange Act were terminated, the Shares would no longer
constitute "margin securities."
PRICE RANGE AND TRADING VOLUME OF SHARES
The Shares are listed and posted for trading on the TSE and the ME and
prices are quoted on the NASDAQ-NMS. The following table sets out the high and
low sales prices and the volume of trading of Shares on the TSE, the ME and the
NASDAQ-NMS for the periods indicated, according to published sources. TSE and ME
prices are for board lot trades.
<TABLE>
<CAPTION>
TSE ME
------------------------------- -------------------------------
TRADING TRADING
HIGH LOW CLOSE VOLUME HIGH LOW CLOSE VOLUME
$ $ $ (100'S) $ $ $ (100'S)
------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
1st Quarter.................. 11.625 10.125 11.000 1,295 11.625 10.125 11.125 781
2nd Quarter.................. 13.625 10.750 13.500 5,795 13.750 11.000 13.500 1,008
3rd Quarter.................. 14.000 12.375 13.000 1,910 14.000 12.375 13.000 2,886
4th Quarter.................. 13.500 9.000 9.375 6,115 13.500 8.500 9.125 3,961
1996
1st Quarter.................. 11.250 8.875 10.375 5,798 11.250 8.750 10.375 1,270
2nd Quarter.................. 10.500 8.800 8.800 4,879 10.500 8.850 8.850 4,375
July......................... 9.000 7.150 8.100 2,974 8.850 7.250 7.900 2,093
August....................... 8.200 7.000 8.000 856 8.050 7.000 7.800 1,232
September.................... 8.750 7.550 8.750 4,726 9.750 7.600 8.750 449
October...................... 9.000 8.000 8.150 1,674 8.950 8.000 8.200 1,627
November..................... 8.900 8.250 8.500 1,024 8.900 8.300 8.400 102
December..................... 9.500 7.000 8.100 3,160 9.300 7.100 8.100 1,445
1997
January...................... 8.950 7.450 8.250 1,099 8.650 7.300 8.100 491
February (to Feb. 21)........ 14.800 8.100 14.750 9,914 14.900 8.150 14.750 923
<CAPTION>
NASDAQ - NMS (U.S.$)
------------------------------
TRADING
HIGH LOW CLOSE VOLUME
$ $ $ (100'S)
------ ----- ------ -------
<S> <C> <C> <C> <C>
1995
1st Quarter.................. -- -- -- --
2nd Quarter.................. 9.750 9.250 9.750(1) 9,557(1)
3rd Quarter.................. 10.500 9.250 10.000 2,618
4th Quarter.................. 9.938 5.750 6.750 5,830
1996
1st Quarter.................. 8.125 6.375 7.688 2,562
2nd Quarter.................. 8.000 6.250 6.453 3,649
July......................... 6.391 5.234 5.922 416
August....................... 5.875 5.125 5.875 877
September.................... 6.250 5.469 6.000 358
October...................... 6.266 6.000 6.000 16
November..................... 6.594 6.250 6.594 21
December..................... 6.875 5.125 6.000 1,329
1997
January...................... 6.750 5.375 6.125 794
February (to Feb. 21)........ 11.250 6.000 10.750 2,292
</TABLE>
- ---------------
(1) The Shares commenced trading on the NASDAQ-NMS on June 21, 1995.
On February 18, 1997, the last full trading day prior to the public
announcement on February 20, 1997 of the Offeror's intention to make the Offer,
the closing price of the Shares was $9.15 on the TSE and $9.20 on the ME and the
last reported sale price was U.S. $6.67 on the NASDAQ-NMS. On February 19, 1997,
the last reported sale price of the Shares prior to the cessation of trading in
the Shares was $10.50, $10.30 and U.S. $7.875 on the TSE, the ME and the
NASDAQ-NMS, respectively.
31
<PAGE>
DIVIDEND RECORD OF THE CORPORATION
The Offeror believes that, since the completion of the the Corporation's
initial public offering in April 1994, the Corporation has not paid any
dividends on the outstanding Shares, other than as follows:
<TABLE>
<CAPTION>
AMOUNT OF
DATE DIVIDEND DECLARED PER SHARE
- ------------------------------------------------------------------------ ---------------------------
<S> <C>
September 1994.......................................................... $ 0.04
December 1994........................................................... 0.04
March 1995.............................................................. 0.04
June 1995............................................................... 0.05
October 1995............................................................ 0.05
December 1995........................................................... 0.05
March 1996.............................................................. 0.05
June 1996............................................................... 0.05
September 1996.......................................................... 0.05
December 1996........................................................... 0.05
</TABLE>
The Offeror understands that in September 1994, the board of directors of
the Corporation established a policy to pay a quarterly dividend on the Shares.
Any payment of dividends and the amount of any dividends is at the discretion of
the board of directors and is dependent upon the Corporation's financial
performance and other factors which the board of directors deems relevant. Other
than restrictions on the payment of dividends imposed by law, there are no
restrictions which would prevent the Corporation from paying dividends. The
Corporation has declared a dividend to Shareholders of record at March 12, 1997
of $0.05 per Share payable on April 2, 1997. Shareholders of record at March 12,
1997 will be entitled to receive such dividend whether or not they deposit their
Shares under the Offer.
PRIOR DISTRIBUTIONS
Based on publicly available information, the Offeror believes that the only
distribution of Shares effected during the five years preceding the date of this
Circular (other than distributions of Shares pursuant to employee or executive
stock option plans) was the distribution of 2,420,000 Shares at $12.00 per
Share, issued in connection with the initial public offering of the Corporation
in April, 1994. The Corporation received gross proceeds of $29,040,000 in
connection with the issuance of these Shares.
ACQUISITION OF SHARES NOT DEPOSITED
COMPULSORY ACQUISITION
If, within 120 days after the date of the Offer, the Offer has been accepted
by the holders of not less than 90% of the Shares, other than Shares held at the
date of the Offer by or on behalf of the Offeror or its affiliates or associates
and such Shares have been taken up and paid for by the Offeror, the Offeror
intends to acquire pursuant to the provisions of Section 206 of the CBCA the
remaining Shares held by each Shareholder who did not accept the Offer, on the
same terms as the Shares acquired under the Offer (a "compulsory acquisition").
To exercise such statutory right, the Offeror must give notice (the
"Offeror's Notice") to each Shareholder who did not accept the Offer (and to
each person who subsequently acquires any such Shares) (in each case a
"Dissenting Offeree") and to the Director under the CBCA of such proposed
acquisition on or before the earlier of 60 days from the Expiry Time and 180
days from the date of the Offer. Within 20 days of giving the Offeror's Notice,
the Offeror must pay or transfer to the Corporation the consideration the
Offeror would have had to pay or transfer to the Dissenting Offerees if they had
elected to accept the Offer, to be held in trust for the Dissenting Offerees. In
accordance with Section 206 of the CBCA, within 20 days after receipt of the
Offeror's Notice, each Dissenting Offeree must send the certificates
representing the applicable securities held by such Dissenting Offeree to the
Corporation, and may elect either to transfer such securities to the Offeror on
the terms of the Offer or to demand payment of the fair value of such securities
held by such holder by so notifying the Offeror. If a Dissenting Offeree has
elected to demand payment of the fair value of such securities, the Offeror may
apply to a
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court having jurisdiction to hear an application to fix the fair value of such
securities of that Dissenting Offeree. If the Offeror fails to apply to such
court within 20 days after it made the payment or transferred the consideration
to the Corporation referred to above, the Dissenting Offeree may then apply to
the court within a further period of 20 days to have the court fix the fair
value. If no such application is made by the Dissenting Offeree within such
period, the Dissenting Offeree will be deemed to have elected to transfer such
securities to the Offeror on the terms of the Offer. Any judicial determination
of the fair value of the securities could be more or less than the amount paid
pursuant to the Offer.
THE FOREGOING IS A SUMMARY ONLY. SECTION 206 OF THE CBCA IS COMPLEX AND MAY
REQUIRE STRICT ADHERENCE TO NOTICE AND TIMING PROVISIONS, FAILING WHICH SUCH
RIGHTS MAY BE LOST OR ALTERED. SHAREHOLDERS WHO WISH TO BE BETTER INFORMED ABOUT
THESE PROVISIONS SHOULD CONSULT THEIR LEGAL ADVISORS.
See "Certain Canadian Federal Income Tax Considerations" and "Certain U.S.
Federal Income Tax Consequences" in the Circular for a discussion of the tax
consequences to Shareholders in the event of a compulsory acquisition.
SUBSEQUENT ACQUISITION TRANSACTIONS
If the foregoing statutory right of acquisition is not available, then the
Offeror intends to consider other means of acquiring, directly or indirectly,
all of the Shares in accordance with applicable law, including a subsequent
acquisition transaction. In order to effect a subsequent acquisition
transaction, the Offeror may seek to cause a special meeting of the necessary
classes of securities of the Corporation and/or the Shareholders to be called to
consider an amalgamation, statutory arrangement, capital reorganization or other
transaction involving the Offeror and/or an affiliate of the Offeror and the
Corporation and/or the Shareholders for the purposes of the Corporation
becoming, directly or indirectly, a wholly-owned subsidiary of the Offeror or
effecting an amalgamation or merger of the Corporation's business and assets
with or into the Offeror and/or an affiliate of the Offeror (referred to as a
"subsequent acquisition transaction"). Depending upon the nature and terms of
the subsequent acquisition transaction, the approval of at least 66 2/3% of the
votes cast by holders of the outstanding Shares may be required at a meeting
duly called and held for the purpose of approving the subsequent acquisition
transaction.
The tax consequences to a Shareholder of a subsequent acquisition
transaction may differ from the tax consequences to such Shareholder of
accepting the Offer. See "Certain Canadian Federal Income Tax Considerations"
and "Certain U.S. Federal Income Tax Consequences" in the Circular.
The methods of acquiring the remaining outstanding Shares described above,
other than a compulsory acquisition, would be a "going private transaction"
within the meaning of certain applicable Canadian securities legislation and the
regulations to the SECURITIES ACT (Ontario) (the "Regulations"), Policy 9.1 and
Policy Q-27, with respect to holders of a class of participating securities, if
such method would result in the interest of a holder of Shares (the "affected
securities") being terminated without the consent of the holder and without the
substitution therefor of an interest of equivalent value in a participating
security of the Corporation, a successor to the business of the Corporation or
another issuer who controls the Corporation or, in the case of Policy 9.1 and
Policy Q-27, an issuer who controls a successor to the business of the
Corporation. In certain circumstances, the provisions of Policy 9.1 and Policy
Q-27 may also deem certain types of subsequent acquisition transactions to be
"related party transactions."
The Regulations, Policy 9.1 and Policy Q-27 provide that, unless exempted, a
corporation proposing to carry out a going private transaction (or a related
party transaction in the case of Policy 9.1 and Policy Q-27) is required to
prepare a valuation of the affected securities (and any non-cash consideration
being offered therefor) and to provide to the holders of the affected securities
a summary of such valuation. In connection therewith, the Offeror intends to
rely on any exemption then available or to seek waivers pursuant to Policy 9.1
and Policy Q-27 or any rule promulgated in substitution therefor from the OSC
and QSC, respectively, exempting the Offeror or the Corporation, as appropriate,
from the requirement to prepare a valuation in connection with the subsequent
acquisition transaction. In connection with the aforementioned exemptions, the
Offeror confirms that it has no knowledge, after reasonable enquiry, of
non-financial factors or factors particular to the Tendering Shareholders which
were considered relevant by the Tendering Shareholders in assessing the price
offered by the Offeror for the
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Shares. The Offeror also certifies that it has no knowledge, after reasonable
enquiry, of any prior event in the affairs of the Corporation which was
undisclosed at the time of the discussions with the Tendering Shareholders
regarding the possible acquisition of the Corporation which if disclosed could
reasonably have been expected to affect the price offered by the Offeror for the
Shares following the discussions with the Tendering Shareholders and that no
intervening event, other than the Offer, has occurred which could reasonably be
expected to increase the value of the Shares.
Policy 9.1 and Policy Q-27 would also require that, in addition to any other
required securityholder approval, in order to complete a going private
transaction, the approval of a simple majority of the votes cast by "minority"
holders of the affected securities be obtained, unless a formal valuation is
required and the consideration is payable entirely in cash and is less in amount
than per security value or the simple average of the high and low ends of the
range of per security values arrived at by the formal valuation, in which case a
two-thirds majority of the "minority" vote is required. In relation to the Offer
and any going private transaction, the "minority" holders will be, unless an
exemption is available or discretionary relief is granted by the OSC and QSC,
all holders of Shares other than the Offeror, its directors and senior officers,
any associate or affiliate of the Offeror or its directors or senior officers,
any person or company acting jointly or in concert with the Offeror or any of
its directors or senior officers in connection with the Offer or the subsequent
going private transaction,and any person who is a "related party" of the Offeror
as defined by Policy 9.1 and Policy Q-27. Subject to any exemption or waiver
then available or obtained, as the case may be, Shares which are deposited under
the Offer by the Tendering Shareholders pursuant to the Lock-up Agreement will
not be treated as "minority" shares. Policy 9.1 and Policy Q-27 also provide
that the Offeror may treat Shares acquired pursuant to the Offer as "minority"
shares and may vote them, or consider them voted, in favor of such going private
transaction if a summary of a valuation was provided or no valuation was
required in respect of the Offer and if the consideration per security in the
going private transaction is at least equal in value to the consideration paid
under the Offer and the intention to proceed with the transaction is disclosed
in the Circular. The Offeror intends that the consideration offered under any
subsequent going private transaction proposed by it would be identical to the
consideration offered under the Offer.
In the event a subsequent acquisition transaction were to be consummated,
holders of Shares, under the CBCA, may have the right to dissent and demand
payment of the fair value of such Shares. This right, if the statutory
procedures are complied with, could lead to a judicial determination of the fair
value required to be paid to such dissenting holders for their Shares. The fair
value of Shares so determined could be more or less than the amount paid per
Share pursuant to the subsequent acquisition transaction or the Offer. Any such
judicial determination of the fair value of the Shares could be based upon
considerations other than, or in addition to, the market price of the Shares.
If the Offeror decides not to effect a compulsory acquisition or propose a
subsequent acquisition transaction involving the Corporation, or proposes a
subsequent acquisition transaction but cannot promptly obtain any required
approval, then the Offeror will evaluate its other alternatives. Such
alternatives could include, to the extent permitted by applicable law,
purchasing additional Shares in the open market, in privately negotiated
transactions, in another take-over bid or exchange offer or otherwise, or taking
no further action to acquire additional Shares. Any additional purchases of
Shares could be at a price greater than, equal to or less than the price to be
paid for Shares under the Offer and could be for cash or other consideration.
Alternatively, the Offeror may sell or otherwise dispose of any or all Shares
acquired pursuant to the Offer or otherwise. Such transactions may be effected
on terms and at prices then determined by the Offeror, which may vary from the
terms and the price paid for Shares under the Offer.
In September, 1994 the Director appointed under the CBCA released a policy
on "going private transactions" stating, among other things, that the Director
is of the opinion that going private transactions are permitted under the CBCA
provided that the transaction is not oppressive or unfairly prejudicial to or
unfairly disregards the interests of a person whose interest in a participating
security is being terminated without his or her consent. In determining whether
a going private transaction is fair, the policy states that compliance with the
requirements set forth in Policy 9.1 or Policy Q-27 will usually be viewed by
the Director as sufficient.
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Certain judicial decisions may be considered relevant to any subsequent
acquisition transaction which may be proposed or effected subsequent to the
expiry of the Offer. Prior to the adoption of Policy 9.1 and Policy Q-27,
Canadian courts, in a few instances, granted preliminary injunctions to prohibit
transactions involving going private amalgamations. The current trend both in
legislation and in the American jurisprudence upon which the previous Canadian
decisions were based is toward permitting going private transactions to proceed
subject to compliance with procedures designed to ensure substantive fairness to
the minority shareholders. Holders should consult their legal advisors for a
determination of their legal rights.
Rule 13e-3 under the Exchange Act is applicable to certain going private
transactions and may under certain circumstances be applicable to the proposed
acquisition of Shares not deposited in the Offer, whether acquired by statutory
right of acquisition under the CBCA, amalgamation, statutory arrangement and/or
other business combination (each, a "Second-Step Transaction"). However, Rule
13e-3 would be inapplicable if (i) the Shares are deregistered under the
Exchange Act prior to the Second-Step Transaction or (ii) the Second-Step
Transaction is consummated within one year after the purchase of the Shares
pursuant to the Offer and the amount paid per Share in the Second-Step
Transaction is at least equal to the amount paid per Share in the Offer,
provided disclosure of the possible Second-Step Transaction is made at the time
of the Offer. If applicable, Rule 13e-3 requires, among other things, that
certain financial information concerning the fairness of the proposed
transaction and the consideration offered to minority shareholders in such
transaction be filed with the SEC and disclosed to shareholders prior to the
consummation of the transaction. The Offeror does not believe that Rule 13e-3
will be applicable to any Second-Step Transaction contemplated herein.
Shareholders should consult their legal advisors for a determination of
their legal rights with respect to any transaction which may constitute a going
private transaction or a related party transaction.
REGULATORY MATTERS
COMPETITION ACT
The merger provisions of the COMPETITION ACT (Canada) permit the Director of
Investigation and Research appointed under the said Act ("Director"), to apply
to the Competition Tribunal ("Tribunal") to seek relief in respect of a merger
transaction which prevents or lessens, or is likely to prevent or lessen,
competition substantially. The relief that may be ordered by the Tribunal
includes, in the case of a completed merger, ordering a dissolution of the
merger or a disposition of assets or shares, and in the case of a proposed
merger, prohibiting completion of the transaction.
The COMPETITION ACT (Canada) also requires parties to certain proposed
merger transactions which exceed specified size thresholds to provide the
Director with prior notice of and information relating to the transaction and
the parties thereto, and to await the expiration of the prescribed waiting
period, prior to completing the transaction. In lieu of, or in addition to,
filing a prescribed notice and awaiting the expiration of the prescribed waiting
period, a party to a proposed merger transaction may apply to the Director for
an advance ruling certificate which may be issued by the Director if he is
satisfied he would not have sufficient grounds on which to apply to the Tribunal
for an order under the merger provisions in respect of the transaction. The
Offeror will apply for an advance ruling certificate and will be filing a short
form pre-merger notification with the Director.
UNITED STATES HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976
Under the United States HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976, as amended, and the rules and regulations that have been promulgated
thereunder by the Federal Trade Commission (the "FTC") (collectively, the "HSR
Act"), certain transactions may not be consummated until certain information and
documentary materials have been furnished to the Antitrust Division of the
United States Department of Justice (the "Antitrust Division") and the FTC and
certain waiting period requirements have been satisfied. The acquisition of
Shares pursuant to the Offer may be subject to such requirements and the Offeror
intends to file a Premerger Notification and Report Form with the Antitrust
Division and the FTC in connection with the Offer (the "HSR Filing") as soon as
possible.
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Under the provisions of the HSR Act applicable to the Offer, the acquisition
of Shares pursuant to the Offer may not be consummated until the expiration or
early termination by the FTC and the Antitrust Division of a 15 calendar day
waiting period following the HSR Filing by the Offeror. The Offeror will request
early termination of this waiting period; however, there can be no assurance
that the 15-day waiting period will be terminated early. If, within the 15-day
waiting period, either the Antitrust Division or the FTC issues a request for
additional information or documentary materials (a "Second Request"), the
waiting period will be extended for an additional period of 10 calendar days
following the date of substantial compliance by the Offeror with such Second
Request.
If the Offeror's acquisition of Shares is delayed by the issuance of a
Second Request, the Offer may be extended. In any event, the purchase of and
payment for Shares must be deferred until 10 days after the Offeror
substantially complies with such Second Request or until the additional waiting
period is earlier terminated by the FTC and the Antitrust Division. Only one
extension of the waiting period pursuant to a Second Request is authorized by
the HSR Act and, thereafter, the waiting period can be extended only by court
order or by agreement with the Offeror. Under the terms of the HSR Act, the
Offeror may not take up and pay for Shares tendered pursuant to the Offer unless
and until the filing and waiting period requirements of the HSR Act applicable
to the Offer have been satisfied.
The Antitrust Division and the FTC may scrutinize the legality under the
U.S. antitrust laws of transactions such as the Offeror's acquisition of Shares
pursuant to the Offer regardless of whether the HSR Act applies to the Offeror's
acquisition of the Shares. At any time before or after the Offeror's purchase of
the Shares, the Antitrust Division or the FTC could take such action under the
antitrust laws as either deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of any such transactions or to
require the divestiture of substantial assets of the Corporation. Private
parties as well as state attorneys general may also bring legal actions under
the U.S. antitrust laws under certain circumstances.
Based upon an examination of publicly available information relating to the
businesses in which the Corporation, its subsidiaries and the Offeror are
engaged, the Offeror believes that the Offer does not violate U.S. antitrust
laws. Nevertheless, there can be no assurance that a challenge to the Offer on
U.S. antitrust grounds will not be made or, if such a challenge is made, of the
result.
BENEFICIAL OWNERSHIP AND TRADING IN SECURITIES OF THE CORPORATION
Except as disclosed in "Arrangements with the Corporation" and "Arrangements
with Certain Shareholders of the Corporation":
(a) neither the Offeror nor any of its affiliates, nor any subsidiary or
associate of any of the foregoing, nor any person or corporation
beneficially owning, directly or indirectly, more than 10% of any class of
equity securities of the Offeror, nor any director or senior officer of the
Offeror or its associates, beneficially owns or exercises control or
direction over, or has the right to acquire, directly or indirectly, any of
the securities of the Corporation;
(b) neither the Offeror nor, to the best of its knowledge, any of the persons or
entities referred to above, has effected any transaction in any of the
Shares during the twelve months preceding the date hereof; and
(c) there is no person or company acting jointly or in concert with Volvo
Construction Equipment, the Offeror or Volvo in connection with the
transactions described in the Offer and the Circular.
Moreover, except as otherwise disclosed in the Offer and Circular, none of
Volvo Construction Equipment, the Offeror or Volvo or, to the best knowledge of
Volvo Construction Equipment, the Offeror or Volvo, any of the persons listed in
Schedule "A" to this Circular:
(a) owns or has the right to acquire any Shares;
(b) has effected any transaction in the Shares during the sixty days preceding
the date of the Offer;
(c) has any contract, arrangement, understanding or relationship with any other
person with respect to any securities of the Corporation, including, but not
limited to, any contract, arrangement, understanding or
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relationship concerning the transfer or the voting of any such securities,
joint ventures, loan or option agreements, puts or calls, guarantees of
loans or guarantees against loss;
(d) has entered into any contracts, negotiations or transactions with the
Corporation or any of its affiliates concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, an election
of directors, or a sale or other transfer of a material amount of assets;
and
(e) has had any transaction with the Corporation or any of its executive
officers, directors or affiliates that would require disclosure under the
rules and regulations of the SEC applicable to the Offer.
COMMITMENTS TO ACQUIRE SECURITIES OF THE CORPORATION
Except as disclosed under "Arrangements with the Corporation" and
"Arrangements with Certain Shareholders of the Corporation," no securities of
the Corporation are covered by any commitments made by the Offeror, or any
director or officer of the Offeror and, to the knowledge of the directors and
officers of the Offeror, no securities of the Corporation are covered by any
commitments made by any associate or affiliate of the Offeror, by any associate
of any director or senior officer of the Offeror, by any person or company
holding more than 10% of any class of equity securities of the Offeror or by any
person or company acting jointly or in concert with the Offeror, to acquire any
equity securities of the Corporation.
ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS
Except as disclosed under "Arrangements with Certain Shareholders of the
Corporation," there are no arrangements or agreements made or proposed to be
made between the Offeror and any of the directors or senior officers of the
Corporation and no payments or other benefits are proposed to be made or given
by way of compensation for loss of office or to such directors or senior
officers remaining in or retiring from office. Except as disclosed under
"Arrangements with the Corporation" and "Arrangements with Certain Shareholders
of the Corporation," there are no contracts, arrangements or understandings,
formal or informal, between the Offeror and any securityholder of the
Corporation with respect to the Offer or between the Offeror and any person or
company with respect to any securities of the Corporation in relation to the
Offer.
MATERIAL CHANGES AND OTHER INFORMATION
The Offeror has no information which indicates any material change in the
affairs of the Corporation since the date of the last published financial
statements of the Corporation. The Offeror has no knowledge of any other matter
that has not previously been generally disclosed but which would reasonably be
expected to affect the decision of the Shareholders to accept or reject the
Offer.
DEPOSITARY, U.S. FORWARDING AGENT AND INFORMATION AGENT
The Offeror has engaged the Depositary and the U.S. Forwarding Agent for the
receipt of certificates in respect of Shares and related Letters of Transmittal
and Notices of Guaranteed Delivery deposited under the Offer and for the payment
for Shares purchased by the Offeror pursuant to the Offer. The Depositary and
the U.S. Forwarding Agent will receive reasonable and customary compensation
from the Offeror for its services in connection with the Offer, will be
reimbursed for certain out-of-pocket expenses and will be indemnified against
certain liabilities, including liabilities under securities laws.
The Offeror has also retained Georgeson & Company Inc. as the Information
Agent. The Information Agent may contact holders of Shares by mail, telephone,
telex, telegraph and personal interview and may request brokers, dealers and
other nominee holders of Shares to forward the Offer to beneficial owners. The
Information Agent will receive reasonable and customary compensation from the
Offeror for its services in connection with the Offer, will be reimbursed for
certain out-of-pocket expenses and will be indemnified against certain
liabilities and expenses in connection with the Offer, including certain
liabilities under securities laws.
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FINANCIAL ADVISOR, DEALER MANAGERS AND SOLICITING DEALER GROUP
Merrill Lynch Canada Inc. has been retained to act as financial advisor for
Volvo Construction Equipment in connection with the Offer. Volvo Construction
Equipment has paid to Merrill Lynch Canada Inc. an initial fee of U.S. $150,000
and an additional fee of U.S. $350,000 upon the public announcement of the
Offer. Volvo Construction Equipment has agreed to pay to Merrill Lynch Canada
Inc. an additional fee of U.S. $800,000 upon the consummation of the Offer.
Volvo Construction Equipment has agreed to reimburse Merrill Lynch Canada Inc.
for its reasonable out of pocket expenses and has agreed to indemnify Merrill
Lynch Canada Inc. against certain liabilities and expenses in connection with
the Offer, including certain liabilities under securities laws.
Merrill Lynch, an affiliate of Merrill Lynch Canada Inc., and TD Securities
Inc. have been retained to act as the Dealer Managers in connection with the
Offer in the United States and Canada, respectively. TD Securities Inc. has
undertaken to form a soliciting dealer group in Canada comprising members of the
Investment Dealers Association of Canada and members of the Toronto, Montreal,
Alberta and Vancouver stock exchanges to solicit acceptances of the Offer in
Canada. Merrill Lynch will not be entitled to any fee for its services as Dealer
Manager. Each member of the soliciting dealer group in Canada, including TD
Securities Inc., is referred to herein as a "Soliciting Dealer." The Offeror has
agreed to pay to TD Securities Inc. a fee of $125,000 for forming and managing
the soliciting dealer group in respect of the Offer and for related matters. The
Offeror has also agreed to pay to each Soliciting Dealer whose name appears in
the appropriate space in the Letter of Transmittal accompanying a deposit of
Shares a fee of $0.15 for each such Share deposited and taken up by the Offeror
under the Offer. The aggregate amount payable to a Soliciting Dealer with
respect to any single depositing holder of Shares will be a minimum of $75 and a
maximum of $1,500. Where Shares deposited and registered in a single name are
beneficially owned by more than one person, the minimum and maximum amounts will
be applied separately in respect of each such beneficial owner. The Offeror may
require the Soliciting Dealer to furnish evidence of such beneficial ownership
satisfactory to the Offeror at the time of deposit. Brokers and dealers in the
United States will not receive any fee for soliciting acceptances of the Offer.
Volvo Construction Equipment and the Offeror have also agreed to reimburse
Merrill Lynch and TD Securities Inc. for their reasonable out of pocket
expenses, including reasonable attorney's fees, and have also agreed to
indemnify Merrill Lynch and TD Securities Inc. against certain liabilities and
expenses in connection with the Offer, including certain liabilities under
securities laws.
No fee or commission will be payable by any holder of Shares who transmits
his, her or its Shares directly to the Depositary or the U.S. Forwarding Agent
or who uses the services of a Soliciting Dealer to accept the Offer.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Osler, Hoskin & Harcourt, Canadian counsel to the Offeror,
the following is, as of the date hereof, a general summary of the principal
Canadian federal income tax considerations generally applicable to a holder of
Shares (i) who sells its Shares pursuant to the Offer or (ii) whose Shares are
acquired by the Offeror pursuant to a statutory right of purchase or an
amalgamation following the Offer, each as more particularly described above
under "Acquisition of Shares Not Deposited."
This summary applies only to Shareholders who, for purposes of the Tax Act,
hold their Shares as capital property and deal at arm's length with the
Corporation and the Offeror. Shares will generally be considered capital
property of a Shareholder for purposes of the Tax Act unless the Shareholder
holds such Shares in the course of carrying on a business of buying and selling
securities or acquired such Shares in a transaction or transactions considered
to be an adventure in the nature of trade. Certain holders of Shares who are
resident in Canada for purposes of the Tax Act and whose Shares might not
otherwise qualify as capital property may be entitled to obtain such
qualification by making an irrevocable election in accordance with subsection
39(4) of the Tax Act to have every "Canadian security" owned by such Shareholder
in the taxation year of the election and in all subsequent taxation years deemed
to be capital property.
The Tax Act contains provisions (the "marked-to-market rules") relating to
securities held by certain "financial institutions" as defined in the Tax Act.
The marked-to-market rules generally preclude such institutions
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from obtaining capital gains treatment in respect of gains realized from a
disposition of shares of corporations (other than shares of a corporation in
which the institution has a "significant interest") and such institutions are
precluded from making the election under subsection 39(4) of the Tax Act
referred to above. This summary does not otherwise take the marked-to-market
rules into account and Shareholders that are "financial institutions" for the
purposes of the rules should consult their tax advisors.
This summary is based upon the current provisions of the Tax Act and the
regulations thereunder (the "Regulations"), all specific proposals to amend the
Tax Act and the Regulations publicly announced by the Minister of Finance
(Canada) prior to the date hereof (the "Proposed Amendments") and counsel's
understanding of the current published administrative practices of Revenue
Canada, Customs, Excise and Taxation ("Revenue Canada"). This summary is not
exhaustive of all Canadian federal income tax considerations. Except as referred
to above, this summary does not take into account or anticipate changes in
income tax law or administrative practice, whether by way of judicial,
governmental or legislative decision or action, nor does it take into account
provincial, territorial or foreign tax legislation or considerations, which may
differ significantly from those discussed herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO CONSTITUTE,
NOR SHOULD IT BE CONSTRUED TO CONSTITUTE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
HOLDER OF SHARES. ACCORDINGLY, HOLDERS OF SHARES SHOULD CONSULT THEIR OWN
INDEPENDENT TAX ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX CONSEQUENCES
TO THEM OF DISPOSING OF THEIR SHARES HAVING REGARD TO THEIR OWN PARTICULAR
CIRCUMSTANCES.
SHAREHOLDERS RESIDENT IN CANADA
This portion of the summary is applicable only to Shareholders who are
resident or are deemed to be resident in Canada for purposes of the Tax Act.
(I) SALE OF SHARES UNDER THE OFFER
A Shareholder whose Shares are taken up and paid for with cash under the
Offer will realize a capital gain (or capital loss) equal to the amount by which
the cash received by the Shareholder for such Shares, net of any reasonable
costs of disposition, exceeds (or is less than) the adjusted cost base to the
Shareholder of the Shares. In general, a Shareholder will be required to include
in computing income for tax purposes three-quarters of the amount of any
resulting capital gain (the "taxable capital gain") and will be generally
entitled to deduct three-quarters of the amount of any resulting capital loss
(the "allowable capital loss") against taxable capital gains realized by the
Shareholder in the year of sale. Any excess allowable capital losses over
taxable capital gains in the year of sale may be carried over and deducted
against net taxable capital gains realized in any of the three years preceding
the year of sale or in any year following the year of sale, to the extent and
under the circumstances prescribed in the Tax Act.
In the case of a Shareholder that is a corporation, the amount of any
capital loss otherwise determined resulting from the disposition of Shares may
be reduced by the amount of dividends previously received in respect of such
Shares to the extent and under the circumstances prescribed in the Tax Act.
Analogous rules apply where a corporation is a member of a partnership or
beneficiary of a trust which owns Shares. The Proposed Amendments will extend
these rules to apply in certain other circumstances where a partnership or trust
owns Shares and shareholders should consult their tax advisors in this regard.
(II) ACQUISITION OF SHARES NOT DEPOSITED
As described above under "Acquisition of Shares Not Deposited--Compulsory
Acquisition," the Offeror may, in certain circumstances, acquire Shares pursuant
to the compulsory acquisition provisions of the CBCA. The tax consequences to a
Shareholder whose Shares are so acquired by the Offeror will be as described
above with respect to sales of Shares for cash pursuant to the Offer.
If the Offeror effects a subsequent acquisition transaction, the Offeror may
propose an amalgamation involving the Corporation pursuant to which Shareholders
who do not deposit their Shares under the Offer will
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have their Shares exchanged for redeemable preference shares ("Preference
Shares") of the amalgamated corporation, such Preference Shares to be redeemed
forthwith for cash. A Shareholder will realize no capital gain or capital loss
as a result of such exchange, and the aggregate cost to the Shareholder of the
Preference Shares received on the exchange will be equal to the aggregate
adjusted cost base to the Shareholder of the Shares so exchanged.
Upon the redemption of Preference Shares, the holder thereof will be deemed
to have received a taxable dividend equal to the amount by which the redemption
price of the Preference Shares exceeds the paid-up capital of those shares, and
will realize a capital gain (or capital loss) to the extent that the paid-up
capital of such shares less the reasonable costs of disposition, exceeds (or is
less than) the holder's adjusted cost base of such shares. The rules governing
the treatment of capital gains and losses, including those that may reduce the
amount of capital loss otherwise determined, are as described above under "Sale
of Shares Under the Offer."
Deemed dividends received on the redemption of the Preference Shares will be
included in computing the Shareholder's income for purposes of the Tax Act. The
gross-up and dividend tax credit rules normally applicable to taxable dividends
paid by taxable Canadian corporations will apply to deemed dividends received by
individuals, other than certain trusts. Deemed dividends received by
corporations will normally be deductible in computing taxable income. Certain
corporations may be liable to pay a 33 1/3% refundable tax under Part IV of the
Tax Act on such deemed dividends and in certain cases all or part of a deemed
dividend received by a corporation may be treated as proceeds of disposition of
the Preference Shares and not a deemed dividend. Corporate Shareholders should
consult their own tax advisors for advice with respect to the potential
application of these provisions.
As discussed under "Acquisition of Shares Not Deposited -- Subsequent
Acquisition Transactions," a Shareholder who dissents with respect to such an
amalgamation is entitled to receive the fair value of the Shareholder's Shares.
Under the current administrative practice of Revenue Canada, such payments would
be treated as proceeds of disposition giving rise to a capital gain or a capital
loss. The calculation and tax treatment of any capital gain or capital loss
would be the same as described above, under "Sale of Shares Under the Offer."
As an alternative to the amalgamation discussed above, the Offeror may
propose an arrangement, capital reorganization or other transaction. No opinion
is expressed herein as to the tax consequences of any such other subsequent
acquisition transaction to a Shareholder. Shareholders should consult with their
own tax advisors in such circumstances.
SHAREHOLDERS NOT RESIDENT IN CANADA
This portion of the summary is applicable only to Shareholders who are
neither resident nor deemed to be resident in Canada, who do not use or hold and
are not deemed to use or hold their Shares in carrying on a business in Canada
(and will not use or hold and will not be deemed to use or hold their Shares in
carrying on business in Canada), in the case of non-resident holders that carry
on an insurance business in Canada and elsewhere, establish that such property
is not effectively connected with such insurance business carried on in Canada,
and whose Shares do not otherwise constitute "taxable Canadian property" for the
purposes of the Tax Act. Shares of such holder will generally not constitute
"taxable Canadian property" unless (a) at any time within the five years
immediately preceding the disposition by such holder of Shares, such holder,
persons not dealing at arm's length with such holder, or any combination thereof
owned (or had options to acquire) 25% or more of the issued shares of any class
or series of the capital stock of the Corporation or a predecessor, (b) the
holder, upon ceasing to be a Canadian resident, elected under the Tax Act to
have the Shares deemed to be "taxable Canadian property," or (c) the Shares were
acquired in circumstances under which they are deemed to be "taxable Canadian
property."
(I) SALE OF SHARES UNDER THE OFFER
A non-resident Shareholder will not be subject to tax under the Tax Act in
respect of a capital gain realized upon the disposition of a Share pursuant to
the Offer.
40
<PAGE>
(II) ACQUISITION OF SHARES NOT DEPOSITED
A non-resident Shareholder will not be subject to tax under the Tax Act in
respect of a capital gain realized upon the disposition of a Share pursuant to a
compulsory acquisition by the Offeror.
In the event the Offeror elects an amalgamation involving the Corporation as
described above, non-resident Shareholders who do not tender their Shares under
the Offer will have their Shares exchanged for Preference Shares of the
amalgamated corporation, such Preference Shares to be redeemed forthwith for
cash. No tax will be payable by a non-resident Shareholder as a result of the
amalgamation. However, upon the redemption of a Preference Share, the holder
thereof will be deemed to have received a taxable dividend equal to the amount
by which the redemption price of the Preference Shares exceeds their paid-up
capital and such dividend will be subject to non-resident withholding tax at a
rate of 25% or such lower rate as may be provided for under the terms of an
applicable international tax treaty to which Canada is a party.
Under the current administrative position of Revenue Canada, the receipt by
a non-resident Shareholder who dissents with respect to the amalgamation of a
cash payment equal to the fair value of the non-resident Shareholder's Shares
will be treated as proceeds of disposition of such Shares.
No opinion is expressed on the tax consequences to a non-resident
Shareholder of any other subsequent acquisition transaction.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income tax
consequences of the receipt of cash by a holder of Shares pursuant to the Offer
contemplated by this Circular. Except as specifically noted, this discussion
applies only to a U.S. Holder (as hereinafter defined). This summary does not
address any tax consequences of the Offer to U.S. Holders who exercise
dissenters' rights, if any. It applies only to Shares held as capital assets and
does not address aspects of U.S. federal income tax that may be applicable to
holders that are subject to special tax rules, including, without limitation,
insurance companies, tax-exempt organizations, financial institutions, dealers
in securities or currencies, persons who acquired Shares pursuant to an exercise
of employee stock options or rights or otherwise as compensation, persons who
hold Shares as a position in a "straddle" or as part of a "hedging" or
"conversion" transaction, persons that have a "functional currency" other than
the U.S. dollar and persons that own (or are deemed to own for U.S. federal
income tax purposes) ten percent or more (by voting power or value) of the
Shares. Also, the summary does not address state, local or foreign tax
consequences of the Offer. Consequently, each holder should consult such
holder's own tax advisor as to the specific tax consequences of the Offer to
such holder.
This summary is based on current law and the opinion of White & Case. Future
legislative, judicial or administrative changes or interpretations, which may be
retroactive, could alter or modify the statements set forth herein. The opinion
of White & Case set forth in this summary is based, among other things, on the
assumptions set forth herein. Volvo Construction Equipment will not request any
ruling from the Internal Revenue Service as to the U.S. federal income tax
consequences of the Offer. An opinion of counsel is not binding on the Internal
Revenue Service, and the Internal Revenue Service is not precluded from taking
contrary positions.
For purposes of this discussion, a "U.S. Holder" means a holder of Shares
that is (i) a citizen or resident of the United States, (ii) a partnership or
corporation created in or under the laws of the United States or any political
subdivision thereof or therein, (iii) an estate the income of which is subject
to United States federal income taxation regardless of its source, or (iv) a
trust if (x) a court within the United States is able to exercise primary
supervision over the administration of the trust and (y) one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust.
GENERAL
The receipt of cash for Shares pursuant to the Offer by a U.S. Holder will
be a taxable transaction for United States federal income tax purposes and may
also be a taxable transaction under applicable state, local or foreign tax laws.
In general, a U.S. Holder will recognize gain or loss for United States federal
income tax purposes equal
41
<PAGE>
to the difference, if any, between the amount of cash received in exchange for
the Shares sold and such U.S. Holder's adjusted tax basis in such shares. Such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if such U.S. Holder has held the Shares for more than one year at the time
of the sale.
The foregoing discussion may not be applicable to certain types of U.S.
Holders, including U.S. Holders who acquired Shares pursuant to the exercise of
stock options or otherwise as compensation, holders that are not U.S. holders,
and U.S. Holders that are otherwise subject to special tax rules, such as banks,
insurance companies, dealers in securities or currencies, tax-exempt entities,
persons that hold Shares as a position in a "straddle" or as part of a "hedging"
or "conversion" transaction for tax purposes and persons that have a "functional
currency" other than the U.S. dollar and persons that own (or are deemed to own
for U.S. federal income tax purposes) ten percent or more (by voting power or
value) of the Shares. The foregoing discussion may not be applicable to a U.S.
Holder that is eligible to claim benefits under the Convention Between the
United States of America and Canada With Respect to Taxes On Income and On
Capital as a resident of Canada under such treaty.
COMPULSORY ACQUISITION
As described above under "Acquisition of Shares Not Deposited--Compulsory
Acquisition," the Offeror may, in certain circumstances, acquire Shares pursuant
to the compulsory acquisition provisions of the CBCA. The U.S. federal tax
consequences to a U.S. Holder whose Shares are so acquired by the Offeror will
be as described above with respect to sales of Shares for cash pursuant to the
Offer.
SUBSEQUENT AMALGAMATION AND REDEMPTION
As described above under "Acquisition of Shares Not Deposited--Subsequent
Acquisition Transactions," the Offeror may, in certain circumstances, propose an
amalgamation or other form of business combination in which holders who do not
deposit their Shares under the Offer may have such Shares exchanged for
redeemable shares that will be immediately redeemed.
For United States federal income tax purposes, an exchange of Shares for
redeemable shares, which are immediately redeemed for cash, would be a taxable
transaction for United States federal income tax purposes and may also be a
taxable transaction under the applicable tax laws of various states and
localities within the United States. In general, such U.S. Holders would
recognize gain or loss on such exchange equal to the difference, if any, between
(i) the amount of cash received by such U.S. Holder on the sale and (ii) such
U.S. Holder's tax basis in the Shares exchanged therefor. Such gain or loss
would be long-term capital gain or loss, if the holding period for the Shares,
as of the time of sale, exceeds one year.
As an alternative to the amalgamation discussed above, the Offeror may
propose an arrangement, consolidation, reclassification, continuance or other
transaction, the tax consequences of which may differ from those arising on the
sale of Shares under the Offer. U.S. Holders should consult their tax advisers
regarding the tax consequences of such alternatives.
UNITED STATES BACKUP WITHHOLDING
United States backup withholding tax and information reporting requirements
generally apply to certain payments to certain non-corporate holders.
Information reporting will apply to proceeds from the sale or redemption of
Shares by a paying agent within the United States to a U.S. Holder (other than
an "exempt recipient," including a corporation, a payee that is a Non-United
States Holder that provides an appropriate certification and certain other
persons). As noted in Sections 3 ("Manner of Acceptance") and 6 ("Payment for
Deposited Securties") of the Offer, a paying agent within the United States will
be required to withhold 31% of any such payment within the United States to a
holder (other than an "exempt recipient") if such holder fails to furnish its
correct taxpayer identification number and certifies that such U.S. Holder is
not subject to backup withholding tax by submitting a completed Substitute Form
W-9 to the Depositary or the U.S. Forwarding Agent or otherwise fails to comply
with such backup withholding requirements. Accordingly, each U.S. Holder should
complete, sign and submit the Substitute Form W-9 included as part of the Letter
of Transmittal in order to avoid the imposition of such backup withholding tax.
42
<PAGE>
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND IS BASED UPON LAWS, REGULATIONS, RULINGS AND
DECISIONS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE (POSSIBLY
RETROACTIVELY). U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND
FOREIGN TAX LAWS.
DIRECTORS' APPROVAL
The contents of the Offer and this Circular have been approved, and the
sending thereof to the holders of the Shares has been authorized, by the board
of directors of the Offeror.
ACCEPTANCE OF THE OFFER
Except as disclosed under the headings "Commitments to Acquire Securities of
the Corporation," "Arrangements with Certain Shareholders of the Corporation"
and "Arrangements, Agreements or Understandings," the Offeror has no knowledge
regarding whether any holders of Shares will accept the Offer.
STATUTORY RIGHTS
Securities legislation in certain of the provinces and territories of Canada
provides holders of Shares with, in addition to any other rights they may have
at law, rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or a notice that is required to be delivered to
the holders of Shares. However, such rights must be exercised within prescribed
time limits. Holders of Shares should refer to the applicable provisions of the
securities legislation of their province or territory for particulars of those
rights or consult with a lawyer.
MISCELLANEOUS
Volvo Construction Equipment, the Offeror and Volvo have filed with the SEC
a Tender Offer Statement on Schedule 14D-1, together with exhibits, pursuant to
Rule 14d-3 of the General Rules and Regulations under the Exchange Act,
furnishing certain additional information with respect to the Offer, and may
file amendments thereto. Such Tender Offer Statement and any amendments thereto,
including exhibits, may be obtained in the manner set forth in the section
entitled "Volvo Construction Equipment, the Offeror and Volvo -- Volvo" with
respect to information concerning Volvo, except that such information will not
be available at the regional offices of the SEC.
43
<PAGE>
CONSENTS
CONSENTS OF COUNSEL
TO: The Directors of
VCE Acquisition Inc.
We hereby consent to the reference to our opinion contained under "Certain
Canadian Federal Income Tax Considerations" in the Circular accompanying the
Offer dated February 24, 1997 made by VCE Acquisition Inc. to the holders of
Shares of the Corporation.
Toronto, Canada (Signed) OSLER, HOSKIN & HARCOURT
February 24, 1997
TO: The Directors of
VCE Acquisition Inc.
We hereby consent to the reference to our opinion contained under "Certain
U.S. Federal Income Tax Consequences" in the Circular accompanying the Offer
dated February 24, 1997 made by VCE Acquisition Inc. to the holders of Shares of
the Corporation.
New York, New York, U.S.A. (Signed) WHITE & CASE
February 24, 1997
44
<PAGE>
APPROVAL AND CERTIFICATE
DATED: February 24, 1997
The contents of the Offer and the Circular have been approved, and the
sending, communication or delivery thereof to the Shareholders has been
authorized by the board of directors of the Offeror. The foregoing contains no
untrue statement of a material fact and does not omit to state a material fact
that is required to be stated or that is necessary to make a statement not
misleading in the light of the circumstances in which it was made. In addition,
the foregoing does not contain any misrepresentation likely to affect the value
or the market price of the securities which are the subject of the Offer.
<TABLE>
<CAPTION>
(Signed) BENGT OVLINGER (Signed) MICHAEL J. MUDLER
President Chief Financial Officer
<S> <C>
On behalf of the board of directors of
VCE ACQUISITION INC.
(Signed) JOHN F. PETCH (Signed) DOUGLAS R. MARSHALL
Director Director
</TABLE>
45
<PAGE>
SCHEDULE "A"
DIRECTORS AND EXECUTIVE OFFICERS OF
VOLVO, VOLVO CONSTRUCTION EQUIPMENT AND THE OFFEROR
Set forth below are the name, present principal occupation or employment and
certain additional information required pursuant to the Exchange Act and the
rules and regulations promulgated thereunder with respect to each director and
executive officer of Volvo. Unless otherwise noted, the business address of each
of the directors and executive officers is AB Volvo, S-405 08 Goteborg, Sweden.
Unless otherwise noted, each person is a citizen of Sweden.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- --------------------------------------- ------------------------------------------------------------------------------
<S> <C>
Bert-Olof Svanholm Director. Chairman of the Board. Chairman of the Federation of Swedish
Industries, Chalmers Institute of Technology and the Royal Swedish Academy of
Engineering Sciences. Member of the Boards of A Ahlstrom Oy, Finland and
Swedish Employers' Confederation.
Per-Olof Eriksson(1) Director. Chairman of the Board of Svenska Kraftnat and Member of the Boards
of Sandvik AB, AB Custos, Svenska Handelsbanken, SSAB Svenskt Stal AB, Preem
Petroleum AB, AB SKF, Skanska AB, NV Koninklijke Sphinx Gustavsberg, The
Netherlands, Assa Abloy, Stockholm Institute of Technology and the Federation
of Swedish Industries. Member of the Royal Swedish Academy of Engineering
Sciences.
Hakan Frisinger Director. Chairman of the Boards of Atle AB and IRO AB, Swedwood Holding BV,
The Netherlands. Member of the Boards of Sten A Olsson's Stiflelse for
Forskning och Kultur, Catella AB, Erik Penser Fondkommission AB, Ernstrom
Holding AB, Ingka Holding BV, The Netherlands and PLM AB. Member of the Royal
Swedish Academy of Engineering Sciences.
Tom Hedelius Director. Chairman of the Boards of Svenska Handelsbanken and Bergman & Beving
AB. Vice Chairman of the Boards of AGA AB, Telefonaktiebolaget LM Ericsson and
AB Industrivarden. Member of the Boards of Svenska Cellulosa Aktiebolaget SCA
and SAS Sverige AB.
Soren Mannheimer Director. Chairman of the National Pension Insurance Fund, Fourth Fund
Managing Board and Stiftelsen Chalmers Institute of Technology. Member of the
Board of Svenska Massan.
Bjorn Svedberg Director. President and CEO of Skandinaviska Enskilda Banken. Chairman of the
Board of Telefonaktiebolaget LM Ericsson and ABB AB. Member of the Boards of
Asea Brown Boveri, Ltd, SAS Sverige AB and STORA.
Soren Gyll(2) Director. President of AB Volvo and CEO of the Volvo Group. Member of the
Boards of Pharmacia & Upjohn, Inc., AB Catena, SAS Sverige AB, the Federation
of Swedish Industries and Swedish Employers' Confederation. Member of the
Royal Swedish Academy of Engineering Sciences, the National Board of the
Swedish National Association of Engineering Industries and the Board of the
Swedish Works Association.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- --------------------------------------- ------------------------------------------------------------------------------
<S> <C>
Lars-Goran Larsson Director. AB Volvo. Representative for organization of salaried employees.
Olle Ludvigsson Director. AB Volvo. Representative for plant trade union organizations.
Verner Pedersen Director. AB Volvo. Representative for plant trade union organizations.
Lars-Erik Berg Deputy Director. AB Volvo. Representative for organization of salaried
employees.
Claes Andersson Deputy Director. AB Volvo. Representative for plant trade union organizations.
Lennart Jeansson(2) Executive Vice President of AB Volvo and Deputy CEO. Member of the Board of
AGA AB, AB Catena and UNI Storebrand AS.
Sten Langenius(2) Executive Vice President of AB Volvo. Executive Chairman of the Board of Volvo
Construction Equipment. Chairman of the Regional Bank Board, Western Sweden
Regional Bank, Nordbanken. Member of the Board of Gunnebo AB.
Per-Erik Mohlin(2) Executive Vice President of AB Volvo. Chairman of Institutet for
Kvalitetsutveckling SIQ, Member of the Boards of the Federation of Swedish
Industries and the Swedish Works Association.
Jan Engstrom(2) Senior Vice President and Chief Financial Officer of AB Volvo. Member of the
Board of Investment AB Bure.
Leif Ake Nilsson(2) Senior Vice President of AB Volvo.
Fred Bodin(2) Senior Vice President and General Counsel of AB Volvo.
Claes Malmros(2) Senior Vice President of AB Volvo.
Lars Anell(2) Senior Vice President of AB Volvo.
Karl-Erling Trogen(2,3) President of Volvo Truck Corporation.
Tuve Johannesson(2) President of Volvo Car Corporation. Member of the Board of Cardo AB.
Anders Hellman(2) President of AB Volvo Penta.
Bjorn Larsson(2) President of Volvo Bus Corporation.
Arne Wittlow(2) President of Volvo Aero Corporation.
Bengt Ovlinger(2) President of Volvo Construction Equipment.
Address: Chaussee de La Hulpe 130
B-1000 Brussels, Belgium
</TABLE>
- ------------
1 In 1993, Mr. Eriksson was fined in accordance with the Swedish insider
regulations for not having reported to the Swedish Financial Supervisory
Authority within the stipulated time-frame a purchase of 2,000 shares in
Svenska Handelsbanken where Mr. Eriksson is a board member.
2 Member of Volvo Group Executive Committee
3 In 1992, Mr. Trogen was fined SEK 30,000 by Hovratten for Vastra Sverige in
his capacity as the responsible manager within Volvo Truck Corporation.
Volvo Truck Corporation had started construction of a plant without, at that
time, having received the necessary permits according to the relevant
environment legislation. The necessary permits were later received by the
company.
47
<PAGE>
Set forth below are the name and present principal occupation or employment
of each director and executive officer of Volvo Construction Equipment. Unless
otherwise noted, the business address of each of the directors and executive
officers is Chaussee de La Hulpe 130, B-1000 Brussels, Belgium. Unless otherwise
noted, each person below is a citizen of Sweden.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- --------------------------------------- ------------------------------------------------------------------------------
<S> <C>
Sten Langenius Director. See above.
Lennart Jeansson Director. See above.
Fred Bodin Director. See above.
Jan Engstrom Director. See above.
Lars Malmros Director.
Gosta Renell Director.
Bengt Ovlinger President See above.
Tryggve Sthen Executive Vice President, Industry & Technology.
Hans Josefsson Senior Vice President, International Markets.
Michael J. Mudler Senior Vice President, Finance & Administration.
(American)
Hakan Wibrink Senior Vice President, Business Control.
Anders Hallstrom Secretary to the Board of Directors; Vice President, Corporate Planning.
</TABLE>
Set forth below are the name and present principal occupation or employment
of each director and executive officer of the Offeror. Unless otherwise noted,
the business address of each of the directors and executive officers is 1 First
Canadian Place, Toronto, Canada, M5X 1B8. Unless otherwise noted, each person is
a citizen of Canada.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- --------------------------------------- ------------------------------------------------------------------------------
<S> <C>
Bengt Ovlinger Director. President of VCE Acquisition Inc. See above.
(Swedish) Address: Chaussee de La Hulpe 130, B-1000 Brussels, Belgium
Michael J. Mudler Director. Chief Financial Officer of VCE Acquisition Inc. See above.
(American) Address: Chaussee de La Hulpe 130, B-1000 Brussels, Belgium
John F. Petch Director. Partner of Osler, Hoskin & Harcourt.
Dale R. Ponder Director. Partner of Osler, Hoskin & Harcourt.
Douglas R. Marshall Director. Partner of Osler, Hoskin & Harcourt.
Hakan Jonsson Secretary of VCE Acquisition Inc.; Vice President and General Counsel of Volvo
(Swedish) Construction Equipment.
Address: Chaussee de La Hulpe 130, B-1000 Brussels, Belgium
</TABLE>
48
<PAGE>
OFFICE OF THE DEPOSITARY
MONTREAL TRUST COMPANY OF CANADA
BY REGISTERED MAIL
Stock Transfer Services
151 Front Street West
8th Floor
Toronto, Ontario
M5J 2N1
BY HAND OR COURIER
<TABLE>
<S> <C>
TORONTO MONTREAL
Stock Transfer Services Stock Transfer Services
151 Front Street West Place Montreal Trust
8th Floor, 1800 McGill College Avenue
Toronto, Ontario 6th Floor
M5J 2N1 Montreal, Quebec
Tel: (416) 981-9596 H3A 3K9
Fax: (416) 981-9600 Tel: (514) 982-7555
Fax: (514) 982-7347
CALGARY VANCOUVER
Stock Transfer Services Stock Transfer Services
600, 530 - 8th Avenue S.W. 510 Burrard Street
Calgary, Alberta 2nd Floor
T2P 3S8 Vancouver, B.C.
Tel: (403) 267-6555 V6C 4B9
Fax: (403) 266-1490 Tel: (604) 661-0283
Fax: (604) 661-9480
</TABLE>
OFFICE OF THE U.S. FORWARDING AGENT
THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK
BY MAIL, HAND, COURIER OR FACSIMILE TRANSMISSION
One Liberty Plaza
23rd Floor
New York, New York 10006
Tel: (212) 225-5438
Fax: (212)225-5436
OFFICE OF THE INFORMATION AGENT
ABCDEF
Wall Street Plaza
New York, New York 10005
Toll Free: (800) 223-2064
Banks & Brokers Call Collect: (212) 440-9800
OFFICES OF THE DEALER MANAGERS
<TABLE>
<S> <C>
IN THE UNITED STATES: IN CANADA:
MERRILL LYNCH & CO. TD SECURITIES INC.
World Financial Center 55 King Street West
North Tower 8th Floor, P.O. Box 1
New York, New York 10281 Toronto Dominion Bank Tower
(212) 449-8209 (Call Collect) Toronto-Dominion Centre
Toronto, Ontario
M5K 1A2
(416) 982-6084 (Call Collect)
</TABLE>
<PAGE>
February 24, 1997
[LOGO]
To Our Shareholders in the United States:
I am pleased to inform you that on February 20, 1997 Champion Road Machinery
Limited (the "Company") entered into an Acquisition Agreement (the "Acquisition
Agreement") with Volvo Construction Equipment N.V. ("Parent"), a wholly owned
subsidiary of AB Volvo (publ) ("Volvo"), pursuant to which VCE Acquisition Inc.,
a wholly owned subsidiary of Parent (the "Purchaser"), has commenced a cash
tender offer (the "Offer") to purchase all of the outstanding Company common
shares (the "Common Shares" or the "Shares") for CDN $15.00 per Share. If over
90% of the outstanding Shares (exclusive of Shares currently held by Purchaser,
Parent or Volvo or certain affiliates or associates of Purchaser) are tendered
in the Offer, the Offer will be followed by the compulsory acquisition of the
remaining Shares outstanding pursuant to certain provisions of Canadian law and
any Shares not owned by the Purchaser, Parent or Volvo will be purchased for CDN
$15.00 per Share in cash (or any higher price that may be paid in the Offer),
without interest. If less than 90% of the Shares are tendered in the Offer,
Purchaser and Parent may make subsequent acquisitions of Shares as set forth in
the attached Schedule 14D-9. As described in the Schedule 14D-9, certain holders
of Company Common Shares, holding approximately 34.3% of the Shares, have
entered into an agreement with Purchaser to tender their Shares in the Offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ACQUISITION AGREEMENT
AND THE OFFER, DETERMINED THAT THE TERMS OF THE OFFER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS
THAT THE COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR COMPANY COMMON
SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the opinion of ScotiaMcLeod Inc., the Company's
financial advisor, that the consideration to be received by the holders of
Company Common Shares in the Offer is fair to such holders from a financial
point of view. The Schedule 14D-9 is being sent only to U.S. shareholders of the
Company; a Directors' Circular prepared pursuant to Canadian law containing
substantially the same information is being sent to the Company's Canadian
shareholders.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase for Cash (including the related Circular),
dated February 24, 1997, of the Purchaser, together with related materials,
including a Letter of Transmittal, to be used for tendering your Shares. These
documents set forth the terms and conditions of the Offer and provide
instructions as to how to tender your Shares. I urge you to read the enclosed
material carefully.
Sincerely,
[SIGNATURE]
Arthur F. Church
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
[LOGO]
CHAMPION ROAD MACHINERY LIMITED
For Immediate Release
February 20, 1997
A N N O U N C E M E N T
WATERLOO, ONTARIO - Champion Road Machinery Limited announced today that it has
entered into an agreement with Volvo Construction Equipment Corporation pursuant
to which Volvo has agreed to cause a wholly-owned Canadian subsidiary to make an
offer to acquire all of the issued and outstanding common shares of Champion at
a price of C$15.00 per share, subject to certain conditions. Under the terms of
the agreement with Volvo, Champion has agreed, subject to its fiduciary
obligations, not to solicit or encourage any other offer for its shares and to
carry on its business in the ordinary course. In addition, Champion has agreed
to pay Volvo a fee of C$5,000,000 in the event that a competing offer or other
similar transaction for at least a majority of Champion's shares is announced,
commenced or made at any time prior to 90 days after the mailing of the offer
and the transaction is thereafter completed. Under the terms of an agreement
entered into today between Volvo and certain shareholders of Champion who hold
common shares and options to acquire common shares representing 34.3% of
Champion's outstanding shares on a fully-diluted basis, such shareholders have
agreed to irrevocably tender their shares into the Volvo offer.
At a meeting held on February 19, 1997, the Board of Directors of Champion
unanimously resolved to recommend to holders of common shares that they accept
the Volvo offer. In arriving at its conclusion, the Board relied upon and
considered, among other things, the fairness opinion provided by ScotiaMcLeod
Inc. as to the fair value of the offer, the fact that the offer is a cash offer
for all the outstanding shares of the Company, at a premium of 78.6% to the
twenty-day average price of Champion's common shares on The Toronto Stock
Exchange prior to February 18, 1997, and the additional benefits to Champion
resulting from the access to Volvo's larger commercial and industrial resources.
Arthur F. Church, President and Chief Executive Officer of Champion commented:
"This is an excellent deal for our shareholders and Champion as a company.
Volvo has confirmed its desire to have us continue our road building equipment
operations under the Champion brand name as a stand-alone entity. Under this
new ownership structure, we will have the support of the entire Volvo
Construction Equipment organization including access to Volvo technology and
componentry; research and development; and distribution in markets where Volvo
is strong and Champion does not already participate."
Champion Road Machinery Limited designs, manufactures and markets graders,
compactors, asphalt pavers and other related equipment used in the construction
and maintenance of roads by government authorities and private contractors in
more than 95 countries.
Stock Exchanges: Toronto
Montreal
Nasdaq National Market
Trading Symbol: TSE & ME - CHN, Nasdaq - CRMLF
For further information contact:
Scott E. Hall
Vice-President, Finance and Chief Financial Officer
(519) 884-6000
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