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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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Talley Industries, Inc.
(Name of Subject Company)
Talley Industries, Inc.
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
(Including the associated Preferred Stock Purchase Rights)
(Title of Class of Securities)
87468710
(CUSIP Number of Class of Securities)
Series A Convertible Preferred Stock, par value $1.00 per share
(Title and Class of Securities)
87468720
(CUSIP Number of Class of Securities)
Series B $1.00 Cumulative Convertible Preferred Stock, par value $1.00 per
share
(Title of Class of Securities)
87468730
(CUSIP Number of Class of Securities)
Mark S. Dickerson
Vice President,
General Counsel and Secretary
Talley Industries, Inc.
2702 North 44th Street
Suite 100A
Phoenix, Arizona 85008
(602) 957-7711
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of the Person(s)
Filing Statement)
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Copies to:
William L. Rosoff
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Item 1. Security and Subject Company.
The name of the subject company is Talley Industries, Inc., a
Delaware corporation (the "Company"), and the address of the principal
executive offices of the Company is 2702 North 44th Street, Suite 100A,
Phoenix, Arizona 85008. The classes of equity securities to which this
Statement relates are the Company's Common Stock, par value $1.00 per share
(the "Common Stock"), Series A Convertible Preferred Stock, par value $1.00
per share (the "Series A Preferred Stock"), and Series B $1.00 Cumulative
Convertible Preferred Stock, par value $1.00 per share (the "Series B
Preferred Stock") (the Series A Preferred Stock and the Series B Preferred
Stock being collectively referred to herein as the "Preferred Stock"),
including the associated Preferred Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement (the "Rights Agreement") between the Company
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, as amended and
restated on February 2, 1996, (the Common Stock, the Preferred Stock and the
Rights being collectively referred to herein as the "Shares").
Item 2. Tender Offer of the Bidder.
This statement relates to the tender offer by Score Acquisition
Corp. ("Purchaser"), a Delaware corporation and a wholly owned subsidiary of
Carpenter Technology Corporation, a Delaware corporation ("Parent"), disclosed
in a Tender Offer Statement on Schedule 14D-1, dated October 2, 1997 (the
"Schedule 14D-1"), to purchase for cash any and all issued and outstanding
Shares at a price of $12.00 per share of Common Stock, $11.70 per share of
Series A Preferred Stock and $16.00 per share of Series B Preferred Stock, net
to the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in Purchaser's Offer to Purchase dated October 2,
1997 (the "Offer to Purchase") and the related Letter of Transmittal (which,
together with the Offer to Purchase, constitute the "Offer"). As set forth in
the Offer to Purchase, each of Purchaser and Parent has its principal
executive offices at 101 West Bern Street, Reading, Pennsylvania 19601.
The Offer is being made pursuant to the Agreement and Plan of
Merger, dated September 25, 1997, among the Company, Purchaser and Parent (the
"Merger Agreement"). A copy of the Merger Agreement is filed as Exhibit A to
this Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") and is incorporated herein by reference in its entirety. Pursuant to
the Merger Agreement, following the consummation of the Offer, as soon as
practicable following the satisfaction or waiver of certain conditions,
Purchaser will be merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation (the "Surviving Corporation").
In the Merger, the Shares outstanding immediately prior to the effective time
of the Merger (other than Shares held in the treasury of the Company, Shares
owned by Parent, Purchaser or any other subsidiary of Parent, or Shares held
by stockholders who properly exercise their appraisal rights under the
Delaware General Corporation Law (the "Delaware Law")) will, by virtue of the
Merger and without any action on the part of holder thereof, be converted into
the right to receive $12.00 per share of Common Stock, $11.70 per share of
Series A Preferred Stock and $16.00 per share of Series B Preferred Stock (or
any higher price paid per Share in the Offer), net to the seller in cash,
without interest thereon (the "Merger Consideration"), upon the surrender of
the certificate formerly representing such Shares. The Merger Agreement is
summarized in Item 3 of the Schedule 14D-9.
Item 3. Identity and Background.
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above. Unless the context otherwise
requires, references to the Company in the Schedule 14D-9 (other than in the
summary of the Merger Agreement below) are to the Company and its
subsidiaries, viewed as a single entity.
(b) Except as described or incorporated by reference herein, to the
knowledge of the Company, as of the date hereof, there exists no material
contract, agreement, arrangement or understanding and no actual or potential
conflict of interest between the Company or its affiliates and the Company's
executive officers, directors or affiliates or Purchaser or its executive
officers, directors or affiliates.
Certain contracts, agreements, arrangements and understandings
between the Company and certain of its directors and executive officers are
described at page 5 and pages 11 through 13 of the Company's Definitive Proxy
Statement, dated April 11, 1997 (the "1997 Proxy Statement"). A copy of such
portion of the 1997 Proxy Statement is filed as Exhibit A and the portions
thereof referred to herein are incorporated by reference.(*)
Reference is also made to Schedule I of the Schedule 14D-9 for
additional information in response to this Item.
Prior Relationship with Parent or Purchaser.
In late 1995, Parent became a major customer of Talley Metals
Technology, Inc. ("Talley Metals"), a subsidiary of the Company, when Parent
was forced to supplement its own production of bar product to meet heavy
demand by its customers. By the end of 1996, Parent's purchases of Talley bar
product declined as the demand versus capacity imbalance for Parent's bar
product decreased significantly.
Another subsidiary of the Company, Amcan Specialty Steels, Inc.
("Amcan"), is a master distributor of stainless steel long products and
supplies steel service centers, including Parent's network of distribution
facilities. Amcan has sold to Parent since 1989. Amcan has also sourced bar
product in non-Company sizes from Parent since 1993.
In 1996, Parent's purchases represented 14.4% of the combined
sales of Talley Metals and Amcan. During the first nine months of 1997,
Parent's purchases represented 5.0% of the combined sales of Talley Metals and
Amcan.
Merger Agreement
The Offer. The Merger Agreement provides for the commencement
of the Offer as soon as reasonably practicable after the date of the Merger
Agreement, but in no event later than the fifth business day after the public
announcement of the execution of the Merger Agreement. The obligation of
Purchaser and Parent to consummate the Offer, to accept for payment and to pay
for any Shares tendered shall be subject to only those conditions set forth in
the Merger Agreement, any of which may be waived by Purchaser in its sole
discretion (other than the Minimum Tender Condition (as defined below)).
Under the Merger Agreement, Purchaser and the Parent expressly reserve the
right to modify the terms of the Offer, except that neither Purchaser nor
Parent shall, without the prior written consent of the Company, (a) decrease
the consideration payable in the Offer; (b) change the form of consideration
payable in the Offer, (c) decrease the number of Shares sought pursuant to the
Offer, (d) change or modify the conditions to the Offer in a manner adverse to
the Company or holders of Shares, (e) impose additional conditions to the
Offer, (f) waive the Minimum Tender Condition (as defined below), or (g) amend
any term of the Offer in any manner adverse to the Company or holders of
Shares. Notwithstanding the foregoing, Purchaser, without the consent of the
Company, (i) shall extend the Offer, if at the then scheduled expiration date
of the Offer any of the conditions to Purchaser's obligation to accept for
payment and pay for Shares shall not have been satisfied, until such time as
such condition is satisfied or waived, if such condition may in the reasonable
judgment of Purchaser be satisfied in a time period reasonable for such
satisfaction, (ii) may, if any such condition is not waived, extend the Offer
until such condition is waived, (iii) may extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the
Offer and (iv) may extend the Offer on one or more occasions for an aggregate
period of not more than five business days if the Minimum Tender Condition (as
defined below) has been satisfied and there has theretofore been validly
tendered and not withdrawn Shares representing at least 70% but less than 90%
of each class of the outstanding Shares (on a fully diluted basis).
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(*) As of the date of the 1997 Proxy Statement, Mr. William H. Mallender was
Chairman of the Board and Chief Executive Officer of the Company. Mr.
Mallender was not re-elected to the Board of Directors at the 1997
Annual Meeting and subsequently resigned as an officer of the Company.
On June 9, 1997, Admiral Paul L. Foster succeeded Mr. Mallender as
Chairman of the Board and Chief Executive Officer of the Company.
The Merger. The Merger Agreement provides that, upon the terms
and subject to the conditions thereof and in accordance with the relevant
provisions of the Delaware Law, Purchaser shall be merged with and into the
Company (the "Merger") as soon as practicable following the satisfaction or
waiver of the conditions set forth in the Merger Agreement. Following the
Merger, the Company shall continue as the surviving corporation (the
"Surviving Corporation") under the name "Talley Industries, Inc." and shall
continue its existence under the laws of the State of Delaware, and the
separate corporate existence of Purchaser shall cease. At the election of
Parent, and subject to the execution of an appropriate amendment to the Merger
Agreement, any direct or indirect wholly owned subsidiary of Parent may be
substituted for Purchaser as a constituent corporation in the Merger.
At the Effective Time (as defined in the Merger Agreement), by
virtue of the Merger and without any action on the part of Parent, Purchaser,
the Company or the holders of any of the following securities: (a) each Share
held by the Company as treasury stock and each issued and outstanding Share
owned by Parent, Purchaser or any other subsidiary of Parent shall be canceled
and retired and no payment made with respect thereto; (b) each issued and
outstanding Share, other than those Shares referred to in (a) above, or
Dissenting Shares (as defined below), shall be converted into the right to
receive from the Surviving Corporation an amount of cash, without interest,
equal to the respective offer price applicable to such Share (the "Merger
Consideration"); and (c) each common share, par value $1 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time shall
be converted into one fully-paid and nonassessable share of common stock, par
value $1 per share, of the Surviving Corporation.
Any issued and outstanding Shares held by a person who objects
to the Merger and complies with all the provisions of the Delaware Law
concerning the right of holders of Shares to require appraisal of their Shares
("Dissenting Shares") shall become the right to receive such consideration as
may be determined to be due to such stockholder pursuant to the laws of the
State of Delaware. If, after the Effective Time, such stockholder withdraws
his demand for appraisal or fails to perfect or otherwise loses his right of
appraisal, in any case pursuant to the Delaware Law, his Shares shall be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration.
Organizational Documents. The Merger Agreement also provides
that the Certificate of Incorporation of the Company as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation from and after the Effective Time until amended in
accordance with applicable law and that the Bylaws of Purchaser in effect at
the Effective Time shall be the Bylaws of the Surviving Corporation from and
after the Effective Time until amended in accordance with applicable law. The
directors of Purchaser and the officers of the Company immediately prior to
the Effective Time shall be the directors and officers of the Surviving
Corporation until their respective successors are duly elected and qualified,
except that the President and Chief Executive Officer of Purchaser will become
the Chairman and Chief Executive Officer of the Surviving Corporation.
Stockholders' Meeting. After consummation of the Offer, to the
extent required by applicable law, the Company shall promptly take all action
necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene a stockholders' meeting (the "Meeting") to
consider and vote on the Merger Agreement and the transactions contemplated
thereby. At the Meeting, all of the Shares then owned by Parent, Purchaser or
any other subsidiary of Parent shall be voted to approve the Merger Agreement.
Subject to its fiduciary duties, the Board of Directors of the Company shall
recommend that the Company's stockholders vote to approve the Merger Agreement
if such vote is sought, shall use its best efforts to solicit from
stockholders of the Company proxies in favor of the Merger and shall take all
other reasonable action in its judgment necessary and appropriate to secure
the vote of stockholders required by the Delaware Law to effect the Merger.
Notwithstanding the foregoing, in the event that Purchaser
shall acquire Preferred Shares representing at least 90% of the votes
represented by all outstanding Preferred Shares and Common Shares representing
at least 90% of the votes represented by all outstanding Common Shares, the
parties to the Merger Agreement agree, at the request of Purchaser, to take
all necessary and appropriate action to cause the Merger to become effective,
in accordance with Section 253 of the Delaware Law, as soon as reasonably
practicable after such acquisition, without a meeting of the stockholders of
the Company.
Proxy Statement. If required under applicable law, the Company
and Parent shall prepare the Proxy Statement, file it with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as promptly
as practicable after Purchaser purchases Shares pursuant to the Offer, and use
all reasonable efforts to have it cleared by the SEC. As promptly as
practicable after the Proxy Statement has been cleared by the SEC, the Company
shall mail the Proxy Statement to the stockholders of the Company as of the
record date for the Meeting.
Company Board Representation. The Merger Agreement provides
that, promptly upon the acceptance for payment of and payment for any Shares
by Purchaser, Purchaser will be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors of
the Company as will give Purchaser, subject to compliance with Section 14(f)
of the Exchange Act, representation on the Board of Directors of the Company
equal to the product of (i) the number of directors on the Board of Directors
of the Company and (ii) the percentage that such number of votes represented
by Shares so purchased bears to the number of votes represented by Shares
outstanding, and the Company shall at such time, subject to applicable law,
including applicable fiduciary duties, cause Purchaser's designees to be so
elected by its existing Board of Directors.
Conduct of Business Pending Merger. Except as contemplated by
the Merger Agreement or as approved in writing by Parent, during the period
from the date of the Merger Agreement to the acceptance of Shares for payment,
the Company and the Subsidiaries will each conduct its operations according to
its ordinary and usual course of business. Without limiting the generality of
the foregoing, neither the Company nor any Subsidiary, without the prior
written consent of Parent, will (i) issue, sell or pledge, or authorize or
propose the issuance, sale or pledge of (A) additional shares of capital stock
of any class (including the Shares), or securities convertible into any such
shares, or any rights, warrants or options to acquire any such shares or other
convertible securities, or grant or accelerate any right to convert or
exchange any securities of the Company for shares, other than (1) Shares
issuable pursuant to the terms of outstanding stock options and commitments
disclosed in the Merger Agreement, or (2) issuance of shares of capital stock
to the Company by a wholly-owned Subsidiary, or (B) any other securities in
respect of, in lieu of or in substitution for Shares outstanding on the date
thereof or split, combine or reclassify any of the Company's capital stock;
(ii) purchase, redeem or otherwise acquire, or propose to purchase or
otherwise acquire, any of its outstanding securities (including the Shares);
(iii) declare, set aside or pay any dividend or other distribution on any
shares of capital stock of the Company other than the regular quarterly
dividends of $.275 per share with respect to the Series A Preferred Shares and
$.25 per share with respect to the Series B Preferred Shares, except that a
direct or indirect wholly-owned Subsidiary may pay a dividend or distribution
to its parent; (iv) except as disclosed to Parent prior to the date of the
Merger Agreement, make any acquisition of a material amount of assets or
securities, any disposition (including by way of mortgage, license, encumber
or any Lien) of a material amount of assets or securities, or enter into a
material contract or release or relinquish any material contract rights, or
make any amendments, or modifications thereto, except in all instances for
actions in the ordinary course of business; (v) (A) except in the ordinary
course of business, incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any
Subsidiary, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing or (B) make any loans, advances of capital contributions
to, or investments in, any other person, other than to the Company or any
direct or indirect wholly owned Subsidiary; (vi) pay, discharge, settle or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business or
in accordance with their terms; (vii) propose or adopt any amendments
(initiated by the Board of Directors) to the Certificate of Incorporation or
Bylaws of the Company (or any such similar organizational documents of the
Company's Subsidiaries); (viii) except as disclosed in the Merger Agreement,
enter into any new employment, severance or termination agreements with, or
grant any increase in severance or termination pay to, any officers, directors
or key employees or grant any material increases in the compensation or
benefits to officers, directors and key employees; (ix) change any accounting
methods, principles or practices materially affecting their assets,
liabilities or business, except insofar as may be required by a change in
generally accepted accounting principles; (x) make any material tax
election or settle or compromise any material income tax liability; (xi)
except as disclosed to Parent prior to the date of the Merger Agreement,
make or agree to make any new capital expenditure or expenditures not
previously committed to which individually is in excess of $500,000 or
which in the aggregate are in excess of $1 million; or (xii) agree in
writing or otherwise to take any of the foregoing actions or any action
which would make any representation or warranty in the Merger Agreement
untrue or incorrect at any time prior to acceptance of Shares for payment
in the Offer.
Access to Information. Between the date of the Merger
Agreement and the Effective Time, the Company will upon reasonable notice (i)
give Parent and its authorized representatives reasonable access during
regular business hours to the Company's and each Subsidiary's plants, offices,
warehouses and other facilities and to its books and records, (ii) permit
Parent to make such inspections as it may require, and (iii) cause its
officers and those of the Company's Subsidiaries to furnish Parent with such
financial and operating data and other information with respect to the
business and properties of the Company and the Subsidiaries (as defined in the
Merger Agreement) as Parent may from time to time reasonably request.
Information obtained by Parent shall be subject to the provisions of the
confidentiality agreement between the Company and Parent, dated August 7, 1997
(the "Confidentiality Agreement"), which remains in full force and effect, but
shall terminate upon the acceptance for payment of the Shares pursuant to the
Offer.
No Solicitation of Transactions. The Merger Agreement provides
that the Company shall not, nor shall it permit any Subsidiary to, nor shall
it authorize or permit any officer, director or employee of or any
representative of the Company or any of the Subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage the submission of any
proposal with respect to a merger or other business combination involving the
Company or any proposal or offer to acquire in any manner, an equity interest
in not less than 20% of the outstanding voting securities of, or assets
representing not less than 20% of the annual revenues or net earnings of the
Company and the Subsidiaries taken as a whole (a "Takeover Proposal") or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, a Takeover
Proposal; provided, however, that prior to the acceptance for payment of
Shares pursuant to the Offer, to the extent consistent with the fiduciary
obligations of the Board of Directors of the Company, as determined in good
faith by the Board of Directors after consultation with outside counsel, the
Company may upon receipt by the Company of an unsolicited written, bona fide
Takeover Proposal, furnish information with respect to the Company pursuant to
a customary confidentiality agreement containing "standstill" provisions no
less onerous than in the Confidentiality Agreement and participate in
negotiations regarding such Takeover Proposal.
Reasonable Best Efforts. The Merger Agreement provides that,
upon the terms and subject to the conditions thereof, each of the parties
thereto will 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 the Merger Agreement,
including, without limitation, (i) obtaining all necessary consents, approvals
or waivers from third parties and governmental authorities necessary to the
consummation of the transactions contemplated by the Merger Agreement and (ii)
opposing vigorously any litigation or administrative proceeding relating to
the Merger Agreement or the transactions contemplated thereby.
Representations and Warranties. The Merger Agreement contains
various customary representations and warranties of the parties thereto,
including, without limitation, representations and warranties by the
Company as to the Company's capitalization, the absence of any required
filings and consents, the absence of conflicts with charter documents and
contracts, SEC filings and financial statements, absence of certain
changes, compliance with applicable laws, the absence of litigation,
employee benefits plans, the filing and compliance of reports with the
requirements of the SEC, environmental matters, brokers and taxes.
Indemnification. All rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the Effective
Time now existing in favor of the current or former directors or officers of
the Company and the Subsidiaries as provided in their respective certificates
of incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of the Company, the existence of which does not
constitute a breach of the Merger Agreement, shall be assumed by the Surviving
Corporation in the Merger, without further action, as of the Effective Time
and shall survive the Merger and shall continue in full force and effect (to
the extent consistent with applicable law) in accordance with their terms.
For six years after the Effective Time, Parent shall cause the Surviving
Corporation to honor its commitments and obligations pursuant to the
indemnification procedures listed in the Merger Agreement; and the Surviving
Corporation shall provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time, including
but not limited to the transactions contemplated by this Agreement, covering
each person currently covered by the Company's officers' and directors'
liability insurance policy, or who becomes covered by such policy prior to the
Effective Time, on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date of the Merger Agreement
(provided that in satisfying its obligation under this Section the Surviving
Corporation shall not be obligated to pay annual premiums in excess of 175% of
the amount per annum the Company paid in its last full fiscal year).
Employee Plans and Benefits. As soon as practicable following
the date of the Merger Agreement, the Board of Directors of the Company (or,
if appropriate, any committee administering the stock plans) shall adopt such
resolutions or take such other actions as are required in accordance with the
stock plans to adjust the terms of all outstanding stock options to provide
that, at the Effective Time, each stock option, whether vested or not,
outstanding immediately prior to the Effective Time be canceled in exchange
for a cash payment by the Company of an amount equal to (i) the excess, if
any, of (x) the price per Share to be paid pursuant to the Offer over (y) the
exercise price per Share subject to such stock option, multiplied by (ii) the
number of Shares for which such stock option shall not theretofore have been
exercised. The stock plans shall terminate as of the Effective Time, and the
provisions in any other Benefit Plan providing for the potential issuance,
transfer or grant of any capital stock of the Company or any Subsidiary or any
interest in respect of any capital stock of the Company or any Subsidiary
shall be deleted as of the Effective Time, and the Company shall ensure that
following the Effective Time no holder of a stock option or any participant in
the stock plans or other benefit plan shall have any right thereunder to
acquire any capital stock of the Company or any Subsidiary or the Surviving
Corporation.
Employment Contracts. From and after the Effective Time,
Parent shall cause the Surviving Corporation to honor in accordance with their
terms all existing employment, severance, consulting or other compensation
agreements, plans or contracts between the Company or any Subsidiary and any
officer, director or employee of the Company or any Subsidiary. For the
one-year period immediately following the Effective Time, Parent shall cause
the Company to provide such benefit plans, programs and arrangements that are
no less favorable in the aggregate than the existing benefit plans.
Termination. The Merger Agreement may be terminated, and the
Merger may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company: (a) by
mutual written consent of the Company and Parent; (b) by either the Company or
Parent, if (1) the Offer terminates or expires in accordance with its terms
without Purchaser's having purchased any Shares pursuant to the Offer because
of a failure of any of the conditions set forth in the Merger Agreement
(provided, however, that the right to terminate shall not be available to any
party whose failure to fulfill any of its obligations under the Merger
Agreement results in the failure to have satisfied any such condition); (2)
Shares have not been accepted for payment pursuant to the Offer on or prior to
December 31, 1997; (provided, however, that the right to terminate shall not
be available to any party whose failure to fulfill any of its obligations
under the Merger Agreement results in the failure of the Offer to be
consummated by such time); (3) any Governmental Entity (as defined below)
shall have issued a final order, injunction, decree, judgment or ruling or
taken any other final action restraining or otherwise prohibiting consummation
of the Merger or any of the other transactions contemplated by the Merger
Agreement and such action shall have become final and nonappealable;
(provided, however, that the party seeking to terminate pursuant to this
clause shall have used all reasonable efforts to prevent the entry of and to
remove such action; or (4) the Board of Directors of the Company shall have
(A) withdrawn or modified in a manner adverse to Parent and Purchaser its
approval or recommendation of the Offer or the Merger or (B) approved or
recommended any Takeover Proposal in respect of the Company. In the event
that the Merger Agreement is terminated by the Company or Parent pursuant to
clause (4) the Company shall promptly, but in no event later than two business
days after such event, pay Parent a fee (the "Termination Fee") of $6 million
in cash in immediately available funds by wire transfer to an account
designated by Parent.
Conditions of the Merger. The respective obligation of each
party to effect the Merger is subject to the satisfaction or waiver, where
permissible, prior to the Effective Time, of the following conditions: (a) if
required by applicable law, the Merger Agreement shall have been approved by
the affirmative vote of the stockholders of the Company by the requisite vote
in accordance with applicable law; (b) Purchaser shall have accepted for
payment and purchased Shares tendered pursuant to the Offer; and (c) no
judgment, order, decree, statute, law, ordinance, rule, regulation, temporary
restraining order, preliminary or permanent injunction or other order enacted,
entered, promulgated, enforced or issued by any court of competent
jurisdiction or other Government Entity or other legal restraint or
prohibition (collectively, "Restraints") preventing the consummation of the
Merger shall be in effect, provided, however, that the party seeking to assert
this condition shall have used reasonable efforts to prevent the entry of any
such Restraints and to appeal as promptly as possible any such Restraints that
may be entered.
Except as otherwise specifically provided in the Merger
Agreement, each party shall bear its own expenses in connection with the
Merger Agreement and the transactions contemplated thereby.
Certain Conditions of the Offer.
Notwithstanding any other provision of the Offer or the Merger
Agreement, Purchaser shall not be required to accept for payment or pay for,
subject to Rule 14e-1(c) of the Exchange Act, any Shares not theretofore
accepted for payment, and may terminate or amend the Offer if (i) that number
of Shares which would represent at least a majority of the voting power
represented by the Shares and other securities entitled generally to vote in
the election of directors of the Company outstanding on a fully diluted basis
after giving effect to the exercise or conversion of all options, rights and
securities exercisable or convertible into or exchangeable for Shares or such
voting securities shall not have been validly tendered and not withdrawn
immediately prior to the expiration of the Offer (the "Minimum Tender
Condition"), (ii) any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall not have
expired or been terminated prior to the expiration of the Offer or (iii) at
any time on or after the date of commencement of the Offer and before the
acceptance of such Shares for payment or the payment therefor, any of the
following conditions exist or shall occur:
(a) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on the New York Stock Exchange or in
the over-the-counter market, (ii) any declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (iii) any
limitation, whether or not mandatory, by any Federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity") on, or other event that materially affects, the extension of credit
by banks or other lending institutions, (iv) any commencement of a war, armed
hostilities or other national or international calamity involving the armed
forces of the United States, (v) any decline, measured from the date of the
Merger Agreement, in either the Dow Jones Industrial Average or the Standard &
Poor's Index of 400 Industrial Companies by an amount in excess of 20%, (vi)
in the case of any of the foregoing occurrences existing on or at the time of
the commencement of the Offer, a material acceleration or worsening thereof;
(b) there shall be pending by any Governmental Entity, or threatened
by the staff of any Governmental Entity, any suit, action or proceeding,
(i) challenging the acquisition by Parent or Purchaser of any Shares,
seeking to restrain or prohibit the making or consummation of the Offer or
the Merger or the performance of any of the other transactions contemplated
by the Merger Agreement (ii) seeking to prohibit or limit the ownership or
operation by the Company, Parent or any of their respective subsidiaries of
a material portion of the business or assets of the Company or the
Subsidiaries, or Parent or its subsidiaries, or to compel the Company or
Parent to dispose of or hold separate any material portion of the business
or assets of the Company or the Subsidiaries, or Parent or its
subsidiaries, as a result of the Offer or any of the other transactions
contemplated by the Merger Agreement, (iii) seeking to impose limitations
on the ability of Parent or Purchaser to acquire or hold, or exercise full
rights of ownership of, any Shares accepted for payment pursuant to the
Offer including, without limitation, the right to vote the Shares accepted
for payment by it on all matters properly presented to the stockholders of
the Company, or (iv) seeking to prohibit Parent or any of its subsidiaries
from effectively controlling in any material respect the business or
operations of the Company or the Subsidiaries;
(c) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
Governmental Entity or court, other than the application to the Offer or
the Merger of applicable waiting periods under the HSR Act, that is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) though (iv) of paragraph (b) above;
(d) the Company shall have entered into an agreement concerning any
Superior Proposal (as defined in the Merger Agreement), or the Board of
Directors of the Company or any committee thereof shall have resolved to
enter into such an agreement;
(e) any person or group (as defined in Section 13(d)(3) of the
Exchange Act) (other than Parent, Purchaser or any affiliate thereof)
shall have become the beneficial owner (as defined in Rule 13d-3
promulgated under the Exchange Act) of Shares representing a majority of
the total votes represented by all outstanding Shares;
(f) the Merger Agreement shall have been terminated in accordance with
its terms; or
(g) any of the representations and warranties of the Company set forth
in the Merger Agreement were inaccurate in any material respect when made
or become inaccurate in any material respect at any time thereafter, or the
Company shall have failed in any material respect to perform any obligation
or covenant required by the Merger Agreement to be performed or complied
with by it;
which, in the reasonable judgment of Purchaser and regardless
of the circumstances giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with such acceptance for payment, purchase of, or
payment for Shares.
The foregoing conditions are for the sole benefit of Purchaser
and Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition and may be waived by Purchaser
or Parent, in whole or in part, at any time and from time to time, in the sole
discretion of Purchaser or Parent. The failure by Purchaser or Parent at any
time to exercise any of the foregoing rights will not be deemed a waiver of
any right and each right will be deemed an ongoing right which may be asserted
at any time and from time to time.
A copy of the Merger Agreement is filed as Exhibit B hereto and
is incorporated herein by reference, and the foregoing summary is qualified in
its entirety by reference thereto.
Confidentiality Agreement. Pursuant to the Confidentiality
Agreement entered into as of August 11, 1997 between J.P. Morgan, solely
as the Company's representative, and Parent (the "Confidentiality
Agreement"), the parties agreed to provide, among other things, for the
confidential treatment of their discussions regarding a possible
acquisition and the exchange of certain confidential information concerning
the Company.
The Confidentiality Agreement also provided for a period of
exclusivity during which the Company and its officers, directors, employees
and other representatives, including J.P. Morgan, its financial advisor, were
not permitted to solicit, initiate, or encourage any offers or proposals for
the acquisition of the Company, or of any of the capital stock or all or
substantially all of the assets of the Company, from third parties. The
Company, however, upon notice to Parent, had the right to participate in
discussions or negotiations with, and provide confidential information to, a
third party, if the Chairman of the Board of Directors determined in good
faith, after receiving advice from its financial advisor, that such third
party had submitted a bona fide proposal or indication of interest that was,
or could reasonably be expected to lead to, an Acquisition Proposal (as
defined in the Confidentiality Agreement) that was financially superior to the
non-binding indication of interest from Parent. The exclusivity period
expired on September 25, 1997.
A copy of the Confidentiality Agreement is filed as Exhibit C
hereto and is incorporated herein by reference, and the foregoing summary is
qualified in its entirety by reference thereto.
Rights Agreement. Pursuant to the Merger Agreement, the
Company's Board of Directors has taken all action necessary to render the
Rights Agreement inapplicable to the Offer, the Merger and any other
transaction contemplated by the Merger Agreement. The Board of Directors
adopted a resolution prior to the execution of the Merger Agreement to the
effect that the acquisition of Shares pursuant to the Offer and the Merger
constituted a Permitted Offer (as defined in the Rights Agreement), and that
no further action by the Board of Directors was necessary under the Rights
Agreement in order to render the Rights issued thereunder inapplicable to the
Offer, the Merger and any other transactions contemplated by the Merger
Agreement.
Item 4. The Solicitation or Recommendation.
(a) In early 1997, a dissident stockholder group led by Mr. Saad Alissa
publicly disclosed that it might launch a proxy fight to oust a class of the
Company's current directors and to eliminate the Company's antitakeover
protections. This action followed discussions between the Company and Mr.
Alissa during which Mr. Alissa suggested, among other things, that the Company
hire an investment banker to provide strategic advice to the Company.
At its meeting on March 4, 1997, the Board of Directors
unanimously agreed to engage an independent investment bank to provide
strategic financial advice to the Company. After interviewing several
investment banks, a committee of three outside directors selected J.P. Morgan.
See Item 5.
On April 11, 1997, the stockholder group led by Saad Alissa,
which at that time controlled approximately 10.3% of the Common Stock, filed
its proxy materials seeking to replace the Company's directors nominated for
reelection at the Company's annual meeting and to remove certain of the
Company's antitakeover protections.
On May 8, 1997, at the Company's annual meeting, the Company's
stockholders elected Mr. Ralph A. Rockow and Mr. Robert T. Craig, both of whom
were nominees of Saad Alissa's group, to the Board of Directors.
On June 3, 1997, Mr. Mallender, who was not reelected to the
Board of Directors at the annual meeting, resigned as Chairman and Chief
Executive Officer of the Company. Several days thereafter, Admiral Foster
became Chairman and Chief Executive Officer of the Company.
On June 12, 1997, in a letter addressed to Admiral Foster, a
party made an indication of interest at a specified value range to purchase
the Company's subsidiary, Universal Propulsion Company, Inc. In a letter
dated June 24, 1997 sent to the party who had sent the June 12 letter and to
other parties that had previously expressed interest in certain of the
Company's businesses, Admiral Foster responded that the Company would not
consider any proposals until it had concluded its strategic financial review.
On June 19, 1997, representatives of J.P. Morgan Securities
Inc. ("J.P. Morgan") presented the initial findings of their strategic review
of the Company to the Board of Directors. After the presentation, the Board of
Directors, with the participation of the J.P. Morgan representatives,
discussed various alternatives for the Company, including, among others, (i) a
"stay the course" strategy consisting of the continued pursuit of the
Company's then strategic objectives; (ii) clarification of the Company's
business portfolio through selected divestitures (whether via sale, spinoff or
other divestiture method); and (iii) sale or liquidation of the entire
Company. A decision on which alternatives to pursue was postponed until the
next meeting of the Board of Directors.
On July 18, 1997, in a telephone conversation with Admiral
Foster, Mr. Robert Cardy, the Chairman and Chief Executive Officer of Parent,
expressed interest in purchasing the steel businesses of the Company for a
purchase price of $110,000,000. In a subsequent telephone conversation,
Admiral Foster responded that the Company's Board would be meeting on July 22
and 23 and that he would call Mr. Cardy after that meeting.
On July 22 and July 23, 1997, the Board of Directors met to
consider the various courses of action that had been reviewed at its June
meeting. Representatives of J.P. Morgan participated in a discussion of
the various alternatives and responded to questions from the Board on a wide
range of topics, including the possibility of spinning off one or more
units as a separate company, the prospects for improving the Company's
stock price in the short term and the potential benefits and risks
associated with a sale of the Company. Parent's proposal concerning the
Company's steel businesses was also discussed at this time, including an
analysis of the "tax leakage" from any sale (the taxes payable by the
Company on the gain above the relatively low tax basis of the steel assets)
and the resulting reduction in cash flow. This analysis, among other
things, indicated that a sale of the steel businesses would be dilutive to
the Company's earnings.
After the representatives of J.P. Morgan were excused from
the meeting, the Board of Directors unanimously voted to engage J.P.
Morgan to explore the sale of the Company and advise the Board of Directors
in connection with such sale. The Board of Directors decided to reject
Parent's offer to purchase the Company's steel businesses, but decided to
encourage Parent to consider submitting an offer for the entire Company.
Following the Board meeting, Admiral Foster called Mr. Cardy to
inform him that at the present time the Company was not interested in selling
individual subsidiaries but would entertain proposals for the entire Company.
On August 1, 1997, Admiral Foster received from Mr. Cardy a
nonbinding indication of interest to purchase all of the outstanding shares of
Common Stock of the Company for a purchase price of $10 per share. Parent's
indication of interest was conditioned upon receipt by Parent of an exclusive
due diligence period. In the letter, Mr. Cardy also stated that Parent would
consider increasing the proposed price in its indication of interest if it
received additional information on the Company's air bag business, as
information publicly available regarding the nascent air bag business did not
permit a proper valuation of that business.
After consultation with representatives of J.P. Morgan and
senior management of the Company, Admiral Foster rejected Parent's $10 per
share indication of interest. In a letter dated August 4, 1997 addressed to
Mr. Cardy, Admiral Foster stated that Parent's $10 per share indication of
interest was insufficient to warrant the grant of a period of exclusive due
diligence. Admiral Foster, however, did offer Parent the opportunity to
conduct limited due diligence on the Company's air bag business.
On August 4, 1997, Mr. Cardy accepted Admiral Foster's offer of
limited due diligence, and an initial confidentiality agreement between Parent
and the Company was executed. On August 5, 1997, the limited due diligence
was conducted.
On August 7, 1997, in a letter addressed to Admiral Foster, Mr.
Cardy increased the proposed price in Parent's proposal to purchase all
outstanding shares of Common Stock to $12.00 per share. Parent's $12 per
share proposal was subject to due diligence and Parent Board approval of a
definitive agreement and conditioned upon receipt by Parent of an exclusive
due diligence period. After consultation with representatives of J.P.
Morgan and the Company's outside legal advisor, the Company acceded to
Parent's request for a 45-day period of due diligence but agreed to only a
limited exclusivity provision, which provided that the Company would not
initiate, solicit or encourage other offers for the Company during this
period, but could participate in discussions or negotiations with, and
provide confidential information to, a third party if Admiral Foster
determined in good faith, after receiving advice from the Company's
financial advisor, that such third party had submitted a bona fide proposal
or indication of interest that was, or could reasonably have been expected
to lead to, an acquisition proposal that was financially superior to
Parent's $12 per share proposal. On August 11, 1997, Parent and J.P.
Morgan, solely as the Company's representative, executed the
Confidentiality Agreement.
During the period from August 11, 1997 until the execution of
the Merger Agreement on September 25, 1997, Parent conducted a due diligence
review of the Company's operations which included due diligence on all of the
Company's divisions at the Company's corporate headquarters and at each of the
Company's major facilities.
During this period, the Company and representatives of J.P.
Morgan received a number of inquiries from third parties concerning the
Company as a whole and certain of the Company's businesses. Certain of these
inquiries were requests for nonpublic information regarding the Company. In
response to these requests, such parties were told that if they were
interested in receiving non-public information, they would need to be as
specific as possible as to the nature of their interest, in particular with
respect to their valuation assumptions.
On several occasions during Parent's due diligence period, in
response to requests from representatives of the Company and J.P. Morgan to
increase the value of their offer, Parent responded that it was unwilling to
pay more than $12 per share of Common Stock.
On August 22, 1997, Admiral Foster received a letter from a
party containing a proposal to purchase for cash at a purchase price of $12.00
per share a majority (but not all) of the Company's outstanding shares of
Common Stock. The party's proposal was conditioned upon obtaining financing
and upon the Company agreeing to pay a break-up fee to the party in the amount
of $1 per outstanding share of Common Stock in the event the Company
terminated its agreement with the party to accept a superior proposal. In a
letter dated August 27, 1997, a representative of J.P. Morgan informed the
party that it was not in a position, at that time, to enter into discussions
or provide any confidential information to the party on the basis of the
proposal as set forth in its August 22 letter. After this letter was sent, a
representative of J.P. Morgan called a representative of the party to inform
the party that as a result of the restrictions set forth in the
Confidentiality Agreement, the Company would not be able to engage in
discussions unless the party improved its proposal.
On September 11, 1997, the Board of Directors held a special
meeting to receive an update from representatives of J.P. Morgan on the status
of the discussions between Parent and the Company. At the meeting,
representatives of J.P. Morgan informed the Board that they had received a
number of inquiries regarding certain of the Company's businesses but no
inquiries (other than Parent's) with respect to the purchase of all the
outstanding shares of Common Stock of the Company. J.P. Morgan's
representatives also told the Board that, based upon their judgments as to the
values of the individual businesses of the Company, they did not believe that
a liquidation of the Company could reasonably be expected to lead to value
superior to Parent's $12 per share proposal. During the same meeting,
representatives of J.P. Morgan also reviewed with the Board an updated
valuation analysis of the Company.
On September 16, 1997, Admiral Foster received another
letter from the party that sent the August 22 letter. In this letter, the
party made separate proposals to purchase at specified value ranges the
government products and services segment and the industrial products and
services segment of the Company and also requested permission to conduct
due diligence. In a subsequent telephone conversation, Admiral Foster
asked a representative of the party whether the proposals included the air
bag business. The representative informed Admiral Foster that the
proposals did not include air bags since insufficient public information
was available with which to value that business. When Admiral Foster
offered to provide the same limited due diligence on the air bag business
that had previously been provided to Parent, the party stated that it
wanted to perform full due diligence on the government products and
services segment and the industrial products and services segment. After
discussions with representatives of J.P. Morgan and the Company's outside
legal counsel, Admiral Foster called the party to inform it that its
proposals as described in the September 16 letter were not sufficient to
permit the Company to allow it to conduct extensive due diligence.
On September 18, 1997, during a telephone conversation,
representatives of J.P. Morgan were informed by representatives of Credit
Suisse First Boston Corporation ("Credit Suisse First Boston"), Parent's
financial advisor, that Parent would agree to pay $11.70 per share of Series A
Preferred Stock and $16.00 per share of Series B Preferred Stock. During this
conversation, representatives of Credit Suisse First Boston stated that Parent
was unwilling to offer any additional consideration for the Preferred Stock.
From September 19, 1997 through September 25, 1997, the legal
advisors to Parent and the Company conducted negotiations on the terms and
conditions of the Offer, the Merger and the Merger Agreement.
On September 25, 1997, the Board of Directors of the Company
held a meeting to consider the Offer, the Merger and the Merger Agreement.
All of the Company's directors participated in the meeting. At the
commencement of the meeting, Mr. Rockow and Mr. Craig made a motion to adjourn
the meeting for two weeks to provide additional time to consider the Offer,
the Merger and the Merger Agreement. The motion was defeated by a vote of 8
of the 10 directors. At the meeting, the Board of Directors of the Company
reviewed the Offer, the Merger and the Merger Agreement with the Company's
executive officers, outside legal counsel and representatives of J.P. Morgan.
The Board of Directors of the Company heard presentations by its outside legal
counsel with respect to the terms of the proposed Offer, the Merger and the
Merger Agreement and by representatives of J.P. Morgan with respect to the
financial terms of the proposed Offer and the Merger. The Board of Directors,
with the participation of the representatives of J.P. Morgan, reviewed again
the alternatives for the Company discussed during the Board's June meeting.
In this connection, representatives of J.P. Morgan discussed with the Board of
Directors an analysis of various liquidation scenarios and concluded that,
after taking into account taxes, debt and corporate charges that would be
payable in connection with a liquidation and the risks, uncertainties and time
requirements associated with a liquidation process, none of those scenarios
would be reasonably likely to provide the Company's stockholders with value
superior to the proposed transaction with Parent.
At the conclusion of their presentation, representatives of
J.P. Morgan delivered their oral opinion to the Board of Directors
(subsequently confirmed in writing) that, as of such date, the consideration
proposed to be received by the stockholders of the Company in the Offer and in
the Merger was fair, from a financial point of view, to such holders.
Based upon such discussions, presentations and opinion, the
Board of Directors, by a vote of 8 of the 10 directors, (i) approved the Offer
and the Merger and the execution of the Merger Agreement substantially in the
form presented to it, and (ii) determined to recommend that the Company's
stockholders accept the Offer and tender their Shares and approve the Merger
and the Merger Agreement. Mr. Rockow and Mr. Craig voted against the
transaction.
Later on September 25, 1997, representatives of the Company,
Parent and Purchaser executed the Merger Agreement. Parent and the Company
each issued a press release announcing the deal on September 26, 1997.
(b) In reaching its conclusions and recommendation described in
section (a) above, the Board of Directors considered a number of factors,
including the following:
(i) The Company's businesses, financial condition, results of
operations, assets, liabilities, business strategy and prospects, as well as
various uncertainties associated with those prospects.
(ii) The Company's existing competition in the industries in which it
operates and future competition in its major product lines, the relative size
of the other participants in the industries in which it operates and the
available capital and resources of such other participants as compared to the
available capital and resources of the Company.
(iii) The oral opinion (subsequently confirmed in writing) of J.P. Morgan,
the Company's financial advisor, that, as of the date thereof and based upon
and subject to various considerations and assumptions set forth therein, the
consideration to be paid to the Company's stockholders pursuant to the Offer
and the Merger is fair, from a financial point of view, to such stockholders.
A copy of the opinion rendered by J.P. Morgan to the Company's Board of
Directors, setting forth the procedures followed, the matters considered, the
scope of the review undertaken and the assumptions made by J.P. Morgan in
arriving at its opinion, is attached hereto as Annex A and is incorporated
herein by reference. Stockholders are urged to read such opinion in its
entirety.
(iv) The financial analysis performed by J.P. Morgan, which indicated,
among other things, that (A) based solely upon a discounted cash flow analysis
of the projections prepared by the management of the Company, if the Company
were sold in pieces, a value range of approximately $11 to $13 per share of
Common Stock would likely be realized by the Company's stockholders (after
taking into account taxes, debt and corporate charges that would be payable in
connection with such a liquidation) and (B) based upon the valuation
methodologies employed by J.P. Morgan, including a discounted cash flow
analysis premised upon management's projections and management's projections
as adjusted by J.P. Morgan, a comparable company analysis and a comparable
acquisition analysis, if the Company were sold in pieces, a value range of
approximately $6 to $8 per share of Common Stock would likely be realized by
the Company's stockholders (after taking into account taxes, debt and
corporate charges that would be payable in connection with such a
liquidation). The J.P. Morgan analysis also indicated that if the risks,
uncertainties and time requirements associated with a liquidation process were
taken into account, the present value of each of these ranges would likely be
substantially lower.
(v) The publicity surrounding the proxy contest (the "Proxy Contest")
conducted by a dissident stockholder group and the disclosure by the Company
that it had retained J.P. Morgan to conduct a strategic financial review of
the Company and the effect of such information on the market of potentially
interested acquirors.
(vi) The number and quality of the indications of interest received by
the Company and J.P. Morgan since the Proxy Contest.
(vii) The fact that the Offer would not be subject to a financing
condition.
(viii) The alternatives to the Merger available to the Company, including,
without limitation, (A) continuing to maintain the Company as an independent
company and not engaging in any extraordinary transaction and (B) the sale or
spin-off of all or some of the various businesses that comprise the Company,
which the Board of Directors deemed less attractive in light of the
uncertainties associated with each of these alternatives, the limitations
imposed by the Company's existing debt covenants, and the timing and possible
values that might be realized by stockholders pursuant to such alternatives.
(ix) The facts that the (A) $12.00 per share of Common Stock price to be
received by the Company's stockholders in both the Offer and the Merger
represents premiums of 21.7%, 27.1%, 30.6% and 32.3% over the average closing
prices for the 30-day period, the 45-day period, the 60-day period and the
90-day period, respectively, preceding September 25, 1997 and a premium of
approximately 44.9% over the average price at which the Common Stock has
traded in the past year and (B) $16.00 per share of Series B Preferred Stock
price to be received by the Company's stockholders in both the Offer and the
Merger represents negative premiums of 4.9%, 2.7%, 1.6% and .2% over the
average closing prices for the 30-day period, the 45-day period, the 60-day
period and the 90-day period, respectively, preceding September 25, 1997 and a
premium of approximately 1.2% over the average price at which the Series B
Preferred Stock has traded in the past year; and that such prices would be
payable in cash, thus eliminating any uncertainties in valuing the
consideration to be received by the Company's stockholders.
(x) The fact that the price per share of Preferred Stock to be received
by the Company's preferred stockholders in both the Offer and the Merger is
equivalent to the sum of the conversion value for each share of Preferred
Stock and an amount equal to one quarterly dividend on each share of Preferred
Stock.
(xi) The financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement including, without limitation, the facts that
the terms of the Merger Agreement will not unduly discourage other third
parties from making bona fide proposals subsequent to execution of the Merger
Agreement, will not prevent the Company from determining, in the exercise of
its fiduciary duties in accordance with the Merger Agreement, to provide
information to and engage in negotiations with such third parties and will
permit the Company, subject to payment of the Termination Fee, to enter into a
transaction with a party that makes a bona fide proposal that would offer the
Company's stockholders greater value than the Offer and the Merger.
(xii) The structure of the transaction which is designed, among other
things, to result in receipt by the holders of Shares at the earliest
practicable time of the consideration to be paid in the Offer and the fact
that the consideration to be paid in the Offer and the Merger is the same.
(xiii) The likelihood that the Offer and the Merger would be consummated.
The foregoing discussion of the information and factors
considered and given weight by the Board of Directors is not intended to be
exhaustive. In view of the variety of factors considered in connection with
its evaluation of the Offer and the Merger, the Board of Directors 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 of Directors may have given
different weights to different factors.
Item 5. Persons Retained, Employed or to be Compensated.
The Company has retained J.P. Morgan as its financial advisor
in connection with the Offer, the Merger and other matters arising in
connection therewith. Pursuant to an engagement letter agreement dated July
23, 1997 between the Company and J.P. Morgan (the "Engagement Letter"), the
Company paid J.P. Morgan a fee of $200,000 in cash on the date the Engagement
Letter was executed, which fee is to be credited against any Success Fee (as
defined below) payable upon consummation of a Transaction (as defined below)
or other fees earned by J.P. Morgan pursuant to the Engagement Letter. In
addition, the Company has agreed to pay J.P. Morgan an "Alternative
Transaction Fee" in the amount of $1,500,000 (offset by any Success Fee) if
with the consent of the Company, another person acquires from the Company (x)
common stock of, or voting power in, the Company representing 20% or more but
less than a majority of such common stock or voting power calculated on a
fully-diluted basis or (y) assets of the Company representing 20% or more but
less than a majority of the Company's book value. The Company has also agreed
to pay to J.P. Morgan a fee of $100,000 if, after 12 months from the date of
the Engagement Letter, neither a Success Fee nor an Alternative Transaction
Fee is payable. The Company has also agreed to reimburse J.P. Morgan for all
reasonable out-of-pocket expenses, including, without limitation, the fees and
expenses of counsel, and to indemnify J.P. Morgan and certain related persons
against certain liabilities, including certain liabilities under the federal
securities laws, relating to or arising out of its engagement.
For purposes of the Engagement Letter, the following terms have
the following meanings:
"Success Fee" means a fee in an amount equal to (a) 2.0% of
that portion of the Transaction Value (as defined below) up to $100,000,000,
plus (b) 1.5% of that portion of the Transaction Value in excess of
$100,000,000 but less than or equal to $200,000,000, plus (c) 1.0% of that
portion of the Transaction Value in excess of $200,000,000.
"Transaction" means the occurrence of any of the following
events: (a) the acquisition by another person of a majority of the outstanding
common stock of, or voting power in, the Company calculated on a fully-diluted
basis; (b) a merger or consolidation of the Company with another person; (c)
the acquisition by another person of assets of the Company representing a
majority of the Company's book value; or (d) the receipt by stockholders of
the Company of any cash, securities, or other assets to be distributed in any
spin-off, split-off, or other extraordinary dividend.
"Transaction Value" means (a) the aggregate amount of
consideration received by the Company and/or its stockholders (treating any
shares issuable upon exercise of options, warrants, or other rights of
conversion as outstanding) in any Transaction, plus (b) the amount of any
debt securities or other indebtedness for borrowed money assumed, redeemed,
or remaining outstanding or equity securities redeemed or remaining
outstanding in connection with any Transaction, plus (c) without
duplication, the value of any securities, cash, or other assets distributed
to stockholders of the Company.
J.P. Morgan is an internationally recognized investment banking
firm and regularly engages in the valuation of businesses and their securities
in connection with mergers and acquisitions and for other purposes. J.P.
Morgan was selected by the Company to act as its financial advisor on the
basis of J.P. Morgan's qualifications, expertise and reputation in investment
banking, in general, and in mergers and acquisitions specifically and because
it had no prior investment banking relationship with the Company.
Except as set forth above, neither the Company nor any person
acting on its behalf has employed, retained or agreed to compensate any person
to make solicitations or recommendations to stockholders of the Company
concerning the Offer or the Merger.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) During the past sixty days no transaction in the Shares has been
effected by the Company or, to the best knowledge of the Company, by any
executive officer, director, affiliate or subsidiary of the Company other than
the purchase by the independent trustee of the Company's 401(k) plan in the
ordinary course of 12,000 shares of Common Stock in open market transactions.
(b) To the best knowledge of the Company, eight of the ten directors
of the Company and all of the Company's executive officers currently intend
to tender pursuant to the Offer all Shares held of record or beneficially
owned by them (other than Shares issuable upon exercise of Options and
Shares, if any, which if tendered could cause such persons to incur
liability under the provisions of Section 16(b) of the Exchange Act). Mr.
Rockow and Mr. Craig have advised the Company that they do not presently
intend to tender, pursuant to the Offer, any Shares held of record or
beneficially owned by them.
Item 7. Certain Negotiations and Transactions by the Subject Company.
(a) Except as described in Item 3(b), no negotiation is being undertaken
or is under way by the Company in response to the Offer which relates to or
would result in an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, a
purchase, sale or transfer of a material amount of assets by the Company, a
tender offer for or other acquisition of securities by or of the Company or
any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described under Items 3 and 4, 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. Subject to the terms of the
Merger Agreement described in Item 3(b) under "Merger Agreement", the Company
may engage in discussions or negotiations with respect to transactions or
proposals of the type referred to above in this Item 7. At its meeting held
on September 25, 1997, the Board of Directors determined that public
disclosure with respect to the parties to, or the possible terms of any
proposals made in connection with, or agreements that may result from,
discussions or negotiations relating to a Takeover Proposal might jeopardize
their continuation, and adopted a resolution that management need not make any
such public disclosure unless and until an agreement in principle is reached
relating thereto, unless otherwise required by applicable law.
Item 8. Additional Information to be Furnished.
(a) Section 203. As a Delaware corporation, the Company is subject to
Section 203 ("Section 203") of the Delaware Law. Section 203 prohibits a
corporation which has voting stock traded on a national securities exchange,
designated on The NASDAQ Stock Market or held of record by more than 2,000
stockholders from engaging in certain business combinations, including a
merger, sale of substantial assets, loan or substantial issuance of stock,
with an interested stockholder (defined as the owner of 15% or more of the
corporation's voting stock), or an interested stockholder's affiliates or
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if (i)
prior to such date, the board of directors gives prior approval to the
business combination or the transaction in which the 15% ownership level is
exceeded, (ii) the interested stockholder acquires, in the transaction
pursuant to which the interested stockholder becomes the owner of 15% or more
of the outstanding stock, 85% of the corporation's stock (excluding those
shares owned by persons who are directors and also officers as well as
employee stock plans in which employees do not have a confidential right to
determine whether shares held subject to the plan will be tendered in a tender
or exchange offer) or (iii) the business combination is approved by the board
of directors and authorized at a meeting of stockholders by the holders of at
least two-thirds of the outstanding voting stock, excluding shares owned by
the interested stockholder. In accordance with the provisions of the
Company's Certificate of Incorporation and Section 203, the Board of Directors
of the Company has approved the Merger Agreement and Purchaser's acquisition
of Shares pursuant to the Offer and the Merger and the transactions
contemplated thereby and, therefore, the restrictions of Section 203 are
inapplicable to the Merger and the related transactions.
(b) Article Fifth of the Company's Amended Certificate of
Incorporation. Under Article Fifth of the Company's Amended Certificate of
Incorporation, certain extraordinary transactions require the prior
approval of at least four-fifths of the directors then in office or the
vote of at least four-fifths of the outstanding stock of the Company
entitled to vote thereon or compliance with specified procedural
requirements. In accordance with Article Fifth, the Company's Board by a
vote of not less than four-fifths of the directors then in office approved
the transactions contemplated by the Merger Agreement, thereby exempting
such transactions from such provisions.
(c) Antitrust. Under the HSR Act, and the rules that have been
promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information
has 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
by Purchaser pursuant to the Offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, Parent and the
Company expect to file the required Notification and Report Forms (the
"Forms") with respect to the Offer and the Merger with the Antitrust Division
and the FTC as soon as reasonably practicable following the date hereof. The
statutory waiting period applicable to the purchase of Shares pursuant to
the Offer will expire at 11:59 P.M., New York City time, on the fifteenth
day after Purchaser has filed its Form. However, prior to such date, the
Antitrust Division or the FTC may extend the waiting period by requesting
additional information or documentary material relevant to the acquisition.
If such a request is made, the waiting period will be extended until 11:59
P.M., New York City time, on the tenth day after substantial compliance by
Parent and the Company with such request. Thereafter, such waiting period
can be extended only by court order.
A request is being made pursuant to the HSR Act for early
termination of the waiting period applicable to the Offer. There can be no
assurance, however, that the 15-day HSR Act waiting period will be terminated
early.
The Antitrust Division and the FTC frequently scrutinize the
legality under the antitrust laws of transactions such as the acquisition of
Shares by Purchaser pursuant to the Offer. At any time before or after the
consummation of any such transactions, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable
in the public interest, including seeking to enjoin the purchase of Shares
pursuant to the Offer or seeking divestiture of the Shares so acquired or
divestiture of substantial assets of Parent or the Company. Private parties
(including individual states) may also bring legal actions under the antitrust
laws. The Company does not believe that the consummation of the Offer will
result in a violation of any applicable antitrust laws. However, there can be
no assurance that a challenge to the Offer on antitrust grounds will not be
made, or if such a challenge is made, what the result will be.
Item 9. Material to be Filed as Exhibits.
The following Exhibits are filed herewith:
A. Portions of the Company's Definitive Proxy Statement dated April 11,
1997.
B. Agreement and Plan of Merger dated September 25, 1997 among the
Company, Purchaser and Parent.
C. Confidentiality Agreement dated August 11, 1997 between J.P. Morgan,
solely as the Company's Representative, and Parent.
D. Letter to the Company's stockholders dated October 2, 1997.(*)
E. Opinion of J.P. Morgan dated September 25, 1997 (attached as Annex A
hereto).(*)
F. Press Release of the Company dated September 26, 1997.
G. Press Release of the Company dated September 30, 1997.
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.
Talley Industries, Inc.
By: /s/ Mark S. Dickerson
----------------------------------------
Name: Mark S. Dickerson
Title: Vice President and Secretary
Date: October 2, 1997
- -------------
(*)Included in copies mailed to stockholders.
ANNEX A
[Letterhead of J.P. Morgan Securities Inc.]
September 25, 1997
The Board of Directors
Talley Industries, Inc.
2702 North 44th Street
Suite 100A
Phoenix, AZ 85008
Attention: Admiral Paul L. Foster
Chairman and Chief Executive Officer
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders of Talley Industries, Inc. (the
"Company") of the consideration proposed to be paid to them in connection with
the proposed Tender Offer (as hereinafter defined) and subsequent merger (the
"Merger") of the Company with a wholly-owned subsidiary of Carpenter
Technology Corporation (the "Buyer"). We understand that pursuant to an
Agreement and Plan of Merger (the "Agreement"), to be entered into among the
Company, the Buyer and Score Acquisition Corp. (the "Acquisition Sub"), (i)
Acquisition Sub will commence a cash tender offer (the "Tender Offer") to
purchase all outstanding shares of the Company's (a) Common Stock, par value
$1 per share (the "Common Shares") for $12.00 per share; (b) Series A
Convertible Preferred Stock, par value $1 per share ("Series A Preferred
Shares") for $11.70 per share; and (c) Series B $1 Cumulative Convertible
Preferred Stock, par value $1 per share ("Series B Preferred Shares" and
together with the Series A Preferred Shares, the "Preferred Shares" and
together with the Common Shares, collectively the "Shares") for $16.00 and
(ii) following the Tender Offer the Acquisition Sub will merge with and into
the Company and the Company will become a wholly-owned subsidiary of the Buyer
and upon consummation of the Merger each Common Share and each Preferred Share
will receive the same consideration paid in the Tender Offer (other than
Shares beneficially owned by the Buyer or Shares for which dissenters' rights
have been perfected).
In arriving at our opinion, we have reviewed (i) a draft of the
Agreement; (ii) certain publicly available information concerning the business
of the Company and of certain other companies engaged in businesses comparable
to those of the Company, and the reported market prices for certain other
companies' securities deemed comparable; (iii) publicly available terms of
certain transactions involving companies in businesses comparable to those of
the Company and the consideration received for such companies; (iv) current
and historical market prices of the Shares; (v) the audited financial
statements of the Company for the fiscal year ended December 31, 1996, and the
unaudited financial statements of the Company for the period ended June 30,
1997; (vi) the terms of the Preferred Shares; (vii) certain agreements with
respect to outstanding indebtedness or obligations of the Company; (viii)
certain internal financial analyses and forecasts prepared by the Company and
its management; and (ix) the terms of other business combinations that we
deemed relevant.
In addition, we have held discussions with certain members of
the senior management of the Company with respect to certain aspects of the
Tender Offer and the Merger, and the past and current business operations of
the Company, the financial condition and future prospects and operations of
the Company, and certain other matters we believe necessary or appropriate to
our inquiry. We have visited certain representative facilities of the
Company, and reviewed such other financial studies and analyses and considered
such other information as we deemed appropriate for the purposes of this
opinion.
In giving our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all information
that was publicly available or was furnished to us by the Company or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us.
In relying on financial analyses and forecasts provided to us, we have assumed
that they have been reasonably prepared based on assumptions reflecting the
best currently available estimates and judgments by management as to the
expected future results of operations and financial condition of the Company
to which such analyses or forecasts relate. We have also assumed that the
Tender Offer and the Merger will have the tax consequences described in
discussions with, and in materials furnished to us by, representatives of the
Company, and that the other transactions contemplated by the Agreement will be
consummated as described in the Agreement. In considering the allocation of
consideration to be paid by the Buyer to the holders of the Preferred Shares
and the Common Shares, we have assumed that the conversion ratios for
converting Preferred Shares into Common Shares reflect the relative
differences in value between the Preferred Shares and the Common Shares. We
have relied as to all legal matters relevant to rendering our opinion upon the
advice of counsel to the Company.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof. It should be understood that subsequent developments may
affect this opinion and that we do not have any obligation to update, revise,
or reaffirm this opinion.
We have acted as financial advisor to the Company with respect
to the proposed Tender Offer and Merger and will receive a fee from the
Company for our services. We will also receive an additional fee from the
Company if the Tender Offer is consummated. With respect to the Buyer, our
affiliate, Morgan Guaranty Trust Company of New York, currently serves as
agent bank for the Buyer's existing bank financing. In the ordinary course of
their businesses, our affiliates may actively trade the debt and equity
securities of the Company or the Buyer for their own account or for the
accounts of customers and, accordingly, they may at any time hold long or
short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion
as of the date hereof that the consideration to be paid pursuant to the
Agreement to the holders of the Shares in the Tender Offer and Merger is fair,
from a financial point of view, to such holders.
This letter is provided to the Board of Directors of the
Company in connection with and for the purposes of its evaluation of the
Merger. This opinion does not constitute a recommendation to any shareholder
of the Company as to whether to tender Preferred or Common Shares pursuant to
the Tender Offer or how such shareholder should vote with respect to the
Merger. This opinion may not be disclosed, referred to, or communicated (in
whole or in part) to any third party for any purpose whatsoever except with
our prior written consent in each instance. This opinion may be reproduced in
full in any proxy, information or solicitation/recommendation statement
mailed to shareholders of the Company but may not otherwise be disclosed
publicly in any manner without our prior written approval and must be treated
as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ Nicholas B. Paumgarten
---------------------------------
Name: Nicholas B. Paumgarten
Title: Managing Director
SCHEDULE I
Talley Industries, Inc.
2702 North 44th Street
Phoenix, Arizona 85008
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
General
This Information Statement is being mailed on or about October
2, 1997 as part of the Solicitation/ Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") to holders of the Common Stock, par value
$1.00 per share (the "Common Stock"), Series A Convertible Preferred Stock,
par value $1.00 per share (the "Series A Preferred Stock"), and Series B
$1.00 Cumulative Convertible Preferred Stock, par value $1.00 per share
(the "Series B Preferred Stock") (the Series A Preferred Stock and the
Series B Preferred Stock being collectively referred to herein as the
"Preferred Stock"), including the associated Preferred Stock Purchase
Rights (the "Rights") issued pursuant to the Rights Agreement between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, as
amended and restated on February 2, 1996, (the Common Stock, the Preferred
Stock and the Rights being collectively referred to herein as the "Shares")
of Talley Industries, Inc. (the "Company"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Carpenter Technology Corporation ("Parent") to a majority of
the seats on the Board of Directors of the Company pursuant to the
Agreement and Plan of Merger dated September 25, 1997, among the Company,
Score Acquisition Corp. ("Purchaser") and Parent (the "Merger Agreement").
Capitalized terms used and not otherwise defined herein shall have the
meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Purchaser is offering to
purchase all outstanding and issued Shares at a price of $12.00 per share
of Common Stock, $11.70 per share of Series A Preferred Stock and $16.00
per share of Series B Preferred Stock. The Offer was commenced by
Purchaser on October 2, 1997 and is scheduled to expire at 12:00 midnight
(New York time) on Thursday, October 30, 1997, unless extended. The Merger
Agreement and Offer are more fully described under Item 3(b) of the
Schedule 14D-9, to which this Information Statement is attached as Schedule
I.
The information contained in this Information Statement
(including information incorporated by reference) concerning Parent and
Purchaser and the Purchaser's Designees (as defined below) has been furnished
to the Company by Parent and Purchaser and the Company assumes no
responsibility for the accuracy or completeness of such information.
PURCHASER'S DESIGNEES
Pursuant to the Merger Agreement and subject to compliance with
applicable law, promptly upon Purchaser's acceptance for payment of and
payment for any Shares, Purchaser shall be entitled to designate such
number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as will give Purchaser representation on the Board
of Directors of the Company equal to the product of (i) the number of
directors on the Board of Directors of the Company and (ii) the percentage
that such number of votes represented by Shares so purchased bears to the
number of votes represented by Shares outstanding ("Purchaser's
Designees"), and the Company shall at such time, subject to applicable law,
including applicable fiduciary duties, cause Purchaser's Designees to be so
elected by its existing Board of Directors; provided, however, that in the
event that Purchaser's Designees are elected to the Board of Directors of
the Company, until the Effective Time such Board of Directors shall have at
least three directors who are directors on the date of the Merger Agreement
and who are not officers or affiliates of the Company (the "Independent
Directors"); and provided further, that, in such event, if the number of
Independent Directors shall be reduced below three for any reason
whatsoever, any remaining Independent Directors (or Independent Director,
if there shall be only one remaining) shall designate persons to fill such
vacancies who shall be deemed to be Independent Directors for purposes of
the Merger Agreement or, if no Independent Directors then remain, the other
directors shall designate three persons to fill such vacancies who shall
not be officers or affiliates of the Company, or officers or affiliates of
Parent or any of their respective subsidiaries, and such persons shall be
deemed to be Independent Directors for purposes of the Merger Agreement.
In connection with the foregoing, the Company will, subject to applicable
law, including applicable fiduciary duties, promptly, at the option of
Parent, either increase the size of the Company's Board of Directors and/or
obtain the resignation of such number of its current directors as is
necessary to enable Purchaser's Designees to be elected or appointed to the
Company's Board of Directors as provided above.
It is expected that Purchaser's Designees may assume office
at any time following the purchase by Purchaser of the specified minimum
number of each class of Shares pursuant to the Offer, which purchase cannot
be earlier than Thursday, October 30, 1997.
This Information Statement is required by Section 14(f) of the
Exchange Act, and Rule 14f-1 thereunder. You are urged to read this
Information Statement carefully. You are not, however, required to take any
action.
GENERAL INFORMATION REGARDING THE COMPANY
The Company has three classes of voting securities outstanding:
Common Stock, Series A Preferred Stock and Series B Preferred Stock. The
holders of Common Stock and Series B Preferred Stock are entitled to one vote
per share and the holders of Series A Preferred Stock are entitled to
four-tenths of one vote per share. Subject to certain exceptions, all Shares
vote together as a single class. As of September 25, 1997, there were
14,113,623 shares of Common Stock, 13,793 shares of Series A Preferred Stock
and 749,486 shares of Series B Preferred Stock issued and outstanding
(exclusive of treasury shares) and an aggregate 1,622,050 shares of Common
Stock were reserved for issuance pursuant to the Stock Plans (as defined in
the Merger Agreement). Currently, the Board of Directors of the Company
consists of ten members. The Board of Directors is divided into three classes
and each director serves a term of three years and until his successor is duly
elected and qualified or until his earlier death, resignation or removal.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors of the Company
The names of the current directors, their ages as of September
29, 1997 and certain other information about them are set forth below. As
indicated above, some of the current directors may resign effective
immediately following the purchase of shares by Purchaser pursuant to the
Offer.
<TABLE>
<CAPTION>
Name of Director Age Director Since Principal Employment During the Past Five Years
- ---------------- --- ------------- -----------------------------------------------
<S> <C> <C> <C>
Directors Continuing in Office until the 2000 Annual Meeting
Robert T. Craig 69 1997 Various senior executive positions with TRW, Inc.,
from 1972-1987, retiring in 1987; Vice President and
Division General manger of TRW's Power
Accessories Division from 1975 to 1987.
Paul L. Foster 68 1992 Chairman of the Board and Chief Executive Officer
of the Company from June 1997 to present; Professor
of Finance and former Dean, College of Business
Administration, Saint Joseph's University,
Philadelphia, Pennsylvania; a director of Wheeling
Jesuit College, Wheeling, West Virginia; a member
of the General Accounting Office Research,
Education and Advisory Committee; and retired Rear
Admiral, United States Navy.
Ralph A. Rockow 63 1997 Chairman of the Board and President of Exodyne
Inc., from 1982 to the present; Chairman or
Chairman and President of each of Exodyne's four
wholly owned operating subsidiaries from 1982 to the
present; Group President of the Government and
Technical Products Group of the Company from 1976
to 1982.
Directors Continuing in Office until the 1999 Annual Meeting
Jack C. Crim 67 1983 President and Chief Operating Officer of the
Company from April 1983 to the present; and
Executive Vice President and Chief Operating Officer
of the Company from May 1982 to 1983.
Alex Stamatakis 64 1994 Chairman of the Board of Stamatakis Industries, Inc.
(principally real estate investments). Mr. Stamatakis
was a director of the Company from October 1985
until February 1993.
Donald J. Ulrich 60 1991 Owner and Vice Chairman of Ventura Coastal
Corporation (fruit processing); Chairman of RSI, Inc.
(medical services); General Partner of RBDGD (real
estate development); Chief Operating Officer of Mid-Atlantic
Coca-Cola Bottlers, Inc., Washington, D.C.,
1985 to 1988; and Senior Vice President of Bottler
and National Sales of Coca-Cola USA, 1982 to 1985.
Directors Continuing in Office until the 1998 Annual Meeting
Fred Israel 70 1993 Retired in 1993 as a senior partner of Israel and
Raley, Chartered (attorneys); a member of the
International Board of Governors of Tel Aviv
University, Tel Aviv, Israel; a member of the Board
of Visitors, University of Maryland--School of
Music, College Park, Maryland; a director and
Chairman of the Academic Committee of Wheeling
Jesuit College, Wheeling, West Virginia; and a
director of MicroAge, Inc. (computer hardware and
software development, sales and service).
Joseph A. Orlando 69 1992 Independent financial consultant and former President
of Whitehead Associates (venture capital, real estate,
and securities investments).
John W. Stodder 74 1970 Corporate finance and merger/acquisition consultant;
manager of private investments; Vice Chairman,
Emeritus of Josten's, Inc. (manufacturer of
educational and motivational products); a director of
Trans Leasing International, Inc. (medical and office
products leasing); and a director of Stevens
International, Inc. (manufacturer of web-fed printing
and packaging equipment and currency printing
systems).
David Victor 55 1985 Of Counsel, Osborn Maledon, P.A. (attorneys).
Prior to joining this law firm in May 1996, Mr.
Victor had been a member of Meyer, Hendricks,
Victor, Ruffner & Bivens, P.L.C. since May 1995
(attorneys). Prior to May 1995, Mr. Victor was a
member of Meyer, Hendricks, Victor, Osborn &
Maledon, P.A. (attorneys).
</TABLE>
Information Regarding the Board of Directors and Committees
During the Company's fiscal year ending December 31, 1996 there
were 13 meetings of the Board of Directors. All of the directors attended at
least 80% of the Board meetings, as well as meetings of committees on which
they served, and average attendance was 95%. There is no family relationship
between any director or executive officer of the Company.
The Board of Directors has established the following committees
and retains the authority to establish additional committees from time to
time:
Audit Committee
The Audit Committee currently consists of four
directors--Messrs. Craig, Orlando, Stamatakis and Victor--none of whom is
an officer or employee of the Company or affiliates. The Audit Committee
held two meetings in 1996. The primary function of the Audit Committee is
to provide an opportunity for direct communication between the Board of
Directors and the Company's independent auditors. The Audit Committee
deals with the accuracy and completeness of the Company's financial
statements and related matters. It meets with the independent auditors and
from time to time reviews with management and the independent auditors the
procedures established for the preparation, review and auditing of the
Company's financial reports. Finally, the Audit Committee makes
recommendations to the Board of Directors regarding the appointment of a
firm of independent auditors.
Executive Compensation Committee
The Executive Compensation Committee (the "Compensation
Committee") was organized to establish executive compensation levels, to
administer and manage the Company's incentive compensation plans and to
determine the individuals to whom incentive awards should be granted and the
terms of such awards. The Compensation Committee, which held two meetings in
1996, currently consists of Messrs. Israel, Orlando, Rockow and Ulrich. See
the "Executive Compensation Committee Report" under "Executive Compensation"
in the Company's Definitive Proxy Statement, dated April 11, 1997 (the "1997
Proxy Statement") for information on the Compensation Committee's 1996
compensation determination for executive officers. A copy of such portion of
the 1997 Proxy Statement is filed as Exhibit A to the Schedule 14D-9 and the
portions thereof referred to herein are incorporated by reference(*).
- ---------------
(*) As of the date of the 1997 Proxy Statement, Mr. William H. Mallender
was Chairman of the Board and Chief Executive Officer of the Company.
Mr. William H. Mallender was not re-elected to the Board of Directors
at the 1997 Annual Meeting and subsequently resigned as an officer of
the Company. On June 9, 1997, Admiral Paul L. Foster succeeded Mr.
Mallender as Chairman of the Board and Chief Executive Officer of the
Company.
Nominating Committee
The Company does not have a standing Nominating Committee. The
function of nominating directors is carried out by the entire Board of
Directors. Pursuant to the Company's Bylaws, a stockholder may nominate
persons for election as director, provided that the stockholder (i) is a
stockholder of record at the time of the nomination and is entitled to vote
at the meeting of stockholders for the Board seat to which the nomination
relates, and (ii) complies with the notice procedures of Article II,
Section 8 of the Bylaws. That section as currently in effect provides that
the nominating stockholder must deliver notice of the nomination to the
Company's Secretary not earlier than the 90th day nor later than the 60th
day prior to the first anniversary of the preceding year's annual meeting.
The required notice must contain certain information, including information
about the nominee, as prescribed in the Bylaws. The Bylaws are subject to
amendment from time to time.
Director Compensation
Employee directors receive no compensation for service on the
Board or its committees. Non-employee directors are paid a retainer at the
rate of $27,000 per year and fees of $1,000 for each Board meeting in which
a director participates and $650 for each committee meeting in which a
director participates. Travel and related expenses incurred by directors in
connection with Board or committee meetings are reimbursable by the Company.
Pursuant to the Company's 1996 Non-Employee Director Stock Plan
(the "Director Plan"), on the first business day of the month following the
Annual Meeting of Stockholders of the Company for that year, each non-employee
director of the Company is automatically granted 1,000 shares of Common Stock,
subject to certain restrictions as described below ("Director Restricted
Stock"), and an option to purchase 1,000 shares of Common Stock ("Director
Options").
A director may not sell, transfer, pledge, assign or otherwise
alienate, other than by will or the laws of descent and distribution, any
shares of Director Restricted Stock if such transaction would cause the fair
market value of all Common Stock then owned by the director to be less than
five times the then current annual cash retainer paid to non-employee
directors. If a director ceases to be a director by reason of death,
disability, completion of his elected term of office, or failure to be
reelected as a member of the Board of Directors, any Director Restricted Stock
held by that director will not be subject to the foregoing restrictions. If
the director ceases to be a director for any reason other than those stated in
the preceding sentence, any Director Restricted Stock held by that director as
of that date immediately will be forfeited. A non-employee director will also
receive a cash payment in the year in which the value of the Director
Restricted Stock is included in the director's gross income. The amount of
this payment will equal the income and self-employment taxes (calculated at
the highest marginal tax rate) on the amount included in the director's gross
income as a result of the receipt of the Director Restricted Stock and the
cash payment itself.
The exercise price per share of the Director Options is the
fair market value of the Common Stock on the relevant grant date. Directors
will be entitled to exercise Director Options within the time period beginning
at the end of the sixth month following the date the option is granted, and
ending on the fifth anniversary date of its grant, unless the option is
earlier terminated, forfeited, or surrendered.
If a director ceases to be a director by reason of death,
disability, completion of his elected term of office, or failure to be
reelected as a member of the Board of Directors, any Director Options held by
that director will remain exercisable at any time prior to their expiration
date or for one (1) year after the date the director ceases to be a director
for such reasons, whichever period is shorter. If a director ceases to be a
director for any reason other than those stated in the preceding sentence, any
Director Options held by that director as of that date immediately will be
forfeited. No Director Option may be sold, transferred, pledged, assigned, or
otherwise alienated, other than by will or by the laws of descent and
distribution.
The Talley Industries, Inc. Retirement Plan (Directors Only)
(the "Directors' Retirement Plan") provides non-employee directors deferred
compensation in recognition of personal services rendered if they have served
as a director of the Company for at least five years. Based upon compensation
received solely for being a director, the Directors' Retirement Plan provides
each non-employee director a retirement benefit based on his years of service
as a director and his eligible compensation for the full year of service
during which his compensation was the highest within the three years
immediately preceding his retirement or termination. The Directors'
Retirement Plan was amended effective as of January 1, 1991 and, as a
result, directors who retired on or before that date and certain other
directors do not receive the retirement benefit. The Company has the right
to prospectively amend or discontinue the Directors' Retirement Plan. In
addition, non-employee directors receive benefits under a medical plan and
a business travel and accident insurance policy provided by the Company.
Effective January 1, 1994, each non-employee director who has served as a
director of the Company for at least five years will be covered under the
Company's group life insurance plan so long as he continues to serve as a
non-employee director; when service on the Board of Directors ends on or
after attaining age 70, such directors are entitled to a lump sum payment
from the Company of $50,000.
Each non-employee director who has served as a director of the
Company for at least five years also participates in a charitable awards
program. The program is funded by the Company's group life insurance plan
referred to above. The plan provides for an additional $50,000 death benefit
for each director covered for charitable purposes. This coverage will remain
in effect even if the director no longer serves as a non-employee director.
Upon the death of a director, the Company donates one-half of the $50,000
benefit to one or more qualifying organizations designated by the director.
The remaining one-half of the benefit is contributed to the Talley Industries,
Inc. Foundation. If a director does not designate a qualifying charity, the
entire $50,000 benefit is contributed to the Talley Industries, Inc.
Foundation. Individual directors derive no financial benefit from this
program since all charitable deductions relating to the contributions accrue
solely to the Company and the cost of the program to the Company is
insignificant.
In connection with the refinancing of substantially all of the
Company's debt in October 1993, the Company formed a holding company
subsidiary, Talley Manufacturing and Technology, Inc. ("Talley Manufacturing")
to own all of the capital stock of all of the Company's non-real estate
subsidiaries. Since December 1993, directors of the Company have also served
as directors of Talley Manufacturing, but do not receive any additional
compensation for serving as directors of Talley Manufacturing. Pursuant to a
cost sharing agreement between the Company and Talley Manufacturing, Talley
Manufacturing either bears or reimburses the Company for the compensation and
expense of the directors of the Company.
Executive Officers of the Company
Set forth below are the names, ages, positions with the Company
and employment histories of the executive officers of the Company. Positions
listed are with the Company unless otherwise noted. The information provided
is as of September 29, 1997.
<TABLE>
<CAPTION>
Name Age Offices Business Experience
- ---- --- ------- -------------------
<S> <C> <C> <C>
Paul L. Foster 68 Chairman of the Chairman of the Board and Chief Executive
Board and Chief Officer from June 1997 to present; Professor
Executive Officer of Finance and former Dean, College of
(1997) Business Administration, Saint Joseph's
University, Philadelphia, Pennsylvania; a
director of Wheeling Jesuit College, Wheeling,
West Virginia; a member of the General
Accounting Office Research, Education and
Advisory Committee; and retired Rear
Admiral, United States Navy.
Jack C. Crim 67 President (1983) and President (1983); Chief Operating Officer
Chief Operating (1982); Executive Vice President (1983-1982);
Officer (1982) President, Townsend Division, Textron, Inc.
(diversified manufacturer) (1982-1980); Group
Vice President, Textron, Inc. (1980-1973).
Mark S. Dickerson 45 Vice President Vice President (1993); Secretary and General
(1993), General Counsel (1982); Assistant Counsel (1982-1978).
Counsel and
Secretary (1982)
Kenneth May 55 Vice President (1993) Vice President (1993); Controller (1982);
and Controller (1982) Assistant Controller (1981); Director of
Planning and Business Analysis (1981-1978).
Daniel R. Mullen 56 Vice President (1993) Vice President (1993); Treasurer (1982); Vice
and Treasurer (1982) President of Finance, Southwest Pipe and
Supply Company (pump manufacturer) (1982);
Treasurer and Chief Financial Officer,
AMERCO (equipment rental) (1982-1970).
</TABLE>
There are no family relationships between any of the executive
officers or directors of the Company. All officers of the Company are elected
each year at the meeting of the Board of Directors of the Company, held in
connection with the annual meeting of stockholders, to serve at the pleasure
of the Board of Directors of the Company. Admiral Foster, however, is
employed by the Company pursuant to a written employment contract for a term
expiring on June 9, 1998. Information regarding Admiral Foster's contract is
described below in "Benefit Plans--Executive Employment Contracts." There
are no agreements or understandings between any officer of the Company and
any person other than the Company pursuant to which he was selected as an
officer of the Company.
There have been no events under any bankruptcy or insolvency
law, no criminal proceedings and no judgments, orders or injunctions relating
to securities or commodities activities or business practices material to the
evaluation of the ability or integrity of any officer of the Company during
the past five years.
SECURITIES OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
Securities Owned By Management
The following table sets forth information as of September 25,
1997 regarding the beneficial ownership of the Company's voting securities by
the directors of the Company, each executive officer (other than William H.
Mallender) named in the Summary Compensation Table that appears under
"Executive Compensation--Summary Compensation Table" (collectively, the "Named
Executive Officers") and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of Shares of Common Percent of Shares of
Name of Beneficial Owner Stock(1) Common Stock(2)
- ------------------------ ---------------------------- ---------------------
<S> <C> <C>
Ralph A. Rockow(3)................................. 350,000 2.48%
Jack C. Crim(4).................................... 294,677 2.09%
Daniel R. Mullen(5)................................ 172,792 1.22%
Kenneth May(6)..................................... 145,642 1.03%
Mark S. Dickerson(7)............................... 135,661 *
Paul L. Foster(8).................................. 14,000 *
Alex Stamatakis(8)................................. 10,250 *
Donald J. Ulrich, Jr.(8)........................... 9,300 *
John W. Stodder(8)(9).............................. 7,950 *
David Victor(8).................................... 7,750 *
Fred Israel(8)..................................... 6,000 *
Joseph A. Orlando(8)............................... 5,250 *
Robert T. Craig.................................... 1,000 *
All Directors and Executive Officers(10)........... 1,160,272 8.21%
</TABLE>
- ---------------
(1) The Common Stock listed includes shares under options exercisable on
September 25, 1997 and options which will become exercisable within 60
days thereafter. None of the executive officers or directors owns any
shares of Preferred Stock. Unless otherwise noted below, each
beneficial owner of Common Stock has sole investment and voting power
with respect to the shares listed, subject to community property laws
where applicable.
(2) Percentages indicated by an asterisk are less than one percent of the
class.
(3) The stock listed includes 50,000 shares of Common Stock owned by Mr.
Rockow directly and 300,000 shares of Common Stock owned by Mr. Rockow
indirectly through Exodyne Inc.
(4) The stock listed includes 270,906 shares of Common Stock owned by Mr.
Crim directly and 23,771 shares of Common Stock held in trust for the
benefit of Mr. Crim under the Talley Savings Plus plan.
(5) The stock listed includes 143,842 shares of Common Stock held by Mr.
Mullen in a revocable living trust with respect to which Mr. Mullen
shares investment power and voting power with his wife and 9,600
shares held by a custodian for his two sons under the Uniform
Transfers to Minor Act ("UTMA"). Mr. Mullen disclaims beneficial
ownership of all shares held for his sons under the UTMA. The stock
listed also includes 19,350 shares of Common Stock held in trust for
the benefit of Mr. Mullen under the Talley Savings Plus plan.
(6) The stock listed includes 125,000 shares of Common Stock owned by Mr. May
directly and 20,642 shares of Common Stock held in trust for the
benefit of Mr. May under the Talley Savings Plus plan.
(7) The stock listed includes 122,698 shares of Common Stock held by Mr.
Dickerson in a revocable living trust with respect to which Mr. Dickerson
shares investment power and voting power with his wife. In addition, the
stock listed includes 12,963 shares of Common Stock held in trust for the
benefit of Mr. Dickerson under the Talley Savings Plus plan.
(8) The stock listed includes 2,000 shares of Director Restricted Stock and
2,000 shares of Common Stock under exercisable options granted
pursuant to the Director Plan.
(9) The stock listed includes 3,950 shares of Common Stock held in two
separate trust funds in broker name with respect to which Mr. Stodder
shares investment power and voting power with his wife.
(10) The current executive officers (five persons) and directors as a group
own 1,069,546 shares of Common Stock directly or as described herein and
have rights to acquire 14,000 shares of Common Stock under exercisable
options. In addition, 76,726 shares of Common Stock are held in trust
for the benefit of the executive officers of the Company under the
Talley Savings Plus plan.
Securities Owned By Beneficial Owners
The following table sets forth information as of September 25,
1997 regarding the only persons known to the Company to own beneficially more
than five percent of the total number of the outstanding shares of any class
(or series in the case of the Preferred Stock) of the Company's voting
securities:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Title of Class/Series Beneficial Owner Ownership(1) Class/Series
- --------------------- ------------------- ------------ ------------
<S> <C> <C> <C>
Series A Sanford B. Kaynor
c/o Fiduciary Trust Co. of New York
P.O. Box 3199
Church Street Station
New York, NY 10008 9,622 69.76%
Series B Elliott Associates, L.P.
712 Fifth Avenue
36th Floor
New York, NY 10019 142,100 18.96%
Common Stock Marshall & Ilsley Trust Company of Arizona,
Trustee
Talley Savings Plus Plan
One East Camelback Road
Suite 340
Phoenix, AZ 85012 1,804,015(2) 12.78%
John J. McMullen
9204 Sloane Street
Orlando, FL 32827 1,705,849 12.09%
Saad A. Alissa
P.O. Box 192
Alkhobar 81962
Saudi Arabia 1,121,000(3) 7.94%
</TABLE>
- ---------------
(1) In presenting the information set forth in this table and the notes
thereto, the Company has relied in part upon statements of the persons
or entities named therein filed with the SEC pursuant to Section 13(d)
or 13(g) of the Exchange Act. For purposes of this table, Preferred
Stock has not been deemed converted to Common Stock in calculating the
beneficial ownership of Common Stock. Unless otherwise noted below,
each beneficial owner has sole investment and voting power with respect
to the shares listed, subject to community property laws where
applicable.
(2) Marshall & Ilsley Trust Company of Arizona holds the Common Stock as
Trustee for the Talley Savings Plus plan (the Company's 401(k) plan).
Voting rights with respect to shares of Common Stock held by the Talley
Savings Plus plan that have been allocated to employee accounts are
passed through to employee participants who have the right to direct
the trustee's voting of such shares. Allocated shares as to which the
Trustee does not receive instructions and unallocated shares are voted
by the Trustee in its sole discretion. The Trustee has the power to
dispose of shares held by the plan.
(3) Mr. Alissa is the beneficial owner of 1,121,000 shares of Common Stock.
This amount includes 365,900 shares of Common Stock owned by General
Investors Limited ("GIL"), which is wholly owned by Mr. Alissa and 721,000
shares of Common Stock owned by Financial Investors Limited ("FIL"), which
is wholly owned by Abdullatif Ali Alissa, Est. (the "Establishment"). Mr.
Alissa is President of the Establishment. The Establishment, Mr. Alissa
and FIL share the investment and voting power of the 721,100 shares of
Common Stock owned by FIL. Mr. Alissa and GIL share the investment and
voting power of the 365,900 shares of Common Stock owned by GIL. The
foregoing information is based solely upon the filings made by Mr. Alissa
and his various affiliated entities with the SEC under Section 13 of the
Exchange Act.
Executive Compensation
The following table describes all compensation awarded to,
earned by or paid to the Company's then Chief Executive Officer and the four
most highly compensated executive officers of the Company other than the Chief
Executive Officer during the three most recently completed fiscal years. The
Executive Compensation Committee Report set forth in the 1997 Proxy Statement
describes the compensation policies applicable to the Company's executive
officers (including the Named Executive Officers) and discusses the
Committee's bases for the Chief Executive Officer's compensation for the last
completed fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
-------------------------------------
Annual Compensation Awards
--------------------------------- -------------------------
Number of
Other Annual Restricted Securities Payouts All Other
Compensation Stock Underlying LTIP Compensation
Name and Principal Position Year Salary Bonus(1) (2) Award(s) Options/SARS Payouts(3) (4)
- --------------------------- ---- ------ ------- ------------ ---------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William H. Mallender........ 1996 $495,000 $311,058 $1,082,070 $0 0 $637,500 $1,434,507
Chairman and CEO
1995 475,000 300,861 0 0 0 0 246,639
1994 415,000 329,635 0 0 0 0 625,688
Jack C. Crim................ 1996 370,000 232,508 811,553 0 0 478,125 1,048,894
President and COO
1995 355,313 224,886 0 0 0 0 215,976
1994 311,250 247,226 0 0 0 0 186,057
Mark S. Dickerson........... 1996 180,000 56,556 543,215 0 0 318,750 13,618
Vice President, Secretary
and General Counsel
1995 176,250 54,702 0 0 0 0 7,466
1994 165,000 65,530 0 0 0 0 6,622
Kenneth May................. 1996 150,000 47,130 545,144 0 0 318,750 14,210
Vice President and
Controller
1995 147,500 45,585 0 0 0 0 9,679
1994 140,000 55,601 0 0 0 0 9,427
Daniel R. Mullen............ 1996 150,000 47,130 544,587 0 0 318,750 14,132
Vice President and
Treasurer
1995 147,500 45,585 0 0 0 0 9,707
1994 140,000 55,601 0 0 0 0 9,452
</TABLE>
- ------------------
(1) The bonus for 1996 was based on performance in that year but was
determined and paid in 1997 pursuant to the Executive Incentive Plan
described in the Executive Compensation Committee Report. See
"Executive Compensation Committee Report--Annual Incentive
Compensation" in the 1997 Proxy Statement. The bonuses for 1995 and
1994 were based on performance on each of those years but were
determined and paid in 1996 and 1995, respectively, pursuant to
incentive plans similar to the Executive Incentive Plan.
(2) The amount reported as "Other Annual Compensation" represents payments for
the benefit of each Named Executive Officer for estimated tax liability
resulting from a "qualified" incentive bonus paid in 1996. See
"Executive Compensation Committee Report--Stock Based Incentive
Compensation" in the 1997 Proxy Statement. The amount reported also
represents payments for the benefit of each Named Executive Officer
(other than Mr. Mallender and Mr. Crim) for estimated tax liability
resulting from certain FICA earnings for each officer under the
Retirement Plan, and the Executive Restoration Plan, described under
"Retirement Plan" below.
(3) The amount reported represents a "qualified" incentive bonus paid in 1996.
See "Executive Compensation Committee Report--Stock Based Incentive
Compensation" in the 1997 Proxy Statement.
(4) The amount reported in the "All Other Compensation" column includes the
Company's 50% matching contributions to the Talley Savings Plus plan
("TSP") and insurance premiums (life, medical and long-term disability)
paid in excess of those paid on behalf of other employees. This column
also includes current (i.e., present value) payments to Mr. Mallender
and Mr. Crim under the Restoration Benefit Plan described under
"Retirement Plan" and "Executive Employment Contract" below. Except
for these present value payments, Mr. Mallender and Mr. Crim will not
receive any other retirement income under the Restoration Benefit Plan.
The amount reported in this column for each of the Named Executive
Officers is quantified for 1996 as follows: Mr. Mallender:
Restoration Benefit Plan, $1,399,728; insurance premiums, $31,029; and
TSP contributions, $3,750. Mr. Crim: Restoration Benefit Plan,
$1,030,064; insurance premiums, $15,080; and TSP contributions, $3,750.
Mr. Dickerson: insurance premiums, $9,868; and TSP contributions,
$3,750. Mr. May: insurance premiums, $10,460; and TSP contributions,
$3,750. Mr. Mullen: insurance premiums, $10,382; and TSP
contributions, $3,750.
Executive Compensation Committee Interlocks and Insider Participation
Mr. Stamatakis served as a member of the Executive Compensation
Committee from May 1994 until July 1996. The Company paid $189,000 in
consulting fees and related expenses to Mr. Stamatakis for services relating
to international business matters that were performed during the fiscal year
ended December 31, 1996. Mr. Stamatakis traveled to Europe and the Far East
on behalf of the Company to explore possible opportunities for the sale of its
products and services. Mr. Stamatakis was an officer of two of the Company's
subsidiaries from 1963 to 1971, but he has not served as a Company employee
since that time.
There are no interlocking relationships between any executive
officers of the Company and any entity whose directors or executive officers
currently serve on the Company's Board of Directors and/or Compensation
Committee.
Option Exercises and Values
The following table sets forth information with respect to the
Named Executive Officers concerning the exercise of stock options during
fiscal year 1996 and the number of shares of Common Stock represented by
outstanding stock options held by each of the Named Executive Officers as of
December 31, 1996.(1)
Aggregated Option/SAR Exercises In Last Fiscal Year and Fiscal Year End
Option/SAR Values
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Stock Options In-the-Money Stock Options at
at December 31, 1996 December 31, 1996(3)
------------------------------ ------------------------------
Number of
Shares Acquired Value
Name on Exercise Realized(2) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Mallender. 150,000 $600,000 $83,750 0 $0 $0
Mr. Crim...... 112,500 450,000 0 0 0 0
Mr. Dickerson. 75,000 300,000 0 0 0 0
Mr. May....... 75,000 300,000 0 0 0 0
Mr. Mullen.... 75,000 300,000 0 0 0 0
</TABLE>
- ----------------
(1) No Stock Appreciation Rights ("SARs") are held by any of the Named
Executive Officers.
(2) The value realized upon exercise is the difference between the closing
price of the Common Stock on the New York Stock Exchange on the exercise
date ($8.25) and the exercise price of the option.
(3) In accordance with SEC regulations, the value of the unexercised
"in-the-money" stock options is calculated by multiplying the number of
underlying shares by the difference between the closing price of the
Common Stock on the New York Stock Exchange on December 31, 1996
($7.375) and the exercise price of these shares.
BENEFIT PLANS
Executive Employment Contract
Admiral Foster is employed by the Company pursuant to a written
employment contract for a term expiring on June 9, 1998. The contract permits
the Company to terminate his services at any time upon one months' notice.
Such termination entitles Admiral Foster to a lump sum payment equal to the
balance of his base salary and certain health benefits and life and long-term
disability insurance coverage through June 9, 1998. The base salary payable
to Admiral Foster under his employment contract is $400,000. In addition, the
Company provides, unless earlier terminated, Admiral Foster with certain
health benefits and life and long-term disability insurance coverage through
August 31, 1998.
Mr. Mallender, the former Chief Executive Officer, was employed
by the Company pursuant to a written employment contract for a term expiring
on May 21, 2000. The contract permitted the Company to terminate his
services at any time upon six months' notice. The termination entitled Mr.
Mallender to a lump sum payment equal to two years of employment compensation
including salary and any bonus and incentive awards. In the event of a Change
in Control of the Company (as defined in the employment contract), Mr.
Mallender was entitled to receive a lump sum equal to 2.5 times his then
existing employment compensation (including salary and any bonus and incentive
awards, adjusted for tax payments in certain circumstances) if he elected to
terminate the employment agreement within 24 months after such Change in
Control or if the Company terminated Mr. Mallender's employment following such
Change in Control. The base salary payable to Mr. Mallender under his
employment contract was $495,000. In addition, any change to any pension or
retirement plan of the Company would not affect benefits payable to Mr.
Mallender or his designees. Mr. Mallender and his family, legal
representatives, assignees and other beneficiaries were also entitled to
participate and receive benefits under pension or retirement plans, or group
life, health or accident plans available generally to executives of the
Company and their families, legal representatives, assignees and other
beneficiaries. Finally, if Mr. Mallender were unable to perform his duties
because of death or mental or physical incapacity, a disability payment equal
to his then existing salary was payable for a period of one year.
Pursuant to the terms of his employment contract and other
arrangements entered into in connection with the termination of his employment
from the Company, Mr. Mallender received a payment of approximately $5,800,000
and certain other employee benefits. At the same time, Mr. Mallender and the
Company executed a mutual release of certain claims.
Retirement Plan
The following table shows the estimated annual benefits payable
under the Company's Retirement Plan (the "Retirement Plan") for participating
employees, including the Named Executive Officers, in specified remuneration
and years of service classifications for retirement at age 65 in 1997. The
amounts shown include the additional benefits payable under the Executive
Restoration Benefit Plan described below. Except for the present value
payments reported in column (i) of the Summary Compensation Table, Mr.
Mallender and Mr. Crim will not receive any other retirement income under the
Restoration Benefit Plan described below:
Pension Plan Table
Years of Service(1)
---------------------------------------------------
Remuneration(2) 15 20 25 30 and Over
--------------- -------- ------- ------- -----------
$125,000.......... $24,593 $32,790 $40,988 $49,186
$150,000.......... 29,951 39,935 49,918 59,902
$175,000.......... 35,309 47,079 58,848 70,618
$200,000.......... 40,667 54,223 67,779 81,334
$225,000.......... 46,025 61,367 76,709 92,051
$250,000.......... 51,383 68,511 85,639 102,767
$300,000.......... 62,100 82,800 103,500 124,119
$500,000.......... 104,965 139,953 174,941 209,929
- -----------------
(1) As of December 31, 1996, the full years of credited service for each of
the Named Executive Officers were as follows: Mr. Mallender--25 years; Mr.
Crim--14 years; Mr. Dickerson--18 years; Mr. May--18 years; and Mr.
Mullen--14 years.
(2) For purposes of this table it is assumed that final average compensation
will be 89.3% of the final earnings.
The compensation covered by the Retirement Plan includes all
wages, salaries and bonuses. The compensation of the Named Executive Officers
used to calculate the benefits in this table would be the salaries and bonuses
reported in columns (c), (d) and (h) of the Summary Compensation Table.
Benefits under the Retirement Plan are not subject to deduction for Social
Security or other offset amounts.
The Internal Revenue Code places certain limitations on
pensions which may be paid to certain highly compensated employees under
qualified plans. Retirement benefits under the Retirement Plan which exceed
such limitations are paid by Talley Manufacturing outside the Retirement Plan
as an operating expense under the Restoration Benefit Plan and the Executive
Restoration Benefit Plan. The Restoration Benefit Plan was adopted during the
fiscal year ended March 31, 1976, was amended and restated effective January
1, 1985, and was thereafter amended several times. As of December 31, 1996,
the only participants in the Restoration Benefit Plan are Mr. Mallender and
Mr. Crim. The Executive Restoration Benefit Plan became effective on January
1, 1996. As of December 31, 1996, the participants in the Executive
Restoration Benefit Plan are a number of key employees selected by the
Executive Compensation Committee, including Mr. Dickerson, Mr. May and Mr.
Mullen. The retirement benefits provided by these restoration benefit plans
are contractual obligations of Talley Manufacturing.
The foregoing table was calculated on a straight-life annuity
basis. Key employees (other than Mr. Mallender and Mr. Crim) selected by the
Executive Compensation Committee may, upon retirement from the Company,
receive supplemental annuity payments from Talley Manufacturing in addition to
payments received under the Retirement Plan. The supplemental annuity
payments will be made in amounts necessary to increase the joint-life annuity
payable under the Retirement Plan to the amount that would be payable under a
single-life annuity, with such supplemental payments being made on a
joint-life basis.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and the New York Stock
Exchange. Officers, directors and greater than ten-percent stockholders are
required by the SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, during fiscal
year 1996, all filings required by its officers, directors and greater than
ten-percent stockholders under Section 16(a) of the Exchange Act were timely
filed.
INFORMATION WITH RESPECT TO PURCHASER'S DESIGNEES
As of the date of this Information Statement, Purchaser has not
determined who will be Purchaser Designees. However, Purchaser Designees
shall be selected from among the following persons.
The following table sets forth the name, business address,
present principal occupation and material positions and occupations within the
past five years of the persons who may be Purchaser Designees. Unless
otherwise specified, each person listed below is a citizen of the United
States and has his or her principal business address at the offices of Parent
or Purchaser, 101 West Bern Street, Reading, Pennsylvania 19601. Positions
listed are with the Parent unless otherwise noted. None of the persons listed
below owns any Common Stock or Preferred Stock.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment, Material Positions Held During Past
Name Five Years, and Business Address Thereof
- ---- --------------------------------------------------------------------------------
<S> <C>
Edward B. Bruno Controller, 1975 to present.
Robert W. Cardy Chairman of the Board, 1992 to present; President and Chief
Executive Officer, 1992 to present; President and Chief Operating
Officer, 1990 to 1992; Director, 1990 to present.
G. Walton Cottrell Senior Vice President-Finance and Chief Financial Officer, 1993 to
present; Vice President-Finance and Chief Financial Officer, 1989 to
1993.
Robert J. Dickson Treasurer, 1997 to present; Senior Vice President and Chief Financial
Officer of Dynamet, Inc., 1994 to 1997; Vice President-Finance,
Chief Financial Officer and Treasurer of Dynamet, Inc., 1989 to
1994.
Dennis M. Draeger Senior Vice President-Steel Operations, 1996 to present; President of
Worldwide Floor Products Operations, Armstrong World Industries,
Inc. from 1994 to 1996; Group Vice President, Floor Products
Operations, Armstrong World Industries, Inc. from 1988 to 1993;
Director from 1992 to 1996.
Dr. Nicholas F. Fiore Senior Vice President-Engineered Products Group, 1996 to present;
Senior Vice President-Strategic Businesses, 1993 to 1996; Vice
President-Research and Corporate Development, 1991 to 1993.
Robert W. Lodge Vice President-Human Resources, 1991 to present.
John R. Welty Vice President, General Counsel and Secretary, 1993 to present;
General Counsel and Secretary, 1992 to 1993; General Counsel and
Assistant Secretary, 1991 to 1992.
</TABLE>
EXHIBIT A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<CAPTION>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
TALLEY INDUSTRIES, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
<TABLE>
<CAPTION>
Payment of Filing Fee (Check the appropriate box):
<S> <C> <C>
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:
-------------------------------------
(2) Aggregate number of securities to which
transaction applies:
-------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11. (Set
forth the amount on which the filing fee is calculated
and state how it was determined):
-------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------
(5) Total fee paid:
-------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
-------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------
(3) Filing Party:
-------------------------------------
(4) Date Filed:
-------------------------------------
</TABLE>
V. OTHER RELATIONSHIPS AND CERTAIN TRANSACTIONS
There are no family relationships between any of the executive
officers or directors of the Company.
The Company and certain of its subsidiaries paid legal fees to
the law firm of Osborn Maledon, P.A., of which Mr. Victor is Of Counsel,
for services relating to corporate matters and litigation that were
performed during the fiscal year ended December 31, 1996. The Company and
certain of its subsidiaries also paid legal fees to the law firm of Meyer,
Hendricks, Victor, Ruffner & Bivens, P.L.C., of which Mr. Victor was a
member until May 1996, for services relating to corporate matters and
litigation that were performed during the fiscal year ended December 31,
1996.
The Company paid $189,000 in consulting fees and related expenses
to Mr. Stamatakis for services relating to international business matters
that were performed during the fiscal year ended December 31, 1996. Mr.
Stamatakis traveled to Europe and the Far East on behalf of the Company to
explore possible opportunities for the sale of its products and services.
A subsidiary of Stamatakis Industries, Inc., of which Mr. Stamatakis is an
executive officer, filed a petition for reorganization under Chapter 11 of
the Bankruptcy Code in March 1992.
On February 7, 1996, the Company entered into an agreement with
John J. McMullen providing for the immediate conversion of the 120,293 shares
of the Company's Series D Cumulative Convertible Preferred Stock (the "Series D
Preferred Stock") owned by Mr. McMullen into 1,202,930 shares of Common Stock
and the issuance of an additional 702,919 shares of Common Stock in
consideration of Mr. McMullen's commitment immediately to convert the Series
D Preferred Stock and certain other commitments. The Series D Preferred Stock
was held in a voting trust agreement ever since Mr. McMullen acquired the
Series D Preferred Stock in exchange for the naval engineering business he sold
to the Company in 1988. The shares of Common Stock will continue to be subject
to the voting trust, which has been extended under the agreement until March
2001 and revised in various respects to tighten the transfer restrictions and
alter the voting provisions. Wells Fargo Bank of Arizona, N.A. (formerly First
Interstate Bank of Arizona, N. A.) ("Wells Fargo"), serves as the voting
trustee. Among other things, the amended voting trust agreement permits only
limited sales of Common Stock prior to expiration of the trust on March 1,
2001 (subject to earlier termination in certain specified circumstances). An
Amended and Restated Voting Trust Agreement was signed by all the parties on
February 7, 1996, and the conversion of the Series D Preferred Stock and the
issuance of the additional shares of Common Stock were completed on February
16, 1996.
In March 1996, Mr. McMullen, the Company and Wells Fargo agreed
to permit up to 1,202,930 shares of Common Stock to be transferred to a
brokerage firm as security for a loan to Mr. McMullen, pursuant to customary
margin loan arrangements. Pursuant to such agreement, Mr. McMullen transferred
to the brokerage firm during June and July 1996 record ownership of 1,202,930
shares of Common Stock (the "Pledged Shares"). The Pledged Shares are held by
the brokerage firm for the benefit of Mr. McMullen, and the Pledged Shares
continue to be voted in accordance with the Amended and Restated Voting Trust
Agreement. Except in the case of a default under the margin loan arrangements
or joint instruction from both Mr. McMullen and the Company, the Pledged
Shares will be returned to Wells Fargo, as voting trustee, when the margin
loan is repaid.
On February 7, 1996, Mr. McMullen extended until January 31, 2001
and modified his consulting arrangement with Talley Manufacturing. A
company owned by Mr. McMullen will provide various consulting services for
the Company's naval engineering subsidiary. Mr. McMullen will also serve
as the chairman of that subsidiary, but he will not have any executive
duties. Talley Manufacturing will pay, or will cause to be paid to, Mr.
McMullen's company a consulting fee of $400,000 per year.
IX. EXECUTIVE COMPENSATION
Executive Compensation Committee Report
The Committee, at the request of the Board of Directors, has
prepared the following report relating to the compensation policies and
decisions made by the Committee with regard to compensation of the
Company's Named Executive Officers in 1996.
Compensation Policy. The Committee strives to devise and implement
executive compensation programs which (i) align the interests of executives
with the long-term interests of stockholders; (ii) motivate key senior
officers to achieve strategic business initiatives and reward them for
their achievement; and (iii) ensure the Company's ability to attract and
retain top quality executives.
The components of the Company's executive compensation package
are specifically designed to meet these three objectives: (i) salary and
related benefits are intended to ensure competitive base compensation; (ii)
annual cash bonus incentives reward the achievement of specific strategic
business objectives; and (iii) stock-based compensation is granted to motivate
and reward results that benefit stockholders.
The Committee reviews each of these components annually, based upon
the financial and operating performance of the Company, a review of
competitive compensation information and the recommendations of
compensation consultants. Each component of the Company's executive
compensation package is discussed in detail below.
Competitive Compensation Component
Salary and Related Benefits. Each executive officer receives salary
and benefits based on competitive compensation information, his position
and tenure with the Company, his past performance and his ability to
contribute to the future success of the Company. The Committee establishes
salary and benefits levels within the competitive range of the salary and
benefits levels of the executive officers of similarly-sized and structured
companies.
The Committee reviews the salaries of the Named Executive
Officers every two years and utilizes the input of its compensation
consultants to determine if the salaries are set at competitive levels. The
base salary for Mr. Mallender, the Chief Executive Officer, is established
pursuant to an amendment, dated April 1, 1995, to his employment contract with
the Company. The salaries of the Named Executive Officers were not reviewed in
1996 and so no changes were made. Since 1976 the Company has had a
"restoration plan," under which retirement benefits cut back by the Internal
Revenue Code (the "Code") are restored. Restoration plan benefits, which had
heretofore covered only the Chief Executive Officer (as required by his
employment contract) and the Chief Operating Officer, were extended in 1996
to the other Named Executive Officers and to certain other executives of the
Company.
Performance-Based Compensation Components
The annual cash bonus and stock-based components of compensation
reward the achievement of specific objectives and performance that
increases the value of the Company for its owners.
1996 saw successes on many fronts. Management favorably resolved a six
year contract dispute with TRW Inc. ("TRW"), for which the Company
received approximately $156 million in cash. To enable the Company to
quickly and effectively redeploy these funds, management implemented a
near-complete withdrawal from the real estate market. The tax benefits
from this sale, together with the TRW payment, allowed the elimination of
almost all of the Company's most expensive debt and the five year dividend
arrearage on the outstanding preferred stock. Also, the improvement in the
Company's balance sheet and cash position paved the way for growing the
Company's most promising businesses, including a re-entry into the airbag
business. In addition, a substantial part of the Series A, B and D
Preferred Stock was converted into common.
Management's strategy not only rehabilitated the Company, but
positioned the Company to realize strong revenue and profit growth in large
and growing markets. The Committee determined that it was appropriate to
recognize and reward these accomplishments.
Annual Incentive Compensation. The executive incentive plan is
consistent with the Committee's overriding policy of incentive compensation
arrangements. The amount of a participant's cash bonus is based on the
Company's achievement of specified financial and strategic objectives,
including net earnings, return on investments and stock performance. Bonus
targets for Messrs. Mallender and Crim are 50% of annual salary; target
bonuses for other executives range from 7.5% to 25% of annual salary. Actual
bonuses may vary from zero to two times the target percentages. In determining
the bonus for Mr. Mallender, the Committee considered his ability to satisfy
the annual goals established by the Committee. The performance factors
underlying those goals, and contributing to the annual bonus award for Mr.
Mallender on account of 1996, are the same specified financial and strategic
objectives referred to above that apply to all of the executives included in
the executive incentive plan. Based on the executive incentive plan for 1996,
awards to the Named Executive Officers are $311,058 to Mr. Mallender, $232,508
to Mr. Crim, $56,556 to Mr. Dickerson, $47,130 to Mr. May and $47,130 to Mr.
Mullen.
Stock-Based Incentive Compensation. Stock-based compensation will
increasingly be emphasized by the Committee as a means of providing
incentives for improved long-term performance and enhancing stockholder
value. As many studies have demonstrated, stock-based incentive
compensation helps to align the interests of management with the long-term
interests of the Company's stockholders. The long-term nature of stock-
based compensation also helps to retain key executives for an extended
period.
In 1993 the Committee approved stock grants and options to the Named
Executive Officers and to certain other involved executives, following the
successful 1992 restructuring of debt necessitated by the crash of the real
estate market. Prior to 1993 and since that time, the Committee put a
freeze on long-term incentive bonuses. For the year 1996, recognizing the
achievements cited above, the Committee approved payment of "qualified"
incentive bonuses to the Named Executive Officers and certain other key
executives. The qualification on these incentive bonuses was that they
were required to be used in total to acquire the Company's Common Stock,
and, except for death, disablement, change of control and certain other
circumstances, required each recipient to hold the stock for at least a
minimum period.
The "qualified" incentive bonuses thus awarded emphasized that a
significant amount of the compensation of the Named Executive Officers and
other key executives must be linked to the success of stockholders. Also,
the 1996 incentive awards increased the stock ownership of the Named
Executive Officers to a level in line with those of comparable companies,
and brought total average compensation of the Named Executive Officers
approximately in line with comparable companies for the 1990-1996 period.
The payment to Mr. Mallender also recognized his significant individual
role in the Company's accomplishments during the last several years. In
particular, the incentive award to Mr. Mallender reflected the special
leadership contributions he had made during the 1990-1996 period resulting
in several Company accomplishments finalized during 1996 and directly
affecting the Company's performance: namely; the complete resolution of the
TRW litigation and the receipt by the Company of approximately $156 million
in cash upon the resolution; the near-complete exit during 1996 from the
real estate market; and the dramatic reduction of the Company's debt during
1996 and the improvement in the Company's liquidity and financial position.
Further, the award is directly related to the Company's stock performance
on a prospective basis because the award requires Mr. Mallender to retain
the shares of the Company's Common Stock acquired by him with the net
proceeds of the award for a minimum period (except under certain specified
circumstances), thereby aligning Mr. Mallender's interests directly with
those of all stockholders.
Under the Company's 1996 Comprehensive Stock Plan, approved by
stockholders at last year's annual meeting, the Committee intends to tailor
long-term incentive and other stock-based compensation programs to continue to
encourage key executives to increase their long-term holdings of the Company's
Common Stock and to increase the market value of those shares to the benefit
of all stockholders. Also, because the number of key executives is relatively
small for a highly diversified company, the Committee intends to design such
programs to provide these key executives with specific and direct incentives
to remain with the Company and its subsidiaries.
In the absence of unusual circumstances, the Committee intends
to design awards under the 1996 Comprehensive Stock Plan so that they will
qualify as "performance based compensation" and, provided the other
requirements of Section 162(m) of the Code are satisfied, will not be subject
to the deduction limit of Section 162(m) of the Code. A portion of the
long-term incentive bonuses paid during 1996 -- which was used to acquire the
Company's Common Stock -- was not deductible pursuant to Section 162(m). To
encourage exercise of the option awards, the 1996 cash payment enabled
recipients to exercise their stock options on a tax-free basis. The Committee
believes the annual bonuses, as currently structured, best serve the interests
of the Company and its stockholders by allowing the Company to maximize the
incentive elements of the executive officers' total compensation packages,
whether or not limited by Section 162(m).
The foregoing report has been furnished by the Company's Executive
Compensation Committee: Fred Israel, John W. Stodder, and Donald J. Ulrich.
EXHIBIT B
[EXECUTION COUNTERPART]
===============================================================================
AGREEMENT AND PLAN OF MERGER
among
CARPENTER TECHNOLOGY CORPORATION,
SCORE ACQUISITION CORP.
and
TALLEY INDUSTRIES, INC.
Dated September 25, 1997
===============================================================================
Table of Contents
Page
ARTICLE 1 - THE OFFER...................................................... 1
Section 1.1 The Offer.............................................. 1
Section 1.2 Company Actions........................................ 3
ARTICLE 2 - THE MERGER..................................................... 6
Section 2.1 The Merger............................................. 6
Section 2.2 Effective Time......................................... 7
Section 2.3 Effects of the Merger.................................. 7
Section 2.4 Certificate of Incorporation and Bylaws................ 7
Section 2.5 Directors and Officers................................. 7
Section 2.6 Conversion of Shares................................... 8
Section 2.7 Dissenting Shares...................................... 8
Section 2.8 Payments for Shares.................................... 9
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION SUB................................. 10
Section 3.1 Organization and Qualification......................... 10
Section 3.2 Authority Relating to this Agreement................... 11
Section 3.3 Information Supplied................................... 11
Section 3.4 Consents and Approvals; No Violation................... 12
Section 3.5 Financing.............................................. 12
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY................................................ 13
Section 4.1 Organization and Qualification......................... 13
Section 4.2 Capitalization......................................... 14
Section 4.3 Authority Relative to this Agreement................... 15
Section 4.4 Absence of Certain Changes............................. 16
Section 4.5 Reports................................................ 17
Section 4.6 Proxy Statement........................................ 17
Section 4.7 Consents and Approvals; No Violation................... 18
Section 4.8 Fees and Commissions................................... 18
Section 4.9 Information Supplied................................... 19
Section 4.10 Litigation............................................. 19
Section 4.11 Patents and Other Proprietary Rights................... 19
Section 4.12 Benefit Plans; ERISA Compliance........................ 20
Section 4.13 Taxes.................................................. 23
Section 4.14 Compliance with Applicable Laws........................ 25
Section 4.15 State Takeover Statutes................................ 28
Section 4.16 Labor Matters.......................................... 28
Section 4.17 Undisclosed Liabilities................................ 28
Section 4.18 Certain Agreements..................................... 28
Section 4.19 Amendment of Rights Agreement.......................... 28
ARTICLE 5 - COVENANTS...................................................... 29
Section 5.1 Conduct of Business of the Company..................... 29
Section 5.2 No Solicitation........................................ 31
Section 5.3 Access to Information.................................. 33
Section 5.4 Reasonable Best Efforts................................ 33
Section 5.5 Indemnification, Exculpation and Insurance............. 34
Section 5.6 Stock Options; Employee Plans and Benefits and Employment
Contracts......................................... 35
Section 5.7 Meeting of the Company's Stockholders.................. 37
Section 5.8 Public Announcements................................... 38
Section 5.9 Stockholder Litigation................................. 38
Section 5.10 Rights Agreement....................................... 38
ARTICLE 6 - CONDITIONS TO CONSUMMATION OF MERGER........................... 38
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger............................................ 38
ARTICLE 7 - TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination............................................ 39
Section 7.2 Effect of Termination.................................. 40
Section 7.3 Termination Fee........................................ 40
Section 7.4 Amendment.............................................. 40
Section 7.5 Extension; Waiver...................................... 41
Section 7.6 Procedure for Termination, Amendment, Extension or
Waiver............................................ 41
Section 7.7 Concurrence of Independent Directors................... 4
ARTICLE 8 - MISCELLANEOUS.................................................. 41
Section 8.1 Non-Survival of Representations and
Warranties........................................ 41
Section 8.2 Entire Agreement; Assignment........................... 42
Section 8.3 Validity............................................... 42
Section 8.4 Notices................................................ 42
Section 8.5 Governing Law.......................................... 44
Section 8.6 Jurisdiction........................................... 44
Section 7.6 Descriptive Headings................................... 41
Section 8.8 Parties in Interest.................................... 44
Section 8.9 Counterparts........................................... 44
Section 8.10 Fees and Expenses...................................... 44
Section 8.11 Certain Definitions.................................... 45
Section 8.12 Performance by Acquisition Sub......................... 46
DISCLOSURE SCHEDULES
4.1(b) Subsidiaries
4.2 Capitalization
4.4 Absence of Certain Changes
4.7 Consents and Approvals; No Violation
4.10 Litigation
4.11 Intellectual Property Rights
4.12 Benefits
4.13 Taxes
4.16 Labor Matters
4.18 Covenants Not to Compete
5.6(d) Agreements with Current and Former Officers and Directors
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated September
25, 1997, among CARPENTER TECHNOLOGY CORPORATION, a Delaware corporation
("Parent"), SCORE ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Acquisition Sub"), and TALLEY INDUSTRIES, INC., a
Delaware corporation (the "Company").
The respective Boards of Directors of Parent, Acquisition Sub and
the Company have each determined that it is advisable, on the terms and
subject to the conditions of this Agreement, (i) for a wholly-owned subsidiary
of Parent to commence a cash tender offer to purchase all outstanding shares
of Series A Convertible Preferred Stock ("Series A Preferred Shares"), Series
B $1 Cumulative Convertible Preferred Stock ("Series B Preferred Shares and
together with the Series A Preferred Shares, "Preferred Shares") and Common
Stock, par value $1 per share, of the Company ("Common Shares" and together
with the Preferred Shares, "Shares") and (ii) following the cash tender offer,
to merge Acquisition Sub with and into the Company.
In consideration of the premises and the mutual covenants herein
contained and intending to be legally bound hereby, Parent, Acquisition Sub
and the Company hereby agree as follows:
ARTICLE 1
THE OFFER
Section 1.1 The Offer.
(a) As promptly as practicable but in no event later than
the fifth business day after the public announcement of the execution of this
Agreement, Parent shall cause Acquisition Sub to commence (within the meaning
of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), and Acquisition Sub shall commence, an offer (as amended or
supplemented in accordance with this Agreement, the "Offer") to purchase for
cash all issued and outstanding Shares at a price of $11.70 per Series A
Preferred Share, $16.00 per Series B Preferred Share and $12.00 per Common
Share net to the seller in cash (such prices, or such higher prices per Share
as may be paid in the Offer, being referred to as the "Offer Prices"). The
obligation of Acquisition Sub, and of Parent to cause Acquisition Sub, to
consummate the Offer, to accept for payment and to pay for any Shares tendered
shall be subject to only those conditions set forth in Annex A hereto (any of
which may be waived by Acquisition Sub in its sole discretion; provided that,
without the consent of the Company, Acquisition Sub shall not waive the
Minimum Tender Condition (as defined in Annex A)).
(b) As soon as practicable on the date of commencement of
the Offer, Parent and Acquisition Sub shall file with the Securities and
Exchange Commission (the "SEC") with respect to the Offer a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1"), which will comply in all
material respects with the provisions of applicable federal securities laws
and will contain the offer to purchase relating to the Offer (the "Offer to
Purchase") and forms of related letters of transmittal and summary
advertisement (which documents, together with any supplements or amendments
thereto, are referred to herein collectively as the "Offer Documents").
Parent will deliver copies of the proposed forms of the Schedule 14D-1 and the
Offer Documents (as well as any change thereto) to the Company within a
reasonable time prior to the commencement of the Offer for prompt review and
comment by the Company and its counsel. Parent will provide the Company and
its counsel in writing any comments that Acquisition Sub, Parent or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt thereof. Parent and Acquisition Sub
represent that the Schedule 14D-1 and the Offer Documents (including any
amendments or supplements thereto) (i) shall comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder and (ii) shall not, in the case of the Schedule 14D-1
at the time filed with the SEC and at the time the Offer is consummated and in
the case of the Offer Documents when first published, sent or given to the
stockholders of the Company and at the time the Offer is consummated, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that Parent and Acquisition Sub make no
covenant, representation or warranty as to any of the information relating to
and supplied by the Company in writing specifically for inclusion in the
Schedule 14D-1 or the Offer Documents (including any amendments or supplements
thereto). Parent and Acquisition Sub shall promptly correct any information
in the Schedule 14D-1 or the Offer Documents that shall have become false or
misleading in any material respect and take all steps necessary to cause such
Schedule 14D-1 or Offer Documents as so corrected to be filed with the SEC and
disseminated to the stockholders of the Company, as and to the extent required
by applicable law. Parent and Acquisition Sub will provide copies of any
amendments or supplements to the Offer Documents or the Schedule 14D-1 prior
to any filing of such amendments or supplements with the SEC in order to
provide the Company and its counsel with a reasonable opportunity to review
and comment.
(c) Each of Parent and Acquisition Sub expressly reserves
the right to modify the terms of the Offer, except that neither Parent nor
Acquisition Sub shall, without the prior written consent of the Company,
decrease the consideration payable in the Offer, change the form of
consideration payable in the Offer, decrease the number of Shares sought
pursuant to the Offer, change or modify the conditions to the Offer in a manner
adverse to the Company or holders of Shares, impose additional conditions to
the Offer, waive the Minimum Tender Condition, or amend any term of the Offer
in any manner adverse to the Company or holders of Shares. Notwithstanding
the foregoing, Acquisition Sub, without the consent of the Company, (i) shall
extend the Offer, if at the then scheduled expiration date of the Offer any
of the conditions to Acquisition Sub's obligation to accept for payment and
pay for Shares shall not have been satisfied, until such time as such
condition is satisfied or waived, if such condition may in the reasonable
judgment of Acquisition Sub be satisfied in a time period reasonable for such
satisfaction, (ii) may, if any such condition is not waived, extend the Offer
until such condition is waived, (iii) may extend the Offer for any period
required by any rule, regulation, interpretation or position of the SEC or the
staff thereof applicable to the Offer and (iv) may extend the Offer on one or
more occasions for an aggregate period of not more than five business days if
the Minimum Tender Condition has been satisfied and there has theretofore been
validly tendered and not withdrawn Shares representing at least 70% but less
than 90% of each class of the outstanding Shares (on a fully diluted basis).
(d) Parent will provide or cause to be provided to
Acquisition Sub on a timely basis the funds necessary to accept for payment,
and pay for, Shares that Acquisition Sub becomes obligated to accept for
payment, and pay for, pursuant to the Offer.
Section 1.2 Company Actions.
(a) The Company hereby consents to the Offer and represents that
(i) its Board of Directors, at a meeting duly called and held, has duly and
by the affirmative vote of at least 4/5ths of the duly elected, qualified
and acting members of the Board at the time of such meeting, adopted
resolutions approving the Offer, the Merger (as defined in Section 2.1) and
this Agreement, determining that the terms of the Offer and the Merger are
fair to, and in the best interests of, the Company's stockholders and
recommending acceptance of the Offer and approval of the Merger and this
Agreement by the stockholders of the Company and (ii) J. P. Morgan
Securities Inc. ("JPMorgan") has delivered to the Company's Board of
Directors its opinion that as of the date of this Agreement the cash
consideration to be received by holders of the Common Shares for such
Shares is fair to such holders from a financial point of view. The Company
hereby consents to the inclusion in the Offer Documents of the
recommendations of the Company's Board of Directors described in this
Section.
(b) The Company will file with the SEC on the date of the
commencement of the Offer a Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") containing such recommendations of the Board in
favor of the Offer and the Merger, and shall disseminate the Schedule 14D-9 as
required by Rule 14d-9 promulgated under the Exchange Act. The Company will
deliver the proposed forms of the Schedule 14D-9 and the exhibits thereto to
Parent within a reasonable time prior to the commencement of the Offer for
prompt review and comment by Parent and its counsel. Parent and its counsel
shall be given a reasonable opportunity to review any amendments and
supplements to the Schedule 14D-9 prior to their filing with the SEC or
dissemination to stockholders of the Company. The Company will provide Parent
and its counsel in writing any comments that the Company or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after receipt thereof. The Company represents that the Schedule 14D-9, on the
date filed with the SEC and on the date first published, sent or given to the
stockholders of the Company, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company shall
promptly correct any information in the Schedule 14D-9 that shall have become
false or misleading in any material respect and take all steps necessary to
cause such Schedule 14D-9 as so corrected to be filed with the SEC and
disseminated to the stockholders of the Company, as and to the extent required
by applicable federal securities laws.
(c) In connection with the Offer, the Company shall furnish to,
or cause to be furnished to, Parent mailing labels, security position
listings and any available listing or computer file containing the names
and addresses of the record holders of the Shares as of a recent date and
shall furnish Parent with such information and assistance as Parent or its
agents may reasonably request in communicating the Offer to the
stockholders of the Company. Subject to the requirements of law, and
except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Merger, Parent and
Acquisition Sub shall, and shall cause each of their affiliates to, hold
the information contained in any of such labels and lists in confidence,
use such information only in connection with the Offer and the Merger, and,
if this Agreement is terminated, deliver to the Company all copies of such
information or extracts therefrom then in their possession or under their
control.
(d) Promptly upon the acceptance for payment of and payment for
any Shares by Acquisition Sub, Acquisition Sub shall be entitled to
designate such number of directors, rounded up to the next whole number, on
the Board of Directors of the Company as will give Acquisition Sub, subject
to compliance with Section 14(f) of the Exchange Act, representation on the
Board of Directors of the Company equal to the product of (i) the number of
directors on the Board of Directors of the Company and (ii) the percentage
that such number of votes represented by Shares so purchased bears to the
number of votes represented by Shares outstanding, and the Company shall at
such time, subject to applicable law, including applicable fiduciary
duties, cause Acquisition Sub's designees to be so elected by its existing
Board of Directors; provided, however, that in the event that Acquisition
Sub's designees are elected to the Board of Directors of the Company, until
the Effective Time such Board of Directors shall have at least three
directors who are directors on the date of this Agreement and who are not
officers or affiliates of the Company (the "Independent Directors"); and
provided further, that, in such event, if the number of Independent
Directors shall be reduced below three for any reason whatsoever any
remaining Independent Directors (or Independent Director, if there shall be
only one remaining) shall designate persons to fill such vacancies who
shall be deemed to be Independent Directors for purposes of this Agreement
or, if no Independent Directors then remain, the other directors shall
designate three persons to fill such vacancies who shall not be officers or
affiliates of the Company, or officers or affiliates of Parent or any of
their respective subsidiaries, and such persons shall be deemed to be
Independent Directors for purposes of this Agreement. Subject to
applicable law, including applicable fiduciary duties, the Company shall
take all action requested by Parent necessary to effect any such election,
including mailing to its stockholders the information statement (the
"Information Statement") containing the information required by Section
14(f) of the Exchange Act and Rule 14(f)-1 promulgated thereunder, and the
Company shall make such mailing with the mailing of the Schedule 14D-9
(provided that Parent and Acquisition Sub shall have provided to the
Company on a timely basis all information required to be included in the
Information Statement with respect to Acquisition Sub's designees). In
connection with the foregoing, the Company will, subject to applicable law,
including applicable fiduciary duties, promptly, at the option of Parent,
either increase the size of the Company's Board of Directors and/or obtain
the resignation of such number of its current directors as is necessary to
enable Acquisition Sub's designees to be elected or appointed to the
Company's Board of Directors as provided above.
ARTICLE 2
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the relevant provisions of the
Delaware General Corporation Law (the "DGCL"), Acquisition Sub shall be merged
with and into the Company (the "Merger") as soon as practicable following the
satisfaction or waiver of the conditions set forth in Article 7. Following the
Merger, the Company shall continue as the surviving corporation (the
"Surviving Corporation") under the name "Score" and shall continue its
existence under the laws of the State of Delaware, and the separate corporate
existence of Acquisition Sub shall cease. At the election of Parent, and
subject to the execution of an appropriate amendment to this Agreement, any
direct or indirect wholly owned subsidiary of Parent may be substituted for
Acquisition Sub as a constituent corporation in the Merger. Notwithstanding
this Section 2.1, Parent may elect at any time prior to the fifth business day
immediately preceding the date on which the notice of the meeting of
stockholders of the Company to consider approval of the Merger and this
Agreement (the "Meeting") is first given to the Company's stockholders that
instead of merging Acquisition Sub into the Company as hereinabove provided,
to merge the Company into Acquisition Sub or another direct or indirect
wholly-owned subsidiary of Parent; provided, however, that the Company shall
not be deemed to have breached any of its representations, warranties or
covenants herein solely by reason of such election. In such event the parties
shall execute an appropriate amendment to this Agreement in order to reflect
the foregoing and to provide that Acquisition Sub or such other subsidiary of
Parent shall be the Surviving Corporation and shall continue under the name
"Score".
Section 2.2 Effective Time. Upon the terms and subject to the
conditions hereof, as soon as possible after consummation of the Offer and to
the extent required by the DGCL after the vote of the stockholders of the
Company in favor of the approval of the Merger and this Agreement has been
obtained, the Merger shall be consummated by filing with the Secretary of
State of the State of Delaware, as provided in the DGCL, a certificate of
merger or other appropriate documents (in any such case, the "Certificate of
Merger") and the parties hereto shall make all other filings or recordings
required under the DGCL (the later of the time of such filing or the time
specified in the Certificate of Merger being the "Effective Time").
Section 2.3 Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL. As of the Effective Time, the
Company, as the Surviving Corporation, shall be a wholly owned subsidiary of
Parent.
Section 2.4 Certificate of Incorporation and Bylaws.
(a) The Certificate of Incorporation of the Company in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation from and after the Effective Time
until amended in accordance with applicable law.
(b) The Bylaws of Acquisition Sub in effect at the Effective
Time shall be the Bylaws of the Surviving Corporation from and after the
Effective Time until amended in accordance with applicable law.
Section 2.5 Directors and Officers. The directors of Acquisition
Sub and the officers of the Company immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation until their
respective successors are duly elected and qualified, except that the
President and Chief Executive Officer of Acquisition Sub will become the
Chairman and Chief Executive Officer of the Surviving Corporation.
Section 2.6 Conversion of Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Acquisition
Sub, the Company or the holders of any of the following securities:
(a) each Share held by the Company as treasury stock and each
issued and outstanding Share owned by Parent, Acquisition Sub or any other
subsidiary of Parent shall be cancelled and retired and no payment made with
respect thereto;
(b) each issued and outstanding Share, other than those
Shares referred to in Section 2.6(a) or Dissenting Shares (as defined in
Section 2.7), shall be converted into the right to receive from the
Surviving Corporation an amount of cash, without interest, equal to the
respective Offer Price applicable to such Share (the "Merger
Consideration"); and
(c) each common share, par value $1 per share, of Acquisition
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into one fully-paid and nonassessable share of common stock, par
value $1 per share, of the Surviving Corporation.
Section 2.7 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding Shares held by a person
(a "Dissenting Stockholder") who objects to the Merger and complies with all
the provisions of Delaware law concerning the right of holders of Shares to
require appraisal of their Shares ("Dissenting Shares") shall not be converted
as described in Section 2.6(b) but shall become the right to receive such
consideration as may be determined to be due to such Dissenting Stockholder
pursuant to the laws of the State of Delaware. If, after the Effective Time,
such Dissenting Stockholder withdraws his demand for appraisal or fails to
perfect or otherwise loses his right of appraisal, in any case pursuant to the
DGCL, his Shares shall be deemed to be converted as of the Effective Time into
the right to receive the Merger Consideration. The Company shall give Parent
(i) prompt notice of any demands for appraisal of Shares received by the
Company and (ii) the opportunity to participate in and direct all negotiations
and proceedings with respect to any such demands. The Company shall not,
without the prior written consent of Parent, make any payment with respect to,
or settle, offer to settle or otherwise negotiate, any such demands.
Section 2.8 Payments for Shares.
(a) Prior to the Effective Time, Parent shall appoint a commercial
bank or trust company reasonably acceptable to the Company to act as
disbursing agent for the Merger (the "Disbursing Agent"). Parent will
enter into a disbursing agent agreement with the Disbursing Agent, in form
and substance reasonably acceptable to the Company, and shall deposit or
cause to be deposited with the Disbursing Agent in trust for the benefit of
the Company's stockholders cash at such times as shall be necessary to make
the payments pursuant to Section 2.6 to holders of Shares (such amounts
being hereinafter referred to as the "Exchange Fund"). The Disbursing
Agent shall, pursuant to irrevocable instructions, make the payments
provided for in the preceding sentence out of the Exchange Fund. The
Disbursing Agent shall invest portions of the Exchange Fund as Parent
directs.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause the Disbursing Agent to mail to each record holder,
as of the Effective Time, of an outstanding certificate or certificates
which immediately prior to the Effective Time represented Shares (the
"Certificates") a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Disbursing
Agent) and instructions for use in effecting the surrender of the
Certificate or payment therefor. Upon surrender to the Disbursing Agent of
a Certificate, together with such letter of transmittal duly executed, the
holder of such Certificate shall be paid in exchange therefor cash in an
amount equal to the product of the number of Shares represented by such
Certificate multiplied by the Merger Consideration, and such Certificate
shall forthwith be cancelled. No interest will be paid or accrued on the
cash payable upon the surrender of the Certificates. If payment is to be
made to a person other than the person in whose name the Certificate
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered be properly endorsed or otherwise in proper form
for transfer and that the person requesting such payment pay any transfer
or other taxes required by reason of the payment to a person other than the
registered holder of the Certificate surrendered or established to the
satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. Until surrendered in accordance with the provisions of
this Section 2.8, each Certificate (other than Certificates representing
Shares owned by Parent, Acquisition Sub or any other subsidiary of Parent
or Dissenting Shares) shall represent for all purposes only the right to
receive the Merger Consideration in cash multiplied by the number of Shares
evidenced by such Certificate, without any interest thereon.
(c) At and after the Effective Time, there shall be no
transfers of Shares which were outstanding immediately prior to the
Effective Time on the stock transfer books of the Surviving Corporation.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for cash as provided in
this Section 2.8.
(d) Any portion of the Exchange Fund (including the proceeds
of any investments thereof) that remains unclaimed by the stockholders of
the Company for six months after the Effective Time shall be repaid to the
Surviving Corporation. Any stockholders of the Company who have not
theretofore complied with Section 2.8 shall thereafter look only to Parent
and the Surviving Corporation for payment of their claim for the Merger
Consideration per Share, without any interest thereon.
(e) To the fullest extent permitted by applicable law, none
of Parent, Acquisition Sub, the Company or the Disbursing Agent shall be
liable to any person in respect of any cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub represent and warrant to the Company as
follows:
Section 3.1 Organization and Qualification. Each of Parent and
Acquisition Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power to carry on its business as it is now being
conducted. Each of Parent and Acquisition Sub is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be
so qualified would not result in a material adverse effect on Parent or its
ability to consummate the transactions contemplated by this Agreement.
Section 3.2 Authority Relating to this Agreement. Each of Parent
and Acquisition Sub has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery by Parent and Acquisition Sub of this
Agreement and the consummation by Parent and Acquisition Sub of the
transactions contemplated hereby have been duly and validly authorized by the
respective Boards of Directors of Parent and Acquisition Sub, and the
stockholder of Acquisition Sub, and no other corporate proceedings on the part
of Parent or Acquisition Sub are necessary to authorize this Agreement, or
commence the Offer or to consummate the transactions so contemplated by this
Agreement (including the Offer). This Agreement has been duly and validly
executed and delivered by each of Parent and Acquisition Sub and, assuming
this Agreement constitutes a valid and binding obligation of the Company, this
Agreement constitutes a valid and binding agreement of each of Parent and
Acquisition Sub, enforceable against each of Parent and Acquisition Sub in
accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally.
Section 3.3 Information Supplied. None of the information
supplied by Parent, Acquisition Sub and their respective affiliates
specifically for inclusion in the Schedule 14D-9 or the Proxy Statement (as
hereinafter defined), if required, shall, with respect to the Schedule 14D-
9, at the time such Schedule is filed with the SEC or first published, sent
or given to holders of Shares or the Offer is consummated or, with respect
to the Proxy Statement, at the time the Proxy Statement is mailed or at the
time of the Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The letter to stockholders,
notice of meeting, proxy statement and form of proxy, or the information
statement, as the case may be, to be distributed to stockholders in
connection with the Merger, or any schedule required to be filed with the
SEC in connection therewith, are collectively referred to herein as the
"Proxy Statement." If, at any time prior to the Effective Time, any event
relating to Parent or any of its affiliates, officers or directors is
discovered by Parent that should be set forth in a supplement to the Proxy
Statement, Parent will promptly inform the Company.
Section 3.4 Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by Parent and Acquisition Sub nor
the consummation of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the respective
Certificates of Incorporation or Bylaws of Parent or Acquisition Sub, (ii)
require any consent, approval, order, authorization or permit of, or
registration, declaration or filing with or notification to, any Federal,
state or local government or any court, administrative or regulatory agency
or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity") by Parent or Acquisition Sub, except (A)
the filing of a premerger notification and report form by Parent under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-
R Act"), (B) pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, (C) the filing of the Certificate
of Merger pursuant to the DGCL, (D) such consents, approvals, orders,
authorizations, registrations and declarations as may be required under the
law of any foreign country in which the Parent or any of its subsidiaries
conducts any business or owns any assets, (F) such filings and approvals as
may be required under the "blue sky", takeover or securities laws of
various states, or (G) where the failure to obtain any such consent,
approval, authorization or permit, or to make any such filing or
notification, would not prevent or delay consummation of the Offer or the
Merger or would not otherwise prevent Parent from performing its
obligations under this Agreement; (iii) result in a default (or give rise
to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, license, agreement or other
instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or any of their
respective assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not result in
a material adverse effect on Parent; or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any
of its subsidiaries or any of their respective assets, except for
violations which in the aggregate would not result in a material adverse
effect on Parent.
Section 3.5 Financing. At each of (i) the time of acceptance for
purchase by Acquisition Sub of Shares pursuant to the Offer and (ii) the
Effective Time, Parent will have, and will make available to Acquisition
Sub, the funds necessary to consummate the Offer and the Merger and the
transactions contemplated thereby, and to pay related fees and expenses.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to Parent and
Acquisition Sub as follows:
Section 4.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to carry on its business as it is now being
conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
result in a Material Adverse Effect.
(b) The only subsidiaries of the Company (collectively,
"Subsidiaries") are those identified in Schedule 4.1(b). Each Subsidiary is a
corporation or other organization duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization
and has the requisite corporate or other power to carry on its business as it
is now being conducted, and each Subsidiary is duly qualified to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
result in a Material Adverse Effect. Except as disclosed on Schedule 4.1(b),
all of the outstanding shares of capital stock of each Subsidiary have been
validly issued and are fully paid and non-assessable and are owned by the
Company, by another wholly-owned Subsidiary of the Company or by the Company
and another such wholly-owned Subsidiary, free and clear of all pledges,
claims, equities, options, liens, charges, rights of first refusal, "tag" or
"drag" along rights, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the capital stock or other
equity interests of the Subsidiaries or as otherwise specifically indicated in
the SEC Documents (as defined in Section 4.5) or in Schedule 4.1(b), the
Company does not own, directly or indirectly, any capital stock or other
equity interest in any corporation, partnership, joint venture or other
entity. The Company has made available to Parent complete and correct copies
of its Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation") and Bylaws and the comparable charters and bylaws or other
organizational documents of the Subsidiaries, in each case as amended to the
date of this Agreement.
Section 4.2 Capitalization.
(a) The authorized capital stock of the Company consists of
20,000,000 Common Shares and 5,000,000 shares of Preferred Stock, par value $1
per share. All of the issued and outstanding Shares have been duly authorized
and validly issued and are fully paid and nonassessable and are not subject to
preemptive rights. As of September 19, 1997, 13,793 Series A Preferred
Shares, 749,486 Series B Preferred Shares and 14,113,623 Common Shares were
issued and outstanding and an aggregate of 1,622,050 Common Shares were
reserved for issuance pursuant to the 1996 Comprehensive Stock Plan of Score
Industries, Inc., the Company's 1978 and 1990 Stock Option Plans and the 1996
Non-Employee Director Stock Plan (collectively, the "Stock Plans"). Except as
disclosed in Schedule 4.2, such Common Shares reserved for issuance under the
Stock Plans have not been issued and will not prior to the Effective Time be
issued, and, except as disclosed in Schedule 4.2, no commitment has been or
will be made for their issuance other than under stock options outstanding
under the Stock Plans ("Stock Options") as of the date of this Agreement.
Schedule 4.2 sets forth the exercise prices and number of Shares in respect of
outstanding Stock Options under the Stock Plans. In addition, each outstanding
Common Share has a Preferred Stock purchase right attached, allowing the
holder upon the occurrence of certain events described in the Rights Agreement
between the Company and ChaseMellon Shareholder Services L.L.C., as Rights
Agent, relating to such rights (the "Rights"), as amended and restated on
February 2, 1996 (the "Rights Agreement"), to purchase one one-hundredth of a
share of Series C Junior Participating Preferred Stock at an exercise price of
$32. No shares of such Series C Preferred Stock have been issued as of the
date of this Agreement.
(b) There are no bonds, debentures, notes or other indebtedness
of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which stockholders of the Company may vote. Except as set forth above or
otherwise on Schedule 4.2, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of the Subsidiaries is
a party or by which any of them is bound, obligating the Company or any of
the Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of the Company or any of the Subsidiaries or obligating the
Company or any of the Subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except as disclosed in Schedule 4.2, there are
no outstanding contractual obligations of the Company or any of the
Subsidiaries to repurchase, redeem or otherwise acquire, or providing
preemptive or registration rights with respect to, any shares of capital
stock of the Company or any of the Subsidiaries. The Company and the
Subsidiaries do not have outstanding any loans to any person in respect of
the purchase of securities issued by the Company or any Subsidiary.
Section 4.3 Authority Relative to this Agreement. The Company
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby (subject with
respect to the Merger to approval of the Merger and this Agreement by the
holders of a majority of the votes represented by the Shares). The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized and approved by the affirmative vote of no fewer than 4/5ths of the
duly elected, qualified and acting members of the Board of Directors of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated, other than (with respect to the Merger) the approval of this
Agreement by the holders of a majority of the votes represented by the Shares,
voting together as one class, and no separate vote of the Preferred Shares
will be required for such approval. This Agreement has been duly and validly
executed and delivered by the Company, and, assuming this Agreement
constitutes a valid and binding obligation of each of Parent and Acquisition
Sub, constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
and other similar laws affecting creditors' rights generally.
Section 4.4 Absence of Certain Changes. Except as disclosed in
the SEC Documents or in Schedule 4.4 or as contemplated by this Agreement,
since June 30, 1997 until the commencement of the Offer, no event has occurred
or will occur and no circumstances exist or will exist, and as of the date
hereof the Company is not aware of any event or circumstances which may
reasonably be likely to occur or exist, that would be reasonably likely to
result in a Material Adverse Effect, except for general economic changes,
changes that affect the industry of the Company or any Subsidiary generally,
and changes in the Company's business after the date hereof attributable
solely to actions taken by Parent or Acquisition Sub. Except as disclosed in
the SEC Documents or in Schedule 4.4, since June 30, 1997, there has not been
(a) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any redemption
or other acquisition by the Company of any Shares; (b) any entry into any
agreement, commitment or transaction by the Company or any Subsidiary which
is material to the Company and the Subsidiaries taken as a whole, except
agreements, commitments or transactions in the ordinary course of business,
(c) any split, combination or reclassification of the Company's capital stock
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
(d)(i) any granting by the Company or any of the Subsidiaries to any officer
or key employee of the Company or any of the Subsidiaries of any increase in
compensation, except in the ordinary course of business or as was required
under employment agreements in effect as of the date of the most recent
financial statements included in the SEC Documents or (ii) any entry by the
Company or any Subsidiary into any employment, severance or termination
agreement with any such officer or key employee or granting by the Company or
any Subsidiary to any such officer or key employee of any increase in
severance or termination pay, except (A) as was required under employment,
severance or termination agreements in effect as of the date of the most
recent financial statements included in the SEC Documents or (B) as disclosed
on Schedule 5.6(d) of the Disclosure Schedule, or (e) any damage, destruction
or loss, whether or not covered by insurance, that has or would be reasonably
likely to have a Material Adverse Effect or (f) any change in accounting
methods, principles or practices by the Company or any Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles.
Section 4.5 Reports. Since January 1, 1995, the Company has
filed all required forms, reports and documents with the SEC required to be
filed by it pursuant to the federal securities laws and the SEC rules and
regulations thereunder (collectively, the "SEC Documents"), all of which have
complied as of their respective filing dates in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, and the
rules promulgated thereunder. None of such forms, reports or documents
required by the Exchange Act at the time filed, nor any of such forms, reports
or documents required by the Securities Act as of the date of their
effectiveness contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent that information contained in
any SEC Document has been revised or superseded by a later-filed SEC Document
filed and publicly available prior to the date hereof. The financial
statements of the Company included in the SEC Documents comply as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
Section 4.6 Proxy Statement. If a Proxy Statement is required
for the consummation of the Merger under applicable law, the Proxy Statement
will comply in all material respects with the Exchange Act, except that no
representation is made by the Company with respect to information supplied by
Parent or any affiliate of Parent specifically for inclusion in the Proxy
Statement. None of the information supplied by the Company specifically for
inclusion in the Proxy Statement shall, at the time the Proxy Statement is
mailed or at the time of the Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.7 Consents and Approvals; No Violation. Except as set
forth on Schedule 4.7, neither the execution and delivery of this Agreement by
the Company nor the consummation of the transactions contemplated hereby will
conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or require any consent or approval
by a party under or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets or the
Company or any Subsidiary under (i) the Certificate of Incorporation or Bylaws
of the Company or the comparable charter or organizational documents of any
Subsidiary, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any Subsidiary or its respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any
Subsidiary or their respective properties or assets, other than, in the case
of clauses (ii) or (iii), any such conflicts, violations, defaults, rights or
Liens that individually or in the aggregate would not have a Material Adverse
Effect. Except as set forth on Schedule 4.7, no consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by the Company or any Subsidiary in connection
with the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this Agreement,
except for (i) the filing of a premerger notification and report form by the
Company under the H-S-R Act, (ii) requirements under the Securities Act and
the Exchange Act, (iii) the filing of the Certificate of Merger pursuant to
the DGCL and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business; (iv) requirements
under state environmental statutes or regulations and (v) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not have a Material Adverse
Effect.
Section 4.8 Fees and Commissions. Except for those fees and
expenses payable to JPMorgan pursuant to the letter agreement, dated July 23,
1997, no person is entitled to receive from the Company or any Subsidiary any
investment banking, brokerage or finder's fee in connection with this
Agreement or the transactions contemplated hereby. A copy of the
aforementioned agreement has previously been delivered to Parent.
Section 4.9 Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) the Offer Documents, (ii) the Schedule 14D-9 or (iii) the
information to be filed by the Company in connection with the Offer pursuant to
Rule 14f-1 promulgated under the Exchange Act (the "Information Statement"),
will, at the respective times the Offer Documents, the Schedule 14D-9 and the
Information Statement are filed with the SEC or first published, sent or given
to the Company's stockholders, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Schedule 14D-9 and the Information
Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by the Company with respect
to statements made or incorporated by reference therein based on information
supplied by Parent or Acquisition Sub specifically for inclusion or
incorporation by reference therein.
Section 4.10 Litigation. Except as disclosed in the SEC
Documents or in Schedule 4.10 of the Disclosure Statement, as of the date
hereof there is no suit, action or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any Subsidiary before any court
or arbitrator or before or by any governmental body, agency or official that
would be reasonably likely to have a Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any Subsidiary having, or which
is reasonably likely to have, a Material Adverse Effect.
Section 4.11 Patents and Other Proprietary Rights. To the
Company's knowledge, except as disclosed in Schedule 4.11, the Company and
Subsidiaries have rights to use, whether through ownership, licensing or
otherwise, all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of
which the Company is aware that are necessary for its business as now
conducted (collectively, "Intellectual Property Rights"). Except as disclosed
in Schedule 4.11, the Company and Subsidiaries have not assigned, hypothecated
or otherwise encumbered any of the Intellectual Property Rights and none of
the licenses included in the Intellectual Property Rights purport to grant
sole or exclusive licenses to another entity or person, including, without
limitation, sole or exclusive licenses limited to specific fields of use. To
the Company's knowledge, except as disclosed in Schedule 4.11, the patents
owned by the Company and Subsidiaries are valid and enforceable and any patent
issuing from patent applications of the Company and Subsidiaries will be valid
and enforceable, except as such invalidity or unenforceability would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Affect. Except as disclosed in writing to Parent prior to the date
hereof: (i) the Company has no knowledge of any infringement by any other
party of any of the Intellectual Property Rights, and (ii) the Company and
Subsidiaries have not entered into any agreement to indemnify any other party
against any charge of infringement of any of its Intellectual Property Rights
except for such matters as would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Affect. To the Company's
knowledge, the Company and Subsidiaries have not and do not violate or infringe
any intellectual property right of any other person or entity, and the Company
and Subsidiaries have not received any communication alleging that any of them
violates or infringes the intellectual property right of any other person or
entity, except as disclosed in writing to Parent prior to the date hereof and
except for any such violations or infringements as would not, individually or
in the aggregate, be reasonably likely to have a Material Adverse Effect. The
Company and Subsidiaries are not subject to any pending suit for infringing
any intellectual property right of another entity or person.
Section 4.12 Benefit Plans; ERISA Compliance.
(a) Schedule 4.12(a) sets forth a complete list of all
"employee benefit plans" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), bonus,
pension, profit sharing, deferred compensation, incentive compensation,
excess benefit, stock, stock option, severance, termination pay, change in
control or other material employee benefit plans, programs or arrangements,
including, but not limited to, those providing medical, dental, vision,
disability, life insurance and vacation benefits (other than those required
to be maintained by law), qualified or unqualified, funded or unfunded,
foreign or domestic currently maintained, or contributed to, or required to
be maintained or contributed to, by the Company or any other person or
entity that, together with the Company, is treated as a single employer
under Section 414 of the Internal Revenue Code of 1986, as amended (the
"Code") (each a "Commonly Controlled Entity") for the benefit of any
current or former employees, officers, directors or independent contractors
of the Company or any Subsidiary and with respect to which the Company or
any Subsidiary has any liability (collectively, the "Benefit Plans").
Except with respect to any "multiemployer plan" (as defined in Section
3(37) of ERISA), the Company has delivered or made available to Parent
true, complete and correct copies of each Benefit Plan and related trust
agreement and annuity contract and (to the extent applicable) a copy of
each Benefit Plan's current summary plan description. In addition, to the
extent applicable, the Company has provided or made available to Parent a
copy of the most recent IRS determination letter issued, and copies of the
two most recently filed IRS Forms 5500 together with all schedules,
actuarial reports and accountants' statements for each Benefit Plan,
including Form 5500, Schedule B for each Benefit Plan that is a "defined
benefit plan" (as defined in Section 3(35) of ERISA), other than a
multiemployer plan.
(b) To the Company's knowledge, each Benefit Plan has been
administered in accordance with its terms and in compliance with the
applicable provisions of ERISA and the Code where the failure to so
administer or comply would have a Material Adverse Effect.
(c) All Benefit Plans (other than a multiemployer plan)
intended to be qualified under Section 401(a) of the Code have been the
subject of determination letters from the Internal Revenue Service to the
effect that such Benefit Plans are qualified and exempt from Federal income
taxes under Section 401(a) and 501(a), respectively, of the Code as amended
at least through the statutory changes implemented under the Tax Reform Act
of 1986, and no such determination letter has been revoked nor, to the
knowledge of the Company, has revocation been threatened, nor has any such
Benefit Plan been amended since the date of its most recent determination
letter or application therefor in any respect that would adversely affect
its qualification.
(d) No Benefit Plan which is a "single-employer plan" (as
defined in Section 4001(a)(15) of ERISA) and which is subject to Title IV of
ERISA is, as of its most recent valuation date, unfunded by an amount which
would have Material Adverse Effect based on actuarial assumptions indicated in
the most recent actuarial valuation report. To the knowledge of the Company,
neither the Company nor any of the Subsidiaries is aware of any facts or
circumstances that would materially and adversely change the funded status of
any such Benefit Plans. None of the Benefit Plans has an "accumulated funding
deficiency" (as such term is defined in Section 302 of ERISA or Section 412 of
the Code), and there has been no application for a waiver of the minimum
funding standards imposed by Section 412 of the Code with respect to any
Benefit Plan.
(e) To the Company's knowledge, no person or entity has incurred
any liability under Title IV of ERISA or Section 412 of the Code during
the time such person or entity was required to be treated as a single
employer with the Company under Section 414 of the Code that would have a
Material Adverse Effect.
(f) During the last five years, to the Company's knowledge,
there has been no "reportable event" (as that term is defined in Section 4043
of ERISA) which is reasonably likely to have a Material Adverse Effect with
respect to any Benefit Plan that is a single employer plan subject to Title IV
of ERISA.
(g) With respect to any Benefit Plan that is an employee
welfare benefit plan (as defined in Section 3(1) of ERISA), (i) to the best
of the Company's knowledge, no such Benefit Plan provides benefits,
including without limitation, death or medical benefits, except as set
forth on Schedule 4.12(g), beyond termination of employment or retirement
other than (A) coverage mandated by law or (B) death or retirement benefits
under a Benefit Plan qualified under Section 401(a) of the Code, and (ii)
each such Benefit Plan (including any such Plan covering retirees or other
former employees) may be amended or terminated without liability that would
have a Material Adverse Effect to the Company or any of its subsidiaries on
or at any time after the consummation of the Offer.
(h) Except as set forth on Schedule 4.12(h), no employee
of the Company or any Commonly Controlled Entity will become entitled to any
retirement, severance or similar benefit or enhanced or accelerated benefit
solely as a result of the transactions contemplated hereby. Without limiting
the generality of the foregoing, no amount required to be paid or payable to
or with respect to any employee of the Company or any Commonly Controlled
Entity in connection with the transactions contemplated hereby (either solely
as a result thereof or as a result of such transactions in conjunction with
any other event) will be an "excess parachute payment" within the meaning of
Section 280G of the Code.
(i) Except as indicated on Schedule 4.12(i), at no time
since December 31, 1990, have the Company or any Commonly Controlled
Entity, been required to contribute to, or incurred any withdrawal
liability, within the meaning of Section 4201 of ERISA to any multiemployer
pension plan, within the meaning of Section 3(37) of ERISA. All required
contributions, withdrawal liability payments or other payments of any type
that the Company or any Commonly Controlled Entity have been obligated to
make to any multiemployer plan have been duly and timely made. Any
withdrawal liability incurred with respect to any multiemployer plan has
been fully paid as of the date hereof. Neither the Company nor any
Commonly Controlled Entity has undertaken any course of action that could
reasonably be expected to lead to a complete or partial withdrawal from any
multiemployer plan that would reasonably be expected to result in a
withdrawal liability that would have a Material Adverse Effect. Set forth
next to each multiemployer plan listed on Schedule 4.12(i) is the amount of
the withdrawal liability that would be incurred by the Company or any
Commonly Controlled Entity with respect to such plan, under Section 4201 of
ERISA, if the Company or any Commonly Controlled Entity were to completely
withdraw from such multiemployer plan on the date hereof.
(j) Except as listed on Schedule 4.12(j), neither the Company
nor any Commonly Controlled Entity has any secondary liability resulting
from a transaction described in ERISA Section 4204 that would, if the
Company or Commonly Controlled Entity were to become primarily liable,
reasonably be likely to have a Material Adverse Effect.
(k) Except as disclosed in the SEC Documents or in Schedule
5.6(d), there exist no employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings between either of
the Company or any Subsidiary and any current or former officer or director of
either of the Company or any Subsidiary or for which either of the Company or
any Subsidiary is liable.
Section 4.13 Taxes.
(a) Each of the Company and each Subsidiary has filed all
Federal income tax returns and all other material tax returns and reports
(including information returns and reports) required to be filed by it on
or before the date hereof and on or before the date Shares are accepted for
payment pursuant to the Offer (or requests for extensions to file such tax
returns have been timely filed, granted and have not expired). All such
returns are complete and correct in all material respects, have been
prepared in accordance with all applicable laws and requirements and
accurately reflect in all material respects the taxable income (or other
measure of tax) of the party filing the same. Except as disclosed on
Schedule 4.13, each of the Company and each Subsidiary has paid (or the
Company has paid on their behalf) all taxes shown to be due on such return,
all material taxes for which no return was required to be filed and all
other taxes for which a notice of assessment or demand for payment has been
received. The most recent financial statements contained in the SEC
Documents reflect an adequate reserve for all taxes payable by the Company
and the Subsidiaries for all taxable periods and portions thereof through
the date of such financial statements.
(b) True and complete copies of federal and state income
returns of the Company and each Subsidiary for each of the taxable years
ended December 31, 1992 through December 31, 1996 have been made available
to Parent.
(c) Except as disclosed on Schedule 4.13, no deficiencies
for any taxes have been proposed, asserted or assessed against the Company
or any Subsidiary that have not yet been paid or settled, and no requests
for waivers of the time to assess any such taxes are pending and neither
the Company nor any Subsidiary is currently the subject of an audit or
examination with respect to tax matters and neither the Company nor any
Subsidiary has received notice from a taxing authority of its intention to
conduct such an audit or examination. No taxing authority for a
jurisdiction in which the Company or any Subsidiary does not file tax
returns has asserted that the Company or any such Subsidiary is or may be
subject to tax by such jurisdiction. The Federal income tax returns of the
Company and each of the Subsidiaries consolidated in such returns have been
examined by and settled with the Internal Revenue Service for all years
through December 31, 1992.
(d) Except as disclosed on Schedule 4.13, neither the Company
nor any Subsidiary (i) currently has in effect any consent under Section
341(f) of the Code; (ii) currently has in effect a waiver or consent
extending any statute of limitation for the assessment or collection of
tax, which waiver or consent remains outstanding; (iii) has ever joined in
or been required to join in the filing of a consolidated Federal income tax
return or a combined or consolidated state income tax return other than one
for which the Company is the common parent; (iv) has ever applied for a
ruling with respect to a tax matter or entered into a closing agreement
with respect to a tax matter that has a continuing effect; (v) has ever
filed or been the subject of an election under Section 338(g) or Section
338(h)(10) of the Code or caused or been the subject of a deemed election
under Section 338(e) of the Code; or (vi) has ever agreed to make or been
required to make an adjustment under Section 481 of the Code by reason of a
change in accounting method or otherwise that has continuing effect.
Except as disclosed on Schedule 4.13, neither the Company nor any
Subsidiary (i) owns an interest in any entity or is a party to an
arrangement that is treated as a partnership for federal income tax
purposes or (ii) is a party to a tax sharing or tax allocation agreement
pursuant to which it could be liable for taxes of another person.
(e) As used in this Agreement, "taxes" shall include all
Federal, state, local and foreign income, property, sales, excise and other
taxes, tariffs or governmental charges of any nature whatsoever.
(f) The Company is not a "real property holding corporation"
as defined in the Code.
Section 4.14 Compliance with Applicable Laws.
(a) Except for matters disclosed in the SEC Documents
and during the Phase I site assessments performed by Dames & Moore, to the
knowledge of the Company, each of the Company and each Subsidiary has
obtained and maintained all Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses,
notices, permits and rights ("Permits") necessary as of the Effective Time
for it to own, lease or operate its properties and assets as now owned,
leased or operated and to carry on its business as now conducted, except
for any failure to obtain or maintain such Permits which is not reasonably
likely to have a Material Adverse Effect. Except for matters disclosed in
the SEC Documents and during the Phase I site visits performed by Dames &
Moore, to the knowledge of the Company, each of the Company and each
Subsidiary has complied with and is in compliance with all statutes, laws,
Environmental Laws, ordinances, rules, orders and regulations of any
Governmental Entity, Permits and Environmental Permits applicable prior to
or as of the Effective Time, except for noncompliance which is not
reasonably likely to have a Material Adverse Effect. "Environmental Permit"
means Permit under any federal, state, local or foreign Environmental Law
(as hereinafter defined) applicable prior to or as of the Effective Time.
The term "Environmental Laws" means any federal, state, local or foreign
statute, code, ordinance, rule, regulation, judgment, order, writ, decree,
injunction, common law, Permit, or settlement or consent agreement
applicable prior to or as of the Effective Time relating to the protection
of the environment or human health or to Hazardous Materials (as defined
below).
(b) Except for matters disclosed in the SEC Documents and
during the Phase I site assessments performed by Dames & Moore, to the
knowledge of the Company, there have been no releases of Hazardous
Materials by the Company or any Subsidiary or by any predecessor in
interest in, on or under any properties now owned, operated or leased by
the Company or any Subsidiary which could be the basis for liability under
Environmental Laws and, to the knowledge of the Company, there have been no
releases of Hazardous Material by the Company or any Subsidiary or any
predecessor in interest in, on or under any properties formerly owned,
operated or leased by the Company or any Subsidiary which could be the
basis for liability under Environmental Laws, except for those which are
not reasonably likely to have a Material Adverse Effect. The term
"Hazardous Materials" means hazardous or toxic materials, substances or
wastes that are regulated by or that could be the basis for liability under
Environmental Laws.
(c) Except for matters disclosed in the SEC Documents and
during the Phase I site assessments performed by Dames & Moore, to the
knowledge of the Company, neither the Company nor any Subsidiary has
received any written notice of violation, citation, summons or order, been
served with a complaint or assessed a penalty and no investigation is
pending or has been threatened by any governmental entity within the five
year period immediately preceding the date hereof or, if prior to that time
period, which remains unresolved, and which reasonably could be expected to
require the Company or any Subsidiary to expend money or abide by
conditions contained in settlement agreements or consent decrees, which is
reasonably likely to have a Material Adverse Effect: (i) with respect to
any alleged violation by the Company or any Subsidiary or any of its or
their predecessors in interest of any Environmental Law; or (ii) with
respect to any alleged failure by the Company or any Subsidiary to have
complied with any Environmental Permit; or (iii) with respect to any use,
possession, generation, treatment, storage, recycling, transportation or
disposal (collectively, "Management" or when used as a verb, "Managed"), or
release of any Hazardous Materials by or on behalf of the Company or any
Subsidiary or any of their predecessors in interest.
(d) Except for matters disclosed in the SEC Documents and
during the Phase I site assessments performed by Dames & Moore, to the
knowledge of the Company, neither the Company nor any Subsidiary has
received any written request for information, notice of claim, demand or
notification that it or any predecessor in interest is or may be
potentially responsible or/and liable under Environmental Laws, with
respect to any investigation or clean-up of any threatened or actual
release of any Hazardous Material within the five-year period immediately
preceding the date hereof or, if prior to that time period, which remains
unresolved, and which reasonably could be expected to require the Company
or any Subsidiary to expend money to an extent which is reasonably likely
to have a Material Adverse Effect.
(e) Except for matters disclosed in the SEC Documents and
during the Phase I site assessments performed by Dames & Moore, to the
knowledge of the Company, no Hazardous Materials Managed by or on behalf of
the Company or any of the Subsidiaries or any predecessor in interest has
come to be located at any site which is listed pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS") or on any similar
published state list, or which is the subject of federal, state or local
enforcement actions or investigations which may reasonably lead to claims
against the Company or any Subsidiary under Environmental Laws for cleanup
costs, remedial work, damages to natural resources or for personal injury
claims, which are reasonably likely to have a Material Adverse Effect.
(f) Except for matters disclosed in the SEC Documents,
in the materials made available for review by Parent and during the Phase I
site assessments performed by Dames & Moore, to the knowledge of the
Company, there have been no environmental inspections, investigations,
studies, audits, tests, reviews or other analyses, other than those
required to be done routinely pursuant to Environmental Permits or
Environmental Laws, conducted in relation to any property or business now
or previously owned, operated or leased by the Company or any Subsidiary
which have been performed by or on behalf of the Company or any Subsidiary
or, to the knowledge of the Company, by any other person regarding any
environmental condition, matter or activity which could be the basis of
liability under Environmental Laws which is reasonably likely to have a
Material Adverse Effect.
(g) For the purposes of this Section 4.14 only, the "knowledge
of the Company" shall mean the actual knowledge of the executive officers
of the Company.
Section 4.15 State Takeover Statutes. The Board of Directors of
the Company has approved the Offer, the Merger and the other transactions
contemplated by this Agreement in accordance with the provisions of Section
203 of the DGCL.
Section 4.16 Labor Matters. Except as disclosed in Schedule
4.16, to the knowledge of the Company, as of the date hereof (a) no employee
of the Company or any Subsidiary is represented by any union or other labor
organization; (b) the Company and all of the Subsidiaries are in material
compliance with applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice; (c) there is no unfair labor practice
complaint against the Company or any of the Subsidiaries pending before the
National Labor Relations Board; (d) there is no labor strike, dispute,
slowdown, representation campaign or work stoppage pending or threatened
against or affecting the Company or any of the Subsidiaries; (e) no material
grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claim therefor has been asserted
against the Company or the Subsidiaries; and (f) neither the Company nor any
of the Subsidiaries has experienced any material work stoppage since January
1, 1996.
Section 4.17 Undisclosed Liabilities. Except as and to the
extent disclosed in the SEC Documents, except for liabilities incurred in the
ordinary course of business and otherwise not in contravention of this
Agreement and except for liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby, the Company
does not have any liabilities or obligations of any nature (whether absolute,
contingent or otherwise) that would be reasonably likely to have a Material
Adverse Effect.
Section 4.18 Certain Agreements. Except as disclosed in Schedule
4.18, neither the Company nor any of the Subsidiaries is a party to, or bound
by, any contract or agreement that materially limits the ability of the
Company directly or through any of its subsidiaries to compete in any line of
business or with any person in any geographic area during any period of time.
Section 4.19 Amendment of Rights Agreement. The Board of
Directors of the Company has taken all action necessary to (i) render the
Rights Agreement inapplicable to the Offer, the Merger and the other
transactions contemplated by this Agreement and (ii) ensure that (A) neither
Parent nor any of its wholly-owned subsidiaries will become an "Acquiring
Person" (as defined in the Rights Agreement) by reason of consummation of the
transactions contemplated by this Agreement and (B) a "Shares Acquisition
Date", "Distribution Date" or "Triggering Event" (each as defined in the
Rights Agreement) does not occur by reason of the approval, execution or
delivery of this Agreement, the consummation of the Offer, the Merger or the
other transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS
Section 5.1 Conduct of Business of the Company. Except as
contemplated by this Agreement or as approved in writing by Parent, during the
period from the date of this Agreement to the acceptance of Shares for
payment, the Company and the Subsidiaries will each conduct its operations
according to its ordinary and usual course of business. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in
this Agreement, neither the Company nor any Subsidiary, without the prior
written consent of Parent, will
(i) issue, sell or pledge, or authorize or propose
the issuance, sale or pledge of (A) additional shares of capital stock of any
class (including the Shares), or securities convertible into any such shares,
or any rights, warrants or options to acquire any such shares or other
convertible securities, or grant or accelerate any right to convert or
exchange any securities of the Company for shares, other than (1) Shares
issuable pursuant to the terms of outstanding Stock Options and commitments
disclosed in Section 4.2, or (2) issuance of shares of capital stock to the
Company by a wholly-owned Subsidiary, or (B) any other securities in respect
of, in lieu of or in substitution for Shares outstanding on the date thereof or
split, combine or reclassify any of the Company's capital stock;
(ii) purchase, redeem or otherwise acquire, or
propose to purchase or otherwise acquire, any of its outstanding securities
(including the Shares);
(iii) declare, set aside or pay any dividend or other
distribution on any shares of capital stock of the Company other than the
regular quarterly dividends of $.275 per share with respect to the Series A
Preferred Shares and $.25 per share with respect to the Series B Preferred
Shares, except that a direct or indirect wholly-owned Subsidiary may pay a
dividend or distribution to its parent;
(iv) except as disclosed to Parent prior to the date
hereof, make any acquisition of a material amount of assets or securities, any
disposition (including by way of mortgage, license, encumbrance or any Lien)
of a material amount of assets or securities, or enter into a material
contract or release or relinquish any material contract rights, or make any
amendments, or modifications thereto, except in all instances for actions in
the ordinary course of business;
(v) (A) except in the ordinary course of business,
incur any indebtedness for borrowed money or guarantee any such indebtedness
of another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company or any Subsidiary,
guarantee any debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of the
foregoing or (B) make any loans, advances of capital contributions to, or
investments in, any other person, other than to the Company or any direct or
indirect wholly owned Subsidiary;
(vi) pay, discharge, settle or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business or in accordance with their
terms;
(vii) propose or adopt any amendments (initiated by the
Board of Directors) to the Certificate of Incorporation or Bylaws of the
Company (or any such similar organizational documents of the Subsidiaries);
(viii) except as disclosed in Schedule 5.6(d) of the
Disclosure Statement, enter into any new employment, severance or termination
agreements with, or grant any increase in severance or termination pay to, any
officers, directors or key employees or grant any material increases in the
compensation or benefits to officers, directors and key employees;
(ix) change any accounting methods, principles or
practices materially affecting their assets, liabilities or business, except
insofar as may be required by a change in generally accepted accounting
principles;
(x) make any material tax election or settle or
compromise any material income tax liability;
(xi) except as disclosed to Parent prior to the date
hereof, make or agree to make any new capital expenditure or expenditures not
previously committed to which individually is in excess of $500,000 or which
in the aggregate are in excess of $1 million; or
(xii) agree in writing or otherwise to take any of the
foregoing actions or any action which would make any representation or
warranty in this Agreement untrue or incorrect at any time prior to acceptance
of Shares for payment in the Offer.
Section 5.2 No Solicitation.
(a) The Company shall not, nor shall it permit any
Subsidiary to, nor shall it authorize or permit any officer, director or
employee of or any investment banker, attorney or other advisor or
representative of the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage the submission of
any Takeover Proposal or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to a Takeover Proposal; provided,
however, that prior to the acceptance for payment of Shares pursuant to the
Offer, to the extent consistent with the fiduciary obligations of the Board
of Directors of the Company, as determined in good faith by the Board of
Directors after consultation with outside counsel, the Company may upon
receipt by the Company of an unsolicited written, bona fide Takeover
Proposal, furnish information with respect to the Company pursuant to a
customary confidentiality agreement containing "standstill" provisions no
less onerous than in the Confidentiality Agreement (as defined in Section
5.3) and participate in negotiations regarding such Takeover Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any officer, director
or employee of the Company or any Subsidiary or any investment banker,
attorney or other advisor or representative of the Company or any
Subsidiary, shall be deemed to be a breach of this Section 5.2(a) by the
Company. For purposes of this Agreement, "Takeover Proposal" means any
proposal or offer for, or any expression of interest (by public
announcement or otherwise) by any person other than Parent or its
affiliates in, a merger or other business combination involving the Company
or any proposal or offer to acquire in any manner (including through a
joint venture with the Company), directly or indirectly, an equity interest
in not less than 20% of the outstanding voting securities of, or assets
representing not less than 20% of the annual revenues or net earnings of
the Company and the Subsidiaries taken as a whole.
(b) Neither the Board of Directors of the Company nor
any committee thereof shall (i) approve or recommend, or propose to approve
or recommend, any Takeover Proposal or (ii) cause the Company or any of its
Subsidiaries to enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event the Board of
Directors of the Company receives an unsolicited Takeover Proposal that, in
the exercise of its fiduciary obligations (as determined in good faith by
the Board of Directors and after consultation with outside counsel), it
determines to be a Superior Proposal, the Board of Directors may (subject
to the following sentences) withdraw or modify its approval or
recommendation of the Offer, this Agreement and the Merger taken together,
or approve or recommend any such Superior Proposal, in order to enter into
an agreement with respect to such a Superior Proposal, in each case at any
time after the third business day following Parent's receipt of written
notice (a "Notice of Superior Proposal") advising Parent that the Board of
Directors has received a Superior Proposal and specifying the material
terms and conditions of such Superior Proposal. For purposes of this
Agreement, a "Superior Proposal" means any bona fide Takeover Proposal on
terms which the Board of Directors of the Company determines in its good
faith judgment, after consultation with JPMorgan or another financial
advisor of nationally recognized reputation, to be more favorable to the
Company's stockholders than the Offer and the Merger and for which
financing is available. Nothing contained herein shall prohibit the
Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act.
(c) In addition to the obligations of the Company set
forth in paragraph (b) above, the Company shall promptly advise Parent of
any request for non-public information or any Takeover Proposal, or any
inquiry with respect to or which could reasonably be expected to lead to
any Takeover Proposal and the material terms and conditions of such
request, Takeover Proposal or inquiry.
(d) Neither the Board of Directors of the Company nor any
committee thereof shall withdraw or modify, or propose to withdraw or modify,
in a manner adverse to Parent or Acquisition Sub, the approval or
recommendation by such Board of Directors or any such committee of the Offer,
this Agreement or the Merger, unless failure to do so could be a breach of its
fiduciary obligations as they would exist without the foregoing prohibition
(as determined in good faith by the Board of Directors and after consultation
with outside counsel).
Section 5.3 Access to Information.
(a) Between the date of this Agreement and the Effective
Time, the Company will upon reasonable notice (i) give Parent and its
authorized representatives reasonable access during regular business hours
to the Company's and each Subsidiary's plants, offices, warehouses and
other facilities and to its books and records, (ii) permit Parent to make
such inspections as it may require, and (iii) cause its officers and those
of the Subsidiaries to furnish Parent with such financial and operating
data and other information with respect to the business and properties of
the Company and the Subsidiaries as Parent may from time to time reasonably
request.
(b) Information obtained by Parent pursuant to this Section 5.3
shall be subject to the provisions of the confidentiality agreement between
the Company and Parent, dated August 7, 1997 (the "Confidentiality
Agreement"), which remains in full force and effect, but shall terminate upon
the acceptance for payment of the Shares pursuant to the Offer.
Section 5.4 Reasonable Best Efforts.
(a) Subject to Section 5.2, each of the parties hereto will use
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. Such reasonable
best efforts shall include, without limitation, (i) obtaining all necessary
consents, approvals or waivers from third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement and (ii) opposing vigorously any litigation or administrative
proceeding relating to this Agreement or the transactions contemplated hereby,
including, without limitation, promptly appealing any adverse court or agency
order. Notwithstanding the foregoing or any other provisions contained in
this Agreement to the contrary, neither Parent nor any of its affiliates shall
be under any obligation of any kind to agree with any Governmental Entity,
including but not limited to any governmental or regulatory authority with
jurisdiction over the enforcement of any applicable federal, state, local and
foreign antitrust, competition or other similar laws, or any other party to
sell or otherwise dispose of, hold separate (through the establishment of a
trust or otherwise) particular assets or categories of assets or businesses of
any of the Company, Parent or any of Parent's affiliates.
(b) The Company shall give and make all required notices,
filings and reports to the appropriate persons with respect to the Permits and
Environmental Permits and comply with all applicable requirements under
Environmental Laws that may be necessary for the sale and purchase of the
business and the ownership, operation and use of the assets of Surviving
Corporation by Parent after the Effective Time.
(c) The Company and its Board of Directors shall (i) take all
action necessary to ensure that no state takeover statute or similar statute
or regulation is or becomes applicable to the Offer, the Merger, this
Agreement or any of the other transactions contemplated by the foregoing and
(ii) if any state takeover statute or similar statute or regulation becomes
applicable to the Offer, the Merger, this Agreement or any other transactions
contemplated by the foregoing, take all action necessary to ensure that the
Offer, the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation
on the Offer, the Merger and the other transactions contemplated by this
Agreement.
Section 5.5 Indemnification, Exculpation and Insurance.
(a) All rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
now existing in favor of the current or former directors or officers of the
Company and the Subsidiaries as provided in their respective certificates of
incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of the Company, the existence of which does not
constitute a breach of this Agreement, shall be assumed by the Surviving
Corporation in the Merger, without further action, as of the Effective Time
and shall survive the Merger and shall continue in full force and effect (to
the extent consistent with applicable law) in accordance with their terms.
(b) For six years after the Effective Time, Parent shall cause
the Surviving Corporation to honor its commitments and obligations pursuant to
this Section 5.5. In the event that Parent or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in
each such case, proper provision will be made so that the successors and
assigns of Parent or the Surviving Corporation, as the case may be, assume the
obligations set forth in this Section 5.5(b).
(c) For six years after the Effective Time, the Surviving
Corporation shall provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time, including
but not limited to the transactions contemplated by this Agreement, covering
each person currently covered by the Company's officers' and directors'
liability insurance policy, or who becomes covered by such policy prior to the
Effective Time, on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof; provided that in
satisfying its obligation under this Section 5.5 the Surviving Corporation
shall not be obligated to pay annual premiums in excess of 175% of the amount
per annum the Company paid in its last full fiscal year.
(d) The provisions of this Section 5.5 are (i) intended to be
for the benefit of, and will be enforceable by, each indemnified party, his or
her heirs and his or her representatives and (ii) in addition to, and not in
substitution or, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
Section 5.6 Stock Options; Employee Plans and Benefits and
Employment Contracts.
(a) As soon as practicable following the date of this Agreement,
the Board of Directors of the Company (or, if appropriate, any committee
administering the Stock Plans) shall adopt such resolutions or take such other
actions as are required in accordance with the Stock Plans to adjust the terms
of all outstanding Stock Options to provide that, at the Effective Time, each
Stock Option, whether vested or not, outstanding immediately prior to the
Effective Time be cancelled in exchange for a cash payment by the Company of
an amount equal to (i) the excess, if any, of (x) the price per Share to be
paid pursuant to the Offer over (y) the exercise price per Share subject to
such Stock Option, multiplied by (ii) the number of Shares for which such
Stock Option shall not theretofore have been exercised.
(b) All amounts payable pursuant to Section 5.6(a) shall be
subject to any required withholding of taxes and shall be paid without
interest. The Company shall use its best efforts to obtain all consents of
the holders of the Stock Options as shall be necessary to effectuate the
foregoing. Notwithstanding anything to the contrary contained in this
Agreement, payment shall, at Parent's request, be withheld in respect of any
Stock Option until all necessary consents of the holder are obtained with
respect to such Stock Option.
(c) The Stock Plans shall terminate as of the Effective Time, and
the provisions in any other Benefit Plan providing for the potential issuance,
transfer or grant of any capital stock of the Company or any Subsidiary or any
interest in respect of any capital stock of the Company or any Subsidiary
shall be deleted as of the Effective Time, and the Company shall ensure that
following the Effective Time no holder of a Stock Option or any participant in
the Stock Plans or other Benefit Plan shall have any right thereunder to
acquire any capital stock of the Company or any Subsidiary or the Surviving
Corporation.
(d) From and after the Effective Time, Parent shall cause the
Surviving Corporation to honor in accordance with their terms all existing
employment, severance, consulting or other compensation agreements, plans or
contracts between the Company or any Subsidiary and any officer, director or
employee of the Company or any Subsidiary which are specifically disclosed on
Schedule 5.6(d).
(e) For the one-year period immediately following the Effective
Time, Parent shall cause the Company to provide such benefit plans, programs
and arrangements that are no less favorable in the aggregate than the Benefit
Plans.
Section 5.7 Meeting of the Company's Stockholders.
(a) After consummation of the Offer, to the extent required by
applicable law, the Company shall promptly take all action necessary in
accordance with the DGCL and its Certificate of Incorporation and Bylaws to
convene the Meeting to consider and vote on the Merger and this Agreement. At
the Meeting, all of the Shares then owned by Parent, Acquisition Sub or any
other subsidiary of Parent shall be voted to approve the Merger and this
Agreement. Subject to its fiduciary duties and Section 5.2, the Board of
Directors of the Company shall recommend that the Company's stockholders vote
to approve the Merger and this Agreement if such vote is sought, shall use its
best efforts to solicit from stockholders of the Company proxies in favor of
the Merger and shall take all other reasonable action in its judgment
necessary and appropriate to secure the vote of stockholders required by the
DGCL to effect the Merger.
(b) If required under applicable law, the Company and Parent
shall prepare the Proxy Statement, file it with the SEC under the Exchange Act
as promptly as practicable after Acquisition Sub purchases Shares pursuant to
the Offer, and use all reasonable efforts to have it cleared by the SEC. As
promptly as practicable after the Proxy Statement has been cleared by the SEC,
the Company shall mail the Proxy Statement to the stockholders of the Company
as of the record date for the Meeting.
(c) Parent and Acquisition Sub shall not, and they shall cause
their subsidiaries not to, sell, transfer, assign, encumber or otherwise
dispose of the Shares acquired pursuant to the Offer or otherwise prior to the
Meeting; provided, however, that this Section 5.7(c) shall not apply to the
sale, transfer, assignment, encumbrance or other disposition of any or all such
Shares in transactions involving solely Parent, Acquisition Sub and/or one or
more of their wholly owned subsidiaries.
(d) Notwithstanding the foregoing, in the event that Acquisition
Sub shall acquire Preferred Shares representing at least 90% of the votes
represented by all outstanding Preferred Shares and Common Shares representing
at least 90% of the votes represented by all outstanding Common Shares, the
parties hereto agree, at the request of Acquisition Sub, to take all necessary
and appropriate action to cause the Merger to become effective, in accordance
with Section 253 of the DGCL, as soon as reasonably practicable after such
acquisition, without a meeting of the stockholders of the Company.
Section 5.8 Public Announcements. Parent and the Company shall
consult with each other before issuing, and provide each other the opportunity
to review, comment upon and concur with, any press release or other public
statement with respect to the transactions contemplated by this Agreement,
including the Offer and the Merger, and shall not issue any such press release
or make any such public statement prior to such consultation, except as either
party may determine is required by applicable law or by obligations pursuant
to any listing agreement with any national securities exchange.
Section 5.9 Stockholder Litigation. The Company shall keep
Parent reasonably informed, and shall consult with Parent on a regular basis,
concerning the defense or settlement of any stockholder litigation against the
Company and its directors relating to any of the transactions contemplated by
this Agreement.
Section 5.10 Rights Agreement. The Board of Directors of the
Company shall take all further action (in addition to that previously taken
referred to in Section 4.19) reasonably requested in writing by Parent
(including redeeming the Rights immediately prior to the Effective Time or
amending the Rights Agreement) in order to render the Rights inapplicable to
the Offer, the Merger and the other transactions contemplated by this
Agreement.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver, where permissible, prior to the
Effective Time, of the following conditions:
(a) Stockholder Approval. If required by applicable law, this
Agreement shall have been approved by the affirmative vote of the stockholders
of the Company by the requisite vote in accordance with applicable law;
(b) Purchase of Shares. Acquisition Sub shall have accepted for
payment and purchased Shares tendered pursuant to the Offer.
(c) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule, regulation, temporary restraining order,
preliminary or permanent injunction or other order enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction or
other Government Entity or other legal restraint or prohibition (collectively,
"Restraints") preventing the consummation of the Merger shall be in effect;
provided, however, that the party seeking to assert this condition shall have
used reasonable efforts to prevent the entry of any such Restraints and to
appeal as promptly as possible any such Restraints that may be entered.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the stockholders of the
Company:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if
(i) the Offer terminates or expires in accordance
with its terms without Acquisition Sub's having purchased any Shares pursuant
to the Offer because of a failure of any of the conditions set forth in Annex
A hereto to have been satisfied at the time of such termination or expiration;
provided, however, that the right to terminate this Agreement pursuant to this
Section 7.1(b)(i) shall not be available to any party whose failure to fulfill
any of its obligations under this Agreement results in the failure to have
satisfied any such condition;
(ii) Shares have not been accepted for payment
pursuant to the Offer on or prior to December 31, 1997; provided, however,
that the right to terminate this Agreement pursuant to this Section 7.1(b)(ii)
shall not be available to any party whose failure to fulfill any of its
obligations under this Agreement results in the failure of the Offer to be
consummated by such time;
(iii) any Governmental Entity shall have issued a
Restraint or taken any other action permanently enjoining, restraining or
otherwise prohibiting consummation of the Merger or any of the other
transactions contemplated by this Agreement and such Restraint or other action
shall have become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this Section 7.1(b)(iii) shall
have used all reasonable efforts to prevent the entry of and to remove such
Restraint or other action; or
(iv) the Board of Directors of the Company (or, if
applicable, any committee thereof) shall have (A) withdrawn or modified in a
manner adverse to Parent and Acquisition Sub its approval or recommendation of
the Offer or the Merger or (B) approved or recommended any Takeover Proposal
in respect of the Company or (C) resolved to take any of the foregoing
actions, in each case in compliance with the provisions contained in Section
5.2(b) or (d).
Section 7.2 Effect of Termination. In the event of termination
of this Agreement by either Parent or the Company as provided in Section 7.1,
this Agreement shall forthwith become void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders,
other than the provisions of Section 5.3(b), this Section 7.2, Section 7.3 and
Section 8.9, which provisions will survive such termination, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or other agreements
set forth in this Agreement.
Section 7.3 Termination Fee. In the event that this Agreement is
terminated by the Company or Parent pursuant to Section 7.1(b)(iv), the
Company shall promptly, but in no event later than two business days after
such event, pay Parent a fee of $6 million (the "Termination Fee") in cash in
immediately available funds by wire transfer to an account designated by
Parent.
Section 7.4 Amendment. To the extent permitted by applicable
law, this Agreement may be amended by the parties at any time before or after
approval of this Agreement by the stockholders of the Company; provided,
however, that after any such stockholder approval, no amendment shall be made
which by law requires further approval of the Company's stockholders without
the approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties.
Section 7.5 Extension; Waiver. At any time prior to the
Effective Time, a 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 by any other party or (c) subject to
Section 7.4, waive compliance by any other party with any of the agreements or
conditions contained herein. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
Section 7.6 Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.1, an amendment
of this Agreement pursuant to Section 7.4 or an extension or waiver pursuant
to Section 7.5 in order to be effective shall require, in the case of Parent
or the Company, action by its Board of Directors or, with respect to any
amendment of this Agreement, a duly authorized committee of its Board of
Directors.
Section 7.7 Concurrence of Independent Directors.
Notwithstanding any other provision of this Agreement, from and after the
consummation of the Offer, the concurrence of a majority of the Independent
Directors shall be required for any amendment or determination of this
Agreement by the Company, any waiver of any of the Company's rights hereunder
or otherwise pursuant to Sections 7.1, 7.4 or 7.5, any extension of the time
for performance of Parent's or Acquisition Sub's obligations or other acts
hereunder, or any other action taken by the Company's Board of Directors in
connection with this Agreement (including actions to enforce this Agreement).
ARTICLE 8
MISCELLANEOUS
Section 8.1 Non-Survival of Representations and Warranties. None
of the representations and warranties made in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive after the
Effective Time. This Section 8.1 shall not limit any covenant or agreement of
the parties hereto which by its terms contemplates performance after the
Effective Time.
Section 8.2 Entire Agreement; Assignment. This Agreement
(including the Schedules hereto) and, to the extent contemplated in Section
5.3(b), the Confidentiality Agreement, (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them with respect to the subject matter hereof and (b) shall
not be assigned by operation of law or otherwise, provided that Parent or
Acquisition Sub may assign any of their rights and obligations to any direct
or indirect wholly owned subsidiary of Parent, but no such assignment shall
relieve Parent or Acquisition Sub of its obligations hereunder. Either
Parent, Acquisition Sub or any direct or indirect wholly owned subsidiary of
Parent may purchase Shares under the Offer.
Section 8.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
Section 8.4 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by facsimile transmission with
confirmation of receipt, by overnight courier (with delivery confirmed), or by
registered or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
(a) if to Parent or Acquisition Sub:
Carpenter Technology Corporation
101 West Bern Street
Reading, PA 19601
Attention: John R. Welty, Esq.,
Vice President, General
Counsel & Secretary
Fax No. 610-208-3068
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Herbert F. Goodrich, Jr., Esq.
Fax No. 215-994-2222
(b) if to the Company:
Talley Industries, Inc.
2702 North 44th Street - Suite 100-A
Phoenix, AZ 85008
Attention: Mark S. Dickerson, Esq.
Vice President, General Counsel
& Secretary
Fax No. 602-852-6972
with copies to:
Osborn Maledon
2929 North Central Avenue
Phoenix, AZ 85012
Attention: David Victor, Esq.
Fax No. 602-640-9355
and to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: William L. Rosoff, Esq.
Fax No. 212-450-4800
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
Section 8.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
Section 8.6 Jurisdiction. Any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought against any of the parties in any federal court located in the State of
Delaware or any Delaware state court, and each of the parties hereto hereby
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and waives
any objection to venue laid therein. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the State of Delaware. Without limiting the generality of the
foregoing, each party hereto agrees that service of process upon such party at
the address referred to in Section 8.4, together with written notice of such
service to such party, shall be deemed effective service of process upon such
party.
Section 8.7 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and shall not constitute
a part of or affect the meaning or interpretation of this Agreement.
Section 8.8 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement except for Section 5.5 (which is intended to be for the benefit of
the persons entitled to therein, and may be enforced by such persons).
Section 8.9 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 8.10 Fees and Expenses. Except as set forth in Section
7.3, all fees, costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such fees
and expenses, whether or not the Offer or the Merger is consummated.
Section 8.11 Certain Definitions. For purposes of this Agreement
(including Annex A hereto), the following terms shall have the meanings
ascribed to them below:
(a) "affiliate" of a person shall mean (i) a person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first-mentioned person and
(ii) an "associate", as that term is defined in Rule 12b-2 promulgated under
the Exchange Act as in effect on the date of this Agreement.
(b) "beneficial owner" (including the term "beneficially own" or
correlative terms) with respect to any securities means a person who shall be
deemed to be the beneficial owner of such securities which (i) such person or
any of its affiliates beneficially owns, directly or indirectly, (ii) such
person or any of its affiliates has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any agreement,
arrangement or understanding or (iii) are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
affiliates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any of such securities.
(c) "control" (including the terms "controlling", "controlled
by" and "under common control with" or correlative terms) shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person, whether through ownership of voting
securities, by contract, or otherwise.
(d) "fully diluted" in reference to the Shares means all
outstanding securities entitled generally to vote in the election of directors
of the Company on a fully diluted basis, after giving effect to the exercise
or conversion of all options, rights and securities exercisable or convertible
into such voting securities.
(e) "knowledge" shall mean the actual knowledge of the executive
officers of the Company after reasonable investigation, including consultation
with the principal executive officers of each of the operating Subsidiaries.
(f) "Material Adverse Effect" shall mean a material adverse
effect (i) on the financial condition, assets, liabilities, business, or
results of operations of the Company and the Subsidiaries, taken as a whole,
except for changes in the general economic conditions and changes that affect
the industry of the Company or any of the Subsidiaries generally, or (ii) on
the ability of the Company to perform its obligations under this Agreement or
to consummate the transactions contemplated by this Agreement.
(g) "person" shall mean a natural person, company, corporation,
partnership, association, trust or any unincorporated organization.
(h) "subsidiary" shall mean, when used with reference to a
person means a corporation (or other entity) the majority of the outstanding
voting securities (or equity interests) of which are owned directly or
indirectly by such person.
Section 8.12 Performance by Acquisition Sub. Parent hereby
agrees to cause Acquisition Sub to comply with its obligations hereunder and
under the Offer and to cause Acquisition Sub to consummate the Merger as
contemplated herein.
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed on its behalf by its officer thereunto duly authorized, on the
day and year first above written.
CARPENTER TECHNOLOGY CORPORATION
By: /s/ Robert W. Cardy
---------------------------
Robert W. Cardy,
Chairman, President &
Chief Executive Officer
SCORE ACQUISITION CORP.
By: /s/ Robert W. Cardy
---------------------------
Robert W. Cardy,
President &
Chief Executive Officer
TALLEY INDUSTRIES, INC.
By: /s/ Paul L. Foster _
---------------------------
Paul L. Foster
Chairman of the Board &
Chief Executive Officer
ANNEX A
to
Agreement and Plan of Merger
----------------------------
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer or this
Agreement, Acquisition Sub shall not be required to accept for payment or pay
for, subject to Rule 14e-1(c) of the Exchange Act, any Shares not theretofore
accepted for payment, and may terminate or amend the Offer if (i) that number
of Shares which would represent at least a majority of the voting power
represented by the Shares and other securities entitled generally to vote in
the election of directors of the Company outstanding on a fully diluted basis
after giving effect to the exercise or conversion of all options, rights and
securities exercisable or convertible into or exchangeable for Shares or such
voting securities shall not have been validly tendered and not withdrawn
immediately prior to the expiration of the Offer (the "Minimum Tender
Condition"), (ii) any applicable waiting period under the H-S-R Act shall not
have expired or been terminated prior to the expiration of the Offer or (iii)
at any time on or after the date of commencement of the Offer and before the
acceptance of such Shares for payment or the payment therefor, any of the
following conditions exist or shall occur:
(a) there shall have occurred (i) any general suspension
of trading in, or limitation on prices for, securities on the New York
Stock Exchange or in the over-the-counter market, (ii) any declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States, (iii) any limitation, whether or not mandatory, by
any Governmental Entity on, or other event that materially affects, the
extension of credit by banks or other lending institutions, (iv) any
commencement of a war, armed hostilities or other national or
international calamity involving the armed forces of the United States,
(v) any decline, measured from the date of this Agreement, in either the
Dow Jones Industrial Average or the Standard & Poor's Index of 400
Industrial Companies by an amount in excess of 20%, (vi) in the case of
any of the foregoing occurrences existing on or at the time of the
commencement of the Offer, a material acceleration or worsening thereof;
or
(b) there shall be pending by any Governmental Entity, or
threatened by the staff of any Governmental Entity, any suit, action or
proceeding, (i) challenging the acquisition by Parent or Acquisition Sub
of any Shares, seeking to restrain or prohibit the making or consummation
of the Offer or the Merger or the performance of any of the other
transactions contemplated by this Agreement (ii) seeking to prohibit or
limit the ownership or operation by the Company, Parent or any of their
respective subsidiaries of a material portion of the business or assets
of the Company or the Subsidiaries, or Parent or its subsidiaries, or to
compel the Company or Parent to dispose of or hold separate any material
portion of the business or assets of the Company or the Subsidiaries, or
Parent or its subsidiaries, as a result of the Offer or any of the other
transactions contemplated by this Agreement, (iii) seeking to impose
limitations on the ability of Parent or Acquisition Sub to acquire or
hold, or exercise full rights of ownership of, any Shares accepted for
payment pursuant to the Offer including, without limitation, the right
to vote the Shares accepted for payment by it on all matters properly
presented to the stockholders of the Company, or (iv) seeking to
prohibit Parent or any of its subsidiaries from effectively controlling
in any material respect the business or operations of the Company or the
Subsidiaries;
(c) there shall be any statute, rule, regulation,
judgment, order or injunction enacted, entered, enforced, promulgated or
deemed applicable to the Offer or the Merger, or any other action shall
be taken by any Governmental Entity or court, other than the application
to the Offer or the Merger of applicable waiting periods under the H-S-R
Act, that is reasonably likely to result, directly or indirectly, in any
of the consequences referred to in clauses (i) though (iv) of paragraph
(b) above;
(d) the Company shall have entered into an agreement
concerning any Superior Proposal, or the Board of Directors of the
Company or any committee thereof shall have resolved to enter into such
an agreement;
(e) any person or group (as defined in Section 13(d)(3) of
the Exchange Act) (other than Parent, Acquisition Sub or any affiliate
thereof) shall have become the beneficial owner (as defined in Rule
13d-3 promulgated under the Exchange Act) of Shares representing a
majority of the total votes represented by all outstanding Shares;
(f) the Merger Agreement shall have been terminated in
accordance with its terms; or
(g) any of the representations and warranties of the
Company set forth in the Merger Agreement were inaccurate in any
material respect when made or become inaccurate in any material respect
at any time thereafter, or the Company shall have failed in any material
respect to perform any obligation or covenant required by the Merger
Agreement to be performed or complied with by it;
which, in the reasonable judgment of Acquisition Sub and regardless of the
circumstances giving rise to any such condition, makes it inadvisable to
proceed with the Offer or with such acceptance for payment, purchase of, or
payment for Shares.
The foregoing conditions are for the sole benefit of Acquisition
Sub and Parent and may be asserted by Acquisition Sub or Parent regardless of
the circumstances giving rise to any such condition and may be waived by
Acquisition Sub or Parent, in whole or in part, at any time and from time to
time, in the sole discretion of Acquisition Sub or Parent. The failure by
Acquisition Sub or Parent at any time to exercise any of the foregoing rights
will not be deemed a waiver of any right and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
EXHIBIT C
August 7, 1997
Ms. Donna M. Hitscherich
Vice President
J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Dear Ms. Hitscherich:
Carpenter Technology Corporation ("we", "our" or "us") has requested
information regarding Talley Industries, Inc. (the "Company", "your" or "you")
in connection with our consideration of the possible acquisition of the
Company (a "Possible Transaction"). In consideration of your furnishing us
with the Evaluation Materials (as defined below) we agree as follows:
Confidentiality of Evaluation Materials
- ---------------------------------------
We will treat confidentially any information (whether written or oral) that
either the Company or its financial advisor, J.P. Morgan & Co. Incorporated
("JPM"), or the Company's other representatives furnish to us in connection
with a Possible Transaction involving the Company, together with analyses,
compilations, studies or other documents prepared by us, or by our
representatives (as defined below) which contain or otherwise reflect such
information or our review of, or interest in, the Company (collectively, the
"Evaluation Materials"). We recognize and acknowledge the competitive value
of the Evaluation Materials and the damage that could result to the Company if
the Evaluation Materials were used or disclosed except as authorized by this
Agreement.
The term "Evaluation Materials" includes information furnished to us orally or
in writing (whatever the form or storage medium) or gathered by inspection,
and regardless of whether such information is specifically identified as
"confidential". The term "Evaluation Materials" does not include information
which (i) is or becomes generally available to the public other than as a
result of a disclosure by us or our representatives, (ii) was or becomes
available to us on a non-confidential basis from a source other than the
Company or its representatives, provided that such source is not prohibited
from disclosing such information to us by a contractual, legal or fiduciary
obligation to the Company or its representatives, or (iii) is independently
developed by us.
Use of Evaluation Materials
- ---------------------------
We will not use any of the Evaluation Materials for any purpose other than the
exclusive purpose of evaluating a Possible Transaction. We and our
representatives will keep the Evaluation Materials completely confidential;
provided, however, that (i) any of such information may be disclosed to those
of our directors, officers, employees, agents, representatives (including
attorneys, accountants and financial advisors), lenders and other sources of
financing (collectively, "our representatives") who we reasonably determine
need to know such information for the purpose of evaluating a Possible
Transaction between us and the Company (it being understood that our
representatives shall be informed by us of the confidential nature of such
information and shall be directed by us, and shall each agree to treat such
information confidentially) and (ii) any other disclosure of such information
may only be made if the Company consents in writing prior to any such
disclosure. Without limiting the generality of the foregoing, in the event
that a Possible Transaction is not consummated neither we nor our
representatives shall use any of the Evaluation Materials for any purpose. We
will be responsible for any breach of this Agreement by our representatives.
In the event that we or any of our representatives receive a request or are
required (by deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process) to disclose all or any part of the
Evaluation Materials, we or our representatives, as the case may be, agree to
(i) immediately notify the Company of the existence, terms and circumstances
surrounding such a request, (ii) consult with the Company on the advisability
of taking legally available steps to resist or narrow such request and (iii)
assist the Company in seeking a protective order or other appropriate remedy.
In the event that such protective order or other remedy is not obtained or
that the Company waives compliance with the provisions hereof, (i) we or our
representatives, as the case may be, may disclose to any tribunal only that
portion of the Evaluation Materials which we are advised by counsel is legally
required to be disclosed, and shall exercise our best efforts to obtain
assurance that confidential treatment will be accorded such Evaluation
Materials and (ii) we shall not be liable for such disclosure unless
disclosure to any such tribunal was caused by or resulted from a previous
disclosure by us or our representatives not permitted by this Agreement.
Non-Disclosure
- --------------
The disclosure of our possible interest in purchasing the Company could have a
material adverse effect on the Company's business if for any reason an
agreement of purchase and sale is not consummated. Accordingly, unless
required by applicable law, we agree that prior to the execution of a Sale
Agreement with respect to the closing of a Possible Transaction, without the
prior written consent of the Company, we will not, and we will direct our
representatives not to, disclose to any person either the fact that
discussions or negotiations are taking place concerning a possible transaction
between us and the Company or any of the terms, conditions or other facts with
respect to any such Possible Transaction, including the status thereof unless
we are advised by counsel that we are required to make such disclosure. The
term "person" as used in this letter shall be broadly interpreted to include,
without limitation, any corporation, the Company, governmental agency or body,
stock exchange, partnership, association or individual.
Return of Documents
- -------------------
Upon the Company's request, we shall promptly deliver to the Company or
destroy all written Evaluation Materials and any other written materials
without retaining, in whole or in part, any copies, extracts or other
reproductions (whatever the form or storage medium) of such materials.
No Unauthorized Contact
- -----------------------
During the course of our evaluation, all inquiries and other communications
are to be made directly to JPM or employees or representatives of the Company
specified by JPM. Accordingly, we agree not to directly or indirectly contact
or communicate with any executive or other employee of the Company concerning
a Possible Transaction, or to seek any information in connection therewith
from such person, without the express consent of JPM, with the exception of
direct communication between our chairman and the Company's chairman. We also
agree not to discuss with or offer to any third party an equity participation
in a Possible Transaction or any other form of joint acquisition by us and
such third party without JPM's prior written consent provided that the
foregoing undertaking shall not prevent us from soliciting, on a confidential
basis, indications of intent from selected third parties for the purchase of
portions of the Company.
For a period of two years following the date hereof, you will not, directly or
indirectly, solicit for employment or hire any officer, director, or employee
of the Company or any of its subsidiaries or divisions with whom you have had
contact or who became known to you in connection with your consideration of
the Possible Transaction, except that you shall not be precluded from hiring
any such employee who (i) initiates discussions regarding such employment
without any direct or indirect solicitation by you, (ii) responds to any
public advertisement placed by you, or (iii) has been terminated by the
Company or its subsidiaries prior to commencement of employment discussions
between you and such officer, director, or employee.
Standstill
- ----------
We agree that until two years from the date of this Agreement, we will not
without the prior approval of the Board of Directors of the Company (i)
acquire or make any proposal to acquire any securities or property of the
Company, (ii) propose to enter into any merger or business combination
involving the Company or purchase a material portion of the assets of the
Company, (iii) make or participate in any solicitation of proxies to vote, or
seek to advise or influence any person with respect to the voting of any
securities of the Company, (iv) form, join or participate in a "group" (within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with
respect to any voting securities of the Company, (v) otherwise act or seek to
control or influence the management, Board of Directors or policies of the
Company, (vi) disclose any intention, plan or arrangement inconsistent with
the foregoing or (vii) take any action which might require the Company to make
a public announcement regarding the possibility of a business combination or
merger.
No Representation or Warranty
- -----------------------------
Although the Company and JPM have endeavored to include in the Evaluation
Materials information known to them which they believe to be relevant for the
purpose of our investigation, we acknowledge and agree that none of the
Company, JPM or any of the Company's other representatives or agents is making
any representation or warranty, expressed or implied hereunder, as to the
accuracy or completeness of the Evaluation Materials, and none of the Company,
JPM or any of the Company's other representatives or agents, nor any of their
respective officers, directors, employees, representatives, stockholders,
owners, affiliates, advisors or agents, will have any liability to us or any
other person hereunder resulting from the use of Evaluation Materials by us or
any of our representatives. Only those representations or warranties that are
made to a purchaser in a definitive sale agreement for the Company ("Sale
Agreement") when, as, and if it is executed, and subject to such limitations
and restrictions as may be specified in such Sale Agreement, will have any
legal effect.
We also acknowledge and agree that no contract or agreement providing for the
sale of the Company shall be deemed to exist between us and the Company unless
and until a Sale Agreement has been executed and delivered by us and each of
the other parties thereto, and we hereby waive, in advance, any claims
(including, without limitation, breach of contract) in connection with the
sale of the Company unless and until a Sale Agreement has been executed and
delivered by us and each of the other parties thereto. We also agree that
unless and until a Sale Agreement between the Company and us with respect to
the acquisition of the Company has been executed and delivered by us and each
of the other parties thereto, there shall not be any legal obligation of any
kind whatsoever with respect to any such transaction by virtue of this
agreement or any other written or oral expression with respect to such
transaction except, in the case of this Agreement for the matters specifically
agreed to herein. For purposes of this Agreement, the term "Sale Agreement"
does not include an executed letter of intent or any other preliminary written
agreement, nor does it include any oral acceptance of an offer or bid by us.
No Solicitation
- ---------------
During the period from acceptance of this agreement until the earlier of (a):
the execution of a definitive agreement or (b) the date that is 45 days after
the date of such acceptance, the Company and the officers, directors,
employees and other representatives of the Company including JPM shall not
directly or indirectly, solicit, initiate, or encourage any offers or
proposals for the acquisition of the Company, or of any of the capital stock or
all, or substantially all, of the assets of the Company, from third parties
(an "Acquisition Proposal"). The Company may, however, participate in
discussions or negotiations with, and provide confidential information to, a
third party, if the Chairman of the Board of the Company determines in good
faith, after receiving advice from the Company's financial advisor, that such
third party has submitted a bona fide proposal or indication of interest that
is, or could reasonably be expected to lead to, an Acquisition Proposal that is
financially superior to the non-binding indication of interest contained in
the letter of August 7, 1997 from Robert W. Cardy to Paul L. Foster; provided,
however, that the Company agrees to inform us of the receipt of any such
proposal.
Legal Remedy
- ------------
We understand and agree that money damages would not be a sufficient remedy
for any breach of this Agreement by us or our representatives and that the
Company will be entitled to specific performance and injunctive relief as
remedies for any such breach. Such remedies shall not be deemed to be the
exclusive remedies for a breach of this Agreement by us or our representatives
but shall be in addition to all other remedies available at law or equity.
Other
- -----
This Agreement constitutes the entire agreement between the parties hereto
regarding the subject matter hereof. This Agreement may be changed only by a
written agreement signed by the parties hereto or their authorized
representatives.
This Agreement shall be governed and construed in accordance with the laws of
the State of New York, without regard to the conflicts of law principles
thereof.
If you are in agreement with the foregoing, please sign and return one copy of
this letter, it being understood that all counterpart copies will constitute
but one agreement with respect to the subject matter of this letter.
Very truly yours,
CARPENTER TECHNOLOGY CORPORATION
By: /s/ G. Walton Cottrell
------------------------
Name: G. Walton Cottrell
Title: Senior Vice President - Finance
and Chief Financial Officer
By: /s/ John R. Welty
------------------------
Name: John R. Welty
Title: Vice President, General Counsel and
Secretary
Agreed and accepted this 11th of August, 1997
J.P. MORGAN SECURITIES INC., solely as Company's representative
By: /s/ Donna M. Hitscherich
------------------------
Name: Donna M. Hitscherich
Title: Vice President
EXHIBIT D
[Talley logo]
Talley Industries, Inc.
2702 North 44th Street
Phoenix, Arizona 85008
Paul L. Foster
Chairman of the Board and
Chief Executive Officer
October 2, 1997
Dear Stockholders:
I am pleased to inform you that on September 25, 1997 Talley
Industries, Inc. and Carpenter Technology Corporation entered into a Merger
Agreement pursuant to which a subsidiary of Carpenter is today commencing a
tender offer to purchase all outstanding shares of the following classes of
securities: Common Stock for $12.00 per share; Series A Preferred Stock for
$11.70 per share; and Series B Preferred Stock for $16.00 per share, net to
the seller in cash. Both Common and Preferred Shares of Talley not acquired
in the tender offer are to be acquired in a second step merger at the same per
share price for each class of securities.
A majority of your Board of Directors has determined that the
tender offer and the merger are fair to and in the best interests of the
Company and its stockholders and has approved the Merger Agreement, the tender
offer and the merger. A majority of your Board of Directors recommends that
Talley stockholders accept the tender offer and tender their shares of Common
Stock and Preferred Stock pursuant to the tender offer.
In arriving at its recommendation, the Board of Directors gave
careful consideration to a number of factors referred to in the attached
Schedule 14D-9 (that is being filed today with the Securities and Exchange
Commission). Among other things, the Board considered the opinion of J.P.
Morgan Securities Inc., its financial advisor, that the cash consideration to
be received by Talley stockholders pursuant to the tender offer and the merger
is fair, from a financial point of view, to such stockholders.
Accompanying this letter, in addition to the attached Schedule
14D-9 relating to the tender offer, is the Offer to Purchase, 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
tender offer and provide instructions as to how to tender your shares. We
urge you to read the enclosed materials carefully.
On behalf of the management and the Board of Directors of
Talley Industries, Inc., we thank you for your support.
Sincerely,
/s/ PAUL L. FOSTER
PAUL L. FOSTER
Chairman of the Board and
Chief Executive Officer
EXHIBIT E
Opinion of J.P. Morgan dated September 25, 1997 (attached as Annex A
hereto).
EXHIBIT F
Talley Industries Announces Agreement to be Acquired by
Carpenter Technology
Business Wire via Dow Jones
PHOENIX--(BUSINESS WIRE)--Sept. 26, 1997-- Talley Industries
Inc. (NYSE:TAL) Friday announced that it had entered into a definitive
agreement and plan of merger with Carpenter Technology Corp. (NYSE:CRS) to be
acquired for cash.
Under the terms of the agreement, Carpenter will commence an
all-cash tender offer next week for all outstanding shares of Talley stock at
a price of $12 per share of Talley Common Stock, $16 per share of Talley
Series B Preferred Stock (NYSE:TALprB) and $11.70 per share of Talley Series A
Preferred Stock.
Assuming a majority of Talley's stock is duly tendered under
the tender offer and not withdrawn before the expiration date of the offer
(Oct. 30, 1997, unless extended), Carpenter will be obligated under the terms
of the agreement to complete an all-cash merger whereby all Talley shares
remaining outstanding will be acquired at the same per-share prices as under
the tender offer.
The tender offer is subject to customary conditions, including
expiration of the Hart-Scott-Rodino waiting period.
Paul Foster, chairman of the board and chief executive officer
of Talley, said, "We think this transaction with Carpenter is an excellent
opportunity for our shareholders. The $12 price represents an attractive
premium above the trading range for our Common Stock the last several years.
"While we would be optimistic about the longer-term prospects
for Talley were it to remain an independent company, nevertheless we believe
this sale to Carpenter is the best way to maximize values for all of our
shareholders."
Admiral Foster continued, "The Talley board of directors
reached its decision after an intensive review of the strategic and financial
alternatives realistically available to the company.
"This is the review the board announced last spring, and has
been conducted during the last six months by management and our board of
directors in conjunction with our outside financial advisers at J.P. Morgan &
Co. We think the agreement we are announcing today with Carpenter represents
a most successful culmination of our efforts."
Talley Industries Inc. designs, manufactures and supplies
specialized industrial, commercial and aerospace products and services,
including stainless steel bar and wire rod, and high reliability electronic
components. The company was a pioneer in the automotive airbag industry and
is currently developing new airbag technologies.
Contact: Talley Industries Inc., Phoenix
Daniel R. Mullen, 602/957-7711
08:00 EDT September 26, 1997
EXHIBIT G
Talley Industries Urges Stockholders to Review Company
Recommendation Statement
Business Wire via Dow Jones
PHOENIX--(BUSINESS WIRE)--Sept. 30, 1997--Paul Foster, chairman
and chief executive officer of Talley Industries Inc. (NYSE: TAL) urged all
stockholders to review carefully the recommendation statement of the company
that will be sent to stockholders later this week, which will describe the
board's recommendation and the factors considered by the board in approving
the merger agreement with Carpenter Technology announced on Friday.
Commenting on a statement issued by Saad Alissa and William
Danzell, founders of a dissident shareholder group, that the company's
individual businesses, if sold separately, are worth more than the whole and
would result in a higher cash price to the company's stockholders, Foster
stated, "Needless to say, if the Talley board had agreed with the
Alissa/Danzell assessment of the net proceeds to Talley's stockholders, it
would not have approved the transaction with Carpenter."
Foster added, "The Alissa/Danzell group say they are pleased
with the board's decision to entertain offers for the Company. We believe it
important, however, to correct their mistaken assertion that the Company has
prevented others from extending bids for Talley.
"The board is well aware of its fiduciary obligations to the
Talley stockholders. At no time during this process has the board prevented
anyone from making a proposal to acquire Talley as a whole or any of its
individual businesses or divisions. Nor does the agreement with Carpenter
prevent the Talley board from considering any serious and bona fide proposal
that would offer greater value to Talley stockholders than the Carpenter
transaction."
Talley Industries Inc. designs, manufactures and supplies
specialized industrial, commercial and aerospace products and services,
including stainless steel bar and wire rod, and high reliability electronic
components. The company was a pioneer in the automotive airbag industry and
is currently developing new airbag technologies.
Contact: Talley Industries Inc, Phoenix
Daniel R. Mullen, 602/957-7711
08:01 EDT September 30, 1997
