SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-12
Intelligent Controls, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] 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:
Common Stock, par value $0.01 per share
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(2) Aggregate number of securities to which transaction applies:
4,739,399 shares outstanding (includes certain shares being
cancelled in an ancillary transaction)
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$3.95
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(4) Proposed maximum aggregate value of transaction:
$19,295,493 (estimated) (includes certain ancillary transactions)
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(5) Total Fee paid:
$1,775.19
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
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(2) Form, schedule or registration statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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[INCON LOGO]
June 25, 2002
Dear INCON Shareholder:
As recently announced, the Board of Directors of Intelligent
Controls, Inc. has approved a proposed merger with Franklin Electric Co.,
Inc. Under the proposed merger, Franklin would acquire our Company, and
INCON shareholders would be entitled to receive $3.95 per share, in cash.
Completion of the merger is subject to certain conditions, including
approval of the Merger Agreement by the affirmative vote of a majority of
the outstanding shares of INCON common stock. We have called a Special
Meeting of Shareholders in order to consider this proposal. The Special
Meeting will be held at the Holiday Inn Express Hotel, 352 North
Street/Interstate 95, Saco, Maine on Friday, July 12, 2002 at 1:30 p.m.,
local time.
Our Board of Directors believes the merger is in the best interests
of INCON shareholders, and the Board unanimously recommends that you vote
"for" approval of the Merger Agreement.
The enclosed Proxy Statement describes the Merger Agreement in
detail, and a copy of the Merger Agreement itself is attached as Appendix
A. We encourage you to read these materials carefully and then vote your
shares. Whether or not you plan to attend the Special Meeting, please
complete, date, and sign the enclosed proxy card and return it promptly in
the postage-paid envelope provided.
On behalf of the Board of Directors, I thank you for your prompt
attention to this important matter.
Sincerely,
/s/ Roger E. Brooks
Roger E. Brooks
President and Chief Executive
Officer
[INCON LOGO]
INTELLIGENT CONTROLS, INC.
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
July 12, 2002
Notice is hereby given that a Special Meeting of Shareholders of
Intelligent Controls, Inc. ("INCON" or the "Company") will held at the
Holiday Inn Express Hotel, 352 North Street/Interstate 95, Saco, Maine on
Friday, July 12, 2002 at 1:30 p.m., local time.
The purpose of the Special Meeting is to consider a proposal to
approve an Agreement and Plan of Merger dated as of April 25, 2002 entered
into among the Company, Franklin Electric Co., Inc. ("Franklin"), and a
subsidiary formed by Franklin for purposes of the merger (FEI Corporation),
as amended by an amendment dated May 28, 2002 (the "Merger Agreement"). At
the Special Meeting, shareholders may also consider any other business that
properly comes before the meeting. The Board of Directors is not presently
aware of any such other business.
All shareholders of record at the close of business on June 24, 2002
are entitled to notice of, and to vote at, the Special Meeting (or any
adjournment or postponement of that meeting). Your vote is very important.
If you hold INCON stock certificates in your own name, we ask that you
complete and sign the enclosed proxy card, and then mail it promptly in the
enclosed envelope. If (like most shareholders) you hold your INCON shares
in "street name" through a broker or other nominee, we ask that you
promptly review the broker's or nominee's instructions on how to make sure
that your shares are voted.
Please review the documents accompanying this notice for more
complete information regarding the merger proposal. If you have any
questions or require any assistance, please call Roger E. Brooks, President
and Chief Executive Officer of the Company, at (800) 872-3455.
Dated at Saco, Maine this 25th day of June, 2002.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gregory S. Fryer
Gregory S. Fryer, Clerk
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SHAREHOLDERS DISSENTING TO THE PROPOSED MERGER ARE ENTITLED, UPON
COMPLIANCE WITH SECTION 909 OF THE MAINE BUSINESS CORPORATION ACT, TO BE
PAID THE FAIR VALUE OF THEIR SHARES, AS DETERMINED BY A COURT. FOR A
FURTHER EXPLANATION OF DISSENTERS' RIGHTS, SEE PAGES 13-15 BELOW.
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INTELLIGENT CONTROLS, INC.
74 Industrial Park Road
P.O. Box 638
Saco, Maine 04072
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
To Be Held July 12, 2002
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Intelligent Controls, Inc. for use
at the Special Meeting of Shareholders. The Special Meeting will be held at
the Holiday Inn Express Hotel, 352 North Street/Interstate 95, Saco, Maine
at 1:30 p.m. on Friday, July 12, 2002.
SUMMARY TERM SHEET
This summary highlights some of the information contained in this
Proxy Statement. It does not contain all the information that may be
important to you. We urge you to read carefully the entire Proxy Statement,
including the appendices. As used in this Proxy Statement, "we," "us,"
"our," "Company," and "INCON" refer to Intelligent Controls, Inc.
MERGER PRICE OF $3.95 IN CASH PER SHARE OF INCON STOCK
This Proxy Statement describes a proposed merger by which INCON would
become a wholly-owned subsidiary of Franklin Electric Co., Inc.
("Franklin"). Upon completion of the merger, each INCON shareholder would
be entitled to receive $3.95 in cash for each share of common stock held.
For example, if you own 500 shares of INCON common stock, you would be
entitled to receive $1,975 upon the surrender of your shares and other
necessary documentation.
BOARD APPROVAL OF THE MERGER
Our Board of Directors believes the merger is in the best interests
of the Company and its shareholders, and unanimously recommends that
shareholders vote "FOR" approval of the Merger Agreement. The merger would
enable our shareholders to obtain $3.95 per share for their INCON stock,
which is significantly higher than the pre-announcement trading price of
the stock ($1.65). In reaching its decision to approve and recommend
shareholder approval of the Merger Agreement, the Board considered a number
of factors which are discussed at pages 6-8 below.
APPROVAL BY CERTAIN LARGE SHAREHOLDERS
Certain large shareholders of the Company have entered into an
agreement with Franklin, under which they have agreed to vote in favor of
the merger. The shareholders who are parties to this agreement are Roger
Brooks (President, CEO, and a director of INCON), Alan Lukas (Chairman and
a director), Ampersand 1995 Limited Partnership and Ampersand 1995
Companion Fund Limited Partnership, and certain related parties of Mr.
Lukas (his brother, his wife, and a trust for the benefit of his child).
Charles D. Yie (a director of INCON and one of the controlling persons of
the two Ampersand funds noted above) is also a party to this agreement,
although he is not himself a shareholder of INCON. Collectively, these
persons hold approximately 74% of the outstanding shares of the Company,
and their vote would be sufficient to assure approval of the merger. See
pages 11 and 16-17 below.
OTHER SIGNIFICANT TERMS OF THE MERGER AGREEMENT
* Upon completion of the merger, INCON would become a wholly-owned
subsidiary of Franklin Electric Co., Inc. See pages 3-4 below.
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* All INCON shares previously outstanding would be cancelled as part of
the merger, and thereafter would represent only the right to receive
the merger price of $3.95 (or, for those shareholders who choose to
exercise dissenters' rights and follow the necessary statutory
procedures, the right to a judicial appraisal of their shares). See
page 3 below.
* Stock options held by employees and others would, if not exercised, be
cancelled in connection with the merger and, to the extent then
exercisable, would entitle the holders to cash payments of $3.95 per
share minus the applicable exercise price per share. See pages 4 and
16-17 below.
* The merger cannot occur unless our shareholders approve the Merger
Agreement by the affirmative vote of the majority of INCON shares
outstanding as of the record date for the Special Meeting (see page 3).
The largest INCON shareholders (including all who own 5% or more of the
outstanding shares) have endorsed the merger and have agreed to vote in
favor of the Merger Agreement at the Special Meeting. These large
shareholders own approximately 74% of the outstanding shares, an amount
that is sufficient to assure the approval of the Merger Agreement. See
pages 11 and 16-17 below.
* If for any reason the merger does not occur by July 31, 2002, either
INCON or Franklin may terminate the transaction if the terminating
party has not otherwise breached the Merger Agreement. See page 10
below.
* The Company has agreed not to solicit or encourage any competing
offers. However, if some other party makes a potentially superior
offer, then our Board of Directors may under some circumstances furnish
nonpublic information to that party and negotiate with that party. If a
potentially superior offer leads to termination of the Merger
Agreement, and in certain other circumstances, INCON must pay Franklin
a "break-up fee" in the amount of $1,000,000. See pages 10-11 below.
* Completion of the merger depends on certain other conditions being
satisfied or waived. See pages 9-10 below.
THE MERGER WILL BE TAXABLE TO SHAREHOLDERS
INCON shareholders generally would recognize gain or loss for federal
(and state and local, if applicable) income tax purposes, on the exchange
of their INCON shares for cash. Gain or loss would equal the amount of cash
you receive minus your tax basis. The actual tax consequences of the merger
to you will depend on your specific situation and other factors not within
the Company's control. We encourage you to consult your personal tax
advisor for a full understanding of the merger's specific tax consequences
to you. See page 13 below.
SHAREHOLDERS HAVE DISSENTERS' RIGHTS
Under dissenters' rights provided under Maine law, you have the right
to reject the $3.95 merger price and instead require a judicial appraisal.
Shareholders who meet all the statutory conditions for the exercise of
dissenters' rights are entitled to receive payment of the "fair value" of
their shares, as determined by a Maine court. This amount could be less
than, equal to, or more than the amount offered in the merger. See pages
13-15 below and Appendix B.
INTERESTS OF CERTAIN DIRECTORS AND OFFICERS
With regard to the merger and related transactions, some of our
directors and executive officers have interests as individuals that are in
addition to, or different from, their interests as shareholders. For
example, if the merger is completed Roger E. Brooks and certain other
executive officers will receive special bonuses. Our Board of Directors was
aware of these interests and considered them in its decision to approve the
Merger Agreement. See pages
11-12 below.
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VOTING AND PROXY PROCEDURES
Who Can Vote at the Meeting. The record date for the Special Meeting
is June 24, 2002. Only persons who were shareholders of record as of that
date are entitled to vote at the Special Meeting. As of the record date, a
total of 4,766,211 shares of INCON common stock were outstanding. Each
share of common stock has one vote.
Votes Needed to Approve the Merger. In order to complete the proposed
merger, a majority of the outstanding shares of INCON common stock must be
voted "for" approval of the Merger Agreement. Shares for which no vote is
cast or for which the "abstain" box has been selected on the proxy card
will have the same effect as a vote "against" the Merger Agreement. A
broker non-vote will have the same effect as a vote "against" the Merger
Agreement. (A broker non-vote occurs when a broker, or other nominee
holding shares for a beneficial owner, does not vote on the merger proposal
because the broker or nominee has not received voting instructions from the
beneficial owner.)
At the time the Company and Franklin signed the Merger Agreement,
three directors of INCON (Roger Brooks, Alan Lukas, and Charlie Yie (as
beneficial owner of the shares of Company stock held by Ampersand
Ventures)) and certain related parties signed a Voting Agreement with
Franklin, under which they agreed to vote all their INCON shares at the
Special Meeting in favor of the Merger Agreement. These large shareholders
own approximately 74% of the INCON shares that were outstanding on the
record date. Their vote at the Special Meeting is therefore sufficient to
assure approval of the Merger Agreement. See pages 11 and 16-17 below.
Voting by Proxy. When properly executed and returned, the enclosed
proxy card will be voted in accordance with the choice marked. If no choice
is specified, the proxy will be voted in favor of the Merger Agreement, as
recommended by the Board of Directors.
If any matters not described in this Proxy Statement are properly
presented at the Special Meeting, the persons named in the proxy card will
use their own best judgment to determine how to vote your shares. This may
include a motion to adjourn or postpone the Special Meeting in order to
solicit additional proxies. If the Special Meeting is postponed or
adjourned, INCON stock may be voted by the persons named in the proxy card
on the new Special Meeting date as well, unless you have revoked your
proxy. The Company does not presently know of any other matters to be
presented at the Special Meeting.
At any time before the vote is taken at the Special Meeting, you may
revoke your proxy by delivering written notice of revocation to the Clerk
of the Company, by submitting a later dated proxy, or by voting in person
at the Special Meeting. Attendance at the Special Meeting will not in
itself constitute revocation of your proxy.
If your INCON stock is held by a broker or other nominee (i.e. in
"street name"), you will receive with this Proxy Statement written
instructions from the broker or nominee on how to have your shares voted.
Please contact the person who services your account if you have questions
about these instructions.
THE MERGER
THE FOLLOWING DESCRIPTION OF THE MATERIAL TERMS OF THE MERGER IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE APPENDICES ATTACHED TO THIS
PROXY STATEMENT. WE URGE YOU TO READ THE APPENDICES IN THEIR ENTIRETY.
Overview of Transaction. As soon as practicable after the conditions
to the merger described below have been satisfied or waived, and unless the
Merger Agreement has been terminated, the merger will occur as follows:
* INCON will merge with FEI Corporation, a wholly-owned subsidiary of
Franklin Electric Co., Inc. which was recently formed for purposes of
the merger. After completion of the merger, FEI Corporation will cease
to exist and INCON will continue as the surviving corporation;
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* Each share of INCON common stock held by you will be converted into the
right to receive $3.95 in cash and you will no longer have any rights
or interests in INCON.
The Acquired and Acquiring Entities.
INTELLIGENT CONTROLS, INC. is a developer, manufacturer, and marketer
of electronic measurement devices for the petroleum and power utility
industries. Founded in February 1978, INCON began as an electronic
engineering consulting firm. The Company expanded its focus to include
systems engineering, and soon thereafter INCON began developing and
manufacturing its own products. INCON serves the petroleum and utility
industries with electronic instrumentation and systems that help end users
to manage and maintain critical fuel and power-related systems. The
Company's address and telephone number is 74 Industrial Park Road, P.O. Box
638, Saco, Maine 04072, telephone (800) 872-3455.
FRANKLIN ELECTRIC CO., INC., a technical leader in electric motors,
drives, and controls, is the world's largest manufacturer of submersible
water and fueling systems motors, a manufacturer of underground fueling
systems hardware and flexible piping systems, and a leader in engineered
industrial motor products. The address and telephone number of the
Company's executive offices is 400 East Spring Street, Bluffton, Indiana
46714, telephone (260) 824-2900.
Aggregate Merger Price. As of June 24, 2002, the Company had
4,766,211 outstanding shares of common stock. Of this amount, 410,000
shares were issued in May 1998 at the then market price of $3.25 per share
to Roger Brooks for a promissory note that remains outstanding. With
Franklin's consent, the Company intends to cancel these 410,000 shares
immediately prior to the merger, in full satisfaction of payment of Mr.
Brooks' note. At $3.95 per share, this stock has an aggregate value of
$1,619,500, which is approximately $63,150 less than the projected amount
due under the note as of mid-July. Subtracting these 410,000 shares from
the 4,766,211 outstanding shares leaves 4,356,211 "net" shares outstanding.
See page 12 below.
The Company also has outstanding stock options which, as of mid-July,
would be exercisable for another 320,280 shares of INCON stock. Exercise of
a stock option requires the holder to pay a stated amount (the option
price) to the Company. Under the Merger Agreement, any outstanding stock
options will be cancelled immediately prior to the merger, and the Company
will pay the option holders cash in an amount equal to the number of shares
for which the option is then exercisable, multiplied by the excess (if any)
of $3.95 per share over the option price. The aggregate amount payable on
these options is $550,358, equivalent to having another 139,331 shares of
INCON stock outstanding.
The aggregate price being offered to INCON stockholders and option
holders in connection with the merger is therefore computed as $3.95 per
share multiplied by the sum of 4,356,211 net outstanding shares plus
139,331 net option shares, which is approximately $17,757,391. (For a
description of amounts being received by directors and officers of the
Company, and their related parties, see page 17 below.)
In addition to this amount, INCON estimates that it will incur
$125,000-$150,000 of costs by virtue of this transaction, consisting
primarily of fees to its lawyers, accountants, and financial advisor. Also,
Franklin has consented to INCON paying up to $375,000 of transaction-
contingent bonuses to employees. See page 12 below.
Discussions Leading to the Merger Agreement. Principals of the
Company and Franklin have, from time to time over the past three years,
discussed the possibility of joint activities, particularly related to
integration of INCON's line leak detector products into the submersible
fuel pump offered by FE Petro (part of Franklin Fueling Systems). In late
1999 and again in late 2000, the Company had informal oral discussions with
a competitor that was interested in a possible acquisition of the Company.
These discussions did not result in any joint activities.
In mid-2000, the Company's principal competitor (Veeder-Root)
purchased Red Jacket, the principal competitor to FE Petro. This event
prompted renewed discussions between INCON and Franklin/FE Petro. During
that period, the Company also had serious discussions with one other
potential merger partner that led to a preliminary
4
indication of value but that ultimately were terminated due to an inability
to reach agreement on a final valuation. On July 25, 2001, Roger Brooks
(President and Chief Executive Officer of INCON) and Jess Ford (Senior Vice
President of Franklin) spoke about the potential benefits of the two
companies working more closely together. On August 30, 2001, Jess Ford and
Don Kenney (VP & General Manager of FE Petro) visited the Company and met
with Roger Brooks, Alan Lukas (Chairman and, at that time, VP Product
Development) and Enrique Sales (VP Sales and Marketing). This visit
resulted in the signing of a mutual nondisclosure agreement and an
understanding that Franklin would evaluate certain INCON products and
software for fuel management. Franklin's evaluation was undertaken to
assess the possible purchase of these products for use in its systems. No
additional agreements between INCON and Franklin governed this arrangement.
In mid-September, Alan Lukas called Jess Ford to let him know that he was
stepping down as a full-time employee at INCON but would continue as
Chairman. Also in September, an INCON application engineer visited FE Petro
and completed installation and training for the products and software being
evaluated. At the end of September, Roger Brooks, Don Kenney, and Jess Ford
met at a Petroleum Equipment Industry trade show, and FE Petro undertook to
complete its evaluation of the INCON products and software within the
following 60 days.
There was limited interaction between the two companies between late
September 2001 and the beginning of January 2002 due primarily to the fact
that INCON was pursuing actively the acquisition of another fuel management
product business and Franklin was focused upon the integration of other
acquired businesses. The Company thereafter resumed discussions with
Franklin. Alan Lukas and Roger Brooks each spoke with Jess Ford in early
January 2002, during which period the companies discussed Franklin's
interest in the Company, its valuation and purchase price, and the mutual
development of compatible product technologies. On January 24, 2002, the
Company received a letter from Jess Ford expressing Franklin's interest in
acquiring INCON for a price in the $15 to $16 million range, or from $3.16
to $3.37 per outstanding share. At that time the Company's shares had a
market price of $1.12 per share. The Company's Board of Directors met by
telephone conference call on January 29, and authorized Roger Brooks to
engage in follow-up discussions with Franklin. At that time an updated
nondisclosure agreement was executed and financial information was provided
to Franklin. A conference call took place among Jess Ford, Gregg Sengstack
(Senior Vice President and Chief Executive Officer of Franklin), Jeff
Frappier (Franklin's Director of Financial Planning), Alan Lukas, and Roger
Brooks shortly thereafter. More detailed information was provided by the
Company as a follow-up to this call. On February 1, 2002, INCON provided to
Franklin the Company's preliminary profit and loss statement, balance
sheet, and cash flow statement for fiscal 2001, as well as detailed
information on departmental expenses and a calculation of non-recurring
expenses related to an outstanding arbitration case. In addition, the
Company provided a copy of its internal budget/goal document for 2002, with
some non-financial strategy comments excised. This nonpublic information
was sent to Franklin following a conference call held on January 30, 2002
between Roger Brooks and Alan Lukas of INCON and Jess Ford, Gregg
Sengstack, and Jeff Frappier of Franklin. Subsequently, during the month of
February, INCON provided some information on probe costs and detailed
departmental expenses to Franklin to assist with its development of a
financial model reflecting economies anticipated to result from the merger.
This information was discussed further at a meeting among Alan Lukas, Roger
Brooks, Jess Ford, Gregg Sengstack, and Jeff Frappier held at Franklin on
February 21, 2002.
On February 7, Jess Ford sent an e-mail message to Roger Brooks,
expressing an interest in acquiring the Company for a price of at least $16
million, or $3.37 per outstanding share (the then-current market value was
$1.10 per share). On February 8, the Company's Board of Directors met and
authorized further discussions with Franklin. On February 21, Roger Brooks
and Alan Lukas met with Jess Ford, Gregg Sengstack, and Jeff Frappier at
Franklin's Bluffton, Indiana headquarters to negotiate further on price. At
this meeting, Franklin offered a price of $17 million and the Company
presented a counteroffer in the range of $20 million. Both sides agreed to
reflect further on their meeting, and Franklin indicated it would soon
affirm or update its latest offer.
On February 26, 2002, Jess Ford sent a letter to Roger Brooks setting
forth a proposed offer of $18 million in cash, or $3.80 per outstanding
share, for the purchase of all INCON common stock and related stock
options. At that time the market price for the shares was $1.12 per share
The offer was subject to completion of due diligence satisfactory to
Franklin, a requirement that the Company maintain the confidentiality of
the offer, and an undertaking that the Company not solicit competing offers
for at least 60 days. A quorum of the Company's directors met by telephone
conference call on March 4 and authorized Roger Brooks to accept the offer
in principle. On March 6, Roger Brooks sent Jess Ford a letter accepting
Franklin's offer in principle, subject to negotiation and execution of a
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mutually acceptable definitive merger agreement. Once an agreement in
principle was reached in the first week of March, INCON provided
significant records and documents in response to Franklin's due diligence
requests and in preparation for a "nearby to INCON" due diligence visit
made from March 20 to 22, 2002. Subsequent negotiations ensued between
Franklin and INCON as to the final terms of the merger and voting
agreements. The main discussions related to setting a per share price,
originally proposed as $4.00 per share by INCON, and subsequently agreed at
$3.95 per share. As part of this process INCON forecasted likely cash on
hand at the time of the closing after paying pre-agreed closing
related/contingent amounts. On April 1, Franklin's counsel sent the
Company's counsel preliminary drafts of a merger agreement and a voting
agreement. Thereafter, the parties and their respective counsel engaged in
further negotiations with respect to those agreements. On April 5, the
Board of Directors held a telephone conference call in order to discuss the
merger terms and the status of the transaction. On or about April 15, based
on certain assumptions concerning projected working capital levels and
further due diligence regarding outstanding stock options, the parties
determined that the offer of $18 million equated to a merger price of $3.95
per share. At a meeting on April 19, Franklin's Board of Directors approved
the proposed merger terms and related agreements and authorized management
to execute these documents on behalf of the Company. At a meeting by
telephone conference call on April 24, the Company's Board of Directors
approved the proposed merger terms and related agreements, authorized
management to execute these documents on behalf of the Company, and took
other related actions. Final changes to these agreements were negotiated on
April 24, and the Merger Agreement and Voting Agreement were executed and
delivered by the parties on April 25. INCON and Franklin each issued press
releases on the afternoon of April 25, announcing the proposed merger. On
May 28, INCON signed a letter agreement with Franklin and FEI, which
extended the outside termination date of the transaction from June 30, 2002
to July 31, 2002 and which allowed INCON further flexibility in dealing
with exercise or exchange of outstanding stock options.
Franklin intends to fund the merger through the use of cash on hand
and/or by borrowings under its existing revolving credit facility, which
has available capacity in excess of the cash needed for the merger.
INCON Board's Reasons for Approving the Merger. Our Board of
Directors believes that the terms of the Merger Agreement are in the best
interests of INCON and our shareholders. Accordingly, the Board of
Directors unanimously recommends that our shareholders vote "FOR" approval
of the Merger Agreement and the transactions contemplated by it.
In determining to approve and recommend the Merger Agreement, the
INCON Board of Directors considered the following factors, all of which
were material to its deliberations:
* The $3.95 cash merger price, in relation to current and the historic
trading prices of INCON common stock. The closing price of INCON stock
on April 24, 2002 (the day before the public announcement of the Merger
Agreement) was $1.65 per share; during the four months preceding this
announcement, INCON stock traded in the range of $0.90 to $1.65 per
share; and INCON stock had not ever traded at more than $3.25 during
the period from January 1, 1998 through December 31, 2001. Due to the
limited size of the public float and relatively small number of
holders, the Board did not consider the trading price as indicative of
the Company's fair market value. However, the Board did consider that
the merger price would be attractive to most INCON shareholders,
particularly in relation to the previously prevailing trading prices.
* INCON's financial condition, results of operations and prospects, and
the overall economic climate and competitive and regulatory environment
facing the Company. In evaluating whether $3.95 was the highest price
reasonably available and in determining whether this was an appropriate
time to sell the Company, the Board considered the Company's prospects
for medium and long-term market growth. The Board concluded that the
merger price would fairly compensate INCON shareholders for INCON's
future growth potential, while allowing INCON shareholders to avoid the
risk that future performance might not meet Company management's
expectations.
* Other recent industry acquisitions within the petroleum equipment
industry, and our prior contacts with industry players to explore
possible joint ventures or other affiliations. The Board concluded that
$3.95 per share was likely to equal or exceed the price that could be
obtained from potential strategic purchasers other than Franklin.
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* INCON products under development, and new and proposed marketing
initiatives. The Board considered the costs and risks associated with
developing and promoting INCON's newest product and marketing
initiatives, and determined that the potential benefits from these
opportunities for growth did not outweigh the benefits to realizing the
merger price.
* A study by our financial advisor, Fletcher Spaght, Inc. on results
achievable by INCON in particular market niches for its products and
software, principally high volume retailers of gasoline and owners of
above-ground storage tanks. The Board considered this study and
concluded that the merger price would fairly compensate INCON
shareholders for these growth opportunities.
* A valuation assessment of the Company from Fletcher Spaght (described
below). Although this study was limited in scope, the Board considered
that it served as further evidence that an aggregate merger price in
the range of $18 million was reasonable in relation to the price that
INCON could expect to receive at year-end 2002 if the Company met its
budgeted revenue and earnings targets for the year. (The Board
specifically considered whether to retain Fletcher Spaght or another
financial advisor to render a "fairness opinion" to the Board regarding
the proposed merger consideration. In view of the other valuation-
related factors listed here, the Board decided that it had ample
information on which to make an assessment of the fairness of the
proposed merger consideration, and it determined that the time and
expense involved in obtaining a fairness opinion was neither necessary
nor advisable under the circumstances.)
* Strategic alternatives to the proposed merger, including the
alternative of remaining an independent company. In considering whether
to accept Franklin's merger proposal, the Board weighed the operational
and financial risks and opportunities of remaining independent. The
Board also weighed the risk of seeking bids from other potential
buyers.
* The arm's-length negotiations with Franklin over the merger price and
the terms of the Merger Agreement. The Board considered these
negotiations in weighing whether to seek competing bids from other
parties.
* Support by major shareholders of the merger price, and their
willingness to enter into a voting agreement containing an irrevocable
commitment to vote their shares in favor of the Merger Agreement at the
Special Meeting. In evaluating the fairness of the merger price, the
Board gave significant weight to the fact that the largest shareholders
considered the price to be fair and that the largest shareholders
considered that this was an opportune time to sell the Company.
* The availability of appraisal rights under Maine law to shareholders
who may dissent from the merger, and the absence of any restriction or
condition limiting the number of dissenting shares. The Board concluded
that the unfettered availability of appraisal rights provides an
alternative to those shareholders (if any) who may wish to test the
reasonableness of the merger price.
* The right of the Board of Directors, in certain circumstances, to
terminate the Merger Agreement or take other actions if an unsolicited
bid is received, and the size of the break-up fee associated with such
a termination. The Board considered it appropriate to allow for the
possibility that another bidder might emerge at a higher price. The
Board also concluded that the size of the break-up fee is reasonable in
relation to the size of this transaction, and was an appropriate
concession to make to Franklin.
* The effect of the merger on INCON's employees and customers, and the
greater resources and broader distribution network available to INCON
after the merger than we currently enjoy. As expressly permitted by
Maine law, the Board considered these factors in determining whether
the merger is in the best interests of the Company. Early in the
negotiations, the Board thought it was significant that Franklin was
supportive of keeping the INCON facilities in Saco, Maine. This
suggested to the Board that Franklin placed significant value on the
workforce and facilities of the Company and would therefore be more
likely to reach a merger price that the Board and the Company's largest
shareholders would find to be attractive.
7
* The proposed treatment of outstanding stock options in connection with
the merger. The Board considered it appropriate that holders of
outstanding stock options would be allowed to surrender those
agreements for a cash payment, rather than being required to exercise
the options in advance of a closing of the merger. The Board also
determined that it would be fair to not grant additional acceleration
rights to option holders who had not already received such rights.
The Board of Directors did not quantify or otherwise attempt to
assign relative weights to these and other factors which it considered in
reaching its determination. After reviewing these factors, the Board
concluded that the proposed merger is in the best interests of the Company
and that the amount and form of merger consideration being offered by
Franklin is fair to INCON shareholders.
Report of INCON's Financial Advisor. In the fall of 2001, INCON
retained Fletcher Spaght, Inc. to evaluate different growth strategies for
the Company, particularly with regard to sales of INCON products and
software to high volume retailers of gasoline (the "HVR market") and to
owners of above-ground storage tanks (the "AST market").(1) As part of this
assignment, the Company asked Fletcher Spaght to provide its assessment of
the effect of different strategies on future value of INCON. Fletcher
Spaght is a nationally recognized strategic consulting and market research
firm that has engaged in the strategic analysis of public companies and,
specifically, technology companies for more than 18 years. The firm advises
clients on the commercial potential of new technologies and the options for
developing, funding, or acquiring new businesses.
Fletcher Spaght made its preliminary report to the Board on February
8, 2002, based on market data as of January 18, 2002 and internal Company
budgets for 2002.
Fletcher Spaght estimated future revenues, earnings, cash flow, and
EBITDA of the Company from 2002 through 2005, based on varying assumptions
about future sales of the Company's "core" FMS (fuel management systems)
and PRS (power reliability systems) products and services and based on
varying assumptions about future INCON sales growth in the emerging, "non-
core" HVR and AST sectors of the FMS business. Fletcher Spaght also
computed enterprise value ratios (EV ratios) of seven other public
companies that manufacture instrumentation control products similar to
INCON's (denoted by Fletcher Spaght as "bulk instrumentation controls"
companies), and those of five other public companies that manufacture more
generic instrumentation products (denoted by Fletcher Spaght as "general
instrumentation" companies). Specifically, Fletcher Spaght computed average
ratios within each of these two groups in terms of enterprise value divided
by revenues, earnings, cash flow, and EBITDA. Of these, Fletcher Spaght
considered the EBITDA ratios of the bulk instrumentation controls companies
to be the most useful predictors of value, because the bulk instrumentation
control companies include the companies whose product lines directly
compete with INCON products and because (in general) EBITDA tends to show
the strongest correlations to enterprise value for industrial companies in
mature markets. The EV ratios of the seven companies ranged from a multiple
of 6.95 to 14.57, with the average multiple being 10.61. The average EV
ratio of the five instrument companies was a multiple of 10.43, a number
virtually indistinguishable from the seven companies' average multiple.
EBITDA stands for earnings before interest, taxes, depreciation, and
amortization, and is widely considered to be a good indicator of the
operational profitability of a business organization. INCON's 2001 actual
EBITDA was $95,056, or less than 1% of sales. However, this included
$468,000 of legal expenses relating to a case then in arbitration, so
adjusted EBITDA (removing these non-recurring expenses) for the year was
$563,056, or 5.6% of sales. For January through April 2002, the Company's
EBITDA was approximately $222,000, or 6.9% of sales.
Since small private or thinly-traded companies tend to sell at
discounted prices compared to large public companies with liquid markets
for their stock, Fletcher Spaght also estimated a discount rate (30%) that
it considered reasonable for purposes of comparing INCON against the other
twelve public companies studied, both due to size
<FN>
- --------------------
<F1> Sales to HVR and AST customers currently represent only a very small
portion of INCON's total sales of fuel management system (FMS)
products. The Company had earlier identified these market niches as
potential sources of revenue growth for INCON. A substantial part of
Fletcher Spaght's engagement was to evaluate these market niches and
assist in the Company's long-term strategic planning in this regard.
</FN>
8
and liquidity. Fletcher Spaght then computed estimated potential market
values for INCON in 2002 through 2005, based upon nine different sales
scenarios of average revenue growth and average EBITDA rates through that
four-year period. From those nine scenarios, Fletcher Spaght selected two
that it considered most likely reflective of the Company's potential
growth: (i) baseline sales plus an assumption of moderate HVR sales growth
and moderate AST sales growth and (ii) baseline sales plus aggressive HVR
sales growth and moderate AST sales growth. EBITDA assumptions then were
applied to both scenarios. Fletcher Spaght advised the Board on February 8
that this analysis suggested the following range of projected market values
for INCON as of the end of 2002:
* $14.7-$15.0 million, assuming EBITDA equal to 9.5% of projected 2002
revenues of $11,000,000; or
* $18.0-$18.4 million, if INCON is assumed to achieve substantially
higher revenues for 2002, such that EBITDA reaches 12.8% of revenues.
An EBITDA rate of 9.5% is equivalent to the Company's budgeted level
of EBITDA for 2002. An EBITDA rate of 12.8% would represent a substantial
improvement over 2002 budgeted levels, and is equivalent to EBITDA achieved
for the most profitable year in the Company's history (1998). Average
EBITDA for the seven bulk instrumentation controls companies, in contrast,
is 14.7% of revenues.
In April 2002 Fletcher Spaght updated its preliminary report, in
order to include more recent data on enterprise value ratios of the other
public companies used for comparison. Fletcher Spaght advised Company
management that updated figures suggested an improved value for INCON as
compared to that reported in February.
In a final report dated April 26, Fletcher Spaght stated that the
average ratios of the group of seven bulk instrumentation controls
companies had strengthened significantly over the past three months. Most
of this improvement was due to two companies, Danaher Corporation and Dover
Corporation, which had enjoyed particularly large increases in their stock
prices. Even excluding those two companies, however, the enterprise value-
to-EBITDA ratios for the bulk instrumentation controls group had improved
by an average of 8% over the prior three months. Applying a 10% premium
over the enterprise value-to-EBITDA ratio previously employed (a premium
that Fletcher Spaght concluded to be reasonable under the circumstances)
resulted in an updated range of projected market values for INCON of:
* $15.6-$15.9 million, assuming EBITDA equal to 9.5% of projected 2002
revenues; or
* $19.2-$19.6 million, if INCON is assumed to achieve substantially
higher revenues for 2002, such that EBITDA reaches 12.8% of revenues.
Fletcher Spaght's report is limited in scope, includes data from a
small number of comparison companies, and does not discuss all valuation
methods that typically would appear in a more exhaustive analysis of
valuation. The report was directed to the INCON Board, for its use in
considering the factors described above. INCON did not ask Fletcher Spaght
for, and that firm did not provide, any opinion as to the fairness of the
proposed merger price to the Company's shareholders from a financial
standpoint. The report further does not express any opinion to the Board on
the underlying business decision of whether to engage in the merger, and it
is not a recommendation to any INCON shareholder on how that shareholder
should vote at the Special Meeting.
Fletcher Spaght is receiving a fee of $10,000 for updating its
valuation report; the firm received $75,000 for its initial valuation
report in February and for ancillary work in evaluating growth strategies
for the Company. INCON has agreed to indemnify Fletcher Spaght and its
directors, officers, employees, agents, and controlling persons against
expenses and liabilities that it might incur from claims brought by the
Company or third parties in connection with this engagement, including
without limitation claims under federal or state securities laws.
Conditions to the Merger. The respective obligations of INCON and
Franklin to effect the merger are subject to the satisfaction or waiver of
certain conditions specified in the Merger Agreement, the most significant
of which are as follows: (i) receipt of INCON shareholder approval of the
Merger Agreement, (ii) the other party's performance of its respective
obligations under the Merger Agreement in all material respects; (iii) the
continued accuracy
9
of the other party's representations and warranties in all material
respects; and (iv) the absence of any proceeding seeking to restrain or
enjoin consummation of the merger. (Another stated condition is the receipt
of any necessary regulatory approvals, but we are not aware of any
regulatory approvals that are needed for the merger.) The failure of any
one or more of these closing conditions could cause the Merger Agreement to
terminate unless such failure is waived by the other party. If waiver by
the Company of one or more of these conditions would involve, in the
judgment of the Board, a material change in the terms of the merger from
the standpoint of INCON shareholders, the Board would plan to resolicit
approval from shareholders. However, the Company is not aware of any
circumstances that would cause the failure of any of the Company's
conditions, or that would lead to a material modification of the terms of
the merger.
Franklin's obligations also are conditioned upon INCON having (i)
obtained all third-party approvals necessary to consummate the merger; (ii)
settled Roger Brooks' restricted stock note (see page 12 below) and
terminated the associated restricted stock agreement; and (iii) terminated
the Investment Agreement and Stockholders Agreement with its major
shareholders, which had been entered into in 1998 at the time two Ampersand
Ventures funds made a substantial investment in the Company. The Company is
not aware of any circumstances that are likely to cause a failure of any of
Franklin's conditions.
Effective Time of the Merger. The merger will be consummated only if
the Merger Agreement is approved by INCON shareholders and all other
conditions to the merger are either are satisfied or waived. The merger
will become effective on the date that articles of merger are filed with
the Maine Secretary of State. INCON and Franklin have agreed to use
reasonable efforts to cause the merger to occur in the most expeditious
manner practicable. INCON and Franklin each has the right to terminate the
Merger Agreement if the merger is not completed by July 31, 2002.
Pre-Merger Covenants. Prior to the merger, the Merger Agreement
requires INCON to (among other things) (i) hold a meeting to obtain
approval of the Merger Agreement from its shareholders; (ii) conduct its
business in the ordinary course; (iii) cause its management to consult
regularly with Franklin representatives; and (iv) promptly notify Franklin
of the occurrence of an event which would cause a breach of any
representation, warranty, or covenant of the Company in the Merger
Agreement or which would cause the failure of any condition to the merger.
Termination upon a Superior Offer; Break-up Fee. In the Merger
Agreement, the Company has generally agreed not to solicit any transactions
from third parties which would compete with, or otherwise be inconsistent
with, the proposed merger. The Company has also generally agreed not to
negotiate with any third party, or provide nonpublic information, in
connection with any potential competing offer.
Notwithstanding these provisions, if prior to the Special Meeting a
third party makes an unsolicited acquisition proposal in writing and (a)
the Company's Board of Directors determines reasonably and in good faith,
after due investigation and after consultation with and based upon the
advice of an outside financial advisor, that such acquisition proposal is
or could reasonably be expected to lead to a "superior proposal" (as
defined in the Merger Agreement), (b) the Board determines reasonably and
in good faith, after due investigation and after consultation with and
based upon the advice of Company counsel, that the failure to take action
would cause the Board to violate its fiduciary duties to shareholders under
applicable law, and (c) the Company provides at least two business days'
notice to Franklin, then the Board may (i) withdraw, modify, or change its
approval or recommendation in favor of the Merger Agreement, (ii) under a
customary confidentiality agreement furnish nonpublic information to the
person making the acquisition proposal, and (iii) participate in
discussions or negotiations regarding the acquisition proposal.
Thereafter, under certain circumstances, either the Company or
Franklin may terminate the Merger Agreement, in which case INCON has agreed
to pay Franklin a so-called "break-up" fee of $1,000,000 in cash. Before
INCON may terminate the Merger Agreement on these grounds, (A) the Company
must give Franklin at least five business days' notice that it has received
a superior proposal that the Board intends to approve, specifying the
material terms and conditions of that proposal and identifying the person
making the proposal, (B) Franklin may offer such adjustments in the terms
and conditions of the Merger Agreement as Franklin deems appropriate, (C)
at the end of the five-
10
business day period, the Board of Directors must continue reasonably and in
good faith to believe that the acquisition proposal is a superior proposal,
and (D) the Company must pay the break-up fee.
Franklin may terminate the Merger Agreement and be paid the break-up
fee if (A) the Company's Board of Directors withdraws or significantly
modifies its recommendation in favor of the Merger Agreement, approves or
recommends a competing proposal, or has executed a definitive acquisition
agreement with a third party or (B) a tender offer or exchange offer for
any outstanding INCON shares is commenced, and the Company's Board of
Directors, within ten days after such tender offer or exchange offer is so
commenced, either fails to recommend against acceptance of such tender
offer or exchange offer by its shareholders or takes no position with
respect to the acceptance of such tender offer or exchange offer by its
shareholders.
The $1,000,000 break-up fee represents approximately 51/2 percent of
the aggregate merger price offered by Franklin. After considering the
circumstances of the proposed merger and certain information regarding
break-up fees in other recent publicly announced transactions, the
Company's Board of Directors concluded that a break-up fee of this size was
reasonable in the context of the present merger transaction.
INTERESTS OF DIRECTORS, OFFICERS,
AND SIGNIFICANT SHAREHOLDERS
Some of our directors and executive officers have interests in the
merger that are in addition to or different from the interests of
shareholders generally. The Board of Directors was aware of these interests
and considered them when approving and recommending the Merger Agreement.
These interests are described below.
Voting Agreement. Franklin's offer was conditional upon certain major
shareholders of the Company entering into a Voting Agreement and Amendment
to Stockholders Agreement (the "Voting Agreement") at the same time as the
Company signed the Merger Agreement. These parties to the Voting Agreement
include Roger Brooks (President, CEO, and a director), Alan Lukas (Chairman
and a director), Charles D. Yie (a director), two investment funds
affiliated with Mr. Yie (Ampersand 1995 Limited Partnership and Ampersand
1995 Companion Fund Limited Partnership, referred to below as "Ampersand"),
and certain related parties of Mr. Lukas (his brother, his wife, and a
trust for the benefit of his child). These shareholders have made an
irrevocable commitment to vote in favor of the Merger Agreement at the
Special Meeting, and have given Franklin the power to vote their shares at
that Meeting. Those shares constitute approximately 74% of the total shares
outstanding as of the record date for the Special Meeting. The INCON
shareholders who are parties to the Voting Agreement would receive the same
$3.95 per share being offered to other shareholders in the merger.
Stockholders Agreement. In 1998, the Company, Ampersand, Roger
Brooks, Alan Lukas, Mr. Lukas' brother, and certain other related parties
entered into a Stockholders Agreement restricting the voting and transfer
of shares of INCON common stock owned by each. The shares owned by these
stockholders represent approximately 74% of the INCON stock outstanding on
the record date for the Special Meeting. The stockholders who are parties
to the Stockholders Agreement have agreed to vote their shares (i) to limit
the size of the Company's Board of Directors to five directors and (ii) to
elect as those directors Charles Yie, Alan Lukas, the Chief Executive
Officer (Roger Brooks), and one designee each of Ampersand and Alan Lukas.
These stockholders have also agreed to vote their shares in such a way that
Ampersand will be able to block certain significant transactions opposed by
it, such as financing transactions exceeding $5 million or a merger or
other sale of the Company. (As noted above, Ampersand has agreed to vote
its shares in favor of the pending merger proposal.) For a period of five
years, these stockholders agreed not to make open-market purchases of INCON
common stock and not to initiate or assist in proxy solicitations, except
with prior written consent from INCON's Board of Directors. These
stockholders have also granted each other certain rights of first refusal
to purchase shares that a stockholder proposes to sell to a third party;
and to grant each other certain co-sale rights to participate in sales of
stock to a third party. Under the Voting Agreement described above, the
parties have agreed to cancel the Stockholders Agreement in connection with
the merger.
Ampersand Investment Agreement. The Company is a party to an
Investment Agreement with Ampersand and Roger Brooks. The agreement
provides Ampersand a right of first refusal on future sales of INCON stock
to third parties, and provides Ampersand and Mr. Brooks with rights to
require registration of their shares to permit
11
resales of stock by them. The agreement also provides Ampersand and Mr.
Brooks with a right, under limited circumstances, to require the Company to
repurchase their shares. Under the Voting Agreement described above, the
parties have agreed to cancel the Investment Agreement in connection with
the merger.
Brooks Restricted Stock Note. In May 1998, at the time he became
President and CEO, Roger Brooks purchased from the Company a total of
486,923 shares of INCON common stock at $3.25 per share. He paid $250,000
in cash for 76,923 of these shares, and delivered a restricted stock note
in the amount of $1,332,500 for the other 410,000 shares. The note bears
interest at 5.69% per annum and becomes payable in full in May 2006, except
that this payment obligation may be accelerated if his employment with the
Company terminates for any reason. Mr. Brooks' personal liability under the
note is limited to $200,000 plus the value of the 486,923 purchased shares,
which are pledged to the Company as collateral. As of mid-July, the amount
due on the note (including accrued interest) will be approximately
$1,682,650.
As permitted by the Merger Agreement, the Company plans to accept the
410,000 shares from Mr. Brooks as full payment of this restricted stock
note. At the $3.95 merger price, these shares will have a deemed value of
$1,619,500, which is within approximately $63,150 of the amount that will
then be due under the note. The Company will reduce Mr. Brooks'
indebtedness under the note by this difference.
Transaction-Contingent Bonuses. As permitted by the Merger Agreement,
the Company also plans to pay $350,000 in cash bonuses to certain executive
officers at the time of, and contingent on the occurrence of, the merger.
These bonuses consist of $300,000 to Roger Brooks, $16,500 to Enrique Sales
(VP Marketing and Sales), $16,500 to Dean Richards (VP Production), and
$17,000 to Andrew Clement (Controller and Assistant Treasurer).
Indemnification. Presently, the Company's bylaws provide for
mandatory indemnification of directors and officers against claims and
liabilities arising from their conduct as directors and officers, and the
Company also maintains directors' and officers' liability insurance against
such claims and liabilities. Under the Merger Agreement, the surviving
corporation will continue to indemnify the existing directors and officers
of INCON. Specifically, the Merger Agreement provides for indemnity against
liabilities arising at or prior to the effective date of the merger, to the
fullest extent permitted under applicable law. The surviving corporation
also will maintain, for a period of three years, subject to certain
limitations, directors' and officers' liability insurance coverage for
persons who were covered by such insurance maintained by INCON on the date
of the Merger Agreement.
Acceleration of Stock Options. Stock options granted by the Company
generally are subject to vesting requirements, such that they become
exercisable in pro rata increments over a four-year period. In the case of
options granted to directors and executive officers, the vesting of the
options accelerates in the event of a change in control. The current
directors and executive officers hold options to purchase a total of
225,000 shares, at option prices ranging from $1.06 to $3.00. Under the
normal four-year vesting schedule, these options are presently exercisable
for 169,312 shares. The merger would give rise to acceleration for the
other 55,688 shares purchasable by directors and executive officers under
these options.
Employment after the Merger. Under the Merger Agreement, none of the
current directors of the Company will remain a director after the effective
time of the merger. The Merger Agreement does provide, however, that Roger
Brooks, Enrique Sales, Dean Richards, and Andrew Clement will, as of the
effective time, continue to hold positions as officers of the Company.
There presently is no agreement or understanding with Franklin that would
prevent the Company, at any time after the merger, from terminating the
employment of any of these officers. There are no severance arrangements in
place with regard to Messrs. Sales, Richards, or Clement. Mr. Brooks has an
employment agreement under which he would be entitled, upon termination by
the Company of his employment, to receive between six and twelve months'
severance compensation at a rate equal to his then current salary of
$215,000 per year (plus continued participation in Company health insurance
and other benefits during such period) unless the Company terminates his
employment for cause. Although no longer an employee of the Company, Alan
Lukas currently serves as Chairman and a consultant. Under his employment
agreement, Mr. Lukas will continue to receive his retainer at the rate of
$30,000 per year (plus health insurance benefits) through June 30, 2003,
unless the Company terminates him for cause. He continues also to receive
severance (at the rate of $133,000 per year) through September 13, 2002,
arising from his resignation as an officer and employee in September 2001.
12
FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER TO YOU
The exchange of INCON common stock for cash pursuant to the merger
will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code, and may also be a taxable transaction under state,
local, and other tax laws. An INCON shareholder will recognize gain or loss
equal to the difference between the amount of cash received by the
shareholder pursuant to the merger and the shareholder's tax basis in those
shares. Gain or loss must be determined separately for each set of INCON
shares surrendered pursuant to the merger. For these purposes, shares of
INCON stock acquired by the shareholder at the same time and price are
considered together.
Gain or loss recognized by the shareholder exchanging his or her
INCON common stock pursuant to the merger will be "capital gain or loss" if
stock is a capital asset in the hands of the shareholder. If the stock has
been held for more than one year, the gain or loss will be long-term.
Capital gains recognized by an exchanging individual shareholder generally
will be subject to federal income tax at capital gain rates applicable to
the shareholder (up to a maximum of 39.6% for short-term capital gains and
20% for long-term capital gains), and capital gains recognized by an
exchanging corporate shareholder generally will be subject to federal
income tax at a maximum rate of 35%. Stock held in an individual retirement
account (IRA) or other tax-deferred account may not be subject to immediate
taxation.
Neither INCON nor Franklin will request a ruling from the Internal
Revenue Service on any of the tax effects to INCON shareholders of the
transactions discussed in this Proxy Statement, and no opinion of Company
counsel will be rendered on the tax effects of the merger to shareholders.
The federal income tax discussion set forth above is based upon current law
and is intended for general information only. YOU ARE URGED TO CONSULT YOUR
OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
YOU, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, OR OTHER TAX
LAWS AND OF ANY PROPOSED CHANGES IN THOSE TAX LAWS AND THE INTERNAL REVENUE
CODE.
PROCEDURES FOR SURRENDERING YOUR CERTIFICATES
Franklin and the Company will designate a paying agent for the
merger. On or before the effective date of the merger, Franklin will
deposit with the paying agent an amount of cash sufficient to pay the
aggregate merger price to all INCON shareholders. Within five business days
after the effective date, the paying agent will mail letters of transmittal
to all persons and entities shown on the Company's stock records as being
record holders of INCON shares at the time the merger became effective. The
letter of transmittal will contain instructions for surrendering stock
certificates.
YOU SHOULD NOT RETURN YOUR INCON COMMON STOCK CERTIFICATES WITH THE
ENCLOSED PROXY, AND YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES TO THE
PAYING AGENT UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL FROM IT.
If a certificate for INCON stock has been lost, stolen, or destroyed,
the paying agent will not be obligated to deliver payment until the holder
of the shares delivers: (i) an appropriate affidavit by the person claiming
the loss, theft, or destruction of his or her certificate; (ii) an
indemnity agreement; and (iii) if required by the paying agent or Franklin,
a bond.
The paying agent will return to Franklin any funds not claimed by
INCON shareholders within 120 days after the effective date. Thereafter,
Franklin will be responsible for payments on any other INCON stock
certificates surrendered.
DISSENTERS' RIGHTS
Holders of INCON stock are entitled to dissenters' rights under
Section 908 of the Maine Business Corporation Act (the "Maine Act"). By
complying with Section 909 of the Maine Act, an INCON shareholder may
dissent from
13
the merger and, if the merger is effected, be paid a judicially-determined
"fair value" of his or her shares as of the day prior to the date on which
the merger is approved by the shareholders, excluding the effect of any
appreciation or depreciation of shares in anticipation of the merger.
This right of dissent may be exercised as to all or less than all of
a shareholder's shares. In order to exercise this right a shareholder must
comply with three principal requirements:
* Pre-Meeting Written Objection. The shareholder must file with the
Company, at or before the Special Meeting, a written objection to the
merger. A vote against the merger does not in itself constitute the
required written objection. (No objection is required, however, from
any record shareholder to whom INCON failed to send notice of the
Special Meeting.)
* No Vote in Favor of the Merger. The shareholder must not vote in favor
of the Merger Agreement. The shareholder may abstain from the vote, but
unless a signed proxy card indicates that the shareholder wishes to
vote against or abstain, the shares represented by that proxy will be
voted in favor of the merger and the shareholder will not be permitted
to exercise his or her right of dissent.
* Post-Meeting Written Demand. The shareholder must file a written demand
or payment of the fair value of his or her shares within 15 days after
the date of shareholder approval of the Merger Agreement. A demand for
payment may be filed either by delivering it personally to, or by
mailing it by certified or registered mail to, the Company at the
following address: Intelligent Controls, Inc., 74 Industrial Park Road,
P.O. Box 638, Saco, Maine 04072, Attn: President. The demand must
specify the name and current address of the shareholder. Once filed, a
demand for payment may not be withdrawn without the consent of INCON. A
shareholder making such a demand may not thereafter vote or exercise
any other rights of a shareholder.
Any shareholder failing either to object or to make demand in the
time and manner provided in Section 909 shall have the right to receive the
merger price for his or her shares. In general, any shareholder making such
objection and demand shall thereafter be entitled only to payment as
provided in Section 909 and shall have no other rights as a shareholder.
The right of a shareholder to be paid the fair value of his or her
shares will terminate in the event that (i) the merger is not approved or
is abandoned, (ii) the shareholder demand is withdrawn upon consent, (iii)
no judicial action for the determination of fair value shall have been
filed within the time prescribed by Maine law, (iv) the shareholder fails
to comply with the statutory procedure, or (v) a court of competent
jurisdiction determines that the shareholder is not entitled to demand
payment.
At the time the shareholder files his or her demand, or within 20
days thereafter, the shareholder must submit the certificates representing
the shares for which he or she is demanding payment, for notation of the
fact of such shareholder demand. A shareholder submitting certificates for
notation must mail or deliver them to Intelligent Controls, Inc., 74
Industrial Park Road, P.O. Box 638, Saco, Maine 04072, Attn: President.
Share certificates will be returned to the shareholder promptly after
notation has been made. Under the Maine Act, a dissenting shareholder who
fails to submit certificates for such notation within this time limit will
lose all rights as a dissenting shareholder, unless the court for good and
sufficient cause shown shall otherwise direct.
Within the later of 25 days after the merger is approved by the
shareholders or 10 days after the effective date of the merger, the Company
will give written notice to each dissenting shareholder that the merger has
been effected, and will make a written offer at a specified price to
purchase the shares as to which each shareholder is dissenting. This offer
will be made at the same price per share to all dissenting shareholders of
the same class. Such notice and offer will be accompanied by a balance
sheet of the Company as of the latest available date (and not more than 12
months prior to the making of the offer) and a profit and loss statement of
the Company for the 12-month period ended on the date of such balance
sheet.
Under the Maine Act, if the Company and a holder of INCON stock agree
on a price during the 20 days after the last date for delivery of such
notice, the Company will, within 90 days after the effective time of the
merger,
14
make payment of the agreed amount upon surrender by the dissenting
shareholder of his or her shares, and upon such payment the dissenting
shareholder shall cease to have any interest in such shares. If the Company
and any shareholder fail to agree on the fair value of the shareholder's
shares during such 20 day period, the Company may, within a 60-day period
thereafter, bring an action in the Maine Superior Court in Cumberland
County, Maine to determine the fair value of the shares, or a dissenting
shareholder may, up to 60 days after the effective time of the merger,
demand in writing that the Company bring such an action, in which case the
Company must do so within 30 days after receipt of such demand, and if the
Company fails to institute an action within such 30-day period, any
dissenting shareholder may bring a suit in the name of the Company. All
actions to determine fair value, whether brought by the Company or a
shareholder, must be filed within 6 months from the effective time of the
merger.
All dissenting shareholders, wherever residing, who have not agreed
with the Company on a price for their shares shall be joined in any action
to determine fair value and must be given service of process. The value
determined by the Court will be binding on all eligible dissenting
shareholders. Upon request of the Company, the Court will consider and pass
upon whether specified dissenting shareholders have satisfactorily complied
with all of the requirements of Section 909, and if it finds that a
shareholder has not, such shareholder will not be entitled to be paid the
fair value as determined, but will be bound by the terms of the Merger
Agreement. The burden of proof is on the shareholder to prove his or her
eligibility.
The judgment fixing the fair value of the shares is to include
interest, at such rate as the Court may find to be fair and equitable, from
the date of the shareholder vote to the date of payment unless, as to any
shareholder, the Court shall determine that the shareholder's refusal to
accept the Company's offer of payment for the shares was arbitrary,
vexatious, or not in good faith, in which case the Court may, in its
discretion, disallow interest. The judgment will be payable only upon
surrender to the Company of the certificates representing such shares. Upon
payment of the judgment, a dissenting shareholder will cease to have any
interest in the shares. Costs and expenses of the proceeding, as determined
by the Court, will be assessed against the Company unless a shareholder's
refusal to accept the Company's offer of payment for his or her shares is
found to have been arbitrary, vexatious, or not in good faith, in which
case the Court may assess all or a portion of such costs against such
shareholder. Costs and expenses will not include the fees and expenses of
counsel or of expert witnesses, but will include reasonable compensation
and expenses to any appraisers appointed by the Court. If the "fair value"
of the shares, as determined by the Court, "materially exceeds" the amount
which the Company offered to pay therefor, or if no such offer was made,
the Court, in its discretion, may award any shareholder who is a party to
the proceeding all or part of such shareholder's attorneys fees or expenses
and reasonable compensation and expenses to any expert employed by such
shareholder.
If a shareholder has exercised his or her right to dissent with
respect to any shares of INCON, any transferee of such shares will not
acquire any rights in INCON other than the rights which the transferring
shareholder had with respect to such shares as a dissenting shareholder.
Any new certificate issued evidencing such transferred shares shall bear a
notation reflecting the demand made by the transferor.
A shareholder who is a minor or otherwise legally incapacitated will
be bound by the procedural limitations of Section 909 of the Maine Act. Any
such shareholder may personally, or through a guardian or any person acting
for such shareholder as a legally authorized representative, take all
actions necessary to assert his or her right to dissent. Actions taken in
respect of shares held of record by a nominee for the benefit of another
may be made only by such nominee and not by the beneficial owner.
The foregoing summary does not purport to be a complete statement of
the provisions of Sections 908 and 909 of the Maine Act, and is qualified
in its entirety by reference to the complete text of such Sections, copies
of which are attached as Appendix B.
15
OWNERSHIP OF COMMON STOCK
As of June 17, 2002, there were 4,739,399 outstanding shares of
common stock, the Company's only authorized class of stock. Set forth
below, as of that date, is information concerning beneficial ownership of
the Common Stock by directors and executive officers of the Company and by
each other person known to the Company to own beneficially more than 5% of
the outstanding shares. Except as otherwise noted, all shares are owned
directly.
Amount and nature of
Name and address of beneficial owner beneficial ownership Percent of class
- ------------------------------------ -------------------- ----------------
<s> <c> <c>
Ampersand 1995 Limited Partnership and
a related fund (1)(6) 1,638,462 34.4%
Charles D. Yie (2)(6) 1,659,462 34.7%
Alan Lukas (3)(6) 989,638 20.8%
Roger E. Brooks (4)(6) 535,172 11.2%
Paul E. Lukas (5)(6) 380,256 8.0%
George Hissong (7) 31,500
Paul F. Walsh (7) 35,000
Enrique Sales (8) 48,725
Dean Richards (9) 19,062
All directors and executive officers
as a group (8 persons) (10) 3,318,559 69.6%
<FN>
- --------------------
<F1> Ampersand 1995 Limited Partnership and Ampersand 1995 Companion Fund
Limited Partnership own 1,612,247 and 26,215 shares, respectively.
The other controlling persons of Ampersand include ASMC-III MCLP LLP,
Charles D. Yie, Richard A. Charpie, Peter D. Parker, and Stuart A.
Auerbach. The address of Ampersand and each controlling person is 55
William Street, Suite 240, Wellesley, Massachusetts 02481.
<F2> Mr. Yie, a director of INCON, is a General Partner of ASMC-III MCLP
LLP, which in turn is a controlling person of Ampersand. As a result,
he may be deemed to have beneficial ownership of the shares held by
Ampersand. His ownership also includes 21,000 shares purchasable by
him within the next 60 days under stock options, at exercise prices
of between $2.00 and $2.14 per share.
<F3> Alan Lukas is a director and executive officer of INCON. His
ownership includes 880,551 shares owned directly, 66,949 shares owned
by his wife, and 42,138 shares held in trust for his child. His
address is c/o 74 Industrial Park Road, Saco, Maine 04072.
<F4> Mr. Brooks is a director and executive officer of INCON. His
ownership includes 486,923 shares of restricted stock purchased from
the Company upon commencement of employment in May 1998 (see page
12), 16,249 shares are purchasable by him within the next 60 days
under stock options, at exercise prices of between $1.25 and $1.938
per share, and 31,000 shares acquired by him through other purchases.
He holds options to purchase an additional 23,751 shares (not
included in this table), at those same exercise prices, which would
become exercisable upon a change in control. His address is c/o 74
Industrial Park Road, Saco, Maine 04072.
<F5> Paul Lukas' ownership includes 375,256 shares owned directly by him
and 5,000 shares purchasable by him within the next 60 days under a
stock option at an exercise price of $4.45 per share. His address is
c/o 74 Industrial Park Road, Saco, Maine 04072.
<F6> These persons may be deemed to have beneficial ownership over an
aggregate of 3,564,528 shares (74.8% of the outstanding shares), by
virtue of voting agreements contained in a Stockholders Agreement to
which each of them is a party.
<F7> Messrs. Hissong and Walsh are non-employee directors of INCON. Their
ownership includes, respectively, 25,000 and 35,000 shares
purchasable within the next 60 days under stock options, at exercise
prices of between $2.00 and $2.78 per share.
<F8> Mr. Sales is an executive officer of INCON. His ownership includes
1,850 shares owned directly by him and 46,875 shares purchasable
within the next 60 days under stock options, at exercise prices of
between $1.06 and $2.625 per share. He holds options to purchase an
additional 13,125 shares (not included in this table), at those same
exercise prices, which would become exercisable upon a change in
control.
16
<F9> Mr. Richards is an executive officer of INCON. His ownership includes
20,625 shares purchasable within the next 60 days under stock
options, at exercise prices of between $1.10 and $3.00 per share. He
holds options to purchase an additional 11,876 shares (not included
in this table), at those same exercise prices, which would become
exercisable upon a change in control.
<F10> Includes 164,749 shares purchasable within the next 60 days under
stock options. Does not include an additional 48,751 shares
purchasable under stock options upon a change in control.
</FN>
At the merger price of $3.95 per share, the Company projects that
these persons would receive the following consideration for their shares
and options: Ampersand, $6,471,925 for stock held by the funds; Mr. Yie, $0
for stock and $40,807 for options; Alan Lukas (inclusive of his wife and
child), $3,909,070 for stock and $0 for options; Mr. Brooks, $430,246 for
stock and $97,688 for options; Paul Lukas, $1,482,261 for stock and $0 for
options; Mr. Hissong, $25,675 for stock and $46,430 for options; Mr. Walsh,
$0 for stock and $65,430 for options; Mr. Sales, $7,308 for stock and
$88,575 for options; and Mr. Richards, $0 for stock and $50,938 for
options. In the aggregate, directors and executive officers (together with
their related parties) would receive $12,326,485 for stock and $389,868 for
options. Messrs Brooks, Sales, and Richards would also receive certain
ancillary payments from the Company in connection with the merger. See page
12 above.
MISCELLANEOUS
This Proxy Statement is first being mailed to shareholders on or
about June 25, 2002. The cost of solicitation of proxies on behalf of the
Board of Directors will be borne by INCON. Proxies may be solicited
personally or by telephone by directors, officers, and other employees of
INCON without any additional compensation. INCON will also request persons,
firms, and corporations holding shares in their names, or in the name of
their nominees, which are beneficially owned by others, to send proxy
materials to, and obtain proxies from, the beneficial owners, and will
reimburse those record holders for their reasonable expenses in doing so.
INCON's annual report to shareholders has been mailed to persons who
were shareholders as of the close of business on April 15, 2002. Any
shareholder who has not received a copy of the annual report may obtain a
copy by writing to the President of INCON. The annual report to
shareholders contains a copy of the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2001, as filed with the Securities
and Exchange Commission (including Amendment No. 1 thereto, but excluding
exhibits). The annual report is not to be treated as part of the proxy
solicitation materials or as having been incorporated herein.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gregory S. Fryer
Gregory S. Fryer, Clerk
Saco, Maine
June 25, 2002
17
APPENDIX A: AGREEMENT AND PLAN OF MERGER
(conformed copy of agreement, as executed by the parties as of April 25, 2002,
and amended as of May 28, 2002, excluding the schedules referenced therein)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and
entered into as of April 25, 2002 by and among Franklin Electric Co., Inc.,
an Indiana corporation ("Acquiror"), FEI Corporation, a Maine corporation
and a wholly-owned subsidiary of Acquiror ("Merger Subsidiary"), and
Intelligent Controls, Inc., a Maine corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Acquiror, Merger Subsidiary and
the Company each have determined that it is in the best interests of their
respective shareholders for Acquiror to acquire the Company upon the terms
and subject to the conditions of this Agreement;
WHEREAS, the Boards of Directors of Acquiror, Merger Subsidiary and
the Company have approved the merger of Merger Subsidiary with and into the
Company (the "Merger") upon the terms and subject to the conditions of this
Agreement so that the Company will become a wholly-owned subsidiary of
Acquiror; and
WHEREAS, Acquiror, Merger Subsidiary and the Company desire to make
certain representations, warranties, covenants and agreements in connection
with the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.3),
Merger Subsidiary shall be merged with and into the Company, in accordance
with the Maine Business Corporation Act (the "MBCA"), and the separate
corporate existence of Merger Subsidiary shall cease and the Company shall
continue as the surviving corporation (as such, the "Surviving
Corporation") with all the rights, privileges, immunities, powers and
franchises, and subject to all the restrictions, disabilities and duties,
of a corporation organized under the MBCA. The Merger shall have the
effects set forth in the MBCA.
SECTION 1.2 Closing. The closing of the Merger (the "Closing") shall
take place at 9:00 a.m. on a date to be specified by the parties, which
shall be no later than the second business day after satisfaction or waiver
of the conditions (excluding conditions that, by their terms, cannot be
satisfied until the Closing Date) set forth in Article VI, unless another
time or date is agreed to by the parties. The Closing shall be held at the
offices of Schiff Hardin & Waite, 6600 Sears Tower, Chicago, Illinois
60606, or such other location as the parties shall agree. The date on which
the Closing occurs is referred to in this Agreement as the "Closing Date."
SECTION 1.3 Effective Time. The parties hereto will file with the
Secretary of State of the State of Maine (the "Maine Secretary of State")
on the Closing Date (or on such other date as Acquiror and the Company may
agree) articles of merger or other appropriate documents, mutually
satisfactory in form and substance to Acquiror and the Company and executed
in accordance with the relevant provisions of the MBCA, and make all other
filings or recordings required under the MBCA, in connection with the
Merger. The Merger shall become effective upon the filing of the articles
of merger with the Maine Secretary of State, or at such later time as is
specified in the articles of merger (the "Effective Time").
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SECTION 1.4 Certificate of Incorporation. The articles of
incorporation of the Merger Subsidiary at the Effective Time shall be the
articles of incorporation of the Surviving Corporation until thereafter
amended in accordance with its terms and as provided by applicable law.
SECTION 1.5 By-Laws. The by-laws of the Merger Subsidiary at the
Effective Time shall be the by-laws of the Surviving Corporation until
thereafter amended as provided by applicable law, the articles of
incorporation or the by-laws of the Surviving Corporation.
SECTION 1.6 Directors. The directors of the Merger Subsidiary at the
Effective Time shall be the directors of the Surviving Corporation and
shall hold office from the Effective Time until their respective successors
are duly elected or appointed and qualified in the manner provided in the
articles of incorporation or by-laws of the Surviving Corporation, or as
otherwise provided by applicable law.
SECTION 1.7 Officers. The officers set forth on Exhibit A to this
Agreement shall be the officers of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the articles
of incorporation or by-laws of the Surviving Corporation, or as otherwise
provided by applicable law.
SECTION 1.8 Effect of Merger on Merger Subsidiary Capital Stock. Each
share of capital stock of Merger Subsidiary issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of common stock, no par value,
of the Surviving Corporation.
SECTION 1.9 Conversion of Common Stock.
(a) Outstanding Common Stock. Subject to the other provisions
of this Section 1.9, each share of common stock, no par value, of the
Company (the "Common Stock") issued and outstanding immediately prior
to the Effective Time (other than treasury shares to be cancelled in
accordance with Section 1.9(b), and Dissenting Shares (as defined in
Section 1.12), and subject to settlement of the restricted stock note
in accordance with Section 5.5) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted
into the right to receive $3.95 in cash, without interest (the
"Merger Consideration").
(b) Treasury Shares. Each share of Common Stock issued and
outstanding immediately prior to the Effective Time which is then
held as a treasury share by the Company immediately prior to the
Effective Time shall, by virtue of the Merger and without any action
on the part of the Company, be cancelled and retired and cease to
exist, without any conversion thereof.
SECTION 1.10 Exchange of Certificates and Related Matters.
(a) Paying Agent. At the Effective Time, Acquiror shall cause
the Surviving Corporation to deposit with a paying agent to be
designated by Acquiror and the Company prior to the Effective Time
("Paying Agent"), for the benefit of the holders of shares of Common
Stock, cash in an aggregate amount equal to the aggregate Merger
Consideration (such amount being sometimes referred to in this
Agreement as the "Payment Fund").
(b) Letter of Transmittal. Promptly after the Effective Time
(but in no event more than five business days thereafter), the
Surviving Corporation shall require the Paying Agent to mail to each
record holder of certificates (the "Certificates") that immediately
prior to the Effective Time represented shares of Common Stock, a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title shall pass, only upon proper
delivery of Certificates to the Paying Agent and shall be
substantially in such form as has been agreed to by the Company and
Acquiror prior to Closing) and instructions for use in surrendering
such Certificates and receiving the Merger Consideration to which
such holder shall be entitled therefor pursuant to Section 1.9. The
Surviving Corporation also shall require the Paying Agent to have
such letter of transmittal and instructions available at its offices
immediately after the Effective Date in order to accommodate record
holders of Certificates desiring to receive the Merger Consideration
at the earliest possible date.
A-2
(c) Exchange Procedures. Upon surrender to the Paying Agent
for cancellation of Certificates, together with a letter of
transmittal in accordance with Section 1.10(b) and such other
customary documents as may be required by the instructions to the
letter of transmittal, and acceptance thereof by the Paying Agent,
the holder of such Certificates shall be entitled to receive in
exchange therefor the amount of cash into which the number of shares
of Common Stock previously represented by such Certificates shall
have been converted pursuant to Section 1.9(a). The Paying Agent
shall accept such Certificates upon compliance with such reasonable
terms and conditions as the Paying Agent may impose to effect an
orderly exchange in accordance with normal exchange practices. If the
Merger Consideration (or any portion thereof) is to be delivered to
any person other than the person in whose name the Certificates
surrendered in exchange therefor is registered on the record books of
the Company, it shall be a condition to such exchange that the
Certificates so surrendered shall be properly endorsed or otherwise
be in proper form for transfer and that the person requesting such
exchange shall pay to the Paying Agent any transfer or other taxes
required by reason of the payment of such consideration to a person
other than the record holder of the Certificates surrendered, or
shall establish to the satisfaction of the Paying Agent that such tax
has been paid or is not applicable. After the Effective Time, there
shall be no further transfer on the records of the Company or its
transfer agent of any shares of Common Stock and if any Certificates
are presented to the Company for transfer, they shall be cancelled
against delivery of the Merger Consideration as provided above. Until
surrendered as contemplated by this Section 1.10(b), Certificates
(other than Certificates representing treasury shares of Common Stock
to be cancelled in accordance with Section 1.9(b)), shall be deemed
at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without any
interest thereon.
(d) No Further Ownership Rights in Shares. The Merger
Consideration paid upon the surrender for exchange of Certificates
representing shares of Common Stock in accordance with the terms of
this Article I shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to the shares of Common Stock
previously represented by such Certificates.
(e) Termination of Payment Fund. Any portion of the Payment
Fund which remains undistributed to the holders of the Certificates
representing shares of Common Stock for 120 days after the Effective
Time shall be delivered to Acquiror, upon demand, and any holders of
shares of Common Stock who have not theretofore complied with this
Article I shall thereafter look only to Acquiror and only as general
creditors thereof for payment, without interest, of their claim for
any Merger Consideration with respect to their shares of Common
Stock.
(f) No Liability. None of Acquiror, the Surviving Corporation
or the Paying Agent shall be liable to any person in respect of any
cash, shares, dividends or distributions payable from the Payment
Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates
representing shares of Common Stock shall not have been surrendered
prior to seven years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration in respect of
such Certificate would otherwise escheat to or become the property of
any Governmental Entity (as defined in Section 2.4)), any such cash,
shares, dividends or distributions payable in respect of such
Certificates shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation free and clear of all
claims or interest of any person previously entitled thereto.
SECTION 1.11 Stock Options. The Company shall take all necessary and
appropriate action to provide that immediately prior to the Effective Time
each outstanding option to purchase Common Stock (each, a "Stock Option")
granted under or pursuant to any stock option plan of the Company or any
agreement entered into by the Company with any employee or director of the
Company or any Subsidiary (as defined in Section 2.3) thereof, shall:
(a) to the extent vested and exercisable, be deemed
cancelled, with holders of a Stock Option entitled to receive from
the Company in consideration for the cancellation of such Stock
Option an amount in cash (less applicable withholding taxes) equal to
the product of (i) the number of shares of Common Stock previously
subject to such Stock Option, and (ii) the excess, if any, of the
Merger Consideration over the exercise price per share of Common
Stock previously subject to exercise under such Stock Option, and/or
A-3
(b) to the extent not vested and exercisable, be deemed
cancelled without any consideration payable to holders of a Stock
Option.
The Company shall take all necessary and appropriate actions to
provide that as of the Effective Time (i) no holder of Stock Options will
have any right to receive shares of common stock of the Surviving
Corporation upon exercise of any such Stock Option, and (ii) the Company
shall pay, or have made arrangements to pay, to each holder under Section
1.11(a) the amount contemplated by Section 1.11(a), and each holder,
whether or not entitled to payment under Section 1.11(a), shall have
delivered to the Company a release on terms mutually acceptable to the
Company and Acquiror.
Prior to the Effective Time, the Company may make arrangements for
the "net" exercise of otherwise exercisable Stock Options that constitute
Incentive Stock Options under Section 422(b) of the Internal Revenue Code,
as provided in Section 5.1(b) below, in which case the shares issued upon
exercise shall, at the Effective Time, be converted into the right to
receive the Merger Consideration, as provided in Section 1.9(a) above."
SECTION 1.12 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock outstanding immediately
prior to the Effective Time and held by a holder who has met all applicable
conditions for the exercise of dissenters' rights under Section 909 of the
MBCA, shall not be converted into or represent the right to receive the
Merger Consideration ("Dissenting Shares"). Shareholders holding Dissenting
Shares shall be entitled to receive payment of the fair value of such
shares of Common Stock in accordance with the provisions of Section 909 of
the MBCA, except that all Dissenting Shares held by shareholders who have
withdrawn or forfeited their right to dissent under Section 909 of the MBCA
shall thereupon be deemed to have been converted into, as of the Effective
Time, the right to receive, without any interest thereon, the Merger
Consideration, upon surrender, in the manner provided in Section 1.10(b),
of the Certificate or Certificates that formerly evidenced such shares of
Common Stock. The Company shall give Acquiror prompt notice of any demands
under Section 909 of the MBCA, withdrawals of such demands, and any other
instruments received by the Company, and Acquiror shall have the right to
participate in all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Company shall not, except with
the prior written consent of Acquiror, make any payment with respect to any
demands under Section 909 of the MBCA, or settle or offer to settle, any
such demands.
SECTION 1.13 Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things
are necessary, desirable or proper (a) to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation its right, title and
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of either of the Company or Merger Subsidiary, or (b)
otherwise to carry out the purposes of this Agreement, the Surviving
Corporation and its proper officers and directors or their designees shall
be authorized to execute and deliver, in the name and on behalf of either
the Company or Acquiror, all such deeds, bills of sale, assignments and
assurances and do, in the name and on behalf of such corporations, all such
other acts and things as may be necessary, desirable or proper to vest,
perfect or confirm the Surviving Corporation's right, title and interest
in, to and under any of the rights, privileges, powers, franchises,
properties or assets of such corporations and otherwise to carry out the
purposes of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror and Merger
Subsidiary, except as set forth in the specifically referenced sections of
the disclosure schedule delivered on or prior to the date hereof by the
Company (the "Disclosure Schedule") as follows:
SECTION 2.1 Organization, Standing and Corporate Power. The Company
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Maine and has the requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Company is duly qualified or licensed
to do business and is in good standing as a foreign corporation in each
jurisdiction in
A-4
which the nature of its business or the ownership, leasing or operation of
its properties makes such qualification or licensing necessary, except
where the failure to be so qualified or licensed or in good standing has
not had, and would not have, individually or in the aggregate, a Material
Adverse Effect. As used in this Agreement, the term "Material Adverse
Effect" means with respect to the Company a material adverse effect on the
business, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or working capital of the Company and its
Subsidiaries (as defined in Section 2.3) taken as a whole. The Company has
delivered to Acquiror complete and correct copies of its Articles of
Incorporation and Bylaws, as amended to the date of this Agreement.
SECTION 2.2 Capital Structure. The authorized capital stock of the
Company consists of 8,000,000 shares of Common Stock. At the close of
business on April 15, 2002, (a) 4,739,399 shares of Common Stock were
issued and outstanding (exclusive of treasury shares), (b) 321,724 shares
of Common Stock were held by the Company as treasury stock, (c) 420,000
shares of Common Stock were reserved for issuance upon the exercise of
Stock Options, which amount is sufficient to cover the exercise of all
outstanding Stock Options irrespective of vesting conditions, and (d)
410,000 shares of Common Stock (the "Restricted Shares") were issued
pursuant to a promissory note from the holder of the Restricted Shares. All
outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable and have not been issued in
violation of any shareholder rights under applicable law (including,
without limitation, all applicable federal and state securities laws), and
are not subject to preemptive rights. 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 the shareholders of the Company may vote are issued or outstanding.
Except as set forth above or in Section 2.2 of the Disclosure Schedule, the
Company does not have any outstanding option, warrant, subscription or
other right, agreement, obligation or commitment which either obligates the
Company to issue, sell or transfer, repurchase, redeem or otherwise acquire
or vote any shares of capital stock of the Company, or which restricts the
transfer of Common Stock. Section 2.2 of the Disclosure Schedule sets forth
the following information with respect to each Stock Option outstanding on
the date hereof (i) the name of the recipient, (ii) the number of shares of
Common Stock subject to such Stock Option, (iii) the applicable exercise
price for each Stock Option, and (iv) the projected number of shares of
Common Stock purchasable thereunder as of June 15, 2002 (assuming the due
exercise thereof on that date, consistent with the applicable vesting
conditions, if any).
SECTION 2.3 Subsidiaries. (a) Section 2.3(a) of the Disclosure
Schedule sets forth the name of each Subsidiary (as defined below) of the
Company and the state or jurisdiction of its incorporation. Each Subsidiary
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 and authority and all necessary government
approvals to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so
organized, existing or in good standing has not had, and would not have,
individually or in the aggregate, a Material Adverse Effect. Each
Subsidiary is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature
of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except where the failure
to be so qualified or licensed or in good standing has not had, and would
not have, individually or in the aggregate, a Material Adverse Effect. As
used herein, "Subsidiary" means any corporation, partnership, joint venture
or other legal entity of which the Company (either alone or through or
together with any other Subsidiary), owns, directly or indirectly, 50% or
more of the capital stock or other equity interests, the holders of which
are generally entitled to vote with respect to matters to be voted on in
such corporation, partnership, joint venture or other legal entity. Except
as disclosed in the Filed SEC Documents (as defined in Section 2.6), the
Company and its Subsidiaries are not subject to any material joint venture,
joint operating or similar arrangement or any material shareholders
agreement relating thereto.
(b) Section 2.3(b) of the Disclosure Schedule sets forth, as to each
Subsidiary, its authorized capital stock and the number of its issued and
outstanding shares of capital stock. The Company is, directly or
indirectly, the record and beneficial owner of all of the outstanding
shares of capital stock of each of the Subsidiaries, and no capital stock
of any Subsidiary is or may become required to be issued by reason of any
options, warrants, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into
or exchangeable or exercisable for, shares of any capital stock of any
Subsidiary. There are no contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may be bound to
issue, sell, transfer, repurchase, redeem, or otherwise acquire or vote any
shares of capital stock of any Subsidiary or securities convertible into or
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exchangeable or exercisable for any such shares. All of such shares so
owned by the Company are duly authorized, validly issued, fully paid and
nonassessable and have not been issued in violation of any shareholder
rights under applicable law (including, without limitation, all applicable
federal and state securities laws) and are owned by it free and clear of
all liens, claims, encumbrances, restraints on alienation, or any other
restrictions with respect to the transferability or assignability thereof
(other than restrictions on transfer imposed by federal or state securities
laws or those imposed as a matter of law by the jurisdiction of
incorporation).
(c) Except as set forth on Section 2.3(c) of the Disclosure Schedule,
neither Subsidiary has conducted any business since January 1, 1999.
SECTION 2.4 Authority; Noncontravention. The Company has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of the
Merger, to the approval of the Company's shareholders at a duly convened
meeting as set forth in Section 4.2. The Board of Directors of the Company
has determined that the Merger is advisable and fair to and in the best
interests of the Company and its shareholders and has approved the Merger
and this Agreement and has resolved to recommend the Merger to the
Company's shareholders for their approval. This Agreement has been duly
executed and delivered by the Company and, assuming this Agreement has been
duly executed and delivered by Acquiror and Merger Subsidiary, constitutes
a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms except that the enforcement thereof
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditor's rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
Except as disclosed in Section 2.4 of the Disclosure Schedule, the
execution and delivery of this Agreement do not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions hereof will not, (i) conflict with or violate any of the
provisions of the Articles of Incorporation or Bylaws of the Company, (ii)
subject to the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or default (with
or without notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any obligation or loss of a
benefit under, or require the consent of any person under, any loan
agreement, note, indenture or other agreement, permit, concession,
franchise, lease, contract, license or similar instrument, obligation or
undertaking to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of their assets is
bound or affected, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, contravene any law, rule or
regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect, subject, in the case of
clauses (ii) and (iii), to those conflicts, breaches, defaults and similar
matters, which, individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect, and would not
materially and adversely affect the Company's ability to consummate the
transactions contemplated by this Agreement. No consent, approval or
authorization of, or declaration or filing with, or notice to, any
governmental agency or regulatory body, court, agency, commission,
division, department, public body or other authority (a "Governmental
Entity") is required by or with respect to 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 hereby,
except for (A) the filing with the SEC of a preliminary and a definitive
proxy statement (the "Proxy Statement"), relating to the approval by the
Company's shareholders of the Merger and (B) the filing with the SEC of
such reports under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement and
the transactions contemplated by this Agreement, (C) the filing of the
certificate of merger with the Maine Secretary of State and appropriate
documents with the relevant authorities of other jurisdictions in which the
Company is qualified to do business, and (D) such other consents,
approvals, authorizations, filings or notices as are set forth in Section
2.4 of the Disclosure Schedule.
SECTION 2.5 SEC Documents. Since January 1, 1999, the Company has
timely filed all required reports, schedules, forms, statements and other
documents required to be filed by it with the SEC (such reports, schedules,
forms, statements and other documents are hereinafter referred to as the
"SEC Documents"). As of their respective
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dates, and in all material respects, the SEC Documents complied with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents as of such dates contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated 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 ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as
permitted by Rule 10-01 of Regulation S-X) and fairly present, in all
material respects, the consolidated financial position of the Company and
its Subsidiaries as of the dates thereof and the consolidated results of
their operations, cash flows and shareholders' equity for the periods then
ended (subject, in the case of unaudited interim financial statements, to
normal recurring adjustments).
SECTION 2.6 Absence of Certain Changes or Events. Except as disclosed
in the SEC Documents filed prior to March 31, 2002 (the "Filed SEC
Documents"), or in Section 2.6 of the Disclosure Schedule or as otherwise
contemplated or permitted by this Agreement, since the date of the most
recent audited financial statements included in the Filed SEC Documents,
the Company and its Subsidiaries have conducted their business only in the
ordinary course (which conduct has not had, and would not reasonably be
expected to have, a Material Adverse Effect), and except as otherwise
expressly permitted by this Agreement, there has not been:
(a) any event, effect or change which has had or which would
reasonably be expected to have a Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with
respect to any of the Company's outstanding capital stock;
(c) any split, combination or reclassification of any of its
outstanding 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 outstanding capital stock,
(d) (i) any granting by the Company or any of its
Subsidiaries to any director, officer or other employee of the
Company or any of its Subsidiaries of any increase in compensation,
except in the case of employees in the ordinary course of business
consistent with prior practice, or as was required under employment
agreements in effect as of the date of the most recent audited
financial statements included in the Filed SEC Documents, (ii) any
granting by the Company or any of its Subsidiaries to any director,
officer or other employee of any increase in severance or termination
pay, except as was required under any employment, severance or
termination agreements in effect as of the date of the most recent
audited financial statements included in the Filed SEC Documents,
(iii) any entry by the Company or any of its Subsidiaries into any
employment, severance, change of control, termination or similar
agreement with any officer, director or other employee;
(e) any change in the method of accounting or policy used by
the Company or any of its Subsidiaries, except as disclosed in the
financial statements included in the Filed SEC Documents; and
(f) any loss or material interference with the Company's
business or assets from fire, accident, flood or other casualty
(whether or not covered by insurance) that has had or would
reasonably be expected to have a Material Adverse Effect; or
(g) any material increase in indebtedness.
SECTION 2.7 Absence of Undisclosed Liabilities. Except as reflected
in the most recent financial statements contained in the Filed SEC
Documents or as described in Section 2.7 of the Disclosure Schedule and
except as has been incurred after December 31, 2001 in the ordinary course
of business (which has not had, and would not reasonably be expected to
have, a Material Adverse Effect) or in connection with the transactions
contemplated by
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this Agreement, the Company and its Subsidiaries (a) do not have any
liabilities or obligations (whether direct or indirect, contingent or
otherwise) and (b) have not entered into any material oral or written
agreement or other transaction which has had or would reasonably be
expected to have a Material Adverse Effect.
SECTION 2.8 Benefit Plans.
(a) Definitions.
(i) Plan. The term "Plan" includes (A) each employee
benefit plan, as defined in Section 3(3) of ERISA (other than a
Multiemployer Plan and including terminated Plans) which
currently or since December 31, 1996, is or has been maintained
for employees of the Company or of any Control Group member or
to which the Company or any Control Group member makes or was
required to make contributions and (B) each nonqualified
employee benefit plan, or deferred compensation, bonus,
severance, stock option, restricted stock, performance share,
phantom stock or incentive plan, employment agreement,
severance agreement or other employee benefit or fringe benefit
program, agreement arrangement or policy.
(ii) Qualified Plan. The term "Qualified Plan" means any
Plan which is an employee pension benefit plan as defined in
Section 3(2) of ERISA and which is intended to meet the
qualification requirements of the Code.
(iii) Title IV Plan. The term "Title IV Plan" means any
Qualified Plan that is a defined benefit plan (as defined in
Section 3(35) of ERISA) and is subject to Title IV of ERISA.
(iv) Multiemployer Plan. The term "Multiemployer Plan"
means any employee benefit plan that is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA and to which the
Company or any Control Group member has or had any obligation
to contribute.
(v) Control Group. The term "Control Group" means a
controlled group of corporations of which the Company is a
member within the meaning of Section 414(b) of the Code, any
group of corporations or entities under common control with the
Company within the meaning of Section 414(c) of the Code or any
affiliated service group of which the Company is a member
within the meaning of Section 414(m) of the Code.
(vi) Code. The term "Code" means the Internal Revenue
Code of 1986, as amended.
(vii) ERISA. The term "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended.
(b) Plans Listed; Control Group. All Plans are listed on
Section 2.8(b) of the Disclosure Schedule. Neither the Company nor
any other member of the Control Group maintains or contributes to, or
has ever maintained or contributed to a Title IV Plan or a
Multiemployer Plan. No Subsidiary of the Company has any employees
who participate in any of the Plans, and (except for the Control
Group consisting of the Company and its Subsidiaries) the Company is
not otherwise a member of any Control Group.
(c) Operations of Plans.
(i) Each Plan has been administered in compliance with
its terms and with all filing, reporting, disclosure and other
requirements of all applicable statutes (including but not
limited to ERISA and the Code), regulations and interpretations
thereunder, except for any failure to so comply that,
individually or together with all other such failures, has not
had and is not reasonably expected to have a Material Adverse
Effect.
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(ii) To the Company's knowledge and in all material
respects, all oral or written communications with respect to
each Plan currently and in the past reflect and have reflected
the documents and operations of the Plan.
(iii) To the Company's knowledge, neither the Company nor
any of its Subsidiaries, nor any of their respective employees
or directors, nor any fiduciary, has engaged in any
transaction, including the execution and delivery of this
Agreement, in violation of Section 406(a) or (b) or Section 407
of ERISA or which is a "prohibited transaction" (as defined in
Section 4975(c)(l) of the Code) for which no exemption exists
under Section 408(b) and (e), of ERISA or Section 4975(d) of
the Code or for which no administrative exemption has been
granted under Section 408(a) of ERISA.
(iv) Each Qualified Plan (together with its related
funding instrument) is qualified and tax exempt under Sections
401 and 501 of the Code and is the subject of a favorable
Internal Revenue Service determination with respect to such
qualification and exemption. Nothing has occurred since the
date of such determination that will adversely affect such
determination or the qualified and tax exempt status of such
Qualified Plan.
(v) No matter is pending relating to any Plan before
any court or Governmental Entity.
(vi) No Plan is currently the subject of a submission
under the Internal Revenue Service Employee Plans Compliance
Resolution System or any similar system, nor under any United
States Department of Labor amnesty program, and the Company
does not anticipate any such submission of any such Plan.
(vii) Every fiduciary and official of each Plan is bonded
to the extent required by Section 412 of ERISA, if applicable,
and no civil or criminal action with respect to any Plan,
pursuant to any federal or state law, is pending or (to the
Company's knowledge) is threatened, against (A) the Company or
any Subsidiary thereof, or (B) against any officer, director or
employee thereof or any fiduciary of any Plan.
(viii) To the Company's knowledge, no Plan fiduciary or
any other person has, or has had, any liability to any Plan
participant or beneficiary or any other person under any
provisions of ERISA or any other applicable law by reason of
any action or failure to act in connection with any Plan,
including, but not limited to, any liability by any reason of
any payment of, or failure to pay, benefits or any other
amounts or by reason of any credit or failure to give credit
for any benefits or rights.
(ix) Set forth on Section 2.8(c)(ix) of the Disclosure
Schedule is a list of all Plans to which the Company or any
other member of the Control Group is a party or by which any of
them is bound and under which, as a result of the consummation
of the transactions contemplated by this Agreement or any other
transaction or transactions contemplated by the Company, any
current or former director, officer, employee or other agent of
the Company or any other member of the Control Group or any
other party claiming through such a person shall or may acquire
rights to compensation, incentive pay, severance pay,
unemployment compensation or any other rights with respect to
any Plan (including, without limitation, the creation, increase
or extension of new or existing rights), become entitled to a
distribution or payment with respect to any Plan at a date
earlier than if such transaction had not occurred, or otherwise
receive or become vested in rights or benefits with respect to
any Plan.
(x) Except as set forth on Section 2.8(c)(x) of the
Disclosure Schedule, neither the Company nor any member of the
Control Group has any obligations, or liabilities with respect
to, retiree health and life benefits under any Plan except for
benefits for continued group health coverage required to be
provided under Section 4980B of the Code and Sections 601
through 609 of ERISA or applicable state law.
(xi) No Plan provides for payment of any amount which,
considered in the aggregate with amounts payable pursuant to
all other Plans, would exceed the amount deductible for federal
income tax purposes by virtue of Sections 280G or 162 (m) of
the Code.
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(d) Plan Documents and Records.
(i) Complete and correct copies of all current and
prior documents, including all amendments thereto, with respect
to each Plan, have been delivered to Acquiror. These documents
include, but are not limited to, the following: Plan documents,
trust agreements, insurance contracts, annuity contracts,
summary plan descriptions, filings with any Governmental
Entity, investment manager and investment adviser contracts,
and actuarial reports, audit reports, financial statements, and
annual reports (Form 5500) for the most recent three plan years
ending prior to the Closing Date.
(ii) As of the Closing Date, the participant or
beneficiary records with respect to each Plan shall be in
custody of the persons listed on Section 2.8(d)(ii) of the
Disclosure Schedule. To the Company's knowledge and in all
material respects, all such records accurately set forth the
history of each participant and beneficiary in connection with
each Plan and accurately state the benefits earned and owed to
each such person under each such Plan as of the date hereof.
(e) Finances. All contributions payable to each Plan for all
benefits earned and other liabilities accrued through December 31,
2001 determined in accordance with the terms and conditions of such
Plan, ERISA and the Code, have been paid or otherwise provided for,
and to the extent unpaid are reflected in the balance sheet of the
Company as of December 31, 2001.
SECTION 2.9 Taxes. Except as disclosed in Section 2.9 of the
Disclosure Schedule:
(a) Each of the Company and its Subsidiaries has filed all
tax returns and reports required to be filed by it or requests for
extensions to file such returns or reports have been timely filed,
granted and have not expired. All tax returns filed by the Company
and each of its Subsidiaries are complete and accurate in all
material respects. The Company and each of its Subsidiaries has paid
(or the Company has paid on the Subsidiaries' behalf) all taxes shown
as due on such returns and all taxes required to be paid. 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 accrued
through the date of such financial statements.
(b) The Company has received no notice that any deficiencies
for any taxes have been proposed, asserted or assessed against the
Company or any of its Subsidiaries by any Governmental Entity. Except
as set forth on Section 2.9 of the Disclosure Schedule, no requests
for waivers of the time to assess any such taxes have been granted or
are pending. The Federal income tax returns of the Company and each
of its Subsidiaries consolidated in such returns have been examined
by and settled with the United States Internal Revenue Service, or
the statute of limitations on assessment or collection of any Federal
income taxes due from the Company or the any of its Subsidiaries has
expired, through such taxable years as are set forth in Section 2.9
of the Disclosure Schedule.
(c) As used in this Agreement, "taxes" shall include all
federal, state, local and foreign income, property, premium,
franchise, sales, excise, employment, payroll, withholding and other
taxes, tariffs or governmental charges of any nature whatsoever and
any interest, penalties, additional amounts and additions to taxes
relating thereto.
(d) Neither the Company nor any of its Subsidiaries has made
any election, filed any consent or entered into any agreement with
respect to taxes that is not reflected on the federal income tax
returns of the Company and its Subsidiaries for the three years ended
December 31, 2001 (copies of which returns have been provided to
Acquiror for review prior to the date of this Agreement) and that
would reasonably be expected to be material to the Company and the
Subsidiaries taken as a whole.
SECTION 2.10 Compliance with Applicable Laws. Except as disclosed in
Section 2.10 of the Disclosure Schedule:
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(a) The business of the Company and each of the Subsidiaries
is being, and has been since December 31, 1996, conducted in
compliance in all material respects with all applicable federal,
state, local and foreign laws, statutes, ordinances, rules and
regulations, decrees, judgments and orders of any Governmental
Entity, and all material notices, reports, documents and other
information required to be filed thereunder within the last three
years were properly filed and were in compliance in all material
respects with such laws. The assets, properties, facilities and
operations of the Company and each of the Subsidiaries are in
compliance in all material respects with all applicable laws relating
to public and worker health and safety.
(b) The Company, and each of the Subsidiaries, has all
material licenses, permits, authorizations, franchises, and rights
issued or issuable by any Governmental Entity ("Licenses") which are
necessary for it to own, lease or operate its properties and assets
and to conduct its business as now conducted. The business of the
Company and each of the Subsidiaries has been and is being conducted
in compliance in all material respects with all such Licenses. All
such Licenses are in full force and effect, and there is no
proceeding or investigation pending or, to the knowledge of the
Company, threatened which would reasonably be expected to lead to the
revocation, amendment, failure to renew, limitation, suspension or
restriction of any such License.
SECTION 2.11 Product Liability. Except as set forth in Section 2.11
of the Disclosure Schedule, in connection with the conduct of the Company's
business: (a) to the Company's knowledge, there are no events, conditions,
circumstances, activities, practices, incident, actions, omissions or plans
which might reasonably be expected to give rise to any material liability
or obligation or otherwise form the basis of any material claim based on or
related to any product that was or allegedly was designed, formulated,
manufactured, processed, serviced, distributed or sold by the Company or
any of its affiliates or any service provided or allegedly provided by or
on behalf of the Company or any affiliates, and (b) to the Company's
knowledge, all products, including the packaging and advertising related
thereto, which were sold or designated, formulated, manufactured, processed
and placed in the stream of commerce by the Company or any of its
affiliates or any services provided by the Company or any of its affiliates
materially complied with applicable Company Agreements (as defined in
Section 2.16 below), applicable laws, including orders from any
Governmental Entity, or applicable industry standards, and there have not
been and there are no material defects or deficiencies in such services or
products.
SECTION 2.12 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the Company
directly with Acquiror, without the intervention of any person on behalf of
the Company in such manner as to give rise to any valid claim by any person
against the Company, Acquiror or any Subsidiary for a finder's fee,
brokerage commission, or similar payment.
SECTION 2.13 Environmental. Except as set forth in Section 2.13 of
the Disclosure Schedule:
(a) The operations and properties of the Company and the
Subsidiaries (i) are in compliance in all material respects with all
applicable Environmental Laws (as defined) and (ii) have not
generated, used, stored, transported, manufactured, released or
disposed of any Hazardous Materials (as defined) on or off the
Company's premises in violation of Environmental Laws. No material
expenditure relative to the Company's premises will be required to
comply with Environmental Laws in connection with the operation or
continued operation of the business of the Company and the
Subsidiaries after the Effective Date in a manner consistent with the
current operation thereof by the Company and the Subsidiaries. To the
knowledge of the Company and the Subsidiaries, no material
expenditure will be required to remediate, clean up, abate or remove
any Hazardous Materials on any real property currently operated or
leased, or formerly owned, operated or leased by the Company or the
Subsidiaries.
(b) There are no actions, complaints, citations,
investigations or proceedings pending or, to the knowledge of the
Company, threatened against the Company or the Subsidiaries alleging
the violation of or seeking to impose liability or responsibility for
environmental cleanup costs pursuant to any Environmental Law or
Environmental Permit (as defined below);
(c) The Company has provided Acquiror with copies of all
environmental audits, assessments, studies, reports, analyses,
investigation results or similar environmentally-related documents of
any real property
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currently or formerly owned, operated or leased by the Company or any
of its Subsidiaries and copies of all Environmental Permits required
for the operations of the Company, in all cases limited to those
within the possession, custody or control of the Company or its
Subsidiaries.
(d) The Company has provided Acquiror with copies of all
requests for information (and responses thereto), notices of
violation, complaints, claims or other documents or correspondence
related to or referring to any actual or alleged violations of
Environmental Laws or responsibility for environmental cleanup costs,
including but not limited to the Federal Comprehensive Environmental,
Response, Compensation and Liability Act ("CERCLA") and similar state
laws, at (i) any real property currently or formerly owned, operated
or leased by the Company or any Subsidiaries, or (ii) at CERCLA or
similar state sites at which the Company or any Subsidiaries are
named as potentially responsible parties, or for which the Company or
any Subsidiaries have received a CERCLA Section 122(c), Section
104(e) or similar notice or request for information, in all cases
limited to those within the possession, custody or control of the
Company or its Subsidiaries.
(e) The Company and Subsidiaries possess, and have maintained
in full force and effect, all Environmental Permits required for the
operation of their respective businesses, and in all material
respects are in compliance with the provisions of all such
Environmental Permits. Section 2.11(e) of the Disclosure Schedule
contains a list of all Environmental Permits. No modification,
revocation, reissuance, alteration, transfer or amendment of any
material Environmental Permit or any review by, or approval of, any
third party of any Environmental Permit is required in connection
with the execution or delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(f) The Company and the Subsidiaries have not contractually
created or otherwise assumed any liabilities or obligations or
indemnifications of any third party under any Environmental Laws,
including related to any real property currently or formerly owned,
operated or leased by the Company or any Subsidiaries.
(g) As used in this Section 2.13, each of the following terms
shall have the following meanings: (i) "Environmental Law" means any
applicable federal, state, local, or foreign law, statute, code,
ordinance, rule, regulation or other requirement (including common
law) relating to the environment (including air, soil, surface water,
groundwater, drinking water, plant life and animal life), or public
or employee health and safety; (ii) "Environmental Permit" means any
governmental permit, consent, approval, authorization, license,
variance, notice, registration, identification number or permission
required under or issued pursuant to any applicable Environmental Law
or order, writ, injunction or decree; and (iii) "Hazardous Materials"
means any hazardous, toxic or dangerous substances, materials and
wastes, including but not limited to naturally occurring or man-made
petroleum or other hydrocarbons, flammable explosives, asbestos
containing materials, radioactive materials, radioactive wastes,
polychlorinated biphenyls, pesticides, herbicides and any other
pollutants or contaminants (including materials with hazardous
constituents), sewage, sludge, industrial and/or mining slag,
tailings, solvent, including any other substances, materials or
wastes regulated under Environmental Law.
SECTION 2.14 Litigation. Except as set forth in the Filed SEC
Documents or in Section 2.14 of the Disclosure Schedule:
(a) there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity against the Company or
any of its Subsidiaries, any of its or their properties, assets or
business, (or, to the knowledge of the Company, any of its or their
current or former directors or officers, as such), that have had or
would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(b) there are no actions, suits or claims or legal,
administrative or arbitration proceedings or investigations pending
or, to the knowledge of the Company, threatened against the Company
or any of its Subsidiaries, any of its or their properties, assets or
business (or, to the knowledge of the Company, any of its or their
current or former directors or officers, as such), that have had or
would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; and
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(c) there are no actions, suits or claims or legal,
administrative or arbitration proceedings or investigations pending
or, to the knowledge or the Company, threatened against the Company
or any of its Subsidiaries, any of its or their properties, assets or
business (or, to the knowledge of the Company, any of its or their
current or former directors or officers, as such), relating to the
transactions contemplated by this Agreement.
SECTION 2.15 Labor Relations. Except as set forth in Section 2.15 of
the Disclosure Schedule:
(a) Neither the Company nor any Subsidiary is a party to any
collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or any Subsidiary and
there are no known organizational campaigns, petitions or other
unionization activities seeking recognition of a collective
bargaining unit.
(b) There are no strikes, slowdowns, work stoppages or labor
relations controversies pending or, to the knowledge of the Company,
threatened between the Company or any Subsidiary and any of their
respective employees, and neither the Company nor any Subsidiary has
experienced any such strike, slowdown, work stoppage or material
controversy within the past three years.
SECTION 2.16 Contracts. Except as set forth in the Filed SEC
Documents or as set forth in Section 2.16 of the Disclosure Schedule, there
are no agreements, contracts or other instruments to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their assets is bound or affected that are material
to the business, financial condition or results of operations of the
Company or its Subsidiaries taken as a whole ("Company Agreements").
Neither the Company or any of its Subsidiaries nor, to the knowledge of the
Company, any other party is in breach of or default under any Company
Agreements which are currently in effect, except for such breaches and
defaults which have not had, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as set
forth in the Filed SEC Documents or as set forth in Section 2.16 of the
Disclosure Schedule, neither the Company nor any Subsidiary is a party to
or bound by any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in
which, or the localities in which, the Company or any Subsidiary is
entitled to conduct all or any material portion of its business.
SECTION 2.17 Intellectual Property.
(a) Except as set forth on Section 2.17(a) of the Disclosure
Schedule, the Company owns, or has license to use, all inventions,
improvements, patents, utility models, designs, trade names, trade
dress, trade secrets, trademarks, service marks, copyrights and other
proprietary rights (including all grants, registrations or
applications therefor), used in the Company's business or necessary
for the conduct of the Company's business (collectively,
"Intellectual Property") as presently conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are
owned by the Company, or to which the Company holds an exclusive
license to use, are listed in Section 2.17(b) of the Disclosure
Schedule. All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights that are
material to the Company's business and are otherwise licensed from
third parties are listed in Section 2.17(b) of the Disclosure
Schedule.
(c) All licenses or other agreements under which (i) the
Company is granted rights in Intellectual Property by others (other
than licenses for "Office Software"), or (ii) the Company has granted
rights to others in Intellectual Property owned or licensed by the
Company, are listed in Section 2.17(c) of the Disclosure Schedule.
All said licenses or other agreements are in full force and effect,
and to the Company's knowledge there is no material default by any
party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to
Acquiror. "Office Software" means any third party computer software
that is licensed for use on desktop or laptop "PC-class" computers or
related local area network servers other than by a written agreement
executed by the licensee, including software licensed by shrink wrap
or click wrap licenses, the Microsoft Windows class of operating
system software, and Microsoft Office or similar office productivity
software (including individual programs contained therein). To the
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Company's knowledge there is no material default with respect to any
license for the Office Software that is used in the Company's
business.
(d) Except as set forth on Section 2.17(d) of the Disclosure
Schedule, the Company is the owner of record of any application,
registration or grant for each item of Intellectual Property set
forth on Section 2.17(b) of the Disclosure Schedule, and has properly
executed and recorded all documents necessary to perfect its title to
such Intellectual Property. The Company has filed all documents and
paid all taxes, fees, and other financial obligations required to
maintain in force and effect all such Intellectual Property until
Closing.
(e) Except as set forth on Section 2.17(e) of the Disclosure
Schedule, neither the conduct of the Company's business, nor any of
the products sold or services provided by the Company in connection
therewith, infringes upon or is inconsistent with the rights of any
other person or entity. Except as set forth on Section 2.17(e) of the
Disclosure Schedule, to the Company's knowledge neither the conduct
of any other person's or entity's business, nor the nature of any of
the products it sells or services it provides, infringes upon the
Company's rights in respect of any Intellectual Property.
(f) Except as set forth on Section 2.17(f) of the Disclosure
Schedule, the Company owns all computer software that has been
developed by or for the Company and that is used in the Company's
business or is necessary for the conduct of the Company's business as
presently conducted or contemplated ("Company Software"). Section
2.17(f) of the Disclosure Schedule sets forth a list of all material
Company Software.
(g) The Company has taken reasonable and prudent steps,
consistent with good business practices, to require employees and
agents with access to the Intellectual Property to maintain the
confidentiality of non-public information relating to the
Intellectual Property, including the source code of Company Software,
and to appropriately restrict the use of thereof. The source code of
Company Software is complete and correct and constitutes all of the
source code that is necessary for the conduct of the Company's
business as presently conducted or contemplated. The Company owns all
inventions and developments relating to the Company's present or
contemplated business that were conceived or created by its employees
and other persons having access to valuable non-public information of
the Company, including the source code of Company Software, during
the course of their work for the Company. Section 2.17(g) of the
Disclosure Schedule contains a description of the Company's practices
in this regard.
SECTION 2.18 Real Estate. The Company and its Subsidiaries do not own
any real estate. The Company and its Subsidiaries do not lease any real
estate other than the premises identified in the Filed SEC Documents or as
set forth in Section 2.18 of the Disclosure Schedule as being so leased.
SECTION 2.19 Anti-Takeover Provisions. The Board of Directors of the
Company has taken all necessary action to ensure that no "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover
statute or regulation, including Section 910 of the MBCA (each, a "Takeover
Statute"), or any applicable anti-takeover provision in the Company's
articles of incorporation or by-laws is or will become applicable to the
Merger. To the knowledge of the Company, no other state takeover statute is
or will become applicable to the Merger.
SECTION 2.20 Voting Requirements. The affirmative vote of the holders
of a majority of the outstanding shares of Common Stock entitled to vote at
the Shareholders Meeting (as defined in Section 4.2) is the only vote of
the holders of any class of the Company's capital stock necessary to
approve Merger and the transactions contemplated by this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
ACQUIROR AND MERGER SUBSIDIARY
Acquiror and Merger Subsidiary represent and warrant to the Company
as follows:
SECTION 3.1 Organization and Standing. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Indiana.
SECTION 3.2 Merger Subsidiary. Merger Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maine. The authorized capital stock of Merger Subsidiary consists
of 100 shares of common stock, no par value, all of which are validly
issued and outstanding. All of the issued and outstanding capital stock of
Merger Subsidiary is, and immediately prior to the Effective Time will be,
owned by Acquiror. Merger Subsidiary has not conducted any business prior
to the date hereof and has no, and immediately prior to the Effective Time
will have no, assets, liabilities or obligations of any nature other than
incident to its formation and pursuant to this Agreement.
SECTION 3.3 Authority; Noncontravention. Each of Acquiror and Merger
Subsidiary has all requisite corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement by Acquiror and Merger Subsidiary and the
consummation by Acquiror and Merger Subsidiary of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Acquiror and Merger Subsidiary. This Agreement has
been duly executed and delivered by and, assuming this Agreement has been
duly executed and delivered by the Company, constitutes a valid and binding
obligation of each of Acquiror and Merger Subsidiary, enforceable against
each in accordance with its terms except that the enforcement thereof may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditor's rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not (i) conflict with
or violate any of the provisions of the articles of incorporation or by-
laws of Acquiror or Merger Subsidiary, (ii) subject to the governmental
filings and other matters referred to in the following sentence, conflict
with, result in a breach of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of a benefit under, or require
the consent of any person under, any indenture, or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to
which Acquiror or any of its subsidiaries (including Merger Subsidiary) is
a party or by which Acquiror or any of its subsidiaries (including Merger
Subsidiary) or any of their assets is bound or affected, or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, contravene any law, rule or regulation of any state or of the
United States or any political subdivision thereof or therein, or any
order, writ, judgment, injunction, decree, determination or award currently
in effect, subject, in the case of clauses (ii) and (iii), to those
conflicts, breaches, defaults and similar matters, which, individually or
in the aggregate, would not materially and adversely affect Acquiror's or
Merger Subsidiary's ability to consummate the transactions contemplated
hereby. No consent, approval or authorization of, or declaration or filing
with, or notice to, any Governmental Entity is required by or with respect
to Acquiror or Merger Subsidiary in connection with the execution and
delivery of this Agreement by Acquiror and Merger Subsidiary or the
consummation by Acquiror and Merger Subsidiary of any of the transactions
contemplated hereby, except for (A) the filing of the certificate of merger
with the Maine Secretary of State, and appropriate documents with the
relevant authorities of the other states in which the Company is qualified
to do business, and (B) such other consents, approvals, authorizations,
filings or notices as are set forth in Section 2.4 of the Disclosure
Schedule.
SECTION 3.4 Financing. Acquiror has, and will have at the Closing,
sufficient funds to pay the aggregate Merger Consideration.
SECTION 3.5 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by Acquiror
directly with the Company, without the intervention of any person on behalf
of
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Acquiror in such manner as to give rise to any valid claim by any person
against Acquiror, the Company or any Subsidiary for a finder's fee,
brokerage commission, or similar payment.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.1 Preparation of Proxy Statement.
(a) Proxy Statement. As soon as practicable following the
date of this Agreement, the Company shall prepare and file with the
SEC a proxy statement that describes the pending Merger and related
actions (including any amendments or supplements thereto, the "Proxy
Statement"). The Company will use its reasonable efforts to cause the
Proxy Statement to be mailed to the Company's shareholders as
promptly as practicable. Acquiror shall have a reasonable opportunity
to review and comment on drafts of the Proxy Statement, and agrees to
provide such information about Acquiror as may reasonably be
necessary or appropriate for inclusion in the Proxy Statement and any
amendment or supplement thereto.
(b) Company Information. The Company agrees that none of the
information supplied or to be supplied by the Company specifically
for inclusion or incorporation by reference in the Proxy Statement
will, at the date it is first mailed to the Company's shareholders or
at the time of the Shareholders Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all
material respect with the requirements of the Exchange Act and the
rules and regulations thereunder. If, to the knowledge of the
Company, any information contained in the Proxy Statement is or
becomes inaccurate, the Company shall promptly amend the Proxy
Statement or otherwise provide supplemental information to
shareholders, in compliance with the Exchange Act.
(c) Acquiror Information. Acquiror agrees that none of the
information supplied or to be supplied by Acquiror specifically for
inclusion or incorporation by reference in the Proxy Statement will,
at the date it is first mailed to the Company's shareholders or at
the time of the Shareholders Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they are made, not
misleading. If, to the knowledge of Acquiror, any information
concerning Acquiror that is contained in the Proxy Statement is or
becomes inaccurate, Acquiror shall promptly notify the Company of
such inaccuracy.
SECTION 4.2 Meeting of Shareholders. The Company will take all action
necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws to convene a meeting of its shareholders (the
"Shareholders Meeting") to consider and vote upon the approval of this
Agreement and the Merger. The Company's Board of Directors will recommend
to its shareholders approval of this Agreement and the Merger. The Company
will use its reasonable efforts to hold the Shareholders Meeting as soon as
practicable after the date hereof. Notwithstanding anything in this
Agreement to the contrary, the Company reserves the right to obtain the
approval of this Agreement and the Merger by means of a written consent
procedure in lieu of a vote at the Shareholders Meeting.
SECTION 4.3 Access to Information; Confidentiality. Upon reasonable
notice, the Company shall, and shall cause its Subsidiaries to, afford to
Acquiror and to the officers, employees, accountants, counsel, financial
advisors, financing sources and other representatives of Acquiror
reasonable access during normal business hours during the period prior to
the Effective Time to all its properties, books, contracts, commitments,
personnel and records. During such period, the Company shall furnish
promptly to, upon request, a copy of (a) each SEC Document filed by it
during such period, and (b) all correspondence or written communication
with any Governmental Entity which relates to the transactions contemplated
hereby or which is otherwise material to the financial condition or
operations of the Company and its Subsidiaries taken as a whole. Except as
required by law, Acquiror will hold, and will cause its respective
directors, officers, partners, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information obtained from the Company in confidence to the extent required
by, and in accordance with, the provisions of the Nondisclosure Agreement,
dated January 30, 2002, between Acquiror and the Company (the
"Nondisclosure Agreement").
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SECTION 4.4 Reasonable Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the
parties agrees to use its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement.
SECTION 4.5 Public Announcements. Acquiror and the Company will
consult with each other before issuing, and shall provide each other a
reasonable opportunity to review and comment upon, any press release or
public statement with respect to this Agreement or the transactions
contemplated hereby, except to the extent disclosure prior to such
consultation, review and comment may be required by applicable law, court
process or obligations pursuant to any listing agreement with any national
securities exchange.
SECTION 4.6 Acquisition Proposals. The Company shall not, 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, (a) solicit,
initiate or encourage the submission of any Acquisition Proposal (as
defined below), (b) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect
to, or take any other action to facilitate any inquiries or the making of
any proposal that constitutes, an Acquisition Proposal or (c) enter into
any understanding, commitment or agreement with respect to an Acquisition
Proposal. The Company shall promptly advise Acquiror orally and in writing
of the receipt by it (or by any of the other entities or persons referred
to above) after the date hereof of any Acquisition Proposal or any inquiry
which could reasonably lead to an Acquisition Proposal, the material terms
and conditions of such Acquisition Proposal or inquiry, and the identity of
the person or entity making any such Acquisition Proposal. For purposes of
this Agreement, "Acquisition Proposal" means any bona fide proposal with
respect to a merger, consolidation, share exchange, tender offer, or
similar transaction involving the Company or any Subsidiary or any purchase
of all or any significant portion of the assets or capital stock of the
Company or any Subsidiary or any other business combination (including
without limitation the acquisition of an equity interest therein) involving
the Company other than the transactions contemplated by this Agreement.
SECTION 4.7 Filings; Other Action. As promptly as practicable after
the date of this Agreement, the Company and Acquiror shall cooperate in all
reasonable respects with each other in (a) determining if other filings are
required to be made prior to the Effective Time with, or if other material
consents, approvals, permits, notices or authorizations are required to be
obtained prior to the Effective Time from, any Governmental Entity in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement and (b)
timely making all such filings and timely seeking all such consents,
approvals, permits, notices or authorizations. In connection with the
foregoing, the Company will provide Acquiror, and Acquiror will provide the
Company, with copies of correspondence, filings or communications (or
memoranda setting forth the substance thereof) between such party or any of
its representatives, on the one hand, and any Governmental Entity or
members of their respective staffs, on the other hand, with respect to this
Agreement and the transactions contemplated hereby. Each of Acquiror and
the Company acknowledge that certain actions may be necessary with respect
to the foregoing in making notifications and obtaining clearances,
consents, approvals, waivers or similar third party actions which are
material to the consummation of the transactions contemplated hereby, and
each of Acquiror and the Company agree to take such action as is reasonably
necessary to complete such notifications and obtain such clearances,
approvals, waivers or third party actions.
SECTION 4.8 Indemnification. (a) From and after the Effective Time,
the Surviving Corporation will indemnify and hold harmless each present and
former director and officer of the Company and its Subsidiaries, determined
as of the Effective Time (the "Indemnified Parties"), against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the Effective
Time, whether asserted or claimed prior to, at or after the Effective Time,
to the fullest extent that the Company or such Subsidiary would have been
permitted under applicable law and the articles of incorporation or by-laws
of the Company or such Subsidiary in effect on the date hereof to indemnify
such person (and the Surviving Corporation shall also advance expenses as
incurred to the
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fullest extent permitted under applicable law, provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to
indemnification).
(b) For a period of three (3) years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in all material respects to the
Indemnified Parties) with respect to claims arising from facts or events
which occurred before the Effective Time; provided, however, that the
Surviving Corporation shall not be obligated to make annual premium
payments for such insurance to the extent such premiums exceed 150% of the
premiums paid as of the date hereof by the Company for such insurance.
(c) The provisions of this Section 4.8 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his heirs
and his personal representatives, and shall be binding on all successors
and assigns of the Surviving Corporation.
SECTION 4.9 Fiduciary Obligations. Notwithstanding any provision of
this Agreement, if, prior to the Shareholders Meeting, any person (other
than Acquiror or any of its affiliates) makes a written unsolicited
Acquisition Proposal and (a) the Board of Directors of the Company
determines reasonably and in good faith, after due investigation and after
consultation with and based upon the advice of an outside financial
advisor, that such Acquisition Proposal is or could reasonably be expected
to lead to a Superior Proposal (as defined in Section 7.1(c)(ii) below),
(b) the Board of Directors of the Company determines reasonably and in good
faith, after due investigation and after consultation with and based upon
the advice of Company counsel, that the failure to take action would cause
the Board of Directors of the Company to violate its fiduciary duties to
stockholders under applicable law and (c) the Company provides at least two
business days' notice to Acquiror, then, the Board of Directors of the
Company may (i) withdraw, modify or change its approval or recommendation
in favor of this Agreement or the Merger, (ii) furnish non-public
information to the person making the Acquisition Proposal pursuant to a
customary confidentiality agreement and (iii) participate in discussions or
negotiations regarding the Acquisition Proposal.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO
OR IN CONTEMPLATION OF THE MERGER
SECTION 5.1 Conduct of Business by the Company. Except as
contemplated by this Agreement or as set forth in Section 5.1 of the
Disclosure Schedule, during the period from the date of this Agreement to
the Effective Time, the Company shall, and shall cause its Subsidiaries to,
act and carry on their respective businesses in the ordinary course of
business and, to the extent consistent therewith, use reasonable efforts to
preserve intact their current business organizations, keep in full force
and effect their Licenses, keep available the services of their current key
officers, employees and agents, and preserve the goodwill of regulators or
those engaged in material business relationships with them. Without
limiting the generality of the foregoing, during the period from the date
of this Agreement to the Effective Time, the Company shall not, and shall
not permit any of the Subsidiaries to, without the prior consent of
Acquiror:
(a) adopt or propose any change to its articles of
incorporation or by-laws;
(b) (i) declare, set aside or pay any dividends on, or make
any other distributions with respect to, any of the Company's
outstanding capital stock, (ii) split, combine or reclassify any of
its outstanding capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its outstanding capital stock or (iii) purchase, redeem or
otherwise acquire any shares of capital stock or other securities of,
or other ownership interests of the Company, other than the Stock
Options to be purchased as contemplated by Section 1.11 above and the
Restricted Shares to be settled as contemplated by Section 5.5 below;
provided however, that the Company may offer holders of otherwise
exercisable Incentive Stock Options an opportunity to exercise those
options on a "net" basis, meaning that the holders shall pay the
exercise price of the Stock Option and any applicable taxes by having
the Company withhold from the shares subject to the Stock Option that
number of shares (valued at $3.95 per share or such lesser price per
share as
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the Company may specify) having an aggregate value equal to the
exercise price of the Stock Option plus the amount of any applicable
taxes; further provided that as a condition to any such net exercise,
the holder of the Stock Option must provide a release (in form and
substance approved by the Company and Franklin) stating that any
unvested Stock Options held by the holder as of the Effective Time
shall terminate and shall no longer be exercisable.
(c) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities, other than upon the exercise of Stock Options outstanding
on the date of this Agreement;
(d) acquire any business or any corporation, partnership,
joint venture, association or other business organization or division
or acquire any material assets or make any investment in any person
or enter into any reorganization;
(e) take any action that, if taken prior to the date of this
Agreement, would have been required to be disclosed in Section 2.6 of
the Disclosure Schedule or that would otherwise cause any of the
representations and warranties contained in Article II not to be true
and correct in all material respects at any time;
(f) sell, mortgage or otherwise encumber or subject to any
lien or otherwise dispose of any of its properties or assets that are
material to the Company and its Subsidiaries taken as a whole, except
in the ordinary course of business;
(g) incur any indebtedness for borrowed money or guarantee or
otherwise become responsible for any such indebtedness of another
person, other than indebtedness owing to or guarantees of
indebtedness owing to the Company or any direct or indirect wholly-
owned Subsidiary of the Company or enter into any agreement for
indebtedness or make any loans or advances to any other person, other
than to the Company, or to any direct or indirect wholly-owned
Subsidiary of the Company and other than routine advances in the
ordinary course of business to employees or agents;
(h) make any tax election or settle or compromise any income
tax liability that would reasonably be expected to be material to the
Company and its Subsidiaries taken as a whole;
(i) pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in
accordance with their terms of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included
in the Filed SEC Documents or incurred since the date of such
financial statements in the ordinary course of business consistent
with past practice;
(j) except in the ordinary course of business, modify, amend
or terminate, or waive, release or assign any material rights or
claims under any material agreement, permit, concession, franchise,
license or similar instrument to which the Company or any Subsidiary
is a party;
(k) authorize any of, or commit or agree to take any of the
foregoing actions;
(l) make any capital expenditures other than as contemplated
by the Company's annual budget;
(m) except with regard to transaction-contingent compensation
to key officers and employees in an amount not to exceed the amount
set forth in Section 2.6(d) of the Disclosure Schedule, (i) enter
into, adopt or amend or increase the amount or accelerate the payment
or vesting of any benefit or amount payable under, any Plan, or
increase in any manner, the compensation or fringe benefits, or
otherwise extend, expand or enhance the engagement, employment or any
related rights, of any director, officer or other employee of the
Company or any of its Subsidiaries, except for normal increases in
the ordinary course of business consistent with past
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practice that, in the aggregate, do not result in a material increase
in benefits or compensation expense to the Company or any of its
Subsidiaries; (ii) enter into or amend any employment, severance or
special pay arrangement with respect to the termination of employment
with any director or officer or other employee other than in the
ordinary course of business consistent with past practice; or (iii)
deposit into any trust (including any "rabbi trust") amounts in
respect of any employee benefit obligations or obligations to
directors;
(n) make any changes in accounting methods, except as
required by law, rule, regulation, the SEC or GAAP; or
(o) enter into any agreement or arrangement with any
affiliate (other than wholly owned Subsidiaries). As used in this
Agreement, the term "affiliate," shall mean, as to any person, any
other person which directly or indirectly controls, or in under
common control with, or is controlled by, such person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract
or otherwise).
SECTION 5.2 Management of the Company and Subsidiaries. The Company
shall, from the date of this Agreement through the Effective Time, cause
its management and that of the Subsidiaries to consult on a regular basis
and in good faith with the employees and representatives of Acquiror
concerning the management of the Company and its business.
SECTION 5.3 Other Actions. The Company and Acquiror shall not, and
shall not permit any of their respective subsidiaries to, take or omit to
take any action that would, or that would reasonably be expected to, result
in (a) any of the representations and warranties of such party set forth in
this Agreement becoming untrue in any material respect at any time or (b)
any of the conditions of the Merger set forth in Article VI not being
satisfied.
SECTION 5.4 Notification. The Company shall give prompt notice to
Acquiror and Acquiror shall give prompt notice to the Company of (a) the
occurrence, or non-occurrence of any event whose occurrence or non-
occurrence would reasonably be expected to cause (i) any representation or
warranty contained in this Agreement which is qualified as to materiality
or Material Adverse Effect to be untrue or inaccurate at any time from the
date hereof to the Effective Time, (ii) any other representation or
warranty made contained in this Agreement to be untrue or inaccurate at any
time from the date hereof to the Effective Time, or (iii) any condition set
forth in Article VI to be unsatisfied at any time from the date hereof to
the Effective Time, and (b) any failure of the Company, or Acquiror, as the
case may be, to comply with or satisfy in any material respect any material
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.4 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice or the right of such party to
terminate this Agreement.
SECTION 5.5 Settlement of Promissory Note for Restricted Shares.
Immediately prior to the Closing, the promissory note of Roger Brooks in
the original principal amount of $1,332,500 shall be repaid by surrender
and cancellation of the 410,000 Restricted Shares at a price equal to the
Merger Consideration, and interest on the note shall be forgiven by the
Company to the extent of any remaining amount due thereon.
SECTION 5.6 Continuity of Benefits. The Company and Acquiror agree
that individuals who are employed by the Company as of the Closing Date
shall become employees of the Surviving Corporation following the Closing
Date. From and after the Closing Date through December 31, 2003, Acquiror
agrees to maintain compensation levels and employee benefits (other than
stock options) which, in the aggregate, are at least comparable to those
presently in effect, subject in each case for the Surviving Corporation's
continuing right to hire and fire individual employees and to the Surviving
Corporation's right to amend or terminate the Sales/Marketing bonus plan
and Executive/Senior Management bonus plan listed on Section 2.8 of the
Disclosure Schedule (the "Bonus Plans") for years after 2002. Acquiror
agrees that the Surviving Corporation agrees during 2002 to maintain the
current base salary of all employees, to retain the annual salary review
date schedule for each employee, and to confirm the Bonus Plans. In
addition, Acquiror shall maintain the Company's practices with respect to
the sharing of costs (on a percentage basis) with
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employees of the life and medical insurance programs listed on Section 2.8
of the Disclosure Schedule through December 31, 2003.
SECTION 5.7 Facilities. It is Acquiror's present intention to
maintain the Company's facilities at their present locations following the
Closing Date.
ARTICLE VI
CONDITIONS PRECEDENT
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 on or prior to the Closing Date of
the following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall
have been approved and adopted by an affirmative vote of the holders
of the requisite number of shares present, in person or by proxy, and
entitled to vote on the Merger at the Shareholders Meeting.
(b) Governmental and Regulatory Consents. The Company and
Acquiror shall have made all such filings, and obtained such
authorizations, consents, or approvals required by any Governmental
Entity to consummate the transactions contemplated hereby; provided,
however that such authorizations, consents or approvals shall impose
no conditions that would reasonably be expected to have a Material
Adverse Effect.
(c) No Proceedings. No proceeding shall have been commenced
and be continuing, seeking to restrain or enjoin the consummation of
the Merger.
SECTION 6.2 Conditions to Obligations of Acquiror. The obligations of
Acquiror to effect the Merger are further subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true
and correct in all material respects on the date hereof and (except
to the extent specifically given as of an earlier date or except as
otherwise contemplated or permitted by this Agreement) on and as of
the Closing Date as though made on the Closing Date, and the Company
shall have delivered to Acquiror a certificate dated as of the
Closing Date signed by an executive officer to the effect set forth
in this Section 6.2(a).
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have delivered to Acquiror a
certificate dated as of the Closing Date signed by an executive
officer to the effect set forth in this Section 6.2(b).
(c) Third-Party Approvals and Consents. All authorizations,
approvals and consents of any third party required to be obtained by
the Company which, if not obtained, would have a Material Adverse
Effect, shall have been obtained and shall be in full force and
effect.
(d) Related Agreements. The Company shall have been repaid
all outstanding amounts owing under the promissory note executed by
Roger E. Brooks, and the Company and Mr. Brooks shall have terminated
the Restricted Stock Agreement dated as of May 1, 1998, in accordance
with Section 5.5 above. The Company and the parties to each of the
Investment Agreement dated as of March 26, 1998, as amended as of May
1, 1998, and the Stockholders Agreement dated as of May 1, 1998, in
each case as amended to date, shall have terminated such Agreements
on terms acceptable to Acquiror.
(e) No Material Adverse Effect. Since the date of this
Agreement, no event, effect or change shall have occurred which has
had or which would reasonably be expected to have a Material Adverse
Effect, and Acquiror shall have received a certificate signed by the
Chief Executive Officer or Chief Financial Officer of the Company to
such effect.
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SECTION 6.3 Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Acquiror contained in this Agreement shall be true and
correct in all material respects on the date hereof and (except to
the extent specifically given as of an earlier date or except as
otherwise contemplated or permitted by this Agreement) on and as of
the Closing Date as though made on the Closing Date, and Acquiror
shall have delivered to the Company a certificate dated as of the
Closing Date, signed by an executive officer and to the effect set
forth in this Section 6.3(a)
(b) Performance of Obligations of Acquiror. Acquiror shall
have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing
Date, and Acquiror shall have delivered to the Company a certificate
dated as of the Closing Date, signed by an executive officer and to
the effect set forth in this Section 6.3(b).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and
abandoned at any time prior to the Effective Time, whether before or after
approval of matters presented in connection with the Merger by the
shareholders of the Company:
(a) by mutual written consent of Acquiror and the Company;
(b) by either Acquiror or the Company:
(i) if, upon a vote at a duly held Shareholders
Meeting, this Agreement and the Merger shall fail to receive
the requisite vote for approval and adoption by the
shareholders of the Company at the Shareholders Meeting;
(ii) if the Merger shall not have been consummated on or
before July 31, 2002; provided, that either party may terminate
this Agreement on or after such earlier date on which it can be
reasonably determined that it will be impossible to consummate
the Merger by June 30, 2002; and provided, further, that the
party seeking to terminate this Agreement pursuant to this
Section 7.1(b)(ii) shall not have breached in any material
respect its obligations under this Agreement in any manner that
shall have caused or contributed to the failure to consummate
the Merger by June 30, 2002; or
(iii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action, or there
shall be enacted any law having the effect of, permanently
enjoining, restraining or otherwise prohibiting, or making
illegal the Merger and such order, decree, ruling or other
action shall have become final and nonappealable, provided the
party seeking to terminate this Agreement under this Section
7.1(b)(iii) shall have used reasonable efforts to remove or
overturn such order, decree, ruling or other action; or
(c) by the Company:
(i) upon a material breach of any representation or
warranty of Acquiror or if Acquiror fails to comply in any
material respect with any of its covenants or agreements, or if
any representation or warranty of Acquiror shall be or become
untrue in any material respect, which breach or non-compliance
is not curable or, if curable, is not cured by Acquiror within
30 days after written notice of such breach or non-compliance
from the Company; or
(ii) if, prior to the Shareholders Meeting, the Board of
Directors of the Company shall have withdrawn, or modified or
changed in a manner adverse to Acquiror or Merger Subsidiary,
its approval
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or recommendation in favor of this Agreement or the Merger in
order to approve and permit the Company to execute a definitive
agreement providing for a bona fide Acquisition Proposal made
by a third party on terms that a majority of the members of the
Board of Directors of the Company reasonably determines in good
faith (based upon the advice of an outside financial advisor)
is more favorable to the Company and its stockholders than the
transactions contemplated by this Agreement, and for which
financing, to the extent required, is then committed or which,
in the reasonable good faith judgment of the Board of Directors
of the Company, is reasonably capable of being obtained (such
an Acquisition Proposal is referred to herein as a "Superior
Proposal"); provided, that (A) at least five (5) business days
prior to terminating this Agreement pursuant to this Section
7.1(c)(ii), the Company has provided Acquiror with written
notice advising Acquiror that the Board of Directors of the
Company has received a Superior Proposal that it intends to
approve, specifying the material terms and conditions of the
Superior Proposal and identifying the person making the
Superior Proposal, (B) Acquiror may offer such adjustments in
the terms and conditions of this Agreement as Acquiror deems
appropriate and (C) at the end of the five-business day period
the Board of Directors of the Company continues reasonably and
in good faith to believe that the Acquisition Proposal is a
Superior Proposal; provided, further, that simultaneously with
any termination of this Agreement pursuant to this Section
7.1(c)(ii), the Company shall pay to Acquiror the Termination
Payment (as defined in Section 7.2(b) below) specified in
Section 7.2(b); and provided, further, that the Company may not
terminate this Agreement pursuant to this Section 7.1(c)(ii) if
the Company is in material breach of this Agreement; or
(d) by Acquiror:
(i) upon a material breach of any representation, or
warranty of the Company or if the Company fails to comply in
any material respect with any of this covenants or agreements,
or if any representation or warranty of the Company shall be or
become untrue in any material respect, which breach or non-
compliance is not curable or, if curable, is not cured by the
Company within 30 days after written notice of such breach or
non-compliance from Acquiror; or
(ii) if, prior to the Shareholders Meeting, (A) the
Board of Directors of the Company shall have withdrawn, or
modified or changed in a manner adverse to Acquiror or Merger
Subsidiary, its approval or recommendation in favor of this
Agreement or the Merger, or shall have approved or recommended
an Acquisition Proposal, or shall have executed a definitive
agreement providing for an Acquisition Proposal, or (B) a
tender offer or exchange offer for any outstanding shares of
the Company's common stock, is commenced, and the Board of
Directors of the Company, within ten days after such tender
offer or exchange offer is so commenced, either fails to
recommend against acceptance of such tender offer or exchange
offer by its stockholders or takes no position with respect to
the acceptance of such tender offer or exchange offer by its
stockholders.
SECTION 7.2 Effect of Termination.
(a) In the event of termination of this Agreement by either
the Company or Acquiror as provided in Section 7.1, except as
provided below in Section 7.2(b), this Agreement shall forthwith
become void and have no effect, without any liability or obligation
on the part of Acquiror or the Company, other than the last sentence
of Section 4.3 and Sections 7.2 and 10.2. Unless there has been a
valid termination of this Agreement, nothing contained in this
Section shall relieve any party from any liability resulting from any
material breach of the representations, warranties, covenants or
agreements set forth in this Agreement.
(b) The Company shall pay Acquiror $1,000,000 in cash as
liquidated damages and not as a penalty (the "Termination Payment")
if this Agreement is terminated pursuant to Section 7.1(b)(i),
Section 7.1(c)(ii) or Section 7.1(d)(ii). The Termination Payment
shall be paid in same-day funds by wire transfer to an account
designated by Acquiror within ten days after the event giving rise to
the Termination Payment, except as provided in Section 7.1(c)(ii).
Notwithstanding anything in this Agreement to the contrary, the
Termination Payment, if payable, shall be paid only once and shall be
Acquiror's sole and exclusive remedy hereunder for the termination of
the Agreement under the circumstances in which the Termination
Payment is paid, and upon such delivery of the Termination Payment to
Acquiror, no person shall have any further claim or rights against
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the Company under this Agreement with respect thereto; provided,
however, that this sentence shall not apply to and shall in no way
restrict the right of Acquiror to assert a counterclaim in response
to any action brought by the Company against Acquiror with respect to
such events. The Company shall reimburse Acquiror for all costs
incurred in connection with the collection of the Termination Payment
under this Agreement.
SECTION 7.3 Amendment. Subject to the applicable provisions of the
MBCA, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered
by duly authorized officers of Acquiror and the Company; provided, however,
that after approval of the Merger by the shareholders of the Company, no
amendment shall be made which reduces the amount of the Merger
Consideration payable in the Merger or adversely affects the rights of the
Company's shareholders hereunder without the approval of such shareholders.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties of the other parties contained in
this Agreement or in any document delivered pursuant to this Agreement or
(c) subject to Section 7.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement
on the part of a party to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of the Company
(if an extension or waiver of the Company) or (in all other cases)
Acquiror. 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, except that an amendment, waiver or extension by Acquiror
shall be deemed to include and be binding on Merger Subsidiary.
SECTION 7.5 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 7.3 or an extension or
waiver pursuant to Section 7.4 shall, in order to be effective, require in
the case of Acquiror or the Company, action by its Board of Directors or
the duly authorized designee of its Board of Directors.
ARTICLE VIII
SURVIVAL OF PROVISIONS
SECTION 8.1 Survival. The representations and warranties respectively
made by the Company, Acquiror in this Agreement, or in any certificate,
respectively, delivered by the Company, Acquiror pursuant to Section 6.2 or
Section 6.3 hereof, will terminate upon the Closing and be of no further
force or effect.
ARTICLE IX
NOTICES
SECTION 9.1 Notices. Any notice or communication given pursuant to
this Agreement must be in writing and will be deemed to have been duly
given if mailed (by registered or certified mail, postage prepaid, return
receipt requested), or, if transmitted by telecopy, or if delivered by
courier, as follows:
If to the Company, to:
Intelligent Controls, Inc.
74 Industrial Park Road
Saco, Maine 04072
Attention: Roger E. Brooks
Telecopy: (207) 286-1439
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with a copy to:
Verrill & Dana, LLP
One Portland Square
Portland, Maine 04112
Attention: Gregory S. Fryer, Esq.
Telecopy: (207) 774-7499
If to Acquiror or Merger Subsidiary, to:
Franklin Electric Co., Inc.
400 E. Spring Street
Bluffton, Indiana 46714
Attention: Gregg C. Sengstack
Telecopy: (260) 827-5633
with copies to:
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Attention: Robert J. Regan, Esq.
Telecopy: (312) 258-5600
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 9.1 will, whether
sent by mail, telecopy, or courier, be deemed given upon the first business
day after actual delivery to the addressed destination to which such notice
or other communication is sent (as evidenced by the return receipt or
shipping invoice signed by a representative of such party or by telecopy
confirmation). Any party from time to time may change its address for the
purpose of notices to that party by giving a similar notice specifying a
new address, but no such notice will be deemed to have been given until it
is actually received by the party sought to be charged with the contents
thereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Entire Agreement. This Agreement and the Nondisclosure
Agreement constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior
communications, agreements, understandings, representations, and warranties
whether oral or written between the parties hereto. There are no oral or
written agreements, understandings, representations, or warranties between
the parties hereto with respect to the subject hereof other than those set
forth in this Agreement and the Nondisclosure Agreement. In the event of
any conflict between the terms of this Agreement and the terms of the
Nondisclosure Agreement, the terms of this Agreement shall control.
SECTION 10.2 Expenses. Except as otherwise provided in this
Agreement, the Company and Acquiror each will pay its own costs and
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby.
Notwithstanding anything in this Agreement to the contrary, the Company
covenants and agrees that, assuming the Closing Date occurs on or before
June 30, 2002, the fees and expenses of the Company incurred in connection
with this Agreement and the Merger (including, but not limited to, legal,
accounting and printing fees and expenses) shall not exceed $150,000 in the
aggregate, and all such fees and expenses shall have been accrued or paid
as of the Effective Time.
SECTION 10.3 Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
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SECTION 10.4 No Third-Party Beneficiary. Except as otherwise
specifically provided in Section 4.8, this Agreement is not intended and
may not be construed to create any rights in any parties other than the
Company and Acquiror and their respective successors or assigns, and it is
not the intention of the parties to confer third-party beneficiary rights
upon any other person.
SECTION 10.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maine (without regard
to the principles of conflicts of law) applicable to a contract executed
and to be performed in such State.
SECTION 10.6 Assignment; Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise by any of
the parties without the prior written consent of the other parties, such
consent not to be unreasonably withheld and any such assignment that is not
consented to shall be null and void, except that Acquiror shall have the
right to assign this Agreement to any Subsidiary or affiliate. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by, the parties and their respective
successors and assigns.
SECTION 10.7 Enforcement of this Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the terms or
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that
each of the parties hereto shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United
States of America or any state having jurisdiction, such remedy being in
addition to any other remedy to which any party may be entitled at law or
in equity.
SECTION 10.8 Headings, Gender, etc. The headings used in this
Agreement have been inserted for convenience and do not constitute matter
to be construed or interpreted in connection with this Agreement. Unless
the context of this Agreement otherwise requires, (a) words of any gender
are deemed to include each other gender; (b) words using the singular or
plural number also include the plural or singular number, respectively; (c)
the terms "hereof," "herein," "hereby," "hereto," and derivative or similar
words refer to this entire Agreement; (d) the terms "Article" or "Section"
refer to the specified Article or Section of this Agreement; (e) all
references to "dollars" or "$" refer to currency of the United States of
America; (f) the term "person" shall include any natural person,
corporation, limited liability company, general partnership, limited
partnership, or other entity, enterprise, authority or business
organization; and (g) the term "or" is disjunctive but not necessarily
exclusive.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of Acquiror, Merger Subsidiary
and the Company effective as of the date first written above.
FRANKLIN ELECTRIC CO., INC.
By: /s/ Jess B. Ford
----------------------------
Name: Jess B. Ford
Title: Senior Vice President
FEI CORPORATION
By: /s/ Jess B. Ford
----------------------------
Name: Jess B. Ford
Title: President
INTELLIGENT CONTROLS, INC.
By: /s/ Roger E. Brooks
----------------------------
Name: Roger E. Brooks
Title: President and Chief Executive
Officer
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Exhibit A
Officers of Surviving Corporation
NAME TITLE
- ---- -----
Jess B. Ford Chairman
Roger E. Brooks President and Chief Executive Officer
Gregg C. Sengstack Chief Financial Officer, Treasurer and Secretary
Andrew B. Clement Controller and Assistant Treasurer
Enrique Sales Vice President Sales & Marketing
Dean Richards Vice President Manufacturing
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APPENDIX B: DISSENTERS' RIGHTS
Maine Business Corporation Act
[SECTION] 908. Right of shareholders to dissent
1. Except as provided in subsections 3 and 4, any shareholders of a
domestic corporation, by complying with section 909, shall have the
right to dissent from any of the following corporate actions:
A. Any plan of merger or consolidation in which the corporation is
participating; or
B. Any sale or other disposition, excluding a mortgage or other
security interest, of all or substantially all of the property
and assets of the corporation not made in the usual and regular
course of its business, including a sale in liquidation, but
not including a sale pursuant to an order of a court having
jurisdiction in the premises or a sale for cash on terms
requiring that all or substantially all of the net proceeds of
sale be distributed to the shareholders in accordance with
their respective interests within one year after the date of
sale; or
C. Any other action as to which a right to dissent is expressly
given by this Act.
2. A shareholder may dissent as to less than all of the shares
registered in his name. In that event, his rights shall be determined
as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
3. There shall be no right of dissent in the case of shareholders of the
surviving corporation in a merger.
A. If such corporation is, on the date of filing of the articles
of merger, the owner of all the outstanding shares of the other
corporations, domestic or foreign, which are parties to the
merger, or
B. If a vote of the shareholders of such surviving corporation was
not necessary to authorize such merger.
4. There shall be no right of dissent in the case of holders of any
class or series of shares in any of the participating corporations in
a merger or consolidation, which shares were, at the record date
fixed to determine the shareholders entitled to receive notice of and
to vote at the meeting of shareholders at which the plan of merger or
consolidation was to be voted on, either:
A. Registered or traded on a national securities exchange; or
B. Registered with the Securities and Exchange Commission pursuant
to Section 12(g) of the Act of Congress known as the Securities
Exchange Act of 1934, as the same has been or may hereafter be
amended, being Title 15 of the United States Code Annotated,
Section 781(g) unless the articles of incorporation of that
corporation provide that there shall be a right of dissent.
5. The exceptions from the right of dissent provided for in subsection
3, paragraph B and in subsection 4 shall not be applicable to the
holders of a class or series of shares of a participating corporation
if, under the plan of merger or consolidation, such holders are
required to accept for their shares anything, except:
A. Shares of the surviving or new corporation resulting from the
merger or consolidation, or such shares plus cash in lieu of
fractional shares; or
B. Shares, or shares plus cash in lieu of fractional shares, of
any other corporation, which shares were, at the record date
fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting of shareholders at which the plan
of merger or consolidation was acted upon, either:
B-1
(1) Registered or traded on a national securities exchange;
or
(2) Held of record by not less than 2,000 shareholders; or
C. A combination of shares, or shares plus cash in lieu of
fractional shares, as set forth in paragraphs A and B.
[SECTION] 909. Right of dissenting shareholders to payment for shares
1. A shareholder having a right under any provision of this Act to
dissent to proposed corporate action shall, by complying with the
procedure in this section, be paid the fair value of his shares, if
the corporate action to which he dissented is effected. The fair
value of shares shall be determined as of the day prior to the date
on which the vote of the shareholders, or of the directors in case a
vote of the shareholders was not necessary, was taken approving the
proposed corporate action, excluding any appreciation or depreciation
of shares in anticipation of such corporate action.
2. The shareholder, whether or not entitled to vote, shall file with the
corporation, prior to or at the meeting of shareholders at which such
proposed corporate action is submitted to a vote, a written objection
to the proposed corporate action. No such objection shall be required
from any shareholder to whom the corporation failed to send notice of
such meeting in accordance with this Act.
3. If the proposed corporate action is approved by the required vote and
the dissenting shareholder did not vote in favor thereof, the
dissenting shareholder shall file a written demand for payment of the
fair value of his shares. Such demand
A. Shall be filed with the corporation or, in the case of a merger
or consolidation, with the surviving or new corporation; and
B. Shall be filed by personally delivering it, or by mailing it
via certified or registered mail, to such corporation at its
registered office within this State or to its principal place
of business or to the address given to the Secretary of State
pursuant to section 906, subsection 4, paragraph B; it shall be
so delivered or mailed within 15 days after the date on which
the vote of shareholders was taken, or the date on which notice
of a plan of merger of a subsidiary into a parent corporation
without vote of shareholders was mailed to shareholders of the
subsidiary; and
C. Shall specify the shareholder's current address; and
D. May not be withdrawn without the corporation's consent.
4. Any shareholder failing either to object as required by subsection 2
or to make demand in the time and manner provided in subsection 3
shall be bound by the terms of the proposed corporate action. Any
shareholder making such objection and demand shall thereafter be
entitled only to payment as in this section provided and shall not be
entitled to vote or to exercise any other rights of a shareholder.
5. The right of a shareholder otherwise entitled to be paid for the fair
value of his shares shall cease, and his status as a shareholder
shall be restored, without prejudice to any corporate proceedings
which may have been taken during the interim,
A. If his demand shall be withdrawn upon consent, or
B. If the proposed corporate action shall be abandoned or
rescinded, or the shareholders shall revoke the authority to
effect such action, or
C. If, in the case of a merger, on the date of the filing of the
articles of merger the surviving corporation is the owner of
all the outstanding shares of the other corporations, domestic
and foreign, that are parties to the merger, or
B-2
D. If no action for the determination of fair value by a court
shall have been filed within the time provided in this section,
or
E. If a court of competent jurisdiction shall determine that such
shareholder is not entitled to the relief provided by this
section.
6. At the time of filing his demand for payment for his shares, or
within 20 days thereafter, each shareholder demanding payment shall
submit the certificate or certificates representing his shares to the
corporation or its transfer agent for notation thereon that such
demand has been made; such certificates shall promptly be returned
after entry thereon of such notation. A shareholder's failure to do
so shall, at the option of the corporation, terminate his rights
under this section, unless a court of competent jurisdiction, for
good and sufficient cause shown, shall otherwise direct. If shares
represented by a certificate on which notation has been so made shall
be transferred, each new certificate issued therefor shall bear a
similar notation, together with the name of the original dissenting
holder of such shares, and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which
the original dissenting shareholder had after making demand for
payment of the fair value thereof.
7. Within the time prescribed by this subsection, the corporation, or,
in the case of a merger or consolidation, the surviving or new
corporation, domestic or foreign, shall give written notice to each
dissenting shareholder who has made objection and demand as herein
provided that the corporate action dissented to has been effected,
and shall make a written offer to each such dissenting shareholder to
pay for such shares at a specified price deemed by such corporation
to be the fair value thereof. Such offer shall be made at the same
price per share to all dissenting shareholders of the same class. The
notice and offer shall be accompanied by a balance sheet of the
corporation the shares of which the dissenting shareholder holds, as
of the latest available date and not more than 12 months prior to the
making of such offer, and a profit and loss statement of such
corporation for the 12 months' period ended on the date of such
balance sheet. The offer shall be made within the later of 10 days
after the expiration of the period provided in subsection 3,
paragraph B, for making demand, or 10 days after the corporate action
is effected; corporate action shall be deemed effected on a sale of
assets when the sale is consummated, and in a merger or consolidation
when the articles of merger or consolidation are filed or upon which
later effective date as is specified in the articles of merger or
consolidation as permitted by this Act.
8. If within 20 days after the date by which the corporation is
required, by the terms of subsection 7, to make a written offer to
each dissenting shareholder to pay for his shares, the fair value of
such shares is agreed upon between any dissenting shareholder and the
corporation, payment therefor shall be made within 90 days after the
date on which such corporate action was effected, upon surrender of
the certificate or certificates representing such shares. Upon
payment of the agreed value the dissenting shareholder shall cease to
have any interest in such shares.
9. If within the additional 20-day period prescribed by subsection 8,
one or more dissenting shareholders and the corporation have failed
to agree as to the fair value of the shares:
A. Then the corporation may, or shall, if it receives a demand as
provided in subparagraph (1), bring an action in the Superior
Court in the county in this State where the registered office
of the corporation is located praying that the fair value of
such shares be found and determined. If, in the case of a
merger or consolidation, the surviving or new corporation is a
foreign corporation without a registered office in this State,
such action shall be brought in the county where the registered
office of the participating domestic corporation was last
located. Such action:
(1) Shall be brought by the corporation, if it receives a
written demand for suit from any dissenting shareholder,
which demand is made within 60 days after the date on
which the corporate action was effected; and if it
receives such demand for suit, the corporation shall
bring the action within 30 days after receipt of the
written demand; or,
B-3
(2) In the absence of a demand for suit, may at the
corporation's election be brought by the corporation at
any time from the expiration of the additional 20-day
period prescribed by subsection 8 until the expiration of
60 days after the date on which the corporate action was
effected;
B. If the corporation fails to institute the action within the
period specified in paragraph A, any dissenting shareholder may
thereafter bring such an action in the name of the corporation;
C. No such action may be brought, either by the corporation or by
a dissenting shareholder, more than 6 months after the date on
which the corporate action was effected;
D. In any such action, whether initiated by the corporation or by
a dissenting shareholder, all dissenting shareholders, wherever
residing, except those who have agreed with the corporation
upon the price to be paid for their shares, shall be made
parties to the proceeding as an action against their shares
quasi in rem. A copy of the complaint shall be served on each
dissenting shareholder who is a resident of this State as in
other civil actions, and shall be served by registered or
certified mail, or by personal service without the State, on
each dissenting shareholder who is a nonresident. The
jurisdiction of the court shall be plenary and exclusive;
E. The court shall determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such
determination, has satisfied the requirements of this section
and is entitled to receive payment for his shares; as to any
dissenting shareholder with respect to whom the corporation
makes such a request, the burden is on the shareholder to prove
that he is entitled to receive payment. The court shall then
proceed to fix the fair value of the shares. The court may, if
it so elects, appoint one or more persons as appraisers to
receive evidence and recommend a decision on the question of
fair value. The appraisers shall have such power and authority
as shall be specified in the order of their appointment or an
amendment thereof;
F. All shareholders who are parties to the proceeding shall be
entitled to judgment against the corporation for the amount of
the fair value of their shares, except for any shareholder whom
the court shall have determined not to be entitled to receive
payment for his shares. The judgment shall be payable only upon
and concurrently with the surrender to the corporation of the
certificate or certificates representing such shares. Upon
payment of the judgment, the dissenting shareholder shall cease
to have any interest in such shares;
G. The judgment shall include an allowance for interest at such
rate as the court may find to be fair and equitable in all the
circumstances, from the date on which the vote was taken on the
proposed corporate action to the date of payment. If the court
finds that the refusal of any shareholder to accept the
corporate offer of payment for his or her shares was arbitrary,
vexatious or not in good faith, it may in its discretion refuse
to allow interest to him;
H. The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the
corporation, but all or any part of such costs and expenses may
be apportioned and assessed as the court may deem equitable
against any or all of the dissenting shareholders who are
parties to the proceeding to whom the corporation shall have
made an offer to pay for the shares, if the court shall find
that the action of such shareholders in failing to accept such
offer was arbitrary or vexatious or not in good faith. Such
expenses shall include reasonable compensation for and
reasonable expenses of the appraisers, but shall exclude the
fees and expenses of counsel for any party and shall exclude
the fees and expenses of experts employed by any party, unless
the court otherwise orders for good cause. If the fair value of
the shares as determined materially exceeds the amount which
the corporation offered to pay therefor, or if no offer was
made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court may
determine to be reasonable compensation to any expert or
experts employed by the shareholder in the proceeding, and
may, in its discretion, award to any shareholder all or part of
his attorney's fees and expenses; and
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I. At all times during the pendency of any such proceeding, the
court may make any and all orders which may be necessary to
protect the corporation or the dissenting shareholders, or
which are otherwise just and equitable. Such orders may
include, without limitation, orders:
(1) Requiring the corporation to pay into court, or post
security for, the amount of the judgment or its estimated
amount, either before final judgment or pending appeal;
(2) Requiring the deposit with the court of certificates
representing shares held by the dissenting shareholders;
(3) Imposing a lien on the property of the corporation to
secure the payment of the judgment, which lien may be
given priority over liens and encumbrances contracted
after the vote authorizing the corporate action from
which the shareholders dissent;
(4) Staying the action pending the determination of any
similar action pending in another court having
jurisdiction.
10. Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in
this section provided, may be held and disposed of by such
corporation as in the case of other treasury shares, except that, in
the case of a merger or consolidation, they may be held and disposed
of as the plan of merger or consolidation may otherwise provide.
11. The objection required by subsection 2 and the demand required by
subsection 3 may, in the case of a shareholder who is a minor or
otherwise legally incapacitated, be made either by such shareholder,
notwithstanding his legal incapacity, or by his guardian, or by any
person acting for him as next friend. Such shareholder shall be bound
by the time limitations set forth in this section, notwithstanding
his legal incapacity.
12. Appeals shall lie from judgments in actions brought under this
section as in other civil actions in which equitable relief is
sought.
13. No action by a shareholder in the right of the corporation shall
abate or be barred by the fact that the shareholder has filed a
demand for payment of the fair value of his shares pursuant to this
section.
B-5
INTELLIGENT CONTROLS, INC.
PROXY
(Solicited by the Board of Directors)
The undersigned appoints Roger E. Brooks and Andrew B. Clement, or either of
them, proxies with full power of substitution, to represent and vote all
shares of Common Stock of Intelligent Controls, Inc. held by the undersigned,
at the Special Meeting of Shareholders to be held June __, 2002, or any
adjournment thereof.
1. TO APPROVE THE AGREEMENT AND PLAN OF MERGER AMONG INTELLIGENT
CONTROLS, INC., FRANKLIN ELECTRIC CO, INC., AND FEI CORPORATION,
INCLUDING THE PROPOSED MERGER UNDER SUCH AGREEMENT
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, upon such other matters as may properly come
before the Meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" Proposal 1. The undersigned hereby revokes any proxy
previously given and acknowledges receipt of the Notice of, and Proxy
Statement for, the aforesaid Meeting.
Dated: _____________________, 2002
Signature ________________________
Signature ________________________
Personal representatives,
custodians, trustees, partners,
corporate officers, and attorneys-
in-fact should add their titles as
such.
PLEASE VOTE AND DATE THIS PROXY, SIGNING IT AS YOUR NAME APPEARS ABOVE AND
RETURN THE PROXY IN THE ENVELOPE PROVIDED.