SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use
of the Commission Only
(as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Armatron International, Inc.
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(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[x] 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, $1.00 par value
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2) Aggregate number of securities to which transaction applies:
2,459,749
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
The filing fee was calculated based on $.27, the cash payment to be
made to the stockholders in connection with the merger.
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4) Proposed maximum aggregate value of transaction:
$664,132.23
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5) Total fee paid:
$132.83
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[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount previously paid:
$132.83
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2) Form, Schedule or Registration Statement No:
Schedule 13e-3
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3) Filing Party:
Armatron International, Inc.
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4) Date Filed:
April 22, 1999
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ARMATRON INTERNATIONAL, INC.
2 Main Street
Melrose, Massachusetts 02176
September 27, 1999
Dear Stockholders:
You are cordially invited to attend a special meeting in lieu of
annual meeting (the "Special Meeting") of the stockholders of Armatron
International, Inc. (the "Company" or "Armatron"), a Massachusetts
corporation, to be held on October 27, 1999 at 9:00 a.m., Eastern
Standard Time, at the Company's principal executive offices at 2 Main
Street, Melrose, Massachusetts 02176.
As described in the enclosed Proxy Statement (the "Proxy Statement"),
at the Special Meeting you will be asked to approve and adopt an Agreement
and Plan of Merger dated as of May 7, 1999 (the "Merger Agreement") between
Armatron and Armatron Merger Corporation, a Massachusetts corporation
("MergerCo"), and the Merger (as defined below) contemplated thereby as well
as vote to elect a Director of the Company and ratify the selection of the
Company's independent auditors.
The Merger Agreement provides, among other things, for the merger of
MergerCo into the Company (the "Merger") with the Company continuing as the
surviving corporation (the "Surviving Corporation"). In the Merger: (i)
each outstanding share of common stock, par value $1.00 per share of the
Company, (the "Common Stock") will be converted into the right to receive
$.27 in cash (except that any shares held by MergerCo or held in the
Company's treasury will be canceled and any stockholder who properly
dissents from the Merger will be entitled to appraisal rights under
Massachusetts law); (ii) each outstanding share of common stock, $.01 par
value per share, (or fraction thereof) of MergerCo (the "MergerCo Common
Stock") will be converted into one share of common stock, $.01 par value per
share, (or fraction thereof) of the Surviving Corporation; and (iii) each
outstanding share of Series A Preferred Stock, $100 par value per share, of
the Company will be converted into one share of Series A Preferred Stock,
$.01 par value per share, of the Surviving Corporation.
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together with
all members of their families or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, the
deceased brothers of Charles J. Housman and Edward L. Housman, who are
stockholders of the Company are anticipated to contribute 1,384,277 shares
of Common Stock to MergerCo in exchange for 13,842.77 shares of MergerCo
Common Stock. In the Merger, all such shares of MergerCo Common Stock will
be converted into common stock of the Surviving Corporation as described
above.
As a result of the Merger and these related transactions, immediately
following the Merger, (x) Charles J. Housman and Edward L. Housman together
with their family members or affiliates and the family members or affiliates
of the late Herbert E. Housman and the late Frank M. Housman who contribute
their shares of Common Stock to MergerCo will own 100.0% of the outstanding
common stock of the Surviving Corporation and (y) the Housman Realty Trust
(the "Housman Realty Trust") will own 100.0% of the outstanding Series A
Preferred Stock of the Surviving Corporation.
The Company's Common Stock does not meet the listing requirements of
the National Exchanges or the Nasdaq National Market and is currently traded
on the Over the Counter Bulletin Board under the symbol "ATRN." Following
the Merger, the Company will not list the common stock of the Surviving
Corporation on any national securities exchange or automated quotation
system and will delist the Company's Common Stock. If the Merger is
effected, it is anticipated that the Company will have fewer than 300
stockholders, and accordingly, will cease to file reports with the
Securities and Exchange Commission, as more fully described in the enclosed
Proxy Statement.
At a meeting on April 21, 1999, the Board of Directors of the Company
(the "Board") unanimously determined to acquire the Common Stock held by the
stockholders of the Company (other than MergerCo), agreed to set the price
to be paid for the Common Stock at $.27 per share and approved the Merger
Agreement and the transactions contemplated thereby, including the Merger.
The Board has determined that the Merger is fair to and in the best
interests of the stockholders of the Company. The approval and
determination of the Board were based on a number of factors described in
the Proxy Statement, including the written opinion dated as of April 21,
1999 of Gordon Associates Inc., the financial adviser engaged by the Board,
to the effect that, based upon and subject to certain factors and
assumptions stated therein, as of such date, the proposed consideration to
be received in the Merger by the stockholders (other than MergerCo and the
Company with respect to treasury stock which shares will be canceled) is
fair from a financial point of view to such stockholders. The full text of
the written opinion of Gordon Associates Inc., which sets forth a
description of the assumptions made, factors considered, and limitations on
the review undertaken is attached as Appendix B to the enclosed Proxy
Statement and the stockholders are urged to read such opinion carefully in
its entirety.
Approval and adoption of the Merger Agreement and the Merger require
the affirmative vote of the holders of two-thirds of the shares of Common
Stock and Series A Preferred Stock, voting together as a single class,
outstanding on September 1, 1999. Approval of the other proposals will
require the vote set forth in the Section of the Proxy Statement entitled
"The Special Meeting -- Vote Required; Revocability of Proxies."
Charles J. Housman and Edward L. Housman, together with their family
members or affiliates and the family members or affiliates of the late
Herbert E. Housman and the late Frank M. Housman, who are stockholders of
the Company own 56% of the outstanding shares of Common Stock of the Company
(1,384,277 shares out of 2,459,749 shares outstanding). The Housman Realty
Trust owns 100% of the outstanding shares of Series A Preferred Stock of the
Company. Together, these individuals and entities have the power to vote
88% of the outstanding shares of the Company. The Company anticipates that
they will vote all of their shares for the approval of and adoption of the
Merger Agreement and the transactions contemplated thereby; therefore, the
Merger is assured without the vote of any other stockholders of the Company.
The Merger does not require the approval of two-thirds of holders who are
not affiliates of the Company.
You are urged to read the accompanying Proxy Statement, which
describes the terms of the Merger Agreement and the Merger as well as the
other proposals to be voted upon. A copy of the Merger Agreement is
included as Appendix A to the enclosed Proxy Statement.
We invite all stockholders to attend the Special Meeting. Whether or
not you plan to attend the Special Meeting, you are requested to complete,
date, sign and return the proxy card in the enclosed postage-paid envelope.
Failure to return a properly executed proxy card or vote at the Special
Meeting will have the same effect as a vote against approval of the Merger
Agreement, the Merger and the other proposals listed on the proxy card.
Executed proxies with no instructions indicated thereon will be voted for
approval and adoption of the Merger Agreement and the Merger, for the
election of the nominated director and for the ratification of the selection
of independent auditors by the Board. If you attend the Special Meeting,
you may vote in person even though you have sent in your proxy.
Sincerely,
Charles J. Housman, Chairman
of the Board, President and
Chief Executive Officer
ARMATRON INTERNATIONAL, INC.
2 Main Street
Melrose, Massachusetts 02176
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
To be held on October 27, 1999
NOTICE IS HEREBY GIVEN that a special meeting in lieu of annual
meeting of the stockholders (including any adjournments or postponements
thereof, the "Special Meeting") of Armatron International, Inc. ("Armatron"
or the "Company") will be held on October 27, 1999 at 9:00 a.m., Eastern
Standard Time, at the Company's principal executive offices at 2 Main
Street, Melrose, Massachusetts, for the following purposes, all of which are
more fully described in the accompanying Proxy Statement (the "Proxy
Statement"):
1. To elect one nominee as director, to serve for a three-year term as
a Class A Director;
2. To ratify the selection, by the Board of Directors, of independent
auditors for the fiscal year ending September 30, 1999;
3. To consider and vote upon the proposal to approve and adopt an
Agreement and Plan of Merger dated as of May 7, 1999 (the "Merger
Agreement") between Armatron and Armatron Merger Corporation, a
Massachusetts corporation ("MergerCo"), and the Merger (as defined
below) contemplated thereby; and
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on September 1,
1999 (the "Record Date") as the record date for the determination of
stockholders entitled to notice of and vote at the Special Meeting. Only
holders of Common Stock and Series A Preferred Stock of record at the close
of business on the Record Date will be entitled to notice of and to vote at
the Special Meeting. Approval and adoption of the Merger Agreement and the
Merger require the vote of the holders of two-thirds of the shares of Common
Stock and Series A Preferred Stock, voting together as a single class,
outstanding on September 1, 1999. Approval of the other proposals set forth
above will require the vote set forth in the Section of the Proxy Statement
entitled "Special Meeting -- Vote Required; Revocability of Proxies."
The Merger Agreement provides, among other things, for the merger of
MergerCo into the Company (the "Merger") with the Company continuing as the
surviving corporation (the "Surviving Corporation"). In the Merger: (i)
each outstanding share of common stock, par value $1.00 per share, of the
Company (the "Common Stock") will be converted into the right to receive
$.27 in cash (except that any shares held by MergerCo or in the Company's
treasury will be canceled and any stockholder who properly dissents from the
Merger will be entitled to appraisal rights under Massachusetts law); (ii)
each outstanding share of common stock, $.01 par value per share, (or
fraction thereof) of MergerCo (the "MergerCo Common Stock") will be
converted into one share of common stock, $.01 par value per share, (or
fraction thereof) of the Surviving Corporation; and (iii) each outstanding
share of Series A Preferred Stock, $100 par value per share, of the Company
will be converted into one share of Series A Preferred Stock, $.01 par value
per share, of the Surviving Corporation.
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together with
all members of their families or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, who
are stockholders of the Company are anticipated to contribute 1,384,277
shares of Common Stock to MergerCo in exchange for 13,842.77 shares of
MergerCo Common Stock. In the Merger, all such shares of MergerCo Common
Stock will be converted into common stock of the Surviving Corporation as
described above.
As a result of the Merger and these related transactions, immediately
following the Merger, (x) Charles J. Housman and Edward L. Housman together
with their family members or affiliates and the family members or affiliates
of the late Herbert E. Housman and the late Frank M. Housman who contribute
their shares of Common Stock to MergerCo will own 100.0% of the outstanding
common stock of the Surviving Corporation and (y) the Housman Realty Trust
(the "Housman Realty Trust") will own 100.0% of the outstanding Series A
Preferred Stock of the Surviving Corporation.
The Company's Common Stock does not meet the listing requirements of
the National Exchanges or the Nasdaq National Market and is currently traded
on the Over the Counter Bulletin Board under the symbol "ATRN." Following
the Merger, the Company will not list the common stock of the Surviving
Corporation on any national securities exchange or automated quotation
system and will delist the Company's Common Stock. If the Merger is
effected, it is anticipated that the Company will have fewer than 300
stockholders, and accordingly, will cease to file reports with the
Securities and Exchange Commission, as more fully described in the
accompanying Proxy Statement.
Charles J. Housman and Edward L. Housman, together with their family
members or affiliates and the family members or affiliates of the late
Herbert E. Housman and the late Frank M. Housman, who are stockholders of
the Company own 56% of the outstanding shares of Common Stock (1,384,277
shares out of 2,459,749 shares outstanding). The Housman Realty Trust owns
100% of the outstanding shares of Series A Preferred Stock of the Company.
Together, these individuals and entities have the power to vote 88% of the
outstanding shares of the Company. The Company anticipates that they will
vote all of their shares for the approval of and adoption of the Merger
Agreement and the transactions contemplated thereby; therefore, the Merger
is assured without the vote of any other stockholders of the Company. The
Merger does not require the approval of two-thirds of holders who are not
affiliates of the Company.
The accompanying Proxy Statement describes the Merger Agreement, the
Merger and the other actions to be voted upon. A copy of the Merger
Agreement is included in Appendix A to the Proxy Statement. To ensure that
your vote will be counted, please complete, date and sign the enclosed proxy
card and return it promptly in the enclosed postage-paid envelope, whether
or not you plan to attend the Special Meeting. Executed proxies with no
instructions indicated thereon will be voted for approval and adoption of
the Merger Agreement, the Merger and the other proposals listed on the proxy
card. You may revoke your proxy in the manner described in the accompanying
Proxy Statement at any time before it is voted at the Special Meeting.
In accordance with Section 87, Chapter 156B of the General Laws of
Massachusetts, holders of Common Stock are advised as follows with respect
to the proposal to approve the Merger Agreement and the Merger:
If the action proposed in item 3 is approved by the stockholders at
the meeting and effected by the Company, any stockholder (a) who,
before the taking of the vote on the approval of such action, files
with the Company written objection to the proposed action stating that
he intends to demand payment for his shares if the action is taken and
(b) whose shares are not voted in favor of such action has or may have
the right to demand in writing from the Company or MergerCo, within
twenty days after the date of mailing to the stockholder of notice in
writing that the corporate action has become effective, payment for
his shares and an appraisal of the value thereof. The Company and any
such stockholder shall in such case have the rights and duties and
shall follow the procedure set forth in Sections 88 to 98, inclusive,
of Chapter 156B of the General Laws of Massachusetts.
Reference is made to "Appraisal Rights" in the Proxy Statement and to
Sections 85 through 98 of Chapter 156B of the General Laws of Massachusetts,
copies of which are attached to the Proxy Statement as Appendix C.
The Annual Report for the fiscal year ended September 30, 1998 has
been enclosed with the accompanying Proxy Statement, but is not a part
thereof.
By Order of the Board of Directors
Melrose, Massachusetts Malcolm D. Finks
September 27, 1999 Clerk
THE BOARD OF DIRECTORS URGES YOU TO SIGN AND RETURN THE ENCLOSED PROXY CARD
AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS
EXERCISE IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY
STOCKHOLDER PRESENT AT THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENT OR
POSTPONEMENT THEREOF, MAY REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON
THE MATTERS SET FORTH ON THE PROXY CARD.
PROXY STATEMENT
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 27, 1999
This Proxy Statement (the "Proxy Statement") is being furnished to the
holders of common stock, par value $1.00 per share (the "Common Stock"), and
Series A Preferred Stock, par value $100 per share (the "Preferred Stock"),
of Armatron International, Inc. (the "Company" or "Armatron"), a
Massachusetts corporation, in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors" or the
"Board") for use at the special meeting in lieu of annual meeting of
stockholders to be held on October 27, 1999 at 9:00 a.m., Eastern Standard
Time, at the Company's principal executive offices at 2 Main Street,
Melrose, MA 02176 and at any adjournments or postponements thereof (the
"Special Meeting"). The Board of Directors has fixed the close of business
on September 1, 1999 as the record date (the "Record Date") for the Special
Meeting with respect to this solicitation.
Only stockholders of record at the close of business on the Record
Date fixed by the Board of Directors for determining stockholders who are
entitled to notice of and to vote at the Special Meeting will be entitled to
vote at the Special Meeting. As of the Record Date, there were outstanding
and entitled to vote 2,459,749 shares of Common Stock (exclusive of 146,732
treasury shares) and 6,667 shares of Preferred Stock. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares
of Common Stock and Preferred Stock entitled to vote, is necessary to
constitute a quorum at the Special Meeting. Each stockholder will have one
vote for each share of Common Stock and 1,000 votes for each share of
Preferred Stock held at the close of business on the Record Date.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal legal,
financial and tax advisers.
This Proxy Statement, the accompanying Notice of Special Meeting and the
accompanying proxy card are first being mailed to stockholders on or about
September 27, 1999. The Company's Annual Report to Stockholders for the fiscal
year ended September 30, 1998, while not incorporated as part of this Proxy
Statement, is also included in this mailing.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY, THEREFORE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON THE FAIRNESS OR
MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR MERGERCO. THE DELIVERY OF THIS PROXY STATEMENT
SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
The date of this Proxy Statement is September 27, 1999.
TABLE OF CONTENTS
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I. AVAILABLE INFORMATION
II. ADDITIONAL INFORMATION
III. INCORPORATION OF DOCUMENTS BY REFERENCE
IV. SUMMARY
A. SPECIAL FACTORS
1. Background of the Merger
a. Purpose and Structure of the Merger
b. Certain Effects of the Merger
2. Recommendation of the Board; Reasons for the Merger
3. Opinion of Financial Adviser
4. Material Federal Income Tax Consequences
5. Interests of Certain Persons in the Merger
6. The Company
B. SPECIAL MEETING
1. Time and Place; Matters to be Considered at the Special
Meeting
2. Record Date and Voting
3. Vote Required; Revocability of Proxies
4. Solicitation of Proxies
5. Security Ownership of Certain Beneficial Owners and
Management
C. THE MERGER
1. General
2. Effective Time of the Merger
3. Effect of the Merger
4. Conditions to the Merger
5. Merger Financings
6. Termination
7. MergerCo
8. Appraisal Rights
9. Market Prices of Common Stock
V. SPECIAL FACTORS
A. BACKGROUND OF THE MERGER
B. CERTAIN EFFECTS OF THE MERGER
C. RECOMMENDATION OF THE BOARD; REASONS FOR THE MERGER;
FINDINGS OF FAIRNESS
D. CONDUCT OF THE COMPANY'S BUSINESS AFTER THE MERGER
E. OPINION OF FINANCIAL ADVISER
F. MATERIAL FEDERAL INCOME TAX CONSEQUENCES
1. Federal Income Tax Consequences to Stockholders
2. Characterization of the Merger for Federal Income Tax
Purposes
G. INTERESTS OF CERTAIN PERSONS IN THE MERGER
VI. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
VII. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
VIII. PRO FORMA CAPITALIZATION
IX. BOOK VALUE PER SHARE
X. RATIO OF EARNINGS TO FIXED CHARGES
XI. MARKET PRICES OF COMMON STOCK
XII. THE SPECIAL MEETING
A. MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
1. Election of Directors
2. Ratification of Independent Auditors
3. Approval of Merger and Merger Agreement
B. RECORD DATE AND VOTING
C. VOTE REQUIRED; REVOCABILITY OF PROXIES
D. SOLICITATION OF PROXIES
E. INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
XIII. THE MERGER AND THE MERGER AGREEMENT
A. MERGER CONSIDERATION
B. EFFECTIVE TIME OF THE MERGER
C. CONVERSION OF SHARES
D. ACCOUNTING TREATMENT
E. REPRESENTATIONS AND WARRANTIES
F. CONDUCT OF BUSINESS PENDING THE MERGER
G. COOPERATION AND BEST EFFORTS; CONDUCT OF BUSINESS AFTER THE
MERGER
H. INDEMNIFICATION
I. CONDITIONS TO THE MERGER
J. TERMINATION
K. AMENDMENT; WAIVER
XIV. DESCRIPTION OF CAPITAL STOCK
A. ARMATRON CAPITAL STOCK
1. Common Stock
2. Series A Convertible Preferred Stock
B. CAPITAL STOCK OF SURVIVING CORPORATION
1. Common Stock
2. Series A Convertible Preferred Stock
XV. REGULATORY APPROVALS
XVI. MANAGEMENT OF THE COMPANY AND MERGERCO
XVII. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
B. STOCK OPTIONS AND RELATED SARS
C. BENEFIT PLANS
D. COMPENSATION COMMITTEE, INTERLOCKS AND RELATED PARTICIPATION
XVIII. REPORT ON EXECUTIVE COMPENSATION
XIX. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
XX. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
XXI. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN FOR THE
YEAR ENDED SEPTEMBER 30, 1998
XXII. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. PRE-MERGER BENEFICIAL OWNERSHIP
B. POST-MERGER BENEFICIAL OWNERSHIP
XXIII. FEES AND EXPENSES
XXIV. MERGER FINANCINGS
A. SOURCE AND AMOUNT OF FUNDS
B. SALE OF MERGERCO COMMON STOCK
XXV. MERGERCO
XXVI. APPRAISAL RIGHTS
XXVII. OTHER INFORMATION AND STOCKHOLDER PROPOSALS
XXVIII. EXPERTS
Appendix A - - Agreement and Plan of Merger
Appendix B - - Opinion of Gordon Associates Inc.
Appendix C - - Sections 85-98 of Chapter 156B of the General Laws of
Massachusetts
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and at the Regional
Office of the Commission: Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such reports and other
information may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, DC 20549, on payment of
prescribed charges. In addition, such reports, proxy statements and other
information may be electronically accessed at the Commission's site on the
World Wide Web located at http://www.sec.gov. Such reports, proxy
statements and other information concerning the Company may also be
inspected at the Company's principal executive offices at 2 Main Street,
Melrose, MA.
ADDITIONAL INFORMATION
This Proxy Statement includes information to be disclosed pursuant to
Rule 13e-3 under the Exchange Act, which governs so-called "going private"
transactions by certain issuers or their affiliates. The Company and
MergerCo are filing a Rule 13e-3 Transaction Statement as amended by
Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (the "Schedule
13E-3") to furnish information with respect to the transactions described
herein. This Proxy Statement does not contain all the information set forth
in the Schedule 13E-3, parts of which are omitted in accordance with the
regulations of the Commission. The Schedule 13E-3, and any amendments and
exhibits thereto, including exhibits filed as a part thereof, will be
available for inspection at the offices of the Commission as set forth
above, as well as at the offices of the Company at: 2 Main Street, Melrose,
MA 02176. A copy of the Schedule 13E-3, and any amendments and exhibits
thereto, will be transmitted to any stockholder of the Company upon written
request at the expense of such stockholder.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant
to the Exchange Act by the Company (File No. 1-4433) are hereby incorporated
by reference in this Proxy Statement.
(a) Annual Report on Form 10-K, as amended, for the fiscal year
ended September 30, 1998.
(b) Current Report on Form 8-K filed on April 22, 1999.
(c) Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1998.
(d) Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999.
(e) Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999.
The Company's Annual Report on Form 10-K, as amended, for the fiscal
year ended September 30, 1998 and Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999 are being mailed to each stockholder
together with this Proxy Statement. Additional copies of such reports as
filed with the Commission may be obtained free of charge by writing to the
President of the Company at its principal executive offices.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE RELATING TO
THE COMPANY WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES AT 2 MAIN STREET, MELROSE, MASSACHUSETTS,
ATTENTION: PRESIDENT, TELEPHONE NUMBER (781) 321-2300, EXTENSION 311. UPON
REQUEST, THESE DOCUMENTS WILL BE SENT BY FIRST CLASS MAIL WITHIN ONE
BUSINESS DAY UPON RECEIPT OF REQUEST.
SUMMARY
The following is a summary of material information contained elsewhere
in this Proxy Statement. This summary is not intended to be a complete
description and is qualified in its entirety by reference to the more
detailed information contained in this Proxy Statement or in the documents
attached as Appendices hereto. Each stockholder is urged to give careful
consideration to all the information contained in this Proxy Statement and
the Appendices before voting.
SPECIAL FACTORS
Background of the Merger
- ------------------------
For a description of the events leading to the agreement to acquire
the Common Stock, the determination of the price to be paid for the Common
Stock and the approval and adoption of the Agreement and Plan of Merger
dated as of May 7, 1999 (the "Merger Agreement") between Armatron and
Armatron Merger Corporation, a Massachusetts corporation ("MergerCo"), and
the Merger (as defined below) by the Board of Directors, see "Special
Factors -- Background of the Merger."
Purpose and Structure of the Merger
The purpose of the Merger (as defined below) and the related
transactions is to reduce the number of stockholders of the Company to less
than 300 to enable the Company to cease to be subject to the reporting
requirements of the Exchange Act in order for the Company to reduce its
expenses. Savings will result from decreased legal, accounting and printing
costs.
The Board considered other means of achieving this result such as a
tender offer, open market purchase plan and reverse stock split, but
rejected these alternatives as either more costly or unlikely to achieve the
desired result.
The Merger Agreement provides, among other things, for the merger of
MergerCo into the Company (the "Merger") with the Company continuing as the
surviving corporation (the "Surviving Corporation"). In the Merger: (i)
each outstanding share of Common Stock of the Company will be converted into
the right to receive $.27 in cash (the "Merger Consideration") (except that
any shares held by MergerCo or in the Company's treasury will be canceled
and any stockholder who properly dissents from the Merger will be entitled
to appraisal rights under Massachusetts law); (ii) each outstanding share of
common stock, $.01 par value per share, (or fraction thereof) of MergerCo
(the "MergerCo Common Stock") will be converted into one share of common
stock, $.01 par value per share, (or fraction thereof) of the Surviving
Corporation; and (iii) each outstanding share of Preferred Stock of the
Company will be converted into one share of Series A Preferred Stock, $.01
par value per share, of the Surviving Corporation. See "The Merger and the
Merger Agreement."
Certain Effects of the Merger
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together
with all members of their families or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, who
are stockholders of the Company are anticipated to contribute 1,384,277 shares
of Common Stock to MergerCo in exchange for 13,842.77 shares of MergerCo
Common Stock. In the Merger, all such shares of MergerCo Common Stock will
be converted into common stock of the Surviving Corporation.
Upon consummation of the Merger and these related transactions,
immediately following the Merger, (x) Charles J. Housman and Edward L.
Housman together with their family members or affiliates and the family
members or affiliates of the late Herbert E. Housman and the late Frank M.
Housman who contribute their shares of Common Stock to MergerCo will own
100.0% of the outstanding common stock of the Surviving Corporation and (y)
the Housman Realty Trust (the "Housman Realty Trust") will own 100.0% of the
outstanding Series A Preferred Stock of the Surviving Corporation.
The Company's Common Stock does not meet the listing requirements of
the National Exchanges or the Nasdaq National Market and is currently traded
on the Over the Counter Bulletin Board under the symbol "ATRN." Following
the Merger, the Company will not list the common stock of the Surviving
Corporation on any national securities exchange or automated quotation
system and will delist the Company's Common Stock. If the Merger is
effected, it is anticipated that the Company will have fewer than 300
stockholders, and accordingly, will terminate its registration under the
Exchange Act and thereafter cease to file reports with the Commission.
ALL STOCKHOLDERS OF THE COMPANY (EXCEPT MERGERCO WHICH WILL RETAIN
ITS SHARES) WILL RECEIVE $.27 IN CASH FOR EACH OUTSTANDING SHARE AND AFTER
THE MERGER WILL NO LONGER HAVE AN EQUITY INTEREST IN THE COMPANY.
Recommendation of Board; Reasons for the Merger
- -----------------------------------------------
At a meeting on April 21, 1999, the Board unanimously agreed to set
the price to be paid for the Common Stock at $.27 per share, agreed to
acquire the Common Stock held by the stockholders of the Company (other than
MergerCo) and approved the Merger Agreement and the transactions
contemplated thereby, including the Merger. The Board has determined that
the price to be paid to the stockholders (except MergerCo which will retain
its shares) is fair to the stockholders and that the Merger Agreement is
fair to and in the best interests of the stockholders and recommends that
the stockholders vote FOR the approval and adoption of the Merger Agreement
and the Merger.
For a discussion of the factors considered by the Board in reaching
its recommendation and determination, see "Special Factors -- Background of
the Merger" and "-- Recommendation of the Board; Reasons for the Merger;
Findings of Fairness."
Opinion of Financial Adviser
- ----------------------------
On April 21, 1999, Gordon Associates Inc. ("Gordon Associates"),
financial adviser to the Board, delivered its oral opinion to the Board,
which was confirmed by its written opinion to the Board, dated as of April
21, 1999, to the effect that, based upon and subject to certain factors and
assumptions stated therein, as of such date, the Merger Consideration to be
received in the Merger by the stockholders (other than MergerCo and the
Company with respect to treasury stock which shares will be canceled) is
fair from a financial point of view to such stockholders. The full text of
the written opinion of Gordon Associates which sets forth a description of
the assumptions made, factors considered and limitations on the review
undertaken, is attached hereto as Appendix B. Stockholders are urged to
read such opinion carefully in its entirety. See "Special Factors --
Opinion of Financial Adviser."
Material Federal Income Tax Consequences
- ----------------------------------------
Cash received by holders of Common Stock in exchange therefor will be
treated as received in complete redemption of all of their shares of the
Company. The exchange will result in gain or loss to the stockholder in an
amount equal to the difference between the amount realized on such exchange
and the stockholder's tax basis in the Common Stock redeemed. Such gain or
loss generally will be capital gain or loss provided that the Common Stock
has been held as a capital asset by such stockholder. However, the tax
consequences to each stockholder may vary depending upon each stockholder's
particular circumstances and tax position. See "Special Factors -- Material
Federal Income Tax Consequences."
EACH STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISER AS TO
THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER
TAX LAWS.
Interests of Certain Persons in the Merger
- ------------------------------------------
In considering the recommendation of the Board with respect to the
Merger, stockholders should be aware that each member of the Board and
certain executive officers of the Company has an interest, described herein,
that presents him with a potential conflict of interest in connection with
the Merger. The Board currently has three directors: Charles J. Housman,
Edward L. Housman and Malcolm D. Finks. Both Charles J. Housman and Edward
L. Housman are executive officers of the Company and each own greater than
5% of the shares of the Company. See "Security Ownership of Certain
Beneficial Owners and Management." The law firm of which Malcolm D. Finks
is a member, provides legal advice to the Company. See "Certain
Relationships and Related Transactions."
The Company had a $7,000,000 line of credit with Housman Realty Trust,
a trust of which Malcolm D. Finks is the sole trustee and a beneficiary and
of which Charles J. Housman and Edward L. Housman together with certain
members of their families or affiliates and the family members or affiliates
of the late Herbert E. Housman and the late Frank M. Housman are
beneficiaries. On April 20, 1999, Housman Realty Trust converted $2,000,100
of the principal amount of this line of credit into 6,667 shares of
Preferred Stock.
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together with
all members of their families or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, the
deceased brothers of Charles J. Housman and Edward L. Housman, who are
stockholders of the Company are anticipated to contribute 1,384,277 shares
of Common Stock to MergerCo in exchange for 13,842.77 shares of MergerCo
Common Stock. In the Merger, all such shares of MergerCo Common Stock will
be converted into common stock of the Surviving Corporation.
Upon consummation of the Merger and these related transactions,
immediately following the Merger, (x) Charles J. Housman and Edward L.
Housman together with their family members or affiliates and the family
members or affiliates of the late Herbert E. Housman and the late Frank M.
Housman who contribute their shares of Common Stock to MergerCo will own
100.0% of the outstanding common stock of the Surviving Corporation and (y)
the Housman Realty Trust will own 100.0% of the outstanding Series A
Preferred Stock of the Surviving Corporation.
For a list of the names of the persons expected to be directors or
executive officers of the Surviving Corporation (together with such
persons' biographies), see "Management of the Company and MergerCo."
The Company
- -----------
The Company was organized in 1920 as Automatic Radio. Until 1978, the
Company was primarily involved in the design and manufacture of automobile
radios. In 1978 the Company began to concentrate its efforts primarily in
manufacturing electronic insect killing devices. The Company operates
principally in two segments, the Consumer Products segment through its
Flowtron Outdoor Products Division and the Industrial Products segment
through its Automatic Radio Division.
The Company's main Division, Flowtron Outdoor Products, manufactures
and distributes insect control devices including electronic bugkillers and
biomisters, environmental products including mulching leaf-eaters and
compost bins, and storage and handling products including plastic yard carts
and plastic storage sheds. All products in this division distributed in
fiscal 1998 are in full production. These products undergo periodic model
changes and product improvements. See "Selected Historical Consolidated
Financial Data" and "Unaudited Pro Forma Condensed Consolidated Financial
Data."
In 1994 the Company's Automatic Radio Division completed field testing
of its ultrasonic collision avoidance/obstacle detection system for
automotive applications which is marketed under the trademark "Echovision."
Echovision devices monitor back blind spots and side blind spots to detect
objects and alert operators to potential hidden hazards and feature,
intuitive audible warnings, visual warnings, automatic activation, easy
installation on any type vehicle and a continuous system self-test. The
advantage of using Echovision devices include increased driver awareness
which is expected to result in fewer accidents, and potentially lower
damages and public liability costs and increased driver awareness. The
device generally sells in a range of $200 to $300 per system. The Company
warrants that the product is delivered defect free. Production of these
systems began in the first quarter of 1996.
The Company's research and development efforts are primarily related
to enhancements to its existing product offerings. The Company is engaged
in research and development of lawn and garden products, home electronic
devices, and automotive and transportation safety and performance products.
It is not possible at this time to assess whether any commercially
acceptable products will result from these efforts.
SPECIAL MEETING
Time and Place; Matters to be Considered at the Special Meeting
- ---------------------------------------------------------------
The Special Meeting will be held at 9:00 a.m., Eastern Standard Time,
on October 27, 1999 at the Company's principal executive offices at 2 Main
Street, Melrose, Massachusetts. At the Special Meeting, stockholders will
consider and vote upon: (i) the election of a Class A Director; (ii) the
ratification of the selection, by the Board, of the independent auditors for
the fiscal year ending September 30, 1999; (iii) the approval and adoption
of the Merger Agreement and the Merger; and (iv) such other matters as may
properly come before the Special Meeting. See "The Special Meeting --
Matters To Be Considered at the Special Meeting" and "Other Information and
Stockholder Proposals."
Record Date and Voting
- ----------------------
The Record Date for the Special Meeting is the close of business on
September 1, 1999. At the close of business on the Record Date, there were
2,459,749 shares of Common Stock outstanding and entitled to vote and 6,667
shares of Preferred Stock outstanding and entitled to vote, held by
approximately 1,078 stockholders of record. Each holder of Common Stock on
the Record Date will be entitled to one vote for each share held of record
and each holder of Preferred Stock will be entitled to 1,000 votes for each
share held of record. The presence, either in person or by proxy, of the
holders of a majority of the issued and outstanding shares of Common Stock
and Preferred Stock entitled to vote is necessary to constitute a quorum at
the Special Meeting. Abstentions (including broker non-votes) are included
in the calculation of the number of votes represented at a meeting for
purposes of determining whether a quorum has been achieved. See "The
Special Meeting -- Record Date and Voting."
Vote Required; Revocability of Proxies
- --------------------------------------
Of the proposals stated in the accompanying Notice of Special Meeting
of Stockholders, approval of proposal 1, the election of the Class A
Director, will require the affirmative vote of the holders of a plurality of
the shares of Common Stock and Preferred Stock outstanding on the Record
Date and represented at the Special Meeting; approval of proposal 2, the
ratification of the independent auditors, will require the affirmative vote
of at least a majority of the shares of Common Stock and Preferred Stock
outstanding on the Record Date and represented at the Special Meeting voting
together as a single class; and approval of proposal 3, the approval and
adoption of the Merger Agreement and the Merger, will require the
affirmative vote of at least two-thirds of the shares of Common Stock and
Preferred Stock outstanding on the Record Date voting together as a single
class.
Charles J. Housman and Edward L. Housman, together with their family
members or affiliates and the family members or affiliates of the late
Herbert E. Housman and the late Frank M. Housman, who are stockholders of
the Company own 56% of the outstanding shares of Common Stock (1,384,277
shares out of 2,459,749 shares outstanding). The Housman Realty Trust owns
100% of the outstanding shares of Preferred Stock of the Company. Together,
these individuals and entities have the power to vote 88% of the outstanding
shares of the Company. The Company anticipates that they will vote all of
their shares for the approval of and adoption of the Merger Agreement and
the transactions contemplated thereby; therefore, the Merger is assured
without the vote of any other stockholders of the Company. The Merger does
not require the approval of two-thirds of holders who are not affiliates of
the Company.
With respect to tabulation of the proxies, abstentions are treated as
votes against a proposal and broker non-votes have no effect on the vote
except with respect to the adoption and approval of the Merger Agreement and
the Merger where broker non-votes will be treated as a vote against such
proposal. Proxies that do not contain any instruction to vote for or
against a particular matter will be voted in favor of such matter. See "The
Special Meeting -- Vote Required; Revocability of Proxies."
The presence of a stockholder at the Special Meeting will not
automatically revoke such stockholder's proxy. However, a stockholder may
revoke a proxy at any time prior to its exercise by (i) delivering to the
Company's Clerk at its principal place of business, a written notice of
revocation prior to the Special Meeting; (ii) delivering prior to the
Special Meeting a duly executed proxy bearing a later date; or (iii)
attending the Special Meeting and voting in person.
Solicitation of Proxies
- -----------------------
The cost of solicitation will be paid by the Company. In addition to
solicitation by mail, solicitation of proxies may be made personally or by
telephone or FAX machine by the Company's regular employees, and
arrangements may be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxy materials to, and to obtain proxies
from the beneficial owners of shares held of record by such persons. The
Company will reimburse such parties for reasonable out-of-pocket expenses
incurred by them in connection therewith.
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
As of August 15, 1999, the directors and executive officers of the
Company and their affiliates beneficially owned, in the aggregate, 629,223
shares of Common Stock and 6,667 shares of Preferred Stock, representing in the
aggregate 79.9% of the outstanding Common Stock and Preferred Stock (on an
as converted basis) of the Company. See "Security Ownership of Certain
Beneficial Owners and Management -- Pre-Merger Beneficial Ownership."
THE MERGER
General
- -------
Upon the consummation of the Merger, MergerCo will be merged with and
into the Company and the Company will continue as the Surviving Corporation.
The Surviving Corporation will succeed to all the rights and obligations of
the Company and MergerCo.
Effective Time of the Merger
- ----------------------------
Pursuant to the Merger Agreement, the "Effective Time" will occur upon
filing the Articles of Merger with the Massachusetts Secretary of State.
Effect of the Merger
- --------------------
At the Effective Time: (i) each share of Common Stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive $.27 in cash except that any shares held by MergerCo or in the
Company's treasury will be canceled, and any stockholder that properly
dissents from the Merger (a "Dissenting Stockholder") will be entitled to
appraisal rights under Sections 85 to 98 of Chapter 156B, the Business
Corporation Law, of the General Laws of Massachusetts (the "MBCL"); (ii)
each outstanding share of MergerCo Common Stock (or fraction thereof) will
be converted into one share of common stock, $.01 par value per share, (or
fraction thereof) of the Surviving Corporation; and (iii) each outstanding
share of Preferred Stock of the Company will be converted into one share of
Series A Preferred Stock, $.01 par value per share, of the Surviving
Corporation. The Company expects to treat the Merger as a recapitalization
for financial reporting purposes. Accordingly, the historical basis of the
Company's assets and liabilities will not be affected by the transaction.
Conditions to the Merger
- ------------------------
The obligations of the Company and MergerCo to consummate the Merger
are subject to various conditions, including the approval and adoption of
the Merger Agreement and the Merger by the requisite vote of stockholders
and the absence of any injunction or other legal restraint preventing
consummation of the Merger.
In addition, MergerCo's obligations to effect the Merger are subject
to, among other things, (i) holders of no more than 10% of the outstanding
shares of Common Stock having perfected their appraisal rights in accordance
with the requirements of the MBCL; and (ii) there being no material adverse
effect on the business, assets, liabilities, condition (financial or other)
or results of operations of the Co mpany since September 30, 1998. See "The
Merger and the Merger Agreement -- Conditions to the Merger" and "Merger
Financings."
Merger Financings
- -----------------
The Company expects that approximately $455,000 will be required to
(i) finance the payment of the Merger Consideration and (ii) pay the fees
and expenses expected to be incurred in connection with the Merger. It is
contemplated that at the Effective Time, the Company expects to have at
least $1 million of cash on-hand to use in connection with the Merger. The
following table illustrates the estimated sources and uses of funds
necessary to consummate the Merger:
SOURCES
-------
Cash $455,000
--------
Total Sources $455,000
========
USES
----
Purchase of Common Stock $291,000
Estimated Fees and Expenses $164,000
--------
Total Uses $455,000
========
Termination
- -----------
The Merger Agreement may be terminated and the Merger abandoned prior
to the Effective Time upon certain events. See "The Merger and the Merger
Agreement -- Termination."
MergerCo
- --------
MergerCo is a newly formed Massachusetts corporation, which was
organized in connection with the transactions contemplated by the Merger
Agreement. MergerCo is a nonsubstantive transitory merger vehicle, which
will be merged out of existence at the Effective Time. Accordingly, it is
not expected to have significant assets or liabilities (other than those
arising under the Merger Agreement) or to engage in any activities (other
than those incident to its formation and the Merger.) The authorized
capital stock of MergerCo consists of 190,000 shares of common stock, par
value $.01 per share, and 10,000 shares of preferred stock, par value $.01
per share, of which no shares are currently outstanding.
Appraisal Rights
- ----------------
Holders of Common Stock have the right to dissent from approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
and, subject to strict compliance with certain requirements of the MBCL, to
receive payment for the "fair value," as defined in the MBCL, of their
Common Stock ("Dissenting Shares"). These requirements are described under
"Appraisal Rights" and in the provisions of Sections 85 through 98 of the
MBCL, which are attached as Appendix C to this Proxy Statement.
Market Prices of Common Stock
- -----------------------------
The Company's Common Stock is currently traded on the Over the Counter
Bulletin Board under the symbol, "ATRN." On April 14, 1999, the last
trading day before the public announcement of the Merger and related
transactions, the reported high and low bid price per share of Common Stock
was $.50 and $.16, respectively. On September 24, 1999, the last full trading
day prior to the date of this Proxy Statement, the reported high and low bid
prices per share of Common Stock were [$.__ and $.__], respectively. For
additional information concerning historical market prices of the Common
Stock, see "Market Prices of Common Stock."
Following the Merger, the Company will not list the common stock of
the Surviving Corporation on any national securities exchange or automated
quotation system and will delist the Company's Common Stock.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Common Stock of the Company has been trading below $1.00 since
November 1997. The Company was delisted from the American Stock Exchange on
February 28, 1996. The Company's stock trades sporadically. The Company
has incurred net losses for the past seven years. The Company has been able
to continue its operations because of the personal guaranty provided to the
Company by Charles J. Housman. For the Company to continue its operations
in the future, it will need additional cash which may be provided by certain
members of the Housman family and may only be provided to the Company for
use to fund operations and not to pay for certain expenses, including those
relating to the Company's continuing obligations as a reporting company
under the Exchange Act.
In light of the Company's on-going need for additional capital
infusions to fund its losses and in order to reduce expenses, the Board of
Directors of the Company has determined to acquire through a Merger the
Common Stock held by the stockholders of the Company (other than MergerCo).
The purpose of the Merger and the related transactions is to reduce the
number of stockholders of the Company to less than 300 to enable the Company
to cease to be subject to the reporting requirements of the Exchange Act.
The Board of Directors believes that removing the burdens on the Company of
being a public corporation subject to the reporting requirements of the
Exchange Act, and the annual shareholders meeting requirements will reduce
expenses to the benefit of the Company. For the prior two fiscal years the
Company incurred the following expenses:
1998 1997
------------------
Legal $ 72,383 $ 65,842
Accounting 44,026 42,565
Printing 8,039 8,652
Transfer Agent 6,905 11,667
---------------------
$131,353 $128,726
The Company believes that it will realize annual savings of approximately
$35,000 from decreased legal, accounting and transfer agent fees and
expenses and printing costs no longer required in fulfilling its
requirements under the Exchange Act. In addition, the Company will be able
to reallocate personnel to other operating activities as these employees
will no longer be required to participate in the preparation of filings
under the Exchange Act. Further, since the Common Stock is rarely traded
and the Company has not been profitable, the Company does not believe that
it can raise funds in the public market, make acquisitions with its stock,
or otherwise avail itself of the advantages of being a public company.
In order to provide a prompt and orderly transfer of ownership of
Common Stock from the public stockholders; to have the transaction be tax
free to the Company and the stockholders of the Surviving Corporation; and
to provide the most expeditious and efficient method of changing the
Company's status from that of a publicly held-reporting company to a
privately held non-reporting company, the acquisition of the Company has
been structured as a merger pursuant to which, if the Merger is approved and
adopted by the requisite vote of the Company stockholders and the remaining
conditions to the consummation of the Merger are satisfied or waived,
MergerCo will be merged with and into the Company with the Company
continuing as the Surviving Corporation. In the Merger: (i) each
outstanding share of Common Stock of the Company will be converted into the
right to receive $.27 in cash (except that any shares held by MergerCo or in
the Company's treasury will be canceled and any stockholder who properly
dissents from the Merger will be entitled to appraisal rights under the
MBCL); (ii) each outstanding share of MergerCo Common Stock (or fraction
thereof) will be converted into one share of common stock, $.01 par value
per share, (or fraction thereof) of the Surviving Corporation; and (iii)
each outstanding share of Preferred Stock of the Company will be converted
into one share of Series A Preferred Stock, $.01 par value per share, of the
Surviving Corporation. See "The Merger and the Merger Agreement."
Stockholders who perfect their statutory appraisal rights under and in
accordance with Section 85 through 98 of the MBCL may seek appraisal of
their Common Stock. See "Appraisal Rights."
The Board considered other means of achieving this result such as a
tender offer, open market purchase plan and reverse stock split, but
rejected these alternatives as either more costly or unlikely to achieve the
desired result. A tender offer would likely be a more complex and costly
transaction and most of the Company's stockholders hold very small lots
which have small value; therefore, it would be unlikely that many
stockholders would affirmatively act to tender their shares due to the small
amount of the proceeds they would receive in the transaction. An open
market purchase plan could take a long time to implement as there is only
nominal trading activity in the Company's shares and the Company might not
reach its desired goal of having less than 300 stockholders. A reverse
stock split would cash out certain members of the Housman family who will be
allowed to continue as stockholders of the Company after the Merger if they
so desire.
The Company did not consider other opportunities and the Board has not
received any offers or indications of interest from potential acquirors or
offers to make an investment in the Company. The Board believes that the
likelihood of receiving such offers is low due to the Company's consistent
history of financial losses, the fact that the members of the Housman family
or their affiliates have the power to vote 88% of the outstanding shares of
the Company and the need for a potential acquiror to pay off the $2,715,000
debt plus $1,736,000 in interest outstanding and owed to the Housman Realty
Trust as of July 31, 1999.
In order to consummate the Merger, the Company determined that it had
to become solvent under Massachusetts law; otherwise the payment of cash to
the Company's stockholders would be subject to forfeiture and would create
liability for the directors and stockholders of the Company. See "--
Interests of Certain Persons in the Merger." In order to comply with
Massachusetts law, the Company must be solvent both at the time the Board of
Directors of the Company voted to pay cash to its stockholders and when it
pays the cash to its stockholders. The Company determined that for it to be
solvent and have its assets exceed its liabilities at the time of the Board
of Director vote to approve the Merger, it needed to convert approximately
$1,400,000 to equity which number was determined based on the Company's
Consolidated Balance Sheet as of March 31, 1999, which reflected a Total
Shareholders' Deficiency of $1,399,000. The Company then estimated the
amount of additional cash that would be needed to maintain the Company's
solvency until the closing of the Merger transaction. The Company
determined that it would need an additional $600,000 to cover its ongoing
operations and expenses related to the Merger. Accordingly, Housman Realty
Trust agreed to convert $2,000,100 of debt outstanding into 6,667 shares of
Preferred Stock.
The Board of Directors determined that the fair market value of the
Preferred Stock on a share for share equivalent basis with the Common Stock
was $.30 per share. To determine the number of shares of Common Stock into
which the Preferred Stock would be converted, the amount of the debt to be
converted to equity ($2,000,100) was divided by $.30. The stockholders of the
Company approved on January 19, 1984 the authorization of "blank check"
preferred stock. In accordance with the stockholder approval, the Company's
Restated Articles of Organization have authorized 100,000 shares of blank
check preferred stock at a par value of $100 per share. Under Massachusetts
law, the directors may determine the voting powers of any class of stock.
Furthermore, under Massachusetts law, a company may not issue any stock for
less than par value. Therefore, the purchase price of the Preferred Stock to
be issued by the Company had to be at least $100.00 per share. To make the
calculation of the conversion simple, the Board of Directors of the Company
determined to issue 6,667 shares of Preferred Stock at $300 per share.
The terms of the Preferred Stock are standard convertible preferred
stock terms used by many companies issuing preferred stock. The Housman
Realty Trust agreed to convert a portion of its debt to Preferred Stock only
if it had voting rights equivalent to the value of the purchase price of the
Preferred Stock, a preference in liquidation over the Common Stock and
received a dividend. The Preferred Stock dividend rate is equivalent to the
rate of interest which was accruing on the debt. Certain standard features of
preferred stock, such as a redemption provision, were not included in the
terms of the Preferred Stock to allow the Company to treat the exchange of
debt for Preferred Stock as a tax free reorganization under the Internal
Revenue Code of 1986. The number of shares of Common Stock to be issued
upon conversion of the Preferred Stock was determined by the dollar amount
of equity necessary to prevent the Company from being deemed insolvent under
the MBCL. The Preferred Stock votes on an as converted basis with the
Common Stock and because the dollar amount contributed to the Company upon
the purchase of the Preferred Stock was substantial ($2,000,100) in
comparison to the fair market value of the Company before the issuance of
the Preferred Stock ($664,132, which reflects the 2,459,749 shares of Common
Stock issued and outstanding at a fair market value of $.27 per share), the
issuance of the Preferred Stock resulted in substantial voting rights for
the Preferred Stock (73% of the capital stock of the Company). On April 20,
1999 the Board of Directors of the Company approved the conversion of debt
to equity so that the Company would be solvent.
The Board determined that it would be prudent to obtain the services
of a qualified financial consultant to perform an analysis on the valuation
of the Company as well as to prepare a fairness opinion on the Company's
Common Stock. The Board contacted and interviewed certain firms which
offered such consulting services. Based upon the interviews, qualifications
and costs for such services, the Board selected Gordon Associates as the
most qualified as well as the most reasonably priced.
At a meeting of the Board of Directors on January 13, 1999 the Board
determined to retain the services of Gordon Associates as the financial
adviser to the Company and asked Gordon Associates to begin its analysis of
the Company. Although individual Board members had general discussions
regarding a going private transaction prior to January 13, 1999, the
retention of Gordon Associates was the first action taken by the Board as a
whole in furtherance of such a transaction.
At a meeting on April 21, 1999, at which all of the directors were
present, the Board unanimously agreed to set the price to be paid for the
Common Stock at $.27 per share, agreed to acquire the Common Stock held by
the stockholders of the Company (other than MergerCo), approved the Merger
Agreement and the transactions contemplated thereby and authorized execution
of the Merger Agreement. In making its determinations of the price to be
paid to the stockholders and that the Merger was fair to and in the best
interests of the Company and the stockholders, the Board considered a number
of factors including those described in " -- Recommendation of the Board;
Reasons for the Merger; Findings of Fairness."
CERTAIN EFFECTS OF THE MERGER
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together with
all members of their families or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, who
are stockholders of the Company are anticipated to contribute 1,384,277
shares of Common Stock to MergerCo in exchange for 13,842.77 shares of
MergerCo Common Stock. In the Merger, all such shares of MergerCo Common
Stock will be converted into common stock of the Surviving Corporation.
Upon consummation of the Merger and these related transactions,
immediately following the Merger, (x) Charles J. Housman and Edward L.
Housman together with their family members or affiliates and the family
members or affiliates of the late Herbert E. Housman and the late Frank M.
Housman who contribute their shares of Common Stock to MergerCo will own
100.0% of the outstanding common stock of the Surviving Corporation and (y)
the Housman Realty Trust will own 100.0% of the outstanding Series A
Preferred Stock of the Surviving Corporation.
The following table sets forth the net book value and net earnings
(loss) of the Company as a whole and of the proportionate share of Charles
J. Housman, Edward L. Housman, the Frank Housman Family Trust, the Susan
Sohn Family Trust and the Housman Realty Trust, the affiliates of the Company
prior to the Merger and related transactions and giving effect to the Merger
and related transactions:
Before Merger After Merger
------------- ------------
% of Ownership % of Ownership
Amount of Capital Stock Amount of Capital Stock
-----------------------------------------------------------
Net book value at June 30, 1999:
Company $ 851,000 100.00% $396,000 100.00%
Charles J. Housman $ 20,000 2.38% $ 11,000 2.69%
Edward L. Housman $ 18,000 2.09% $ 9,000 2.37%
Frank Housman Family Trust $ 18,000 2.17% $ 10,000 2.46%
Susan Sohn Family Trust $ 2,000 .25% $ 1,000 .28%
Housman Realty Trust $ 622,000 73.05% $328,000 82.81%
Net earnings (loss) for the nine months ended June 30, 1999:
Company $(593,000) 100.00% $(611,000) 100.00%
Charles J. Housman $ (14,000) 2.38% $ (16,000) 2.69%
Edward L. Housman $ (12,000) 2.09% $ (14,000) 2.37%
Frank Housman Family Trust $ (13,000) 2.17% $ (15,000) 2.46%
Susan Sohn Family Trust $ (1,000) .25% $ (2,000) .28%
Housman Realty Trust $(433,000) 73.05% $(506,000) 82.81%
The Company's Common Stock does not meet the listing requirements of
the National Exchanges or the Nasdaq National Market and is currently traded
on the Over the Counter Bulletin Board under the symbol "ATRN." Following
the Merger, the Company will not list the common stock of the Surviving
Corporation on any national securities exchange or automated quotation
system. If the Merger is effected, it is anticipated that the Company will
have fewer than 300 stockholders and will terminate its listing on the Over
the Counter Bulletin Board and file a certification with the Commission that
it is owned by less than 300 persons and therefore requests termination of
registration of its Common Stock. Registration will be terminated within 90
days thereof. Accordingly, the Company will no longer be required to file
periodic reports with the Commission, be obligated to comply with the proxy
rules of Regulation 14A of the Exchange Act, print and distribute to
stockholders annual or quarterly reports or proxy statements, maintain a
transfer agent for its Common Stock or retain counsel or accountants to
assist in the preparation of such reports or statements.
RECOMMENDATION OF THE BOARD; REASONS FOR THE MERGER; FINDINGS OF FAIRNESS
THE BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND THE STOCKHOLDERS. THE BOARD APPROVED THE
MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
In reaching its determination that the Merger Agreement and the Merger
are in the best interests of the Company and the stockholders and in
determining to pay $.27 per share to the stockholders who do not contribute
their shares of Common Stock to MergerCo, the Board relied on its knowledge
of the business, operations and operating results, properties and assets,
financial condition, and historical market prices of the Company and
analyzed these factors as follows:
* Business, Operations and Operating Results. The Company operates
primarily in the Consumer Products segment which involves the
manufacture and distribution of insect control devices, environmental
products, and storage and handling products. The business operations of
the Company have been flat for the past 5 years with annual sales of
$12-$13 million and annual net losses ranging from $500,000 to $1
million. The Company does not anticipate growth in sales or profits
from its operations in the foreseeable future. The Board believes that
a cash offer of $.27 per share is at the high end of the range and is
fair and reasonable.
* Properties and Assets. The Company does not own any real property but
does own equipment, furniture, fixtures, and certain patents that have
little economic value. The Board determined that the values of the
fixed assets have not appreciated from their book value of $404,000 set
forth in the Company's Balance Sheet as of March 31, 1999. As of March
31, 1999, the Company had assets worth $7.3 million of which $6.8
million or 93%, were current assets. The current ratio of the Company
at March 31, 1999 was approximately 1.7 to 1.0. The Board is not aware
of any undervalued or appreciated assets that would cause the Company to
be valued greater than its current value. In addition, if the Company
were required to liquidate these assets, the Board believes that its
assets may not be sufficient to satisfy all of the Company's debts. In
view of these factors, the Board determined that a cash offer of $.27
per share is fair and reasonable.
* Financial Condition. The Company remains financially solvent due in
great measure to the Housman Realty Trust continuing to grant waivers
under the loan agreement for payments of interest on the note. The
Housman Realty Trust has not required such payment since 1995. In
addition, Charles Housman, the Chairman of the Board, has personally
guaranteed to fund the Company in the event of a shortfall of cash and
Charles Housman and Edward Housman have not received salaries since
1995. Absent these factors, the Company would have experienced cash
flow problems that may have forced it into bankruptcy. Given the
financial condition of the Company, the Board believes that a cash offer
of $.27 per share is on the high side of the range of a fair price for
the Company's Common Stock.
* Historical Market Prices. The Company's Common Stock traded at
approximately $.16 per share in late March 1999. The Board believes
that the market price of the Common Stock would decrease dramatically if
the Housman Realty Trust did not continue to grant waivers under the loan
agreement for payments of interest on the note and had paid salaries to
the two of the Company's executive officers. Due to the continuing grant
of a waiver, the Board believes that a cash offer of $.27 per share is on
the high side of the range of a fair price for the Company's Common Stock.
Additionally, the Company considered the following factors (both
positive and negative):
* the oral opinion of Gordon Associates delivered to the Board, which was
confirmed by its written opinion to the Board, dated as of April 21,
1999, which opinion has been adopted by the Board, to the effect that,
based upon and subject to certain factors and assumptions stated
therein, as of such date, the Merger Consideration to be received in the
Merger by the stockholders (other than MergerCo and the Company with
respect to treasury stock which shares will be canceled) is fair, from a
financial point of view to such stockholders (a copy of the opinion is
attached hereto as Appendix B to this Proxy Statement). See " --
Opinion of Financial Adviser."
* the relationship of the Merger Consideration to the historical market
prices for the Common Stock (see "Market Prices of Common Stock"), the
going concern valuation of the Company and the value to a hypothetical
strategic buyer.
* the Company's financial projections forecasting sales by product and
expenses relating thereto, for the fiscal year ending September 30,
1999 which was prepared by the Company in December 1998, as analyzed by
Gordon Associates (see " -- Opinion of Financial Adviser" for an
explanation of such analysis) (which analysis was adopted by the Board)
which, in the Board's view supports a determination that the Merger
Consideration is fair to the Company and its stockholders. Such
projections are as follows:
---------------------------------------------Product lines---------------------------------------------
Total
Compost Yard Dog Flowton Echovision Total
Expenses Bugkillers Leafeaters Bins Misters Carts Sheds Houses Division Division Company
-------- ---------- ---------- ------- ------- ----- ----- ------ -------- ---------- -------
Sales $ 7,000 750 150 165 2,000 2,000 200 12,265 1,200 13,465
Gross margin $ 1,456 68 25 27 406 380 49 2,411 252 2,663
Gross margin % 20.8% 9.1% 16.7% 16.4% 20.3% 19.0% 24.5% 19.7% 21.0% 19.8%
Selling expenses $ 749 80 16 18 210 210 21 1,304 96 1,400
Selling expenses % 10.7% 10.7% 10.7% 10.9% 10.5% 10.5% 10.5% 10.6% 8.0% 10.4%
Gen'l and admin
expenses $ 329 35 7 8 94 94 9 576 90 666
Gen'l and admin
expenses % 4.7% 4.7% 4.7% 4.8% 4.7% 4.7% 4.5% 4.7% 7.5% 4.9%
Operating income $ 378 (47) 2 1 102 76 19 531 66 597
Operating income % 5.4% -6.3% 1.3% 0.6% 5.1% 3.8% 9.5% 4.3% 5.5% 4.4%
Interest expense $ 231 25 5 5 66 66 7 405 41 446
Interest expense % 3.3% 3.3% 3.3% 3.0% 3.3% 3.3% 3.5% 3.3% 3.4% 3.3%
Profit before
taxes $ 147 (72) (3) (4) 36 10 12 126 25 151
Profit before
taxes % 2.1% -9.6% -2.0% -2.4% 1.8% 0.5% 6.0% 1.0% 2.1% 1.1%
Taxes $ 62 (30) (1) (2) 15 4 5 53 11 64
Tax Rate % 42.0% 42.0% 42.0% 42.0% 42.0% 42.0% 42.0% 42.0% 42.0% 42.0%
Net income $ 85 (42) (2) (2) 21 6 7 73 14 87
Net income % 1.2% -5.6% -1.2% -1.4% 1.0% 0.3% 3.5% 0.6% 1.2% 0.6%
All dollar figures in 000s.
THE TABLE SET FORTH ABOVE CONTAINS PROJECTIONS FOR FISCAL 1999 WHICH
WERE PREPARED BY THE COMPANY IN DECEMBER 1998. THESE PROJECTIONS DIFFER
SIGNIFICANTLY FROM ACTUAL RESULTS AND SHOULD NOT BE RELIED UPON IN EVALUATING
THE PRESENT FINANCIAL CONDITION OF THE COMPANY.
The forecast set forth above which the Board utilized in determining the
offer price for the Company's Common Stock of $.27 differs significantly from
the actual operating results of the Company for the nine months ended June 30,
1999. For example, the gross margins set forth in the above forecast have not
been realized by the Company and the product sales have been less than
anticipated in the forecast by over $2.5 million due to lower than expected
sales of the Company's Consumer Products primarily, bugkiller and shed
products. The Company currently anticipates that product sales of the
Consumer Products Segment for the remainder of the fiscal year will be lower
than the level of the sales set forth in the Company's forecast.
In addition to the foregoing, the Board considered the following
negative factors of the Merger to the Company and the stockholders: (i) the
Common Stock has traded above the amount of the Merger Consideration and if
the stockholders continued to be stockholders of the Company they could
participate in increases, if any, in the value of the Company following the
consummation of the Merger (see "Market Prices of Common Stock"); (ii) there
will be no market for the shares of common stock of the Surviving
Corporation; and (iii) the stockholders of the Surviving Corporation will
not have the same protections available under the federal securities laws as
does a public company registered pursuant to the Exchange Act. The Board
also noted that the net book value per share of Common Stock at March 31,
1999 was $(.57), which represented a $.34 increase in deficiency from the
net book value per share of Common Stock at September 30, 1998. The
liquidation value per share of Common Stock at March 31, 1999 was $.02. The
Board believes that these low values are not indicative of the value of the
Company and did not give them credence.
Gordon Associates did not provide the Board any written material
supporting or explaining its analyses and the Board did not ask Gordon
Associates for such materials because the opinion of Gordon Associates was
based on data that the Company provided to Gordon Associates. Such data
consisted of the Company's consolidated annual financial statements for the
five years ending September 30, 1998, unaudited financial statements for the
three months ending December 31, 1998, and other relevant financial
information requested by Gordon Associates; information regarding past
history, current operations and future prospects for the Company; the
Preferred Stock Subscription Agreement concerning the conversion of debt
owed by the Company to the Housman Realty Trust; and documents relating to a
foreign arbitration award against the Company, J.C. Carter Company, Inc., a
former subsidiary of the Company, and certain other entities.
The foregoing discussion of the information and factors discussed by
the Board of Directors is not meant to be exhaustive but includes all
material factors considered by the Board. While the Board of Directors
considered such factors, it did not quantify or attach any particular weight
to such factors and individual members of the Board may have placed
different emphasis on particular positive or negative factors in reaching
their determination that the Merger is in the best interest of the
stockholders. The Board believes the Merger achieves enhanced value for the
stockholders in light of the fact that, among other things, during 1999, the
Common Stock has traded around $.25 per share on a weighted average basis.
Because of the nature of the composition of the Board, the outside
director's affiliation with the principal stockholders of the Company and
requirement in the Company's Restated Articles of Organization, as amended,
that the Merger be approved by the unanimous consent of the Board of
Directors, the Company did not have the Merger approved solely by its non-
employee director. No unaffiliated representative was obtained to act
solely on behalf of the stockholders who are not affiliates of the Company
for the purpose of negotiating this transaction and preparing a report
concerning the fairness of such transaction. The transaction has not been
structured to require the approval of the stockholders who are not
affiliates of the Company.
In order to comply with Section 78(c)(iii) of Chapter 156B of the
Business Corporation Law of the General Laws of Massachusetts, an affirmative
vote of two-thirds of the shares of Common Stock outstanding, or 1,639,833
shares, is necessary to approve the Merger. The Company anticipates that
Charles J. Housman and Edward L. Housman, together with their family members
or affiliates and the family members or affiliates of the late Herbert E.
Housman and the late Frank M. Housman (the "Family Members") will vote their
shares of Common Stock to approve the Merger, representing 1,384,277 shares,
or 56.3% of the shares of Common Stock outstanding. In order to proceed with
the Merger, the Company would need the affirmative vote of an additional 10.4%
of the the shares of Common Stock outstanding, or 255,556 shares. At each of
the Company's annual meetings of stockholders in the last three years, the
stockholders have been asked to vote only on routine matters (i.e. electing
directors and ratifying accountants) at which brokers may vote for a
beneficial owner without specific instructions from a beneficial owner. In
1998, only 2.5% of the shares of Common Stock outstanding, or 62,383 shares,
owned by individuals who are not Family Members voted at the annual meeting
and of those stockholders not all voted in favor of the proposals; in 1997
this number was 7.5% and in 1996 the number was 10.6%. Because so few shares
of stock have been voted at past annual meetings, the Board does not believe
it would receive proxies from enough stockholders to obtain a two-thirds vote
of the common stockholders voting separately as a class. In addition, because
the number of shares held by individuals who are not Family Members is small
(currently only 32 stockholders plus the 24 Family Members own greater than
1,000 shares a piece) it would require at least 154 individuals in addition
to the Family Members to vote in favor of the Merger.
Despite the absence of procedural safeguards, the Board of Directors
believes that the Merger is fair to the stockholders who are not affiliates
of the Company for the reasons described above and because the Company has
retained an independent adviser to prepare an opinion concerning the
fairness of the Merger and the Board has adopted such opinion. See "--
Opinion of Financial Adviser." The Board of Armatron is comprised of
Charles J. Housman, Edward L. Housman and Malcolm D. Finks, the trustee of
the Housman Realty Trust. The beliefs of these affiliates as to the fairness
of the Merger and related transactions are accordingly identical to the belief
of the Board of Directors of Armatron.
If the holders of Common Stock and Preferred Stock do not approve and
adopt the Merger Agreement, or if the Merger is not consummated for any
other reason, the Board expects to continue to operate the Company as an
ongoing business.
The Board has determined that the Merger Agreement and the Merger are
advisable and fair to and in the best interests of the Company and the
stockholders and has approved the Merger Agreement and the Merger.
Accordingly, the Board recommends that the stockholders vote "FOR" approval
and adoption of the Merger Agreement and the Merger. See "-- Background of
the Merger" and "-- Opinion of Financial Adviser."
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE MERGER
Upon consummation of the Merger, the Company will continue its
business and operations substantially as they are currently being conducted.
It is anticipated that the Company may from time to time evaluate and review
its business and make such changes as it deems appropriate. The Company
does not intend to dispose of any assets of the Company other than in the
ordinary course of business. Except for the Merger, and as otherwise
described in this Proxy Statement, the Company has no present plans or
proposals that would result in an extraordinary corporate transaction, such
as a merger, reorganization, liquidation, relocation of operations, sale or
transfer of assets involving the Company or any other material changes in
its corporate structure or the composition of its management and has agreed
not to enter into such transactions until at least one year after the
Effective Time of the Merger.
OPINION OF FINANCIAL ADVISER
On April 21, 1999, Gordon Associates delivered its oral opinion to the
Board, which was confirmed by its written opinion to the Board, dated as of
April 21, 1999, to the effect that, based upon and subject to certain
factors and assumptions stated therein, as of such date, the Merger
Consideration to be received in the Merger by the stockholders (other than
MergerCo and the Company with respect to treasury stock which shares will be
canceled) is fair from a financial point of view to such stockholders (the
"Gordon Opinion"). The full text of the written opinion of Gordon
Associates, which sets forth a description of the assumptions made, factors
considered and limitations on the review undertaken, is attached hereto as
Appendix B and is incorporated herein by reference. The Gordon Opinion was
provided to the Board for its information and is directed only to the
fairness from a financial point of view of the Merger Consideration to be
received in the Merger by the stockholders (other than MergerCo), does not
address the merits of the underlying decision by the Board to engage in the
Merger and does not constitute a recommendation to any stockholder as to how
he or she should vote on the Merger or any transaction related thereto.
Stockholders are urged to read the Gordon Opinion carefully in its entirety,
especially with regard to the assumptions made and factors considered by
Gordon Associates. The summary of the Gordon Opinion set forth in this
Proxy Statement is qualified in its entirety by reference to the full text
of such opinion.
The summary set forth below does not purport to be a complete
description of the analyses underlying the Gordon Opinion or the
presentation made by Gordon Associates to the Board. The preparation of a
fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the applications of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Gordon
Associates considered various factors, but did not attribute any particular
weight to such factors. Accordingly, Gordon Associates believes that its
analyses must be considered as a whole and that selecting portions of its
analyses, without considering all of its analyses, would create an
incomplete view of the process underlying the Gordon Opinion.
In performing its analyses, numerous assumptions were made with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of Gordon Associates, management, the Company and the Board. Any estimates
contained in the analyses performed by Gordon Associates are not necessarily
indicative of actual values or future results, which may be significantly
more or less favorable than suggested by such analyses. Additionally,
estimates of the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. In addition, as described
above, the Gordon Opinion and Gordon Associates' presentation to the Board
were among several factors taken into consideration by the Board in making
its determination to approve and adopt the Merger Agreement. Consequently,
the Gordon Associates analyses described below should not be viewed as
determinative of the decision of the Board with respect to the fairness of
the Merger Consideration to be received by the stockholders (other than
MergerCo).
In arriving at its opinion, Gordon Associates, among other things: (i)
reviewed the Company's consolidated annual financial statements for the five
years ended September 30, 1998, unaudited condensed consolidated financial
statements for the three months ended December 31, 1998 and other financial
information that Gordon Associates deemed to be relevant; (ii) reviewed
certain information from members of management regarding past history,
current operations and future prospects for the Company; (iii) visited the
Company's facility in Melrose, Massachusetts; (iv) made comparisons of the
financial and operating results of the Company with other selected publicly
traded companies that manufacture and distribute lawn and garden products;
(v) reviewed the trading history of the Company's shares; (vi) considered
the current condition of the securities market and the economic environment
in general; (vii) reviewed documents relating to a foreign arbitration award
against the Company and J.C. Carter Company, Inc., a former subsidiary of
the Company, among others, relating to certain cryogenic cargo pumps
supplied in the 1970's and a pending lawsuit in the U.S. District Court,
Central District of California, seeking payment of said award; and (viii)
performed and undertook other actions and analyses that Gordon Associates
deemed relevant.
In preparing its opinion, Gordon Associates assumed the accuracy and
completeness of all information supplied or otherwise made available to
Gordon Associates, discussed with or reviewed by or for Gordon Associates,
or publicly available, and Gordon Associates did not assume any
responsibility for independently verifying such information or undertake an
independent evaluation or appraisal of any of the assets or liabilities,
contingent or otherwise, of the Company, and was not furnished with any such
evaluation or appraisal.
With respect to the financial forecast information furnished to or
discussed with Gordon Associates by the Company, Gordon Associates assumed
that it was reasonably prepared and reflected the best currently available
estimates and judgment of management as to the expected future financial
performance of the Company, including the pro forma effects of the proposed
conversion of debt to the Preferred Stock.
The Gordon Associates opinion is necessarily based upon market,
economic, and other conditions as they existed and could be evaluated on,
and on the information made available to Gordon Associates as of, the date
of such opinion.
The following is a brief summary of the material analyses performed by
Gordon Associates in connection with the preparation of its opinion.
Historical Trading Analysis
Gordon Associates reviewed the recent historical stock market
performance of the Common Stock of the Company. This analysis indicated
that the weighted average daily average price (the average of the daily high
and low sales prices on the days that trading occurred) was $.24 per share
for the period from January 1999 through April 14, 1999, inclusive. Gordon
Associates noted that no trades of Common Stock occurred during February
1999, and that in the period from January 1999 through April 14, 1999 there
were more days on which the Company's Common Stock did not trade than days
on which trades were executed. On the days that the Company's Common Stock
did trade, the volume of trades was minimal.
Going Concern Valuation Analysis
Gordon Associates analyzed the Company on a going concern basis using
the following methods: (i) multiple of estimated current fiscal year
earnings; (ii) multiple of earnings before interest, taxes, depreciation and
amortization; and (iii) capitalization of cash flow. Multiples and
capitalization rates used were based on publicly available information for
companies engaged in similar business activities to the Company. Gordon
Associates adjusted the Company's financial results to include the effect of
typical industry compensation. On a going concern basis, net of debt and/or
pro forma preferred stock, Gordon Associates determined that, with or
without the typical industry compensation adjustment, the Common Stock of
the Company had negligible value both before the conversion of certain debt
to Preferred Stock and on a pro forma basis assuming the conversion of
certain debt to Preferred Stock.
Value to Hypothetical Strategic Buyer
Gordon Associates analyzed the Company from the perspective of a
hypothetical strategic buyer. In any analysis of the value of a business to
a strategic buyer, certain assumptions and judgment are necessary. In the
case of the Company, Gordon Associates assumed that a hypothetical strategic
buyer existed and that there also existed the potential for certain cost
savings associated with the consolidation of the Company's product lines and
production equipment into a buyer's existing infrastructure, including cost
savings from reduced rental expense and cost savings in general and
administrative expense. Gordon Associates analyzed the Company's value to a
hypothetical strategic buyer using the following methods: (i) multiple of
pro forma earnings before interest, taxes, depreciation and amortization and
(ii) capitalization of pro forma cash flow. Multiples and capitalization
rates used were based on publicly available information for companies
engaged in similar business activities to the Company. Gordon Associates
determined that the value of the Company to a hypothetical strategic buyer,
based on the assumptions described above, net of debt and/or pro forma
preferred stock, ranged from $.05 to $.15 per common share, both before the
conversion of certain debt to Preferred Stock and on a pro forma basis
assuming the conversion of certain debt to Preferred Stock.
The Board retained Gordon Associates on the basis of its experience
and expertise in valuing small companies. Gordon Associates is a locally
based company specializing in business valuation, damage analysis and
financial consulting. Among other activities, it engages in evaluating the
financial terms of mergers and acquisitions and providing investment
analysis to clients and advising them with respect to the purchase and sale
of securities generally.
The Company has agreed to pay Gordon Associates a fee of $27,000 plus
out-of-pocket expenses for services rendered in connection with the Merger.
The Company has also agreed to indemnify and hold harmless Gordon Associates
and its officers, directors, employees and consultants from and against any
and all liabilities arising out of its engagement except where Gordon
Associates is found, pursuant to final judgment or administrative order or
finding, to have acted with bad faith or material negligence.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
the following are the material United States federal income tax
considerations generally applicable to stockholders in connection with the
Merger. The tax treatment described herein may vary depending upon each
stockholder's particular circumstances and tax position. Certain holders of
Common Stock (including MergerCo, Charles J. Housman and Edward L. Housman
and their family members or affiliates and the family members or affiliates
of the late Herbert E. Housman and the late Frank M. Housman, insurance
companies, tax-exempt organizations, financial institutions or broker-
dealers, foreign corporations, persons who are not citizens or residents of
the United States, holders who do not hold their shares as capital assets
and holders who have acquired their Common Stock upon the exercise of
options or otherwise as compensation) may be subject to special rules not
discussed below. No ruling from the Internal Revenue Service ("IRS") will
be applied for with respect to the federal income tax consequences discussed
herein. The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities
may be repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below. This discussion does not
consider the effect of any applicable foreign, state, local or other tax
laws.
Federal Income Tax Consequences to Stockholders
- ------------------------------------------------
The receipt of Merger Consideration for Common Stock pursuant to the
Merger or cash pursuant to the exercise of appraisal rights will be a
taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local or foreign tax laws. In
general, a stockholder will realize a gain or loss for federal income tax
purposes equal to the difference between the amount of cash received for the
shares of Common Stock and such stockholder's adjusted tax basis in such
shares. Such gain or loss will be long-term capital gain or loss if the
Common Stock was held by the stockholder for more than one year. If a
taxpayer has both long-term and short-term transactions during the year,
each type is reported separately and gains and losses from each type are
netted separately. The net long-term capital gain or loss for the year is
then combined with the net short-term capital gain or loss for the year to
arrive at an overall (net) capital gain or loss. If capital gains exceed
capital losses, the overall gain is included with the taxpayer's other
income but is generally subject to a maximum tax rate of 20% for sales of
long-term capital assets and 35% for corporations. To determine the
deductibility of capital losses, all capital gains and losses (without
distinction between long-term and short-term) incurred during the year must
be totaled. Any capital losses are deductible only to the extent of any
capital gains plus, in the case of noncorporate taxpayers, ordinary income
of up to $3,000. Thus, both net long-term capital losses and net short-term
capital losses may be used to offset up to $3,000 of an individual's
ordinary income. A corporation can use capital losses for a tax year only
to offset capital gains in that year. There is no offset against ordinary
income for a corporation. A corporation may be allowed to carry back unused
capital losses to the three preceding tax years and to carry over losses to
the five following tax years. Individuals and other noncorporate taxpayers
may carry over a net capital loss for an unlimited time until the loss is
exhausted. A capital loss that is carried over to a later tax year retains
its long-term or short-term character for the year to which it is carried.
Stockholders who receive common stock of the Surviving Corporation
will not recognize gain or loss on the exchange of Common Stock for common
stock of the Surviving Corporation. The basis of the common stock of the
Surviving Corporation would equal the basis such Stockholder had in the
Common Stock.
EACH STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISER AS
TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, FOREIGN, STATE, LOCAL
OR OTHER TAX LAWS.
Characterization of the Merger for Federal Income Tax Purposes
- ---------------------------------------------------------------
The creation of MergerCo followed by the merger of MergerCo into the
Company with certain stockholders of the Company exchanging their Common
Stock for MergerCo Common Stock, with the remaining holders of Common Stock
receiving cash from the Company in exchange therefor, and the conversion of
the MergerCo Common Stock into the Surviving Corporation's common stock will
be disregarded for federal income tax purposes. The transaction will be
treated as if the Company's stockholders never transferred any of their
shares to MergerCo, with the net effect that the holders of Common Stock who
receive cash in exchange for their shares will be treated as if their shares
had been redeemed. The Company will not realize gain or loss on the
redemption.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the
Merger, stockholders should be aware that each member of the Board and
certain executive officers of the Company has an interest, described herein,
that presents him with a potential conflict of interest in connection with
the Merger. The Board currently has three directors: Charles J. Housman,
Edward L. Housman and Malcolm D. Finks. Both Charles J. Housman and Edward
L. Housman are executive officers of the Company, see "Management of the
Company and MergerCo." The law firm of which Malcolm D. Finks is a member,
provides legal advice to the Company. See "Certain Relationships and
Related Transactions."
The Frank Mitchell Housman Family Trust of 1980 (the "Frank Housman
Family Trust") was established by the late Frank Housman as an estate
planning vehicle for the distribution of his assets upon his death. The
children and grandchildren of Frank Housman are the beneficiaries of the
trust. The trustees of the Frank Housman Family Trust are Charles J. Housman
and Edward L. Housman, who are Frank Housman's brothers. The Frank Housman
Family Trust owns 197,853 shares of Common Stock.
The Susan Sohn Family Trust of 1995 (the "Susan Sohn Family Trust") was
established by the late Susan Sohn as an estate planning vehicle for the
distribution of her assets upon her death. The children of Susan Sohn are the
beneficiaries of the trust. The trustee of the Susan Sohn Family Trust is
Charles J. Housman, who is Susan Sohn's uncle. The Susan Sohn Family Trust
owns 22,791 shares of Common Stock.
Charles J. Housman and Edward L. Housman, together with their family
members or affiliates and the family members or affiliates of the late
Herbert E. Housman and the late Frank M. Housman, the deceased brothers of
Charles J. Housman and Edward L. Housman, who are stockholders of the
Company own 56% of the outstanding shares of Common Stock (1,384,277 shares
out of a total of 2,459,749 shares outstanding).
The Housman Realty Trust owns 100% of the Preferred Stock. The purpose
of the Housman Realty Trust is to deal in and with, buy, purchase, own,
acquire, hold, exchange, convey, sell, lease, sub-lease, rent, mortgage,
pledge, encumber, hypothecate, survey, improve, divide, sub-divide, plant,
develop, build, constuct, alter, remodel, establish, operate, conduct,
maintain and/or otherwise dispose of either as principal, agent or broker,
land and real estate of every kind, nature, and description of all kinds,
personal or mixed property, including, without limiting the foregoing,
buildings, machinery, chattel mortgages, real mortgages, negotiable and
non-negotiable instruments, securities, chooses in action and other
obligations to do and perform all things needful and lawful for carrying out
the same. The trustee of the Housman Realty Trust is Malcolm D. Finks.
Together, these individuals and entities have the power to vote 88%
of the outstanding shares of the Company. The sole trustee of the Housman
Realty Trust is Malcolm D. Finks and Malcolm D. Finks, Charles J. Housman
and Edward L. Housman are beneficiaries under the trust agreement. See
"Security Ownership of Certain Beneficial Owners and Management." The Company
anticipates that they will vote all of their shares for the approval of and
adoption of the Merger Agreement and the transactions contemplated thereby.
Therefore, the Merger is assured without the vote of any other stockholders
of the Company and does not require the approval of two-thirds of holders who
are not affiliates of the Company.
The Company has a $7,000,000 line of credit with Housman Realty Trust,
a trust of which Malcolm D. Finks is the sole trustee and a beneficiary and
of which Charles J. Housman and Edward L. Housman together with certain
members of their families or affiliates and the family members or affiliates
of the late Herbert E. Housman and the late Frank M. Housman are
beneficiaries. On April 20, 1999, Housman Realty Trust converted $2,000,100
of the principal amount of the debt into 6,667 shares of Preferred Stock.
The Preferred Stock is convertible into 6,667,000 shares of Common Stock.
The Preferred Stock votes on an as converted basis with the Common Stock.
See "Description of Armatron Capital Stock -- Series A Convertible Preferred
Stock."
Prior to the exchange of debt for Preferred Stock, the Company would
have been considered insolvent because its liabilities exceeded its assets.
Section 45 of the MBCL provides that a stockholder to whom a corporation
makes a distribution, if the corporation is, or is thereby rendered,
insolvent shall be liable to the corporation for the amount of such
distribution made or for the amount of such distribution which exceeds that
which could have been made without rendering the corporation insolvent but
only to the extent of the amount distributed to such stockholder. Pursuant
to Section 61 of the MBCL, the directors of a corporation who vote to
authorize such distribution shall be jointly and severally liable to the
corporation for such distribution unless it is repaid to the corporation.
Therefore, in order to make the Company solvent so that the
distribution of cash to the stockholders in the Merger would not be subject
to forfeiture, Housman Realty Trust agreed to convert a portion of its debt
into Preferred Stock. The Housman Realty Trust has the power to vote 73% of
the shares of capital stock of the Company.
Immediately prior to the Merger, Charles J. Housman and Edward L.
Housman together with all members of their families or affiliates and the
family members or affiliates of the late Herbert E. Housman and the late
Frank M. Housman, who are stockholders of the Company are anticipated to
contribute 1,384,277 shares of Common Stock to MergerCo in exchange for
13,842.77 shares of MergerCo Common Stock. In the Merger, all such shares
of MergerCo Common Stock will be converted into common stock of the
Surviving Corporation.
Upon consummation of the Merger and these related transactions,
immediately following the Merger, (x) Charles J. Housman and Edward L.
Housman together with their family members or affiliates and the family
members or affiliates of the late Herbert E. Housman and the late Frank M.
Housman who contribute their shares of Common Stock to MergerCo will own
100.0% of the outstanding common stock of the Surviving Corporation and (y)
the Housman Realty Trust will own 100.0% of the outstanding Series A
Preferred Stock of the Surviving Corporation.
For a list of the names of the persons expected to be directors or
executive officers of the Surviving Corporation (together with such persons'
biographies), see "Management of Company and MergerCo."
Pursuant to the Merger Agreement, for a period of six years after the
Effective Time, the Surviving Corporation has agreed to indemnify officers,
directors, employees and agents of the Company and its subsidiary against
losses, claims, damages, expenses or liabilities arising out of actions or
omissions or alleged actions or omissions occurring at or prior to the
Effective Time to the same extent provided for in the Company's Restated
Articles of Organization and Bylaws, as amended (to the extent consistent
with applicable law).
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated historical
financial data of the Company for the five years ended September 30, 1998
which has been derived from, and should be read in conjunction with, the
audited historical consolidated financial statements and related notes
thereto of the Company. The Company's consolidated financial statements for
the years ended September 30, 1998, 1997 and 1996 which have been audited by
R. J. Gold & Company, P.C., independent auditors, are incorporated by
reference in this Proxy Statement from the Company's Annual Report on Form
10-K, as amended, for the year ended September 30, 1998. The selected
condensed consolidated data at June 30, 1999 has been derived from, and
should be read in conjunction with, the Company's unaudited condensed
consolidated financial statements for the nine months ended June 30, 1999,
including the notes thereto which are incorporated by reference in this Proxy
Statement from the Company's quarterly report on Form 10-Q for the
nine months ended June 30, 1999 and in the opinion of the Company's
management contain all adjustments consisting only of normal recurring
adjustments necessary to present fairly the financial position and results
of operations of the Company at such date and for such period. Data for the
nine months ended June 30, 1999 is not necessarily indicative of the results
to be expected for the full year. Copies of such annual report and such
quarterly report are being mailed to each stockholder of the Company
together with this Proxy Statement.
Years Ended September 30,
Nine Months Ended ------------------------------------------------------------
June 30, 1999 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------
(in thousands, except per share data)
Net Sales $8,340 $12,885 $13,314 $13,750 $12,017 $13,286
Operating Income (Loss) $ (286) $ 22 $ (244) $ 9 $(1,159) $ (934)
Net Loss $ (593) $ (499) $ (286) $ (495) $(1,557) $(1,212)
Earnings (Loss) Per Share
of Common Stock: $ (.24) $ (.20) $ (.12) $ (.20) $ (.63) $ (.49)
============================================================================
Total Assets $7,635 $ 7,330 $ 7,264 $ 7,475 $ 7,256 $ 9,599
===========================================================================
Long-Term Obligations $2,720 $ 4,743 $ 4,783 $ 4,715 $ 4,715 $ 5,140
===========================================================================
There were no dividends paid on Common Stock during any of the above
years. Under the financing agreement with its commercial finance company,
Congress Financial Corporation, the Company is restricted from paying
dividends for the term of that agreement. See "Unaudited Pro Forma
Condensed Consolidated Financial Data" to see how the information set forth
above will be affected by the issuance of the Preferred Stock and the Merger
and related transactions.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial
data of the Company has been prepared to give effect to the issuance of the
Preferred Stock which occurred on April 20, 1999 and the Merger and related
transactions. The Company expects to treat the Merger as a recapitalization
for financial reporting purposes. Accordingly, the historical basis of the
Company's assets and liabilities will not be affected by the transactions.
For a discussion of the Merger and related transactions, see "The Merger and
the Merger Agreement."
The pro forma adjustments presented are based upon available
information and certain assumptions that the Company believes are reasonable
under the circumstances. The unaudited pro forma condensed consolidated
statement of continuing operations data of the Company for the year ended
September 30, 1998 gives effect to the issuance of the Preferred Stock and
the Merger as if they had occurred on October 1, 1997. The unaudited pro
forma condensed consolidated balance sheet data as of September 30, 1998
gives effect to the issuance of the Preferred Stock and the Merger as if
they had occurred on September 30, 1998.
The unaudited pro forma condensed consolidated statement of continuing
operations data of the Company for the nine months ended June 30, 1999 gives
effect to the issuance of the Preferred Stock and the Merger as if they had
occurred on October 1, 1998. The unaudited pro forma condensed consolidated
balance sheet data of the Company as of June 30, 1999 gives effect to the
issuance of the Preferred Stock and the Merger assuming that they were
completed on June 30, 1999.
The unaudited pro forma condensed consolidated financial data should
be read in conjunction with the historical consolidated financial statements
of the Company and notes thereto, and other financial data included
elsewhere in this Proxy Statement, as well as the information concerning the
Merger, including the sources and uses of funds necessary to consummate the
Merger. See "Merger Financings."
The unaudited pro forma condensed consolidated financial data and
related notes are provided for informational purposes only and do not
necessarily reflect the results of operations or financial position of the
Company that would have actually resulted had the events referred to above
or in the notes to the unaudited pro forma condensed consolidated financial
data been consummated as of the date and for the period indicated and are
not intended to project the Company's financial position or results of
operations for any future period.
ARMATRON INTERNATIONAL, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations Data
for the year ended September 30, 1998
For the Year Ended Pro Forma Pro Forma
September 30, 1998 Adjustments September 30, 1998
------------------ ----------- ------------------
Net sales $12,885,000 $12,885,000
Cost of products sold 10,409,000 10,409,000
---------------------------------------------------
Gross margin 2,476,000 2,476,000
Selling, general and
administrative expenses 2,418,000 2,418,000
Provision for bad debts 36,000 36,000
---------------------------------------------------
Operating profit (loss) 22,000 22,000
---------------------------------------------------
Other income (expense):
Interest expense-third parties (30,000) (30,000)
Interest expense-related parties (478,000) 200,000(1) (278,000)
Interest income 63,000 (24,000)(2) 39,000
---------------------------------------------------
Other income (expense) - net (445,000) 176,000 (269,000)
---------------------------------------------------
Loss before income taxes (423,000) 176,000 (247,000)
Provision for income taxes (76,000) (76,000)
---------------------------------------------------
Net loss (499,000) 176,000 (323,000)
Preferred stock dividends -- (200,000)(3) (200,000)
---------------------------------------------------
Net loss allocable to
common stock $ (499,000) $ (24,000) $ (523,000)
===================================================
Basic and diluted earnings (loss)
per share(4) $ .(20) $. (06)
===================================================
Weighted average number of
common shares outstanding 2,459,749 5,591,528(5) 8,051,277
===================================================
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations Data
Armatron International, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS DATA
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<FN>
<F1> Reflects the interest expense of $200,000 that would have been
incurred during the year ended September 30, 1998 had the conversion
of the principal amount of $2,000,100 pursuant to a promissory note
due to the Housman Realty Trust been completed on October 1, 1997.
<F2> Reflects the loss of interest income of $24,000 related to cash used
for Merger Consideration and Merger expenses that would have been
earned during the year ended September 30, 1998 had the transactions
been completed on October 1, 1997.
<F3> Reflects the dividends on the Preferred Stock of $200,000 that would
have been accrued at a rate of 10% per annum during the year ended
September 30, 1998 had the conversion of the promissory note due to
the Housman Realty Trust in the principal amount of $2,000,100 been
completed on October 1, 1997.
<F4> Basic earnings (loss) per share was computed by dividing net loss,
after deducting Preferred Stock dividends of $200,000, by the weighted
average number of shares of Common Stock outstanding during the
period. Diluted earnings (loss) per share was computed by dividing net
loss by the weighted average number of shares of Common Stock
outstanding during the period.
<F5> Reflects the acquisition of 1,075,472 shares of Common Stock pursuant
to the Merger and the Merger Agreement and a total of 6,667,000 shares
of Common Stock assumed to be outstanding upon the conversion of the
6,667 shares of Preferred Stock had the transactions been completed on
October 1, 1997.
</FN>
ARMATRON INTERNATIONAL, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet Data
As of September 30, 1998
Pro Forma
Historical Adjustments Pro Forma
---------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $2,677,000 $ (455,000)(1) $2,222,000
Trade accounts receivable, net 1,799,000 1,799,000
Inventories 2,088,000 2,088,000
Deferred taxes 37,000 37,000
Prepaid and other current assets 141,000 141,000
---------------------------------------------
Total Current Assets 6,742,000 (455,000) 6,287,000
Property and equipment, net 449,000 449,000
Other assets 139,000 139,000
---------------------------------------------
Total Assets $7,330,000 $ (455,000) $6,875,000
=============================================
LIABILITIES AND EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable $ 802,000 $ 802,000
Other current liabilities 925,000 925,000
Interest payable to related parties 1,395,000 1,395,000
Current portion under capital lease obligations 21,000 21,000
---------------------------------------------
Total Current Liabilities 3,143,000 3,143,000
---------------------------------------------
Long-term debt, related parties 4,715,000 (2,000,000)(2) 2,715,000
---------------------------------------------
Long-term capital lease obligations,
net of current portion 10,000 10,000
---------------------------------------------
Deferred rent, net of current portion 18,000 18,000
---------------------------------------------
Stockholders' Equity (Deficiency):
Common stock 2,606,000 (1,222,000)(3) 1,384,000
Preferred stock -- 667,000 (2) 667,000
Additional paid-in capital 6,770,000 1,714,000 (4) 8,484,000
Accumulated deficit (9,546,000) (9,546,000)
---------------------------------------------
(170,000) 1,159,000 989,000
Treasury stock, at cost 386,000 (386,000)(5) 0
---------------------------------------------
Total Stockholders' Equity (Deficiency): (556,000) 1,545,000 989,000
---------------------------------------------
Total Liabilities and Stockholders' Equity
(Deficiency): $7,330,000 (455,000) $6,875,000
=============================================
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet Data.
Armatron International, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
AT SEPTEMBER 30, 1998
<FN>
<F1> Reflects $291,000 paid as Merger Consideration and $164,000 of Merger
expenses had the Merger been completed on September 30, 1998.
<F2> Reflects the issuance of 6,667 shares of Preferred Stock issued in
exchange for the conversion of $2,000,100 of the principal amount of a
promissory note due to the Housman Realty Trust had the transaction
been completed on September 30, 1998.
<F3> Reflects the acquisition of 1,075,472 shares of Common Stock and the
retirement of 146,732 shares of the Company's Common Stock held in
treasury at a cost of $386,000 had the Merger been completed on
September 30, 1998.
<F4> Reflects the additional paid-in capital of $1,333,000 from the
issuance of 6,667 shares of Preferred Stock issued in exchange for the
conversion of $2,000,100 of the principal amount of a promissory note
due to the Housman Realty Trust; a reduction of $239,000 from the
retirement of 146,732 shares of Common Stock held in treasury; and the
additional paid-in capital of $620,000 related to the acquisition of
1,075,472 shares of Common Stock.
<F5> Reflects the retirement, pursuant to the Merger Agreement, of 146,732
shares of Common Stock held in treasury, at a cost of $386,000.
</FN>
ARMATRON INTERNATIONAL, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations Data
for the nine months ended June 30, 1999
For the Nine
Months Ended Pro Forma Pro Forma
June 30, 1999 Adjustments June 30,1999
----------------------------------------------
Net sales $8,340,000 $8,340,000
Cost of products sold 6,907,000 6,907,000
-------------------------------------------
Gross margin 1,433,000 1,433,000
Selling, general and
administrative expenses 1,719,000 1,719,000
-------------------------------------------
Operating profit (loss) (286,000) (286,000)
-------------------------------------------
Other income (expense):
Interest expense-third parties (20,000) (20,000)
Interest expense-related parties (318,000) 111,000(1) (207,000)
Interest income 70,000 (18,000)(2) 52,000
-------------------------------------------
Other income (expense) - net (268,000) 93,000 (175,000)
-------------------------------------------
Loss before income taxes (554,000) 93,000 (461,000)
Provision for income taxes 0 0
-------------------------------------------
Net loss (554,000) 93,000 (461,000)
Preferred stock dividends (39,000) (111,000)(3) (150,000)
-------------------------------------------
Net loss allocable to common stock $ (593,000) (18,000) $ (611,000)
===========================================
Basic and diluted earnings (loss)
per share (4) of common stock $ (.24) $ (.08)
===========================================
Weighted average number of
common shares outstanding 2,459,749 5,591,528(5) 8,051,277
===========================================
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations Data
Armatron International, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE NINE MONTHS ENDED JUNE 30, 1999
<FN>
<F1> Reflects the interest expense of $111,000 that would have been
incurred during the nine months ended June 30, 1999 had the conversion
of the principal amount of $2,000,100 pursuant to a promissory note
due to the Housman Realty Trust been completed on October 31, 1998.
<F2> Reflects the loss of interest income of $18,000 related to cash used
for Merger Consideration and Merger expenses that would have been
earned during the nine months ended June 30, 1999 had the transactions
been completed on October 31, 1998.
<F3> Reflects the dividends on the Preferred Stock of $111,000 that would
have accrued at a rate of 10% per annum, during the nine months ended
June 30, 1999 had the conversion of the principal amount of $2,000,100
pursuant to a promissory note due to the Housman Realty Trust been
completed on October 31, 1998.
<F4> Basic earnings (loss) per share was computed by dividing net loss,
after deducting Preferred Stock dividends, by the weighted average
number of shares of Common Stock outstanding during the period.
Diluted earnings (loss) per share was computed by dividing net loss by
the weighted average number of shares of Common Stock outstanding
during the period. Conversion of the preferred shares would have been
anti-dilutive and, therefore, was not considered in the computation of
the historical diluted earnings per share. As a result, historical
diluted earnings per share for the nine months ended June 30, 1999 was
not different from historical basic earnings per share.
<F5> Reflects the acquisition of 1,075,472 shares of Common Stock pursuant
to the Merger and the Merger Agreement and a total of 6,667,000 shares
of Common Stock assumed to be outstanding upon conversion of the 6,667
shares of Preferred Stock had the transactions been completed on
October 31, 1998.
</FN>
ARMATRON INTERNATIONAL, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet Data
As of June 30, 1999
Pro Forma
Historical Adjustments Pro Forma
----------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,037,000 $ (455,000)(1) $ 582,000
Trade accounts receivable, net 3,059,000 3,059,000
Inventories 2,723,000 2,723,000
Deferred taxes 36,000 36,000
Prepaid and other current assets 292,000 292,000
-----------------------------------------------
Total Current Assets 7,147,000 (455,000) 6,692,000
Property and equipment, net 382,000 382,000
Other assets 106,000 106,000
-----------------------------------------------
Total Assets $ 7,635,000 (455,000) $ 7,180,000
===============================================
LIABILITIES AND EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable $ 1,356,000 $ 1,356,000
Other current liabilities 941,000 941,000
Interest payable to related parties 1,713,000 1,713,000
Dividends payable to related parties 39,000 39,000
Current portion under capital
lease obligations 15,000 15,000
-----------------------------------------------
Total Current Liabilities 4,064,000 4,064,000
-----------------------------------------------
Long-term debt, related parties 2,715,000 2,715,000
-----------------------------------------------
Deferred rent, net of current portion 5,000 5,000
-----------------------------------------------
Stockholders' Equity (Deficiency):
Common stock 2,606,000 (1,222,000)(2) 1,384,000
Preferred stock 667,000 667,000
Additional paid-in capital 8,103,000 381,000(3) 8,484,000
Accumulated deficit (10,139,000) (10,139,000)
-----------------------------------------------
1,237,000 (841,000) 396,000
Treasury stock, at cost (386,000) 386,000(4) 0
-----------------------------------------------
Total Stockholders' Equity (Deficiency): 851,000 (455,000) 396,000
-----------------------------------------------
Total Liabilities and Stockholders'
Equity (Deficiency) $ 7,635,000 (455,000) $ 7,180,000
===============================================
See Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet Data.
Armatron International, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
AS OF JUNE 30, 1999
<FN>
<F1> Reflects $291,000 paid as Merger Consideration and $164,000 of Merger
expenses had the Merger been completed on June 30, 1999.
<F2> Reflects the acquisition of 1,075,472 shares of Common Stock and the
retirement of 146,732 shares of Common Stock held in treasury at a
cost of $386,000 had the Merger been completed on June 30, 1999.
<F3> Reflects the additional paid-in capital of $620,000 related to the
acquisition of 1,075,472 shares of Common Stock, and a reduction of
$239,000 from the retirement of 146,732 shares of Common Stock held in
treasury had the Merger been completed on June 30, 1999.
<F4> Reflects the retirement, pursuant to the Merger Agreement, of 146,732
shares of Common Stock held in treasury, at a cost of $386,000 had the
Merger been completed on June 30, 1999.
</FN>
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma condensed
consolidated cash and equivalents and capitalization of the Company (i) at
September 30, 1998, (ii) at June 30, 1999, (iii) after giving pro forma
effect to the issuance of the Preferred Stock and the Merger and related
transactions as if they had occurred on September 30, 1998, and (iv) after
giving pro forma effect to the issuance of the Preferred Stock and the
Merger and related transactions as if they had occurred on June 30, 1999.
This table should be read in conjunction with "Selected Historical
Consolidated Financial Data," and "Unaudited Pro Forma Condensed
Consolidated Financial Data," appearing elsewhere in this Proxy Statement
and the Consolidated Financial Statements (including the notes thereto) of
the Company.
ACTUAL PRO FORMA
------ ----------
September 30, 1998 June 30, 1999 September 30, 1998 June 30, 1999
-------------------------------------------------------------------------------
Cash and equivalents $ 2,677,000 $ 1,037,000 $2,222,000 $ 582,000
- -------------------- ===========================================================================
Debt:
- -----
Long-term debt, related parties $ 4,715,000 $ 2,715,000 $ 2,715,000 $ 2,715,000
Long-term capital lease obligations 10,000 10,000
Deferred rent 18,000 5,000 18,000 5,000
----------------------------------------------------------------------------
Total Debt $ 4,743,000 $ 2,720,000 $ 2,743,000 $ 2,720,000
===========================================================================
Shareholders' equity (deficit):
Company common stock, including
additional paid-in-capital $ 9,376,000 $ 10,709,000 $ 9,868,000 $ 9,868,000
Preferred stock - 667,000 667,000 667,000
Retained earnings (deficit) (9,546,000) (10,139,000) (9,546,000) (10,139,000)
Treasury stock (386,000) (386,000) 0 0
----------------------------------------------------------------------------
Total Shareholders' equity (deficit) $ (556,000) $ 851,000 $ 989,000 $ 396,000
===========================================================================
Total Capitalization $ 4,187,000 $ 3,571,000 $ 3,732,000 $ 3,116,000
==================== ===========================================================================
BOOK VALUE PER SHARE
June 30, September 30,
1999 1998
------------------------
ACTUAL Stockholders' equity
(deficiency) per share $.35 $(.23)
PRO FORMA Stockholders' equity
(deficiency) per share $.05 $ .12
Reflects the following: (i) the conversion of $2,000,100 of debt into
Preferred Stock of the Company and (ii) the issuance of 6,667 shares of
Preferred Stock.
RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED SEPTEMBER 30, 1998 PRO FORMA
--------------------------------------------------------------------------------
NINE NINE
MONTHS MONTHS YEAR
ENDED ENDED ENDED
1994 1995 1996 1997 1998 06/30/99 06/30/99 9/30/98
---------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
Income (loss) before
income taxes $(1,377) $(1,557) $(460) $(269) $(423) $(554) $(461) $(247)
Add:
Interest on indebtedness 500 529 529 535 508 338 227 308
---------------------------------------------------------------------------------------------
Income as adjusted $ (877) $(1,028) $ 69 $ 266 $ 85 $(216) $(234) $ 61
=============================================================================================
Fixed charges:
Interest on indebtedness $ 500 $ 529 $ 529 $ 535 $ 508 $ 338 $ 227 $ 308
---------------------------------------------------------------------------------------------
Fixed charges $ 500 $ 529 $ 529 $ 535 $ 508 $ 338 $ 227 $ 308
=============================================================================================
Ratio of earnings to
fixed charges (1.8) (1.9) 0.1 0.5 0.2 (0.6) (1.0) 0.2
=============================================================================================
MARKET PRICES OF COMMON STOCK
The Company's Common Stock is currently traded on the Over the Counter
Bulletin Board under the symbol "ATRN." The Company went public on November
16, 1960 and its Common Stock was traded on the American Stock Exchange until
February 28, 1996. On February 29, 1996, the Company began trading its
shares on the Over the Counter Bulletin Board. On April 13, 1999, 5,000
shares of the Company's Common Stock traded at $.16. On April 14, 1999, the
last trading day before the public announcement of the Merger and related
transactions, 3,000 shares of the Common Stock of the Company were traded at
$.50; this number of shares represents .12% of the outstanding shares of the
Company. On that date, the reported high and low bid prices per share of
Common Stock were $.50 and $.16, respectively. The next time that the
Company's Common Stock traded after April 14 was on May 25, 1999 when 1,200
shares were traded at $.16. The next trade occurred on May 27 when 1,000
shares traded at $.16. On August 2 and August 12, 1999, 100 shares and
7,000 shares, respectively, were traded at $.16. On August 23 and August
24, 1999, 100 and 3,000 shares, respectively, were traded at $.13. On
September 24, 1999, the last full trading day prior to the date of this Proxy
Statement, the reported high and low bid prices per share of Common Stock
were [__ and __] respectively. The number of stockholders of record at
September 1, 1999 was 1,078, which number includes certain registered holders
of Common Stock for approximately 1,324 number of beneficial holders.
The following table indicates the fiscal quarterly high and low bid
prices as reported in the Over the Counter Bulletin Board for the Company's
common stock for fiscal 1997, fiscal 1998 and the first three quarters of
fiscal 1999. These prices reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not necessarily represent actual
transactions.
1999 1998 1997
------------- ------------- -------------
Fiscal Quarter High Low High Low High Low
- -----------------------------------------------------------------------
First .31 .16 .63 .25 .75 .38
Second .16 .16 .44 .31 2.88 .25
Third .16 .16 .44 .38 2.25 .25
Fourth n/a n/a .38 .25 .94 .31
The Company currently intends to retain earnings rather than pay cash
dividends. Under its financing agreement with its commercial finance
company, Congress Financial Corporation, the Company is restricted from
paying dividends for the term of the financing agreement.
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
Each copy of this Proxy Statement mailed to stockholders is
accompanied by a proxy card furnished in connection with the solicitation of
proxies by the Board of Directors for use at the Special Meeting. The
Special Meeting is scheduled to be held on October 27, 1999 at 9:00 a.m.,
Eastern Standard Time, at the Company's principal executive offices at 2
Main Street, Melrose, Massachusetts 02176. At the Special Meeting,
stockholders will consider and vote upon: (i) the election of a Class A
Director; (ii) the ratification of the selection, by the Board, of the
independent auditors for the fiscal year ending September 30, 1999; (iii)
the approval and adoption of the Merger Agreement and the Merger; and (iv)
such other matters as may properly come before the Special Meeting.
Election of Directors
- ---------------------
The Company's Bylaws provide for a Board of Directors to consist of
not less than three or more than nine persons who are to be divided as
nearly equally in number as possible into three classes (A, B and C). Each
class of Directors is to be elected for a three-year term ending in three
successive years with the members of each class to serve until the third
succeeding annual meeting of stockholders after their election and until
their respective successors are duly elected and qualified.
The Board of Directors has determined that the term of one Director
(the "Class A" Director) expires in 1999, and has nominated Edward L.
Housman for a term to expire in January 2002 and until his successor is duly
elected and qualified. Edward L. Housman currently is a "Class A" Director.
The proposal requires the favorable vote of the holders of a plurality of
the stockholders of record represented at the meeting.
If a nominee is unable to serve, an event that management does not
anticipate, proxies not otherwise specifying will be voted for a substitute
nominee to be named by the Board of Directors. In no event will proxies be
voted for more than one nominee. If no instructions are specified on your
proxy, your shares will be voted FOR the election of the nominee to the
Board of Directors named herein.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 1,
THE ELECTION OF EDWARD L. HOUSMAN AS A CLASS A DIRECTOR.
Ratification of Independent Auditors
- ------------------------------------
The Board of Directors, upon recommendation of its Audit Committee,
has selected the firm of R.J. Gold & Company, P.C. to serve as the Company's
independent auditors for the fiscal year ending September 30, 1999, a
service they presently perform. Although it is not required to do so, the
Board of Directors is submitting the selection of R. J. Gold & Company, P.C.
for ratification in order to assess the views of stockholders. If the
selection is not ratified, the Board of Directors will reconsider its
selection. This proposal requires the favorable vote of at least a majority
of the shares of Common Stock and Preferred Stock, voting as a single class,
outstanding on the Record Date and represented at the Special Meeting.
The Company's financial statements for the previous fiscal year ended
September 30, 1998 were audited by R. J. Gold & Company, P.C. In connection
with the audit function, R. J. Gold & Company, P.C. also reviewed the
Company's annual report and its filings with the Commission.
R. J. Gold & Company, P.C. provided all professional services
indicated at customary rates and terms.
The Audit Committee of the Board of Directors has established a policy
regarding services, which may be provided by the Company's independent
auditors. This policy states that the Company's independent auditors may be
engaged by management to perform any services normally provided by
accounting firms for publicly-held audit clients, provided that the
independence requirements of the American Institute of Certified Public
Accountants have been considered and that the fees for such non-audit
services do not exceed a certain level of the fees for audit services
rendered during the year. Fees for non-audit services in excess of this
level would require pre-approval by the Audit Committee.
It is expected that representatives of R. J. Gold & Company, P.C. will
be present at the Special Meeting with the opportunity to make a statement
if they so desire and to answer appropriate questions relating to the audit
performed.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 2,
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS.
Approval of Merger and Merger Agreement
- ---------------------------------------
At the Special Meeting, stockholders will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement between
MergerCo and the Company and the Merger contemplated thereby. A copy of the
Merger Agreement is attached as Appendix A to this Proxy Statement. This
proposal requires the affirmative vote of at least two-thirds of the shares
of Common Stock and Preferred Stock outstanding on the Record Date.
The Merger Agreement provides, among other things, for the merger of
MergerCo into the Company with the Company continuing as the Surviving
Corporation. In the Merger: (i) each outstanding share of Common Stock of
the Company will be converted into the right to receive $.27 in cash (except
that any shares held by MergerCo or in the Company's treasury will be
canceled and any stockholder who properly dissents from the Merger will be
entitled to appraisal rights under the MBCL); (ii) each outstanding share of
MergerCo Common Stock (or fraction thereof) will be converted into one share
of common stock (or fraction thereof) of the Surviving Corporation; and
(iii) each outstanding share of Preferred Stock of the Company will be
converted into one share of Series A Preferred Stock of the Surviving
Corporation. See "The Merger and the Merger Agreement."
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together with
all members of their family or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, who
are stockholders of the Company are anticipated to contribute 1,384,277
shares of Common Stock to MergerCo in exchange for 13,842.77 shares of
MergerCo Common Stock. In the Merger, all such shares of MergerCo Common
Stock will be converted into common stock of the Surviving Corporation.
Upon consummation of the Merger and these related transactions,
immediately following the Merger, (x) Charles J. Housman and Edward L.
Housman together with their family members or affiliates and the family
members or affiliates of the late Herbert E. Housman and the late Frank M.
Housman who contribute their shares of Common Stock to MergerCo will own
100.0% of the outstanding common stock of the Surviving Corporation and (y)
the Housman Realty Trust will own 100.0% of the outstanding Series A
Preferred Stock of the Surviving Corporation.
The Company expects to treat the Merger as a recapitalization for
financial reporting purposes. Accordingly, the historical basis of the
Company's assets and liabilities will not be affected by the transaction.
The Board of Directors has determined that the Merger Agreement and
the Merger are advisable and fair to and in the best interests of the
Company and its stockholders, and has approved the Merger and the Merger
Agreement. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
See "Special Factors -- Background of the Merger" and "Special Factors --
Recommendation of the Board; Reasons for the Merger."
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE MERGER.
RECORD DATE AND VOTING
The Record Date for the Special Meeting is the close of business on
September 1, 1999. Only holders of Common Stock and Preferred Stock of
record at the close of business on the Record Date will be entitled to
notice of and to vote at the Special Meeting. As of the Record Date, there
were outstanding and entitled to vote 2,459,749 shares of Common Stock
(exclusive of 146,732 treasury shares) and 6,667 shares of Preferred Stock,
held by 1,078 stockholders of record. The presence, in person or by proxy,
of the holders of a majority of the outstanding shares of Common Stock and
Preferred Stock entitled to vote, is necessary to constitute a quorum at the
Special Meeting. Abstentions (including broker non-votes) are included in
the calculation of the number of votes represented at a meeting for purposes
of determining whether a quorum has been achieved. Each stockholder will
have one vote for each share of Common Stock and 1,000 votes for each share
of Preferred Stock held at the close of business on the Record Date. To the
knowledge of the Board of Directors, no person other than those identified
below under "Security Ownership of Certain Beneficial Owners and Management
- -- Pre-Merger Beneficial Ownership" owns of record or beneficially more than
five percent of the outstanding shares of capital stock of the Company.
The Board is not aware of any matters other than those set forth in
the Notice of Special Meeting of Stockholders that may be brought before the
Special Meeting. If any other matter properly comes before the Special
Meeting, the persons named as proxy holders on your proxy will vote your
shares with respect to any such other matter in accordance with their best
judgment, except that shares represented by proxies which have been voted
"against" the Merger Agreement and the Merger will not be used to vote "for"
postponement or adjournment of the Special Meeting for the purpose of
allowing additional time for soliciting additional votes "for" the Merger
Agreement and the Merger. See "Vote Required; Revocability of Proxies" and
"Other Information and Stockholder Proposals."
VOTE REQUIRED; REVOCABILITY OF PROXIES
Of the proposals stated in the accompanying Notice of Special Meeting
of Stockholders: approval of proposal 1, the election of the Class A
Director, will require the affirmative vote of the holders of a plurality of
the shares of Common Stock and Preferred Stock outstanding on the Record
Date and represented at the Special Meeting; approval of proposal 2, the
ratification of the independent auditors, will require the affirmative vote
of at least a majority of the shares of Common Stock and Preferred Stock
outstanding on the Record Date voting together as a single class and
represented at the Special Meeting; and approval of proposal 3, the approval
and adoption of the Merger Agreement and the Merger, will require the
affirmative vote of at least two-thirds of the shares of Common Stock and
Preferred Stock outstanding on the Record Date voting together as a single
class.
Charles J. Housman and Edward L. Housman, together with their family
members or affiliates and the family members or affiliates of the late
Herbert E. Housman and the late Frank M. Housman who are stockholders of the
Company, own 56% of the outstanding shares of Common Stock (1,384,277 shares
out of the 2,459,749 shares currently outstanding). The Housman Realty
Trust owns 100% of the outstanding shares of Preferred Stock of the Company.
Together, these individuals and entities have the power to vote 88% of the
shares outstanding of the Company. The Company anticipates that they will
vote all of their shares for the approval of and adoption of the Merger
Agreement and the transactions contemplated thereby. Therefore, the Merger
is assured without the vote of any other stockholders of the Company. The
Merger does not require the approval of two-thirds of holders who are not
affiliates of the Company.
Because the required vote of stockholders on the Merger Agreement and
the Merger is based upon the total number of outstanding shares of Common
Stock and Preferred Stock, the failure to submit a proxy card (or to vote in
person at the Special Meeting) or the abstention from voting by a
stockholder (including broker non-votes) will have the same effect as an
"against" vote with respect to approval and adoption of the Merger Agreement
and the Merger. With respect to the other matters to be voted upon at the
Special Meeting, abstentions will be treated as votes "against" the
proposals and non-votes will have no effect on the vote.
Proxies delivered to the Company's Clerk will be voted (unless you
otherwise instruct) on all matters that may properly come before the
meeting, except as set forth above. The proxy contains spaces in which you
may insert instructions as to how your shares are to be voted. If you
specify instructions with respect to any of the proposals, your shares will
be voted in accordance with your instructions, applicable law and the
Company's Restated Articles of Organization and Bylaws. Proxies delivered
to the Company's Clerk that do not contain any instruction to vote for or
against a particular matter will be voted in favor of such matter.
The presence of a stockholder at the Special Meeting will not
automatically revoke such stockholder's proxy. However, a stockholder may
revoke a proxy at any time prior to its exercise by (i) delivering to the
Clerk of the Company, 2 Main Street, Melrose, Massachusetts 02176, a written
notice of revocation prior to the Special Meeting, (ii) delivering prior to
the Special Meeting a duly executed proxy bearing a later date or (iii)
attending the Special Meeting and voting in person. Unless revoked in one
of the manners set forth above, proxies in the form enclosed will be voted
at the Special Meeting in accordance with stockholders' instructions.
If a quorum is not obtained, or if fewer shares of Common Stock and
Preferred Stock are voted in favor of approval and adoption of the Merger
Agreement and the Merger than the number required for approval, it is
expected that the Special Meeting will be postponed or adjourned for the
purpose of allowing additional time for soliciting and obtaining additional
proxies or votes, and, at any subsequent reconvening of the Special Meeting,
all proxies will be voted in the same manner as the proxies would have been
voted at the original convening of the Special Meeting, except for any
proxies which have theretofore effectively been revoked or withdrawn.
SOLICITATION OF PROXIES
The cost of solicitation will be paid by the Company. In addition to
solicitation by mail, solicitation of proxies may be made personally or by
telephone or FAX machine by the Company's regular employees. Such persons
will not be additionally compensated for any such solicitation but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection
therewith. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxy materials to, and to
obtain proxies from, the beneficial owners of shares held of record by such
persons, and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by
them in connection therewith.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
The following sets forth the ages, principal occupation and present
position of each of the Directors of the Company.
Director
--------
EDWARD L. HOUSMAN Age 77, Class A Director, principal occupation:
President of Automatic Radio International Corp.
since 1969 (a wholly-owned subsidiary of the Company
which deals with the international sales of the
Company's products). Mr. Housman has been actively
engaged in various aspects of the Company's business
for more than 30 years, and has served as a Director
of the Company continuously since 1959. Mr. Housman
is the brother of Charles J. Housman, the President
and Chairman of the Company.
CHARLES J. HOUSMAN Age 72, Class B Director, principal occupation:
President and Chairman of the Board of Armatron since
1987. Mr. Housman has been actively engaged in
various aspects of the Company's business for more
than 30 years and has served as a Director
continuously since 1960. Mr. Housman is the brother
of Edward L. Housman, the Class A Director of the
Company.
MALCOLM D. FINKS Age 60, Class C Director, principal occupation:
member of the law firm of Bass, Doherty & Finks,
P.C., Boston, Massachusetts since April 1, 1999 and a
member of the law firm of Englander, Finks, Ross,
Cohen & Brander, P.C., Boston, Massachusetts from
1970 until 1999. On July 7, 1998 Mr. Finks was
appointed to the Board of Directors upon the death of
Mr. Englander, the former Class C Director. Mr.
Finks was also elected Clerk of the Company in July
1998. Mr. Finks is the sole member of the Company's
Audit Committee.
The Board of Directors of the Company is divided into three classes.
Each director serves for a three-year term, with one class of directors
being elected at each annual meeting of stockholders. The term of the Class
A Director expires in 1999, the term of the Class B Director expires in 2001
and the term of the Class C Director expires in 2000.
Audit Committee. During the past year, the Audit Committee was
composed of Malcolm D. Finks, a Director who was not an employee of the
Company. The Audit Committee met once during the year. The duties of the
Audit Committee are to review and approve the scope of the annual audit of
financial statements by the independent auditors prior to public release of
the annual financial statements; consult with the independent auditors and
the accounting staff of the Company with respect to the adequacy of internal
controls; and make a recommendation to the Board as to which public
accounting firm should be engaged as independent auditors for the
forthcoming year. The Audit Committee also has the authority to review any
other financial matters that it deems appropriate to its function and to
report its findings to the Board.
Nominating Committee. The Company does not have a Nominating
Committee. The Board of Directors will consider recommendations that are
submitted to it by shareholders received within one year prior to the date a
vacancy is to be filled. In order for a recommendation by a shareholder to
be considered, it must meet the following requirements: (1) the shareholder
making the recommendation must be a registered shareholder of record; (2)
the recommendation must be submitted in writing; (3) the recommendation must
include a description of the nominees, including the person's qualifications
to serve as a Director; and (4) the recommendation must include a statement
indicating the nominee's willingness to serve.
Meetings. The Board of Directors met four times in fiscal 1998 and
all Directors attended at least 75% of the aggregate number of meetings of
the Board and the committees on which they serve.
THE MERGER AND THE MERGER AGREEMENT
The following is a summary of material terms of the Merger and the
Merger Agreement, a copy of which is attached hereto as Appendix A and
incorporated by reference herein. All references to and summaries of the
Merger Agreement in this Proxy Statement are qualified in their entirety by
reference to the Merger Agreement. Stockholders are urged to read the
Merger Agreement carefully and in its entirety.
MERGER CONSIDERATION
Subject to certain provisions as described herein with respect to
shares of Common Stock owned by the Company and MergerCo, and with respect
to Dissenting Shares, at the Effective Time each issued and outstanding
share of Common Stock will be converted into the right to receive from the
Company following the Merger $.27 in cash.
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together with
all members of their families or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, who
are stockholders of the Company are anticipated to contribute 1,384,277
shares of Common Stock to MergerCo in exchange for 13,842.77 shares of
MergerCo Common Stock. In the Merger, all such shares of MergerCo Common
Stock will be converted into common stock of the Surviving Corporation.
Any shares of Common Stock held by MergerCo or held in the Company's
treasury will automatically be canceled at the Effective Time and will cease
to exist and no Merger Consideration will be delivered in exchange therefor.
Upon consummation of the Merger and these related transactions,
immediately following the Merger, (x) Charles J. Housman and Edward L.
Housman together with their family members or affiliates and the family
members or affiliates of the late Herbert E. Housman and the late Frank M.
Housman who contribute their shares of Common Stock to MergerCo will own
100.0% of the outstanding common stock of the Surviving Corporation and (y)
the Housman Realty Trust will own 100.0% of the outstanding Series A
Preferred Stock of the Surviving Corporation.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Articles of
Merger with the Secretary of State of the Commonwealth of Massachusetts or
such later date as is specified in such Articles of Merger. The filing of
the Articles of Merger will occur as soon as practicable on or after the
satisfaction or waiver of the conditions to the Merger specified in the
Merger Agreement unless another date is agreed to by the Company and
MergerCo. The Company anticipates closing the Merger transaction as soon as
possible after the vote of the stockholders and within one week of the
stockholders meeting. Subject to certain limitations, the Merger Agreement
may be terminated by either MergerCo or the Company. See "-- Conditions to
the Merger" and "-- Termination."
CONVERSION OF SHARES
The conversion of shares of Common Stock (other than Dissenting
Shares) into the Merger Consideration will occur at the Effective Time. As
soon as practicable after the Effective Time, the Company will mail to each
holder of an outstanding certificate or certificates at such time which
prior thereto represented shares of Common Stock, a check representing the
Merger Consideration. After the Effective Time, there will be no further
transfer on the records of the Company of certificates representing shares
of Common Stock which have been converted, in whole or in part, pursuant to
the Merger Agreement into the right to receive cash. Each certificate for
shares for Common Stock will be deemed at any time after the Effective Time
to represent only the right to receive the consideration contemplated by the
Merger Agreement. No interest will be paid or will accrue on any cash
payable as consideration in the Merger.
ACCOUNTING TREATMENT
It is intended that the Merger will be treated as a recapitalization
for financial reporting purposes. Accordingly, the historical basis of the
Company's assets and liabilities will not be impacted by the transaction.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
of the Company with respect to the Company and its subsidiary relating to,
among other things: (a) organization, standing and similar corporate
matters; (b) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement; (c) the Company's capital structure;
(d) documents filed by the Company with the Commission and the accuracy of
information contained therein; (e) the absence of any violation, breach,
termination, acceleration or default (i) under certain agreements to which
the Company is a party, (ii) under the Restated Articles of Organization or
Bylaws, as amended, of the Company or (iii) under any federal, state, local
or foreign order, writ, injunction, judgment, award, decree, statue, law,
rule or regulation applicable to the Company; (f) the absence of the need
for governmental approvals and consents in connection with the Merger
Agreement; (g) the accuracy of information supplied by the Company in
connection with this Proxy Statement and any related schedules; (h) the
absence of certain changes or events since September 30, 1998, including
material adverse changes with respect to the Company; (i) the absence of
undisclosed liabilities; (j) pending or threatened material litigation,
certain labor matters and compliance with applicable laws; (k) benefit plans
and other matters relating to the Employee Retirement Income Security Act of
1974, as amended, and employment matters; (l) title to owned personal
property and valid leasehold and subleasehold interests in leased real or
personal property; (m) filing of tax returns and payment of taxes; (n)
environmental matters; (o) insurance matters; (p) receipt of an opinion of
the Company's financial adviser; (q) brokers' fees and expenses; (r)
ownership of or rights to use Company intellectual property; (s) material
contracts; (t) takeover statutes and (u) the accuracy of information
provided to MergerCo.
The Merger Agreement also contains customary representations and
warranties of MergerCo relating to, among other things: (a) organization,
standing and similar corporate matters; (b) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (c) the accuracy of information supplied by MergerCo in connection
with this Proxy Statement and any related schedules; (d) the absence of the
need for governmental approvals and consents in connection with the Merger
Agreement; (e) brokers' fees and expenses; and (f) the business of MergerCo
outside the consummation of the transactions contemplated by the Merger
Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company made various customary
covenants relating to the conduct of its business prior to the Merger. The
Company has agreed that, prior to the Effective Time, unless MergerCo agrees
otherwise in writing, as required by the Merger Agreement or applicable law
or as required by a material contract, it will conduct its business and will
cause its subsidiary to conduct its business in the ordinary course of
business and in a manner consistent with past practice and, to the extent
consistent therewith, will use all reasonable efforts to preserve
substantially intact its business organization, and preserve its
relationships with customers, suppliers, employees and creditors. In the
Merger Agreement, the Company has further agreed, among other things, that
prior to the Effective Time it will not and it will cause its subsidiary to
not: (a) amend its charter or bylaws or similar organizational documents;
(b) issue, sell, grant, transfer, pledge, dispose of or encumber any shares
of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock in the Company or its subsidiary; (c) sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of any assets of the Company or its
subsidiary (except in the ordinary course of business consistent with past
practice); (d) declare, set aside, make or pay any dividend or other
distribution in respect of any of its capital stock; (e) purchase,
repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiary; (f) acquire any corporation, partnership or
other business organization or division or any equity interest therein; (g)
incur any long-term indebtedness or any short-term indebtedness other than
under lines of credit existing on May 7, 1999 (except in certain limited
circumstances in the ordinary course of business, consistent with past
practice); (h) enter into or amend any material contract or agreement that
provides for the exclusive arrangement with a third party that is
substantially more restrictive on the Company or its subsidiary or
substantially less advantageous to the Company or its subsidiary than
arrangements existing as of May 7, 1999; (i) increase the compensation
payable or to become payable to its officers or management employees except
for increases in salary or wages consistent with past practice; (j) adopt,
enter into, or amend or increase, accelerate the payment or vesting of, the
amounts, benefits or rights under any severance, termination, bonus, profit
sharing, deferred compensation, stock option, or other equity based or other
material employee compensation or benefit plan; (k) except as may be
required as a result of a change in generally accepted accounting
principles, take any action to change accounting policies or procedures; (l)
make any material tax election inconsistent with past practice or settle or
compromise or amend any material federal, state, local or foreign tax
liability; or (m) take, or agree in writing or otherwise to take, any of the
actions described in this paragraph, or any action which would make any of
the representations or warranties of the Company contained in the Merger
Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants thereunder.
COOPERATION AND BEST EFFORTS; CONDUCT OF BUSINESS AFTER THE MERGER
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with
each other and use their respective reasonable best efforts to take certain
specified and other actions so that the transactions contemplated by the
Merger Agreement may be consummated as soon as practicable. The parties
have also agreed that until one year after the Effective Time of the Merger,
the Surviving Corporation shall not be a party to any merger,
reorganization, liquidation, relocation of operations, sale or transfer of
assets not in the ordinary course of business, or any other material changes
in its corporate structure.
INDEMNIFICATION
The Merger Agreement provides that the Articles of Organization and
Bylaws of the Surviving Corporation will contain the provisions with respect
to indemnification set forth in the Restated Articles of Organization and
Bylaws, as amended, of the Company on the date of the Merger Agreement,
which provisions may not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who on or prior to the
Effective Time were directors, officers, employees or agents of the Company,
unless such modification is required by law.
The Merger Agreement also provides that after the Effective Time, the
Surviving Corporation will indemnify and hold harmless each present and
former director, officer or employee of the Company and its subsidiary
against any expenses, losses, claims, damages or liabilities, arising out of
acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's Restated Articles of Organization or
Bylaws, as amended, or any applicable contract or agreement as in effect on
the date of the Merger Agreement, in each case for a period of six years
after the date of the Merger Agreement.
CONDITIONS TO THE MERGER
All Parties. Pursuant to the Merger Agreement, the respective
obligations of each party to effect the merger are subject to the
satisfaction or waiver of the following conditions at or prior to the
Effective Time: (i) no statute, rule, order, decree, regulation temporary
restraining order, preliminary or permanent injunction or other order having
been enacted, entered, promulgated, enforced or issued by any court or
governmental authority of competent jurisdiction or otherwise being in
effect which prohibits, restrains, enjoins or restricts the consummation of
the Merger; and (ii) all authorizations, consents and approvals required to
be obtained prior to consummation of the Merger shall have been obtained,
except for such authorizations, consents and approvals the failure of which
to be obtained would not have a material adverse effect on the Company.
MergerCo. MergerCo's obligation to effect the Merger is further
subject to the satisfaction or waiver of the following conditions: (i) the
representations and warranties of the Company contained in the Merger
Agreement being true and correct in all material respects at and as of the
Effective Time (except for changes contemplated by the Merger Agreement and
except to the extent such representations and warranties speak as of an
earlier date); (ii) the Company having performed or complied in all material
respects with all agreements and covenants required to be complied with by
it under the Merger Agreement at or prior to the Effective Time; (iii)
holders of no more than 10% of the outstanding shares of the Common Stock
having perfected their dissenters' rights in accordance with Sections 85-95
of the MBCL; and (iv) there being no material adverse effect on the
business, assets, condition (financial or other) or results of operations of
the Company since September 30, 1998.
The Company. The obligation of the Company to effect the Merger is
further subject to the representations and warranties of MergerCo set forth
in the Merger Agreement being true and correct in all material respects as
of the Effective Time (except for changes contemplated by the Merger
Agreement and except to the extent such representations and warranties speak
as of an earlier date), and MergerCo having performed all obligations
required to be performed by it under the Merger Agreement at or prior to the
Effective Time.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned prior to
the Effective Time: (i) upon the mutual consent of the Company and MergerCo;
(ii) by either the Company or MergerCo, if the Merger is not completed by
November 30, 1999 (provided that this right to terminate shall not be
available to a party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of such delay); (iii) by either the
Company or MergerCo if a court or other governmental body has issued a
nonappealable final statute, order, decree or regulation permanently
restraining, enjoining or otherwise legally prohibiting the Merger; (iv) by
either the Company or MergerCo, if the holders of at least two-thirds of the
Common Stock and Preferred Stock entitled to vote fail to approve and adopt
the Merger Agreement and the Merger; (v) by MergerCo, if the Board of
Directors of the Company withdraws or modifies its recommendation of the
Merger Agreement or the Merger in a manner adverse to MergerCo; or (vi) by
either the Company or MergerCo, upon 15 days' prior written notice, if the
other party breaches or fails to comply with any of its material
representations or warranties or obligations under the Merger Agreement such
that the conditions to the obligations of the terminating party would be
incapable of being satisfied by the Effective Time of the Merger.
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended only by written
agreement of both the Company and MergerCo at any time prior to the
Effective Time; provided, however, that, after the stockholders have
approved the Merger Agreement and the Merger at the Special Meeting, no such
amendment is permitted which materially adversely affects the rights of the
stockholders, without first obtaining further approval of the stockholders.
The Merger Agreement further provides that, at any time prior to the
Effective Time, the parties to the Merger Agreement, by action taken or
authorized by their respective Boards of Directors, may, by written
agreement signed by the party to be bound, (i) extend the time for the
performance of any of the obligations or other acts of the other party
thereto, (ii) waive any inaccuracies in the representations and warranties
of any other party contained in the Merger Agreement or in any document
delivered pursuant to the Merger Agreement or (iii) waive compliance by any
other party with any of the conditions and agreements contained in the
Merger Agreement.
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized by its Restated Articles of
Organization to issue an aggregate of 6,000,000 shares of Common Stock and
100,000 shares of preferred stock. By the terms of the Restated Articles of
Organization, the Board has the authority to establish one or more series of
preferred stock and, with respect to such series, to fix the terms of such
series.
ARMATRON CAPITAL STOCK
Common Stock
- ------------
The following is a summary of certain of the rights and privileges
pertaining to the Common Stock.
Voting Rights
Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders. Approval of matters brought
before the stockholders requires the affirmative vote of a majority of
shares present and entitled to vote, except where a greater or lesser voting
percentage may otherwise be required by law or the Restated Articles of
Organization. The Restated Articles of Organization require either the
affirmative vote of at least two-thirds of the outstanding voting shares of
the Company or the affirmative vote of at least 80% of the voting shares of
the Company, depending upon the vote of the directors of the Company, to
approve certain business combinations or other transactions which would
effect a change of ownership or control of the Company.
The directors of the Company are classified into three staggered
classes. Directors may only be removed for cause and such removal, increase
in the size of the Board and filling of vacancies on the Board may be made
only by the affirmative vote of at least 80% of the directors then in office
or the affirmative vote of the holders of at least 80% of the outstanding
voting shares of the Company.
Dividend Rights
Holders of Common Stock are entitled to participate in dividends as
and when declared by the Board out of funds legally available therefor.
Liquidation Rights
Subject to the rights of creditors and holders of preferred stock,
holders of Common Stock are entitled to share ratably in a distribution of
assets of the Company upon any liquidation, dissolution or winding up of the
Company.
Series A Convertible Preferred Stock
- ------------------------------------
Pursuant to the Company's Restated Articles of Organization, the Board
created the Preferred Stock on April 20, 1999. The following is a summary
of certain of the rights and privileges pertaining to the Preferred Stock.
Voting Rights
In addition to any voting rights required by law, holders of Preferred
Stock are entitled to 1,000 votes (subject to adjustment) per share on all
matters submitted to a vote of stockholders. The holders of shares of
Preferred Stock and the holders of Common Stock shall vote together as one
class on all matters except as otherwise required by law or in the Restated
Articles of Organization. As long as any shares of Preferred Stock are
outstanding, the Company may not: (i) increase or decrease the number of
shares of Preferred Stock authorized; (ii) reclassify, authorize or issue
any shares of preferred stock or other convertible securities having any
rights, preferences or privileges superior to or on parity with the
Preferred Stock; (iii) pay a dividend or other distribution on or repurchase
or acquire any Common Stock, directly or indirectly; or (iv) liquidate,
sell, consolidate or merge the Company without first obtaining the
affirmative vote or written consent of the holders of 66 2/3% of the
outstanding Preferred Stock, with certain exceptions. The terms of Preferred
Stock may be amended with the consent of the holders of 66 2/3% of the
outstanding shares of Preferred Stock.
Dividend Rights
Holders of Preferred Stock are entitled to receive, out of funds
legally available therefor, quarterly dividends payable in cash on the last
day of March, June, September and December (the "Quarterly Dividend Payment
Date"), at the rate of 10% per annum multiplied by $2,000,100. Dividends
shall accrue and compound on a daily basis and be cumulative on outstanding
shares of Preferred Stock from the date of issuance of the Preferred Stock.
Liquidation Rights
Upon any voluntary liquidation, dissolution, or winding up of the
Company, no distribution shall be made to the holders of any shares of stock
ranking junior to the Preferred Stock unless, prior to such distribution,
the holders of Preferred Stock shall have received an amount equal to $300
plus all accrued and unpaid dividends and distributions thereon.
Conversion Rights
Each share of Preferred Stock shall be convertible, at the option of
the holder thereof at any time. Each share of Preferred Stock shall be
converted automatically in the event of (i) the conversion of 75% of all
outstanding shares of Preferred Stock into Common Stock or (ii) the closing
of a firm commitment underwritten public offering. Each share of Preferred
Stock will be converted into 1,000 shares of Common Stock, subject to
adjustment upon certain events.
Antidilution Adjustments
The number of shares of Common Stock into which the Preferred Stock
shall be convertible shall be adjusted pursuant to a weighted average basis
in the event of a dilutive issuance of Common Stock.
CAPITAL STOCK OF SURVIVING CORPORATION
The Surviving Corporation will be authorized by its Articles of
Organization to issue an aggregate of 190,000 shares of common stock, par
value $.01 per share, and 10,000 shares of preferred stock, par value $.01
per share. By the terms of the Articles of Organization, the Board has the
authority to establish one or more series of preferred stock and, with
respect to such series, to fix the terms of such series.
Common Stock
- ------------
The following is a summary of certain of the rights and privileges
pertaining to the common stock of the Surviving Corporation.
Voting Rights
Holders of common stock of the Surviving Corporation are entitled to
one vote per share on all matters submitted to a vote of stockholders.
Approval of matters brought before the stockholders requires the affirmative
vote of a majority of shares present and entitled to vote, except where a
greater or lesser voting percentage may otherwise be required by law or the
Articles of Organization.
Dividend Rights
Holders of common stock of the Surviving Corporation are entitled to
participate in dividends as and when declared by the Board of Directors of
the Surviving Corporation out of funds legally available therefor.
Liquidation Rights
Subject to the rights of creditors and holders of preferred stock of
the Surviving Corporation, holders of common stock of the Surviving
Corporation are entitled to share ratably in a distribution of assets of the
Surviving Corporation upon any liquidation, dissolution or winding up of the
Surviving Corporation.
Series A Convertible Preferred Stock
- ------------------------------------
The following is a summary of certain of the rights and privileges
pertaining to the Series A Preferred Stock of the Surviving Corporation.
Voting Rights
In addition to any voting rights required by law, holders of Series A
Preferred Stock of the Surviving Corporation are entitled to 10 votes
(subject to adjustment) per share on all matters submitted to a vote of
stockholders. The holders of shares of Series A Preferred Stock of the
Surviving Corporation and the holders of common stock of the Surviving
Corporation shall vote together as one class on all matters except as
otherwise required by law or in the Articles of Organization. As long as
any shares of Series A Preferred Stock of the Surviving Corporation are
outstanding, the Company may not: (i) increase or decrease the number of
shares of Series A Preferred Stock of the Surviving Corporation authorized;
(ii) reclassify, authorize or issue any shares of preferred stock or other
convertible securities having any rights, preferences or privileges superior
to or on parity with the Series A Preferred Stock of the Surviving
Corporation; (iii) pay a dividend or other distribution on or repurchase or
acquire any common stock, directly or indirectly; or (iv) liquidate, sell,
consolidate or merge the Surviving Corporation without first obtaining the
affirmative vote or written consent of the holders of 66 2/3% of the
outstanding Series A Preferred Stock of the Surviving Corporation, with
certain exceptions. The terms of the Series A Preferred Stock of the
Surviving Corporation may be amended with the consent of the holders of 66
2/3% of the outstanding shares of Series A Preferred Stock of the Surviving
Corporation.
Dividend Rights
Holders of Series A Preferred Stock of the Surviving Corporation are
entitled to receive, out of funds legally available therefor, quarterly
dividends payable in cash on the last day of March, June, September and
December (the "Quarterly Dividend Payment Date"), at the rate of 10% per
annum multiplied by $2,000,100. Dividends shall accrue and compound on a
daily basis and be cumulative on outstanding shares of Series A Preferred
Stock of the Surviving Corporation from the date of issuance of the Series A
Preferred Stock of the Surviving Corporation.
Liquidation Rights
Upon any voluntary liquidation, dissolution, or winding up of the
Surviving Corporation, no distribution shall be made to the holders of any
shares of stock ranking junior to the Series A Preferred Stock of the
Surviving Corporation unless, prior to such distribution, the holders of
Series A Preferred Stock of the Surviving Corporation shall have received an
amount equal to $300 plus all accrued and unpaid dividends and distributions
thereon.
Conversion Rights
Each share of Series A Preferred Stock of the Surviving Corporation
shall be convertible, at the option of the holder thereof at any time. Each
share of Series A Preferred Stock of the Surviving Corporation shall be
converted automatically in the event of (i) the conversion of 75% of all
outstanding shares of Series A Preferred Stock of the Surviving Corporation
into common stock or (ii) the closing of a firm commitment underwritten
public offering. Each share of Series A Preferred Stock of the Surviving
Corporation will be converted into 10 shares of common stock, subject to
adjustment upon certain events.
Antidilution Adjustments
The number of shares of common stock of the Surviving Corporation into
which the Series A Preferred Stock of the Surviving Corporation shall be
convertible shall be adjusted pursuant to a weighted average basis in the
event of a dilutive issuance of common stock of the Surviving Corporation.
REGULATORY APPROVALS
The Company knows of no federal or state regulatory requirements that
must be complied with or approvals that must be obtained in order to
consummate the Merger, other than the filing of the Articles of Merger with
the Secretary of State of the Commonwealth of Massachusetts.
MANAGEMENT OF THE COMPANY AND MERGERCO
The following sets forth the ages, principal occupation, present
position, addresses and citizenship of each of the directors and executive
officers of the Company.
EDWARD L. HOUSMAN Age 77, Class A Director, principal occupation:
President of Automatic Radio International Corp.
since 1969 (a wholly-owned subsidiary of the Company
which deals with the international sales of the
Company's products). Mr. Housman has been actively
engaged in various aspects of the Company's business
for more than 30 years, and has served as a Director
of Armatron International, Inc. continuously since
1959. Mr. Housman is the brother of Charles J.
Housman, the President and Chairman of the Company.
Mr. Housman is a U.S. citizen whose business address
is Armatron International, Inc., 2 Main Street,
Melrose, MA 02176.
CHARLES J. HOUSMAN Age 72, Class B Director, principal occupation:
President and Chairman of the Board of Armatron
International, Inc. since 1987. Mr. Housman has been
actively engaged in various aspects of the Company's
business for more than 30 years and has served as a
Director of Armatron International, Inc. continuously
since 1960. Mr. Housman is the brother of Edward L.
Housman, the Class A Director of the Company. Mr.
Housman is a U.S. citizen whose business address is
Armatron International, Inc., 2 Main Street, Melrose,
MA 02176.
MALCOLM D. FINKS Age 60, Class C Director, principal occupation:
member of the law firm of Bass, Doherty & Finks P.C.,
Boston, Massachusetts, since April 1, 1999 and a
member of the law firm of Englander, Finks, Ross,
Cohen & Brander, P.C., Boston, Massachusetts from
1970 until March 31, 1999. On July 7, 1998 Mr.
Finks was appointed to the Board upon the death of
Mr. Englander, the former Class C Director. Mr.
Finks was also elected Clerk of the Company in July
1998. Mr. Finks is the sole member of the Company's
Audit Committee. Mr. Finks is a U.S. citizen whose
business address is Bass, Doherty & Finks P.C., 40
Soldiers Field Place, Boston, MA 02135.
SAL DeYOREO Age 73, joined Armatron in 1972 and has served as
Vice President of the Company since 1976. Mr.
DeYoreo is responsible for the marketing, sales,
engineering and product development of the Flowtron
Outdoor Products Division. Mr. DeYoreo is a U.S.
citizen whose business address is Armatron
International, Inc., 2 Main Street, Melrose, MA
02176.
The following sets forth the present position of each of the Directors
and executive officers of the MergerCo.
EDWARD L. HOUSMAN Director
CHARLES J. HOUSMAN Director, President and Treasurer
MALCOLM D. FINKS Director and Clerk
The Surviving Corporation will have the same executive officers and
Board of Directors as the Company except that the Board of Directors shall
not be classified.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or accrued
by the Company to each of its three most highly compensated executive
officers (the "Named Executive Officers") for services rendered during the
last three fiscal years:
Annual Compensation
-------------------
Name and All Other
Principal Position Year Salary($) Compensation($) (1)
- --------------------------------------------------------------------------
Charles J. Housman 1998 $ -0- $7,961
CEO 1997 $ -0- $7,382
1996 $ -0- $7,112
Sal DeYoreo(1) 1998 $107,363 $ -0-
Vice President 1997 $105,000 $ -0-
1996 $105,000 $ -0-
Edward L. Housman 1998 $ -0- $7,952
President, Automatic Radio 1997 $ -0- $7,382
International Corp. 1996 $ -0- $7,112
<FN>
<F1> Other compensation consists of automobile allowances, as well as
medical and dental benefits. The Company provides medical and dental
benefits to the executive officers that are generally available to
Company employees. The amount of perquisites, as determined in
accordance with the rules of the Commission relating to executive
compensation, did not exceed the lesser of $50,000 or 10% of salary
for fiscal 1998.
</FN>
STOCK OPTIONS AND RELATED SARS
The following table sets forth the number of stock options and related
SARs held by the Named Executive Officers at September 30, 1998 and sets
forth information about the number of shares issued upon option exercises by
the Named Executive Officers during fiscal 1998:
Shares Acquired on Value Number of Securities Underlying
Name Exercise (#) Realized ($) Unexercised Options at FY-End (#)
-----------------------------------------------------------------------------------------------------
Exercisable Unexercisable
-----------------------------
Charles J. Housman --- --- --- ---
Sal DeYoreo(1) --- --- 7,500 ---
Edward L. Housman --- --- --- ---
<FN>
<F1> None of the options held by Mr. DeYoreo were in-the-money as of
September 30, 1998 and the options expired unexercised on April 19, 1999.
</FN>
The Company's 1981 Non-Qualified Stock Option Plan which terminated on
December 1, 1990, provided for the granting of options to purchase the
Company's Common Stock and related stock appreciation rights (SARs) to the
salaried officers and other employees of the Company. No option or stock
appreciation rights were granted after the plan terminated. For the period
October 1, 1997 to September 30, 1998, no stock options were granted or
exercised. The Company no longer has any options or other derivative
securities outstanding.
BENEFIT PLANS
Armatron Executive Retirement Plan
- ----------------------------------
The Armatron Executive Retirement Plan ("Retirement Plan") provides
for the payment of retirement benefits to certain senior executives of the
Company. Under the Retirement Plan, upon reaching age 65, an eligible
employee will receive an annual retirement benefit payment in an amount
equal to 1-1/2% of his final average compensation multiplied by the number
of years of benefit service (not to exceed thirty years) minus 1-2/3% of his
primary Social Security benefit, multiplied by the number of years of
benefit service (not to exceed thirty years). Final average compensation is
defined in the Retirement Plan as the average of the five highest calendar
years of salary during the ten years preceding retirement. Years of benefit
service include all years and months of service completed with the Company
after October 1, 1983. Payments under the Retirement Plan will be made
during the life of the eligible employee, provided that a minimum of ten
years of payments shall be made during the life of the eligible employee or,
in the event the employee dies, to a designated beneficiary. In the event
an employee terminates his employment prior to reaching age 65, he will be
entitled to receive payments under the Retirement Plan at age 65 if he has
completed ten years of vesting service. Vesting service is defined as all
years and months of service completed with the Company after September 30,
1978. As of March 1, 1994 the Executive Retirement Plan was temporarily
suspended. As of September 30, 1998 no date has been established for
removing the suspension.
The following table shows the estimated annual benefits payable under
the Retirement Plan to persons in specified average compensation and years
of service classifications. The amounts shown have not been reduced to
reflect the offset amounts based upon primary Social Security benefits.
Average compensation for purposes of computing benefits under the Retirement
Plan, age, years of benefit service and years of vesting service as of
September 30, 1998, for the three officers named in the compensation table
are as follows: Charles J. Housman-$115,000, age 71, 10 years and 15 years;
Sal DeYoreo-$106,000, age 73, 10 years and 15 years; and Edward L. Housman-
$96,000, age 77, 10 years and 15 years.
Years of
Benefit Average Compensation
--------------------
Service $75,000 $100,000 $125,000 $150,000
--------------------------------------------------------------
5 $ 5,625 $ 7,500 $ 9,375 $ 11,250
10 11,250 15,000 18,750 22,500
15 16,875 22,500 28,125 33,750
20 22,500 30,000 37,500 45,000
30 & over 33,750 45,000 56,250 67,500
Armatron International, Inc. Dreyfus 401(k) Profit Sharing Plan
- ---------------------------------------------------------------
On July 1, 1989, the Company established a 401(k) Profit Sharing Plan
and Trust (the "Profit Sharing Plan"), which plan qualifies under Section
401(k) of the Internal Revenue Code for favorable tax treatment as long as
the Profit Sharing Plan annually meets a special, non-discrimination test.
This test is designed to assure a fair mix of contributions among employees
at all income levels. In November 1994 the Company changed the plan name to
and adopted the Armatron International, Inc./Dreyfus 401(k) Profit Sharing
Plan and Trust.
COMPENSATION COMMITTEE, INTERLOCKS AND RELATED PARTICIPATION
The Company does not have a compensation committee. The Board of
Directors of the Company establishes the salary and other compensation for
the Company's executive officers. Both Edward Housman and Charles Housman
are executive officers of the Company and members of the Company's Board of
Directors. They both participated in discussions regarding executive
officer compensation, including the compensation of Sal DeYoreo. However,
neither Edward Housman nor Charles Housman received any salary in fiscal
1998.
REPORT ON EXECUTIVE COMPENSATION
The Company does not have a compensation committee. The Board of
Directors establishes the executive compensation policies of the Company and
establishes both the compensation plans and specific compensation levels of
executive officers. The executive compensation program is comprised of base
salary and various benefits, including an executive retirement benefit plan,
life insurance, health insurance and another retirement plan generally
available to employees of the Company.
Charles J. Housman was appointed Chief Executive Officer in 1987. As
of March 1, 1995, Mr. Housman has waived his base salary and has received no
bonus.
THE BOARD OF DIRECTORS
Charles J. Housman
Edward L. Housman
Malcolm D. Finks
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid to the firm of Englander, Finks, Ross, Cohen &
Brander, P.C., approximately $60,000 for legal services rendered to the
Company during each of the fiscal years ended September 30, 1998, 1997 and
1996 and $30,000 for legal services rendered to the Company during fiscal
1999. Malcolm D. Finks, Clerk and a director of the Company, was a member
of that firm at the time the fees were incurred. The Company anticipates
that fees to Bass, Doherty & Finks P.C., a firm in which Malcolm D. Finks is
currently a member, will be approximately $30,000 during fiscal 1999.
The Company has a $7,000,000 line of credit arrangement with the
Housman Realty Trust operated for the benefit of the Company's principal
shareholders. The sole trustee of such trust and one of the beneficiaries
is Malcolm D. Finks, Clerk and a director of the Company. Charles J.
Housman and Edward L. Housman together with their family members or
affiliates are also beneficiaries of such trust. This line of credit, with
interest payable at 10%, requires monthly payments of interest only, is
payable in full on October 1, 1999 and is collateralized by all assets of
the Company. The Housman Realty Trust has extended the maturity date of the
note until September 30, 2001 and has waived any interest payments due until
such time. On April 20, 1999, the Housman Realty Trust purchased 6,667
shares of Preferred Stock in exchange for the cancellation of $2,000,100 of
the principal amount of the debt owed to it by the Company. The Company had
$2,715,000 outstanding under this line of credit at July 31, 1999 and owed
interest of $1,736,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that
the Company's executive officers, directors, and persons who beneficially
own more than 10% of a registered class of the Company's equity
securities file with the Commission initial reports of ownership and
reports of any changes in ownership of common stock and other equity
securities of the Company. To the Company's knowledge, based solely on
its review of copies of reports filed by persons ("Reporting Persons")
required to file such reports pursuant to Section 16(a) of the Exchange Act,
the Company believes that all filings required to be made by Reporting
Persons of the Company were timely made in accordance with the requirements
of the Exchange Act except, through oversight, a Form 3, Initial Statement
of Beneficial Ownership of Securities, for Malcolm D. Finks, a director of
the Company, which was not filed until March 1999 and reported no beneficial
ownership of equity securities of the Company.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN FOR THE
YEAR ENDED SEPTEMBER 30, 1998
The following graph shows a five-year comparison of cumulative total
returns for the Company, The AMEX Market Index and Peer Group Index. The
Peer Group is comprised of the following securities: AXCESS Inc.;
Britesmile, Inc.; Datakey, Inc.; ECC International Corp.; Evans & Sutherland
Computer Corporation; Firearms Training Systems, Class A; Isomet
Corporation; Laser Corporation; NewCom Inc.; Philips Electronics NV; Quad
Systems Corporation; Relm Wireless Corp.; ROFIN-SINAR Technologies, Inc.;
Standard Motor Products, Inc.; United Industrial Corporation.
Comparative Five-Year Cumulative Total Return Among
Armatron International, Inc., AMEX Market Index and Six Code Index
FISCAL YEAR ENDING
--------------------------------------------------------------
COMPANY/INDEX MARKET 1993 1994 1995 1996 1997 1998
- -------------------- ---- ---- ---- ---- ---- ----
Armatron International 100 53.59 39.29 52.39 78.58 17.46
SIC Code Index 100 143.3 222.34 175.11 405.37 260.18
AMEX Market Index 100 101.92 122.8 127.81 155.42 135.76
Assumes $100 invested on October 1, 1993.
Assumes dividend reinvested fiscal year ending September 30, 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRE-MERGER BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of August 15, 1999, with respect
to (i) each director and each executive officer of the Company named below;
(ii) all current directors and executive officers of the Company as a group;
and (iii) each current beneficial owner of five percent or more of Common
Stock.
Amount and
Nature of
Beneficial Percent of Being contributed
Name Ownership Common Stock to MergerCo
- -----------------------------------------------------------------------------------------------------
Executive Officers and Directors:
CHARLES J. HOUSMAN 437,575(1) 17.8% 437,575
2 Main Street, Melrose, MA 02176
EDWARD L. HOUSMAN 388,501(2) 15.8% 388,501
2 Main Street, Melrose, MA 02176
MALCOLM D. FINKS 6,667,000(3) 73.1% 0
40 Soldiers Field Place, Boston, MA 02135
SAL DeYOREO 1,000 * 0
2 Main Street, Melrose, MA 02176
All Executive Officers and 7,296,223 79.9% 628,223
Directors of the Company as a group (4 persons)
Other 5% Stockholders:
HOUSMAN REALTY TRUST 6,667,000(4) 73.1% 0
40 Soldiers Field Place, Boston, MA 02135
KENNETH HOUSMAN 225,661(5) 9.2% 225,661
2 Main Street, Melrose, MA 02176
RICHARD HOUSMAN 226,023(6) 9.2% 226,023
38 Wachusett Road, Chestnut Hill, MA 02167
THE FRANK MITCHELL HOUSMAN 197,853 8.0% 197,853
FAMILY TRUST OF 1980
2 Main Street, Melrose, MA 02176
THE HERBERT E. HOUSMAN 184,137 7.5% 184,137
FAMILY TRUST OF 1987
2 Main Street, Melrose, MA 02176
- --------------------------------
<FN>
<F*> Less than 1% of the outstanding Common Stock.
<F1> Includes 197,853 shares of Common Stock held by The Frank Mitchell
Housman Family Trust of 1980 (the "Frank Housman Family Trust") and
22,791 shares of Common Stock held by The Susan Sohn Family Trust of
1995 (the "Susan Sohn Family Trust"). Mr. Housman is a trustee of the
Frank Housman Family Trust and the sole trustee of the Susan Sohn
Family Trust and therefore has voting and investment power over these
shares. However, Mr. Housman has no pecuniary interest in either of
the Trusts' shares and therefore expressly disclaims beneficial
ownership of these shares.
<F2> Includes 197,853 shares of Common Stock held by the Frank Housman
Family Trust. Mr. Housman is a trustee of the Frank Housman Family
Trust and therefore shares voting power over these shares. Mr.
Housman has no pecuniary interest in these shares and therefore
expressly disclaims beneficial ownership of these shares.
<F3> Represents 6,667,000 shares of Common Stock issuable upon conversion
of 6,667 shares of Preferred Stock held by the Housman Realty Trust.
Mr. Finks is the sole trustee of the Housman Realty Trust and
therefore has voting and investment power over these shares. Mr.
Finks expressly disclaims beneficial ownership of the shares held by
the Housman Realty Trust except to the extent of his pecuniary
interests therein.
<F4> Represents 6,667,000 shares of Common Stock issuable upon conversion
of 6,667 shares of Preferred Stock.
<F5> Includes 184,137 shares of Common Stock held by The Herbert E. Housman
Family Trust of 1987 (the "Herbert Housman Family Trust"). Kenneth
Housman is a trustee of the Herbert Housman Family Trust and shares
voting power over these shares. Mr. Housman expressly disclaims
beneficial ownership of the shares held by the Herbert Housman Family
Trust except to the extent of his pecuniary interest therein.
<F6> Includes 184,137 shares of Common Stock held by the Herbert Housman
Family Trust. Richard Housman is a trustee of the Herbert Housman
Family Trust and shares voting power over these shares. Mr. Housman
expressly disclaims beneficial ownership of the shares held by the
Herbert Housman Family Trust except to the extent of his pecuniary
interest therein.
</FN>
The issuance of the Preferred Stock resulted in a change of control of
the Company. On April 20, 1999, the Housman Realty Trust converted
$2,000,100 of the principal amount of debt owed to it by the Company
pursuant to a Promissory Note dated January 11, 1990, as amended, in the
original principal sum of $7,000,000 into 6,667 shares of Preferred Stock of
the Company. The Preferred Stock votes on an as converted basis with the
Common Stock of the Company and is convertible into 6,667,000 shares of
Common Stock, which represents the power to vote 73% of the shares of
capital stock of the Company. Prior to the issuance of the Preferred Stock,
the Housman Realty Trust did not own any shares of capital stock of the
Company.
POST-MERGER BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the common stock of the Surviving Corporation that
will be outstanding immediately following the Merger, with respect to (i)
each director and each executive officer of the Surviving Corporation named
below; (ii) all directors and executive officers of the Surviving
Corporation as a group; and (iii) each person anticipated to be the
beneficial owner of five percent or more of common stock of the Surviving
Corporation.
Amount and
Nature of Percent of
Beneficial Common Stock of Surviving
Name Ownership Corp.
---- ---------------------------------------
Executive Officers and Directors:
CHARLES J. HOUSMAN 4,375.75(1) 31.6%
2 Main Street,
Melrose, MA 02176
EDWARD L. HOUSMAN 3,885.01(2) 28.1%
2 Main Street,
Melrose, MA 02176
MALCOLM D. FINKS 66,670.00(3) 82.8%
40 Soldiers Field Place,
Boston, MA 02135
SAL DeYOREO 0 0
2 Main Street,
Melrose, MA 02176
All Executive Officers and 72,952.23 90.6%
Directors of the Company as a
group (4 persons)
Other 5% Stockholders:
HOUSMAN REALTY TRUST 66,670.00(4) 82.8%
40 Soldiers Field Place,
Boston, MA 02135
KENNETH HOUSMAN 2,256.61(5) 16.3%
2 Main Street,
Melrose, MA 02176
RICHARD HOUSMAN 2,260.23(6) 16.3%
38 Wachusett Road,
Chestnut Hill, MA 02167
THE FRANK MITCHELL HOUSMAN 1,978.53 14.3%
FAMILY TRUST OF 1980
2 Main Street,
Melrose, MA 02176
THE HERBERT E. HOUSMAN 1,841.37 13.3%
FAMILY TRUST OF 1987
2 Main Street,
Melrose, MA 02176
<FN>
<F1> Includes 1,978.53 shares of common stock of the Surviving Corporation
held by the Frank Housman Family Trust and 227.91 shares of common
stock of the Surviving Corporation held by the Susan Sohn Family
Trust. Mr. Housman is a trustee of the Frank Housman Family Trust and
the sole trustee of the Susan Sohn Family Trust and therefore has
voting and investment power over these shares. However, Mr. Housman
has no pecuniary interest in either of the Trusts' shares and
therefore expressly disclaims beneficial ownership of these shares.
<F2> Includes 1,978.53 shares of common stock of the Surviving Corporation
held by the Frank Housman Family Trust. Mr. Housman is a trustee of
the Frank Housman Family Trust and therefore shares voting power over
these shares. Mr. Housman has no pecuniary interest in these shares
and therefore expressly disclaims beneficial ownership of these
shares.
<F3> Represents 66,670.00 shares of common stock of the Surviving
Corporation issuable upon conversion of 6,667 shares of Series A
Preferred Stock of the Surviving Corporation held by the Housman
Realty Trust. Mr. Finks is the sole trustee of the Housman Realty
Trust and therefore has voting and investment power over these shares.
Mr. Finks expressly disclaims beneficial ownership of the shares held
by the Housman Realty Trust except to the extent of his pecuniary
interests therein.
<F4> Represents 66,670.00 shares of common stock of the Surviving
Corporation issuable upon conversion of 6,667 shares of Series A
Preferred Stock of the Surviving Corporation.
<F5> Includes 1,841.37 shares of common stock of the Surviving Corporation
held by the Herbert Housman Family Trust. Kenneth Housman is a
trustee of the Herbert Housman Family Trust and shares voting power
over these shares. Mr. Housman expressly disclaims beneficial
ownership of the shares held by the Herbert Housman Family Trust
except to the extent of his pecuniary interest therein.
<F6> Includes 1,841.37 shares of common stock of the Surviving Corporation
held by the Herbert Housman Family Trust. Richard Housman is a
trustee of the Herbert Housman Family Trust and shares voting power
over these shares. Mr. Housman expressly disclaims beneficial
ownership of the shares held by the Herbert Housman Family Trust
except to the extent of his pecuniary interest therein.
FEES AND EXPENSES
Estimated fees and expenses incurred or to be incurred by the Company
and MergerCo in connection with the Merger are approximately as follows:
Legal fees and expenses $ 80,000
SEC filing fee $ 133
Accounting fees and expenses $ 7,000
Financial Adviser Fees $ 27,000
Printing and mailing fees and expenses $ 15,000
Exchange agent fees and expenses $ 7,000
Miscellaneous expenses $ 27,867
--------
Total $164,000
The Company will pay all of its expenses and the expenses of MergerCo.
To date, the Company has paid fees and expenses totaling $99,000 in
connection with the Merger and related transactions.
The Company has paid Gordon Associates a fee of $27,000 plus out-of-
pocket expenses for services rendered in connection with the Merger. The
Company has also agreed to indemnify and hold harmless Gordon Associates and
its officers, directors, employees and consultants from and against any and
all liabilities arising out of its engagement, except where Gordon
Associates is found, pursuant to final judgment or administrative order or
finding, to have acted with bad faith or material negligence.
MERGER FINANCINGS
SOURCE AND AMOUNT OF FUNDS
The Company expects that approximately $455,000 will be required to
(i) finance the payment of the Merger Consideration and (ii) pay the fees
and expenses expected to be incurred in connection with the Merger. It is
contemplated that at the Effective Time, the Company expects to have at
least $1 million of cash on-hand to use in connection with the Merger. The
following table illustrates the estimated sources and uses of funds
necessary to consummate the Merger.
SOURCES
-------
Cash $455,000
--------
Total Sources $455,000
========
USES
----
Purchase of Common Stock $291,000
Estimated Fees and Expenses $164,000
--------
Total Uses $455,000
========
SALE OF MERGERCO COMMON STOCK
Immediately prior to the Merger, Charles J. Housman, Chairman of the
Board, President and Chief Executive Officer of the Company and Edward L.
Housman, a director of the Company and President of Automatic Radio
International Corp., a wholly owned subsidiary of the Company, together with
all members of their families or affiliates and the family members or
affiliates of the late Herbert E. Housman and the late Frank M. Housman, who
are stockholders of the Company are anticipated to contribute 1,384,277
shares of Common Stock to MergerCo in exchange for 13,842.77 shares of
MergerCo Common Stock. In the Merger, all such shares of MergerCo Common
Stock will be converted into common stock of the Surviving Corporation as
described above. See "Special Factors--Interests of Certain Persons in the
Merger." Each share of MergerCo Common Stock will be converted into one
share of common stock of the Surviving Corporation in the Merger.
MERGERCO
MergerCo is a newly formed Massachusetts corporation that was
organized in connection with the transactions contemplated by the Merger
Agreement. MergerCo is a nonsubstantive transitory merger vehicle that will
be merged out of existence at the Effective Time. Accordingly, it is not
expected to have significant assets or liabilities (other than arising under
the Merger Agreement or in connection with the Merger) or to engage in any
activities (other than those incident to its formation and the Merger). The
authorized capital stock of MergerCo consists of 190,000 shares of common
stock, par value $0.01 per share, and 10,000 shares of preferred stock, par
value $0.01 per share, of which no shares are currently outstanding.
The principal executive offices of MergerCo are 2 Main Street, Melrose,
MA 02176.
APPRAISAL RIGHTS
Set forth below is a summary of the procedure that a Dissenting
Stockholder must follow in order to seek to exercise appraisal rights. The
information contained below with respect to stockholders' appraisal rights
is qualified in its entirety by reference to the applicable sections of the
MBCL, which are attached to this Proxy Statement as Appendix C. A person
having a beneficial interest in shares of the Company that are held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have. THIS DISCUSSION AND APPENDIX C SHOULD BE
REVIEWED CAREFULLY BY ANY STOCKHOLDER WHO WISHES TO EXERCISE STATUTORY
APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO. FAILURE
STRICTLY TO COMPLY WITH ANY OF THE PROCEDURAL REQUIREMENTS OF SECTIONS 85
THROUGH 98 OF THE MBCL COULD RESULT IN A TERMINATION OR WAIVER OF APPRAISAL
RIGHTS UNDER SECTIONS 85 THROUGH 98 OF THE MBCL.
Sections 85 through 98, inclusive, of the MBCL contain provisions
which, in the case of a merger of a corporation organized under
Massachusetts law, grant to Dissenting Stockholders who comply with the
procedures specified in these sections the right to receive payment in cash
equal to the "fair value" of their shares. The principal provisions of the
statute are summarized below. This summary is qualified in its entirety by
the provisions of Sections 85 through 98 of the MBCL, which are annexed as
Appendix C to this Proxy Statement and should be carefully reviewed by
holders of Common Stock.
To claim appraisal rights, a Dissenting Stockholder must (a) file a
written objection to the Merger and the transactions contemplated thereby
prior to the stockholder vote, stating that such Dissenting Stockholder
intends to demand payment for his or her shares of Common Stock if the
Merger is consummated, (b) not vote such Dissenting Stockholder's shares in
favor of approval of the Merger and the transactions contemplated thereby,
and (c) in the event the Merger and the transactions contemplated thereby
are approved by the stockholders and consummated, demand in writing payment
for such shares of Common Stock from the Company within 20 days after the
date of mailing to the Dissenting Stockholder of a notice that the Merger
has become effective. Such notice is to be mailed by registered or
certified mail by Merger within 10 days of the Effective Time to all
Dissenting Stockholders who have complied with the requirements described in
(a) and (b) above.
A vote against the Merger and the transactions contemplated thereby
will not be deemed to satisfy the requirement that a written objection be
filed with the Company prior to the taking of the stockholder vote on the
Merger and the transactions contemplated thereby. However, a Dissenting
Stockholder who has filed a written objection to the Merger and the
transactions contemplated thereby as provided in (a) above will not be
deemed to have waived such Dissenting Stockholder's appraisal rights by
failing to vote against the Merger and the transactions contemplated thereby
so long as such Dissenting Stockholder does not actually vote in favor of
it.
The Company is required to make payment of the fair market value of
the shares of Common Stock owned by each Dissenting Stockholder within 30
days after the expiration of the 20-day period during which a demand of
payment for shares may be made. If, during such 30-day period, the Company
and a Dissenting Stockholder fail to agree as to the fair value of such
Dissenting Stockholder's shares, either the Company or the Dissenting
Stockholder may, within four months after the expiration of such 30-day
period, request a court determination of the fair value of all shares held
by the Dissenting Stockholders by filing a bill in equity in the Superior
Court of Middlesex County in the Commonwealth of Massachusetts. The cost of
such an action, other than counsel fees and fees of experts retained by a
party, will be determined by the court and apportioned in such a manner as
appears to the court to be equitable; however, all costs of giving notice to
the Dissenting Stockholders entitled to notice of the filing of such an
action will be paid by the Company. In any such action, the fair value of
the shares of Common Stock of the Dissenting Stockholder parties to the
action will be determined as of the day preceding the date that the Merger
and the transactions contemplated thereby were approved by the stockholders
of the Company, and will not include any element of value arising from the
expectation or consummation of the Merger. The Company has not yet
determined whether it will file such a bill in equity and, therefore, any
Dissenting Stockholder who desires such a bill in equity to be filed is
advised to file it on a timely basis. Unless the Company files such a bill
in equity, the failure by a Dissenting Stockholder to file such a bill could
nullify all written demands for appraisal.
Any Dissenting Stockholder contemplating the exercise of rights
summarized above is urged to consult with counsel. The failure by a
Dissenting Stockholder to follow precisely all of the steps required by
Sections 85 through 98 of the MBCL will result in the loss of those rights.
Under Section 98 of the MBCL, the enforcement by a Dissenting Stockholder of
the right to receive payment for his or her or its shares of Common Stock is
an exclusive remedy, except that such provisions do not exclude the right of
a Dissenting Stockholder to bring or maintain an appropriate proceeding to
obtain relief on the ground that the Merger will be or is fraudulent or
illegal as to him or her.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly
be, or which are likely to be, brought before the Special Meeting. However,
if any other matters are properly brought before such Special Meeting, the
persons named in the enclosed Proxy Statement or their substitutes intend to
vote the proxies in accordance with their judgment with respect to such
matters.
If the Merger is not consummated and the Company is still a reporting
company under the Exchange Act in fiscal 2000, then the Company will
schedule a special meeting in lieu of annual meeting of stockholders at
approximately the same time next year. To be considered for inclusion in
the proxy statement relating to the Annual Meeting of Stockholders to be
held in 2000, stockholder proposals must be received by the Company no later
than March 30, 2000. If the Company does not receive notice of any matter
to be considered for presentation at such meeting, although not included in
the proxy statement, by June 15, 2000 management proxies may confer
discretionary authority to vote on the matters presented at such meeting by
a stockholder in accordance with Rule 14a-4 under the Exchange Act. All
stockholder proposals should be marked for the attention of Clerk, at the
Company's principal executive offices at 2 Main Street, Melrose, MA 02176.
EXPERTS
The consolidated balance sheets as of September 30, 1998 and 1997 and
the consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended September 30, 1998,
have been incorporated by reference in reliance of the report of R. J. Gold
& Company P.C., independent accountants, given on the authority of that firm
as experts in accounting and auditing. It is expected that representatives
of R.J. Gold & Company, P.C. will be present at the Special Meeting with the
opportunity to make a statement if they so desire and to answer appropriate
questions relating to the audit performed.
Appendix A
AGREEMENT AND PLAN OF MERGER
by and among
ARMATRON INTERNATIONAL, INC.
and
ARMATRON MERGER CORPORATION
dated as of
May 7, 1999
TABLE OF CONTENTS
ARTICLE I 1
THE MERGER 1
SECTION 1.1 THE MERGER 1
SECTION 1.2 EFFECTIVE TIME 1
SECTION 1.3 CLOSING 2
SECTION 1.4 ARTICLES OF ORGANIZATION; BY-LAWS 2
SECTION 1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION 2
ARTICLE II 2
CONVERSION OF SHARES 2
SECTION 2.1 CONVERSION OF CAPITAL STOCK 2
SECTION 2.2 PAYMENT OF MERGER CONSIDERATION 3
SECTION 2.3 DISSENTING SHARES 4
ARTICLE III 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4
SECTION 3.1 ORGANIZATION 4
SECTION 3.2 CAPITALIZATION 5
SECTION 3.3 AUTHORIZATION; VALIDITY OF AGREEMENT 6
SECTION 3.4 NO VIOLATIONS; CONSENTS AND APPROVALS 6
SECTION 3.5 SEC REPORTS AND FINANCIAL STATEMENTS 7
SECTION 3.6 ABSENCE OF CERTAIN CHANGES 8
SECTION 3.7 ABSENCE OF UNDISCLOSED LIABILITIES 8
SECTION 3.8 PROXY STATEMENT; EXCHANGE ACT SCHEDULES 8
SECTION 3.9 EMPLOYEE BENEFIT PLANS; ERISA 9
SECTION 3.10 LITIGATION; COMPLIANCE WITH LAW 9
SECTION 3.11 INTELLECTUAL PROPERTY 10
SECTION 3.12 CONTRACTS 11
SECTION 3.13 TAXES 13
SECTION 3.14 ENVIRONMENTAL MATTERS 13
SECTION 3.15 REQUIRED VOTE BY COMPANY STOCKHOLDERS 15
SECTION 3.16 BROKERS 15
SECTION 3.17 OPINION OF FINANCIAL ADVISOR 15
SECTION 3.18 ASSETS 15
SECTION 3.19 REAL PROPERTY 16
SECTION 3.20 INSURANCE 16
SECTION 3.21 LABOR MATTERS, ETC 16
SECTION 3.22 DISCLOSURE 17
SECTION 3.23 TAKEOVER STATUTES 17
ARTICLE IV 17
REPRESENTATIONS AND WARRANTIES OF MERGERCO 17
SECTION 4.1 ORGANIZATION 17
SECTION 4.2 AUTHORIZATION; VALIDITY OF AGREEMENT 17
SECTION 4.3 CONSENTS AND APPROVALS; NO VIOLATIONS 18
SECTION 4.4 PROXY STATEMENT; EXCHANGE ACT SCHEDULES 18
SECTION 4.5 BROKERS 19
SECTION 4.6 FORMATION OF MERGERCO; NO PRIOR ACTIVITIES 19
ARTICLE V 19
COVENANTS 19
SECTION 5.1 INTERIM OPERATIONS OF THE COMPANY 19
SECTION 5.2 ACCESS TO INFORMATION 21
SECTION 5.3 FURTHER ACTION; REASONABLE BEST EFFORTS 21
SECTION 5.4 SHAREHOLDERS' MEETING; PROXY STATEMENT 21
SECTION 5.5 NOTIFICATION OF CERTAIN MATTERS 23
SECTION 5.6 DIRECTORS' AND OFFICERS' INDEMNIFICATION 23
SECTION 5.7 RECAPITALIZATION 23
SECTION 5.8 CONVEYANCE TAXES 23
SECTION 5.9 DELISTING 24
SECTION 5.10 CONDUCT OF THE COMPANY AFTER THE MERGER 24
ARTICLE VI 24
CONDITIONS 24
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER 24
SECTION 6.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT
THE MERGER 24
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF MERGERCO TO EFFECT
THE MERGER 25
ARTICLE VII 25
TERMINATION 25
SECTION 7.1 TERMINATION 25
SECTION 7.2 EFFECT OF TERMINATION 26
ARTICLE VIII 27
MISCELLANEOUS 27
SECTION 8.1 FEES AND EXPENSES 27
SECTION 8.2 AMENDMENT; WAIVER 27
SECTION 8.3 SURVIVAL 28
SECTION 8.4 NOTICES 28
SECTION 8.5 INTERPRETATION 29
SECTION 8.6 HEADINGS; SCHEDULES 29
SECTION 8.7 COUNTERPARTS 29
SECTION 8.8 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES 29
SECTION 8.9 SEVERABILITY 29
SECTION 8.10 GOVERNING LAW 29
SECTION 8.11 ASSIGNMENT 30
SCHEDULES
Schedule 3.1 Subsidiaries
Schedule 3.2 (a) Capitalization
Schedule 3.2 (b) Ownership
Schedule 3.4 (a) No Violations; Consents and Approvals
Schedule 3.4 (b) Filings by the Company
Schedule 3.6 Absence of Certain Changes
Schedule 3.7 Absence of Undisclosed Liabilities
Schedule 3.9 (b) Employee Benefit Plans
Schedule 3.9 (c) Severance Benefits
Schedule 3.10 (a) Litigation
Schedule 3.10 (b) Compliance with Laws
Schedule 3.11 Intellectual Property
Schedule 3.12 (a) Contracts
Schedule 3.13 Taxes
Schedule 3.14 (c) Environmental Matters
Schedule 3.18 Assets
Schedule 3.18 (b) Certain Liens
Schedule 3.19 (i) Formerly Owned Property
Schedule 3.19 (ii) Leases
Schedule 3.20 Insurance Policies
Schedule 4.3 (b) Filings by the MergerCo
Schedule 5.1 (iii) Interim Operations
EXHIBITS
Exhibit A List of Stockholders of MergerCo
TABLE OF DEFINED TERMS
----------------------
Term Section
- ---- -------
Articles of Merger 1.2
Articles of Organization 3.1
Assets 3.18(a)
Certificates 2.2(a)
Closing 1.3
Closing Date 1.3
Code 3.9(a)
Company Recitals
Company Common Stock 2.1
Company Intellectual Property 3.11
Company Preferred Stock 2.1
Company Reports 3.5
Company SEC Documents 3.5
Consolidated Group 3.13(b)
Disclosure Schedule 3.1
Dissenting Shares 2.3
Effective Time 1.2
Environmental Law 3.14(d)
Exchange Act 3.4(b)
Fairness Opinion 3.17
Financial Advisor 3.17
Formerly Owned Property 3.19
GAAP 3.5
Governmental Entity 3.4(b)
Hazardous Materials 3.14(d)
Identified Contracts 3.12(a)
Indemnified Parties 5.6(a)
Intellectual Property 3.11
Laws 3.4(a)
Leased Real Property 3.19
Leases 3.19
Lien 3.18(b)
Litigation 3.10(a)
Massachusetts Secretary of State 1.2
Material Adverse Effect 3.1
Material Contracts 3.12(a)
MBCL Recitals
Merger 1.1
MergerCo Recitals
MergerCo Common Stock 2.1
MergerCo Disclosure Schedule 4.3(b)
Merger Consideration 2.1(a)
Owned Real Property 3.19
Permits 3.10(c)
Permitted Liens 3.18(b)
Person 3.1
Plans 3.9(a)
Proxy Statement 5.4(a)
Real Property 3.19
Recapitalized Common Stock 2.1(b)
Recapitalized Preferred Stock 2.1(d)
Schedule 13E-3 5.4(c)
SEC 3.5
Securities Act 3.4(b)
September 30, 1998 Balance Sheet 3.7
Shares 2.1
Special Meeting 5.4(a)
Subsidiary 3.1
Surviving Corporation 1.1
Tax Returns 3.13(b)
Taxes 3.13(b)
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of May 7, 1999, by and
between Armatron International, Inc., a Massachusetts corporation (the
"Company"), and Armatron Merger Corporation, a Massachusetts corporation
("MergerCo"), formed by certain stockholders of the Company.
WHEREAS, the Board of Directors of MergerCo has approved, and deems
it advisable and in the best interests of the stockholders of MergerCo to
participate in the recapitalization of the Company, upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company, has approved, and
deems it advisable and in the best interests of the shareholders of the
Company to consummate, the recapitalization of the Company, upon the terms
and subject to the conditions set forth herein; and
WHEREAS, in furtherance of such recapitalization, the Board of
Directors of MergerCo and the Board of Directors of the Company have each
approved this Agreement and the merger of MergerCo with and into the
Company in accordance with the terms of this Agreement and the Business
Corporation Law of the Commonwealth of Massachusetts (the "MBCL").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, 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 and in accordance with the applicable
provisions of the MBCL, at the Effective Time (as defined in Section 1.2
hereof), MergerCo shall be merged (the "Merger") with and into the Company
and the separate corporate existence of MergerCo shall cease. After the
Merger, the Company shall continue as the surviving corporation (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue
to be governed by the laws of the Commonwealth of Massachusetts. The
Merger shall have the effect as provided in the applicable provisions of
the MBCL. Without limiting the generality of the foregoing, upon the
Merger, all the rights, privileges, immunities, powers and franchises of
the Company and MergerCo shall vest in the Surviving Corporation and all
restrictions, obligations, duties, debts and liabilities of the Company and
MergerCo shall be the obligations, duties, debts and liabilities of the
Surviving Corporation.
SECTION 1.2 Effective Time. On or as promptly as practicable
following the Closing (as defined in Section 1.3), MergerCo and the Company
will cause the appropriate articles of merger (the "Articles of Merger") to
be executed and filed with the Secretary of State of the Commonwealth of
Massachusetts (the "Massachusetts Secretary of State") in such form and
executed as provided in Section 78 of the MBCL. The Merger shall become
effective on the date on which the Articles of Merger have been duly filed
with the Massachusetts Secretary of State, or such time as is agreed upon
by the parties and specified in the Articles of Merger, but not later than
30 days after such filing, and such time is hereinafter referred to as the
"Effective Time."
SECTION 1.3 Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., Boston time, on a date to be specified by the
parties, which shall be no later than the second business day after
satisfaction or waiver of all of the conditions set forth in Article VI
hereof (the "Closing Date"), at the offices of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., One Financial Center, Boston, Massachusetts,
unless another date or place is agreed to by the parties hereto.
SECTION 1.4 Articles of Organization; By-Laws. Pursuant to the
Merger, (x) the articles of organization of the Surviving Corporation shall
be amended and restated at and as of the Effective Time to read as did the
articles of organization of MergerCo immediately prior to the Effective
Time, until thereafter amended as provided by applicable law and such
articles of organization, except that the name of the Surviving Corporation
will remain unchanged and (y) the By-laws of the Surviving Corporation
shall be amended and restated, at and as of the Effective Time, to read as
did the By-laws of MergerCo immediately prior to the Effective Time, until
thereafter amended as provided by applicable law, the articles of
organization or the By-laws of the Surviving Corporation, except that the
name of the Surviving Corporation will remain unchanged.
SECTION 1.5 Directors and Officers of the Surviving Corporation.
(a) The directors of MergerCo immediately prior to the Effective
Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors shall have been duly elected
or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's articles of
organization and By-laws.
(b) The officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation and shall
hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 Conversion of Capital Stock. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holders
of any shares of common stock, par value $1.00 per share, of the Company
(referred to herein, as the "Shares" or "Company Common Stock"), Series A
Preferred Stock, par value $100 per share, of the Company (the "Company
Preferred Stock") or the common stock, par value $.01 per share, of
MergerCo (the "MergerCo Common Stock"):
(a) Each issued and outstanding share of Company Common Stock
(other than (i) Shares to be contributed to MergerCo in accordance with
Section 2.1(b), (ii) Shares to be canceled in accordance with Section
2.1(c) and (iii) Dissenting Shares covered by Section 2.3) shall be
converted into the right to receive $.27 in cash, payable to the holder
thereof, without interest (the "Merger Consideration"), upon surrender of
the certificate formerly representing such share of Company Common Stock in
the manner provided in and otherwise in accordance with Section 2.2. All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such Shares
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration therefor in accordance with Section 2.2.
(b) Each issued and outstanding share of Company Common Stock held
by the persons and entities listed on Exhibit A attached hereto shall be
contributed to MergerCo in exchange for one hundredth of one fully paid and
nonassesable share of MergerCo Common Stock (or fraction thereof) and each
such share of MergerCo Common Stock shall then be converted into and become
one fully paid and nonassessable share of common stock, $.01 par value per
share (or fraction thereof), of the Surviving Corporation (the
"Recapitalized Common Stock").
(c) All shares of Company Common Stock that are held by the Company
as treasury stock or that are held by MergerCo shall be canceled and
retired and shall cease to exist and no Merger Consideration shall be
delivered in exchange therefor.
(d) Each issued and outstanding share of Company Preferred Stock
shall be converted into and become one fully paid and nonassessable share
of Series A Preferred Stock, $.01 par value per share, of the Surviving
Corporation (the "Recapitalized Preferred Stock").
SECTION 2.2 Payment of Merger Consideration.
(a) The Company will promptly, and in any event not later than ten
business days following the Effective Time, mail to each holder of record
of a certificate or certificates, which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the
"Certificates"), whose Shares were converted pursuant to Section 2.1(a)
into the right to receive the Merger Consideration, a check from the
Company representing the Merger Consideration for each share of Company
Common Stock formerly represented by such Certificate. Each Certificate
(other than Certificates representing Dissenting Shares) shall be deemed at
any time after the Effective Time to be canceled and represent only the
right to receive the Merger Consideration as contemplated by this Section
2.2.
(b) After the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no transfers on the stock
transfer books of the Surviving Corporation of Shares which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for the Merger Consideration as
provided in this Article II. Any former shareholders of the Company shall
after the Effective Time, look only to the Surviving Corporation for
payment of any Merger Consideration that may be payable upon surrender of
any Certificates such shareholder holds, as determined pursuant to this
Agreement, without any interest thereon.
(c) None of MergerCo, the Company, the Surviving Corporation, or
any other person shall be liable to any former holder of shares of Company
Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(d) Any payment made pursuant to this Section 2.2 shall be subject
to and made net of applicable withholding taxes.
SECTION 2.3 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares which are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders
who have validly demanded payment of the fair value for such shareholders'
shares as determined by appraisal in accordance with the MBCL (the
"Dissenting Shares"), shall not be converted into or be exchangeable for
the right to receive the Merger Consideration provided in Section 2.1(a) of
this Agreement, unless and until such holder shall have failed to perfect
or shall have effectively withdrawn or lost such holder's right to
appraisal and payment under the MBCL. If such holder shall have so failed
to perfect or shall have effectively withdrawn or lost such right, such
holder's Shares shall thereupon be deemed to have been converted into and
to have become exchangeable for, at the Effective Time, the right to
receive the consideration provided for in Section 2.1 of this Agreement,
without any interest thereon.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to MergerCo as of the date hereof
that:
SECTION 3.1 Organization. Each of the Company and its Subsidiaries
(as hereinafter defined) is a corporation or other entity duly organized,
validly existing, and in good standing under the laws of the jurisdiction
of its incorporation or organization, and has all requisite corporate power
and authority to own, lease, use and operate its properties and to carry on
its business as it is now being conducted. Each of the Company and its
Subsidiaries (as hereinafter defined) is qualified or licensed to do
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns real property or in which the nature of the
business conducted by it makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed in the aggregate
would not have or result in a Material Adverse Effect. The term "Material
Adverse Effect" shall mean any change, effect, event, occurrence or state
of facts that is, or would reasonably be expected to be, materially adverse
to the business, assets, liabilities, results of operations or financial or
other condition of the Company and its Subsidiaries taken as a whole. None
of the Company or any of its Subsidiaries is in breach or violation of any
of its articles of organization, by-laws or other organizational documents.
The Company has previously delivered to MergerCo a complete and correct
copy of each of its restated articles of organization, as amended (the
"Articles of Organization") and By-Laws, as currently in effect. Schedule
3.1 of the disclosure schedule delivered by the Company to MergerCo on or
prior to the date hereof (the "Disclosure Schedule") sets forth a complete
and correct list of the Subsidiaries of the Company and their respective
jurisdictions of incorporation or organization. "Subsidiary" shall mean
with respect to any Person, any corporation or other entity of which 50% or
more of the securities or other interests having by their terms ordinary
voting power for the election of directors or others performing similar
functions with respect to such entity is directly or indirectly owned by
such Person. "Person" shall mean any natural person, firm, individual,
partnership, joint venture, business trust, trust, association,
corporation, company, unincorporated entity or Governmental Entity (as
defined in Section 3.4(b)).
SECTION 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
6,000,000 shares of Company Common Stock and 100,000 shares of preferred
stock, of which 6,667 shares have been designated as Company Preferred
Stock. At the close of business on April 30, 1999: (i) 2,459,749 shares of
Company Common Stock were issued and outstanding; (ii) 146,732 shares of
Company Common Stock were issued and held by the Company in its treasury;
(iii) 6,667 shares of Company Preferred Stock were issued and outstanding;
(iv) no shares of Company Common Stock were reserved for issuance pursuant
to the Company Stock Plan, of which no shares are subject to outstanding
options; and (v) no shares of Company Preferred Stock have been designated
(except for the 6,667 shares of Company Preferred Stock referenced above)
or issued. All outstanding shares of capital stock of the Company are, and
all shares thereof which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as expressly provided in this Agreement or in
the Articles of Organization, (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of the Company, (B) any securities of Company or any of its
Subsidiaries convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of the Company, (C) any warrants, calls,
options or other rights to acquire from Company or any of its Subsidiaries,
and any obligation of Company or any of its Subsidiaries to issue, any
capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company, and (y) there are no outstanding obligations of Company or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered
or sold, any such securities, in each case. Except as set forth in Schedule
3.2(a) of the Disclosure Schedule, there are no existing or outstanding (i)
options, warrants, calls, preemptive rights, subscriptions or other rights,
convertible securities, agreements or commitments of any character
obligating the Company or any of its Subsidiaries to issue, transfer or
sell any shares of capital stock or other equity interest in, the Company
or any of its Subsidiaries or securities convertible into or exchangeable
for such shares or equity interests, (ii) contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any capital stock of the Company or any Subsidiary of the Company
or (iii) voting trusts or similar agreements to which the Company or any of
its Subsidiaries is a party with respect to the voting of the capital stock
of the Company or any of its Subsidiaries.
(b) Except as set forth in Schedule 3.2(b) of the Disclosure
Schedule, (i) all of the outstanding shares of capital stock of each of the
Company's Subsidiaries are beneficially owned, directly or indirectly, by
the Company and (ii) neither the Company nor any of its Subsidiaries owns
any shares of capital stock or other securities of, or interest in, any
other Person (other than any Subsidiaries listed on Schedule 3.1), or is
obligated to make any capital contribution to or other investment in any
other Person, provided that Schedule 3.2(b) shall not be required to set
forth any cash equivalents held by the Company or any of its Subsidiaries
or any Person in which the Company or any of its Subsidiaries owns less
than 100 shares of publicly traded securities.
SECTION 3.3 Authorization; Validity of Agreement. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and, subject to approval of its stockholders as contemplated by
Section 5.6 hereof, to consummate the transactions contemplated hereby.
The execution, delivery and performance by the Company of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company and, other than
approval and adoption of this Agreement by the holders of two-thirds of the
outstanding shares of Company Common Stock and Company Preferred Stock,
voting together as a single class, no other corporate proceedings on the
part of the Company are necessary to authorize the execution and delivery
of this Agreement by the Company and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered
by the Company and, assuming due authorization, execution and delivery of
this Agreement by MergerCo, is a valid and binding obligation of the
Company in accordance with its terms, except that such enforcement may be
subject to or limited by (i) bankruptcy, insolvency or other similar laws,
now or hereafter in effect, affecting creditors' rights generally, and (ii)
the effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
SECTION 3.4 No Violations; Consents and Approvals.
(a) Neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the transactions
contemplated hereby will (i) violate any provision of the Articles of
Organization or By-Laws of the Company, (ii) except as set forth in
Schedule 3.4(a) of the Disclosure Schedule, conflict with, result in a
violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration, or to the imposition of any Lien
(as defined in Section 3.18(b))) under, or result in the acceleration or
trigger of any payment, time of payment, vesting or increase in the amount
of any compensation or benefit payable pursuant to, the terms, conditions
or provisions of any note, bond, mortgage, indenture, guarantee or other
evidence of indebtedness, or any lease, license, contract, agreement, plan
or other instrument or obligation, to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their assets may
be bound, or (iii) conflict with or violate any federal, state, local or
foreign order, writ, injunction, judgment, award, decree, statute, law,
rule or regulation (collectively, "Laws") applicable to the Company, any of
its Subsidiaries or any of their properties or assets; except in the case
of clauses (ii) or (iii) for such conflicts, violations, breaches or
defaults which in the aggregate would not have or result in a Material
Adverse Effect or materially impair or delay the consummation of the
transactions contemplated hereby.
(b) Except as disclosed in Schedule 3.4(b) of the Disclosure
Schedule, no filing or registration with, declaration or notification to,
or order, authorization, consent or approval of, any federal, state, local
or foreign court, legislative, executive or regulatory authority or agency
(a "Governmental Entity") or any other Person is required in connection
with the execution, delivery and performance of this Agreement by the
Company or the consummation by the Company of the transactions contemplated
hereby, except (i) applicable requirements under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (ii) applicable requirements
under the Securities Act of 1933, as amended (the "Securities Act"), (iii)
the filing of the Articles
of Merger with the Massachusetts Secretary of State, (iv) applicable
requirements under "blue sky" laws of various states, (v) such other
consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings the failure of which to be obtained or made in the
aggregate would not have or result in a Material Adverse Effect or
materially impair or delay the consummation of the transactions
contemplated hereby.
SECTION 3.5 SEC Reports and Financial Statements. The Company has
timely filed with the Securities and Exchange Commission (the "SEC"), any
applicable state securities authorities and any other Governmental Entity
all forms and documents required to be filed by it since October 1, 1993
(collectively, the "Company Reports") and has heretofore made available to
the MergerCo (i) its Annual Reports on Form 10-K, as amended, for the
fiscal years ended September 30, 1994, September 30, 1995, September 30,
1996, September 30, 1997 and September 30, 1998, respectively, (ii) its
Quarterly Report on Form 10-Q for the period ended December 30, 1998, (iii)
all proxy statements relating to meetings of stockholders of the Company
since October 1, 1993 (in the form mailed to stockholders) and (iv) all
other forms, reports and registration statements filed by the Company with
the SEC since October 1, 1993 (other than registration statements on Form
S-8 or Form 8-A or preliminary materials and registration statements in
forms not declared effective). The documents described in clauses (i)-(iv)
above (whether filed before, on or after the date hereof) are referred to
in this Agreement collectively as the "Company SEC Documents". As of their
respective dates, the Company Reports (a) did not contain any untrue
statement of a material fact or omit 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 and
(b) complied in all material respects with the applicable requirements of
Law, including in the case of SEC filings, the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder. The consolidated financial statements
included in the Company SEC Documents have been prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as otherwise noted
therein and except that the quarterly financial statements are subject to
year end adjustment and do not contain all footnote disclosures required by
GAAP) and fairly present in all material respects the consolidated
financial position and the consolidated results of operations and cash
flows of the Company and its consolidated Subsidiaries as at the dates
thereof or for the periods presented therein.
SECTION 3.6 Absence of Certain Changes. Except as disclosed in the
Company SEC Documents filed prior to the date hereof or as disclosed in
Schedule 3.6 of the Disclosure Schedule, since September 30, 1998, (i) the
Company and its Subsidiaries have conducted their respective operations
only in the ordinary course consistent with past practice, (ii) there has
not been a Material Adverse Effect and (iii) the Company and the
Subsidiaries have not taken action that if taken after the date hereof
would constitute a violation of Section 5.1 (other than clause (a)
thereof).
SECTION 3.7 Absence of Undisclosed Liabilities. Except as and to
the extent disclosed (a) in the Company's Annual Report on Form 10-K, as
amended, for the period ended September 30, 1998, including as reflected or
reserved against in the balance sheet dated as of and as at September 30,
1998 constituting a portion of the financial statements included therein
(the "September 30, 1998 Balance Sheet") or in the notes thereto, (b) in
the Company SEC Documents filed prior to the date hereof or (c) in Schedule
3.7 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries had as of that date any liabilities or obligations (accrued,
contingent or otherwise) which would be material to the Company and its
Subsidiaries taken as a whole or which would be required to be set forth in
an audited consolidated balance sheet of the Company and its Subsidiaries
as of that date or the notes thereto prepared in accordance with GAAP.
SECTION 3.8 Proxy Statement; Exchange Act Schedules.
(a) The Proxy Statement (as defined in Section 5.4(a)) (and any
amendment thereof or supplement thereto) at the date mailed to Company
stockholders and at the time of the Special Meeting (as defined in Section
5.4(b)), (i) will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading and (ii) will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder; except that no representation is made by the
Company with respect to statements made in the Proxy Statement based on
information supplied by MergerCo specifically for inclusion in the Proxy
Statement.
(b) Any Schedule 13E-3 (as defined in Section 5.4(c)) and any
related schedules (and any amendment or supplement to any of the foregoing)
filed with the SEC at the date so filed (i) will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading and
(ii) will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder; except that no
representation is made by the Company with respect to statements made in
any such document based on information supplied by MergerCo specifically
for inclusion therein.
SECTION 3.9 Employee Benefit Plans; ERISA.
(a) No material liability under Title I or IV of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the penalty
or excise tax provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), relating to employee plans has been incurred by the Company
or any of its Subsidiaries and, to the Company's best knowledge, no
condition exists or event has occurred that presents a risk to the Company
or any of its Subsidiaries of incurring any such material liability.
(b) Each bonus, incentive or deferred compensation, stock option or
other equity based, severance, termination, change in control, retention,
employment, medical, life, disability, other welfare, profit-sharing,
retirement or other material compensation or benefit plan, agreement or
policy in respect of which the Company or any of its Subsidiaries has any
material liability has been filed with the Company SEC Documents or is
listed on Schedule 3.9(b) of the Disclosure Schedule (collectively, the
"Plans"). No such Plan is subject to Section 302 of ERISA or section 412
of the Code and no such Plan has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA or Section 412 of the
Code), whether or not waived. Each such Plan that is intended to be
"qualified" within the meaning of section 401(a) of the Code has received a
determination letter from the Internal Revenue Service confirming its
qualified status and no condition exists or event has occurred since the
date of such determination letter that would adversely affect the qualified
status of any such Plan. Each Plan has been operated and administered in
all respects in substantial compliance with its terms and applicable Law,
including but not limited to ERISA and the Code. There are no pending, or
to the best knowledge of the Company, threatened claims by or on behalf of
any Plan, by any employee or beneficiary or otherwise involving any such
Plan or the assets thereof, except for claims the resolution of which would
not individually or in the aggregate have or result in a material liability
to the Company or a Subsidiary.
(c) Assuming that no amount is paid to any employee listed on
Schedule 3.9(c)(i) as a severance benefit with respect to a termination of
employment, no payment, benefit or other amount paid, payable or required
to be paid in respect of any employee will fail to be deductible under
Section 280G of the Code. Except as set forth on Schedule 3.9(c)(ii) of the
Disclosure Schedule, (i) no current or former employee or director of the
Company or any Subsidiary is or will become entitled to any additional or
new compensation, benefits or other compensatory payment or an increase in
the amount of any compensation, benefits or other compensatory payment in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement and (ii) neither the vesting nor the timing
of the payment of any such compensation, benefit or other compensatory
payment in respect of any such employee or director has been or will be
accelerated in connection with or as a result of the consummation of the
transactions contemplated by this Agreement.
SECTION 3.10 Litigation; Compliance with Law.
(a) Except as disclosed in the Company SEC Documents filed prior to
the date hereof or in Schedule 3.10(a) of the Disclosure Schedule, (i)
there is no suit, claim, action, arbitration, proceeding or investigation
or other Litigation (as defined below) pending or, to the knowledge of the
Company, threatened, against the Company or any of its Subsidiaries or any
of their properties or assets which, individually or in the aggregate, if
determined adversely to the Company or any such Subsidiary, would have or
result in a Material Adverse Effect, and (ii) neither the Company nor any
of its Subsidiaries is subject to any settlement or similar agreement with
any Governmental Entity, or to any order, judgment, decree, injunction or
award of any Governmental Entity or arbitrator, that individually or in the
aggregate, would have or result in a Material Adverse Effect. "Litigation"
means any action, cause of action, claim, demand, suit, proceeding,
citation, summons, subpoena, inquiry or investigation of any nature, civil,
criminal, regulatory or otherwise, in law or in equity, by or before any
court, tribunal, arbitrator or other Governmental Entity.
(b) Except as disclosed in the Company SEC Documents filed prior to
the date hereof, the operations of the Company and its Subsidiaries have
not been and are not being conducted, and no Real Property (as defined in
Section 3.19) is, in violation of any law, statute or regulation, any
judgment, decree, order or injunction of any Governmental Entity, any other
Law, or any Permit (as defined below), except where such violations in the
aggregate would not have or result in a Material Adverse Effect. Except as
set forth in Schedule 3.10(b) of the Disclosure Schedule, neither the
Company nor any of its Subsidiaries has received any notice, or has
knowledge of any claim, alleging any such violation.
(c) The Company and its Subsidiaries hold all licenses, permits,
variances, consents, authorizations, waivers, grants, franchises,
concessions, exemptions, orders, registrations and approvals of
Governmental Entities or other Persons necessary for the ownership,
leasing, operation, occupancy and use of the Real Property and the conduct
of their respective businesses as currently conducted ("Permits"), except
where the failure to hold such Permits in the aggregate would not have or
result in a Material Adverse Effect. There is no Litigation pending or, to
the knowledge of the Company, threatened, that would result in the
termination, modification or nonrenewal of any Permit, and neither the
Company nor any of its Subsidiaries has received notice that any Permit
will be terminated or modified or cannot be renewed in the ordinary course
of business, and there is no reasonable basis for any such termination,
modification or nonrenewal, except for such terminations, modifications or
nonrenewals as in the aggregate would not have or result in a Material
Adverse Effect. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and
will not violate any Permit, or result in any termination, modification or
nonrenewal thereof, except for such violations terminations, modifications
or nonrenewals thereof as in the aggregate would not have or result in a
Material Adverse Effect.
SECTION 3.11 Intellectual Property. The Company and its
Subsidiaries own (beneficially and as of record), or possess valid and
legally enforceable licenses or rights to use, any and all United States
and foreign patents, patent applications, patent disclosures, mask works,
software, trademarks, trade names, copyrights and service marks, including
applications to register and registrations for any of the foregoing, as
well as trade secrets, know-how and other proprietary rights and
information (collectively, "Intellectual Property") necessary for the
conduct of, or otherwise material to, their business and operations as
currently conducted or as proposed to be conducted (the "Company
Intellectual Property"), free and clear of any Liens (except for any
Permitted Liens, as defined in Section 3.18(b)). Except as disclosed in
Schedule 3.11 of the Disclosure Schedule, the conduct of the business of
the Company and its Subsidiaries as currently conducted does not infringe
or conflict with any Intellectual Property of any Person; and neither the
Company nor any of its Subsidiaries has received notice or has actual
knowledge of any such current infringement or conflict except where such
infringements and conflicts as in the aggregate would not have or result in
a Material Adverse Effect. All of the patents, patent applications and
patent disclosures included in Company Intellectual Property are valid,
subsisting and enforceable. To the knowledge of the Company, no Person is
infringing or allegedly infringing any Intellectual Property of the Company
or its Subsidiaries except where such actual and alleged infringements as
in the aggregate would not have or result in a Material Adverse Effect.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in the loss of, or
creation of any Lien on, the rights of the Company or any Subsidiary with
respect to the Intellectual Property owned or used by them, except where
such losses and such Liens as in the aggregate would not have or result in
a Material Adverse Effect. Schedule 3.11 of the Disclosure Schedule
contains a complete and correct list of all patents, patent applications,
patent disclosures, mask works, software (other than any software that is
commercially available for an amount less than $10,000), trademarks, trade
names, registered copyrights and service marks, including applications to
register and registrations for any of the foregoing, included in Company
Intellectual Property except that Schedule 3.11 need not disclose any
trademarks, trade names or service marks that are not (a) registered or
applied for and (b) not material to the business of the Company or any of
its Subsidiaries as currently conducted. Except as disclosed in Schedule
3.11 of the Disclosure Schedule, all software used by the Company or any of
its Subsidiaries, or sold, licensed or otherwise made available to any
other Person by the Company or any of its Subsidiaries, that in each case,
contains or calls on a calendar function, including but not limited to any
function that is indexed to a computer processing unit clock, provides
specific dates or calculates spans of dates, is and will be able to record,
store, process and provide true and accurate dates and calculations for
dates and spans of dates including and following January 1, 2000.
SECTION 3.12 Contracts.
(a) Other than the contracts or agreements of the Company listed as
exhibits to the Company's Annual Report on Form 10-K, as amended, for the
year ended September 30, 1998 (the "Material Contracts"), Schedule 3.12(a)
of the Disclosure Schedule sets forth a complete and correct list of each
of the following contracts, commitments and agreements to which the Company
or any of its Subsidiaries is a party or by which any of them is bound (the
contracts, commitments and agreements of the types described below that are
scheduled or required to be scheduled, collectively, the "Identified
Contracts"), in each case, as such Identified Contract is in effect on the
date hereof:
(i) contracts, commitments and agreements governing the
terms of indebtedness for borrowed money, or guarantees of
indebtedness, of, or secured by assets of, the Company or any of its
Subsidiaries;
(ii) shareholder, voting trust or similar contracts and
agreements relating to the voting of shares or other equity or debt
interests of the Company or any of its Subsidiaries;
(iii) contracts, commitments and agreements entered into since
1995 providing for the acquisition or disposition of assets having a
value in excess of $500,000, other than sales of inventories in the
ordinary course of business and sales of obsolete equipment;
(iv) leases, subleases and licenses or real property,
occupancy, use and other agreements relating to or constituting real
property, each with a term of one year or more and an annual payment
obligation in excess of $500,000;
(v) (a) joint venture agreements, partnership agreements and
other similar contracts, commitments and agreements involving a
sharing of profits and expenses; contracts, commitments and
agreements providing for a "strategic alliance" or "preferred vendor"
relationship; or (b) contracts, commitments or agreements with
distributors, brokers or sales agents except, in the case of (b),
only to the extent that any such distributors, brokers or sales
agents are responsible for revenues to the Company or any of its
Subsidiaries in excess of $500,000 per year;
(vi) contracts, commitments and agreements governing the
terms of indebtedness (other than trade payables in the ordinary
course of business) of third parties to the Company or by any of its
Subsidiaries, or guarantees by the Company or any of its Subsidiaries
of indebtedness of third parties;
(vii) contracts, commitments and agreements prohibiting or
materially restricting the ability of the Company or any of its
Subsidiaries to conduct its business, to engage in any business or
operate in any geographical area or to compete with any Person;
(viii) contracts, commitments and agreements with "change of
control" provisions except to the extent that if a "change of
control" event occurred, it would not result in a termination or
other alteration of such contract, commitment or agreement that would
have or would reasonably be expected to have a material adverse effect
on the business of the Company or its Subsidiary that is a party
thereto;
(ix) contracts, commitments, and agreements with any federal
or state Governmental Entity;
(x) licenses, licensing arrangements and other contracts and
agreements either (x) providing, in whole or in part, for the use of,
or limiting the use of, any Intellectual Property or (y) relating to
the development, support or maintenance of any Intellectual Property
(in each case, that is material to the business of the Company or any
of its Subsidiaries that is a party thereto and other than relating
to software that is commercially available for less than $10,000);
and
(xi) contracts and agreements that are or will be material to
the business, operations, results of operations, condition (financial
or otherwise), assets or properties of the Company and its
Subsidiaries involving amounts in excess of $250,000.
(b) Each of the Identified Contracts and Material Contracts is in
full force and effect, and neither the Company nor any of its Subsidiaries,
nor, to the knowledge of the Company, any other Person, is in breach of, or
default under, any such contract, commitment or agreement, and no event has
occurred that with notice or passage of time or both would constitute such
a breach or default thereunder by the Company or any of its Subsidiaries,
or, to the knowledge of the Company, any other Person, except for such
failures to be in full force and effect and such conflicts, violations,
breaches or defaults as in the aggregate would not have or result in a
Material Adverse Effect or materially delay the consummation of the
transactions contemplated hereby.
SECTION 3.13 Taxes.
(a) Except as disclosed in Schedule 3.13 of the Disclosure Schedule:
(i) each of the Company, its Subsidiaries, and any Consolidated Group (as
defined below) has timely filed all material Tax Returns (as defined below)
required to be filed by it and has paid all Taxes (as defined below) shown
thereon to be owing, and each of the Company and its Subsidiaries has
provided reserves in accordance with GAAP in its most recent financial
statements included in the Company SEC Documents for any Taxes (as defined
below) that have not been paid for the periods covered by such financial
statements; (ii) none of the Company or its Subsidiaries has granted any
extension or waiver of the statute of limitations period applicable to any
material Tax Return, which period (after giving effect to such extension or
waiver) has not expired; (iii) no audits or other administrative
proceedings or court proceedings are presently pending with regard to any
Taxes or Tax Return of any of the Company, its Subsidiaries or any
Consolidated Group as to which any taxing authority has asserted in writing
any claim which, if adversely determined, individually or in the aggregate
would have or result in a Material Adverse Effect; and (iv) none of the
Company or any of its Subsidiaries has received any notice of deficiency or
assessment from any taxing authority with respect to liabilities for income
or any material other Taxes which has not been fully paid or finally
settled.
(b) "Consolidated Group" shall mean any consolidated, combined,
unitary or aggregate group for Tax purposes of which the Company or any of
its Subsidiaries is a member. "Taxes" shall mean all federal, state, local
and foreign taxes, and other assessments of a similar nature (whether
imposed directly or through withholding), including interest and penalties,
and additions thereto. "Tax Returns" shall mean all federal, state, local
and foreign tax returns, declarations, statements, reports, schedules,
forms and information returns, and any amendments to any of the foregoing,
relating to Taxes.
SECTION 3.14 Environmental Matters.
Except as disclosed in Schedule 3.14 of the Disclosure Schedule:
(a) Each of the Company and its Subsidiaries has complied and is in
compliance in all respects with all applicable Environmental Laws (as
defined below) pertaining to any of the properties and assets of the
Company or any of its Subsidiaries (including the Real Property and the
properties currently or formerly owned or leased) and the use and ownership
thereof, and to their businesses and operations. No violation by the
Company or any of its Subsidiaries is being alleged or has been alleged of
any applicable Environmental Law relating to any of their respective
properties and assets including (the Real Property and the properties
currently or formerly owned or leased) or the use or ownership thereof, or
to their respective businesses and operations.
(b) Neither the Company nor any of its Subsidiaries nor any other
Person (including any tenant or subtenant) has caused or taken any action
that will result in, and neither the Company nor any of its Subsidiaries is
subject to, any liability or obligation on the part of the Company or any
of its Subsidiaries relating to (x) the environmental conditions on, under,
or about the Real Property or other properties or assets currently or
formerly owned, leased, operated or used by the Company or any of its
Subsidiaries or any predecessor thereto at the present time or in the past,
including without limitation, the air, soil and groundwater conditions at
such properties or (y) the past or present use, management, handling,
transport, treatment, generation, storage, disposal, discharge, leak,
emission, or other manner of release of any Hazardous Materials (as defined
below).
(c) The Company has disclosed and made available to MergerCo all
information, including, without limitation, all studies, analyses and test
results, in the possession, custody or control of or otherwise known to the
Company or any of its Subsidiaries relating to (x) the environmental
conditions on, under or about the Real Property or other properties or
assets currently or formerly owned, leased, operated or used by the Company
or any of its Subsidiaries or any predecessor in interest thereto at the
present time or in the past, and (y) any Hazardous Materials used, managed,
handled, transported, treated, generated, stored, discharged, leaked,
emitted, or otherwise released by the Company or any of its Subsidiaries or
any other Person on, under, about or from any of the Real Property and the
properties currently or formerly owned or leased, or otherwise in
connection with the use or operation of any of the properties and assets of
the Company or any of its Subsidiaries, or their respective businesses and
operations. Except as disclosed in Schedule 3.14(c), none of the current or
past operations of the Company or any of its Subsidiaries, or any by-
product thereof, and none of the currently or formerly owned or leased
property or assets of the Company or any of its Subsidiaries, including
without limitation the Real Property, is related to or subject to any
Litigation related to any Environmental Law.
(d) "Environmental Law" means any foreign, federal, state or local
law, regulation, rule, ordinance or case law relating to pollution or
protection of human health and safety or the environment, including, but
not limited to, laws relating to releases or threatened releases of
Hazardous Materials into the environment and including laws pertaining to
the protection of the health and safety of employees. "Hazardous
Materials" means any substance or material that is classified or regulated
as "hazardous" or "toxic" pursuant to any Environmental Law, including
without limitation, asbestos, polychlorinated biphenyls and petroleum.
SECTION 3.15 Required Vote by Company Stockholders. The affirmative
vote of the holders of two-thirds of the outstanding shares of Company
Common Stock and Company Preferred Stock is the only vote of any class of
capital stock of the Company required by the MBCL, the Articles of
Organization or the By-Laws of the Company to adopt this Agreement and
approve the transactions contemplated hereby.
SECTION 3.16 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or any of its
Subsidiaries, that is or will be payable by the Company or any of its
Subsidiaries.
SECTION 3.17 Opinion of Financial Advisor. The Company has received
from Gordon Associates Inc. (the "Financial Advisor"), and provided to
MergerCo on or prior to the date hereof, an executed copy of its opinion
that the Merger Consideration to be received by the holders of Shares in
the Merger is fair, from a financial point of view, to such holders (the
"Fairness Opinion"). The Company has been authorized by the Financial
Advisor to include the Fairness Opinion in the Proxy Statement and has not
been notified by the Financial Advisor that the Fairness Opinion has been
withdrawn or modified.
SECTION 3.18 Assets.
(a) The Company and its Subsidiaries own, or otherwise have
sufficient and legally enforceable rights to use, all of the properties and
assets (real, personal or mixed, tangible or intangible), reasonably
necessary for the conduct of, or otherwise material to, their business and
operations (the "Assets"). The Company and its Subsidiaries have good,
valid and marketable title to, or in the case of leased property have good
and valid leasehold interests in, all Assets, including but not limited to
all such Assets reflected in the September 30, 1998 Balance Sheet or
acquired since the date thereof (except as may have been disposed of in the
ordinary course of business consistent with past practices prior to the
date hereof or in accordance herewith), in each case free and clear of any
Lien (as defined below), except Permitted Liens (as defined below). All
tangible Assets are reasonably adequate and suitable for the purposes for
which they are presently being used.
(b) "Lien" means any mortgage, pledge, deed of trust,
hypothecation, right of others, claim, security interest, encumbrance,
burden, title defect, title retention agreement, lease, sublease, license,
occupancy agreement, easement, covenant, condition, encroachment, voting
trust agreement, interest, option, right of first offer, negotiation or
refusal, proxy, lien, charge or other restrictions of any nature
whatsoever. "Permitted Liens" means (a) Liens reserved against in the
September 30, 1998 Balance Sheet, to the extent so reserved, (b) Liens for
Taxes not yet due and payable or that are being contested in good faith by
appropriate proceedings and for which adequate reserves have been provided
in accordance with GAAP or that are statutory Liens for Taxes not yet
delinquent, (c) those Liens that are set forth in Schedule 3.18(b) of the
Disclosure Schedule and (d) those Liens that, in the aggregate with all
other Permitted Liens, do not and will not materially detract from the
value of the properties and assets of any of the Company and its
Subsidiaries, materially interfere with the present use of any thereof or
otherwise have a Material Adverse Effect.
SECTION 3.19 Real Property. There is no Owned Real Property (as
defined below). Schedule 3.19(i) contains a complete and correct list of
each parcel of Formerly Owned Property (as defined below) setting forth the
street address, current owner and date of disposition to the current owner
of Formerly Owned Property. Schedule 3.19(ii) of the Disclosure Schedule
contains a complete and correct list of all Leases (as defined below)
setting forth the address, tenant for each Lease and the documents of which
each Lease is comprised. No material damage or destruction has occurred
since December 31, 1998 with respect to any of the Leased Real Property.
"Formerly Owned Property" means any Real Property previously owned by the
Company or any of its Subsidiaries since 1990, but not owned by the Company
or any of its Subsidiaries as of the date of this Agreement. "Leases"
means the leases, subleases, licenses and use or occupancy agreements
pursuant to which the Company or any of its Subsidiaries is the lessee,
sublessee, licensee, user or occupant of Real Property. "Leased Real
Property" means all interests in Real Property pursuant to the Leases.
"Owned Real Property" means the real property owned by the Company and its
Subsidiaries. "Real Property" means real property and structures,
facilities and improvements located thereon or attached or appurtenant
thereto and all easements, licenses, rights and appurtenances relating to
the foregoing.
SECTION 3.20 Insurance. Schedule 3.20 of the Disclosure Schedule
contains a complete and correct list and summary description of all
insurance policies maintained at present or at any time during the past
three calendar years by or on behalf of any of the Company and its
Subsidiaries. Such policies are in full force and effect, and all premiums
due thereon have been paid. The Company and its Subsidiaries have complied
in all material respects with the terms and provisions of such policies.
The insurance coverage provided by such policies is adequate and suitable
for the business and operations of the Company and its Subsidiaries, and is
on such terms (including without limitation as to deductibles and self-
insured retentions), covers such risks, contains such deductibles and
retentions, and is in such amounts, as the insurance customarily carried by
comparable companies of established reputation similarly situated and
carrying on the same or similar business and operations.
SECTION 3.21 Labor Matters, etc. Neither the Company nor any of its
Subsidiaries is a party to or bound by and none of their respective
employees is subject to any collective bargaining agreement, memorandum of
understanding or other written document relating to the terms and
conditions of employment for any group of employees, and there are no labor
unions or other organizations representing or purporting or attempting to
represent any employees employed by any of the Company and its
Subsidiaries. The Company and its Subsidiaries have complied with all
applicable Laws pertaining to the employment or termination of employment
of their respective employees, including, without limitation, all such Laws
relating to labor relations, equal employment opportunities, fair
employment practices, prohibited discrimination or distinction and other
similar employment activities, except for any failures so to comply that
individually or in the aggregate would not have or result in a Material
Adverse Effect.
SECTION 3.22 Disclosure. To the actual knowledge of the Company,
this Agreement and each certificate or other instrument or document
furnished by or on behalf of the Company to MergerCo pursuant hereto, taken
as a whole, do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated herein or therein or
necessary to make the statements contained herein or therein in light of
the circumstances under which they were made, not misleading.
SECTION 3.23 Takeover Statutes. No "Fair price," "Moratorium,"
"control share acquisition" or other similar anti-takeover statute or
regulation enacted under state or federal laws in the United States
including, without limitation, Chapters 110C, 110D and 110F of the
Massachusetts General Laws, applicable to the Company or any of its
Subsidiaries is applicable to the execution, delivery and performance of
this Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGERCO
MergerCo represents and warrants to the Company as of the date hereof
and as of the Closing Date as follows:
SECTION 4.1 Organization. MergerCo is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts. MergerCo has all requisite corporate power and authority to
own, lease, operate or use its properties and to carry on its business as
now being conducted and is qualified or licensed to do business and is in
good standing in each jurisdiction in which it owns real property or in
which the nature of the business conducted by it makes such qualification
or licensing necessary. MergerCo is not in breach of its articles of
organization or by-laws. MergerCo has previously delivered to the Company
complete and correct copies of the articles of organization and by-laws of
MergerCo, as currently in effect.
SECTION 4.2 Authorization; Validity of Agreement. MergerCo has the
requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by MergerCo of this Agreement and the
consummation by MergerCo of the transactions contemplated hereby have been
duly authorized by its Board of Directors and, other than the approval and
adoption of this Agreement by the stockholders of MergerCo, no other
corporate proceedings on the part of MergerCo are necessary to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by MergerCo and, assuming due authorization, execution and
delivery of this Agreement by the Company, is a valid and binding
obligation of MergerCo enforceable against it in accordance with its terms,
except that such enforcement may be subject to or limited by (i)
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors rights generally, and (ii) the effect of general
principles of equity (regardless of whether enforceability is considered in
a proceeding at law or in equity).
SECTION 4.3 Consents and Approvals; No Violations.
(a) Neither the execution and delivery of this Agreement by
MergerCo nor the consummation by MergerCo of the transactions contemplated
hereby will (i) violate any provision of the articles of organization or
by-laws of MergerCo, (ii) conflict with, result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation
or acceleration) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, guarantee, other evidence of indebtedness,
license, or any material lease, contract, agreement or other instrument or
obligation, to which MergerCo is a party or by which any of them or any of
their assets may be bound or (iii) conflict with or violate any Laws
applicable to MergerCo, any of its Subsidiaries or any of their properties
or assets; except in the case of clauses (ii) and (iii) for such conflicts,
violations, breaches or defaults which in the aggregate would not have a
material adverse effect on the business, assets, liabilities, results of
operations or financial or other condition of MergerCo, or materially
impair or delay the consummation of the transactions contemplated by this
Agreement.
(b) Except as set forth in Schedule 4.3(b) of the disclosure
schedule delivered by MergerCo to the Company on or prior to the date
hereof (the "MergerCo Disclosure Schedule") and assuming that the
representation and warranty of the Company set forth in Section 3.4(b) is
true and correct, no filing or registration with, declaration or
notification to, or order, authorization, consent or approval of, any
Governmental Entity is required in connection with the execution and
delivery of this Agreement by MergerCo or the consummation by MergerCo of
the transactions contemplated hereby, except (i) applicable requirements
under the Exchange Act, (ii) applicable requirements under the Securities
Act, (iii) the filing of the Articles of Merger with the Massachusetts
Secretary of State, (iv) applicable requirements under "blue sky" laws of
various states, and (v) such other consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings (x)
required to be obtained or made by the Company or any of its Subsidiaries
or (y) the failure of which to be obtained or made would not have a
material adverse effect on the business, assets, liabilities, results of
operations or financial or other condition of MergerCo and its
Subsidiaries, taken as a whole, or materially impair or delay the
consummation of the transactions contemplated by this Agreement.
SECTION 4.4 Proxy Statement; Exchange Act Schedules.
(a) None of the information supplied in writing by MergerCo
specifically for inclusion in the Proxy Statement (including any amendments
or supplements thereto) will, at the date mailed to stockholders and at the
time of the Special Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) None of the information supplied in writing by MergerCo
specifically for inclusion in the Schedule 13E-3 (and any amendment or
supplement to any of the foregoing) will, at the date such document is
filed with the SEC, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 4.5 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of MergerCo, that is or will be payable
by the Company or any of its Subsidiaries.
SECTION 4.6 Formation of MergerCo; No Prior Activities. MergerCo
was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement. As of the date hereof and the Effective
Time, except for (i) obligations or liabilities incurred in connection with
its incorporation or organization and the transactions contemplated by this
Agreement, (ii) this Agreement and any other agreements or arrangements
contemplated by this Agreement or in furtherance of the transactions
contemplated hereby and (iii) the contribution by the individuals and
entities listed on Exhibit A attached hereto of the shares of Company
Common Stock owned by them in exchange for shares of MergerCo Common Stock,
MergerCo has not incurred, directly or indirectly, through any subsidiary
or affiliate, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any Person.
ARTICLE V
COVENANTS
SECTION 5.1 Interim Operations of the Company. The Company covenants
and agrees that, except as (i) required by this Agreement, (ii) required by
applicable law, (iii) required by any Material Contract or Identified
Contract or by any Plan disclosed on Schedule 3.9(b), in each case to the
extent such requirement is specifically described on Schedule 5.1(iii) or
(iv) agreed to in writing by MergerCo, after the date hereof and prior to
the Effective Time:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course consistent with past practice and, to
the extent consistent therewith, each of the Company and its Subsidiaries
shall use its reasonable efforts to preserve its business organization and
the business organization of its Subsidiaries intact and maintain existing
relations with customers, suppliers, employees and creditors;
(b) the Company shall not amend its Articles of Organization or By-
Laws;
(c) the Company shall not declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to its
capital stock (except for cash dividends on Company Common Stock in the
ordinary course of business consistent with past practice); and neither the
Company nor any of its Subsidiaries shall (i) issue, sell, grant, transfer,
pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock
of any class of the Company or any of its Subsidiaries (except pursuant to
the exercise of stock options outstanding on the date hereof to the extent
contemplated by this Agreement); (ii) incur any long term indebtedness
(whether evidenced by a note or other instrument, pursuant to a financing
lease, sale-leaseback transaction, or otherwise) or incur short-term
indebtedness other than under lines of credit existing on the date hereof,
except for borrowings under existing credit facilities or lines of credit
in the ordinary course of business consistent with past practice; (iii)
redeem, purchase or otherwise acquire directly or indirectly any of its
capital stock or other securities; or (iv) enter into or amend in any
material respect any Lease, Material Contract or Identified Contract;
(d) neither the Company nor any of its Subsidiaries shall (i)
except for normal salary increases in the ordinary course of business
consistent with past practice, grant any increase in the compensation or
benefits payable or to become payable by the Company or any of its
Subsidiaries to any officer or other management employee of the Company or
any Subsidiary; (ii) adopt, enter into or amend or increase, or accelerate
the payment or vesting of the amounts, benefits or rights payable or
accrued or to become payable or accrued under, any bonus, incentive or
deferred compensation, severance, termination, change in control,
retention, stock option or other equity based or other material employee
compensation or benefit plan, agreement or policy; or (iii) enter into or
amend in any material respect any employment, severance, retention or
collective bargaining agreement or, except in accordance with the existing
written policies of the Company or existing contracts or agreements, grant
any severance or termination pay to any officer, director or employee of
the Company or any of its Subsidiaries;
(e) neither the Company nor its Subsidiaries shall change the
accounting principles used by it unless required by GAAP;
(f) neither the Company nor any of its Subsidiaries shall acquire
or agree to acquire, by merging or consolidating with, by purchasing an
equity interest in or a portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets of any other Person (other than the purchase of assets in the
ordinary course of business consistent with past practice);
(g) neither the Company nor any of its Subsidiaries shall sell,
lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or
agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, any of its Assets, except in the ordinary course of business
consistent with past practice;
(h) neither the Company nor its Subsidiaries shall enter into any
material arrangement, agreement or contract, or any material amendment,
supplement, waiver or other modification in respect of any existing
arrangement, agreement or contract, with any third party (other than
customers in the ordinary course of business) that provides for an
exclusive arrangement with that third party or is substantially more
restrictive on the Company or its Subsidiaries or substantially less
advantageous to the Company or its Subsidiaries than arrangements,
agreements or contracts existing on the date hereof; and
(i) neither the Company nor any of its Subsidiaries shall make any
material Tax election, amend any Tax Return or settle or compromise any
material federal, state, local or foreign Tax liability; and
(j) neither the Company nor any of its Subsidiaries will enter into
an agreement, contract, commitment or arrangement to do any of the
foregoing.
SECTION 5.2 Access to Information. From the date of this Agreement
until the Effective Time, the Company shall, and shall cause each of its
Subsidiaries to, afford to MergerCo and its authorized representatives
reasonable access during normal business hours upon reasonable prior notice
to all of its books and records, including but not limited to tax,
financial and accounting books and records. In addition, during such
period, the Company shall, and shall cause each of its Subsidiaries to,
furnish promptly to MergerCo (a) a copy of each report, schedule,
registration statement and other document filed or received by it during
such period pursuant to the requirements of the Exchange Act or other
applicable Law and (b) such other information concerning its business,
properties and personnel as MergerCo may reasonably request. MergerCo and
its authorized representatives will use all reasonable efforts to conduct
all such inspections in a manner which will minimize any material
disruptions of the business and operations of the Company and its
Subsidiaries.
SECTION 5.3 Further Action; Reasonable Best Efforts. Upon the terms
and subject to the conditions herein provided, each of the parties hereto
agrees to use its reasonable best efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using
reasonable best efforts to satisfy the conditions precedent to the
obligations of any of the parties hereto, to obtain all necessary
authorizations, consents and approvals, and to effect all necessary
registrations and filings. Each of the parties hereto will furnish to the
other parties such necessary information and reasonable assistance as such
other parties may reasonably request in connection with the foregoing and
will provide the other parties with copies of all filings made by such
party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and
the transactions contemplated hereby.
SECTION 5.4 Shareholders' Meeting; Proxy Statement.
(a) As promptly as practicable after the date hereof, the Company
shall prepare the Proxy Statement (as defined below). The Company will use
its best efforts, after consultation with MergerCo, to respond promptly to
any comments made by the SEC with respect to the Proxy Statement. The
Company will use its best efforts to cause a definitive proxy statement
(the "Proxy Statement") to be mailed to its stockholders as promptly as
practicable after it has been approved by the SEC. The Company shall
include in the Proxy Statement the recommendation of the Board of Directors
that shareholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby.
(b) The Company shall in accordance with applicable law and the
Articles of Organization and By-laws of the Company, duly call, set a
record date for, give notice of, convene and hold a special meeting of its
stockholders (the "Special Meeting") as promptly as practicable for the
purpose of considering and taking action upon this Agreement and such other
matters as may be appropriate at the Special Meeting. The Company shall,
through its Board of Directors, recommend that its shareholders approve the
Merger and shall use all reasonable efforts to solicit from shareholders of
the Company proxies in favor of the approval and adoption of this Agreement
and the transactions contemplated hereby.
(c) The Company and MergerCo shall together prepare and file a
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") under the
Exchange Act. Each of MergerCo and the Company shall furnish all
information concerning it, its affiliates and the holders of its capital
stock required to be included in the Schedule 13E-3 and, after consultation
with each other, shall respond promptly to any comments made by the SEC
with respect to the Schedule 13E-3.
(d) The information supplied by the Company for inclusion in the
Proxy Statement or the Schedule 13E-3 shall not, at the time the Proxy
Statement is mailed, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or, at the time of the Special
Meeting, as then amended or supplemented, or at the Effective Time, omit to
state any material fact necessary to correct any statement originally
supplied by the Company for inclusion in the Proxy Statement or the
Schedule 13E-3 which has become false or misleading. If at any time prior
to the Effective Time any event relating to the Company or any of its
affiliates, or its, or its affiliates', respective officers, directors or
shareholders, should be discovered which should be set forth in an
amendment of, or a supplement to such Proxy Statement or Schedule 13E-3,
the Company shall promptly so inform MergerCo and will furnish all
necessary information to MergerCo relating to such event and an appropriate
amendment or supplement to such Proxy Statement or Schedule 13E-3 will
thereafter be filed with the SEC by the Company. All documents that the
Company is responsible for filing with the SEC in connection with the
transactions contemplated by this Agreement shall comply in all material
respects, both as to form and otherwise, with the Exchange Act and/or the
Securities Act, as the case may be, and the rules and regulations
thereunder.
(e) The information supplied or to be supplied by MergerCo for
inclusion in the Proxy Statement or the Schedule 13E-3 shall not at the
time the Proxy Statement is mailed contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading or, at the
time of the Special Meeting, as then amended or supplemented, or at the
Effective Time, omit to state any material fact necessary to correct any
statement originally supplied by MergerCo for inclusion in the Proxy
Statement or the Schedule 13E-3 which has become false or misleading. If at
any time prior to the Effective Time any event relating to MergerCo or any
of its affiliates, or its affiliates' respective officers, directors or
shareholders should be discovered which should be set forth in an amendment
of, or a supplement to, such Proxy Statement or Schedule 13E-3, MergerCo
shall promptly so inform the Company and will furnish all necessary
information to the Company relating to such event and an appropriate
amendment or supplement to such Proxy Statement or Schedule 13E-3 will
thereafter be filed with the SEC by the Company. All documents that
MergerCo is responsible for filing with the SEC in connection with the
transactions contemplated by this Agreement shall comply in all material
respects, both as to form and otherwise, with the Exchange Act and the
rules and regulations thereunder.
SECTION 5.5 Notification of Certain Matters. The Company shall give
prompt notice to MergerCo, and MergerCo shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty of the Company, or of MergerCo, as the case may be, contained in
this Agreement to be untrue or inaccurate in any material respect at the
Effective Time, (ii) any material failure of the Company, or MergerCo, as
the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder and (iii) any
event, occurrence, fact, condition, change, development or effect that,
individually or in the aggregate, would have or result in a Material
Adverse Effect or a breach of Section 5.1.
SECTION 5.6 Directors' and Officers' Indemnification.
(a) For a period of six years after the Effective Time, the
Surviving Corporation shall indemnify, defend and hold harmless the present
and former officers, directors, employees and agents of the Company and its
Subsidiaries in such capacities ("Indemnified Parties") against all losses,
claims, damages, expenses or liabilities arising out of actions or
omissions or alleged actions or omissions occurring at or prior to the
Effective Time to the same extent and on the same terms and conditions
(including with respect to advancement of expenses) provided for in the
Company's Articles of Organization and By-Laws in effect at the date hereof
(to the extent consistent with applicable law).
(b) The provisions of this Section 5.6 are intended for the benefit
of, and shall be enforceable by, the respective Indemnified Parties.
Nothing in this Section 5.6 shall limit or restrict the right or ability of
the Surviving Corporation to change its state of domicile.
SECTION 5.7 Recapitalization. Each of the Company and MergerCo
shall use its best efforts to cause the transactions contemplated by this
Agreement, including the Merger, to be accounted for as a recapitalization
and such accounting treatment to be accepted by their respective
accountants and by the SEC, and each of the Company and MergerCo agrees
that it shall take no action that would cause such accounting treatment not
to be obtained.
SECTION 5.8 Conveyance Taxes. MergerCo and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and
stamp taxes, any transfer, recording, registration and other fees or any
similar taxes which become payable by the Company or any of its
Subsidiaries in connection with the transactions contemplated by this
Agreement that are required or permitted to be filed on or before the
Effective Time.
SECTION 5.9 Delisting. Each of the parties agrees to cooperate with
each other in taking, or causing to be taken, all actions necessary to
delist the Company Common Stock from the Over the Counter Bulletin Board,
provided that such delisting shall not be effective until after the
Effective Time of the Merger.
SECTION 5.10 Conduct of the Company After the Merger. Each of the
parties agree that until one year after the Effective Time of the Merger,
the Surviving Corporation shall not be a party to any merger,
reorganization, liquidation, relocation of operations, sale or transfer of
assets not in the ordinary course of business, or any other material
changes in its corporate structure.
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall
be subject to the satisfaction on or prior to the Closing Date of each of
the following conditions (any or all of which may be waived by the parties
hereto in writing, in whole or in part, to the extent permitted by
applicable law):
(a) No statute, rule, order, decree or regulation shall have been
enacted or promulgated by any Governmental Entity of competent jurisdiction
(whether temporary, liminary or permanent) which is in effect and has the
effect of prohibiting the consummation of the Merger or making the Merger
illegal.
(b) There shall be no order or injunction of a Governmental Entity
of competent jurisdiction (whether temporary, preliminary or permanent) in
effect precluding, restraining, enjoining or prohibiting consummation of
the Merger.
(c) Other than filing the Articles of Merger in accordance with the
MBCL, all authorizations, consents and approvals of all Governmental
Entities required to be obtained prior to consummation of the Merger shall
have been obtained, except for such authorizations, consents, and approvals
the failure of which to be obtained would not have a Material Adverse
Effect.
SECTION 6.2 Conditions to the Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger is further
subject to the satisfaction or waiver at or prior to the Effective Time of
the following conditions:
(a) The representations and warranties of MergerCo contained in
this Agreement shall be true and correct at and as of the date hereof, and
true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material
respects (in the case of any representation or warranty without any
materiality qualification) at and as of the Effective Time as if made at
and as of such time; and
(b) MergerCo shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior
to the Effective Time pursuant to the terms hereof.
SECTION 6.3 Conditions to Obligations of MergerCo to Effect the
Merger. The obligations of MergerCo to effect the Merger are further
subject to the satisfaction or waiver at or prior to the Effective Time of
the following conditions:
(a) The representations and warranties of the Company contained in
this Agreement shall be true and correct at and as of the date hereof, and
true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material
respects (in the case of any representation or warranty without any
materiality qualification) at and as of the Effective Time as if made at
and as such time;
(b) The Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior
to the Effective Time pursuant to the terms hereof;
(c) The number of Dissenting Shares shall not exceed 10% of the
issued and outstanding shares of Company Common Stock; and
(d) No event, occurrence, fact, condition, change, development or
effect shall exist or have occurred or come to exist or been threatened
since September 30, 1998 that, individually or in the aggregate, has had or
resulted in, or could reasonably be expected to become or result in, a
Material Adverse Effect.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. Notwithstanding any thing herein to the
contrary, this Agreement may be terminated and the Merger may be abandoned
at anytime prior to the Effective Time, whether before or after shareholder
approval thereof:
(a) By the mutual consent of the Boards of Directors of MergerCo
and the Company.
(b) By either the Company, on the one hand, or MergerCo, on the
other hand, if: (i) the Merger has not been consummated on or prior to
September 30, 1999 or such other date, if any, as MergerCo and the Company
shall agree upon (provided that the right to terminate this Agreement under
this Section 7.1(b)(i) shall not be available to a party whose failure to
fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Effective Time to occur on or before such
date); or (ii) any Governmental Entity shall have issued a statute, order,
decree or regulation or taken any other action (which statute, order,
decree, regulation or other action the parties hereto shall use their best
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the Merger or making the Merger illegal and such
statute, order, decree, regulation or other action shall have become final
and non-appealable.
(c) By the Company, (i) if holders of two-thirds of the outstanding
Company Common Stock and Company Preferred Stock, voting as a single class,
fail to approve and adopt this Agreement and the transactions contemplated
hereby at the Special Meeting (including any postponement or adjournment
thereof).
(d) By the Company, upon 15 days' prior written notice, in the
event of a material breach of any representation, warranty, covenant or
agreement on the part of MergerCo such that the condition set forth in
Section 6.2(a) or 6.2(b) would not be satisfied as of the Effective Time,
which breach is not cured prior to the expiration of such 15 day period
(provided that if such breach is not curable, the Company may terminate
this Agreement immediately under this Section 7.1(d)); except where the
Company is in material breach of any representation, warranty, covenant or
agreement as provided in Section 7.1(e).
(e) By MergerCo, upon 15 days' prior written notice, in the event
of a material breach of any representation, warranty, covenant or agreement
on the part of the Company such that the condition set forth in Section
6.3(a) or 6.3(b) would not be satisfied as of the Effective Time, which
breach is not cured prior to the expiration of such 15 day period (provided
that if such breach is not curable, MergerCo may terminate this Agreement
immediately under this Section 7.1(e)); except where MergerCo is in
material breach of any representation, warranty, covenant or agreement as
provided in Section 7.1(d).
(f) By MergerCo, if (i) holders of at least two-thirds of the
outstanding Company Common Stock and Company Preferred Stock, voting as a
single class, fail to approve and adopt this Agreement and the transactions
contemplated hereby at the Special Meeting (including any postponement or
adjournment thereof); or (ii) the Board of Directors of the Company
withdraws, modifies or changes its recommendation of this Agreement or the
Merger in a manner adverse to MergerCo or shall have resolved to do any of
the foregoing.
SECTION 7.2 Effect of Termination. In the event of the termination
of this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given by the terminating party or parties to the other party
or parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and
void, and there shall be no liability on the part of MergerCo or the
Company, except as set forth in Section 8.1 hereof; provided that nothing
herein shall relieve any party from any liability or obligation with
respect to any willful breach of this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Fees and Expenses. (a) Except as contemplated by this
Agreement, all costs and expenses incurred in connection with this
Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses except that the Company
shall bear and pay the costs and expenses incurred in connection with (i)
the preparation, filing, printing and mailing of the Proxy Statement
(including SEC filing fees) and (ii) the filing of the Schedule 13E-3.
(b) This Section 8.1 shall survive any termination of this
Agreement.
SECTION 8.2 Amendment; Waiver.
(a) This Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Boards of Directors, at any time
before or after approval by the shareholders of the Company of the matters
presented in connection with the Merger, but after any such approval no
amendment shall be made without the approval of such shareholders if such
amendment changes the Merger Consideration or alters or changes any of the
other terms or conditions of this Agreement if such alteration or change
would materially adversely affect the rights of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
(b) At any time prior to the Effective Time, the parties may (i)
extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in
any document, certificate or writing delivered pursuant hereto or (iii)
waive compliance with any of the agreements or conditions of the other
parties hereto contained herein. Any such extension or waiver by the
Company shall require the consent of the Board of Directors of the Company.
Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Any such waiver shall constitute a waiver only with
respect to the specific matter described in such writing and shall in no
way impair the rights of the party granting such waiver in any other
respect or at any other time. Neither the waiver by any of the parties
hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions,
to enforce any of the provisions of this Agreement or to exercise any right
or privilege hereunder, shall be construed as a waiver of any other breach
or default of a similar nature, or as a waiver of any of such provisions,
rights or privileges hereunder. The rights and remedies herein provided
are cumulative and none is exclusive of any other, or of any rights or
remedies that any party may otherwise have at law or in equity. The rights
and remedies of any party based upon, arising out of or otherwise in
respect of any inaccuracy or breach of any representation, warranty,
covenant or agreement or failure to fulfill any condition shall in no way
be limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach is based may
also be the subject matter of any other representation, warranty, covenant
or agreement as to which there is no inaccuracy or breach. The
representations and warranties of the Company shall not be affected or
deemed waived by reason of any investigation made by or on behalf of
MergerCo (including but not limited to any of its advisors, counsel,
consultants or representatives) or by reason of the fact that MergerCo or
any of such advisors, counsel, consultants or representatives knew or
should have known that any such representation or warranty is or might be
inaccurate.
SECTION 8.3 Survival. The respective representations and warranties
of MergerCo and the Company contained herein or in any certificates or
other documents delivered prior to or as of the Effective Time shall not
survive beyond the Effective Time. The covenants and agreements of the
parties hereto (including the Surviving Corporation after the Merger) shall
survive the Effective Time without limitation (except for those which, by
their terms, contemplate a shorter survival period).
SECTION 8.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed
delivery by a standard overnight carrier or when delivered by hand or (c)
the expiration of five business days after the day when mailed in the
United States by certified or registered mail, postage prepaid, addressed
at the following addresses (or at such other address for a party as shall
be specified by like notice):
(a) if to the Company, to: Armatron International, Inc.
2 Main Street
Melrose, Massachusetts 02176
Facsimile: (781) 321-2309
Telephone: (781) 321-2300
Attention: President
with a copy to: Bass, Doherty & Finks, P.C.
40 Soldiers Field Place
Boston, Massachusetts 02135
Facsimile: (617) 787-4969
Telephone: (617) 787-5551
Attention: Malcolm D. Finks, Esquire
(b) if to MergerCo, to: Armatron Merger Corporation
2 Main Street
Melrose, Massachusetts 02176
Facsimile: (781) 321-2309
Telephone: (781) 321-2300
Attention: President
with a copy to Mintz, Levin, Cohn, Ferris
Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Facsimile: (617) 542-2241
Telephone: (617) 542-6000
Attention: Anne L. Bruno, Esquire
SECTION 8.5 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed
to be followed by the words "without limitation". The phrase "made
available" when used in this Agreement shall mean that the information
referred to has been made available to the party to whom such information
is to be made available. The words "affiliates" and "associates" when used
in this Agreement shall have the respective meanings ascribed to them in
Rule 12b-2 under the Exchange Act. The phrase "beneficial ownership" and
words of similar import when used in this Agreement shall have the meaning
ascribed to it in Rule 13d-3 under the Exchange Act.
SECTION 8.6 Headings; Schedules. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Disclosure of any matter
pursuant to any Schedule to the Disclosure Schedule shall not be deemed to
be an admission or representation as to the materiality of the item so
disclosed.
SECTION 8.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of
which shall be considered one and the same agreement.
SECTION 8.8 Entire Agreement; Third Party Beneficiaries. This
Agreement (a) constitutes the entire agreement, and supersedes all prior
agreements and understandings (written and oral), among the parties with
respect to the subject matter hereof and (b) except for the provisions of
Sections 5.6 and 5.9, are not intended to confer upon any person other than
the parties any rights or remedies.
SECTION 8.9 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void, unenforceable or against its
regulatory policy, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
SECTION 8.10 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Massachusetts.
SECTION 8.11 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. This Agreement will be binding upon,
inure to the benefit of and be enforceable by, the parties and their
respective successors and assigns.
IN WITNESS WHEREOF, MergerCo and the Company have caused this
Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
ARMATRON INTERNATIONAL, INC.
By:___________________________________
Name: Charles J. Housman
Title: President and Chief Executive
Officer
[Seal]
ARMATRON MERGER CORPORATION
By:___________________________________
Name: Charles J. Housman
Title: President
[Seal]
Appendix A
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
by and among
ARMATRON INTERNATIONAL, INC.
and
ARMATRON MERGER CORPORATION
dated as of
September 15, 1999
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER is made as of
September 15, 1999 to the Agreement and Plan of Merger dated as of May 7,
1999, by and between Armatron International, Inc., a Massachusetts
corporation (the "Company"), and Armatron Merger Corporation, a
Massachusetts corporation ("MergerCo"), formed by certain stockholders of
the Company (the "Agreement").
WHEREAS, the parties desire to amend the Agreement as provided
herein.
NOW, THEREFORE, in consideration of these premises, and for other
good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. To amend the Agreement as follows:
1.1 Section 7.1(b) of the Agreement is hereby amended and
restated to read in its entirety as follows:
"(b) By either the Company, on the one hand, or
MergerCo, on the other hand, if: (i) the Merger has not been
consummated on or prior to November 30, 1999 or such other
date, if any, as MergerCo and the Company shall agree upon
(provided that the right to terminate this Agreement under this
Section 7.1(b)(i) shall not be available to a party whose
failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the Effective Time
to occur on or before such date); or (ii) any Governmental
Entity shall have issued a statute, order, decree or regulation
or taken any other action (which statute, order, decree,
regulation or other action the parties hereto shall use their
best efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the Merger or making the
Merger illegal and such statute, order, decree, regulation or
other action shall have become final and non-appealable."
2. Except as otherwise expressly provided herein, the Agreement is
hereby ratified and confirmed and shall remain in full force and effect.
3. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Agreement.
4. This Amendment may be executed in any number of counterparts,
each such counterpart shall be deemed to be an original instrument, and all
such counterparts together shall constitute but one agreement.
IN WITNESS WHEREOF, MergerCo and the Company have caused this
Amendment No. 1 to be signed by their respective officers thereunto duly
authorized as of the date first written above.
ARMATRON INTERNATIONAL, INC.
By:
----------------------------------
Name: Charles J. Housman
Title: President and Chief Executive
Officer
[Seal]
ARMATRON MERGER CORPORATION
By:
----------------------------------
Name: Charles J. Housman
Title: President
[Seal]
Appendix B
OPINION LETTER
April 21, 1999
The Board of Directors
Armatron International, Inc.
2 Main Street
Melrose, Massachusetts 02176
Gentlemen:
Armatron International, Inc. ("Armatron" or the "Company") has
engaged Gordon Associates, Inc. ("GA") to render an opinion (the "Opinion")
as to the fairness, from a financial point of view, to the shareholders of
Armatron who will not contribute their shares to Armatron Merger Corporation
(the "Selling Shareholders") of the per share cash consideration to be paid
by Armatron for the purchase of the shares of common stock held by the
Selling Shareholders. The Opinion contemplates a transaction (the "Merger")
pursuant to the Agreement and Plan of Merger (the "Merger Agreement") between
Armatron and Armatron Merger Corporation. In the Merger, each outstanding
share of common stock of Armatron will be converted into the right to receive
$0.27 in cash.
GA is a business valuation and related consulting firm which among
other activities is engaged in evaluating the financial terms of mergers
and acquisitions and providing investment analysis to clients and advising
them with respect to the purchase and sale of securities generally. There
are no relationships between GA and Armatron or any of its subsidiaries
including, without limitation any of the Company's respective directors,
officers or employees or Armatron's principal shareholders which might
affect the objectivity of the advise to be rendered hereunder.
In formulating the Opinion, we have done and considered, among other
things, the following:
1. We reviewed Armatron's consolidated annual financial statements
for the five years ending September 30, 1998, unaudited
financial statements for the three months ending December 31,
1998, and other relevant financial information.
2. We obtained information from members of management regarding
past history, current operations and future prospects for
Armatron.
3. We visited Armatron's facility in Melrose, Massachusetts.
4. We made comparisons of the financial and operating results of
Armatron with other selected publicly traded companies that
manufacture and distribute lawn and garden products.
5. We reviewed the trading history of Armatron's shares.
6. We considered the current condition of the securities market
and the economic environment in general.
7. We reviewed the Stock Subscription Agreement concerning the
conversion of debt owed by the Company pursuant to a certain
Promissory Note dated January 11, 1990, as amended, into the
Company's Series A preferred stock.
8. We reviewed documents relating to a foreign arbitration award
against the Company and J.C. Carter Company, Inc., a former
subsidiary of the Company, among others. The arbitration
related to certain cryogenic cargo pumps supplied in the 1970's
and a pending lawsuit in the U.S. District Court of Southern
California seeking payment of said award.
9. We performed and undertook other actions and analyses which we
deemed to be relevant.
We have assumed the accuracy and completeness of the information
supplied to us, and we have not independently verified this information. We
did not review Armatron's corporate charter, by-laws, records, books,
minutes of directors' or stockholders' meetings nor did we make inquiries
of Armatron's customers, lenders, general creditors or others.
Based on our analysis of the foregoing, it is our opinion that as of
the date hereof, the purchase by Armatron of shares of its common stock
held by the Selling Shareholders at a price of $0.27 per share is fair to
the Selling Shareholders, from a financial point of view.
Very truly yours,
Gordon Associates, Inc.
By: /s/ Howard J. Gordon
--------------------------------
Howard J. Gordon
President
Appendix C
MASSACHUSETTS APPRAISAL STATUTE
Chapter 156B of the General Laws of
the Commonwealth of Massachusetts
(S) 85. Dissenting stockholder; right to demand payment for stock;
exception
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation
or corporations under the provisions of sections seventy-eight or seventy-
nine who objects to such consolidation or merger may demand payment for his
stock from the resulting or surviving corporation and an appraisal in
accordance with the provisions of sections eighty-six to ninety-eight,
inclusive, and such stockholder and the resulting or surviving corporation
shall have the rights and duties and follow the procedure set forth in those
sections. This section shall not apply to the holders of any shares of stock
of a constituent corporation surviving a merger if, as permitted by
subsection (c) of section seventy-eight, the merger did not require for its
approval a vote of the stockholders of the surviving corporation.
(S) 86. Selections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before the taking of the
vote of the shareholders on such corporate action, written objection to the
proposed action stating that he intends to demand payment for his shares if
the action is taken and (2) his shares are not voted in favor of the
proposed action.
(S) 87. Statement of rights of objecting stockholders in notice of meeting;
form
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights
of objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment
for his stock, and the directors may authorize the inclusion in any such
notice of a statement of opinion by the management as to the existence or
non-existence of the right of the stockholders to demand payment for their
stock on account of the proposed corporate action. The notice may be in
such form as the directors or officers calling the meeting deem advisable,
but the following form of notice shall be sufficient to comply with this
section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the corporation (or, in the case of a consolidation or merger, the name
of the resulting or surviving corporation shall be inserted), within twenty
days after the date of mailing to him of notice in writing that the
corporate action has become effective, payment for his shares and an
appraisal of the value thereof. Such corporation and any such stockholder
shall in such cases have the rights and duties and shall follow the
procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
(S) 88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of
section eighty-six and whose shares were not voted in favor of the approval
of such action, that the action approved at the meeting of the corporation
of which he is a stockholder has become effective. The giving of such notice
shall not be deemed to create any rights in any stockholder receiving the
same to demand payment for his stock. The notice shall be sent by registered
or certified mail, addressed to the stockholder at his last known address as
it appears in the records of the corporation.
(S) 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required
to give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which
such demand is made shall pay to him the fair value of his stock within
thirty days after the expiration of the period during which such demand may
be made.
(S) 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or
any such stockholder may within four months after the expiration of such
thirty-day period demand a determination of the value of the stock of all
such objecting stockholders by a bill in equity filed in the superior court
in the county where the corporation in which such objecting stockholder held
stock had or has its principal office in the commonwealth.
(S) 91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom
the corporation has not reached agreement as to the value thereof. If the
bill if filed by a stockholder, he shall bring the bill in his own behalf
and in behalf of all other stockholders who have demanded payment for their
shares and with whom the corporation has not reached agreement as to the
value thereof, and service of the bill shall be made upon the corporation by
subpoena with a copy of the bill annexed. The corporation shall file with
its answer a duly verified list of all such other stockholders, and such
stockholders shall thereupon be deemed to have been added as parties to the
bill. The corporation shall give notice in such form and returnable on such
date as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of such
stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-
nine shall be deemed to have consented to the provisions of this section
relating to notice, and the giving of notice by the corporation to any such
stockholder in compliance with the order of the court shall be a sufficient
service of process on him. Failure to give notice to any stockholder making
demand shall not invalidate the proceedings as to other stockholders to whom
notice was properly given, and the court may at any time before the entry of
a final decree make supplementary orders of notice.
(S) 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make
payment of such value, together with interest, if any, as hereinafter
provided, to the stockholders entitled thereto upon the transfer by them to
the corporation of the certificates representing such stock if certificated
or, if uncertificated, upon receipt of an instruction transferring such
stock to the corporation. For this purpose, the value of the shares shall be
determined as of the day preceding the date of the vote approving the
proposed corporate action and shall be exclusive of any element of value
arising from the expectation or accomplishment of the proposed corporate
action.
(S) 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
(S) 94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of
the pendency of the bill and may order the corporation to note such pendency
in its records with respect to any uncertificated shares held by such
stockholder parties, and may on motion dismiss the bill as to any
stockholder who fails to comply with such order.
(S) 95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to
be equitable, except that all costs of giving notice to stockholders as
provided in this chapter shall be paid by the corporation. Interest shall
be paid upon any award from the date of the vote approving the proposed
corporate action, and the court may on application of any interested party
determine the amount of interest to be paid in the case of any stockholder.
(S) 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the
resulting or surviving corporation, deliver to it a written withdrawal
of his objections to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so
demand payment for his stock as provided in this chapter.
(S) 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in
the case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or
securities.
(S) 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground
that such corporate action will be or is illegal or fraudulent as to him.
ARMATRON INTERNATIONAL, INC.
MELROSE, MASSACHUSETTS 02176
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, SEPTEMBER 1, 1999
Know All Persons By These Presents, that the undersigned
stockholder(s) of Armatron International, Inc. hereby constitutes and
appoints Charles J. Housman and Malcolm D. Finks, each of them attorneys
and proxies of the undersigned, each with full power of substitution and
revocation, to vote all shares of stock of the undersigned in said Company
at the meeting of stockholders to be held at the Company's principal
executive offices, Two Main Street, Melrose, Massachusetts 02176, on
September 1, 1999 at 9:00 o'clock A.M. Eastern Standard Time, and at any
adjournments or postponements thereof, with all power the undersigned would
possess if personally present, upon the following:
1. ELECTION OF DIRECTOR
__ FOR THE NOMINEE: Edward L. Housman __ WITHHOLD AUTHORITY
To vote for the nominee as indicated: __________________________________
2. PROPOSAL TO RATIFY THE SELECTION, BY THE BOARD OF DIRECTORS, of
independent auditors for the fiscal year ending September 30, 1999.
FOR __ AGAINST __ ABSTAIN __
3. PROPOSAL TO APPROVE AND ADOPT AN AGREEMENT AND PLAN OF MERGER, dated as
of May 7, 1999 between Armatron International, Inc. and Armatron Merger
Corporation, and the Merger contemplated thereby.
FOR __ AGAINST __ ABSTAIN __
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(PLEASE SIGN ON REVERSE SIDE)
THIS PROXY IS SOLICTED ON BEHALF OF THE BOARD OF DIRECTORS WHO
RECOMMEND A VOTE FOR PROPOSALS 1, 2 AND 3, AND, IN THE DISCRETION OF THE
NAMED PROXIES, AS TO ANY OTHER MATTER THAT MAY COME BEFORE THE SPECIAL
MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED FOR THESE PROPOSALS.
The undersigned hereby acknowledges
receipt of the Annual Report for
1998 and the Notice and Proxy
Statement for this meeting, and
hereby revokes any proxies
heretofore given.
Date _______________________. 19__
__________________________________
__________________________________
Signature(s) of stockholder(s)
Signature(s) should agree with the
name(s) on stock certificates.
Executors, Administrators, Trustees,
etc. should so indicate when
signing.
Please sign, date and return
promptly--no postage required.