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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CHAMPION ROAD MACHINERY LIMITED
(Name of Subject Company)
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CHAMPION ROAD MACHINERY LIMITED
(Name of Person(s) Filing Statement)
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Common Shares, No Par Value Per Share
(Title of Class of Securities)
15864C 10 6
(CUSIP Number of Class of Securities)
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Arthur F. Church
President and Chief Executive Officer
Champion Road Machinery Limited
160 Maitland Avenue
Goderich, Ontario, Canada N7A 3Y6
(519) 884-6000
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
WITH COPIES TO:
Patrick J. Foye, Esq. Gordon A. M. Currie, Esq.
Skadden, Arps, Slate, Meagher & Flom Blake, Cassels & Graydon
919 Third Avenue Box 25, Commerce Court West
New York, New York 10022 Toronto, Ontario, Canada M5L 1A9
(212) 735-3000 (416) 863-2400
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Champion Road Machinery Limited, a
corporation formed under the laws of Canada (the "Company"). The address of the
principal executive offices of the Company is 160 Maitland Road, Goderich,
Ontario, Canada N7A 346. The title of the class of equity securities to which
this Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9" or the "Statement") relates is the common shares, without par value, of
the Company (the "Common Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the tender offer by VCE Acquisition Inc., a
corporation organized under the laws of Canada (the "Purchaser") and a wholly
owned subsidiary of Volvo Construction Equipment N.V., a corporation organized
under the laws of The Netherlands ("Parent"), and an indirect, wholly owned
subsidiary of AB Volvo (publ), a corporation organized under the laws of the
Kingdom of Sweden ("Volvo"), disclosed in a Tender Offer Statement on Schedule
14D-1, dated February 24, 1997 (the "Schedule 14D-1"), to purchase all
outstanding Company Common Shares (the "Shares"), at CDN $15.00 per Share, net
to the seller in cash, upon the terms and subject to the conditions set forth in
the Purchaser's Offer to Purchase for Cash (including the related Circular)
dated February 24, 1997 (the "Offer to Purchase for Cash") and in the related
Letter of Transmittal (which, together with any amendments or supplements hereto
or thereto, collectively constitute the "Offer".)
The Offer is being made pursuant to an Acquisition Agreement, dated as of
February 20, 1997 (the "Acquisition Agreement"), between Parent and the Company
pursuant to which, as soon as practicable after completion of the Offer and
satisfaction or waiver, if permissible, of all conditions to the Offer, the
Company will become a wholly owned subsidiary of the Purchaser. If over 90% of
the outstanding Shares (exclusive of Shares currently held by Purchaser or an
affiliate or associate of the Purchaser (as defined in the Canada Business
Corporation Act (the "CBCA"))) are tendered in the Offer, the Offer will be
followed by the compulsory acquisition of the remaining Shares outstanding
pursuant to certain provisions of Canadian law and any Shares not owned by the
Purchaser or Parent will be purchased for CDN $15.00 per Share in cash (or any
higher price that may be paid in the Offer), without interest, as set forth in
the following section, "COMPULSORY ACQUISITION". If the foregoing statutory
right of acquisition is not available, then the Purchaser and Parent intend to
use other means of acquiring the remaining Shares in accordance with applicable
law, as described below under the heading "SUBSEQUENT ACQUISITION TRANSACTIONS".
The Offer is being made only for the Shares and is not being made for any
options, warrants or rights to purchase Shares. Any holder of such options,
warrants or rights who wishes to accept the Offer should, to the extent
permitted by the terms of such options, warrants or rights and applicable law,
exercise such options, warrants or rights in order to obtain certificates
representing Shares and tender such Shares in accordance with the terms of the
Offer. Subject to the approval of The Toronto Stock Exchange, the Montreal
Exchange and the Nasdaq National Market System, the Company's Board of Directors
(the "Board of Directors" or the "Board") has resolved to accelerate the vesting
of all outstanding options to acquire Shares or to make other arrangements
satisfactory to Purchaser to satisfy the conditions of the Offer with respect to
outstanding options. Each director and officer of the Company who holds options
to purchase Shares intends to exercise all options held by such person to
acquire Shares and intends to thereafter tender such Shares, and any other
Shares beneficially owned, in the Offer.
COMPULSORY ACQUISITION. If, within 120 days after the date of the Offer,
the Offer has been accepted by the holders of not less than 90% of the Shares,
other than Shares held at the date of the Offer by or on behalf of the Purchaser
or an affiliate or associate of the Purchaser, and the Purchaser has purchased
such Shares, then the Purchaser intends to, pursuant to the compulsory
acquisition provisions of the CBCA, acquire the Shares held by each shareholder
who did not accept the Offer (a "Non-Tendering Offeree") (which definition
includes any person who subsequently acquires any of such Shares), on the same
terms (including the Offer price) as the Shares acquired pursuant to the Offer
(a "compulsory acquisition").
1
To exercise this statutory right, the Purchaser must give notice (the
"Purchaser's Notice") to each Non-Tendering Offeree and to the Director under
the CBCA of such proposed acquisition on or before the earlier of 60 days after
the expiration of the Offer and 180 days after the date of the Offer. Within 20
days after giving the Purchaser's Notice, the Purchaser must pay or transfer to
the Company the consideration the Purchaser would have had to pay or transfer to
the Non-Tendering Offerees if they had elected to accept the Offer to be held in
trust for the Non-Tendering Offerees. Within 20 days after receipt of the
Purchaser's Notice, each Non-Tendering Offeree must send the certificates
evidencing the Shares held by such Non-Tendering Offeree to the Company and may
elect either to transfer those shares to the Purchaser on the terms (including
the Offer price) on which the Purchaser acquired the Shares under the Offer or
to demand payment of the fair value of those Shares by so notifying the
Purchaser. If a Non-Tendering Offeree elects to demand payment of the fair value
of his Shares, the Purchaser may apply to a court of competent jurisdiction to
hear an application fix the fair value of such Shares. If the Purchaser fails to
apply to such court within 20 days after it made the payment or transferred the
consideration to the Company referred to above, the Non-Tendering Offeree may
then apply to the court within a further period of 20 days to have the court fix
the fair value of the Shares. If no such application is made by the
Non-Tendering Offeree within such period, the Non-Tendering Offeree will be
deemed to have elected to transfer his shares to the Purchaser on the same terms
(including the Offer price) as the Purchaser acquired the Shares under the
Offer. Any judicial determination of the fair value of the Shares could be more
or less than the amount paid pursuant to the Offer.
The foregoing is only a summary of the right of compulsory acquisition which
may become available to the Purchaser. The summary is not intended to be
complete and is qualified in its entirety by the provisions of the CBCA.
Shareholders should refer to the CBCA for the full text of the relevant
statutory provisions, and those who wish to be better informed about these
provisions should consult their legal advisors. The relevant sections in the
CBCA are complex and may require strict adherence to notice and timing
provisions, failing which such rights may be lost or altered.
SUBSEQUENT ACQUISITION TRANSACTIONS. If the foregoing statutory right of
acquisition is not available, then the Purchaser intends to consider other means
of acquiring, directly or indirectly, all of the Shares in accordance with
applicable law, including through a subsequent acquisition transaction. In order
to effect a subsequent acquisition transaction, the Purchaser may seek to cause
a special meeting of the necessary classes of securities of the Company and/or
the shareholders to be called to consider an amalgamation, merger, statutory
arrangement, capital reorganization or other transaction involving the Purchaser
and/or an affiliate of the Purchaser and the Company and/or the shareholders for
the purposes of the Company becoming, directly or indirectly, a wholly-owned
subsidiary of the Purchaser or effecting an amalgamation or merger of the
Company's business and assets with or into the Purchaser and/or an affiliate of
the Purchaser (referred to as a "subsequent acquisition transaction"). Depending
upon the nature and terms of the subsequent acquisition transaction, the
approval of at least 66 2/3% of the votes cast by holders of the outstanding
Shares may be required at a meeting duly called and held for the purpose of
approving the subsequent acquisition transaction.
In the event a subsequent acquisition transaction were to be consummated,
holders of Shares, under the CBCA, may have the right to dissent and demand
payment of the fair value of such Shares. This right, if the statutory
procedures are complied with, could lead to a judicial determination of the fair
value required to be paid to such dissenting holders for their Shares. The fair
value of Shares so determined could be more or less than the amount paid per
Share pursuant to the subsequent acquisition transaction or the Offer. Any such
judicial determination of the fair value of the Shares could be based upon
considerations other than, or in addition to, the market price of the Shares.
Shareholders should consult their legal advisors for a determination of
their legal rights with respect to any subsequent acquisition transaction.
2
If the Purchaser decides not to effect a compulsory acquisition or propose a
subsequent acquisition transaction involving the Company, or proposes a
subsequent acquisition transaction but cannot promptly obtain any required
approval, then the Purchaser will evaluate its other alternatives. Such
alternatives could include, to the extent permitted by applicable law,
purchasing additional Shares in the open market, in privately negotiated
transactions, in another take-over bid or exchange offer or otherwise, or taking
no further action to acquire additional Shares. Alternatively, the Purchaser may
sell or otherwise dispose of any or all Shares acquired pursuant to the Offer or
otherwise. Such transactions may be effected on terms and prices then determined
by the Purchaser, which may vary from the terms and the price paid for Shares
under the Offer.
The Securities and Exchange Commission (the "Commission") has adopted Rule
13e-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which is applicable to certain going private transactions and which may
under certain circumstances be applicable to the proposed acquisition of Shares
not purchased in the Offer, whether acquired by statutory right of acquisition
under the CBCA, merger, amalgamation, statutory arrangement and/or other
business combination (each, a "Second-Step Transaction"). However, Rule 13e-3
would be inapplicable if (i) the Shares are deregistered under the Exchange Act
prior to the Second-Step Transaction or (ii) the Second-Step Transaction is
consummated within one year after the purchase of the Shares pursuant to the
Offer and the amount paid per Share in the Second-Step Transaction is at least
equal to the amount paid per Share in the Offer, provided disclosure of the
possible Second-Step Transaction is made at the time of the Offer. If
applicable, Rule 13e-3 requires, among other things, that certain financial
information concerning the fairness of the proposed transaction and the
consideration offered to minority shareholders in such transaction be filed with
the Commission and disclosed to shareholders prior to the consummation of the
transaction. The Purchaser does not believe that Rule 13e-3 will be applicable
to any Second-Step Transaction contemplated herein.
Shareholders should refer to the Offer to Purchase for Cash enclosed
herewith and filed as Exhibit 5 hereto and incorporated by reference herein, for
additional information with respect to any compulsory acquisition or subsequent
acquisition transaction, and the above summaries are qualified in their entirety
by reference to such summaries.
A copy of the Acquisition Agreement has been filed with the Commission as
Exhibit 1 to this Schedule 14D-9 and is incorporated herein by reference.
Based on the information in the Offer to Purchase for Cash, the address of
the principal executive offices of (i) Volvo is AB Volvo (publ), S-405 08
Goteborg, Sweden; (ii) Parent is Volvo Construction Equipment N.V., Group
Headquarters, Chausee de La Hulpe 130, B-1000 Brussels, Belgium, and (iii)
Purchaser is VCE Acquisition Inc., Suite 6600, 100 King Street West, Toronto,
Ontario M5X 1B8.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning the Purchaser, Parent,
Volvo or their affiliates, or actions or events with respect to any of them, was
provided by the Purchaser, Parent or Volvo, respectively, and the Company takes
no responsibility for such information.
(b) Each material contract, agreement, arrangement and understanding and
actual or potential conflict of interest between the Company or its affiliates
and (i) its executive officers, directors or affiliates and (ii) Parent, its
executive officers, directors or affiliates, is described below.
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THE ACQUISITION AGREEMENT
The following summarizes certain portions of the Acquisition Agreement which
relate to arrangements among the Company, Parent and the Company's executive
officers and directors. The summaries of the Acquisition Agreement contained in
each of the Offer to Purchase for Cash filed with the Commission as Exhibit 5
hereto, and the Directors' Circular, filed with the Commission as Exhibit 4
hereto, are incorporated herein by reference. The summaries of the Acquisition
Agreement contained in the Offer to Purchase for Cash, the Directors' Circular
and the following are each qualified in their entirety by reference to the
Acquisition Agreement, a copy of which has been filed with the Commission as
Exhibit 1 hereto and is incorporated herein by reference.
ACQUISITION OF SHARES. Pursuant to the Acquisition Agreement, Purchaser is
making a cash tender offer to purchase all of the outstanding Shares for CDN
$15.00 per Share. If over 90% of the outstanding Shares (exclusive of Shares
currently held by Purchaser or any associate or affiliate of Purchaser) are
tendered in the Offer, the Offer will be followed by the compulsory acquisition
of the remaining Shares outstanding pursuant to certain provisions of Canadian
law and any Shares not owned by the Purchaser or Parent will be purchased for
CDN $15.00 per Share in cash (or any higher price that may be paid in the
Offer), without interest, as described in Item 2 hereof. If less than 90% of the
Shares are tendered in the Offer, Purchaser and Parent may make subsequent
acquisitions of Shares as described in Item 2 hereof.
STOCK OPTIONS. The Offer is being made only for the Shares and is not being
made for any options, warrants or rights to purchase Shares. Any holder of such
options, warrants or rights who wishes to accept the Offer should, to the extent
permitted by the terms of such options, warrants or rights and applicable law,
exercise such options, warrants or rights in order to obtain certificates
representing Shares and tender such Shares in accordance with the terms of the
Offer. Subject to the approval of The Toronto Stock Exchange, the Montreal
Exchange and the Nasdaq National Market System, the Company's Board of Directors
has resolved to accelerate the vesting of all outstanding options to acquire
Shares or to make other arrangements satisfactory to Purchaser to satisfy the
conditions of the Offer with respect to outstanding options. Each director and
officer of the Company who holds options to purchase Shares intends to exercise
all options held by such person to acquire Shares and intends to thereafter
tender such Shares, and any other Shares beneficially owned, in the Offer.
BOARD REPRESENTATION. Pursuant to the Acquisition Agreement, provided that
at least a majority of the outstanding Shares on a fully diluted basis are
acquired pursuant to the Offer, the Company has agreed to use all reasonable
efforts to cause to the Board of Directors of the Company and any committees
thereof to consist of the number of Parent nominees proportionate to the
Purchaser's percentage voting power in the Company.
NO SOLICITATION; BREAK-UP FEE. Pursuant to the Acquisition Agreement, the
Company has agreed not to, and not to authorize or permit any of its officers,
directors or employees or any investment banker, financial adviser, lawyer,
accountant or other representative retained by it or any of its subsidiaries to,
initiate, solicit or encourage any inquiries, submissions or offers as to or in
connection with the making of, or provide information to, or respond to any
person making any offer or proposal with respect to, any take-over bid, tender
offer, (other than the Offer), exchange offer, merger, amalgamation, plan of
arrangement, reorganization, consolidation, business combination, reverse
take-over, sale of assets (other than in the ordinary course of business), sale
of securities, recapitalization, liquidation, dissolution, winding-up or similar
transaction involving the Company or any of its subsidiaries (each a
"Transaction Proposal"); provided, however, that the Board may (i) consider,
negotiate, approve or recommend to shareholders, or provide information to a
potential acquiror pursuant to, or take any necessary steps to implement, any
BONA FIDE written Transaction Proposal at a price exceeding CDN $15.00 per Share
which the Board determines in good faith would, if consummated in accordance
with its terms, result in a transaction more favorable to all shareholders than
the consummation of the Offer or (ii) take such action as may be
4
required to fulfil its fiduciary or statutory duties; provided further that the
Board shall promptly inform Parent of the terms and conditions of such
Transaction Proposal and the identity of the person making it.
Provided that the Offer is not withdrawn or allowed to expire (other than as
a result of the failure to satisfy any of its conditions) and a Transaction
Proposal is announced, commenced or made at any time prior to 90 days after the
date hereof and is thereafter completed, the Company has agreed to pay Parent
upon completion of any such transaction a fee of CDN $5,000,000.
DIVIDENDS AND DISTRIBUTIONS. If, on or after February 24, 1997, the Company
should split, consolidate or otherwise change any of the Shares or its
capitalization, or shall disclose that it has taken or intends to take any such
action, then the Purchaser may, in its sole discretion and without prejudice to
its rights under the Acquisition Agreement, make such adjustments as it deems
appropriate to the purchase price or other terms of the Offer (including,
without limitation, the type of securities offered to be purchased and the
consideration payable therefor) to reflect such split, combination or other
change.
If the Company should declare or pay any cash dividend, stock dividend
(other than the declared dividend of the Company of CDN $0.05 per Share payable
April 2, 1997 to holders of record of the Company at March 12, 1997) or declare,
make or pay any other distribution or payment on or declare, allot, reserve or
issue any securities, rights or other interests with respect to any of the
Shares which is or are payable or distributable to the shareholders of record on
a record date which is prior to the date of transfer into the name of the
Purchaser or its nominees or transferees on the Company's share register of such
Shares following acceptance thereof for purchase pursuant to the Offer, then
without prejudice to the Purchaser's rights under the Acquisition Agreement, (i)
in the case of cash dividends, distributions or payments, the amount of the
dividends, distributions or payments shall be received and held by the tendering
shareholders for the account of the Purchaser until the Purchaser pays for such
Shares, and to the extent that such dividends, distributions or payments do not
exceed the purchase price per Share payable by the Purchaser pursuant to the
Offer, the purchase price per Share payable by the Purchaser pursuant to the
Offer will be reduced by the amount of any such dividend, distribution or
payment, and (ii) in the case of a non-cash dividend, distribution, payment,
right or other interest and in the case of any cash dividend, distribution or
payment in an amount that exceeds the purchase price per Share, the whole of any
such non-cash dividend, distribution, payment, right or other interest, and, in
the case of any cash dividend, distribution or payment in an amount that exceeds
the purchase price per Share, the whole of any such cash dividend, distribution
or payment, will be received and held by the tendering shareholders for the
account of the Purchaser and shall be required to be promptly remitted and
transferred by the tendering shareholders to the Depositary (as defined in the
Offer to Purchase for Cash) for the account of the Purchaser, accompanied by
appropriate documentation of transfer. Pending such remittance, the Purchaser
will be entitled to all rights and privileges as owner of any such dividend,
distribution, payment, right or other interest and may withhold the entire
purchase price payable by the Purchaser pursuant to this Offer or deduct from
the purchase price payable by the Purchaser pursuant to this Offer the amount of
value thereof, as determined by the Purchaser in its sole discretion.
5
LOCK-UP AGREEMENT
Each of the Walsh Family 1989 Trust, the Ferris Family 1987 Trust, the Leach
Family 1980 Trust, Arthur F. Church, O'Brien Family Limited Partnership, R.
O'Brien & Mary Ann O'Brien Revocable Trust dated 7/24/84, Dennis W.
Vollmershausen, 3018202 Canada Inc., Allen & Company Incorporated, Harold M. Wit
and Caxton International Limited (collectively, the "Lock-Up Shareholders"),
holding in aggregate 3,805,048 Shares and in aggregate 148,000 options to
purchase Shares, totalling in aggregate 34.3% of the outstanding Shares on a
fully-diluted basis, have agreed with Parent to tender all of their Shares (and
to exercise any options to acquire Shares and tender such Shares) beneficially
owned by each of them under the Offer within three business days of the date on
which the Offer is made, pursuant to a Lock-Up Agreement entered into among the
Lock-Up Shareholders and the Purchaser on February 20, 1997.
Any Lock-Up Shareholder, when not in default in performance of its
obligations under the Lock-Up Agreement, may terminate the Agreement if (i) the
Acquisition Agreement is terminated by the Company or Parent by reason of any
court of competent jurisdiction or other governmental body located or having
jurisdiction within Canada or the United States having issued a final order,
decree or ruling or having taken any other final action restraining, enjoining
or otherwise prohibiting the Offer and such order, decree, ruling or other
action having become final and non-applicable, or (ii) if the Shares deposited
under the Offer have not, for any reason whatsoever, been taken up and paid for
on or before the earlier of (a) May 26, 1997 and (b) 90 days after the date of
mailing of the Offer. Pursuant to the Lock-Up Agreement, each Lock-Up
Shareholder has agreed not to initiate, solicit or encourage any inquiry,
submission or offer as to or in connection with the making of, or provide
information to, or respond to any person making, any offer or proposal with
respect to any Transaction Proposal or any acquisition of any Shares held by the
Lock-Up Shareholder; provided, however, that nothing in the Lock-Up Agreement
shall (i) prohibit a Lock-Up Shareholder who is a member of the Board from
considering, negotiating, approving or recommending to shareholders, or
providing information to any potential acquiror pursuant to, any bona fide
written Transaction Proposal at a price exceeding CDN $15.00 per Share which the
Board determines in good faith would, if consummated in accordance with its
terms, result in a transaction more favorable to all shareholders than the
consummation of the Offer, or (ii) require a Lock-Up Shareholder who is a member
of the Board to act in his fiduciary capacity as a director of the Company other
than in accordance with his fiduciary or statutory duties as a director of the
Company.
The foregoing description is qualified in its entirety by reference to the
Lock-Up Agreement, a copy of which is filed as Exhibit 2 hereto and is
incorporated herein by reference.
CONFIDENTIALITY AGREEMENT
On February 12, 1997 Parent and the Company entered into a letter agreement
(the "Confidentiality Agreement") pursuant to which Parent agreed, among other
things, to (a) keep confidential certain information concerning the Company to
be provided to Parent in connection with its evaluation of a possible
transaction involving the Company and (b) customary "standstill" provisions
limiting Parent's freedom of action with respect to proposals to acquire the
Shares of the Company and certain other actions that would affect control of the
Company. A copy of the Confidentiality Agreement has been filed with the
Commission as Exhibit 3 hereto and is incorporated herein by reference.
COMPENSATORY ARRANGEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
Certain compensatory arrangements with executive officers and directors of
the Company are described in the Company's Notice of Annual Meeting of
Shareholders (the "Notice of Annual Meeting"), dated March 22, 1996, previously
filed with the Commission, which descriptions are incorporated herein by
reference. Additional arrangements which are not described in the Notice of
Annual Meeting are described below.
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STOCK OPTION PLAN. The Company has an employee stock option plan (the
"Stock Option Plan") for directors, officers and key employees of the Company.
Pursuant to the Stock Option Plan, options to acquire Common Shares may be
granted by the Board to directors, officers and key employees at a price that is
not less than the closing price of the Common Shares on a Canadian stock
exchange on the day prior to the date of the grant of such option. A maximum
number of 550,000 Common Shares are issuable pursuant to the Stock Option Plan,
and the aggregate number of Common Shares reserved for issuance to any one
person pursuant to options granted under the Stock Option Plan shall not exceed
3% of the outstanding Common Shares. The Company believes the Stock Option Plan
helps to focus the interests of the directors and key employees on the long term
interests of the Company's shareholders. Schedule II hereto sets forth the
options granted under the Stock Option Plan during 1995 and 1996.
REMUNERATION OF DIRECTORS. Each director of the Company who is not a
salaried officer or employee of the Company is entitled to receive a quarterly
director's fee of $2,000. In addition, there is a $1,000 attendance fee for each
Board meeting attended. Messrs. Walsh and Ferris do not receive the quarterly or
meeting fees, but indirectly receive compensation for certain advisory and
consulting services provided by Sequoia Associates to the Company. See
"POTENTIAL OR ACTUAL CONFLICTS OF INTEREST -- AGREEMENTS BETWEEN THE COMPANY AND
ITS BOARD AND EXECUTIVE OFFICERS", below.
POTENTIAL OR ACTUAL CONFLICTS OF INTEREST
NO PRIOR RELATIONSHIP BETWEEN PARENT AND THE BOARD AND EXECUTIVE OFFICERS OF
THE COMPANY. None of the directors or executive officers of the Company are
directors or executive officers of Volvo, Parent or Purchaser or any subsidiary
of Volvo, Parent or Purchaser. There are no arrangements or agreements made or
currently proposed to be made between Volvo, Parent or Purchaser and any of the
directors or executive officers of the Company, including arrangements or
agreements with respect to compensation for loss of office or as to their
remaining in or retiring from office if the Offer is consummated.
OWNERSHIP OF SECURITIES OF PARENT. None of the Company, the directors or
executive officers of the Company or, to the knowledge of the directors and
senior officers of the Company, after reasonable inquiry, any affiliates of the
directors or executive officers of the Company, any person or company
beneficially owning more than 5% of any Shares or any person or company acting
jointly or in concert with the Company owns or exercises control or direction
over any securities of any class of Volvo or Parent or Purchaser.
AGREEMENTS BETWEEN THE COMPANY AND ITS BOARD AND EXECUTIVE OFFICERS. Except
as otherwise set forth herein, there are no arrangements or agreements made or
currently proposed to be made between the Company and any of the directors or
executive officers of the Company, including arrangements or agreements with
respect to compensation for loss of office or as to their remaining in or
retiring from office if the Offer is consummated.
Pursuant to a management services contract between the Company and Sequoia
Associates ("Sequoia"), Messrs. Walsh and Ferris, each of whom is a member of
the Board of the Company, provide on behalf of Sequoia certain management
advisory and consulting services to the Company relating to corporate strategy
and operations, financings, acquisitions and investor and lender relations. For
its services, Sequoia receives an annual fee of U.S. $250,000 and is reimbursed
for certain expenses. The management services agreement will be terminated three
months after the consummation of the Offer.
The Company has purchased liability insurance for the directors and officers
of the Company for an aggregate premium of approximately CDN $70,000. No part of
this premium was paid by the directors or officers of the Company. The aggregate
insurance coverage under the policy is limited to CDN $50 million per policy
year and a CDN $100,000 deductible is payable under the policy by the Company in
respect of any claim made against a director or officer for which the Company
has indemnified such director or officer.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD.
At the February 19, 1997 Board meeting, the Board unanimously expressed its
approval of a tender offer by Purchaser for all of the outstanding Shares at a
price of CDN $15.00 per Share, net to the seller in cash, and determined to
recommend that the shareholders of the Company tender their Shares pursuant to
the terms of such an Offer.
THEREFORE, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY TENDER ALL OF THEIR SHARES PURSUANT TO THE OFFER.
(B) BACKGROUND; REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
(1) BACKGROUND.
On January 6 and January 7, 1997, representatives of Parent met with
representatives of the Company, including Arthur Church (President of the
Company), to pursue earlier discussions between the parties as to the
appointment of Parent as the Company's exclusive distributor in Brazil. At the
conclusion of these meetings, the possibility of a joint venture arrangement or
other distribution agreements between the parties was introduced. In separate
discussions, Bengt Ovlinger, the President and Chief Executive Officer of
Parent, raised with Arthur Church the possibility of Parent acquiring the
Company. The Company's representatives subsequently agreed to visit Parent's
facilities in Sweden on January 28, 1997.
William Walsh (Chairman of the Company), Arthur Church and other
representatives of the Company met with representatives of Parent in Eskilstuna,
Sweden from January 28 to January 30, 1997 to discuss Parent's business and tour
certain facilities. A possible acquisition transaction was discussed generally
by the parties on January 30, 1997. Sten Langenius, Executive Chairman of Parent
and Executive Vice-President of Volvo, William Walsh pursued the possibility of
an acquisition of the Company by Parent and discussed Mr. Walsh's initial views
as to the pricing of such an acquisition.
The Company's representatives returned to Canada, and representatives of
Parent, together with its financial advisors, continued to review publicly
available information regarding the business of the Company and to consider a
potential acquisition.
Mr. Langenius continued discussions with Mr. Walsh on February 5 through
February 7, 1997 culminating in a general concurrence on a range of prices at
which Mr. Walsh might recommend the sale of the Shares controlled by Mr. Walsh,
all subject to Parent's need to complete a due diligence investigation of the
Company, obtain the approval by the Company's Board of Directors and to reach
agreement with a significant number of the Company's shareholders to the effect
that they would tender their Shares into a Parent offer for all of the Company's
outstanding shares.
It was agreed that Parent representatives would travel to Toronto to pursue
the discussions between Messrs. Langenius and Walsh. On February 7, 1997, on
being advised that Parent was seriously considering an offer to acquire all of
the Shares, the Company retained ScotiaMcLeod Inc. ("ScotiaMcLeod") to act as
its financial advisor in connection with the proposed offer.
Following discussions between Michael J. Mudler and Haken Jonssen, the
Senior Vice-President Finance and Administration and Vice-President and General
Counsel of Parent, respectively, and representatives of the Company, it was
agreed that the Company should, at its regularly scheduled Board meeting to be
held February 12, 1997, consider granting Parent access to the Company and its
books and records for due diligence purposes. At that Board meeting, the Board
approved such access and authorized the Company to enter into a confidentiality
agreement with Parent for such purpose.
At the February 12, 1997 Board meeting, the Board also ratified and approved
the appointment of ScotiaMcLeod as the Company's financial advisor in connection
with the proposed offer. ScotiaMcLeod was retained to provide advice with
respect to the proposed offer and its fairness to holders of Shares.
8
ScotiaMcLeod is familiar with the Company, having provided certain investment
banking services to the Company from time to time and acted in its capacity as
co-underwriter of the Company's initial public and secondary offering of Common
Shares in 1994. For its services in connection with the Offer and the Fairness
Opinion described below, ScotiaMcLeod will be paid a fee. The fee is not in any
way contingent upon the result of the fairness opinion or the success of the
Offer, and ScotiaMcLeod has no financial interest in the Offer.
On February 12, 1997, the Company entered into the Confidentiality
Agreement, described in Item 3 hereof, with Parent under which Parent agreed to
keep confidential certain information to be made available to it relating to the
Company. Parent also agreed not to acquire any Common Shares of the Company
without the approval of the Board of the Company, unless the acquisition was
pursuant to an offer made to all shareholders or in response to a competing
acquisition transaction. Following the execution of the Confidentiality
Agreement, Parent representatives continued their due diligence review of the
Company.
The Lock-Up Agreement with certain shareholders of the Company and the
Acquisition Agreement between Parent and the Company, each of which are
described under Item 3 hereof, were negotiated during the period from February
10 to February 19, 1997 and were ultimately executed on February 20, 1997.
During this period, the parties agreed to the price of CDN $15.00 per Common
Share to be offered by Parent, through the Purchaser, in the Offer, subject to
the approval of the board of directors of Volvo and the Company's Board.
At a meeting of the board of directors of Volvo held on February 19, 1997,
the making of the Offer was approved.
On February 19, 1997, the Board of the Company met and reviewed, with the
assistance of their financial and legal advisors, the terms of the Offer. At the
meeting, the Board received reports from management and an opinion from
ScotiaMcLeod as to the fairness of the Offer to the Company's shareholders from
a financial point of view (the "Fairness Opinion"). ScotiaMcLeod has stated that
in its opinion the Offer is fair from a financial point of view to the Company's
shareholders. A copy of the Fairness Opinion is attached Schedule I hereto and
is incorporated by reference herein. At the meeting, the Board unanimously
resolved to recommend to the holders of Shares that they accept the Offer. The
Board reviewed the Acquisition Agreement and authorized the execution thereof on
behalf of the Company by the officers of the Company. Subsequent to the Board
meeting, the Acquisition Agreement and Lock-Up Agreement were executed and press
releases were made by each of Parent and the Company as to the Offer and the
Board's recommendation in respect thereof. A copy of the Company's press release
was filed with the Commission as Exhibit 7 hereto and is incorporated by
reference herein.
(2) REASONS FOR THE RECOMMENDATION.
In approving the Acquisition Agreement and the transactions contemplated
thereby and recommending that shareholders tender their Shares pursuant to the
Offer, the Board considered a number of factors, including:
(i) that the CDN $15.00 per Share tender offer price represents a
premium of CDN $6.60 or approximately 78.3% over the average closing sales
price of the Shares on the The Toronto Stock Exchange for the 20 trading
days ending on February 18, 1997, the last full trading day before the
cessation of trading in the Shares on February 19, 1997 pending the the
public announcement of the Offer;
(ii) the Fairness Opinion of ScotiaMcLeod, the Company's financial
advisor, a copy of which is attached hereto as Schedule I and is
incorporated by reference herein, to the effect that as of the date of the
Fairness Opinion the Offer is fair from a financial point of view to the
Company's shareholders;
9
(iii) the fact that the holders of Shares totaling 34.3% of the
outstanding Shares on a fully-diluted basis have agreed with Parent to
tender all of such Shares held by each of them in the Offer;
(iv) that the Offer is for all Shares;
(v) the financial condition, results of operations, business and
prospects of the Company;
(vi) information regarding the industry in which the Company operates
and the financial, operating and Share price history of the Company in
comparison to selected comparable companies including certain of the
Company's competitors;
(vii) consideration of other possible acquirors of the Company;
(viii) that the Acquisition Agreement is structured to permit the Company,
upon the determination of the Board that such action would further the best
interests of the shareholders of the Company, to respond to unsolicited
Transaction Proposals at a price exceeding CDN $15.00 per Share and to
furnish information to and negotiate with such parties;
(ix) the terms and conditions of the Acquisition Agreement, including
that the Purchaser could under certain circumstances be entitled to a
termination fee of CDN $5,000,000;
(x) that the Offer is not subject to a financing condition;
(xi) that the Company would have access to Parent's technology and
componentry, research and development resources and distribution in the
markets where Parent is strong.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Acquisition
Agreement and the Offer, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.
A copy of the Fairness Opinion of ScotiaMcLeod delivered to the Board, which
sets forth certain assumptions made, matters considered and limits of the review
by ScotiaMcLeod in rendering its opinion, is attached as Schedule I hereto.
Shareholders are urged to read the Fairness Opinion carefully in its entirety.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained ScotiaMcLeod as financial advisor in connection
with the Offer. ScotiaMcLeod was retained to provide advice with respect to the
Offer and its fairness to shareholders. ScotiaMcLeod is familiar with the
Company, having provided certain investment banking services to the Company from
time to time and in its capacity as co-underwriter of the Company's 1994 Initial
Public and Secondary Offering. For the services rendered by ScotiaMcLeod in
connection with the transactions proposed herein, ScotiaMcLeod will be paid a
fee. The fee is not in any way contingent upon the result of the Fairness
Opinion or the success of the Offer, and ScotiaMcLeod has no financial interest
in the Offer.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer.
10
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth on Schedule III hereto, to the knowledge of the
Company, no transactions in Shares have been effected during the past 60 days by
the Company or any of its executive officers, directors or their respective
affiliates.
(b) To the Company's knowledge, each executive officer, director and
affiliate of the Company currently intends to tender all Shares (including
Shares acquired upon the exercise of stock options granted under the Stock
Option Plan) over which he or she has sole dispositive power to the Purchaser
pursuant to the Offer, except for gifts of Shares to family members or
charitable organizations, if any, and except to the extent, if any, that the
sale of such Shares by any such person or entity could result in liability under
the short-swing profit recovery provisions of Section 16(b) of the Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in this Schedule 14D-9, to the knowledge of the
Company, no negotiation is being undertaken or is under way by the Company in
response to the Offer which relates to or would result in (i) any extraordinary
transaction, such as a merger or reorganization, involving the Company or any
affiliate or subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described in this Schedule 14D-9, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT
NUMBER
- ----------
Exhibit 1 Acquisition Agreement, dated as of February 20, 1997, between Volvo
Construction Equipment N.V. and Champion Road Machinery Limited.
Exhibit 2 Lock-Up Agreement, dated as of February 20, 1997, by and among Volvo
Construction Equipment N.V. and the persons identified on the
signature page thereof.
Exhibit 3 Confidentiality Agreement, dated February 12, 1997, between Volvo
Construction Equipment N.V. and Champion Road Machinery Limited.
Exhibit 4 Directors' Circular, dated as of February 24, 1997.
Exhibit 5 Offer to Purchase for Cash of VCE Acquisition Inc. (including the
accompanying Offering Circular), dated February 24, 1997.
Exhibit 6 Letter to the Company's shareholders dated February 24, 1997.(1)
Exhibit 7 Press Release dated February 20, 1997.
Exhibit 8 Fairness Opinion of ScotiaMcLeod Inc.(2)
- ------------------------------
(1) Included in copies mailed to shareholders.
(2) Included herewith as Schedule I hereto.
11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Dated: February 24, 1997
CHAMPION ROAD MACHINERY LIMITED
By: /s/ ARTHUR F. CHURCH
--------------------------------------
Name: Arthur F. Church
Title: President and Chief
Executive Officer
12
SCHEDULE I
[LETTERHEAD]
February 24, 1997
The Board of Directors of
Champion Road Machinery Limited
180 Columbia St. W., Suite 2204
Waterloo, Ontario
N2L 3L3
Dear Sirs:
We understand that Volvo Construction Equipment N.V. ("Volvo") proposes to make
an offer (the "Offer"), directly or indirectly, to acquire all of the
outstanding common shares (the "Common Shares") of Champion Road Machinery
Limited ("Champion" or the "Company") at a price of $15.00 cash per share. The
terms of the Offer are more fully described in the Offer to Purchase and
Circular, dated February 24, 1997 to be mailed to holders of Common Shares in
connection with the Offer.
We further understand that, pursuant to an agreement dated February 20, 1997
(the "Lockup Agreement"), the Walsh Family 1989 Trust, the Ferris Family 1987
Trust, certain members of senior management and certain other shareholders of
Champion (the "Selling Shareholders") have agreed to deposit all of the
approximately 4.0 million Common Shares owned by them or under option
(approximately 34% of the Company's Common Shares on a fully diluted basis)
under the Offer.
SCOTIAMCLEOD'S ENGAGEMENT
On February 7, 1997, the board of directors of Champion (the "Board") retained
ScotiaMcLeod Inc. ("ScotiaMcLeod") as its financial advisor to provide an
opinion (the "Opinion") to the Board as to the fairness, from a financial point
of view, of the Offer to the holders of the Common Shares.
We have not been asked to prepare, and have not prepared, a formal valuation of
Champion or any of its material assets, and the Opinion should not be construed
as such. We have, however, conducted such analyses as we considered necessary
in the circumstances.
SCOTIAMCLEOD'S CREDENTIALS
ScotiaMcLeod is one of Canada's largest investment banking firms with operations
in all facets of corporate and government finance, mergers and acquisitions,
equity and fixed income sales and trading and investment research. ScotiaMcLeod
has participated in a significant number of transactions involving private and
public companies and has extensive experience in preparing fairness opinions.
The Opinion expressed herein is the opinion of ScotiaMcLeod as a firm. The form
and content of the Opinion have been approved for release by a committee of
directors and other professionals of ScotiaMcLeod, all of whom are experienced
in mergers and acquisitions and valuation matters.
SCOTIAMCLEOD'S INDEPENDENCE
ScotiaMcLeod believes that it is independent of Volvo and Champion, as
determined in accordance with Ontario Securities Commission Policy Statement No.
9.1. ScotiaMcLeod is not an insider, associate or affiliate (as such terms are
defined in the SECURITIES ACT (Ontario)) of Volvo or Champion, and neither
ScotiaMcLeod nor any of its affiliates acts as a financial advisor
I-1
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 2
to Volvo in respect of the Offer. During the past 24 months neither
ScotiaMcLeod nor any of its affiliates has acted as a lead or co-lead
underwriter of a distribution of securities of Volvo or Champion. Neither
ScotiaMcLeod nor any of its affiliates is a lead or co-lead lender or manager of
a lending syndicate in respect of the Offer, or a manager or co-manager of a
soliciting dealer group formed in respect of the Offer.
ScotiaMcLeod acts as a trader and dealer, both as principal and agent, in the
financial markets in Canada, the United States and elsewhere and as such has had
and may have positions in the securities of Champion or Volvo from time to time
and may have executed or may execute transactions on behalf of Champion or Volvo
or on behalf of other clients for which it receives compensation. As an
investment dealer, ScotiaMcLeod conducts research on securities and may, in the
ordinary course of business, provide research reports and investment advice to
its clients on investment matters, including the Offer.
SCOPE OF REVIEW
In preparing the Opinion, ScotiaMcLeod has reviewed and relied upon, among other
things:
a) The terms of the Offer as set out in a draft of the Offer to Purchase and
Circular (the "Circular") of the Offeror to be issued in connection with
the Offer;
b) A draft of the directors' circular to be issued in connection with the
Offer;
c) The Lockup Agreement;
d) The Acquisition Agreement between Volvo Construction Equipment N.V. and
Champion Road Machinery Limited dated February 20, 1997 (the "Acquisition
Agreement");
e) The Confidentiality and Standstill Agreement between Volvo and Champion
dated February 12, 1997;
f) The audited consolidated financial statements of Champion for each of the
fiscal years in the five year period ended December 31, 1996;
g) Other financial information obtained from management of Champion, including
interim management reports for the past three years;
h) Management prepared forecasts of the future financial and operating
performance of the Company as contained in the Champion 1997 Profit Plan
and the Champion 1997-1999 Operating Plan;
i) Minutes of the meetings of the Board and its committees for the past three
years;
j) Tours of the Company's premises and facilities in Goderich, Ontario and
Cambridge, Ontario;
k) Auditors' reports to management of Champion for each of the fiscal years
ended December 31, 1996, 1995 and 1994;
l) Tax returns of Champion and its subsidiaries for the past two years;
m) Representations from counsel to the Company regarding certain corporate
matters;
n) Agreements relating to dealer financing programs;
I-2
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 3
o) Discussions with senior management of Champion with respect to the
information referred to above, among other things;
p) Representations obtained from senior management of Champion as to matters
of fact relevant to our engagement;
q) Discussions with the accounting and legal advisors of Champion;
r) Relevant stock market and other trading information relating to the Common
Shares and the shares of similar companies, including data with respect to
the acquisition of other companies similar to Champion; and
s) Such other financial, market, technical and industry information and such
other analyses and reports as we considered relevant and appropriate in the
circumstances.
ScotiaMcLeod was granted access by Champion to its senior management and was
not, to its knowledge, denied any information which it requested.
ASSUMPTIONS AND LIMITATIONS
We have relied, without independent verification, upon all financial and other
information that was obtained by us from public sources or that was provided to
us by Champion and its affiliates and advisors or otherwise. We have assumed
that this information was complete and accurate and did not omit to state any
material fact or any fact necessary to be stated to make that information not
misleading. Our Opinion is conditional upon such completeness and accuracy. In
accordance with the terms of our engagement, but subject to the exercise of our
professional judgement, we have not conducted any independent investigation to
verify the completeness or accuracy of such information. With respect to the
financial forecasts and projections provided to us and used in our analysis, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgements of management of Champion as
to the matters covered thereby and in rendering our Opinion we express no view
as to the reasonableness of such forecasts or projections or the assumptions on
which they are based. Senior management of Champion have represented to us in a
certificate dated February 19, 1997 that, among other things, the information
provided to us relating to Champion and its affiliates was complete and correct
in all material respects and does not contain any untrue statement of a material
fact or omit to state any material fact necessary to make any such information
not misleading. Senior management of Champion has also represented that the
forecasts and projections provided to us were reasonably prepared on bases
reflecting the best currently available estimates and judgement of management of
Champion as to the matters covered thereby using the identified assumptions
which are, in the opinion of management of Champion, reasonable in the
circumstances.
Our Opinion is based on the securities markets, economic, general business and
financial conditions prevailing today and the conditions and prospects,
financial and otherwise, of Champion and its affiliates as they were reflected
in the information reviewed by us. Any changes therein may affect our Opinion
and, although we reserve the right to change or withdraw our Opinion in such
event, we disclaim any obligation to advise any person of any such change that
may come to our attention or update our Opinion after today.
We have assumed that all conditions precedent to the completion of the Offer can
be satisfied in due course, and that all consents, permissions, exemptions or
orders of relevant regulatory authorities will be obtained, without adverse
condition or qualification.
Our analysis must be considered as a whole. Selecting portions of our analysis
and of the factors considered by us, without considering all factors and
analyses together, could create a misleading view of the methodologies and
approaches underlying our Opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description, as doing so could lead to undue emphasis on any particular
factor or analysis.
I-3
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 4
FAIRNESS CONSIDERATIONS
The assessment of fairness, from a financial point of view, must be determined
in the context of the particular transaction. In assessing the fairness, from a
financial point of view, of the Offer to the holders of the Common Shares,
ScotiaMcLeod considered a number of matters, the most important of which are
summarized below.
PRECEDENT TRANSACTIONS REVIEW
ScotiaMcLeod conducted a search of heavy construction equipment manufacturer
acquisitions and identified transactions over the period from 1990 to the
present which we considered relevant. Such transactions included, among others:
- - Cascade Corp.'s acquisition of Kenhar Corporation in January, 1997;
- - Ingersoll-Rand Company's acquisition of Clark Equipment Company in May,
1995;
- - AB Volvo's acquisition of the 50% of VME Group N.V. it did not already own
in April, 1995; and
- - Clark Equipment Company's acquisition of Blaw-Knox Construction Equipment
Corporation in May, 1994.
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow approach involves discounting, at an appropriate rate,
an expected stream of future cash flows, as well as any residual or terminal
value beyond the projection period, in order to determine their present value.
The DCF approach takes into account the amount, timing and relative certainty of
the expected future cash flows to be generated by Champion and requires that
assumptions be made regarding future cash flows, discount rates and terminal
value. Such assumptions were based on, among other things, our review of
management's projections of the future financial and operating performance of
the business and such adjustments as we felt were appropriate in the
circumstances. The DCF analysis was adjusted for any assets or liabilities not
taken into account in the determination of free cash flows and terminal values.
STOCK MARKET TRADING ANALYSIS
The Common Shares are traded on The Toronto Stock Exchange, the Montreal
Exchange and the NASDAQ National Market. Prior to the announcement of the Offer
on February 20, 1997, the 52 week high closing price of the Common Shares was
$11.00 and the 52 week low was $7.00. The Common Shares have never traded above
the Offer price of $15.00, and since going public, the stock has generally
underperformed the TSE 300 Index, the TSE Fabricating and Engineering Subindex
as well as other peer group companies such as Caterpillar Inc., Case Corporation
and Deere & Company.
ScotiaMcLeod also conducted a review of stock market trading values of Canadian
and U.S. public heavy construction equipment manufacturers. Key trading value
parameters examined included enterprise value (after appropriate adjustments for
debt, excess cash, off-balance sheet financing and surplus assets) to earnings
before interest, taxes, depreciation and amortization ("EBITDA"), enterprise
value to earnings before interest and taxes ("EBIT"), price to earnings and
price to cash flow on a trailing and prospective basis.
BENEFITS TO VOLVO
We considered potential benefits to Volvo assuming the successful completion of
the Offer. Such benefits included expansion of Volvo's product line, strategic
fit, expanded distribution opportunities for the Champion product line,
purchasing synergies and administrative savings, among others. We incorporated
our assessment of these benefits into our assessment of the Common Shares to the
extent we felt was appropriate in the circumstances.
I-4
The Board of Directors of
Champion Road Machinery Limited
February 20, 1997
Page 5
REVIEW OF PROCESS
We understand that the Company has been dealing with Volvo on an exclusive basis
and the terms of the Offer were determined based on negotiations between the
Board, Volvo and the Selling Shareholders. We understand that the Board may
consider, negotiate, approve or recommend, provide information to a potential
acquiror pursuant to, or take any necessary steps to implement any bona fide
written Transaction Proposal to acquire at least a majority of the Common Shares
at a price exceeding $15.00 per Common Share in accordance with its fiduciary
obligations.
PREMIUM TO HISTORIC TRADING PRICES
At $15.00, the Offer represents a 63.9% premium to the February 18, 1997 closing
price of $9.15 and a 78.3% premium to the twenty-day average closing price on
The Toronto Stock Exchange prior to February 19, 1997. We believe this premium
to historic trading prices of the Common Shares is reasonable in the context of
the current mergers and acquisitions market in Canada.
PRIOR VALUATIONS
We understand that no prior valuations (as defined for the purposes of Ontario
Securities Commission Policy Statement No. 9.1) have been carried out on
Champion in the past twenty-four months.
PRIOR OFFERS
We understand that, apart from the Offer, there have been no prior offers for
Champion or any of its material assets in the past twenty-four months.
MARKET LIQUIDITY
The Offer provides a level of liquidity to holders of the Common Shares with
larger positions in the Common Shares which may not otherwise be available.
FAIRNESS CONCLUSION
Based upon and subject to all of the foregoing, ScotiaMcLeod is of the opinion
that the Offer is fair, from a financial point of view, to the holders of the
Common Shares.
Yours very truly,
/s/ ScotiaMcLeod, Inc.
ScotiaMcLeod Inc.
I-5
SCHEDULE II
OPTION GRANTS
The following tables set out the individual grants of options to purchase
Common Shares during the fiscal years ended December 31, 1996 and December 31,
1995 to the executive officers of the Company.
OPTIONS GRANTED DURING THE
YEAR ENDED DECEMBER 31, 1996
MARKED VALUE OF
COMMON SHARES
EXERCISE OF UNDERLYING OPTIONS
COMMON SHARES % OF TOTAL OPTIONS BASE PRICE ON THE DATE OF
UNDER OPTIONS GRANTED TO EMPLOYEES (CDN$/ COMMON GRANT (CDN$/ COMMON
NAME GRANTED (#)(1) IN FINANCIAL YEAR SHARE) SHARE) EXPIRATION DATE
- --------------------------------- --------------- --------------------- --------------- ------------------- ----------------
A. F. Church..................... 15,000 7.1% $ 10.00 $ 10.00 April 29, 2002..
S. E. Hall....................... 7,000 3.3% $ 10.00 $ 10.00 April 29, 2002
W. Legge......................... 6,000 2.8% $ 10.00 $ 10.00 April 29, 2002
K. Majeskie...................... 10,000 4.7% $ 9.25 $ 9.25 Jan. 3, 2002
W. Mason......................... 6,000 2.8% $ 10.00 $ 10.00 April 29, 2002
D. Vollmershausen................ 1,000 0.5% $ 10.00 $ 10.00 April 29, 2002
D. Vollmershausen................ 100,000 47.1% $ 7.60 $ 7.60 Sept. 6, 2002
- ------------------------------
Notes:
(1) The options vest one-fifth per year on each anniversary of the date of
grant.
OPTIONS GRANTED DURING THE
YEAR ENDED DECEMBER 31, 1995
MARKED VALUE OF
COMMON SHARES
EXERCISE OF UNDERLYING OPTIONS
COMMON SHARES % OF TOTAL OPTIONS BASE PRICE ON THE DATE OF
UNDER OPTIONS GRANTED TO EMPLOYEES (CDN$/ COMMON GRANT (CDN$/ COMMON
NAME GRANTED (#)(1) IN FINANCIAL YEAR SHARE) SHARE) EXPIRATION DATE
- --------------------- --------------- --------------------- --------------- ------------------- ----------------
A. F. Church......... 15,000 14.0% $ 11.50 $ 11.50 April 26, 2001
Scott E. Hall........ 7,000 6.5% $ 11.50 $ 11.50 April 26, 2001
Paul T. Perras....... 6,000 5.6% $ 11.50 $ 11.50 April 26, 2001
David A. Ross........ 6,000 5.6% $ 11.50 $ 11.50 April 26, 2001
Wayne D. Mason....... 5,000 4.7% $ 11.50 $ 11.50 April 26, 2001
- ------------------------------
Notes:
(1) The options vest one-fifth per year on each anniversary of the date of
grant.
Subject to the approval of The Toronto Stock Exchange, the Montreal Exchange
and the Nasdaq National Market System, the Company's Board of Directors has
resolved to accelerate the vesting of all outstanding options to acquire Shares
or to make other arrangements satisfactory to Purchaser to satisfy the
conditions of the Offer with respect to outstanding options. Each director and
officer of the Company who holds options to purchase Shares intends to exercise
all options held by such person to acquire Shares and intends to thereafter
tender such Shares in the Offer.
II-1
SCHEDULE III
TRANSACTIONS IN SHARES (OR OPTIONS TO ACQUIRE SHARES) BY THE COMPANY, ITS
EXECUTIVE OFFICERS AND
DIRECTORS AND THEIR RESPECTIVE AFFILIATES DURING THE PAST 60 DAYS
NAME NATURE OF TRADE DATE OF TRADE SHARES TRADED PRICE PER SHARE
- -------------------------------------------------- --------------- ------------- --------------- -----------------
Mary Lazarevich(1)................................ purchase 1/21/97 3,300 $ 8.90
Mary Lazarevich(1)................................ purchase 1/22/97 3,300 $ 8.95
Mary Lazarevich(1)................................ purchase 1/27/97 3,700 $ 8.50
- ------------------------------
(1) Under the CBCA, Ms. Lazarevich is an "associate" of Scott E. Hall.
III-1
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------------------------- ---------
Exhibit 1 Acquisition Agreement, dated as of February 20, 1997, between Volvo Construction
Equipment N.V. and Champion Road Machinery Limited.
Exhibit 2 Lock-Up Agreement, dated as of February 20, 1997, by and among Volvo Construction
Equipment N.V. and the persons identified on the signature page thereof.
Exhibit 3 Confidentiality Agreement, dated February 12, 1997, between Volvo Construction Equipment
N.V. and Champion Road Machinery Limited.
Exhibit 4 Directors' Circular, dated as of February 24, 1997.
Exhibit 5 Offer to Purchase for Cash of VCE Acquisition Inc. (including the accompanying Offering
Circular), dated February 24, 1997.
Exhibit 6 Letter to the Company's shareholders dated February 24, 1997.(1)
Exhibit 7 Press Release dated February 20, 1997.
Exhibit 8 Fairness Opinion of ScotiaMcLeod Inc.(2)
- ------------------------------
(1) Included in copies mailed to shareholders.
(2) Included herewith as Schedule I hereto.