EXHIBIT (a)(1)
This document is important and requires your immediate attention. If you are in
any doubt as to how to deal with it, you should consult your investment dealer,
stockbroker, bank manager, accountant, lawyer or other professional advisor.
FEBRUARY 28, 2003
2022841 ONTARIO INC.
OFFER TO PURCHASE
ALL OF THE OUTSTANDING COMMON SHARES OF
EMCO LIMITED
AT A PRICE OF
CDN$16.60 CASH PER COMMON SHARE
This offer (the "OFFER") by 2022841 Ontario Inc. (the "OFFEROR") to purchase all
of the outstanding common shares ("COMMON SHARES") of Emco Limited ("EMCO") will
be open for acceptance until 8:00 p.m. (EST) on April 7, 2003, unless withdrawn
or extended.
The Offer is subject to certain conditions which are described under "CONDITIONS
OF THE OFFER" in Section 4 of the Offer including, without limitation, there
being validly deposited under the Offer and not withdrawn prior to the
expiration of the Offer, that number of Common Shares which represents, at the
time the Offer expires, at least 66 2/3% of the Common Shares (calculated on a
fully-diluted basis, excluding Common Shares issuable on the conversion of the
outstanding 6.5% convertible unsecured subordinated debentures of Emco due July
4, 2007 (the "DEBENTURES")), but including Common Shares held at the time the
Offer expires by or on behalf of the Offeror, its associates or affiliates.
THE EMCO BOARD OF DIRECTORS, FOLLOWING CONSULTATION WITH ITS FINANCIAL AND LEGAL
ADVISORS, HAS UNANIMOUSLY DETERMINED THAT THE OFFER IS IN THE BEST INTERESTS OF
THE HOLDERS OF COMMON SHARES (THE "SHAREHOLDERS") AND, ACCORDINGLY, THE BOARD
UNANIMOUSLY RECOMMENDED THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR
COMMON SHARES TO THE OFFER.
Pursuant to a support agreement (the "SUPPORT AGREEMENT") dated as of February
19, 2003, among Emco, the Offeror and Blackfriars Corp. ("BLACKFRIARS"), a
Delaware corporation and the parent company of the Offeror, among other things,
Blackfriars agreed to cause the Offeror to make the Offer and Emco agreed to
support the Offer, subject to the terms and conditions set forth in the Support
Agreement. See "ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS -- SUPPORT AGREEMENT"
in Section 11 of the accompanying circular forming part of the Offer (the
"CIRCULAR") and the directors' circular of the Emco Board of Directors
accompanying this document.
The Offeror and Blackfriars have also entered into an agreement dated as of
February 19, 2003 (the "LOCK-UP AGREEMENT") with Masco Corporation (the "SELLING
SHAREHOLDER") pursuant to which the Selling Shareholder has agreed to deposit
irrevocably to the Offer, and not to withdraw, Common Shares representing in the
aggregate approximately 42% of the outstanding Common Shares. See "ARRANGEMENTS,
AGREEMENTS OR UNDERSTANDINGS -- LOCK-UP AGREEMENT" in Section 11 of the
Circular.
The Common Shares are listed for trading on the Toronto Stock Exchange (the
"TSX") under the stock symbol "EML" and are listed on the Nasdaq National Market
("NASDAQ") under the symbol "EMLTF". On February 19, 2003, which was the last
trading day prior to the announcement of the Offer, the closing price of the
Common Shares was Cdn$14.75 on the TSX and US$9.71 on Nasdaq.
Selected Questions and Answers about the Offer are contained on pages (i) to
(iv). You should read the entire Offer and Circular carefully prior to making
your decision whether to tender your Common Shares to the Offer.
THE OFFER REPRESENTS A PREMIUM OF 12.5% OVER THE CLOSING PRICE OF THE COMMON
SHARES ON THE TSX ON FEBRUARY 19, 2003, THE LAST TRADING DAY PRIOR TO THE
ANNOUNCEMENT OF THE OFFER, AND A PREMIUM OF 58% OVER THE CLOSING PRICE OF THE
COMMON SHARES ON THE TSX ON JULY 23, 2002, THE LAST TRADING DAY PRIOR TO THE
ANNOUNCEMENT BY EMCO OF ITS PROCESS TO CONSIDER STRATEGIC ALTERNATIVES IN ORDER
TO ATTEMPT TO MAXIMIZE VALUE FOR SHAREHOLDERS.
Shareholders who wish to accept the Offer must properly complete and execute the
accompanying letter of transmittal (the "LETTER OF TRANSMITTAL") (printed on
blue paper) or a manually executed facsimile and deposit it, together with
certificates representing their Common Shares, in accordance with the
instructions in the Letter of Transmittal. Alternatively, Shareholders may
follow the procedure for book-entry transfer of Common Shares described under
"MANNER OF ACCEPTANCE -- BOOK ENTRY TRANSFER" or the procedure for guaranteed
delivery described under "MANNER OF ACCEPTANCE -- PROCEDURE FOR GUARANTEED
DELIVERY" in Section 3 of the Offer. Shareholders whose Common Shares are
registered in the name of an investment dealer, stockbroker, bank, trust company
or other nominee should contact that nominee for assistance if they wish to
accept the Offer.
The Offer is made only for Common Shares and is not made for the Debentures or
options or rights to acquire Common Shares. Any holder of the Debentures or such
options or rights who wishes to accept the Offer should exercise their
conversion rights pursuant to the terms of the Debentures or exercise such
options or rights, in order to obtain certificates representing Common Shares
and deposit them in accordance with the Offer. Emco will also permit holders of
Options to transfer their Options to Emco in exchange for a cash payment of the
"in-the-money" value of such Options, conditional upon the Offeror taking up and
paying for Common Shares under the Offer.
Questions and requests for assistance may be directed to Scotia Capital Inc. and
Scotia Capital (USA) Inc. as Dealer Managers, MacKenzie Partners, Inc., as
Information Agent for the Offer, or Computershare Trust Company of Canada as the
Depositary for the Offer. Additional copies of the Offer and Circular, the
Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained
without charge on request from the Depositary or the Information Agent at its
office shown on the last page of this Offer and Circular.
None of the Offeror or its affiliates will bid for or make purchases of Common
Shares during the pendancy of the Offer.
This document does not constitute an offer or a solicitation to any person in
any jurisdiction in which such offer or solicitation is unlawful. The Offer is
not being made to, nor will deposits be accepted from or on behalf of,
Shareholders in any jurisdiction in which the making or acceptance of the Offer
would not be in compliance with the laws of such jurisdiction. However, the
Offeror or its agents may, in the Offeror's sole discretion, take such action as
the Offeror may deem necessary to extend the Offer to Shareholders in such
jurisdiction.
----------------------------------------------
The Dealer Managers for the Offer are:
<Table>
In Canada: In the United States:
SCOTIA CAPITAL INC. SCOTIA CAPITAL (USA) INC.
</Table>
NOTICE TO SHAREHOLDERS IN THE UNITED STATES
SHAREHOLDERS WHO ARE NOT RESIDENTS OF CANADA SHOULD BE AWARE THAT THE
DISPOSITION OF COMMON SHARES PURSUANT TO THE OFFER MAY HAVE TAX CONSEQUENCES
BOTH IN CANADA AND IN THE UNITED STATES WHICH MAY NOT BE DESCRIBED FULLY HEREIN.
SEE "CERTAIN INCOME TAX CONSIDERATIONS -- CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS -- NON-RESIDENTS OF CANADA" AND "CERTAIN INCOME TAX
CONSIDERATIONS -- U.S. FEDERAL INCOME TAX CONSIDERATIONS" IN SECTION 16 OF THE
CIRCULAR.
THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE U.S. FEDERAL
SECURITIES LAWS MAY BE AFFECTED ADVERSELY BY THE FACT THAT THE OFFEROR AND EMCO
ARE INCORPORATED AND ORGANIZED UNDER THE LAWS OF THE PROVINCE OF ONTARIO,
CANADA, THAT SOME OF THEIR OFFICERS AND DIRECTORS ARE RESIDENTS OF CANADA, THAT
SOME OR ALL OF THE EXPERTS NAMED IN THE OFFER OR CIRCULAR MAY BE RESIDENTS OF A
FOREIGN COUNTRY, AND THAT ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF THE
OFFEROR AND EMCO AND OF THE ABOVE-MENTIONED PERSONS MAY BE LOCATED OUTSIDE OF
THE UNITED STATES.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY ANY SECURITIES
REGULATORY AUTHORITY NOR HAS ANY SECURITIES REGULATORY AUTHORITY PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
AS AT FEBRUARY 27, 2003, THE BANK OF CANADA QUOTED NOON SPOT EXCHANGE RATE
FOR CANADIAN DOLLARS PER US$1.00 WAS CDN$1.495. THE OFFER PRICE IS CDN$16.60 PER
COMMON SHARE. THEREFORE, IF YOU WERE PAID CDN$16.60 ON FEBRUARY 27, 2003, PER
COMMON SHARE AND EXCHANGED THAT AMOUNT FOR UNITED STATES DOLLARS AT THAT
EXCHANGE RATE, YOU WOULD RECEIVE US$11.10 PER COMMON SHARE (EXCLUDING ANY
CURRENCY EXCHANGE FEES OR COMMISSIONS). ALTHOUGH THE OFFER PRICE PER COMMON
SHARE OF CDN$16.60 WILL NOT VARY, THE U.S. DOLLAR EQUIVALENT THEREOF WILL VARY
WITH THE CANADIAN DOLLAR TO U.S. DOLLAR EXCHANGE RATE.
SELECTED QUESTIONS AND ANSWERS ABOUT THE OFFER
2022841 ONTARIO INC. IS OFFERING TO PURCHASE ALL OF THE OUTSTANDING COMMON
SHARES OF EMCO LIMITED FOR CDN$16.60 PER SHARE IN CASH. THE FOLLOWING ARE SOME
OF THE QUESTIONS YOU, AS A SHAREHOLDER OF EMCO, MAY HAVE AND ANSWERS TO THOSE
QUESTIONS. WE URGE YOU TO READ THE REMAINDER OF THE OFFER AND CIRCULAR AND THE
ENCLOSED LETTER OF TRANSMITTAL CAREFULLY BECAUSE THE INFORMATION CONTAINED BELOW
IS NOT COMPLETE. ADDITIONAL IMPORTANT INFORMATION IS CONTAINED IN THE REMAINDER
OF THE OFFER, THE CIRCULAR AND THE LETTER OF TRANSMITTAL. AS USED IN THESE
QUESTIONS AND ANSWERS, "WE" OR "US" OR "OUR" REFERS TO 2022841 ONTARIO INC., THE
ENTITY MAKING THE TENDER OFFER FOR THE COMMON SHARES.
WHO IS OFFERING TO BUY MY EMCO COMMON SHARES?
We are 2022841 Ontario Inc., a newly formed Ontario corporation and an
indirect wholly owned subsidiary of Blackfriars Corp., a Delaware corporation.
We have been formed for the purpose of making a tender offer for, and
purchasing, all of the Emco common shares and have carried on no activities
other than in connection with the support agreement among Blackfriars, Emco and
us and the lock-up agreement among Blackfriars, Masco Corporation (a shareholder
of Emco holding approximately 42% of the outstanding Emco common shares) and us.
See Sections 1 to 3 of the attached Circular for more details regarding
Blackfriars, Emco and us.
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE TENDER OFFER?
We are seeking to purchase all of the issued and outstanding Emco common
shares. See Section 1 of the Offer.
HOW MUCH ARE YOU OFFERING TO PAY? WHAT IS THE FORM OF PAYMENT? WILL I HAVE TO
PAY ANY FEES OR COMMISSIONS?
We are offering to pay Cdn$16.60 per Emco common share, net to you in cash,
without interest.
On February 27, 2003, the Bank of Canada quoted noon spot exchange rate for
Canadian dollars per US$1.00 was Cdn$1.495. Therefore, if you were paid
Cdn$16.60 per Emco common share on February 27, 2003 and exchanged that amount
for United States dollars at that exchange rate, you would receive US$11.10 per
Emco common share (excluding any currency exchange fees or commissions).
Although the offer price of Cdn$16.60 per Emco common share is fixed, the amount
you would receive in United States dollars per Emco common share will vary with
the Canadian dollar to U.S. dollar exchange rate, which may be higher or lower
than Cdn$1.495 per US$1.00 at the time of exchange.
If you are the record owner of your shares and you tender your Emco common
shares to us in the tender offer, you will not have to pay brokerage fees or
similar expenses. If you own your Emco common shares through a broker or other
nominee, and your broker or nominee tenders your Emco common shares on your
behalf, your broker or nominee may charge you a fee for doing so. You should
consult your broker or nominee to determine whether any charges will apply. See
Section 3 of the Offer.
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Blackfriars, our parent company, has made available sufficient funds to
purchase all Emco common shares that are validly tendered and not withdrawn in
the tender offer and to provide funding for the compulsory share acquisition or
the subsequent acquisition transaction that is expected to follow the successful
completion of the tender offer. Blackfriars' source of funds will be its cash
and short term investments on hand. See "SOURCE OF FUNDS" in Section 8 of the
Circular for additional information. Our obligation to purchase the Emco common
shares in the tender offer is not subject to any financing condition.
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
We do not think our financial condition is relevant to your decision
whether to tender to the tender offer because the form of consideration consists
solely of cash and our tender offer is not contingent upon our receipt of
financing. See Section 8 of the Circular for additional information.
HAVE ANY SHAREHOLDERS AGREED TO TENDER THEIR EMCO COMMON SHARES?
Concurrently with entering into the support agreement, we entered into a
lock-up agreement with a principal shareholder of Emco that owns 6,621,334 Emco
common shares, constituting approximately 42% of the outstanding
(i)
Emco common shares. Under the lock-up agreement, the shareholder has agreed,
among other things, to deposit its Emco common shares to the tender offer.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have until 8:00 p.m. (EST), on April 7, 2003, to tender your
shares in the tender offer, unless the tender offer is extended. If you cannot
deliver everything that is required in order to make a valid tender by that
time, you may be able to use a guaranteed delivery procedure, which is described
in Section 3 of the Offer.
CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
We expressly reserve the right, subject to the terms of the support
agreement and applicable law, to extend the period of time during which the
tender offer remains open, provided that the support agreement and the tender
offer may be terminated by Emco if we do not purchase the Emco common shares
tendered in the tender offer by May 15, 2003. See Section 5 of the Offer.
If we purchase the shares tendered in the offer, we have the right, at our
option, to extend the tender offer to provide a "SUBSEQUENT OFFERING PERIOD"
during which shareholders may tender their Emco common shares and promptly
receive the offer price of Cdn$16.60 per Emco common share. Notwithstanding the
provisions of United States federal securities laws relating to subsequent
offering periods, there will be withdrawal rights during any subsequent offering
period, if there is one. In addition, if we elect to provide a subsequent
offering period, the subsequent offering period will be at least 10 days but no
more than 20 business days. See Section 2 of the Offer.
HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the tender offer, we will inform Computershare Trust Company
of Canada, the depositary for the tender offer, of that fact and will make a
public announcement of the extension not later than 9:00 a.m. (EST), on the next
business day after the day on which the tender offer was scheduled to expire.
See Section 5 of the Offer.
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE TENDER OFFER?
We are not obligated to purchase any Emco common shares that are validly
tendered unless the number of Emco common shares validly tendered (other than
tenders by guaranteed delivery where actual delivery has not occurred) and not
withdrawn before the expiration of the tender offer represents at least 66 2/3%
of the outstanding Emco common shares on a fully diluted basis. A fully diluted
basis means we assume all options and other rights to acquire Emco common shares
(other than rights to convert the outstanding Emco 6.5% convertible unsecured
subordinated debentures into Emco common shares) outstanding at that time had
been exercised, whether or not they were exercised. See Section 4 of the Offer.
We are not obligated to purchase Emco common shares that are validly
tendered if we have not received any required approvals or rulings, including,
without limitation, under the Competition Act (Canada) and the Investment Canada
Act, or if the applicable waiting period under the Hart-Scott-Rodino Act has not
expired or been terminated. See Section 14 of the Circular.
We are not obligated to purchase Emco common shares that are validly
tendered if Emco's board of directors withdraws its recommendation of the tender
offer, or changes its recommendation in a manner that has substantially the same
effect. See Section 11 of the Circular.
We are not obligated to purchase Emco common shares that are validly
tendered if Emco breaches or fails to perform in any material respect its
obligations under the support agreement or breaches its representations and
warranties under the support agreement in any material respect and the breach or
failure to perform is not cured within five days of receipt of written notice of
the breach or failure to comply or of becoming aware of the breach of a
representation or warranty. See Section 11 of the Circular.
The tender offer also is subject to a number of other conditions. We can
waive the conditions to the tender offer without Emco's consent. See Sections 4
of the Offer.
Our obligation to purchase Emco common shares under the tender offer is not
conditioned on any financing arrangements or subject to any financing condition.
See Section 8 of the Circular for information about our financing arrangements.
(ii)
HOW DO I TENDER MY EMCO COMMON SHARES?
To tender your Emco common shares:
- You must deliver the share certificates (or arrange for the book-entry
delivery of your shares), together with a completed letter of
transmittal (or an "Agent's Message" in the case of book-entry transfer)
and any other documents required by the letter of transmittal, to the
depositary not later than the time the tender offer expires. See Section
3 of the Offer.
- If your Emco common shares are held in "street name," your Emco common
shares can only be tendered by your broker or nominee through the
depositary.
- If you are unable to deliver any required document or instrument to the
depositary by the expiration of the tender offer, you may gain some
extra time by having a broker, a bank or other fiduciary that is an
eligible institution guarantee that the missing items will be received
by the depositary within three Toronto Stock Exchange trading days. For
the tender to be valid, however, the depositary must receive the missing
items within that three trading day period. See Section 3 of the Offer.
UNTIL WHAT TIME MAY I WITHDRAW PREVIOUSLY TENDERED EMCO COMMON SHARES?
You may withdraw Emco common shares at any time before the scheduled or any
extended expiration of the tender offer, unless they are accepted for purchase
upon the scheduled expiration of the tender offer. You may also withdraw any
Emco common shares that are tendered during the subsequent offering period, if
there is one, before such common shares are purchased by us. According to
applicable securities laws, we must promptly pay for all common shares we
purchase during any subsequent offering period. You may also have additional
time to withdraw your Emco common shares if certain changes are made in the
tender offer. See Section 7 of the Offer.
HOW DO I WITHDRAW PREVIOUSLY TENDERED EMCO COMMON SHARES?
To withdraw Emco common shares that have been tendered, you must deliver a
written notice of withdrawal, or a facsimile of one, with the required
information to the depositary for the tender offer while you still have the
right to withdraw the Emco common shares. See Section 7 of the Offer.
WHAT DOES EMCO'S BOARD OF DIRECTORS RECOMMEND REGARDING THE TENDER OFFER?
We are making the tender offer pursuant to the support agreement, which has
been approved unanimously by Emco's board of directors. EMCO'S BOARD OF
DIRECTORS, FOLLOWING CONSULTATION WITH ITS FINANCIAL AND LEGAL ADVISORS, HAS
UNANIMOUSLY DETERMINED THAT THE TENDER OFFER IS IN THE BEST INTERESTS OF THE
SHAREHOLDERS AND, ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDED THAT
SHAREHOLDERS ACCEPT THE TENDER OFFER AND TENDER THEIR EMCO COMMON SHARES TO THE
TENDER OFFER.
IF THE EMCO COMMON SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL EMCO
CONTINUE AS A PUBLIC COMPANY?
In all likelihood, no. Following the purchase of Emco common shares in the
tender offer, if over 90% of the outstanding Emco common shares are purchased,
we expect to consummate a compulsory share acquisition transaction as provided
under applicable Ontario law. If less than 90% of the outstanding Emco common
shares are tendered and purchased in the tender offer or if for some other
reason we cannot complete a compulsory share acquisition under applicable law,
we intend to complete a subsequent acquisition transaction to acquire the
remaining publicly held Emco common shares. See Section 11 of the Offer and
Section 15 of the Circular.
Even if for some reason a compulsory share acquisition or subsequent
acquisition transaction does not take place, if we purchase all of the tendered
Emco common shares, then there may be so few remaining shareholders and publicly
held Emco common shares that the Emco common shares will no longer be eligible
to be traded on the Toronto Stock Exchange or the Nasdaq, there may not be a
public trading market for the Emco common shares, and Emco may cease to make
filings with the Canadian securities regulatory authorities, the Securities and
Exchange Commission or otherwise no longer be required to comply with their
rules relating to publicly held companies. See Section 7 of the Circular.
(iii)
IF ALL OF THE EMCO COMMON SHARES ARE NOT TENDERED IN THE OFFER, WILL THE
REMAINING PUBLICLY HELD EMCO COMMON SHARES BE PURCHASED?
We expect yes. Following the purchase of Emco common shares in the tender
offer, if over 90% of the outstanding Emco common shares are purchased, we will
consummate a compulsory share acquisition transaction as provided under
applicable Ontario law. If less than 90% of the outstanding Emco common shares
are tendered and purchased in the tender offer or if for some other reason we
cannot complete a compulsory share acquisition under applicable law, we intend
to complete a subsequent acquisition transaction to acquire the remaining
publicly held Emco common shares. See Section 11 of the Offer and Section 15 of
the Circular. In either such case, Blackfriars will indirectly own all of the
Emco common shares, and all remaining public shareholders of Emco (other than
shareholders properly exercising appraisal rights under applicable Ontario law,
if applicable) will receive Cdn$16.60 per share in cash, without interest.
WHAT IS THE MARKET VALUE OF MY EMCO COMMON SHARES AS OF A RECENT DATE?
On February 19, 2003, the last trading day before the announcement of the
tender offer, the closing price of the Emco common shares was Cdn$14.75 on the
Toronto Stock Exchange and US$9.71 on Nasdaq. The tender offer represents a
premium of 12.5% over the closing price of the Emco common shares on the Toronto
Stock Exchange on the last trading day before the announcement of the tender
offer and a premium of 58% over the closing price of the Emco common shares on
the Toronto Stock Exchange on July 23, 2002, the last trading day before the
announcement by Emco of its process to attempt to maximize value for
shareholders.
We encourage you to obtain a recent quotation for Emco common shares in
deciding whether to tender your Emco common shares. See Section 13 of the
Circular.
GENERALLY, WHAT ARE THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF TENDERING
EMCO COMMON SHARES?
A shareholder who is resident in Canada, who holds Emco common shares as
capital property and who sells such Emco common shares to us under the tender
offer, will realize a capital gain (or capital loss) equal to the amount by
which the cash received, net of any reasonable costs of disposition, exceeds (or
is less than) the adjusted cost base to the shareholder of its Emco common
shares.
In general, shareholders who are non-residents of Canada for the purposes
of the Income Tax Act (Canada) will not be subject to Canadian income tax on any
gain realized on a disposition of Emco common shares to us under the tender
offer unless those Emco common shares constitute "taxable Canadian property"
within the meaning of the Income Tax Act (Canada) and that gain is not otherwise
exempt from tax under the Income Tax Act (Canada) pursuant to an exemption
contained in an applicable income tax treaty or convention. We encourage you to
seek independent tax advice regarding the tax consequences of tendering your
Emco common shares. See Section 16 of the Circular.
GENERALLY, WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
TENDERING EMCO COMMON SHARES?
The sale of Emco common shares by certain U.S. shareholders pursuant to the
tender offer will be a taxable transaction for U.S. federal income tax purposes.
In general, a U.S. shareholder who sells Emco common shares pursuant to the
tender offer will recognize a gain or loss for U.S. federal income tax purposes
equal to the difference, if any, between the amount of cash received (in U.S.
dollar equivalents determined at the spot rate on the date of the consummation
of the tender offer) and the shareholder's adjusted tax basis in the Emco common
shares sold pursuant to the tender offer (as determined in U.S. dollars).
We encourage you to seek independent tax advice regarding the tax
consequences of tendering your Emco common shares. See Section 16 of the
Circular.
TO WHOM MAY I SPEAK IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
Questions and requests for assistance may be directed to Scotia Capital
Inc. and Scotia Capital (USA) Inc. as dealer managers, MacKenzie Partners, Inc.
as information agent for the tender offer, or Computershare Trust Company of
Canada as the depositary for the tender offer. Additional copies of the Offer,
the Circular, the Letter of Transmittal and the related tender offer documents
may be obtained without charge on request from a dealer manager, the information
agent or the depositary at their respective offices shown on the last page of
the Offer and Circular.
(iv)
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SELECTED QUESTIONS AND ANSWERS ABOUT THE OFFER.............. (i)
DEFINITIONS................................................. 2
SUMMARY..................................................... 5
OFFER....................................................... 10
1. THE OFFER............................................. 10
2. TIME FOR ACCEPTANCE................................... 11
3. MANNER OF ACCEPTANCE.................................. 12
4. CONDITIONS OF THE OFFER............................... 15
5. EXTENSION, VARIATION OR CHANGE IN THE OFFER;
SUBSEQUENT OFFERING PERIOD........................... 17
6. TAKE UP OF AND PAYMENT FOR DEPOSITED COMMON SHARES.... 18
7. RIGHT TO WITHDRAW DEPOSITED COMMON SHARES............. 19
8. MAIL SERVICE INTERRUPTION............................. 20
9. DIVIDENDS AND DISTRIBUTIONS........................... 20
10. NOTICE AND DELIVERY................................... 21
11. ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE
OFFER................................................ 21
12. MARKET PURCHASES...................................... 22
13. OTHER TERMS OF THE OFFER.............................. 22
14. MISCELLANEOUS......................................... 22
CIRCULAR.................................................... 24
1. THE OFFEROR........................................... 24
2. BLACKFRIARS CORP...................................... 24
3. EMCO LIMITED.......................................... 25
4. BACKGROUND TO THE OFFER............................... 25
5. PURPOSE OF THE OFFER.................................. 26
6. PLANS FOR EMCO........................................ 27
7. CERTAIN EFFECTS OF THE OFFER.......................... 27
8. SOURCE OF FUNDS....................................... 28
9. OWNERSHIP OF AND TRADING IN SECURITIES OF EMCO........ 28
10. COMMITMENTS TO ACQUIRE SECURITIES OF EMCO............. 29
11. ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS............ 29
12. MATERIAL CHANGES AND OTHER INFORMATION CONCERNING
EMCO................................................. 33
13. INFORMATION ABOUT COMMON SHARES....................... 33
14. REGULATORY MATTERS.................................... 35
15. ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE
OFFER................................................ 37
16. CERTAIN INCOME TAX CONSIDERATIONS..................... 39
17. OTHER MATTERS RELATING TO THE OFFER................... 45
18. OFFEREES' STATUTORY RIGHTS............................ 46
SCHEDULE I -- INFORMATION CONCERNING DIRECTORS AND EXECUTIVE
OFFICERS OF THE OFFEROR AND BLACKFRIARS AND THE TRUSTS AND
TRUSTEES CONTROLLING SUCH CORPORATIONS.................... 47
APPROVAL AND CERTIFICATE OF THE OFFEROR..................... 49
</Table>
1
DEFINITIONS
In the accompanying Summary, Offer and Circular, unless the context
otherwise requires or unless defined elsewhere herein, the following terms have
the meanings indicated:
"AFFILIATE" has the meaning specified in the OBCA;
"ASSOCIATE" has the meaning specified in the OBCA;
"BLACKFRIARS" means Blackfriars Corp., a corporation incorporated under the laws
of the State of Delaware;
"BUSINESS DAY" means any day other than a Saturday or a Sunday, on which banks
are open for business in Toronto, Ontario and New York, New York;
"BOOK-ENTRY TRANSFER FACILITY" means The Depository Trust Company;
"CIRCULAR" means the take-over bid circular accompanying the Offer and forming a
part of it;
"CLOSE OF BUSINESS" on any given date means the time on such date (or, if such
date is not a Business Day, on the next following Business Day) at which the
office of the transfer agent for the Common Shares in Toronto, Ontario becomes
closed to the public;
"CODE" means the United States Internal Revenue Code of 1986, as amended;
"COMMON SHARES" means the issued and outstanding common shares of Emco;
"COMPETITION ACT" means the Competition Act (Canada), as amended;
"COMPETITION COMMISSIONER" means the Commissioner of Competition appointed under
the Competition Act;
"COMPULSORY ACQUISITION" has the meaning specified under "ACQUISITION OF COMMON
SHARES NOT DEPOSITED UNDER THE OFFER" in Section 15 of the Circular;
"CVMQ" means the Commission des valeurs mobilieres du Quebec;
"DEALER MANAGERS" means Scotia Capital Inc. in Canada and Scotia Capital (USA)
Inc. in the United States;
"DEBENTURES" means the 6.5% convertible unsecured subordinated debentures of
Emco due July 4, 2007;
"DEPOSIT MINIMUM CONDITION" has the meaning specified in Section 4 of the Offer;
"DEPOSITARY" means Computershare Trust Company of Canada at its offices
specified in the Letter of Transmittal;
"DIRECTORS' CIRCULAR" means the circular of the Emco Board of Directors in
respect of the Offer;
"EFFECTIVE TIME" has the meaning specified under "MANNER OF ACCEPTANCE -- POWER
OF ATTORNEY" in Section 3 of the Offer;
"ELIGIBLE INSTITUTION" means a Canadian Schedule I chartered bank, a major trust
company in Canada, a member of the Securities Transfer Agent Medallion Program
(STAMP), a member of the Stock Exchanges Medallion Program (SEMP) or a member of
the New York Stock Exchange Inc. Medallion Signature Program (MSP). Members of
these programs are usually members of a recognized stock exchange in Canada or
the United States, members of the Investment Dealers Association of Canada,
members of the National Association of Securities Dealers or banks and trust
companies in the United States;
"EMCO" means Emco Limited, a corporation constituted under the OBCA;
"EMCO BOARD OF DIRECTORS" means the board of directors of Emco;
"EST" means Eastern Standard Time;
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended;
"EXPIRY DATE" means April 7, 2003, or such later date or dates as may be fixed
by the Offeror from time to time pursuant to Section 5 of the Offer, "EXTENSION,
VARIATION OR CHANGE IN THE OFFER; SUBSEQUENT OFFERING PERIOD";
"EXPIRY TIME" means 8:00 p.m. (EST) on the Expiry Date, or such later time and
date as may be fixed by the Offeror from time to time as provided under
"EXTENSION, VARIATION OR CHANGE IN THE OFFER; SUBSEQUENT OFFERING PERIOD" in
Section 5 of the Offer, unless the Offer is withdrawn by the Offeror;
2
"FULLY-DILUTED BASIS" means, with respect to the number of outstanding Common
Shares at any time, the number of Common Shares that would be outstanding
assuming all options and other rights to acquire Common Shares (other than
rights to convert the outstanding Debentures into Common Shares) outstanding at
that time had been exercised;
"GOVERNMENT ENTITY" means any domestic (federal, state, provincial or
territorial), foreign or supranational court, commission, governmental body,
quasi-governmental entity, body or authority of any kind whatsoever, regulatory
agency, authority, stock exchange or tribunal;
"HSR ACT" means the United States Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended;
"INFORMATION AGENT" means MacKenzie Partners, Inc.;
"INVESTMENT CANADA ACT" means the Investment Canada Act, as amended;
"LETTER OF TRANSMITTAL" means the Letter of Transmittal (printed on blue paper)
in the form accompanying the Offer and Circular, or a facsimile thereof;
"LOCK-UP AGREEMENT" means the agreement between the Offeror, Blackfriars and the
Selling Shareholder dated as of February 19, 2003, as described in
"ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS -- LOCK-UP AGREEMENT" in Section 11
of the Circular;
"LOCKED-UP SHARES" means the 6,621,334 Common Shares that the Selling
Shareholder has agreed to deposit irrevocably to the Offer pursuant to the
Lock-up Agreement described in "ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS --
LOCKUP AGREEMENT" in Section 11 of the Circular;
"MATERIAL ADVERSE CHANGE" means when used with respect to Emco, Blackfriars or
the Offeror, as the case may be, any change or effect that is or could
reasonably be expected to be materially adverse to the business, operations,
assets, liabilities, employee relationships, customer or supplier relationships,
earnings or results of operations, business conditions or prospects (financial
or otherwise), of Emco and its subsidiaries, or Blackfriars and its
subsidiaries, taken as a whole, as the case may be;
"MINORITY APPROVAL", with respect to a Subsequent Acquisition Transaction, has
the meaning specified in OSC Rule 61-501 and Policy Q-27;
"NASDAQ" means the Nasdaq National Market;
"NOTICE OF GUARANTEED DELIVERY" means the Notice of Guaranteed Delivery for
Deposit of Common Shares (printed on green paper) in the form accompanying the
Offer and Circular, or a facsimile thereof;
"OBCA" means the Business Corporations Act (Ontario), as amended;
"OFFER" means the offer to purchase all of the outstanding Common Shares made
hereby to Shareholders, subject to the terms set forth in the Offer Documents;
"OFFER DOCUMENTS" means, collectively, the Offer, Circular, Letter of
Transmittal and Notice of Guaranteed Delivery;
"OFFER PERIOD" means the period commencing on the date of the Offer and ending
at the Expiry Time;
"OFFER PRICE" means Cdn$16.60 per Common Share;
"OFFEROR" means 2022841 Ontario Inc., an indirect wholly-owned subsidiary of
Blackfriars, incorporated under the OBCA;
"OPTIONS" means the options to acquire Common Shares issued and outstanding
under the Stock Option Plan;
"OSA" means the Securities Act (Ontario), as amended;
"OSC RULE 61-501" means Rule 61-501 -- Insider Bids, Issuer Bids, Going Private
Transactions and Related Party Transactions of the OSC;
"OSC" means the Ontario Securities Commission;
"POLICY Q-27" means Policy Statement No. Q-27 of the CVMQ;
"PURCHASED COMMON SHARES" means the Common Shares deposited pursuant to the
Offer and purchased by the Offeror;
"SCHEDULE TO" means the Schedule TO filed by the Offeror and Blackfriars with
the SEC in connection with the Offer;
3
"SEC" means the United States Securities and Exchange Commission;
"SELLING SHAREHOLDER" means Masco Corporation, a corporation incorporated under
the laws of the State of Delaware;
"SHAREHOLDERS" means the holders of Common Shares, and "SHAREHOLDER" means any
one of them;
"SHARE CERTIFICATES" means the certificates in respect of Common Shares;
"SOLICITING DEALER GROUP" means the soliciting dealer group (comprised of
members of the Investment Dealers Association of Canada and members of Canadian
stock exchanges) formed to solicit acceptances of the Offer;
"STOCK OPTION PLAN" means the Stock Option Plan being Part II of the 1991 Long
Term Incentive Program for management and key personnel of Emco, as amended;
"SUBSEQUENT ACQUISITION TRANSACTION" has the meaning specified under
"ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE OFFER -- SUBSEQUENT
ACQUISITION TRANSACTION" in Section 15 of the Circular;
"SUPPORT AGREEMENT" means the support agreement among the Offeror, Blackfriars
and Emco dated as of February 19, 2003, as described in "ARRANGEMENTS,
AGREEMENTS OR UNDERSTANDINGS -- SUPPORT AGREEMENT" in Section 11 of the
Circular;
"SUPERIOR PROPOSAL" has the meaning specified under "ARRANGEMENTS, AGREEMENTS OR
UNDERSTANDINGS -- SUPPORT AGREEMENT" in Section 11 of the Circular;
"TAKE-OVER PROPOSAL" has the meaning specified under "ARRANGEMENTS, AGREEMENTS
OR UNDERSTANDINGS -- SUPPORT AGREEMENT" in Section 11 of the Circular;
"TAX ACT" means the Income Tax Act (Canada), including all regulations made
thereunder, as amended;
"TD SECURITIES" means TD Securities, Inc.;
"TSX" means the Toronto Stock Exchange; and
"UNITED STATES" means the United States of America, its territories and
possessions, any State of the United States and the District of Columbia.
"U.S. HOLDERS" has the meaning specified under "CERTAIN INCOME TAX
CONSIDERATIONS -- UNITED STATES FEDERAL TAX CONSIDERATIONS" in Section 16 of the
Circular.
4
SUMMARY
The following is a summary only and is qualified by the detailed provisions
contained elsewhere in the Offer and Circular. Shareholders are urged to read
the Offer and Circular in their entirety. Capitalized terms used in this
summary, that are not otherwise defined herein, are defined in the Definitions.
The information concerning Emco contained herein and in the Offer and Circular
has been provided to the Offeror by Emco or has been taken from or is based upon
publicly available documents or records of Emco on file with Canadian securities
regulatory authorities and other public sources at the time of the Offer, unless
otherwise indicated, and has not been independently verified by the Offeror. All
currency amounts expressed herein, unless otherwise indicated, are expressed in
Canadian dollars.
THE OFFER
The Offeror, 2022841 Ontario Inc., is offering, upon the terms and subject
to the conditions of the Offer, to purchase all of the outstanding Common
Shares, including Common Shares which may become outstanding on the conversion
of Debentures or the exercise of Options, at a price in cash of Cdn$16.60 per
Common Share. See "THE OFFER" in Section 1 of the Offer.
THE EMCO BOARD OF DIRECTORS, FOLLOWING CONSULTATION WITH ITS FINANCIAL AND
LEGAL ADVISORS, HAS UNANIMOUSLY DETERMINED THAT THE OFFER IS IN THE BEST
INTERESTS OF SHAREHOLDERS AND, ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDED
THAT THE SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR COMMON SHARES TO THE
OFFER. SEE THE ACCOMPANYING DIRECTORS' CIRCULAR.
The obligation of the Offeror to take up and pay for Common Shares pursuant
to the Offer is subject to certain conditions. See "CONDITIONS OF THE OFFER" in
Section 4 of the Offer.
THE OFFEROR
The Offeror was incorporated on February 19, 2003 under the OBCA and is an
indirect wholly-owned subsidiary of Blackfriars. The Offeror has not carried on
any business prior to the date hereof other than in connection with the Support
Agreement and the Lock-up Agreement, and was incorporated to make, and to
purchase Common Shares tendered to, the Offer. The Offeror's head office and
principal place of business is located at 199 Bay Street, Toronto, Ontario, M5L
1B9. See "THE OFFEROR" in Section 1 of the Circular.
BLACKFRIARS CORP.
Blackfriars is a closely held corporation incorporated under the laws of
Delaware. Blackfriars' corporate headquarters is located at 555 Skokie Blvd,
Suite 555, Northbrook, Illinois 60062. Blackfriars is a diversified holding
company and conducts no operations of its own, other than as a holding company.
Blackfriars holds investments in various businesses, including principally a
wholesale electrical distribution business.
Other than 10,700 Common Shares held by a director and officer of
Blackfriars, as of the date hereof, the Offeror and Blackfriars do not
beneficially own, directly or indirectly, any of the outstanding Common Shares
or any securities convertible into or exchangeable for Common Shares. However,
the Offeror and Blackfriars have entered into the Lock-up Agreement with Masco
Corporation pursuant to which Masco Corporation has agreed to tender 6,621,334
Common Shares, or approximately 42% of the outstanding Common Shares, to the
Offer. See "BLACKFRIARS CORP." in Section 2 of the Circular and "ARRANGEMENTS,
AGREEMENTS OR UNDERSTANDING -- LOCK-UP AGREEMENT" in Section 11 of the Circular.
EMCO LIMITED
Emco Limited is the corporation continuing from the amalgamation of Emco
Limited and BPCO Inc. on January 1, 1993 under the laws of Ontario. The
predecessor of Emco Limited, the Empire Manufacturing Company Limited, was
incorporated under the laws of Ontario by Letters Patent dated May 28, 1906.
Emco's head office and principal place of business is located at 620 Richmond
Street, London, Ontario N6A 5J9.
The Common Shares are listed and posted for trading on the TSX under the
symbol "EML" and on the Nasdaq under the symbol "EMLTF". Based on
representations made in the Support Agreement, the Offeror believes that as of
the date hereof, there are approximately 17,488,482 Common Shares outstanding on
a Fully-diluted Basis. See "EMCO LIMITED" in Section 3 of the Circular.
5
SOURCE OF FUNDS
Blackfriars has made available to the Offeror sufficient funds to purchase
all Common Shares that are validly tendered and not withdrawn in the Offer and
to provide funding for the Compulsory Acquisition or the Subsequent Acquisition
Transaction that is expected to follow the successful completion of the Offer.
Blackfriars' source of funds will be its cash and short term investments on
hand. See "SOURCE OF FUNDS" in Section 8 of the Circular for additional
information. The Offeror's obligation to purchase the Common Shares tendered in
the Offer is not subject to any financing condition.
PURPOSE OF THE OFFER
The purpose of the Offer is to enable the Offeror to acquire all of the
outstanding Common Shares. If, within 120 days after February 28, 2003, the
Offer is accepted by holders of at least 90% of the outstanding Common Shares,
the Offeror now intends, and in the Support Agreement has agreed to use its
reasonable best efforts, to exercise its statutory right to acquire, to the
extent permitted by applicable law, all the Common Shares not deposited under
the Offer. If such statutory right of acquisition is not available, the Offeror
now intends to cause a meeting of Shareholders to be called to consider a
statutory arrangement, amalgamation, consolidation, corporate reorganization or
other transaction that may constitute a going private transaction for the
purpose of enabling the Offeror or an affiliate or associate of the Offeror to
acquire all the Common Shares not deposited under the Offer. See "PURPOSE OF THE
OFFER" in Section 5 of the Circular and "ACQUISITION OF COMMON SHARES NOT
DEPOSITED UNDER THE OFFER" in Section 11 of the Offer and Section 15 of the
Circular. It is expected that the Offeror would redeem the Debentures in
accordance with their terms immediately prior to the completion of a Compulsory
Acquisition or Subsequent Acquisition Transaction.
SUPPORT AGREEMENT
The Emco Board of Directors, after consultation with its financial and
legal advisors, has unanimously determined that the Offer is in the best
interests of Shareholders and has unanimously recommended that Shareholders
accept the Offer and tender their Common Shares to the Offer. Pursuant to a
Support Agreement among Emco, the Offeror and Blackfriars dated as of February
19, 2003, the Emco Board of Directors agreed to support the Offer. See
"ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS -- SUPPORT AGREEMENT" in Section 11
of the Circular.
LOCK-UP AGREEMENT
On February 20, 2003, the Offeror, Blackfriars and the Selling Shareholder
entered into the Lock-up Agreement pursuant to which the Selling Shareholder
agreed to deposit irrevocably pursuant to the Offer and not to withdraw
6,621,334 Common Shares (or approximately 42% of the outstanding Common Shares).
See "ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS -- LOCK-UP AGREEMENT" in Section
11 of the Circular.
TIME FOR ACCEPTANCE
The Offer is open for acceptance until the Expiry Time unless the Offer is
withdrawn by the Offeror. See "TIME FOR ACCEPTANCE" in Section 2 of the Offer.
MANNER OF ACCEPTANCE
Shareholders wishing to accept the Offer must deposit before the Expiry
Time at the office of the Depositary specified in the Letter of Transmittal,
their Share Certificate(s), or arrange to have their Common Shares delivered by
book-entry transfer into the account of the Depositary established for such
purposes, together with a Letter of Transmittal (or a facsimile), properly
completed and signed. Instructions are contained in the Letter of Transmittal.
If a Shareholder wishes to deposit Common Shares pursuant to the Offer and the
Share Certificate(s) are not immediately available or if the Share
Certificate(s) and all other required documents cannot be provided to the
Depositary at or prior to the Expiry Time, those Common Shares may nevertheless
be deposited in compliance with the procedure for guaranteed delivery. See
"MANNER OF ACCEPTANCE -- PROCEDURE FOR GUARANTEED DELIVERY" in Section 3 of the
Offer.
Shareholders whose Common Shares are registered in the name of an
investment dealer, stockbroker, bank, trust company or other nominee should
contact that nominee for assistance if they wish to accept the Offer and to
determine whether any fees or charges will apply.
6
Shareholders will not be required to pay any fee or commission if they
accept the Offer by transmitting their Common Shares directly to the Depositary
or by using the facilities of the Soliciting Dealer Group.
WITHDRAWAL OF THE DEPOSITED COMMON SHARES
Any Common Shares deposited in acceptance of the Offer may be withdrawn by
or on behalf of the depositing Shareholder at any time until they have been
accepted for payment by the Offeror. Additional withdrawal rights may be
available under other circumstances as required by applicable law. See "RIGHT TO
WITHDRAW DEPOSITED COMMON SHARES" in Section 7 of the Offer. Except as so
indicated or as otherwise required by applicable law, deposits of Common Shares
are irrevocable.
PAYMENT
Upon the terms and subject to the conditions of the Offer (as the same may
be amended or waived), the Offeror will pay for Common Shares taken up under the
Offer as soon as reasonably possible thereafter and in any event not later than
three Business Days following the time at which it becomes entitled to take up
Common Shares pursuant to applicable law, or as may be required or permitted by
law to make such payment. See "TAKE UP OF AND PAYMENT FOR DEPOSITED COMMON
SHARES" in Section 6 of the Offer.
STOCK EXCHANGE LISTINGS AND MARKET PRICES OF COMMON SHARES
The Common Shares are listed for trading on the TSX and on Nasdaq. On
February 19, 2003, which was the last trading day prior to the announcement of
the Offer, the closing price of the Common Shares was Cdn$14.75 on the TSX and
US$9.71 on Nasdaq.
CONDITIONS OF THE OFFER
The Offeror will have the right to withdraw the Offer, and will not be
required to take up or pay for any Common Shares deposited under the Offer, if
any of the conditions described under "CONDITIONS OF THE OFFER" in Section 4 of
the Offer have not been satisfied or waived at or prior to the Expiry Time. The
Offer is conditional upon, among other things, there being validly deposited
under the Offer and not withdrawn such number of Common Shares as represents not
less than 66 2/3% of the Common Shares outstanding (on a Fully-diluted Basis).
See Section 4 of the Offer, "CONDITIONS OF THE OFFER".
EXTENSIONS
The Offeror expressly reserves the right, subject to the terms of the
Support Agreement and applicable law, to extend the period of time during which
the Offer remains open, provided that the Support Agreement and the Offer may be
terminated by Emco if the Offeror does not purchase the Common Shares tendered
to the Offer by May 15, 2003. If the Offeror extends the Offer, it will inform
Computershare Trust Company of Canada, the Depositary for the Offer, of that
fact and will make a public announcement of the extension not later than 9:00
a.m. (EST), on the next Business Day after the day on which the Offer was
scheduled to expire. See Section 5 of the Offer.
SUBSEQUENT OFFERING PERIOD
If the Offeror purchases Common Shares tendered in the Offer, the Offeror
will have the right, at its option, to extend the Offer to provide a "SUBSEQUENT
OFFERING PERIOD" during which Shareholders may tender their Common Shares and
promptly receive the Offer Price. Notwithstanding the provisions of United
States federal securities laws relating to subsequent offering periods, there
will be withdrawal rights during any subsequent offering period, if there is
one. Common Shares tendered during any subsequent offering period may be
withdrawn at any time prior to such Common Shares being purchased by the
Offeror. In accordance with applicable securities laws, any Common Shares
purchased during such Subsequent Offering Period must be promptly paid for. In
addition, in the event the Offeror elects to provide a subsequent offering
period, the subsequent offering period will be at least 10 days but no more than
20 Business Days. See Section 2 of the Offer.
SUBSEQUENT TRANSACTIONS
If, within 120 days after February 28, 2003, the Offer is accepted by the
holders of not less than 90% of the Common Shares, other than those held on the
date of the Offer by or on behalf of the Offeror or an affiliate or associate of
the Offeror, the Offeror now intends to, and in the Support Agreement has agreed
to use its reasonable best efforts to, acquire, to the extent permitted by
applicable law, the remaining Common Shares pursuant to the compulsory
7
acquisition provisions of the OBCA. If the Offeror takes up and pays for Common
Shares under the Offer representing at least 66 2/3% of the Common Shares (on a
Fully-Diluted Basis) and acquires less than 90% of the Common Shares, or the
compulsory acquisition provisions of the OBCA are otherwise unavailable, the
Offeror now intends to implement other means of acquiring, directly or
indirectly, all of the Common Shares in accordance with applicable law,
including by way of a Subsequent Acquisition Transaction. See "ACQUISITION OF
COMMON SHARES NOT DEPOSITED UNDER THE OFFER" in Section 11 of the Offer and
Section 15 of the Circular.
CERTAIN EFFECTS OF THE OFFER
As described above, following the purchase of Common Shares under the
Offer, the Offeror expects to acquire the remaining shares through a Compulsory
Acquisition or a Subsequent Acquisition Transaction. In such case, Emco will no
longer be publicly owned. Even if for some reason a Compulsory Acquisition or a
Subsequent Acquisition Transaction does not take place, if the Offeror purchases
all of the Common Shares tendered in the Offer, then there may be so few
remaining shareholders and publicly held shares that the Common Shares will no
longer be eligible to be traded on the TSX or Nasdaq, there may not be a public
trading market for Common Shares, and Emco may apply to cease to be a reporting
issuer in Canada and cease to make filings with Canadian securities regulatory
authorities or the Securities and Exchange Commission or otherwise no longer be
required to comply with the Securities and Exchange Commission rules relating to
publicly held companies. See "CERTAIN EFFECTS OF THE OFFER" in Section 7 of the
Circular.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
A Shareholder who is resident in Canada, who holds Common Shares as capital
property and who sells such Common Shares to the Offeror under the Offer, will
realize a capital gain (or capital loss) equal to the amount by which the cash
received, net of any reasonable costs of disposition, exceeds (or is less than)
the adjusted cost base to the Shareholder of such Common Shares.
In general, Shareholders who are non-residents of Canada for the purposes
of the Tax Act will not be subject to Canadian income tax on any gain realized
on a disposition of Common Shares to the Offeror under the Offer unless those
Common Shares constitute "taxable Canadian property" within the meaning of the
Tax Act and that gain is not otherwise exempt from tax under the Tax Act
pursuant to an exemption contained in an applicable income tax treaty or
convention.
THE FOREGOING IS A BRIEF SUMMARY OF CANADIAN FEDERAL INCOME TAX
CONSEQUENCES ONLY. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF A SALE OF COMMON SHARES
PURSUANT TO THE OFFER OR A COMPULSORY ACQUISITION OR A DISPOSITION OF COMMON
SHARES PURSUANT TO ANY SUBSEQUENT ACQUISITION TRANSACTION.
See "CERTAIN INCOME TAX CONSIDERATIONS -- CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS" in Section 16 of the Circular.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
In general, the sale of Common Shares by U.S. Holders pursuant to the Offer
will be a taxable transaction for U.S. federal income tax purposes. In general,
a U.S. Holder who sells Common Shares pursuant to the Offer will recognize gain
or loss for U.S. federal income tax purposes equal to the difference, if any,
between the amount of cash received (in U.S. dollar equivalents determined at
the spot rate on the date of the consummation of the Offer) and such
Shareholder's adjusted tax basis in the Common Shares sold pursuant to the Offer
(as determined in U.S. dollars).
The U.S. federal income tax summary set forth above is for general
information only. U.S. Holders are urged to consult their tax advisors to
determine the particular tax consequences to them of the Offer, including the
applicability and effect of state, local, foreign and other tax laws.
See "CERTAIN INCOME TAX CONSIDERATIONS -- UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS" in Section 16 of the Circular.
DEPOSITARY
Computershare Trust Company of Canada is acting as Depositary under the
Offer. The Depositary will receive deposits of Share Certificates and
accompanying Letters of Transmittal at the office specified in the Letter of
Transmittal. The Depositary will also receive Notices of Guaranteed Delivery at
the office specified in the Notice of
8
Guaranteed Delivery. The Depositary will also be responsible for giving notices,
if required, and for making payment for all Common Shares purchased by the
Offeror under the Offer. The Depositary will also receive book-entry transfers
of Common Shares. See "MANNER OF ACCEPTANCE" in Section 3 of the Offer.
DEALER MANAGERS AND SOLICITING DEALER GROUP
Scotia Capital Inc. has been retained as the Canadian Dealer Manager for
the Offer and to form the Soliciting Dealer Group comprising members of the
Investment Dealers Association of Canada and members of the TSX. The Offeror has
retained the services of Scotia Capital (USA) Inc. to act as U.S. Dealer Manager
and to solicit institutional acceptances of the Offer in the United States. The
Offeror will pay the Dealer Managers and the soliciting dealers certain fees, as
described under "OTHER MATTERS RELATING TO THE OFFER -- DEALER MANAGERS AND
SOLICITING DEALER GROUP" in Section 17 of the Circular.
INFORMATION AGENT
MacKenzie Partners, Inc. has been retained as the Information Agent for the
Offer.
If you should need any additional information or copies of the offer
documents, you may call Scotia Capital Inc. or Scotia Capital (USA) Inc., the
Dealer Managers for the Offer, MacKenzie Partners, Inc., at 1-800-322-2885, or
Computershare Trust Company of Canada, the Depositary for the Offer, at
1-800-564-6253. See the back cover of this Offer and Circular.
9
OFFER
The accompanying Circular, which is incorporated into and forms part of the
Offer, contains important information that should be read carefully before
making a decision with respect to the Offer.
February 28, 2003
TO THE SHAREHOLDERS OF EMCO LIMITED:
1. THE OFFER
The Offeror hereby offers to purchase, on and subject to the following
terms and conditions, and the terms and conditions of the Letter of Transmittal,
all of the outstanding Common Shares, including Common Shares which become
outstanding on the conversion of outstanding Debentures or the exercise of
Options, at a price of Cdn$16.60 net to the Shareholder in cash per Common
Share, without interest thereon.
The Offer is made only for Common Shares and is not made for Options or
Debentures. Any holder of Options or Debentures who wishes to accept the Offer
should exercise their Options or convert their Debentures in order to obtain
Share Certificates and deposit them in accordance with the Offer. Any such
exercise or conversion must be sufficiently in advance of the Expiry Time to
assure that the holders of Options or Debentures will have Share Certificates
available for deposit before the Expiry Time, or in sufficient time to comply
with the procedures referred to under "MANNER OF ACCEPTANCE -- PROCEDURE FOR
GUARANTEED DELIVERY" in Section 3 of the Offer.
THE EMCO BOARD OF DIRECTORS, FOLLOWING CONSULTATION WITH ITS FINANCIAL AND
LEGAL ADVISORS, HAS UNANIMOUSLY DETERMINED THAT THE OFFER IS IN THE BEST
INTERESTS OF SHAREHOLDERS AND, ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDED
THAT THE SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR COMMON SHARES TO THE
OFFER.
Emco has entered into a Support Agreement, dated as of February 19, 2003,
with the Offeror and Blackfriars with respect to the Offer. See "ARRANGEMENTS,
AGREEMENTS OR UNDERSTANDINGS -- SUPPORT AGREEMENT" in Section 11 of the
Circular.
Based upon representations made in the Support Agreement, the Offeror
believes that as of the date hereof, there are approximately 17,497,099 Common
Shares outstanding on a Fully-diluted Basis.
Tendering Shareholders who are owners of record of Common Shares and who
tender directly to the Depositary will not be required to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 8 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Common Shares
by the Offeror pursuant to the Offer. Shareholders who hold their Common Shares
through a broker or bank should consult such institution as to whether it will
charge any service fees to tender Common Shares in the Offer. Blackfriars or the
Offeror will pay all charges and expenses of the Dealer Managers, the
Information Agent and the Depositary incurred in connection with the Offer. See
Section 1 of the Circular.
TD Securities, the financial advisor to the Independent Committee of the
Emco Board of Directors, has delivered a written opinion, dated February 19,
2003, to the effect that, as of the date of the opinion, based on the
assumptions, limitations and qualifications set forth in the opinion, the
consideration to be received by Shareholders is fair, from a financial point of
view, to such Shareholders. The full text of TD Securities' written opinion is
included in Schedule A to the Directors' Circular which is being mailed to
Shareholders concurrently with this Offer. Shareholders are urged to read the
text of such opinion carefully in its entirety.
The Offer is conditioned upon, among other things, there being validly
tendered in accordance with the terms of the Offer, and not withdrawn prior to
the Expiry Time of the Offer, that number of Shares that represents at least a
66 2/3% of the outstanding Common Shares on a Fully-diluted Basis. The Offer
also is subject to certain other conditions that are described in Section 4 of
the Offer. Please read Section 4 of the Offer, which sets forth in full the
conditions to the Offer, and Section 14 of the Circular, which sets forth
additional information about the Competition Act, Investment Canada Act, the HSR
Act, and other required regulatory approvals. The Offeror's obligation to
purchase Common Shares under the Offer is not subject to any financing
condition. Subject to the provisions of the Support Agreement, the Offeror may
waive any or all of the conditions to its obligation to purchase Common Shares
pursuant to the Offer. If by the Expiry Time of the Offer or any extension
thereof, any of the conditions to the Offer have not been satisfied or waived,
subject to the provisions of the Support Agreement, the Offeror may elect to (i)
terminate the Offer and return all tendered Common Shares to tendering
Shareholders, (ii) waive all of the unsatisfied conditions and purchase all
Common Shares validly tendered by the Expiry Time and not properly withdrawn or
(iii) extend the Offer
10
and, subject to the right of Shareholders to withdraw Common Shares until the
new Expiry Time of the Offer, retain the Common Shares that have been tendered
until the Expiry Time of the Offer as extended.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), the Offeror will accept for payment and pay for all Common Shares
validly tendered on or prior to the Expiry Time and not properly withdrawn as
permitted under Section 7 of the Offer. The Offer is currently set to expire
8:00 p.m. (EST), on April 7, 2003, unless the Offeror, in accordance with the
Support Agreement, extends the period during which the Offer is open.
The rights reserved by the Offeror with respect to extending, delaying and
terminating the Offer are in addition to the Offeror's rights pursuant to
Sections 4 and 5 of the Offer. Any extension, delay, termination, waiver or
amendment will be followed as promptly as practicable by a public announcement
thereof, such announcement in the case of an extension to be made no later than
9:00 a.m. (EST), on the next Business Day after the previously scheduled Expiry
Time, in accordance with the Canadian and U.S. securities laws. Subject to
applicable law, and without limiting the manner in which the Offeror may choose
to make any public announcement, the Offeror shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to Dow Jones News Service and Canada NewsWire.
If the Offeror extends the Offer or if the Offeror is delayed in its
acceptance for payment of or payment for Common Shares or it is unable to pay
for Common Shares pursuant to the Offer for any reason, then without prejudice
to the Offeror's rights under the Offer, the Depositary may retain tendered
Common Shares on behalf of the Offeror, and such Common Shares may not be
withdrawn except to the extent tendering Shareholders are entitled to withdrawal
rights as described under Section 7 of the Offer. However, the ability of the
Offeror to delay the payment for Common Shares that the Offeror has accepted for
payment is limited by (i) Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of shareholders promptly after the termination or withdrawal of
such bidder's offer, unless such bidder elects to offer a Subsequent Offering
Period as described in Section 2 of the Offer, "TIME FOR ACCEPTANCE" and pays
for the Common Shares tendered during the Subsequent Offering Period in
accordance with Rule 14d-11 under the Exchange Act, and (ii) the terms of the
Support Agreement, which provide that, subject to the terms and conditions of
the Offer, Offeror will pay for Shares that are tendered pursuant to the Offer
in accordance with the Offer and applicable securities laws.
Emco has provided the Offeror with a list of registered Shareholders and a
list of participants in book-based nominee registrants who hold Common Shares,
together with their address and respective holdings of Common Shares, and will
provide to the Offeror such additional information (including updated lists of
shareholders, mailing labels and lists of securities positions) and such other
assistance as the Offeror may reasonably request in order to communicate the
Offer to Shareholders. This Offer and Circular, the related Letter of
Transmittal and other relevant materials will be mailed to record holders of
Common Shares whose names appear on Emco's shareholder list and will be
furnished, for subsequent transmittal to beneficial owners of Common Shares, to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing.
2. TIME FOR ACCEPTANCE
The Offer is open for acceptance until 8:00 p.m. (EST) on the Expiry Date,
or until such later time and date or times and dates to which it may be
extended, unless the Offer is withdrawn by the Offeror.
The Offeror may provide a subsequent offering period following the
expiration of the Offer (a "SUBSEQUENT OFFERING PERIOD") of an additional period
of 10 days to 20 Business Days, beginning immediately after the Offeror
purchases the Common Shares tendered in the Offer, during which Shareholders may
tender their Common Shares and receive the Offer Price. The Offeror may
determine to provide a Subsequent Offering Period in the event that the Common
Shares tendered and not withdrawn pursuant to the Offer constitute less than 90%
of the outstanding Common Shares (above which percentage the remaining publicly
held Common Shares could be acquired in a Compulsory Acquisition; see Section 11
of the Offer and Section 15 of the Circular) as of the expiration of the Offer.
During a Subsequent Offering Period, the Offeror promptly will purchase and pay
the same price paid in the Offer for all Common Shares tendered. Notwithstanding
the provisions of United States federal securities laws relating to subsequent
offering periods, the Offeror will permit withdrawal of tendered Common Shares
during any Subsequent Offering Period, if there is one, at any time prior to
such Common Shares being purchased by the Offeror. In
11
accordance with applicable securities laws, any Common Shares purchased during
such Subsequent Offering Period must be promptly paid for.
3. MANNER OF ACCEPTANCE
VALID TENDERS
In order for a Shareholder to validly tender Common Shares to the Offer:
(a) a Letter of Transmittal (printed on blue paper) (or a facsimile
thereof), properly completed as required by the rules and
instructions set out in the Letter of Transmittal and duly executed
(or, in the case of a book-entry transfer, an Agent's Message (as
defined below) in lieu of the Letter of Transmittal) and any other
documents specified in the instructions set out in the Letter of
Transmittal must be received by the Depositary, at any of the offices
of the Depositary listed in the Letter of Transmittal, together with
either:
(i) the Share Certificate(s) in respect of which the Offer is being
accepted, or
(ii) confirmation (a "BOOK-ENTRY CONFIRMATION") of a book-entry
transfer of such Common Shares into the Depositary's account at
The Depository Trust Company (the "BOOK-ENTRY TRANSFER FACILITY")
pursuant to the procedures set forth below,
in each case so as to be received on or prior to the Expiry Time; or
(b) the tendering Shareholder must comply with the guaranteed delivery
procedures described below.
The Offer will be deemed to be accepted only if the Depositary has actually
received these documents before the Expiry Time. Except as otherwise provided in
the instructions to the Letter of Transmittal, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution. If a Letter of
Transmittal is executed by a person other than the registered holder of the
Share Certificate(s) to which the Letter of Transmittal relates, the Share
Certificate(s) must be endorsed or be accompanied by an appropriate share
transfer power of attorney duly and properly completed by the registered holder,
with the signature on the endorsement panel or share transfer power guaranteed
by an Eligible Institution.
The term "AGENT'S MESSAGE" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, that states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Common Shares that are the subject of such
Book-Entry Confirmation, that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that the Offeror may enforce
such agreement against such participant.
BOOK-ENTRY TRANSFER
The Depositary will establish an account with respect to the Common Shares
at the Book-Entry Transfer Facility for purposes of the Offer within two
Business Days after the date of this Offer. Any financial institution that is a
participant in the system of the Book-Entry Transfer Facility may make a
book-entry delivery of Common Shares by causing the Book-Entry Transfer Facility
to transfer such Common Shares into the Depositary's account at the Book-Entry
Transfer Facility in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. However, although delivery of Common Shares may be
effected through book-entry transfer at the Book-Entry Transfer Facility, either
the Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's Message
in lieu of the Letter of Transmittal, and any other required documents, must, in
any case, be received by the Depositary, at one of its addresses set forth on
the back cover of this Offer, prior to the Expiry Time, or the tendering
Shareholder must comply with the guaranteed delivery procedure described below.
Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Depositary.
SIGNATURE GUARANTEES
No signature guarantee is required on the Letter of Transmittal if:
(a) the Letter of Transmittal is signed by the registered holder of the
Common Shares tendered therewith, unless such holder has completed
either the box entitled "SPECIAL DELIVERY INSTRUCTIONS" or the box
entitled "SPECIAL PAYMENT INSTRUCTIONS" on the Letter of Transmittal;
or
12
(b) the Common Shares are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, all signatures on a Letter of Transmittal must be
guaranteed by an Eligible Institution. See Instruction 1 of the Letter of
Transmittal.
If a Share Certificate is registered in the name of a person or persons
other than the signer of the Letter of Transmittal, or if payment is to be made
or delivered to, or a Share Certificate not accepted for payment or not tendered
is to be issued in the name of, a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by appropriate duly
executed stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the Share Certificate, with the signature(s) on
such Share Certificate or stock powers guaranteed by an Eligible Institution as
provided in the Letter of Transmittal. See Instructions 3 and 4 of the Letter of
Transmittal.
PROCEDURE FOR GUARANTEED DELIVERY
If a Shareholder wishes to deposit Common Shares under the Offer and either
the Share Certificate(s) are not immediately available or the Shareholder is not
able to deliver the Share Certificate(s) and all other required documents to the
Depositary before the Expiry Time, those Common Shares may nevertheless be
deposited under the Offer, provided that all of the following conditions are
met:
(a) such deposit is made by or through an Eligible Institution; and
(b) a properly completed and duly executed Notice of Guaranteed Delivery
(printed on green paper) in the form accompanying this Offer (or a
manually signed facsimile thereof), together with a guarantee to
deliver by an Eligible Institution in the form set out in the Notice
of Guaranteed Delivery, is received by the Depositary before the
Expiry Time at its office in Toronto, Ontario, Canada as set forth in
the accompanying Notice of Guaranteed Delivery; and
(c) the Share Certificate(s), in proper form for transfer, together with
a Letter of Transmittal (or a facsimile, properly completed and
signed) and all other documents required by the Letter of
Transmittal, are received by the Depositary at its office in Toronto,
Ontario, Canada set forth in the Letter of Transmittal before 5:00
p.m. (EST) on the third trading day on the TSX after the Expiry Date.
THE NOTICE OF GUARANTEED DELIVERY MUST BE DELIVERED BY HAND OR COURIER OR
TRANSMITTED BY FACSIMILE TRANSMISSION OR MAILED TO THE DEPOSITARY AT ITS OFFICE
IN TORONTO, ONTARIO, CANADA AS SET FORTH IN THE NOTICE OF GUARANTEED DELIVERY
AND MUST INCLUDE A GUARANTEE BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN
THE NOTICE OF GUARANTEED DELIVERY.
POWER OF ATTORNEY
The execution of a Letter of Transmittal, or an Agent's Message in
connection with a book-entry transfer of Common Shares irrevocably appoints the
Offeror, and any other person designated by the Offeror in writing, as the true
and lawful agents, attorneys and attorneys-in-fact of the Shareholder delivering
the Letter of Transmittal, or on whose behalf an Agent's Message is sent, with
respect to the Common Shares registered in the name of the holder on the
securities registers maintained by Emco and deposited pursuant to the Offer and
purchased by the Offeror (the "PURCHASED COMMON SHARES"), and with respect to
any and all dividends, distributions, payments, securities, rights, warrants or
other interests accrued, declared, issued, transferred, made or distributed on
or in respect of the Purchased Common Shares on or after February 20, 2003 (the
date of the announcement of the Offer), effective from and after the time that
the Offeror takes up and pays for the Purchased Common Shares (the "EFFECTIVE
TIME"), with full power of substitution (such powers of attorney, being coupled
with an interest, being irrevocable), to:
(a) register or record the transfer or cancellation of Purchased Common
Shares on the appropriate registers;
(b) vote, execute and deliver any instruments of proxy, authorizations or
consents in form and on terms satisfactory to the Offeror in respect
of any Purchased Common Shares, revoke any such instrument,
authorization or consent given prior to or after the Effective Time,
and/or designate in any such instruments of proxy any person(s) as
the proxy or the proxy nominee(s) of the Shareholder in respect of
such Purchased Common Shares for all purposes;
(c) execute, endorse and negotiate any cheques or other instruments
representing any distribution payable to the Shareholder in respect
of the Purchased Common Shares; and
13
(d) exercise any other rights of a holder of Purchased Common Shares.
A Shareholder who executes a Letter of Transmittal, or on whose behalf an
Agent's Message is sent, also agrees, from and after the Effective Time:
(a) not to vote any of the Purchased Common Shares at any meeting of
holders of Common Shares;
(b) not to exercise any other rights or privileges attached to any of the
Purchased Common Shares; and
(c) to deliver to the Offeror any and all instruments of proxy,
authorizations or consents received in respect of the Purchased
Common Shares.
At the date on which the Offeror purchases the Purchased Common Shares, all
prior proxies given by the holder of those Purchased Common Shares with respect
to those shares shall be revoked and no subsequent proxies may be given by such
holder with respect to those shares.
DEPOSITING SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES
The deposit of Common Shares pursuant to the procedures herein will
constitute a binding agreement between the depositing Shareholder and the
Offeror upon the terms and subject to the conditions of the Offer, including the
depositing Shareholder's representations and warranties that: (i) such
Shareholder has full power and authority to deposit, sell, assign and transfer
the Common Shares being deposited; (ii) such Shareholder owns the Common Shares
which are being deposited free and clear of all liens, restrictions, charges,
encumbrances, claims, equities and rights of others; (iii) the deposit of such
Common Shares complies with applicable securities laws; and (iv) when such
Common Shares are taken up and paid for by the Offeror, the Offeror will acquire
good title to such Common Shares free and clear of all liens, restrictions,
charges, encumbrances, claims, equities, and rights of others. The acceptance of
the Offer pursuant to the procedures set forth above shall constitute an
agreement between the depositing Shareholder and the Offeror in accordance with
the terms and conditions of the Offer.
The Offeror reserves the right to permit the Offer to be accepted in a
manner other than that set forth in this Section 3.
BACKUP WITHHOLDING
Under the "backup withholding" provisions of U.S. federal income tax law,
the Depositary may be required to withhold from the amount of any payments made
pursuant to the Offer. In order to prevent backup withholding with respect to
payments to certain Shareholders of the Offer Price for Common Shares purchased
pursuant to the Offer, each Shareholder (other than a corporation) who is a U.S.
resident (a "U.S. SHAREHOLDER") must provide the Depositary with such U.S.
Shareholder's correct taxpayer identification number ("TIN") and certify that
they are not subject to backup withholding by completing the Substitute Form W-9
in the Letter of Transmittal. If a U.S. Shareholder does not provide its correct
TIN or fails to provide the certification described above, the Internal Revenue
Service may impose a penalty on such U.S. Shareholder and payment of cash to
such U.S. Shareholder pursuant to the Offer may be subject to backup
withholding. Shareholders who are residents of Canada and certain other
Shareholders (including, among others, all corporations and certain non-U.S.
individuals and non-U.S. entities) are not subject to backup withholding. All
U.S. Shareholders depositing Common Shares pursuant to the Offer should complete
and sign the Substitute Form W-9 included in the Letter of Transmittal to
provide the information necessary to avoid backup withholding. Non-U.S.
Shareholders, including residents of Canada, should complete and sign the Form
W-8BEN -- Certificate of Foreign Status of Beneficial Owner for United States
Tax Withholding included in the Letter of Transmittal in order to avoid backup
withholding. See Instruction 11 of the Letter of Transmittal. Backup withholding
is not an additional tax. The amount of any backup withholding will be refunded
(or allowed as a credit against the U.S. federal income tax liability of the
Shareholder) provided that the required information is furnished to the Internal
Revenue Service.
GENERAL
The Offer will be deemed to be accepted only if the Depositary actually has
received the requisite documents at or before the Expiry Time. In all cases,
payment for the Common Shares deposited and taken up by the Offeror pursuant to
the Offer will be made only after timely receipt by the Depositary of Share
Certificates or book-entry transfer of Common Shares into the appropriate
account, a Letter of Transmittal (or a facsimile) properly completed and signed
covering the Common Shares with the signatures guaranteed in accordance with the
instructions and rules set out
14
therein, or an Agent's Message in connection with a book-entry transfer of
Common Shares, and any other required documents.
THE METHOD OF DELIVERY OF THE SHARE CERTIFICATE(S), THE LETTER OF
TRANSMITTAL, THE NOTICE OF GUARANTEED DELIVERY AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE OPTION AND RISK OF THE PERSON DEPOSITING THOSE DOCUMENTS. THE OFFEROR
RECOMMENDS THAT THOSE DOCUMENTS BE DELIVERED BY HAND TO THE DEPOSITARY AND THAT
A RECEIPT BE OBTAINED OR, IF MAILED, THAT REGISTERED MAIL, PROPERLY INSURED, BE
USED WITH AN ACKNOWLEDGEMENT OF RECEIPT REQUESTED.
SHAREHOLDERS WHOSE COMMON SHARES ARE REGISTERED IN THE NAME OF A
STOCKBROKER, INVESTMENT DEALER, BANK, TRUST COMPANY OR OTHER NOMINEE SHOULD
CONTACT THAT PERSON FOR ASSISTANCE IN DEPOSITING THEIR COMMON SHARES.
All questions as to the validity, form, eligibility (including timely
receipt) and acceptance of Common Shares deposited pursuant to the Offer will be
determined by the Offeror in its sole discretion. Depositing Shareholders agree
that such determination shall be final and binding. The Offeror reserves the
absolute right to reject any and all deposits which it determines not to be in
proper form or which may be unlawful to accept under the laws of any
jurisdiction. The Offeror reserves the absolute right to waive any defects or
irregularities in the deposit of any Common Shares. There shall be no duty or
obligation on Emco, the Offeror, Blackfriars, the Dealer Managers, the
Information Agent, the Depositary or any other person to give notice of any
defects or irregularities in any deposit and no liability shall be incurred by
any of them for failure to give any such notice. The Offeror's interpretation of
the terms and conditions of the Offer, the Circular, the Letter of Transmittal
and the Notice of Guaranteed Delivery will be final and binding.
Shareholders will not be required to pay any fee or commission if they
accept the Offer by transmitting their Share Certificates directly to the
Depositary, or by using the facilities of the Soliciting Dealer Group.
Shareholders should contact their investment dealer, stock broker, bank manager,
investment professional or other nominee to determine if such person will
require a fee to tender Common Shares to the Offer.
4. CONDITIONS OF THE OFFER
Subject to the provisions of the Support Agreement, the Offeror will have
the right to withdraw the Offer and not take up, purchase or pay for, and will
have the right to extend the period of time during which the Offer is open and
postpone taking up and paying for, any Common Shares deposited under the Offer,
unless all of the following conditions are satisfied or waived by the Offeror at
or prior to the Expiry Time:
(a) there shall have been deposited under the Offer and not withdrawn at
least 66 2/3% of the Common Shares on a Fully-diluted Basis (the
"DEPOSIT MINIMUM CONDITION");
(b) the Offeror and Emco shall each have filed all notices and
information required to be filed under Part IX of the Competition
Act, except if such requirement shall have been waived pursuant to
paragraph 113(c) of the Competition Act, and any information the
Offeror elects to file with the Competition Commissioner in its sole
discretion under the Competition Act, including, without limiting the
foregoing, a competitive impact statement and (i) the Offeror shall
have received an advance ruling certificate in accordance with
section 102 of the Competition Act from the Competition Commissioner
in connection with the transactions contemplated by the Support
Agreement, or (ii) the Competition Commissioner shall have confirmed,
in writing, that he has no intention to file an application under
Part VIII of the Competition Act in connection with the transactions
contemplated by the Support Agreement;
(c) the Offeror shall have received evidence satisfactory to the Offeror
that any requisite approvals to the completion of the transactions
contemplated by the Support Agreement shall have been granted or
deemed to have been granted under the Investment Canada Act on terms
satisfactory to the Offeror in its commercially reasonable
discretion;
(d) all other authorizations, consents, orders, declarations or approvals
of, or filings with, or terminations or expirations of waiting
periods imposed by a Governmental Entity (including any stock
exchange or other securities regulatory authority and including under
the HSR Act) that are necessary to make the Offer or to effect any of
the transactions contemplated hereby shall have been obtained, shall
have been made or shall have occurred, each on terms satisfactory to
the Offeror and Blackfriars, acting reasonably;
(e) no court or other Governmental Entity having jurisdiction over Emco,
the Offeror or Blackfriars, or any of their respective subsidiaries,
shall have enacted, issued, promulgated, enforced or entered any law,
rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent)
15
which is then in effect and has the effect of making the Offer or any
of the transactions contemplated by the Support Agreement (including
taking up and paying for any Common Shares deposited under the Offer
and completing any Compulsory Acquisition or Subsequent Acquisition
Transaction) illegal;
(f) Emco shall have performed each of its agreements contained in the
Support Agreement required to be performed on or prior to the Expiry
Time (including, for certainty, its obligations under Section 3.1 of
the Support Agreement, which obligations relate to certain covenants
concerning the conduct of Emco prior to the Effective Time) in all
material respects, each of the representations and warranties of Emco
contained in the Support Agreement shall be true and correct in all
material respects on and as of the Expiry Time as if made on and as
of such time (other than representations and warranties which address
matters only as of a certain date which shall be true and correct as
of such certain date) and Blackfriars shall have received a
certificate signed on behalf of Emco by its Chief Executive Officer
and its Chief Financial Officer to such effect;
(g) the Selling Shareholder shall have performed each of its agreements
contained in the Lock-up Agreement required to be performed on or
prior to the Expiry Time;
(h) since the date of the Support Agreement, there shall have been no
Material Adverse Change with respect to Emco;
(i) the Offeror shall not have become aware of any material misstatement,
untrue statement of a material fact, or an omission to state a
material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in
which it was made and at the date it was made (after giving effect to
all subsequent filings in relation to all maters covered in earlier
filings) in any document filed by or on behalf of Emco with any
securities regulatory authority;
(j) the Emco Board of Directors shall not have withdrawn its
recommendation that holders of Common Shares accept the Offer or
changed such recommendation in a manner that has substantially the
same effect; and
(k) (A) no act, action, suit or proceeding shall have been taken before
or by any domestic or foreign court or other Governmental Entity or
by any elected or appointed public official or private person
(including, without limitation, any individual, corporation, firm,
group or other entity) in Canada or elsewhere, whether or not having
the force of law, and (B) no law, regulation or policy shall have
been proposed, enacted, promulgated or applied, in either case:
(i) to cease trade, enjoin, prohibit or impose material limitations or
conditions on the purchase by or the sale to the Offeror of the
Common Shares or the right of the Offeror to own or exercise full
rights of ownership of the Common Shares; or
(ii) which, if the Offer were consummated, could, in the Offeror's
judgment, acting reasonably, materially adversely affect the
Offeror's ability to effect a Subsequent Acquisition Transaction
or have a Material Adverse Change with respect to Emco.
The foregoing conditions are for the exclusive benefit of the Offeror and
the Offeror may, subject to applicable law, waive any of the foregoing
conditions in whole or in part at any time and from time to time without
prejudice to any other rights which the Offeror may have. The failure by the
Offeror at any time to exercise any of the foregoing rights will not be deemed
to be a waiver of any such right and each such right shall be deemed to be an
ongoing right which may be asserted at any time and from time to time.
Any waiver of a condition or the withdrawal of the Offer shall be effective
upon written notice (or other communication confirmed in writing) being given by
the Offeror to that effect to the Depositary at its principal office in Toronto,
Ontario, Canada. The Offeror, forthwith after giving any such notice, will make
a public announcement of such waiver or withdrawal and, to the extent required
by applicable law, cause the Depositary as soon as is practicable thereafter to
notify the Shareholders in the manner set forth under "NOTICE AND DELIVERY" in
Section 10 of the Offer. If the Offer is withdrawn, the Offeror shall not be
obligated to take up, accept for payment or pay for any Common Shares deposited
under the Offer, and the Depositary will promptly return all Share Certificates
for deposited Common Shares and Letters of Transmittal, Notices of Guaranteed
Delivery and related documents in its possession to the parties by whom they
were deposited.
16
5. EXTENSION, VARIATION OR CHANGE IN THE OFFER; SUBSEQUENT OFFERING PERIOD
EXTENSION, VARIATION OR CHANGE IN THE OFFER
The Offer is open for acceptance until the Expiry Time, unless the Offer is
withdrawn or the Offer Period is extended.
Subject as hereinafter described, the Offeror may, in its sole discretion,
at any time and from time to time, extend the Expiry Time or vary the Offer by
giving written notice (or other communication confirmed in writing) of such
extension or variation to the Depositary at its principal office in Toronto,
Ontario, Canada. Upon the giving of such notice or other communication extending
the Expiry Time, the Expiry Time shall be, and be deemed to be, so extended. The
Offeror, as soon as practicable thereafter, will cause the Depositary to provide
a copy of any notice of extension or variation, in the manner set forth under
"NOTICE AND DELIVERY" in Section 10 of the Offer, to all registered holders of
Common Shares whose Common Shares have not been taken up at the date of the
extension or variation; provided that the Offeror will not, without the prior
consent of Emco, amend the terms of the Offer other than to (i) increase the
consideration per Common Share payable under the Offer, (ii) extend the expiry
of the Offer, or (iii) waive any conditions of the Offer. The Offeror shall, as
soon as practicable after giving notice of an extension or variation to the
Depositary, make a public announcement of the extension or variation to the
extent and in the manner required by applicable law. Any notice of extension or
variation will be deemed to have been given and to be effective on the day on
which it is delivered or otherwise communicated to the Depositary at its
principal office in Toronto, Ontario, Canada.
Notwithstanding the foregoing but subject to applicable law, the Offer may
not be extended by the Offeror if all of the terms and conditions of the Offer
(other than those waived by the Offeror) have been fulfilled or complied with,
unless the Offeror first takes up (and, in the Province of Quebec, pays for) all
Common Shares then deposited under the Offer and not withdrawn.
Where the terms of the Offer are varied (except a variation consisting
solely of the waiver of a condition), the Offer Period will not expire before
ten days after the notice of variation has been given to Shareholders, unless
otherwise permitted by applicable law and subject to abridgement or elimination
of that period pursuant to such orders as may be granted by Canadian courts
and/or securities regulatory authorities. Notwithstanding the foregoing, if the
Offeror makes a material change in the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Offeror will disseminate additional tender offer materials and extend the Offer
to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange
Act. The minimum period during which an Offer must remain open following
material changes in the terms of the Offer, other than a change in price,
percentage of securities sought or inclusion of or changes to a dealer's
soliciting fee, will depend upon the facts and circumstances, including the
materiality, of the changes. In the SEC's view, an offer should remain open for
a minimum of five business days from the date the material change is first
published, sent or given to shareholders and, if material changes are made with
respect to information that approaches the significance of price and share
levels, a minimum of ten business days may be required to allow for adequate
dissemination to shareholders. Accordingly, if prior to the Expiry Time the
Offeror decreases the number of Common Shares being sought or increases or
decreases the consideration offered pursuant to the Offer, and if the Offer is
scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to Shareholders, the Offer will be extended at least until the expiration of
such tenth business day. The Offeror may not decrease the consideration offered
pursuant to the Offer without the prior consent of Emco.
If, before the Expiry Time, or after the Expiry Time but before the expiry
of all rights of withdrawal with respect to the Offer, a change occurs in the
information contained in the Offer or the Circular, as amended from time to
time, that would reasonably be expected to affect the decision of a Shareholder
to accept or reject the Offer (other than a change that is not within the
control of the Offeror or its affiliates), the Offeror will give written notice
of such change to the Depositary at its principal office in Toronto, Ontario,
Canada and will cause the Depositary to provide as soon as practicable
thereafter a copy of such notice in the manner set forth under "NOTICE AND
DELIVERY" in Section 10 of the Offer, to all Shareholders whose Common Shares
have not been taken up under the Offer at the date of the occurrence of the
change, if required by applicable law. As soon as possible after giving notice
of a change in information to the Depositary, the Offeror will make a public
announcement of the change in information. Any notice of change in information
will be deemed to have been given and to be effective on the day on which it is
delivered or otherwise communicated to the Depositary at its principal office in
Toronto, Ontario, Canada.
17
During any such extension, or in the event of any variation or change in
information, all Common Shares previously deposited and not taken up or
withdrawn will remain subject to the Offer and, subject to applicable law, may
be accepted for purchase by the Offeror in accordance with the terms of the
Offer, subject to the provisions set out under "RIGHT TO WITHDRAW DEPOSITED
COMMON SHARES" in Section 7 of the Offer. An extension of the Expiry Time, a
variation of the Offer or a change in information contained in the Offer or the
Circular does not, unless otherwise expressly stated, constitute a waiver by the
Offeror of any of its rights set out under "CONDITIONS OF THE OFFER" in Section
4 of the Offer.
If the consideration being offered for the Common Shares under the Offer is
increased, the increased consideration will be paid to all depositing
Shareholders whose Common Shares are taken up under the Offer, whether or not
such Common Shares were deposited before the increase. No Common Shares will be
purchased by the Offeror or its affiliates during the currency of the Offer
other than pursuant to the Offer.
SUBSEQUENT OFFERING PERIOD
If the Offeror purchases the Common Shares tendered in the Offer, the
Offeror will have the right, at its option, to extend the Offer to provide a
"subsequent offering period" during which Shareholders may tender their Common
Shares and promptly receive the Offer Price. Notwithstanding the provisions of
United States federal securities laws relating to subsequent offering periods,
there will be withdrawal rights during any subsequent offering period, if there
is one. See Section 7 of the Offer. In addition, in the event the Offeror elects
to provide a subsequent offering period, the subsequent offering period will be
at least 10 days but no more than 20 Business Days. See Section 2 of the Offer.
6. TAKE UP OF AND PAYMENT FOR DEPOSITED COMMON SHARES
Upon the terms and subject to the conditions of the Offer, the Offeror will
take up Common Shares duly and validly deposited pursuant to the Offer in
accordance with the terms hereof promptly and in any event not later than three
Business Days following the time at which it becomes entitled to take up Common
Shares under applicable law. Any Common Shares taken up will be paid for
promptly, and in any event not later than three Business Days following the time
at which it becomes entitled to take up Common Shares under the Offer pursuant
to applicable law. Any Common Shares deposited pursuant to the Offer in any
subsequent offering period will be taken up and paid for promptly.
For the purposes of the Offer, the Offeror will be deemed to have taken up
and accepted for payment Common Shares validly deposited under the Offer and not
withdrawn if, as and when the Offeror gives written notice to the Depositary, at
its principal office in Toronto, Ontario, Canada to that effect and as required
by applicable law.
The Offeror reserves the right, in its sole discretion, to delay taking up
or paying for any Common Shares or to terminate the Offer and not take up or pay
for any Common Shares if any condition specified under "CONDITIONS OF THE OFFER"
in Section 4 of the Offer is not satisfied or waived by the Offeror. Subject to
compliance with Rule 14e-1(c) under the Exchange Act, the Offeror expressly
reserves the right to delay payment for Common Shares in order to comply in
whole or in part with any applicable law. See Section 4 of the Offer and Section
14 of the Circular. The Offeror will not, however, take up and pay for any
Common Shares deposited under the Offer unless it simultaneously takes up and
pays for all Common Shares then validly deposited under the Offer. If, for any
reason whatsoever, acceptance for payment of any Common Shares tendered pursuant
to the Offer is delayed, or the Offeror is unable to accept for payment Common
Shares tendered pursuant to the Offer, then, without prejudice to the Offeror's
rights under the Offer, the Depositary may, nevertheless, on behalf of the
Offeror, retain the tendered Common Shares, except to the extent that the
tendering Shareholders exercise withdrawal rights as described in Section 7 of
the Offer.
The Offeror will pay for Common Shares validly deposited under the Offer
and not withdrawn by providing the Depositary with sufficient funds (by bank
transfer or other means satisfactory to the Depositary). The Depositary will act
as the agent of persons who have deposited Common Shares in acceptance of the
Offer for the purposes of receiving payment from the Offeror and transmitting
such payment to such persons. Receipt of payment by the Depositary will be
deemed to constitute receipt of payment by persons depositing Common Shares.
UNDER NO CIRCUMSTANCES WILL INTEREST ACCRUE OR BE PAID BY THE OFFEROR OR THE
DEPOSITARY ON THE PURCHASE PRICE OF THE COMMON SHARES PURCHASED BY THE OFFEROR,
REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
SETTLEMENT WITH EACH SHAREHOLDER WHO HAS VALIDLY DEPOSITED AND NOT
WITHDRAWN COMMON SHARES UNDER THE OFFER WILL BE EFFECTED BY THE DEPOSITARY BY
FORWARDING A CHEQUE, PAYABLE IN CANADIAN FUNDS, REPRESENTING THE CASH PAYMENT
FOR SUCH SECURITIES TO WHICH SUCH SHAREHOLDER IS ENTITLED. Unless otherwise
directed in the Letter of
18
Transmittal, any such cheque will be issued in the name of the registered holder
of Common Shares so deposited. Unless the person who deposits Common Shares
instructs the Depositary to hold such cheque for pick-up by checking the
appropriate box in the Letter of Transmittal, such cheque will be forwarded by
first class mail to such person at the address specified in the Letter of
Transmittal. If no address is specified therein, such cheque will be forwarded
to the address of the holder as shown on the share register maintained by Emco
or Emco's transfer agent. Cheques mailed in accordance with this paragraph will
be deemed to have been delivered upon the date of mailing.
The Offeror reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Common Shares tendered pursuant to the Offer, but any such
transfer or assignment will not relieve the Offeror of its obligations under the
Offer and will in no way prejudice the rights of tendering Shareholders to
receive payment for Common Shares validly tendered and accepted for payment
pursuant to the Offer.
Depositing Shareholders will not be obliged to pay brokerage fees or
commissions if they accept the Offer by depositing their Common Shares directly
with the Depositary or if they use the services of the Dealer Managers or the
Soliciting Dealer Group to accept the Offer.
If any deposited Common Shares are not accepted for payment pursuant to the
terms and conditions of the Offer for any reason, or if Share Certificates are
submitted for more Common Shares than are deposited, Share Certificates for
unpurchased Common Shares will be returned to the depositing Shareholder as soon
as is practicable following the termination of the Offer by either sending new
Share Certificates for Common Shares not purchased or by returning the deposited
Share Certificates (and other relevant documents). Share Certificates (and other
relevant documents) will be forwarded by first-class mail in the name of and to
the address specified by the Shareholder in the Letter of Transmittal or, if
such name or address is not so specified, in such name and to such address as
shown on the share register maintained by Emco or Emco's transfer agent, as soon
as practicable after the termination of the Offer.
Common Shares acquired pursuant to the Offer shall be transferred by the
Shareholder and acquired by the Offeror free and clear of all liens, charges,
encumbrances, claims, equities and rights of others and together with all rights
and benefits arising therefrom.
7. RIGHT TO WITHDRAW DEPOSITED COMMON SHARES
Except as otherwise provided in this Section 7, all deposits of Common
Shares pursuant to the Offer are irrevocable. Unless otherwise required or
permitted by applicable law, any Common Shares deposited in acceptance of the
Offer may be withdrawn at the place of deposit by or on behalf of the depositing
Shareholder:
(a) at any time when the Common Shares have not been accepted and taken
up by the Offeror;
(b) if the Common Shares have not been paid for by the Offeror within
three Business Days after having been taken up; or
(c) at any time before the expiration of ten days from the date upon
which either:
(i) a notice of change relating to a change which has occurred in the
information contained in the Offer or the Circular, as amended
from time to time, that would reasonably be expected to affect the
decision of a Shareholder to accept or reject the Offer (other
than a change that is not within the control of the Offeror or an
affiliate of the Offeror), in the event that such change occurs
before the Expiry Time or after the Expiry Time but before the
expiry of all rights of withdrawal in respect of the Offer; or
(ii) a notice of variation concerning a variation in the terms of the
Offer (other than a variation consisting solely of an increase in
the consideration offered for the Common Shares where the Expiry
Time is not extended for more than ten days),
is mailed, delivered or otherwise properly communicated (subject to
abridgement of that period pursuant to such order or orders as may be
granted by applicable courts or securities regulatory authorities) and
only if such deposited Common Shares have not been taken up by the
Offeror at the date of the notice.
Notwithstanding the provisions of United States federal securities laws
relating to subsequent offering periods, Common Shares tendered during a
subsequent offering period, if there is one, may also be withdrawn at any time
prior to such Common Shares being purchased by the Offeror. In accordance with
applicable securities laws, any Common Shares purchased during such subsequent
offering period must be promptly paid for.
19
Withdrawals of Common Shares deposited pursuant to the Offer must be
effected by notice of withdrawal made by or on behalf of the depositing
Shareholder and must be actually received by the Depositary at the place of
deposit before such Common Shares are accepted for purchase and taken up.
Notices of withdrawal: (i) must be made by a method, including facsimile
transmission, that provides the Depositary with a written or printed copy; (ii)
must be signed by or on behalf of the person who signed the Letter of
Transmittal (or Notice of Guaranteed Delivery) accompanying the Common Shares
which are to be withdrawn; (iii) must specify such person's name, the number of
Common Shares to be withdrawn, the name of the registered holder and the
certificate number shown on each certificate representing the Common Shares to
be withdrawn; and (iv) must be actually received by the Depositary at the place
of deposit of the applicable Common Shares (or Notice of Guaranteed Delivery in
respect thereof). Any signature in a notice of withdrawal must be guaranteed by
an Eligible Institution in the same manner as in a Letter of Transmittal (as
described in the instructions and rules set out therein), except in the case of
Common Shares deposited for the account of an Eligible Institution. The
withdrawal will take effect upon actual physical receipt by the Depositary of
the properly completed and signed written notice of withdrawal.
All questions as to the validity (including timely receipt) and form of
notices of withdrawal will be determined by the Offeror in its sole discretion,
and such determination will be final and binding. There will be no obligation on
Emco, the Offeror, Blackfriars, the Dealer Managers, the Information Agent, the
Depositary or any other person to give any notice of any defects or
irregularities in any withdrawal and no liability will be incurred by any of
them for failure to give any such notice.
If the Offer is extended or if the Offeror is delayed in taking up or
paying for Common Shares or is unable to take up and pay for Common Shares,
then, without prejudice to the Offeror's other rights, Common Shares deposited
under the Offer may be retained by the Depositary on behalf of the Offeror
except to the extent that depositing Shareholders exercise withdrawal rights as
set forth in this Section 7 or pursuant to applicable law. However, the ability
of the Offeror to delay the payment for Common Shares that the Offeror has
accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of shareholders promptly after the termination or
withdrawal of such bidder's offer, unless such bidder elects to offer a
subsequent offering period and pays for the shares tendered during the
subsequent offering period in accordance with Rule 14d-11 under the Exchange
Act.
Any Common Shares withdrawn will be deemed to be not validly deposited for
the purposes of the Offer, but may be redeposited subsequently at or prior to
the Expiry Time by following the procedures described under "MANNER OF
ACCEPTANCE" in Section 3 of the Offer.
In addition to the foregoing rights of withdrawal, Shareholders in certain
provinces of Canada are entitled to statutory rights of rescission in certain
circumstances. See "OFFEREES' STATUTORY RIGHTS" in Section 18 of the Circular.
8. MAIL SERVICE INTERRUPTION
Notwithstanding the provisions of the Offer, the Circular, the Letter of
Transmittal or the Notice of Guaranteed Delivery, cheques and any other relevant
documents will not be mailed if the Offeror determines that delivery thereof by
mail may be delayed as a result of a mail strike or lock-out. Persons entitled
to cheques and any other relevant documents that are not mailed for the
foregoing reason may take delivery thereof at the office of the Depositary to
which the Common Shares were deposited until such time as the Offeror has
determined that delivery by mail will no longer be delayed. Notwithstanding the
provisions set out under "TAKE UP OF AND PAYMENT FOR DEPOSITED COMMON SHARES" in
Section 6 of the Offer, cheques and any other relevant documents not mailed for
the foregoing reason will be conclusively deemed to have been delivered upon
being made available for delivery to the depositing Shareholder at the
appropriate office of the Depositary. Notice of any determination regarding mail
service delay or interruption made by the Offeror will be given in accordance
with the provisions set out under "NOTICE AND DELIVERY" in Section 10 of the
Offer.
9. DIVIDENDS AND DISTRIBUTIONS
If, on or after the date of the Offer, Emco should divide, combine or
otherwise change any of the Common Shares or its capitalization, or disclose
that it has taken or intends to take any such action, the Offeror, in its sole
discretion, may make such adjustments as it considers appropriate to the
purchase price and the other terms of the Offer (including, without limitation,
the type of securities offered to be purchased and the amounts payable therefor)
to reflect that division, combination or other change.
20
If, on or after February 20, 2003, Emco should declare, set aside, or pay
any dividend or other distribution 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 Common Share that is payable or
distributable to Shareholders on a record date that is prior to the date of
transfer into the name of the Offeror or its nominee or transferee on the
register of Shareholders maintained by Emco or its agent of such Common Share
following acceptance thereof for purchase pursuant to the Offer, then (i) in the
case of any such cash dividend, distribution or payment, the amount of the
dividends, distributions or payments shall be received and held by the
depositing Shareholder for the account of the Offeror until the Offeror pays for
such Common Shares, and to the extent that such dividends, distributions or
payments do not exceed the Offer Price, the Offer Price will be reduced by the
amount of any such dividends, distributions or payments, and (ii) in the case of
any such cash dividend, distribution or payment that exceeds the Offer Price, or
in the case of any non-cash dividend, distribution, payment, right or interest,
the whole of any such dividend, distribution, payment, right or other interest,
will be received and held by the depositing Shareholder for the account of the
Offeror and shall be required to be promptly remitted and transferred by the
depositing Shareholder to the Depositary for the account of the Offeror,
accompanied by appropriate documentation of transfer. Pending such remittance,
the Offeror will be entitled to all rights and privileges as the owner of any
such dividend, distribution, payment, right or other interest and may withhold
the Offer Price or deduct from the Offer Price the amount or value thereof, as
determined by the Offeror in its sole discretion. In addition, the Offeror and
Blackfriars may terminate the Support Agreement should the events described in
this paragraph occur. See "ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS -- SUPPORT
AGREEMENT" in Section 11 of the Circular and Section 5 of the Offer, "EXTENSION,
VARIATION OR CHANGE IN THE OFFER; SUBSEQUENT OFFERING PERIOD".
10. NOTICE AND DELIVERY
Without limiting any other lawful means of giving notice, any notice that
the Offeror or the Depositary may give or cause to be given under the Offer will
be deemed to have been properly given if it is mailed by first class mail,
postage prepaid to the registered holders of Common Shares at their respective
addresses appearing in the securities registers maintained by Emco or its agent
and, unless otherwise specified by applicable law, will be deemed to have been
received on the first Business Day following mailing. These provisions apply
notwithstanding any accidental omission to give notice to any one or more
Shareholders and notwithstanding any interruption of mail services in Canada or
the United States following mailing.
If mail service is interrupted following mailing, the Offeror intends to
make reasonable efforts to disseminate the notice by other means, such as
publication. Subject to applicable law, if post offices in Canada are not open
for the deposit of mail, for instance as a result of a mail strike or lock-out,
any notice which the Offeror or the Depositary may give or cause to be given
under the Offer will be deemed to have been properly given and to have been
received by Shareholders if it is published once in the National Edition of The
Globe and Mail or The National Post or is given to Canada NewsWire by press
release and is given to the Dow Jones News Service by press release.
The Offer will be mailed to registered holders of Common Shares by first
class mail, postage prepaid or made in such other manner as is permitted by
applicable regulatory authorities and will be furnished by the Offeror to
brokers, investment advisors, banks and similar persons whose names, or the
names of whose nominees, appear in the register maintained by the Depositary on
behalf of Emco in respect of the Common Shares or, if security position listings
are available, who are listed as participants in a clearing agency's security
position listings, for subsequent transmittal to the beneficial owners of Common
Shares where such listings are received.
WHEREVER THE OFFER CALLS FOR DOCUMENTS TO BE DELIVERED TO THE DEPOSITARY,
THOSE DOCUMENTS WILL NOT BE CONSIDERED DELIVERED UNLESS AND UNTIL THEY HAVE BEEN
PHYSICALLY RECEIVED AT THE ADDRESS LISTED FOR THE DEPOSITARY IN THE LETTER OF
TRANSMITTAL OR NOTICE OF GUARANTEED DELIVERY, AS APPLICABLE. WHEREVER THE OFFER
CALLS FOR DOCUMENTS TO BE DELIVERED TO A PARTICULAR OFFICE OF THE DEPOSITARY,
THOSE DOCUMENTS WILL NOT BE CONSIDERED DELIVERED UNLESS AND UNTIL THEY HAVE BEEN
PHYSICALLY RECEIVED AT THE PARTICULAR OFFICE AT THE ADDRESS LISTED IN THE LETTER
OF TRANSMITTAL OR NOTICE OF GUARANTEED DELIVERY, AS APPLICABLE.
11. ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE OFFER
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 Common Shares (other than
Common Shares held on the date hereof by or on behalf of the Offeror or any
affiliate or associate of the Offeror), the Offeror now intends, and in the
Support Agreement has agreed to use its reasonable
21
best efforts, to avail itself to the extent possible, of the compulsory
acquisition provisions of section 188 of the OBCA so as to acquire the remaining
Common Shares from those Shareholders who have not accepted the Offer.
If less than 90% of the Common Shares are acquired by the Offeror pursuant
to the Offer (other than Common Shares held on the date hereof by or on behalf
of the Offeror or any affiliate or associate of the Offeror), or the compulsory
acquisition provisions of the OBCA are otherwise unavailable, the Offeror now
intends to implement other means of acquiring all of the Common Shares in
accordance with Canadian law, including by way of a capital reorganization, an
arrangement, amalgamation, merger, share consolidation, or other transaction
that constitutes a Subsequent Acquisition Transaction. If the Deposit Minimum
Condition is satisfied, the Offeror will own sufficient Common Shares to effect
unilaterally a Subsequent Acquisition Transaction. See "ACQUISITION OF COMMON
SHARES NOT DEPOSITED UNDER THE OFFER" in Section 15 of the Circular.
12. MARKET PURCHASES
None of the Offeror or its affiliates will bid for or make purchases of
Common Shares during the currency of the Offer other than Common Shares tendered
to the Offer.
Although the Offeror has no present intention to sell Common Shares taken
up under the Offer, it reserves the right to make or to enter into an
arrangement, commitment or understanding at or prior to the Expiry Time to sell
any of such Common Shares after the Expiry Time.
13. OTHER TERMS OF THE OFFER
The Offer and the accompanying Circular constitute (i) the take-over bid
circular required under Canadian provincial securities legislation with respect
to the Offer and (ii) the Offer to Purchase to be incorporated by reference into
the Tender Offer Statement on Schedule TO to be filed by the Offeror and
Blackfriars with the SEC.
The Offer and all contracts resulting from the acceptance hereof shall be
governed by, and construed in accordance with, the laws of the Province of
Ontario and the laws of Canada applicable therein. Each party to a contract
resulting from an acceptance of the Offer unconditionally and irrevocably
attorns to the jurisdiction of the courts of the Province of Ontario.
In any jurisdiction in which the Offer is required to be made by a licensed
broker or dealer, this Offer shall be made on behalf of the Offeror by brokers
or dealers licensed under the laws of such jurisdiction.
The provisions of the Circular, the Letter of Transmittal and the Notice of
Guaranteed Delivery accompanying the Offer, including the instructions contained
therein, as applicable, form part of the terms and conditions of the Offer. The
Offeror, in its sole discretion, will be entitled to make a final and binding
determination of all questions relating to the interpretation of the Offer
(including the satisfaction of the conditions of the Offer), the Circular, the
Letter of Transmittal and the Notice of Guaranteed Delivery, the validity of any
acceptance of the Offer, the validity of any elections and the validity of any
withdrawals of Common Shares.
The Offeror reserves the right to transfer to one or more affiliated
companies the right to purchase all or any portion of the Common Shares
deposited pursuant to the Offer but any such transfer will not relieve the
Offeror of its obligations under the Offer and in no way will prejudice the
rights of persons depositing Common Shares to receive payment for Common Shares
validly deposited and accepted for payment pursuant to the Offer.
14. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Common Shares in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. However, the Offeror may, in its discretion, take such action
as it may deem necessary to make the Offer in any such jurisdiction and extend
the Offer to holders of Common Shares in such jurisdiction.
NO PERSON (INCLUDING THE DEALER MANAGERS, ANY MEMBER OF THE SOLICITING
DEALER GROUP, THE INFORMATION AGENT, OR THE DEPOSITARY) HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE OFFEROR OR
BLACKFRIARS NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED.
The Offeror and Blackfriars have filed with the SEC a Tender Offer
Statement on Schedule TO pursuant to Rule 14d-3 of the General Rules and
Regulations under the Exchange Act, together with exhibits furnishing certain
22
additional information with respect to the Offer, and may file amendments
thereto. In addition, Emco has filed with the SEC a Tender Offer
Solicitation/Recommendation Statement on Schedule 14D-9, together with exhibits,
pursuant to Rule 14d-9 under the Exchange Act, setting forth the recommendation
of the Emco Board of Directors with respect to the Offer and the reasons for
such recommendation and furnishing certain additional related information. A
copy of such documents, and any amendments thereto, may be examined at, and
copies may be obtained from, the SEC (but not the regional offices of the SEC)
in the manner set forth under Section 3 of the Circular.
Dated: February 28, 2003.
2022841 ONTARIO INC.
(signed) Christopher Pappo
Director
23
CIRCULAR
This Circular is furnished in connection with the accompanying Offer dated
February 28, 2003 by the Offeror to purchase all the issued and outstanding
Common Shares, including Common Shares that become outstanding on the exercise
or conversion of the outstanding Options and Debentures. Shareholders should
refer to the Offer for details of its terms and conditions, including details as
to payment and withdrawal rights.
The information concerning Emco contained in the Offer and this Circular
has been provided to the Offeror by Emco or has been taken from or is based upon
publicly available documents and records of Emco on file with Canadian
securities regulatory authorities and other public sources at the time of the
Offer, unless otherwise indicated, and has not been independently verified by
the Offeror. Although the Offeror has no knowledge that would indicate that any
of the statements contained herein and taken from or based on such information
are untrue or incomplete, it does not assume any responsibility for the accuracy
or completeness of such information, or for any failure by Emco to disclose
publicly events or acts that may have occurred or that may affect the
significance or accuracy of any such information and that are unknown to the
Offeror. Unless otherwise indicated, information concerning Emco is given as at
February 25, 2003.
1. THE OFFEROR
The Offeror was incorporated on February 19, 2003 under the OBCA. The
Offeror is an indirect wholly-owned subsidiary of Blackfriars. The Offeror has
not carried on any business prior to the date hereof other than in connection
with the Support Agreement and the Lock-up Agreement, and was incorporated to
make, and to purchase Common Shares tendered to, the Offer. The Offeror's head
office and principal place of business is located at 199 Bay Street, Toronto,
Ontario, M5L 1B9. The telephone number for the Offeror is 416-814-7995.
2. BLACKFRIARS CORP.
Blackfriars is a closely held corporation incorporated under the laws of
Delaware. Blackfriars' corporate headquarters and principal place of business
are located at 555 Skokie Blvd, Suite 555, Northbrook, Illinois 60062. The
telephone number for Blackfriars is 1-818-597-3749. Blackfriars is a holding
company and conducts no operations of its own, other than as a holding company.
Blackfriars holds investments in various businesses, including principally a
whole-sale electrical distribution business.
Other than 10,700 Common Shares held by a director and officer of
Blackfriars, as of the date hereof, the Offeror and Blackfriars do not
beneficially own, directly or indirectly, any of the outstanding Common Shares
or any securities convertible or exchangeable for Common Shares. However, the
Offeror and Blackfriars have entered into the Lock-up Agreement with the Selling
Shareholder. See "ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS -- LOCK-UP
AGREEMENT" in Section 11 of the Circular.
The name, citizenship, principal business address, business phone number,
principal occupation or employment and five-year employment history for each of
the directors and executive officers of the Offeror and Blackfriars and of the
controlling persons of Blackfriars, and certain other information is set forth
on Schedule I hereto.
None of the persons listed in Schedule I has, during the past five years,
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanours). None of the persons listed in Schedule I has, during the past
five years, been a party to any judicial or administrative proceeding (except
for matters that were dismissed without sanction or settlement) that resulted in
a judgment, decree or final order enjoining the person from future violations
of, or prohibiting activities subject to, federal, provincial or state
securities laws, or a finding of any violation of federal, provincial or state
securities laws.
Except as described in this Circular or in the accompanying Offer, none of
the Offeror, Blackfriars, or, to the best knowledge of the Offeror and
Blackfriars, any of the persons listed in Schedule I or any associate or
majority-owned subsidiary of the Offeror, Blackfriars or any of the persons so
listed beneficially owns or has any right to acquire, directly or indirectly,
any Common Shares. Furthermore, none of the Offeror, Blackfriars or, to the best
knowledge of the Offeror and Blackfriars, any of the persons or entities
referred to above nor any director, executive officer or subsidiary of any of
the foregoing has effected any transaction in the Common Shares during the past
60 days.
Except as provided in the Support Agreement and the Lock-up Agreement, none
of the Offeror, Blackfriars or, to the best knowledge of the Offeror and
Blackfriars, any of the persons listed in Schedule I, has any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of Emco, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such
24
securities, finder's fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss, guarantees of profits,
division of profits or loss or the giving or withholding of proxies.
Except as set forth above, none of Blackfriars, the Offeror or, to the best
knowledge of the Offeror and Blackfriars, any of the persons listed in Schedule
I, has had any business relationship or transaction with Emco or any of its
executive officers, directors or affiliates that is required to be reported
under the rules and regulations of the SEC applicable to the Offer.
Except as set forth in this Circular or in the accompanying Offer, there
have been no material contacts, negotiations or transactions between the Offeror
and Blackfriars or, to the best knowledge of the Offeror, Blackfriars, or any of
the persons listed in Schedule I, on the one hand, and Emco or its affiliates,
on the other hand, concerning a merger, consolidation or acquisition, tender
offer or other acquisition of securities, an election of directors or a sale or
other transfer of a material amount of assets.
3. EMCO LIMITED
Emco Limited is the corporation continuing from the amalgamation of Emco
Limited and BPCO Inc. on January 1, 1993, under the laws of Ontario. The
original predecessor of Emco Limited, the Empire Manufacturing Company Limited,
was incorporated under the laws of Ontario by Letters Patent dated May 28, 1906.
Emco is one of Canada's leading distributors and manufacturers of building
products for the residential, commercial and industrial construction markets.
Emco, together with its subsidiaries, operates two distinct segments:
Distribution and Manufacturing. Within the Distribution segment, Emco is a
leading Canadian wholesale distributor of plumbing, waterworks and industrial
products such as pipes, valves and fittings. The Manufacturing segment consists
of Emco Building Products Ltd. ("BUILDING PRODUCTS") and Metcraft Inc.
("METCRAFT"). Building Products is a major manufacturer and distributor of
building and home improvement products across Canada and in the northern United
States. Metcraft is a manufacturer of stainless steel products for the
institutional and food services industries.
Emco is a "reporting issuer" or equivalent in all provinces and territories
of Canada and files its continuous disclosure documents and other documents with
the Canadian securities regulatory authorities. Such documents are available
through the website maintained by the Canadian Depositary for Securities Limited
at "www.sedar.com".
The Common Shares are also registered under the Exchange Act. Accordingly,
Emco is subject to the informational reporting requirements of the Exchange Act
and, in accordance therewith, is required to file periodic reports and other
information with the SEC relating to its business, financial condition and other
matters. Such reports and other information can be inspected and copied at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Information regarding the public reference
facilities may be obtained from the SEC by telephoning 1-800-732-0330. Emco's
SEC filings since November 2002 are also available to the public on the SEC's
Internet site (http://www.sec.gov). Copies of such materials may also be
obtained by mail from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
As of the date hereof, and based on representations made in the Support
Agreement, there are approximately 17,497,099 Common Shares outstanding on a
Fully-diluted Basis. The Common Shares are listed and posted for trading on the
TSX under the symbol "EML" and are listed on Nasdaq under the symbol "EMLTF".
The authorized share capital of Emco consists of an unlimited number of common
shares and an unlimited number of preference shares.
Emco's head office and principal place of business is located at 620
Richmond Street, London, Ontario N6A 5J9. The telephone number for Emco is (519)
645-3900.
Pursuant to the securities laws of various provinces of Canada, the
directors of Emco must send the Directors' Circular to all Shareholders to whom
the Offer is made. The Directors' Circular has been sent to Shareholders
together with the Offer and this Circular. The Directors' Circular must
disclose, together with other information, any material changes in the affairs
of Emco subsequent to the date of the most recently published financial
statements of Emco. See the Directors' Circular which accompanies the Offer and
this Circular.
4. BACKGROUND TO THE OFFER
In July 2002, the Emco Board of Directors initiated a review to consider
strategic alternatives in order to maximize shareholder value. In August 2002,
the Independent Committee of the Emco Board of Directors established a
25
process for the review of strategic alternatives and retained TD Securities as
its financial advisor, and McCarthy Tetrault LLP as its legal advisor.
On September 25, 2002, an affiliate of Blackfriars and Emco entered into a
confidentiality agreement containing customary confidentiality and standstill
provisions. After entering into the confidentiality agreement, the affiliate of
Blackfriars and its advisors were given access to certain non-public information
relating to Emco for the purposes of considering an offer to acquire all of the
Common Shares.
The affiliate of Blackfriars provided an initial non-binding expression of
interest to Emco on November 15, 2002. The affiliate and certain others who had
also provided initial non-binding expressions of interest, were selected to
proceed with detailed due diligence reviews. During the period from mid-December
2002 to the beginning of February 2003, representatives and advisors of the
affiliate of Blackfriars were provided access to further detailed financial
information, material legal agreements and other information of Emco, Emco's
facilities, and members of Emco's senior management team.
On February 7, 2003, the affiliate of Blackfriars submitted a proposal to
TD Securities for the purchase of all of the Common Shares, subject to the
negotiation of a support agreement and other customary terms and conditions.
Between February 14, 2003, and February 20, 2003 the management and advisors of
the affiliate of Blackfriars and Emco negotiated and settled the terms of the
Support Agreement, which included an Offer price of Cdn$16.60 per Common Share,
the conditions of the Offer, and the circumstances which would give rise to the
payment of a termination fee. The Lock-up Agreement with Masco Corporation was
also negotiated and settled.
The Independent Committee of the Emco Board of Directors, and the Emco
Board of Directors, held meetings on February 19, 2002 to consider the Support
Agreement.
Following consultation with its financial and legal advisors, the Emco
Board of Directors unanimously determined that the Offer was in the best
interests of the Shareholders.
On February 20, 2003, Masco Corporation agreed to execute the Lock-up
Agreement and Emco issued a press a release announcing the entering into of the
Support Agreement and the Lock-up Agreement and the Offeror issued a press
release indicating its intention to make the Offer and that the Lockup Agreement
had been signed.
5. PURPOSE OF THE OFFER
The purpose of the Offer is to enable the Offeror to acquire control of
Emco and ultimately to own all of the Common Shares, including Common Shares
which may become outstanding upon the exercise of Options or the conversion of
Debentures. If the Offer is successful, the Offeror now intends, subject to
applicable law, to consummate a Compulsory Acquisition or Subsequent Acquisition
Transaction. In the Support Agreement, the Offeror has committed to use its
reasonable best efforts to consummate a Compulsory Acquisition if the Deposit
Minimum Condition is satisfied and the Offer is completed. The exact timing and
details of a Compulsory Acquisition or Subsequent Acquisition Transaction will
necessarily depend upon a variety of factors, including the number of Common
Shares acquired pursuant to the Offer. See also "ACQUISITION OF COMMON SHARES
NOT DEPOSITED UNDER THE OFFER" in Section 15 of this Circular. Subject to
completion of the Compulsory Acquisition or the Subsequent Acquisition
Transaction that is expected to follow the successful completion of the Offer,
the Offeror intends to redeem the Debentures in accordance with their terms.
Although the Offeror now intends to propose a Compulsory Acquisition or a
Subsequent Acquisition Transaction generally on the same terms as the Offer, it
is possible that, as a result of delays in the Offeror's ability to effect such
a transaction, information hereafter obtained by the Offeror, changes in general
economic, industry, regulatory or market conditions or in the business of Emco,
or other currently unforeseen circumstances, such a transaction may not be so
proposed, may be delayed or abandoned or may be proposed on different terms.
If the Offeror is unable to complete a Compulsory Acquisition or a
Subsequent Acquisition Transaction, or proposes a Subsequent Acquisition
Transaction but cannot obtain any required approvals promptly, the Offeror will
evaluate its other alternatives. Such alternatives could include, to the extent
permitted by applicable law, purchasing additional Common Shares in the open
market, in privately negotiated transactions, in another take-over bid or
exchange offer, or otherwise. Subject to applicable law, any additional
purchases of Common Shares could be at a price greater than, equal to, or less
than the price to be paid for Common Shares under the Offer and could be for
cash, securities and/or other consideration. Alternatively, the Offeror may take
no action to acquire additional Common
26
Shares, or may even sell or otherwise dispose of any or all Common Shares
acquired pursuant to the Offer, on terms and at prices then determined by the
Offeror, which may vary from the price paid for Common Shares under the Offer.
6. PLANS FOR EMCO
If the Offer is successful and the Offeror acquires more than 50% but less
than 66 2/3% of the Common Shares, the Offeror will be entitled, pursuant to the
Support Agreement, to designate such number of directors of the Emco Board of
Directors and any committees thereof, as is proportionate to the percentage of
Common Shares owned by the Offer. In addition, if the Offeror takes up and pays
for in excess of 66 2/3% of the Common Shares in the Offer, the Offeror will be
entitled, pursuant to the Support Agreement, to designate all of the directors
of the Emco Board of Directors and any committees thereof.
If the Offer is successful, the Offeror intends to conduct a detailed
review of Emco and its assets, liabilities, corporate structure, capitalization,
operations, properties, and policies with a view to integrating the business
carried on by Emco with those carried on by affiliates of the Offeror. Except as
described in the Offer or in this Circular, the Offeror has no current plans or
proposals which would relate to or result in any material changes in the affairs
of Emco, including any proposal to liquidate Emco, to sell, lease or exchange
all or a substantial part of its assets, to engage in any extraordinary
corporate transaction involving Emco or any of its subsidiaries, or to make any
material change in Emco's capitalization or dividend policy, to amalgamate it
with any other business organization or to make any material change in its
business or corporate structure, other than potentially to liquidate Emco into,
or amalgamate Emco with, the Offeror or one or more subsidiaries or affiliates
of the Offeror.
If permitted by applicable law, subject to completion of the Offer, the
Offeror intends that if all of the issued and outstanding Common Shares are
acquired as a result of the Offer, a Compulsory Acquisition, or a Subsequent
Acquisition Transaction, if any, the Common Shares would be delisted from the
TSX and Nasdaq and, subject to applicable securities laws in provinces where
Emco is a reporting issuer and United States securities laws, Emco would cease
to be a reporting issuer in such provinces and under the Exchange Act.
It is expected that the Offeror would redeem the Debentures in accordance
with their terms immediately prior to the completion of a Compulsory Acquisition
or Subsequent Acquisition Transaction.
7. CERTAIN EFFECTS OF THE OFFER
MARKET FOR COMMON SHARES
The purchase of Common Shares in the Offer will reduce the number of
holders of Common Shares and the number of Common Shares that might otherwise
trade publicly and is likely to adversely affect the liquidity and market value
of the remaining Common Shares held by the public.
STOCK QUOTATION
Depending upon the number of Common Shares purchased pursuant to the Offer,
the Common Shares may no longer meet the standards for continued listing on the
TSX or Nasdaq. According to its published guidelines, the TSX and Nasdaq would
give consideration to delisting Common Shares if, among other things, the Common
Shares did not substantially meet its standards for continued listing.
The TSX may suspend the trading of, or delist the Common Shares, if (i) the
market value of Emco's issued securities falls below Cdn$3 million over any
period of 30 consecutive trading days, (ii) the market value of Emco's freely
tradable, publicly held securities falls below Cdn$2 million over any period of
30 consecutive days, (iii) the number of freely tradable, publicly held Emco
securities falls below 500,000 or (iv) the number of public security holders,
each holding board lot or more, falls below 150.
Under the first standard for continued listing, Nasdaq would give
consideration to delisting the Common Shares if (i) the number of publicly held
Common Shares falls below 750,000, (ii) the number of holders of round lots of
Common Shares falls below 400, (iii) Emco's market value of publicly held Common
Shares falls below US$5 million, (iv) the minimum bid price per Common Share
falls below US$1, (v) Emco's shareholders' equity falls below US$10 million, and
(vi) there fails to be at least two market makers in the Common Shares. Under
the second standard, Nasdaq would give consideration to delisting the Common
Shares if (i) the number of publicly held Common Shares falls below 1,100,000,
(ii) the number of holders of round lots of Common Shares falls below 400, (iii)
Emco's market value of publicly held Common Shares falls below US$15 million,
(iv) the minimum bid price per Common Share falls below US$3 and (v) either (a)
Emco's market capitalization falls below US$50 million or (b) Emco's total
assets and
27
total revenue fall below US$50 million for each of the two most recently
completed fiscal years or two of the last three most recently completed fiscal
years, and (vi) there fails to be at least four market makers in the Common
Shares. Common Shares held by directors or officers of Emco, or their immediate
families, or by any beneficial owner of more than ten percent or more of the
Common Shares ordinarily will not be considered as being publicly held for this
purpose.
If the TSX and/or Nasdaq were to delist the Common Shares, it is possible
that the Common Shares would continue to trade on other securities exchanges or
in the over-the-counter market and that price quotations would be reported by
such exchanges or other sources. However, the extent of the public market for
the Common Shares and the availability of such quotations would depend upon such
factors as the number of shareholders and/or the aggregate market value of the
Common Shares remaining at such time, the interest in maintaining a market in
the Common Shares on the part of securities firms, the possible application by
Emco to cease to be a reporting issuer in Canada and possible termination of
registration under the Exchange Act and other factors.
MARGIN REGULATIONS
The Common Shares are currently "margin securities" under the Regulations
of the Board of Governors of the United States Federal Reserve System (the
"FEDERAL RESERVE BOARD"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Common Shares. Depending upon
factors similar to those described above regarding the market for the Common
Shares and stock quotations, it is possible that, following the Offer, the
Common Shares would no longer constitute "margin securities" for the purposes of
the margin regulations of the Federal Reserve Board and therefore could no
longer be used as collateral for loans made by brokers.
EXCHANGE ACT REGISTRATION
The Common Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application of Emco to the SEC if the Common
Shares are neither listed on a national securities exchange nor held by 300 or
more holders of record. Termination of registration of the Common Shares under
the Exchange Act would substantially reduce the information required to be
furnished by Emco to its shareholders and to the SEC and would make certain
provisions of the Exchange Act no longer applicable to Emco, such as the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions. Furthermore, the ability of "affiliates" of Emco and
persons holding "restricted securities" of Emco to dispose of such securities
pursuant to Rule 144 promulgated under the United States Securities Act of 1933,
as amended, may be impaired or eliminated. If registration of the Common Shares
under the Exchange Act were terminated, the Common Shares would no longer be
"margin securities" or be eligible for trading on Nasdaq.
8. SOURCE OF FUNDS
The Offeror estimates that if it acquires all of the Common Shares (on a
Fully-diluted Basis) pursuant to the Offer, the total amount of cash required
for the purchase of such Common Shares and to pay related fees and expenses
(collectively, the "OFFER COSTS") will be approximately Cdn$290 million.
Blackfriars will provide all funding required by the Offeror in connection with
the Offer. Blackfriars will finance such commitment from cash and short term
investments on hand.
The Offer is not conditioned on any financing arrangements or financing
contingencies. The Offeror and Blackfriars believe that the financial condition
of Blackfriars and its affiliates is not material to a decision by a holder of
Common Shares whether to tender such shares in the Offer because (i) cash is the
only consideration that will be paid to the holders of Common Shares in
connection with the Offer, (ii) the Offeror is offering to purchase all of the
outstanding Common Shares in the Offer, (iii) the Offer is not subject to any
financing arrangements or financing contingencies, and (iv) Blackfriars has
sufficient cash on hand and short term investments as indicated in the letter
dated February 19, 2003 from Blackfriars to Emco's Board of Directors which has
been filed as an exhibit to the Offeror's Tender Offer Statement on Schedule TO,
to provide the Offeror, with the amount of cash consideration payable to holders
of Common Shares in the Offer.
9. OWNERSHIP OF AND TRADING IN SECURITIES OF EMCO
Other than 10,700 Common Shares held by a director and officer of
Blackfriars, none of the Offeror, Blackfriars or, to the knowledge of the
Offeror or Blackfriars, any of the persons set forth on Schedule I, or, to the
knowledge the Offeror or Blackfriars, or any directors or senior officers of the
Offeror or Blackfriars, after reasonable enquiry, (i) any
28
of their respective associates, or (ii) any person or company acting jointly or
in concert with the Offeror or Blackfriars, or (iii) any person or company
holding more than 10% of any class of equity securities of the Offeror or
Blackfriars, beneficially owns, directly or indirectly, or controls or exercises
direction over, or has the right to acquire, any securities of Emco.
During the six month period preceding the date of the Offer, no securities
of Emco have been traded by the Offeror, Blackfriars, or, to the knowledge of
the Offeror or Blackfriars, any of the persons set forth on Schedule I, or, to
the knowledge the Offeror or Blackfriars, or any directors or senior officers of
the Offeror or Blackfriars, after reasonable enquiry, (i) by any of their
respective associates, (ii) by any person or company acting jointly or in
concert with the Offeror or Blackfriars, or (iii) by any person or company who
beneficially owns, directly or indirectly, more than 10% of any class of equity
securities of the Offeror or Blackfriars.
10. COMMITMENTS TO ACQUIRE SECURITIES OF EMCO
Other than pursuant to the Offer, there are no commitments to acquire
equity securities of Emco by the Offeror, Blackfriars, or, to the knowledge of
the Offeror or Blackfriars or any of the persons set forth on Schedule I, or, to
the knowledge the Offeror or Blackfriars, or any directors or senior officers of
the Offeror or Blackfriars, after reasonable enquiry, (i) by any of the persons
set forth on Schedule I, or (ii) by any of their respective associates, or (iii)
by any person or company acting jointly or in concert with the Offeror, or (iv)
by any person or company who beneficially owns, directly or indirectly, more
than 10% of any class of the Offeror's equity securities.
11. ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS
SUPPORT AGREEMENT
On February 20, 2003, Emco, Blackfriars and the Offeror entered into the
Support Agreement whereby Blackfriars agreed to cause the Offeror to make, and
Emco agreed to support, the Offer. Blackfriars has guaranteed the obligations of
the Offeror under the Support Agreement. The material terms and provisions of
the Support Agreement are summarized below. This summary is qualified in its
entirety by the terms of the Support Agreement, which has been filed as an
exhibit to the Schedule TO filed by the Offeror and Blackfriars with the SEC and
is incorporated herein by reference.
The Offeror agreed to make the Offer on the terms and subject to the
conditions set forth in the Support Agreement and to mail the Offer as soon as
reasonably practicable but in any event by 11:59 p.m. (EST) on March 14, 2003,
subject to extension in certain circumstances specified in the Support
Agreement, including by reason of there being an injunction or other order of a
court or regulatory authority prohibiting the mailing of the Offer.
Emco represented to the Offeror and Blackfriars that the Emco Board of
Directors, following consultation with its financial and legal advisors,
unanimously determined that the Offer was in the best interests of the
Shareholders to enter into the Support Agreement and for the Offer to be made,
and unanimously approved recommending that the Shareholders accept the Offer.
Emco also represented to the Offeror and Blackfriars that, after reasonable
inquiry, the Emco Board of Directors has been advised and believes that each of
the directors of Emco intends to tender to the Offer all Common Shares of which
he or she is the beneficial owner.
Emco also agreed to prepare and approve in final form for distribution with
this Circular and the Directors' Circular, each containing the unanimous
recommendation of the Emco Board of Directors that the Shareholders accept the
Offer and a copy of the opinion from TD Securities, the financial advisor to the
Independent Committee of the Emco Board of Directors.
Emco agreed and represented that the Emco Board of Directors unanimously
determined to use their reasonable efforts to enable the Offeror to elect or
appoint all of the directors of Emco as soon as possible after the Offeror takes
up and pays for in excess of 66 2/3% of the Common Shares (on a Fully-diluted
Basis) pursuant to the Offer. If the Offeror takes up and pays for at least a
majority of the outstanding Common Shares (on a Fully-diluted Basis) but less
than 66 2/3% (on a Fully-diluted Basis), Emco acknowledged that the Offeror will
be entitled to designate such number of members of the Emco Board of Directors,
and any committees thereof, as is proportionate to the percentage of the Common
Shares owned by the Offeror, and Emco will co-operate with the Offeror, subject
to applicable law, to enable the Offeror's designees to be elected or appointed
to the Emco Board of Directors and to constitute a majority of the Emco Board of
Directors.
29
Emco agreed that during the period from the date of the Support Agreement
to the earlier of the time ("SUPPORT AGREEMENT EFFECTIVE TIME") of the
appointment or election to the Emco Board of Directors of persons designated by
the Offeror who represent a majority of the directors of Emco, and the
termination of the Support Agreement, except as expressly contemplated or
permitted by the Support Agreement, it and its subsidiaries, in all material
respects, would carry on their businesses in the ordinary course as currently
conducted and, to the extent consistent therewith, use reasonable commercial
efforts to preserve intact their current business organizations, keep available
the services of their current employees, and preserve their current
relationships with customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing businesses will be unimpaired at
the Support Agreement Effective Time. Emco specifically agreed that, without the
prior written consent of Blackfriars, neither it nor any of its subsidiaries
would do certain things, including the following (i) split, combine or
reclassify any of their shares or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for their shares or
purchase, redeem or otherwise acquire, or offer to purchase, redeem or otherwise
acquire, any of their shares or any of their other securities or any rights,
warrants or options to acquire any such shares or other securities, in each
case, other than intercompany transactions involving Emco and its subsidiaries
and other than purchases of Common Shares pursuant to Emco's Employee Stock
Purchase Plan; (ii) issue or sell any securities other than pursuant to the
exercise of Options or conversion of the Debentures; (iii) amend their
constating documents; (iv) alter the corporate structure or ownership of Emco or
its subsidiaries; or (v) directly or indirectly reorganize, merge, amalgamate or
consolidate Emco or any of its subsidiaries with any person.
Emco made certain representations and warranties to Blackfriars with
respect to, among other matters: (i) its organization and qualification; (ii)
corporate authority and execution of the Support Agreement; (iii) its
capitalization; (iv) pension and termination benefits; (v) the preparation and
correctness of its financial statements and compliance with generally accepted
accounting principles; (vi) absence of certain changes in its business since its
last financial year-end; (vii) tax matters; (viii) litigation; (ix) severance
and employment agreements; (x) insurance and (xi) compliance with applicable
laws.
Emco agreed that, without the prior written consent of the Offeror and
Blackfriars, it will not, nor will it permit any of its subsidiaries to, nor
will it authorize or permit any officer, director or employee of or any
financial advisor, attorney or other advisor or representative or agent of, Emco
or any of its subsidiaries to, (i) solicit, initiate or encourage inquiries or
the submission of any Take-over Proposal, (ii) enter into any agreement with
respect to or approve or recommend any Take-over Proposal, or (iii) participate
in any negotiations regarding, or furnish to any person any information with
respect to Emco or any of its subsidiaries in connection with the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Take-over Proposal; provided that if the Emco Board of Directors reasonably
determines (after consultation with its financial advisors) that an unsolicited
bona fide written Take-over Proposal constitutes a Superior Proposal, then, to
the extent required by the fiduciary obligations of the Emco Board of Directors,
as determined in good faith by a majority of the directors after receiving a
written opinion or the advice of its outside counsel that is reflected in the
minutes of the meeting of the Emco Board of Directors, to such effect, Emco may,
in response to an unsolicited request therefor, (i) furnish information with
respect to Emco and its subsidiaries to any person pursuant to a customary
confidentiality agreement and, (ii) negotiate with the third party and enter
into an agreement with respect to a Superior Proposal.
"TAKE-OVER PROPOSAL" means any proposal or offer from any other person, or
other business organization whatsoever (including any of Emco's officers or
directors) relating to any recapitalization, merger, amalgamation, acquisition,
arrangement or other business combination involving Emco or any of its
subsidiaries or any proposal or offer from any such person to acquire in any
manner, directly or indirectly, an equity interest in, any voting securities of,
or a substantial portion of the assets of Emco or any of its subsidiaries, other
than the transactions contemplated by the Support Agreement. "SUPERIOR PROPOSAL"
means a Take-over Proposal on terms which a majority of the Emco Board of
Directors determines in its reasonable good faith judgment to be more favourable
to the Shareholders than the Offer (after consultation with Emco's financial,
legal and other advisors) and for which financing, to the extent required, is
then committed or which, in the reasonable good faith judgment of a majority of
the Emco Board of Directors (after consultation with Emco's financial, legal and
other advisors), is reasonably capable of being obtained by such third party.
Emco agreed that it will provide notice orally and in writing to
Blackfriars of (i) any Take-over Proposal or any inquiry with respect to or
which could lead to any Take-over Proposal received by any officer or director
of Emco or, to the knowledge of Emco, any financial advisor, attorney or other
advisor or representative or agent of Emco; (ii) the
30
material terms of such Take-over Proposal (including a copy of any written
proposal); and (iii) the identity of the person making any such Take-over
Proposal or inquiry no later than 24 hours following receipt of such Take-over
Proposal or inquiry. If Emco intends to furnish any person with any information
with respect to any Take-over Proposal, it will advise Blackfriars orally and in
writing of such intention and will provide Blackfriars with a copy of all such
information not less than one business day in advance of providing any such
information to such person and will keep Blackfriars fully informed of the
status and details of any such Take-over Proposal or inquiry.
Emco agreed that it will not enter into any agreement (a "PROPOSED
AGREEMENT"), except a confidentiality agreement, with any third party providing
for or to facilitate any Take-over Proposal that the Emco Board of Directors
considers to be a Superior Proposal unless it has provided the Offeror and
Blackfriars with a copy of the Proposed Agreement, together with a written
notice from the Emco Board of Directors regarding the value in financial terms
that the Board, in consultation with financial advisors, has determined should
be ascribed to any non-cash consideration, not less than three business days
(the "MATCH PERIOD") prior to the execution by Emco of the Proposed Agreement.
Emco agreed that during the Match Period, the Offeror will have the right,
but not the obligation, to offer to amend the terms of the Support Agreement in
order to provide for financial terms at least equivalent to those in the
Proposed Agreement. The Emco Board of Directors will review any offer by the
Offeror and Blackfriars to amend the terms of the Support Agreement in order to
determine, in good faith and in accordance with its fiduciary duties, whether
the Offeror's amended offer would be at least as favourable to Shareholders as
the Take-over Proposal set out in the Proposed Agreement. If the Emco Board of
Directors so determines, Emco will enter into an amended agreement with the
Offeror and Blackfriars reflecting the Offeror's amended offer. If the Emco
Board of Directors continues to believe, acting in good faith and properly
discharging its fiduciary duties and, after consultation with its financial
legal and advisors, that the Take-over Proposal remains a Superior Proposal and
therefore rejects the amended offer, Emco may enter into the Proposed Agreement
after Emco pays the Cdn$6 million termination fee (described below) to
Blackfriars.
Emco agreed that, except with the prior written consent of Blackfriars, it
will immediately terminate any existing discussions or negotiations with any
parties (other than the Offeror and Blackfriars) with respect to any potential
Take-over Proposal. Emco agreed not to terminate, amend or waive any provision
of any confidentiality or standstill agreement to which Emco or any of its
subsidiaries is a party (other than any involving Blackfriars or a Superior
Proposal). Emco agreed that it will immediately demand the return or destruction
of all confidential information provided to any third party in connection with
any potential Take-over Proposal and will use all reasonable efforts to ensure
that such information is returned.
The Support Agreement may be terminated by notice in writing in the
following circumstances: (a) by mutual written consent of Blackfriars and Emco;
(b) by either Blackfriars or Emco if the other party (in the case of
Blackfriars, including the Offeror) will have failed to comply with any of its
covenants or agreements contained in the Support Agreement required to be
complied with prior to the date of such termination, which failure to comply has
not been cured within five business days following receipt by such other party
of written notice of such failure to comply; (c) by either Blackfriars or Emco
if there has been a breach by the other party (in the case of Blackfriars,
including any breach by the Offeror) of any representation or warranty which has
the effect of making such representation or warranty not true and correct in all
material respects and which breach has not been cured within five business days
following the breaching party becoming aware of such breach or the receipt by
the breaching party of written notice of the breach from the other party; (d) by
Emco if the Circular has not been mailed as set out above; provided, however,
that the right to terminate is not available if Emco has failed to fulfill any
of its obligations in the Support Agreement, or has been a cause of the failure
of the Circular to have been mailed; (e) by either Emco or Blackfriars if the
Offeror has not become legally obligated to accept and take-up any Common Shares
pursuant to the Offer by May 15, 2003; (f) by either Blackfriars or Emco if any
court or other Governmental Entity having jurisdiction will have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the transactions contemplated by the
Support Agreement and such order, decree, ruling or other action will have
become final and nonappealable; (g) by Blackfriars if any condition of making
the Offer has not been satisfied or waived prior to the date the Circular is to
be mailed or if any condition of the Offer has not been satisfied or waived
prior to the expiry of the Offer; (h) by Blackfriars if the Emco Board of
Directors (A) qualifies, modifies or withdraws its recommendation in favour of
the Offer, (B) recommends to the Shareholders any Take-over Proposal other than
the Offer, or (C) resolves to do either of the above; (i) by Emco if it proposes
to enter into a merger, acquisition or other agreement to effect a Superior
Proposal; but only if the Offeror and Blackfriars have not exercised their right
to match the Superior Proposal;
31
or (j) by Blackfriars if any person or group of persons acting jointly or in
concert acquires 50% or more of the outstanding Common Shares.
Emco has agreed to pay Blackfriars a termination fee of Cdn$6 million in
the event that Emco proposes to terminate the Support Agreement on the basis of
the grounds described in (i) in the above paragraph or in the event that
Blackfriars proposes to terminate the Support Agreement on the basis of the
grounds described in (h) or (j) in the above paragraph. The termination fee will
be paid concurrently with the termination if the termination is by Emco, or no
later than the second business day following the termination if the termination
is by Blackfriars.
Emco agreed (i) that the Emco Board of Directors would pass a resolution
accelerating the vesting of all Options, (ii) that Emco would promptly notify
the holders of Options of such resolution, and (iii) that Emco would permit
holders of Options to transfer their Options to Emco in exchange for a cash
payment of the in-the-money value of the Option, conditional upon the Offeror
taking up and paying for Common Shares under the Offer.
Subject to existing contractual and legal restrictions, Emco agreed to
provide the counsel, accountants, financial advisors and other representatives
of Blackfriars with reasonable access to, and permit them to make such
inspections as they may reasonably require of the properties, books, contracts,
commitments and records of Emco and its subsidiaries and to, (i) furnish
promptly to Blackfriars a copy of each report, schedule, registration statement
and other document filed by Emco or its subsidiaries pursuant to the
requirements of federal, provincial or other securities laws, (ii) furnish
promptly to Blackfriars all other information concerning their businesses,
properties and personnel as Blackfriars may reasonably request, and (iii)
promptly make available to Blackfriars all personnel of Emco and its
subsidiaries knowledgeable about matters relevant to such inspections.
If the Offeror takes up and pays for not less than 66 2/3% of the Common
Shares, Emco will, in connection with any Subsequent Acquisition Transaction,
assist the Offeror in acquiring the remaining Common Shares, provided that the
consideration offered in connection with the Subsequent Acquisition Transaction
is at least equivalent in value to the consideration under the Offer. If, within
120 days of the date of the Offer, the Offer has been accepted by holders of not
less than 90% of the Common Shares, the Offeror will use its reasonable best
efforts, to the extent permitted by applicable law, to acquire the remainder of
the Common Shares through a statutory right of acquisition available under the
OBCA.
Under the Support Agreement, Blackfriars agreed to cause Emco or any
successor to Emco to indemnify all past and present officers and directors of
Emco or its subsidiaries to the same extent they are indemnified as of February
19, 2002 pursuant to the constating documents of Emco and its subsidiaries and
any existing indemnification agreements for acts or omissions occurring prior to
the Support Agreement Effective Time. Emco intends to purchase run-off
insurance, for such term as may be considered reasonable by it (but which in any
event will not exceed six years from the Support Agreement Effective Time), for
its past and present directors and officers in respect of all matters relating
to the period when they were directors and/or officers. In the absence of
run-off insurance, Blackfriars will cause Emco or any successor to Emco to
provide, for an aggregate period of not less than six years from the Support
Agreement Effective Time, Emco's current and former directors and officers an
insurance and indemnification policy that provides coverage for events occurring
prior to the Support Agreement Effective Time that is substantially similar to
Emco's existing policy if such a policy is available at a reasonable cost.
LOCK-UP AGREEMENT
On February 20, 2003, the Offeror, Blackfriars and the Selling Shareholder
entered into the Lock-up Agreement. The Selling Shareholder has represented to
Blackfriars that it owns and controls 6,621,334 Common Shares, being
approximately 42% of all Common Shares.
The material terms and provisions of the Lock-up Agreement are summarized
below. This summary is qualified in its entirety by the terms of the Lock-up
Agreement, which has been filed as an exhibit to the Schedule TO filed by the
Offeror and Blackfriars with the SEC and is incorporated herein by reference.
Under the terms of the Lock-up Agreement, the Selling Shareholder agreed to
deposit or cause to be deposited all of the Locked-up Shares by not later than
the fifth business day following the mailing of the Offer. The Selling
Shareholder also agreed not to withdraw the Locked-up Shares from the Offer
unless the Lock-up Agreement is terminated in accordance with its terms prior to
the Offeror taking-up and paying for the Locked-up Shares.
The Selling Shareholder has agreed that it will cooperate with the Offeror
in order to assist the Offeror to successfully complete the acquisition of all
of the Common Shares by:
32
(a) exercising the voting rights attached to its Common Shares to oppose
any proposed action (i) which might reasonably be regarded as being
directed towards, or preventing or delaying the successful completion of
the Offer, or (ii) which could materially change the business, assets,
operations, capital, affairs, financial conditions, licences, permits,
rights or privileges of the Emco and its subsidiaries; and
(b) not taking any action of any kind which may reduce the likelihood of
success of or delay the completion of the Offer and, promptly upon
request, assisting the Offeror by providing any information reasonably
required for the Offeror to secure regulatory approvals in respect of
the completion of the Offer.
The Lock-up Agreement may be terminated by notice in writing:
(a) by the Selling Shareholder, without prejudice to any other rights, if
the Offer is not mailed by March 14, 2003 or the Offeror has not taken
up and paid for the Locked-up Shares pursuant to the Offer by May 15,
2003; and
(b) by the Offeror, without prejudice to any other rights, if there is a
material breach of the Lock-up Agreement by the Selling Shareholder.
If, during the term of the Lock-up Agreement a Superior Proposal is made,
the Offeror and Blackfriars have agreed to (i) notify the Selling Shareholder in
writing prior to the expiry of the Superior Proposal that it will waive any
unsatisfied conditions in its transaction and irrevocably commit to purchase the
Locked-up Shares on the terms of the Offer, or (ii) release the Selling
Shareholder from the Lock-up Agreement and return the Locked-up Shares to the
Selling Shareholder so as to permit the Selling Shareholder to tender those
Locked-up Shares into the Superior Proposal 48 hours prior to its expiry.
12. MATERIAL CHANGES AND OTHER INFORMATION CONCERNING EMCO
The Offeror has no information that indicates any material change in the
affairs of Emco since the date of the last published financial statements of
Emco other than as has been publicly disclosed by Emco or as otherwise described
herein. The Offeror has no knowledge of any material fact concerning securities
of Emco that has not been generally disclosed by Emco or any other matter that
has not previously been generally disclosed but which would reasonably be
expected to affect the decision of Shareholders to accept or reject the Offer
except as described herein.
13. INFORMATION ABOUT COMMON SHARES
PRICE RANGE AND TRADING VOLUMES
The Common Shares are listed and posted for trading on the TSX and Nasdaq.
Based upon representations made in the Support Agreement, the Offeror believes
that as the date hereof there are approximately 17,497,099 Common
33
Shares outstanding on a Fully-diluted Basis. The following tables sets forth the
high and low sales price and volume of sales of the Common Shares traded on the
TSX and Nasdaq for the periods indicated:
<Table>
<Caption>
TSX NASDAQ
--------------------------------- -----------------------------
HIGH LOW VOLUME HIGH LOW VOLUME
--------- --------- --------- -------- -------- -------
2003 -- MONTHLY
February 3 to February 26...... Cdn$16.90 Cdn$13.25 1,652,300 US$11.08 US$ 8.88 283,800
January........................ Cdn$14.23 Cdn$12.16 219,570 US$ 9.23 US$ 8.00 51,400
2002 -- MONTHLY
December....................... Cdn$12.79 Cdn$11.60 129,960 US$ 8.09 US$ 6.01 50,900
November....................... Cdn$12.00 Cdn$10.65 146,910 US$ 7.50 US$ 6.85 3,300
October........................ Cdn$12.10 Cdn$10.26 316,750 US$ 7.80 US$ 6.50 20,500
September...................... Cdn$12.00 Cdn$10.05 346,470 US$ 7.50 US$ 6.46 13,000
August......................... Cdn$12.00 Cdn$10.60 119,690 US$ 7.64 US$ 6.77 26,400
July........................... Cdn$12.70 Cdn$ 8.81 356,710 US$ 8.39 US$ 5.89 102,400
June........................... Cdn$12.77 Cdn$11.25 181,690 US$ 8.40 US$ 7.05 72,300
May............................ Cdn$12.42 Cdn$10.45 720,080 US$ 8.09 US$ 6.60 236,600
April.......................... Cdn$12.09 Cdn$ 8.40 281,680 US$ 7.65 US$ 5.23 169,300
March.......................... Cdn$ 9.55 Cdn$ 8.05 503,160 US$ 6.03 US$ 5.18 131,900
February....................... Cdn$ 9.55 Cdn$ 6.70 384,550 US$ 5.95 US$ 4.17 109,000
January........................ Cdn$ 7.00 Cdn$ 6.30 392,390 US$ 4.41 US$ 3.91 45,200
2002 -- QUARTERLY
October -- December............ Cdn$12.79 Cdn$10.26 593,620 US$ 8.09 US$ 6.01 74,700
July -- September.............. Cdn$12.70 Cdn$ 8.81 822,870 US$ 8.39 US$ 5.89 141,800
April -- June.................. Cdn$12.77 Cdn$ 8.40 1,183,450 US$ 8.40 US$ 5.23 478,200
January -- March............... Cdn$ 9.55 Cdn$ 6.30 1,280,100 US$ 6.03 US$ 3.91 286,100
2001 -- QUARTERLY
October -- December............ Cdn$ 6.60 Cdn$ 3.85 382,030 US$ 4.32 US$ 2.42 139,200
July -- September.............. Cdn$ 7.25 Cdn$ 3.71 415,310 US$ 5.60 US$ 2.25 384,300
April -- June.................. Cdn$ 7.50 Cdn$ 3.35 856,500 US$ 4.76 US$ 2.19 107,500
January -- March............... Cdn$ 5.40 Cdn$ 3.55 331,890 US$ 3.56 US$ 2.37 83,500
</Table>
The Support Agreement was announced on February 20, 2003. The closing price
of the Common Shares on the TSX and Nasdaq on February 19, 2003, the last full
trading day immediately prior to this announcement, was Cdn$14.75 and US$9.71,
respectively. The Offer represents a premium of approximately 12.5% to the
closing price of the Common Shares on the TSX on February 19, 2003, and
approximately 58% over the closing price of Common Shares on the TSX on July 23,
2002, the trading day immediately prior to the announcement by Emco of its
process to attempt to maximize value for Shareholders.
The purchase of Common Shares by the Offeror pursuant to the Offer will
reduce the number of Common Shares which might otherwise trade publicly, as well
as the number of Shareholders, and, depending on the number of Shareholders
depositing and the number of Common Shares purchased under the Offer, is likely
to adversely affect the liquidity and market value of the remaining Common
Shares held by the public. After the purchase of Common Shares under the Offer,
it is the Offeror's intention to take steps toward the elimination of any public
reporting requirements of Emco under applicable securities legislation in any
jurisdiction if it has an insignificant number of security holders in such
jurisdiction.
The rules and regulations of the TSX and Nasdaq establish certain criteria
which, if not met, could lead to the delisting of the Common Shares from the TSX
and Nasdaq. Among such criteria are the number of Shareholders, the number of
Common Shares publicly held and the aggregate market value of the Common Shares
publicly held. See Section 7 of this Circular. Depending on the number of Common
Shares purchased pursuant to the Offer, it is possible that the Common Shares
would fail to meet the criteria for continued listing on the TSX and Nasdaq. See
Section 7 of this Circular. If this were to happen, the Common Shares could be
delisted and this delisting could, in turn, adversely affect the market or
result in a lack of an established market for the Common Shares. It is the
intention of the Offeror to apply to delist the Common Shares from the TSX and
Nasdaq as soon as is practicable after completion of the Offer, if
34
all of the issued and outstanding Common Shares are deposited, or after a
Compulsory Acquisition or a Subsequent Acquisition Transaction, if any. See
"CERTAIN EFFECTS OF THE OFFER" in Section 7 of this Circular.
PREVIOUS DISTRIBUTIONS OF COMMON SHARES
Based upon information provided to the Offeror by Emco, the Offeror
believes that Emco has not issued any Common Shares in the last five years,
other than any distribution of Common Shares pursuant to the Stock Option Plan
and the Employee Stock Purchase Plan of Emco.
DIVIDEND POLICY
Based upon information provided to the Offeror by Emco, the Offeror
believes that Emco has not paid dividends on the Common Shares in the last 5
years.
14. REGULATORY MATTERS
Other than in connection with or in compliance with the provisions of the
Investment Canada Act, the Competition Act and HSR Act, no authorization,
consent or approval of, or filing with, any public body, court or authority is
necessary on the part of the Offeror or Blackfriars for the consummation of the
transactions contemplated by the Support Agreement, except for such
authorizations, consents, approvals and filings as to which the failure to
obtain or make would not, individually or in the aggregate, prevent or
materially delay consummation of the transactions contemplated by that
agreement. In the event that either Blackfriars or the Offeror becomes aware of
other requirements, each will take reasonable commercial efforts to obtain such
approval prior to the Expiry Time, as such time may be extended.
INVESTMENT CANADA ACT
Under the Investment Canada Act, certain transactions involving the
acquisition of control of a Canadian business by a non-Canadian are subject to
review and cannot be implemented unless the Minister responsible for the
Investment Canada Act (the "MINISTER") is satisfied that the transaction is
likely to be of net benefit to Canada.
If a transaction is subject to the review requirement (a "REVIEWABLE
TRANSACTION"), an application for review must be filed with the Investment
Review Division of Industry Canada prior to the implementation of the Reviewable
Transaction. The Minister is then required to determine whether the Reviewable
Transaction is likely to be of net benefit to Canada taking into account, among
other things, certain factors specified in the Investment Canada Act and any
written undertakings that may have been given by the applicant. The Investment
Canada Act contemplates an initial review period of 45 days after filing;
however, if the Minister has not completed the review by that date, the Minister
may unilaterally extend the review period by up to 30 days (or such longer
period as may be agreed to by the applicant) to permit completion of the review.
The prescribed factors of assessment to be considered by the Minister include,
among other things, the effect of the investment on the level and nature of
economic activity in Canada (including the effect on employment, resource
processing, utilization of Canadian products and services and exports), the
degree and significance of participation by Canadians in the acquired business,
the effect of the investment on productivity, industrial efficiency,
technological development, product innovation and product variety in Canada, the
effect of the investment on competition within any industry in Canada, the
compatibility of the investment with national industrial, economic and cultural
policies (taking into consideration corresponding provincial policies) and the
contribution of the investment to Canada's ability to compete in world markets.
If the Minister determines that he is not satisfied that a Reviewable
Transaction is likely to be of net benefit to Canada, the Reviewable Transaction
may not be implemented.
As the acquisition of control of Emco contemplated by the Offer is a
Reviewable Transaction, the Offeror will need to file an application for review
under the Investment Canada Act.
COMPETITION ACT
The Competition Act requires a pre-merger notification to the Competition
Commissioner for transactions that exceed certain financial thresholds and, in
the case of share acquisitions, that exceed an additional voting interest
threshold. If a transaction is subject to pre-merger notification, a pre-merger
filing must be submitted to the Competition Commissioner and a waiting period
must expire or be waived by the Competition Commissioner before the proposed
transaction may be completed. Either a short form notification (with a 14 day
waiting period) or a long form notification (with a 42 day waiting period) may
be filed, but, if a short form is filed, the Competition
35
Commissioner may, within 14 days, require a long form, in which case the
proposed transaction generally may not be completed until 42 days after a long
form filing is made. The Competition Commissioner's review of a transaction
subject to a pre-merger notification may take longer than the statutory waiting
period, in which case the parties may be asked to delay completion of the
transaction until the review is completed and the Competition Commissioner has
determined his position.
Whether or not a pre-merger filing is required, the Competition
Commissioner may apply to the Competition Tribunal, a specialized tribunal
empowered to deal with certain matters under the Competition Act, with respect
to a "merger" (as defined in the Competition Act) and, if the Competition
Tribunal finds that the merger is likely to prevent or lessen competition
substantially, it may order that the merger not proceed or, in the event that
the merger has been completed, order its dissolution or the disposition of some
of the assets or shares involved. The Competition Tribunal also may issue an
interim order under the Competition Act prohibiting the completion of the merger
for a period of up to 30 days where (a) the Competition Commissioner has
certified that an inquiry is being made under paragraph 10(1)(b) of the
Competition Act in connection with the merger and that in his opinion more time
is required to complete the inquiry, and (b) the Competition Tribunal finds
that, in the absence of an interim order, a party to the merger or any other
person is likely to take an action that would substantially impair the ability
of the Competition Tribunal to remedy the effect of the merger on competition
under section 92 of the Competition Act because that action would be difficult
to reverse. The duration of such interim orders may be extended for an
additional period of up to 30 days where the Competition Tribunal finds that the
Competition Commissioner is unable to complete his inquiry because of
circumstances beyond his control. If the Competition Commissioner challenges the
merger under section 92 of the Competition Act, he may also apply to the
Competition Tribunal for an injunctive order.
The Competition Commissioner may upon request issue an advance ruling
certificate ("ARC"), where he is satisfied that he would not have sufficient
grounds on which to apply to the Competition Tribunal under the merger
provisions of the Competition Act. If the Competition Commissioner issues an ARC
in respect of a proposed transaction, that transaction is exempt from the
pre-merger notification provisions. Alternatively, the Competition Commissioner
may issue a "no action" letter following a notification or an application for an
ARC, indicating that he is of the view that grounds do not then exist to
initiate proceedings before the Competition Tribunal under the merger provisions
of the Competition Act with respect to the proposed transaction, while
preserving during the three years following completion of the proposed
transaction his ability to so initiate proceedings should circumstances change.
The purchase of Common Shares pursuant to the Offer requires pre-merger
notification to the Competition Commissioner and the Offeror's acquisition of
control of Emco would be a "merger" for the purposes of the merger provisions of
the Competition Act. The Offeror will request an ARC in respect of the Offer and
the Offeror and Emco will make a short-form pre-merger notification filing in
respect of the Offer.
LITIGATION AND PERMITS
The Offeror is not aware of any pending legal proceeding relating to the
Offer. Except as described in this Section 14, based on its examination of
publicly available information filed by Emco with the SEC and other publicly
available information concerning Emco, the Offeror is not aware of any
governmental license or regulatory permit that appears to be material to Emco's
business that might be adversely affected by the Offeror's acquisition of Common
Shares as contemplated herein or of any approval or other action by any
governmental, regulatory or administrative authority or agency, domestic or
foreign, that would be required for the acquisition or ownership of Common
Shares by the Offeror or Blackfriars as contemplated herein. Should any such
approval or other action be required, the Offeror currently contemplates that
such approval or other action will be sought. While the Offeror does not
currently intend to delay acceptance for payment of Common Shares tendered
pursuant to the Offer pending the outcome of any such matter, there can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that if such approvals
were not obtained or such other actions were not taken, adverse consequences
might not result to Emco's business, or certain parts of Emco's business might
not have to be disposed of, any of which could cause the Offeror to elect to
terminate the Offer without the purchase of Common Shares under the Offer.
UNITED STATES ANTITRUST COMPLIANCE.
Under the HSR Act and the rules that have been promulgated thereunder by
the Federal Trade Commission (the "FTC"), certain acquisition transactions may
not be consummated unless certain information has been furnished to the
Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") and
the FTC and certain waiting period
36
requirements have been satisfied. The purchase of Common Shares pursuant to the
Offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, the Offeror intends to file a
Notification and Report Form with respect to the Offer with the Antitrust
Division and the FTC as soon as practicable. The waiting period applicable to
the purchase of Shares pursuant to the Offer will expire at 11:59 p.m., Eastern
time, on the fifteenth calendar day from the day after such filing is made by
the Offeror. However, prior to such time, the Antitrust Division or the FTC may
extend the waiting period by requesting additional information or documentary
material relevant to the Offer from the Offeror. If such a request is made, the
waiting period will be extended until 11:59 p.m., Eastern time, on the tenth day
after substantial compliance by the Offeror with such request. Thereafter, such
waiting period can be extended only by court order.
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the acquisition of Common Shares by the
Offeror pursuant to the Offer. At any time before or after the consummation of
any such transactions, the Antitrust Division or the FTC could take such action
under the antitrust laws of the United States as it deems necessary or desirable
in the public interest, including seeking to enjoin the purchase of Common
Shares pursuant to the Offer or seeking divestiture of the Common Shares so
acquired or divestiture of substantial assets of Blackfriars or Emco. Private
parties (including individual States) may also bring legal actions under the
antitrust laws of the United States. The Offeror does not believe that the
consummation of the Offer will result in a violation of any applicable antitrust
laws. However, there can be no assurance that a challenge to the Offer on
antitrust grounds will not be made, or if such a challenge is made, what the
result will be. See Section 4 of the Offer, including conditions with respect to
litigation and certain governmental actions and Section 11 of the Circular,
"ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS -- SUPPORT AGREEMENT" for certain
termination rights.
U.S. STATE TAKEOVER STATUTES.
A number of states have adopted laws that purport, to varying degrees, to
apply to attempts to acquire corporations that are incorporated in, or that have
substantial assets, shareholders, principal executive offices or principal
places of business or whose business operations otherwise have substantial
economic effects in, such states. Emco, directly or through subsidiaries,
conducts business in a number of states throughout the United States, some of
which have enacted such laws.
If any government official or third party should seek to apply any state
takeover law to the Offer or other business combination between the Offeror or
any of its affiliates and Emco, the Offeror will take such action as then
appears desirable, which action may include challenging the applicability or
validity of such statute in appropriate court proceedings. In the event it is
asserted that one or more state takeover statutes is applicable to the Offer and
an appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer, the Offeror might be required to file certain information
with, or to receive approvals from, the relevant state authorities or holders of
Common Shares, and the Offeror might be unable to accept for payment or pay for
Common Shares tendered pursuant to the Offer, or be delayed in continuing or
consummating the Offer. In such case, the Offeror may not be obligated to accept
for payment or pay for any tendered Common Shares.
15. ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE OFFER
COMPULSORY ACQUISITION
Section 188 of the OBCA permits an offeror to acquire the shares not
tendered to an offer for shares of a particular class of shares of a corporation
if, within 120 days after the date of the offer, the offer is accepted by the
holders of not less than 90% of any class of securities to which the offer
relates, other than securities held at the date of the offer by or on behalf of
the offeror or its Affiliates or Associates.
If, within 120 days after the date thereof, the Offer has been accepted by
holders of not less than 90% of the Common Shares, other than Common Shares held
on the date of the Offer by or on behalf of the Offeror or its Affiliates or
Associates, and the Offeror purchases such deposited Common Shares, the Offeror
will use its reasonable best efforts, to the extent permitted by applicable law,
to acquire the remainder of the Common Shares on the same terms as such Common
Shares were acquired under the Offer, pursuant to the provisions of Section 188
of the OBCA (a "COMPULSORY ACQUISITION").
To exercise such statutory right, the Offeror must give notice (the
"OFFEROR'S NOTICE") to each holder of Common Shares who did not accept the Offer
(and to each person who subsequently acquires any such Common
37
Shares) (in each case a "DISSENTING OFFEREE") and to the Director under the OBCA
of such proposed acquisition on or before the earlier of 60 days from the
termination of the Offer and 180 days from the date of the Offer. Within 20 days
of giving the Offeror's Notice, the Offeror must pay or transfer to Emco the
consideration the Offeror would have had to pay to the Dissenting Offerees if
they had elected to accept the Offer, to be held in trust for the Dissenting
Offerees. In accordance with Section 188 of the OBCA, within 20 days after
receipt of the Offeror's Notice, each Dissenting Offeree must send the Share
Certificates(s) held by such Dissenting Offeree to Emco, and may elect either to
transfer such Common Shares to the Offeror on the terms of the Offer or to
demand payment of the fair value of such Common Shares held by such holder by so
notifying the Offeror. If a Dissenting Offeree has elected to demand payment of
the fair value of such Common Shares, the Offeror may apply to a court having
jurisdiction to hear an application to fix the fair value of such Common Shares
of the Dissenting Offeree. If the Offeror fails to apply to such court within 20
days after it made the payment or transferred the consideration to Emco referred
to above, the Dissenting Offeree may then apply to the court within a further
period of 20 days to have the court fix the fair value. If there is no such
application by the Dissenting Offeree within such period, the Dissenting Offeree
will be deemed to have elected to transfer such Common Shares to the Offeror on
the terms of the Offer. Any judicial determination of the fair value of the
Common Shares could be more or less than the amount paid pursuant to the Offer.
The foregoing is a summary only. See Section 188 of the OBCA for the full
text of the relevant statutory provisions. Section 188 of the OBCA is complex
and may require strict adherence to notice and timing provisions, failing which
such rights may be lost or altered. Shareholders who wish to be better informed
about those provisions of the OBCA should consult with their legal advisors.
SUBSEQUENT ACQUISITION TRANSACTION
If the Offeror takes up and pays for Common Shares pursuant to the Offer,
and if the foregoing statutory right of Compulsory Acquisition is not available,
the Offeror currently intends to acquire the balance of the Common Shares as
soon as practicable by way of a Subsequent Acquisition Transaction. In order to
effect a Subsequent Acquisition Transaction, the Offeror will seek to cause a
special meeting of the Shareholders to be called to consider a capital
reorganization, amalgamation, statutory plan of arrangement, reorganization,
consolidation, recapitalization, or other transaction involving the Offeror
and/or an affiliate of the Offeror and Emco and/or the Shareholders for the
purposes of Emco becoming, directly or indirectly, a wholly-owned subsidiary of
the Offeror or effecting an amalgamation or merger of Emco and the Offeror
and/or an affiliate of the Offeror, carried out for a cash consideration per
Common Share not less than the price paid pursuant to the Offer (referred to in
the Offer Documents as a "SUBSEQUENT ACQUISITION TRANSACTION"). Depending upon
the nature and terms of the Subsequent Acquisition Transaction, the approval of
at least two-thirds of the votes cast by holders of the Common Shares and the
approval of a majority of the votes cast by "minority" holders of Common Shares
(including Common Shares tendered into the Offer by "minority" holders of Common
Shares) will be required at a meeting duly called and held for the purpose of
approving the Subsequent Acquisition Transaction. The Offeror will cause Common
Shares acquired under the Offer to be voted in favour of such a transaction.
In certain types of Subsequent Acquisition Transactions, the registered
holders of Common Shares may have the right to dissent under the OBCA and to be
paid fair value for their Common Shares, with such fair value to be determined
by a court of competent jurisdiction. The fair value of Common Shares so
determined could be more or less than the amount paid pursuant to the Offer or
the Subsequent Acquisition Transaction. Any such judicial determination of the
fair value of the Common Shares could be based upon considerations other than,
or in addition to, the market price, if any, of the Common Shares.
The methods of acquiring the remaining Common Shares described above, other
than the statutory right of compulsory acquisition under Section 188 of the
OBCA, may constitute a "going private transaction" within the meaning of OSC
Rule 61-501 and Policy Q-27 if such method would result in the interest of a
holder of Common Shares (the "AFFECTED SECURITIES") being terminated without the
consent of the Shareholder.
OSC Rule 61-501 and Policy Q-27 provide that, unless exempted, a
corporation proposing to carry out a going private transaction is required to
engage an independent valuator to prepare a valuation of the affected securities
(and any non-cash consideration being offered therefor) and provide to the
holders of the affected securities a summary of such valuation. The Offeror
intends to rely on any exemptions available or seek waivers pursuant to OSC Rule
61-501 and Policy Q-27 exempting the Offeror or Emco, as appropriate, from the
requirement to prepare a valuation in connection with any Subsequent Acquisition
Transaction proposed by the Offeror. An exemption is available for
38
certain going private transactions completed within 120 days after the expiry of
a formal take-over bid for consideration at least equal to and of the same type
as that paid in the take-over bid, provided certain tax disclosure is given in
the take-over bid disclosure documents. The Offeror expects that this exemption
would be available.
OSC Rule 61-501 and Policy Q-27 also require that, unless exempted, in
addition to any other required shareholder approval, in order to complete a
going private transaction or a related party transaction, the approval of a
majority of the votes cast by "minority" holders of the affected securities be
obtained. In relation to the Offer and any subsequent going private transaction,
the "minority" holders will be, unless an exemption is available or
discretionary relief is granted by the OSC and the CVMQ, as required, all
holders of Common Shares, other than, among others, the following: (i) the
Offeror (other than in respect of Common Shares acquired pursuant to the Offer,
as described below); (ii) any "related parties" of the Offeror (as defined, for
the purposes of OSC Rule 61-501 and Policy Q-27) who would not be equally
treated; and (iii) any person or company acting jointly or in concert with the
foregoing. OSC Rule 61-501 and Policy Q-27 also provide that the Offeror may
treat Common Shares acquired pursuant to the Offer as "minority" shares and vote
them, or consider them voted, in favour of such going private transaction if the
consideration per security in the going private transaction is at least equal in
value to and of the same type as the consideration paid under the Offer. The
Offeror currently intends that the consideration offered under any Subsequent
Acquisition Transaction proposed by it would be identical to the Offer price.
If, following the Offer, the Offeror and its affiliates are the registered
holders of 90% or more of the Common Shares at the time the going private
transaction is initiated, the requirement for minority approval under OSC Rule
61-501 and Policy Q-27 will not apply to the transaction if a statutory dissent
and appraisal remedy is available, or if a substantially equivalent enforceable
right is made available, to the minority shareholders.
If the Offeror is unable to effect a Compulsory Acquisition or propose a
Subsequent Acquisition Transaction involving Emco, or proposes a Subsequent
Acquisition Transaction but cannot promptly obtain any required approval, the
Offeror will evaluate other available alternatives. Such alternatives could
include, to the extent permitted by applicable law, purchasing additional Common
Shares in the open market or in privately negotiated transactions or otherwise,
or taking no further action to acquire additional Common Shares. Alternatively,
the Offeror may sell or otherwise dispose of any or all Common Shares acquired
pursuant to the Offer. Such transactions may be effected on terms and at prices
then determined by the Offeror, which may vary from the Offer Price.
See "CERTAIN INCOME TAX CONSIDERATIONS" in Section 16 of this Circular for
a discussion of the income tax consequences to Shareholders of a Subsequent
Acquisition Transaction.
JUDICIAL DEVELOPMENTS
Prior to the pronouncement of OSC Rule 61-501 and Policy Q-27, Canadian
courts had, in a few instances, granted preliminary injunctions to prohibit
transactions which constituted "going private transactions" within the meaning
of OSC Rule 61-501 and Policy Q-27. The Offeror has been advised that more
recent notices and judicial decisions indicate a willingness to permit "going
private transactions" to proceed subject to compliance with requirements
intended to ensure procedural and substantive fairness to the minority
shareholders.
Shareholders should consult their legal advisors for a determination of
their legal rights with respect to any transaction which may constitute a going
private transaction.
16. CERTAIN INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax
considerations under the Tax Act, as of the date hereof, generally applicable to
a Shareholder in respect of the sale of Common Shares pursuant to the Offer or
otherwise pursuant to certain transactions described under Section 15 of the
Circular, "ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE OFFER".
The summary is based on the provisions of the Tax Act in force on the date
hereof and counsel's understanding of the current published administrative
practices of the Canada Customs and Revenue Agency (the "CCRA"). This summary
takes into account all specific proposals to amend the Tax Act which have been
publicly announced by or on behalf of the Minister of Finance (Canada) prior to
the date hereof (the "PROPOSED AMENDMENTS") and assumes that all such Proposed
Amendments will be enacted in their present form. No assurances can be given
that the Proposed Amendments will be enacted in the form proposed, if at all;
however, the Canadian federal income tax considerations generally applicable to
a Shareholder described below will not be different in a material adverse way if
the Proposed
39
Amendments are not enacted. The summary does not otherwise take into account or
anticipate any changes in law, whether by judicial, governmental or legislative
decision or action or changes in administrative practices of the CCRA, nor does
it take into account provincial, territorial or foreign income tax legislation
or considerations. The provisions of provincial income tax legislation vary from
province to province in Canada and in some cases differ from federal income tax
legislation.
THE SUMMARY IS NOT APPLICABLE TO A SHAREHOLDER THAT IS A "FINANCIAL
INSTITUTION" AS DEFINED IN SECTION 142.2 OF THE TAX ACT. IN ADDITION, THE
SUMMARY IS NOT APPLICABLE TO A SHAREHOLDER THAT ACQUIRED COMMON SHARES ON THE
EXERCISE OF AN EMPLOYEE STOCK OPTION. ANY SUCH SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS.
The summary is of a general nature only and is not exhaustive of all
possible Canadian federal income tax considerations and is not intended to be,
nor should it be construed to be, legal, business or tax advice or
representations to any particular Shareholder. Accordingly, Shareholders should
consult their own tax advisors with respect to their particular circumstances,
including the application and effect of the income and other tax laws of any
country, province, state or local tax authority.
RESIDENTS OF CANADA
The following portion of the summary is generally applicable to a
Shareholder who, at all relevant times, for the purposes of the Tax Act and any
applicable income tax treaty or convention, is, or is deemed to be, resident in
Canada, and, for purposes of the Tax Act, deals at arm's length with Emco and
the Offeror, is not affiliated with Emco or the Offeror and holds Common Shares
as capital property. Common Shares generally will be considered capital property
to a Shareholder unless the Shareholder holds such Common Shares in the course
of carrying on a business, or the Shareholder has acquired them in a transaction
or transactions considered to be an adventure in the nature of trade. Certain
Shareholders whose Common Shares might not otherwise qualify as capital property
may be eligible to make an irrevocable election in accordance with subsection
39(4) of the Tax Act to have the Common Shares and every other "CANADIAN
SECURITY" (as defined in the Tax Act) owned by such holder deemed to be capital
property in the taxation year of the election and all subsequent taxation years.
CAPITAL GAINS AND CAPITAL LOSSES
A Shareholder who disposes of Common Shares to the Offeror under the Offer
will realize a capital gain (or capital loss) equal to the amount by which the
proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base of the Common Shares to the Shareholder.
A Shareholder who disposes of Common Shares pursuant to the Offer will be
required to include one-half of the amount of any capital gain (a "TAXABLE
CAPITAL GAIN") in income, and one-half of the amount of any capital loss (an
"ALLOWABLE CAPITAL LOSS") will be required to be deducted against taxable
capital gains realized in the year of disposition.
Allowable capital losses not deducted in the taxation year in which they
are realized may ordinarily be carried back and deducted in any of the three
preceding years or carried forward and deducted in any following year against
taxable capital gains realized in such years, to the extent and under the
circumstances specified in the Tax Act.
Capital gains realized by an individual or trust, other than certain
specified trusts, may give rise to alternative minimum tax under the Tax Act.
In general, a capital loss otherwise arising upon the disposition of a
Common Share by a corporation may be reduced by dividends previously received or
deemed to have been received thereon to the extent and under the circumstances
prescribed in the Tax Act. Similar rules may apply where the corporation is a
member of a partnership or a beneficiary of a trust that owns Common Shares or
where a partnership or trust of which a corporation is a member or a beneficiary
is a member of a partnership or a beneficiary of a trust that owns Common
Shares. Shareholders to whom these rules may be relevant should consult their
own tax advisors.
A Shareholder that is, throughout the relevant taxation year, a
"Canadian-controlled private corporation" (as defined in the Tax Act) may be
liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year, which is defined to include an amount in
respect of taxable capital gains.
40
COMPULSORY ACQUISITION
As described under Section 15 of the Circular "ACQUISITION OF COMMON SHARES
NOT DEPOSITED UNDER THE OFFER", the Offeror may, in certain circumstances,
acquire Common Shares pursuant to Section 188 of the OBCA. A Shareholder who
disposes of his or her Common Shares in such circumstances generally will
realize a capital gain (or a capital loss) calculated in the manner and subject
to the treatment, described above under "CAPITAL GAINS AND CAPITAL LOSSES", but
Shareholders whose Common Shares may be so acquired should consult their own tax
advisors in this regard.
SUBSEQUENT ACQUISITION TRANSACTION
If a Compulsory Acquisition provisions are not utilized, the Offeror may
propose other means of acquiring the remaining issued and outstanding Common
Shares as described under Section 15 of the Circular "ACQUISITION OF COMMON
SHARES NOT DEPOSITED UNDER THE OFFER". Such means include a capital
reorganization, arrangement, reclassification, consolidation or an amalgamation.
The tax treatment of a Subsequent Acquisition Transaction to a Shareholder will
depend upon the exact manner in which the Subsequent Acquisition Transaction is
carried out. Shareholders should consult their own tax advisors for advice with
respect to the income tax consequences to them of having their Common Shares
acquired pursuant to a Subsequent Acquisition Transaction.
A Subsequent Acquisition Transaction could be implemented by means of an
amalgamation of Emco with the Offeror or one of its affiliates pursuant to which
Shareholders who have not tendered their Common Shares under the Offer would
have their Common Shares exchanged on the amalgamation for redeemable preference
shares ("REDEEMABLE SHARES") which would then be immediately redeemed for cash.
Such a Shareholder would not realize a capital gain or capital loss as a result
of such exchange, and the cost of the Redeemable Shares received would be equal
to the aggregate of the adjusted cost base of the Common Shares to the
Shareholder immediately before the amalgamation. Upon the redemption of
Redeemable Shares, the holder thereof would be deemed to have received a
dividend (subject to the potential application of subsection 55(2) of the Tax
Act to holders of such shares that are corporations as discussed below) equal to
the amount by which the redemption price of the Redeemable Shares (equal to the
amount of any cash received) exceeds their paid-up capital for the purposes of
the Tax Act. Emco advises that the paid-up capital per Common Share as at the
date hereof is Cdn$4.58. The difference between the redemption price and the
amount of the deemed dividend would be treated as proceeds of disposition of
such shares for the purposes of computing any capital gain or capital loss
arising on the disposition of such shares. A capital loss arising upon the
redemption of a Redeemable Share may be reduced by dividends previously received
or deemed to have been received thereon or on Common Shares for which they were
exchanged as described above under "CAPITAL GAINS AND CAPITAL LOSSES".
Subsection 55(2) of the Tax Act provides that where a corporate Shareholder
is deemed to receive a dividend under the circumstances described above, all or
part of the deemed dividend may be treated as proceeds of disposition of the
Redeemable Shares for the purpose of computing the Shareholder's capital gain on
the disposition of such shares. Accordingly, corporate Shareholders should
consult their tax advisors for specific advice with respect to the potential
application of this provision. Subject to the potential application of this
provision, dividends deemed to be received by a corporation as a result of the
redemption of the Redeemable Shares will be included in computing its income,
but normally will also be deductible in computing its taxable income unless the
corporation is a "specified financial institution" (as defined in the Tax Act).
Dividends deemed to be received on the Redeemable Shares by a specified
financial institution may not be deductible in computing its taxable income if
the term preferred share rules in the Tax Act are applicable. Corporations which
may be affected by such rules should consult their own tax advisors.
A Shareholder that is a "private corporation" or a "subject corporation"
(as such terms are defined in the Tax Act) may be liable to pay the 33 1/3%
refundable tax under Part IV of the Tax Act on dividends deemed to be received
on the Redeemable Shares to the extent that such dividends are deductible in
computing the corporation's taxable income.
In the case of a Shareholder who is an individual (including a trust),
dividends deemed to be received as a result of the redemption of the Redeemable
Shares will be included in computing the recipient's income, and will be subject
to the gross-up and dividend tax credit rules normally applicable to taxable
dividends received from a taxable Canadian corporation.
Under the current administrative practice of the CCRA, Shareholders who
exercise their statutory right of dissent in respect of an amalgamation should
be considered to have disposed of their Common Shares for proceeds of
41
disposition equal to the amount paid by the amalgamated corporation to the
dissenting Shareholder therefor, other than interest awarded by the court.
However, because of uncertainties under the relevant legislation as to whether
such amounts paid to a dissenting Shareholder will be treated entirely as
proceeds of disposition, or in part as the payment of a deemed dividend,
dissenting Shareholders should consult their own tax advisors in this regard.
A Subsequent Acquisition Transaction could also be implemented by means of
a capital reorganization of Emco pursuant to which Shareholders who have not
tendered their Common Shares under the Offer would have their Common Shares
exchanged for special shares ("SPECIAL SHARES") which would then be immediately
sold to the Offeror for cash. Such a Shareholder would not realize a capital
gain or capital loss as a result of such exchange, and the cost of the Special
Shares received would be equal to the aggregate of the adjusted cost base of the
Common Shares to the Shareholder immediately before the exchange. Upon the sale
of the Special Shares, the Shareholder will realize a capital gain (or a capital
loss) calculated in the manner and subject to the treatment described above
under "CAPITAL GAINS AND CAPITAL LOSSES", but Shareholders whose Special Shares
may be so acquired should consult their own tax advisors in this regard.
Shareholders who exercise their statutory right of dissent in respect of a
capital reorganization and are paid the fair value of their shares by Emco will
be deemed to have received a dividend to the extent that the amount received
(less the amount of any interest ordered by the court) exceeds the paid-up
capital of the Common Shares for purposes of the Tax Act. The difference between
the amount received (less the amount of any interest ordered by the court) and
the amount of the deemed dividend would be treated as proceeds of disposition of
the Common Shares for the purpose of computing any capital gain or capital loss
arising on the disposition of such shares. A capital loss arising in such
circumstances may be reduced by dividends previously received or deemed to have
been received on Common Shares as described above under "CAPITAL GAINS AND
CAPITAL LOSSES". The tax treatment of any dividend deemed to have been received
in such circumstances will be the same as the tax treatment of dividends deemed
to have been received on the redemption of Redeemable Shares as described above.
A Subsequent Acquisition Transaction could also be implemented by means of
a share consolidation of Emco pursuant to which Shareholders who have not
tendered their Common Shares under the Offer would have their Common Shares
exchanged for a fraction of a Common Share in respect of which such Shareholders
will receive cash.
A Shareholder whose Common Shares are consolidated and who receives a cash
payment from Emco will be deemed to have received a taxable dividend (subject to
the potential application of subsection 55(2) of the Tax Act to Shareholders
that are corporations, as discussed above) equal to the amount by which such
payment exceeds the paid-up capital for purposes of the Tax Act of the Common
Shares that are exchanged. Emco advises that the paid-up capital per Common
Share as of the date hereof is Cdn$4.58. The difference between the cash
received and the amount of the deemed dividend will be treated as proceeds of
disposition of the Common Shares for the purpose of computing any capital gain
or capital loss arising on the disposition of such Shares. A capital loss
arising in such circumstances may be reduced by dividends previously received or
deemed to have been received on Common Shares as described above under "CAPITAL
GAINS AND CAPITAL LOSSES". The tax treatment of any dividend deemed to have been
received in such circumstances will be the same as the tax treatment of
dividends deemed to have been received on the redemption of Redeemable Shares as
described above.
Shareholders who exercise their statutory right of dissent in respect of a
consolidation and are paid the fair value of their shares by Emco will be deemed
to have received a dividend to the extent that the amount received (less the
amount of any interest ordered by the Court) exceeds the paid-up capital of the
Common Shares for purposes of the Tax Act. The difference between the amount
received (less the amount of any interest ordered by the Court) and the amount
of the deemed dividend will be treated as proceeds of disposition of the Common
Shares for the purpose of computing any capital gain or capital loss arising on
the disposition of such Shares. A capital loss arising in such circumstances may
be reduced by dividends previously received or deemed to have been received on
Common Shares as described above under "CAPITAL GAINS AND CAPITAL LOSSES". The
tax treatment of any dividend deemed to have been received in such circumstances
will be the same as the tax treatment of dividends deemed to have been received
on the redemption of Redeemable Shares, as described above.
NON-RESIDENTS OF CANADA
The following portion of the summary is generally applicable to a
Shareholder who at all relevant times, for the purposes of the Tax Act and any
applicable income tax treaty or convention, is not resident, nor deemed to be
resident, in Canada, deals at arm's length with Emco and the Offeror, is not
affiliated for the purposes of the Tax Act with Emco
42
or the Offeror, holds Common Shares as capital property and does not use or
hold, and is not deemed to use or hold, Common Shares in connection with
carrying on a business in Canada (a "NON-RESIDENT HOLDER"). Special rules which
are not discussed in this summary may apply to a non-resident that is an insurer
carrying on business in Canada and elsewhere. This portion of the summary
assumes that the Common Shares will be listed on the TSX at the time such shares
are disposed of pursuant to the offer.
A non-resident holder of Common Shares that are not taxable Canadian
property to such holder will not be subject to tax under the Tax Act on any
capital gain realized on the disposition of such shares under the Offer.
A Common Share will generally not be taxable Canadian property to a
non-resident holder unless, at any time during the 60-month period that ends at
the time of the disposition, the non-resident holder, persons with whom the
non-resident holder did not deal at arm's length, or any combination thereof,
owned 25% or more of the shares of any class or series of Emco. The Common
Shares may also be taxable Canadian property in certain other circumstances.
Even if the Common Shares are taxable Canadian property to a non-resident
holder, any capital gain realized upon the disposition or deemed disposition
thereof may not be subject to tax under the Tax Act if such gain is exempt from
tax pursuant to the provisions of an applicable income tax treaty or convention
to which Canada is a party.
In the event that the Common Shares constitute taxable Canadian property
and the capital gain otherwise to be realized upon a disposition of such shares
to the Offeror is not exempt from Canadian tax by virtue of an applicable income
tax treaty or convention, then in such circumstances, the tax consequences as
described above under "RESIDENTS OF CANADA -- CAPITAL GAINS AND CAPITAL LOSSES"
will generally apply. Such non-resident holders whose Common Shares are taxable
Canadian property should consult their own tax advisors in this regard.
If the Offeror does not acquire all the Common Shares pursuant to the Offer
it may propose other means to acquire the remaining Common Shares as described
under the heading "ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE OFFER"
under Section 15 of the Circular. The tax treatment of such a transaction to a
non-resident holder will depend on the exact manner in which the transaction is
carried out and may be substantially the same as or materially different than
described above. A non-resident holder may realize a capital gain or a capital
loss which would be taxed in the manner described above and/or a deemed
dividend. Dividends paid or deemed to be paid to a non-resident holder will be
subject to Canadian withholding tax at a rate of 25%. Such rate may be reduced
under the provisions of an applicable income tax convention to which Canada is a
party. In addition, in the event of a capital reorganization or share
consolidation, if the Emco Special Shares or fractions of a Common Share, as the
case may be, are not listed on a prescribed stock exchange at the time of
disposition, the notification and withholding requirements provided for in
section 116 of the Tax Act may apply to non-resident holders. Non-resident
holders should consult their own tax advisors for advice with respect to the
potential income tax consequences to them of having their Common Shares acquired
pursuant to such a transaction.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
of the Offer to U.S. Holders (as defined below) of Common Shares whose Common
Shares are tendered and accepted for payment pursuant to the Offer or otherwise
pursuant to certain transactions described in Section 15 of the Circular,
"ACQUISITION OF COMMON SHARES NOT DEPOSITED UNDER THE OFFER". The discussion is
for general information only and does not purport to consider all aspects of
U.S. federal income taxation that might be relevant to holders of Common Shares.
The discussion is based on current provisions of the Code, existing, proposed
and temporary U.S. Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect. This summary applies only to U.S.
Holders of Common Shares who hold their Common Shares as capital assets within
the meaning of section 1221 of the Code. This discussion does not apply to
Common Shares received pursuant to the exercise of employee stock options or
otherwise as compensation, or to certain types of U.S. Holders who may be
subject to special rules (including, without limitation, entities that are
treated as partnerships for U.S. federal income tax purposes; insurance
companies; regulated investment companies; common trust funds; tax-exempt
organizations; banks or other financial institutions; broker-dealers; U.S.
Holders who have acquired the Common Shares as part of a straddle, hedge,
conversion transaction or other integrated investment; or persons who own or
owned, directly or indirectly, 10% or more of the total combined voting power of
all classes of the stock of Emco entitled to vote).
This summary does not consider the effect of any foreign, state or local
tax laws nor does it discuss the U.S. federal income tax consequences to any
holder of Common Shares who, for U.S. federal income tax purposes, is
43
not a "U.S. HOLDER" (as defined below). As used in this discussion, the term
"U.S. HOLDER" means a beneficial owner of Common Shares that for U.S. federal
income tax purposes is:
- an individual who is a citizen or resident of the United States;
- a corporation, or other entity treated as a corporation, created or
organized under the laws of the United States or any State or any
political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust, if a U.S. court is able to exercise primary supervision over
the trust's administration and one or more U.S. persons have the
authority to control all of the trust's substantial decisions.
SALE OF COMMON SHARES FOR CASH PURSUANT TO THE OFFER
The sale of Common Shares for cash pursuant to the Offer will be a taxable
transaction for U.S. federal income tax purposes. Subject to the passive foreign
investment company rules below, a U.S. Holder who sells Common Shares pursuant
to the Offer will generally recognize gain or loss for U.S. federal income tax
purposes equal to the difference, if any, between the amount of cash received
(in the U.S. dollar equivalents determined at the spot rate on the date of the
consummation of the Offer) and the holder's adjusted tax basis in the Common
Shares sold pursuant to the Offer (as determined in U.S. dollars). Gain or loss
will be determined separately for each block of Common Shares (i.e., Common
Shares acquired at the same cost in a single transaction) tendered pursuant to
the Offer. Such gain or loss will be long-term capital gain or loss provided
that a holder's holding period for such Common Shares is more than one year at
the time of the consummation of the Offer. Long-term capital gains recognized by
an individual upon a disposition of Common Shares are eligible for reduced rates
of taxation. Certain limitations apply to the use of a holder's capital losses.
In the event that the sale of a U.S. Holder's Common Shares for cash
pursuant to the Offer gives rise to a gain for Canadian federal income tax
purposes (see "CANADIAN FEDERAL INCOME TAX CONSIDERATIONS -- NON-RESIDENTS OF
CANADA" above), such gain, if taxable, may qualify for exemption from Canadian
tax under the income tax treaty in effect between the United States and Canada
if such U.S. Holder is entitled to the benefits of such treaty. In the event
that the income tax treaty in effect between the United States and Canada does
not exempt the gain from Canadian federal income tax, the U.S. Holder generally
may be entitled to claim a foreign tax credit with respect to such tax for U.S.
federal income tax purposes. Such U.S. Holders should consult their own tax
advisors regarding their eligibility for benefits under the income tax treaty in
effect between the United States and Canada and the possible availability of a
foreign tax credit.
PASSIVE FOREIGN INVESTMENT COMPANY
The above summary assumes that Emco is not a passive foreign investment
company ("PFIC") with respect to any U.S. Holder of Common Shares. Generally,
Emco would be a PFIC with respect to a U.S. Holder if, during any year during
such holder's holding period, 75% or more of Emco's annual gross income
consisted of certain "passive" income or 50% or more of the average quarterly
value of Emco's assets in any such year consisted of assets that produced, or
were held for the production of, passive income. Based on information provided
in Emco's Annual Report, we do not believe that Emco is a PFIC for the current
year, and we assume that Emco was not a PFIC with respect to any previous year.
If Emco were a PFIC with respect to any U.S. Holder, such holder generally
would be required to pay an interest charge together with tax calculated at the
maximum ordinary income tax rate with respect to all or a portion of its gain
from the sale of Common Shares for cash pursuant to the Offer. This special PFIC
rule generally would not apply to the sale of Common Shares for cash pursuant to
the Offer, however, if, in the first year of such holder's ownership of Common
Shares that Emco was a PFIC ("Initial Year"), the holder either (x) made an
election to treat Emco as a qualified electing fund to include in income on a
current basis such holder's pro rata share of the income or gain of Emco ("QEF
Election") or (y) made an election ("Mark-to-Market Election") to recognize on a
current basis increases or decreases in the value of the holder's Common Shares.
If the U.S. Holder did not make a QEF Election in the Initial Year but did make
a QEF Election in a subsequent year, the special PFIC rule also generally would
not apply if such holder had made an additional election ("PURGING ELECTION") to
include certain amounts in income with respect to its Common Shares in the year
the Purging Election was made.
44
Any U.S. Holder who believes that Emco is or may be a PFIC with respect
such holder is urged to consult its tax advisors.
COMPULSORY ACQUISITION
The Offeror, in certain circumstances, may acquire Common Shares from a
U.S. Holder in a Compulsory Acquisition (see "ACQUISITION OF EMCO SHARES NOT
DEPOSITED UNDER THE OFFER" above). A U.S. Holder that sells his or her Emco
Shares to the Offeror in the Compulsory Acquisition generally will realize gain
or loss calculated in the manner and subject to the treatment described above in
"SALE OF EMCO SHARES FOR CASH PURSUANT TO THE OFFER." U.S. Holders should
consult their own tax advisors to determine the specific tax consequences of the
Compulsory Acquisition to them, including the application and effect of the
alternative minimum tax and any state, local, and foreign tax laws.
SUBSEQUENT ACQUISITION TRANSACTION
If the Compulsory Acquisition is not available, the Offeror may acquire
Common shares from a U.S. Holder in a Subsequent Acquisition Transaction (see
"ACQUISITION OF EMCO SHARES NOT DEPOSITED UNDER THE OFFER" above). A Subsequent
Acquisition may be implemented by means of an amalgamation, a merger, an
arrangement, a capital reorganization, or a consolidation. The U.S. federal
income tax treatment to a U.S. Holder will depend on the manner in which the
Subsequent Acquisition Transaction is effected. Generally, a U.S. Holder's sale
of its Common Shares pursuant to a Subsequent Acquisition Transaction will be a
taxable transaction for U.S. federal income tax purposes. U.S. Holders should
consult their own tax advisors to determine the specific tax consequences of the
Subsequent Acquisition Transaction to them, including the application of the
alternative minimum tax and any state, local, and foreign tax laws.
A U.S. Holder that recognizes its right of dissent in respect of certain
types of Subsequent Acquisition Transactions and receives cash in consideration
for the Common Shares generally will recognize, subject to the discussion below,
capital gain or loss in an aggregate amount equal to the difference between the
amount of cash received (in the U.S. dollar equivalents determined at the spot
rate on the date that the cash is received) and the U.S. Holder's tax basis in
the dissenting Common Shares (as determined in U.S. dollars). However, there is
no authority directly on point, and it is possible that a U.S. Holder will be
required to recognize gain or loss at the effective time of the Subsequent
Acquisition Transaction, and in advance of the receipt of any cash payment, in
an amount generally equal to the trading price of Common Shares at the effective
time of the Subsequent Acquisition Transaction (in U.S. dollar equivalents
determined at the spot rate on the effective date of the Subsequent Acquisition
Transaction). In this event, capital gain or loss also would be recognized by
the U.S. Holder at the time the appraised fair value is received, to the extent
that such payment exceeds or is less than the amount realized at the effective
time of the Subsequent Acquisition Transaction, and a portion of such payment
may be characterized as interest income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A U.S. Holder whose Common Shares are sold pursuant to the Offer may be
subject to information reporting. In addition, a U.S. Holder of Common Shares
may be subject to backup withholding on the proceeds from the sale of Common
Shares pursuant to the Offer unless such holder is an exempt recipient (such as
a corporation) or provides to the paying agent such holder's correct taxpayer
identification number and certifies that such holder is exempt from or otherwise
is not subject to backup withholding. Backup withholding is not an additional
tax. The amount of any backup withholding will be refunded (or allowed as a
credit against the U.S. federal income tax liability of the U.S. Holder)
provided that the required information is furnished to the Internal Revenue
Service.
AS INDIVIDUAL CIRCUMSTANCES MAY DIFFER, U.S. HOLDERS OF COMMON SHARES ARE URGED
TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED ABOVE AND THE SPECIFIC TAX CONSEQUENCES OF THE OFFER TO THEM,
INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY
STATE, LOCAL AND FOREIGN TAX LAWS AND OF CHANGES IN SUCH LAWS.
17. OTHER MATTERS RELATING TO THE OFFER
DEPOSITARY
The Offeror has engaged the Depositary for the receipt of Share
Certificates and related Letters of Transmittal. In addition, the Depositary
will receive Notices of Guaranteed Delivery deposited under the Offer at its
office in Toronto,
45
Ontario, Canada. The duties of the Depositary also include assisting in making
payment to Shareholders for Common Shares purchased by the Offeror pursuant to
the Offer. The Depositary will receive reasonable and customary compensation
from the Offeror for its services in connection with the Offer, will be
reimbursed for certain out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection therewith.
DEALER MANAGERS AND SOLICITING DEALER GROUP
The Offeror has engaged the services of Scotia Capital Inc. to act as
Canadian Dealer Manager and to assist the Offeror in connection with the Offer
and to solicit acceptances of the Offer. The Canadian Dealer Manager will be
paid a fee for services rendered by it in its capacity as dealer manager and it
will be reimbursed by the Offeror for its reasonable out-of-pocket expenses,
including fees of legal counsel. The Offeror has retained the services of Scotia
Capital (USA) Inc. to act as U.S. Dealer Manager and to solicit institutional
acceptances of the Offer in the United States.
The Dealer Managers have also undertaken to form a Soliciting Dealer Group
comprising members of the Investment Dealers Association of Canada and members
of the TSX to solicit acceptances of the Offer. Each member of the Soliciting
Dealer Group, including the Dealer Managers, is referred to herein as a
"Soliciting Dealer".
The Offeror has agreed to pay the Dealer Managers a work fee of
Cdn$100,000, and a success fee of Cdn$100,000 if more than 80% of the Common
Shares are tendered to the Offer and purchased by the Offeror. In addition, the
Offeror has agreed to pay each Soliciting Dealer whose name appears in the
appropriate space of a properly completed and executed Letter of Transmittal, a
fee of Cdn$0.05 for each Common Share deposited and taken up by the Offeror
under the Offer. A minimum fee of Cdn$85 and a maximum fee of Cdn$1,500 will be
paid in respect of any one beneficial owner, provided that the minimum fee of
Cdn$85 will only be paid in respect of Common Shares deposited by a single
beneficial holder where the number of Common Shares so deposited is greater than
or equal to 500 shares. No solicitation fee will be payable with respect to
Common Shares beneficially owned and tendered by the Selling Shareholder or by
Emco, Blackfriars, their affiliates and associates and each of their respective
directors and officers. The Offeror may require the Soliciting Dealers to
furnish evidence of beneficial ownership satisfactory to the Offeror at the time
of deposit. The Dealer Managers and the Soliciting Dealer Group will be
indemnified against certain liabilities, including liabilities under securities
laws, in connection with the Offer.
No fee or commission will be payable by any Shareholder who transmits such
Shareholder's Common Shares directly to the Depositary or who makes use of the
facilities of a Soliciting Dealer to accept the Offer.
Neither the Offeror nor Blackfriars will pay any fees or commissions to any
broker or dealer or to any other person (other than to the Soliciting Dealers
(including the Dealer Managers), the Information Agent and the Depositary) in
connection with the solicitation of tenders of Common Shares pursuant to the
Offer. Brokers, dealers, commercial banks and trust companies will, upon
request, be reimbursed by the Offeror for customary mailing and handling
expenses incurred by them in forwarding offering materials to their customers.
INFORMATION AGENT
The Offeror has retained Mackenzie Partners, Inc. to be the Information
Agent in connection with the Offer. The Information Agent may contact holders of
Common Shares by mail, telephone, telecopy, telegraph and personal interview and
may request banks, brokers, dealers and other nominees to forward materials
relating to the Offer to beneficial owners of Common Shares.
The Information Agent and the Depositary each will receive reasonable and
customary compensation for their respective services in connection with the
Offer, will be reimbursed for reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities under federal securities laws. The Offeror has
agreed to pay the Information Agent a customary fee plus reasonable
out-of-pocket expenses.
18. OFFEREES' STATUTORY RIGHTS
Securities legislation in certain of the provinces and territories of
Canada provides Shareholders with, in addition to any other rights they may have
at law, rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or a notice that is required to be delivered to
Shareholders. However, such rights must be exercised within prescribed time
limits. Shareholders should refer to the applicable provisions of the securities
legislation of their province or territory for particulars of those rights or
consult with a lawyer.
46
SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE OFFEROR
AND BLACKFRIARS AND THE TRUSTS AND TRUSTEES CONTROLLING SUCH CORPORATIONS
I. DIRECTORS AND EXECUTIVE OFFICERS OF THE OFFEROR
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years for each member of the Offeror's Board of Directors and each
executive officer of the Offeror. Unless indicated otherwise, each person is a
citizen of the United States of America.
<Table>
<Caption>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL POSITIONS
NAME TITLE HELD DURING THE PAST FIVE YEARS
- ---- ------------------------ ---------------------------------------------------------
M. Yontef (citizen of Canada)........ Director and President Partner, law firm of Stikeman Elliot LLP
of Offeror 5300 Commerce Court West,
199 Bay Street, Toronto,
Canada M5L 1B9
K. Jackson (citizen of Canada)....... Director and Secretary Partner, law firm of Stikeman Elliot LLP
of Offeror 5300 Commerce Court West,
199 Bay Street, Toronto,
Canada M5L 1B9
C. Pappo............................. Director and Chief Vice President, Finance and Administration
Financial Officer of of Hajoca Corporation, an affiliate of Blackfriars.
Offeror 127 Coulter Avenue,
Ardmore, PA 19003
</Table>
II. DIRECTORS AND EXECUTIVE OFFICERS OF BLACKFRIARS
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years for each member of the Blackfriars' Board of Directors and each
executive officer of Blackfriars. Unless indicated otherwise, each person is a
citizen of the United States of America.
<Table>
<Caption>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL POSITIONS
NAME TITLE HELD DURING THE PAST FIVE YEARS
- ---- ------------------------ ---------------------------------------------------------
T. Lullo............................. Treasurer and Assistant Vice President and Chief Financial
Secretary of Blackfriars Officer, Consolidated Electrical
Distributors, Inc.
31356 Via Colinas,
Westlake Village, CA 91362
K. Colburn........................... Director and President Director of Hajoca Corporation
of Blackfriars 127 Coulter Avenue,
Ardmore, PA 19003.
Private Investor
C. C. Hogel.......................... Director of Blackfriars Director of Hajoca Corporation
127 Coulter Avenue,
Ardmore, PA 19003.
Private Investor
</Table>
47
<Table>
<Caption>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL POSITIONS
NAME TITLE HELD DURING THE PAST FIVE YEARS
- ---- ------------------------ ---------------------------------------------------------
D. Bradford.......................... Secretary of Blackfriars Vice President and General Counsel
of Consolidated Electrical
Distributors, Inc. (since 12/4/01).
31356 Via Colinas,
Westlake Village, CA 91362.
Partner with law firm of Manatt,
Phelps & Phillips (November 1998
to May 2000).
Nashville, Tennessee
(Office closed now).
R. Colburn........................... Director, Vice President Director of Hajoca Corporation.
and Assistant Secretary 127 Coulter Avenue,
of Blackfriars Ardmore, PA 19003.
Private Investor.
</Table>
III. TRUSTEES OF TRUSTS
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years for each of the trustees of the Declaration of Trust of K.
Colburn dated February 16, 1978, the Declaration of Trust of R. Colburn dated
July 13, 1978 and the C. C. Hogel Trust dated May 31, 1978 all formed under the
laws of the State of Illinois (collectively, the "TRUSTS"), which collectively
own approximately 97% of the stock of Blackfriars. Unless indicated otherwise,
each person is a citizen of the United States of America. The principal business
of the Trusts is to hold the personal assets of the respective grantors. The
principal business address for the Trusts is 555 Skokie Blvd, Suite 555,
Northbrook, Illinois 60062 and the telephone number for the Trusts is (847) 313
6458.
<Table>
<Caption>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND MATERIAL POSITIONS
NAME TITLE HELD DURING THE PAST FIVE YEARS
- ---- ------------------------ ---------------------------------------------------------
K. Colburn........................... Trustee under the Director of Hajoca Corporation.
Declaration of Trust of 127 Coulter Avenue,
K. Colburn dated Ardmore, PA 19003.
February 16, 1978. Private Investor.
Trustee under the C. C.
Hogel Trust dated May 31,
1978.
R. Colburn........................... Trustee under the Director of Hajoca Corporation.
Declaration of Trust of 127 Coulter Avenue,
R. Colburn dated July Ardmore, PA 19003.
13, 1978. Trustee under Private Investor.
the C. C. Hogel Trust
dated May 31, 1978.
</Table>
48
APPROVAL AND CERTIFICATE OF THE OFFEROR
The contents of the Offer and Circular have been approved and the sending,
communication or delivery thereof to the Shareholders has been authorized, by
the board of directors of the Offeror. The foregoing contains no untrue
statement of a material fact and does not omit to state a material fact that is
required to be stated or that is necessary to make a statement not misleading in
the light of the circumstances in which it is made. In addition, the foregoing
does not contain any misrepresentation likely to affect the value or market
price of the Common Shares subject to the Offer.
DATED: February 28, 2003
<Table>
(Signed) MARVIN YONTEF (Signed) CHRISTOPHER PAPPO
President Chief Financial Officer
On behalf of the Board of Directors
(Signed) CHRISTOPHER PAPPO (Signed) KAREN JACKSON
Director Director
</Table>
49
THE DEPOSITARY FOR THE OFFER IS:
COMPUTERSHARE TRUST COMPANY OF CANADA
BY MAIL
P.O. Box 7021
31 Adelaide St. East
Toronto, Ontario M5C 3H2
Attention: Corporate Actions
BY HAND OR BY COURIER
100 University Avenue
9th Floor
Toronto, Ontario M5J 2Y1
Attention: Corporate Actions
Toll Free: 1-800-564-6253
E-mail: caregistryinfo@computershare.com
THE DEALER MANAGERS FOR THE OFFER ARE:
<Table>
IN CANADA: IN THE UNITED STATES:
SCOTIA CAPITAL INC. SCOTIA CAPITAL (USA) INC.
Scotia Plaza, 64th Floor 1 Liberty Plaza
40 King Street West New York, NY 10006
Box 4085, Station "A"
Toronto, Ontario M5W 2X6
Telephone: (416) 945-4599
</Table>
THE INFORMATION AGENT FOR THE OFFER IS:
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, New York 10016
(212) 929-5500
or
CALL TOLL-FREE (800) 322-2885
Email: proxy@mackenziepartners.com
ANY QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED BY HOLDERS OF COMMON
SHARES TO THE DEALER MANAGERS, THE INFORMATION AGENT OR THE DEPOSITARY AT THEIR
RESPECTIVE TELEPHONE NUMBERS AND LOCATIONS SET OUT ABOVE. ADDITIONAL COPIES OF
THIS OFFER, THE CIRCULAR, THE LETTER OF TRANSMITTAL, THE NOTICE OF GUARANTEED
DELIVERY AND RELATED MATERIALS MAY BE OBTAINED FROM THE DEALER MANAGERS OR THE
INFORMATION AGENT AT THEIR RESPECTIVE LOCATIONS SET OUT ABOVE AND WILL BE
FURNISHED PROMPTLY AT THE OFFEROR'S EXPENSE. SHAREHOLDERS MAY ALSO CONTACT THEIR
INVESTMENT DEALER, STOCK BROKER, BANK MANAGER, ACCOUNTANT, LAWYER OR
PROFESSIONAL ADVISOR FOR ASSISTANCE CONCERNING THE OFFER.