EXHIBIT 99.2
KALAMAZOO ACQUISITION CORPORATION
89885 SHORELANE DRIVE
LAWTON, MICHIGAN 49065
July 23, 2003
Board of Directors
Prab, Inc.
5944 East Kilgore Road
Kalamazoo, Michigan 49048
RE: PROPOSAL TO ACQUIRE PRAB, INC. BY MERGER
Gentlemen:
BACKGROUND
This letter, when executed on behalf of Prab, Inc. (the "Company"), is
intended to summarize the principal terms of a proposal by Kalamazoo Acquisition
Corporation ("Buyer"), a newly formed entity, regarding Buyer's proposed
acquisition of all of the outstanding capital stock of the Company from the
Company's shareholders (the "Shareholders") pursuant to a merger transaction. In
this letter, Buyer and the Company are sometimes called the "Parties" and
Buyer's proposed acquisition of the stock of the Company pursuant a merger
transaction is sometimes called the "Proposed Acquisition."
The Company is a Michigan corporation. Its only outstanding class of
capital stock is its common stock, $0.10 par value ("Common Stock"). Based on
the most recent information publicly available, there are approximately 892
shareholders of record of Common Stock and 1,418,610 shares of Common Stock are
issued and outstanding. In addition, there are outstanding stock options which
if fully exercised would result in the issuance of an additional 191,000 shares
of Common Stock. All of the outstanding options are currently exercisable.
Members of the Company's board of directors own (directly, indirectly
or beneficially) approximately 369,108 shares of Common Stock, or approximately
26% of the outstanding shares of Common Stock. The foregoing figure includes
216,549 shares held in the Company's profit-sharing plan, or approximately 15%
of the outstanding shares.
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The Parties wish to begin negotiating a definitive written acquisition
agreement (a "Definitive Agreement"). The execution of any Definitive Agreement
would be subject to approval by the boards of directors of the Company and
Buyer.
Based on the information currently known to Buyer, it is proposed that
the Definitive Agreement would include the following terms:
PRINCIPAL TERMS OF PROPOSED ACQUISITION
1. BASIC TRANSACTION. The Proposed Acquisition will be structured as a
merger whereby the Company will be merged with Buyer or a wholly owned
subsidiary of Buyer and the Shareholders will receive cash in exchange for their
shares of Common Stock. Upon the effective time of such merger, each share of
Common Stock, other than shares owned directly or indirectly by Buyer, would be
converted into the right to receive the cash consideration described below. As a
result of the merger, Buyer would acquire all of the outstanding capital stock
of the Company.
It is anticipated that the closing of this transaction (the "Closing")
would occur as soon as reasonably practicable following the negotiation and
execution of a Definitive Agreement, the filing with the Securities and Exchange
Commission of all required documents and other information, the preparation and
mailing of a Proxy Statement to the Shareholders and approval of the transaction
by the Shareholders. Promptly following the Closing, Buyer would mail to each
Shareholder of record a letter of transmittal whereby such Shareholder would
return his or her certificates formerly representing shares of Common Stock for
the cash consideration described below.
2. PURCHASE PRICE. Buyer contemplates that the purchase price
("Purchase Price") per share of Common Stock in the Proposed Acquisition would
be $2.00. The Purchase Price represents a 20% premium over the average closing
price of Common Stock on the OTC Bulletin Board during the 15 trading days
before the date of this letter.
3. NEGOTIATION OF DEFINITIVE AGREEMENT BY SPECIAL COMMITTEE. Because
Buyer is affiliated with a member of the Company's board of directors, Buyer
understands that the board may wish to form a special committee of the board of
directors (the "Special Committee"), comprised entirely of directors who are not
employed by the Company or affiliated with Buyer and who do not otherwise have
an interest in the Proposed Acquisition (other than as Shareholders of the
Company) for the purpose of reviewing and approving the Proposed Acquisition and
negotiating the terms of the Definitive Agreement. We request prompt
notification of the formation of a Special Committee, if one is formed.
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4. OTHER TERMS.
(a) In the Definitive Agreement, the Company would make
customary representations and warranties to Buyer, and would provide
customary covenants and other protections for the benefit of Buyer. The
consummation of the Proposed Acquisition by Buyer would be subject to
the satisfaction of various conditions, including but not limited to:
(i) Buyer receiving financing for the Proposed Acquisition on terms
satisfactory to Buyer (provided that Buyer uses all commercially
reasonable efforts to secure such financing on reasonably acceptable
terms) and (ii) the absence of a material adverse change with respect
to the assets, properties or financial or other condition of the
Company prior to the Closing.
(b) Buyer and the Company's board of directors would each take
such actions to cause to be inapplicable to the transaction
contemplated hereby any (1) supermajority voting provisions required
under the Company's articles or bylaws or pursuant to the Michigan
Business Corporation Act or other law and (2) provisions of any "fair
price," "control share acquisition" or "moratorium" act or other
anti-takeover statue that, upon consummation of the contemplated
transaction, would restrict the ability of Buyer or any affiliate to
acquire or vote the shares of capital stock of the Company or conduct
the Company's business.
BINDING PROVISIONS
The following paragraphs of this letter (the "Binding Provisions") are
the legally binding and enforceable agreements of Buyer and the Company.
1. ACCESS. The Company acknowledges that in order for Buyer to obtain
its transaction financing, Buyer will need the cooperation of the Company and
Company's representatives. From the date this letter is signed (the "Signing
Date") until the date on which either Party provides the other Party with
written notice that negotiations toward a Definitive Agreement are terminated in
accordance with this letter (the "Termination Date"), the Company will permit
Buyer and Buyer's representatives (including Buyer's lender and its
representatives) full and free access to the Company, its personnel, properties,
contracts, books and records, and all other documents and data. Buyer will
undertake to cause the due diligence investigations of Buyer and its lender to
be completed on a timely basis.
2. EXCLUSIVE DEALING. Buyer is devoted to committing the time and
resources required to consummate this transaction expeditiously. In
consideration of these efforts, from the Signing Date until the execution of the
definitive Merger Agreement or the Termination Date, the Company and its
directors, officers, employees, agents and representatives will not, directly or
indirectly, solicit or initiate discussions or negotiations with, or provide any
information to or otherwise cooperate in any way with or enter any agreement
with, any corporation, partnership, person or other entity or group
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(a "Person") other than Buyer concerning any proposal relating to a merger, sale
of assets (other than sales of inventory in the ordinary course of business) or
sale of equity securities of the Company, or any similar transaction (each, an
"Acquisition Proposal"). Any existing discussions or negotiations shall be
terminated. Buyer shall be immediately notified in writing of the terms and
identity of any unsolicited Acquisition Proposal or any modifications thereto.
Notwithstanding the foregoing, the Company may furnish information
concerning its business, properties, or assets to any Person pursuant to
appropriate confidentiality and standstill agreements, and may negotiate and
participate in discussions and negotiations with such Person concerning an
Acquisition Proposal if: (1) such Person has, on an unsolicited basis, submitted
a bona fide written Acquisition Proposal to the Company's board of directors
that the board determines in good faith represents a superior transaction to the
transactions contemplated hereby and that (a) is not subject to the receipt of
any necessary financing and (b) is reasonably capable of being completed in a
reasonable period of time, taking into account all legal, financial and all
other aspects of the proposal and the third party making such proposal, and (2)
in the good faith opinion of the Company's board of directors, such action is
required to discharge the board's fiduciary duties under applicable law,
determined only after receipt of (a) advice from the Company's financial advisor
that the Acquisition Proposal is superior, from a financial point of view, to
the transactions contemplated by this letter (which advice may include analysis
of the enterprise value if the Company's board of directors has been advised by
independent legal counsel that its fiduciary duties requires them to do so), and
(b) advice from independent legal counsel to the Company that the failure to
provide such information or access or to engage in such discussions or
negotiations would cause the board to violate its fiduciary duties under
applicable law. As used in this letter, a "Superior Proposal" mean an
Acquisition Proposal that satisfies both subsection (1) and subsection (2)
above.
3. BREAK-UP FEE. The Company shall make a payment of $300,000 in cash
to Buyer if any of the following occurs:
(a) Buyer is prepared to enter into a Definitive Agreement on
the terms contemplated by this letter within 150 days from the date
hereof and the Company does not enter into such agreement and, within
12 months after the Termination Date, the Company or Shareholders with
share ownership of more than 20% of the outstanding shares of Common
Stock enter into an agreement with a third party for a merger, sale of
all or substantially all of assets (other than sales of inventory in
the ordinary course of business) or sale by the Company of more than
10% of the Company's capital stock.
(b) The Company or any of the Company's affiliates breaches
the provisions of Paragraph 2 of these Binding Provisions.
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(c) The Company terminates this letter pursuant to Paragraph
11(2)(b) of these Binding Provisions.
The payment of the above sum would be the sole remedy of Buyer for a
breach of Paragraph 2 of these Binding Provisions.
4. CONDUCT OF BUSINESS. During the period from the Signing Date until
the Termination Date, the Company shall operate its business in the ordinary
course consistent with past practice and refrain from any extraordinary actions.
5. DISCLOSURE. Except as and to the extent required by law, without the
prior written consent of the other Party, neither Party will, and each will
direct its representatives not to, directly or indirectly, make any comment,
statement or communication with respect to, or otherwise to disclose or to
permit the disclosure of the existence of discussions regarding, the Proposed
Acquisition or any of the terms, conditions, or other aspects of the Proposed
Acquisition, except to such Party's professional advisors who have a need to
know of the Proposed Acquisition. If a Party is advised by its counsel that it
is required by law to make any such disclosure, it must first provide to the
other Party written notice of the content of the proposed disclosure, the
reasons that such disclosure is required by law and the time and place that the
disclosure will be made.
6. COSTS. Each Party will be responsible for and bear all of its own
costs and expenses (including any broker's or finder's fees and the expenses of
its representatives) incurred at any time in connection with pursuing or
consummating the Proposed Acquisition. If, however, the Closing occurs, Buyer
will by virtue of the merger transaction indirectly assume the fees and expenses
of the Company related to the transaction. The Company agrees to obtain a best
estimate of the expected expenditures for advisors and fees necessary to close
the Proposed Acquisition. If such estimate in the aggregate exceeds $100,000,
the Company and Buyer will review the proposed fees and further discuss this
issue.
7. CONSENTS AND SEC FILINGS. During the period from the Signing Date
until the Termination Date, Buyer and the Company will cooperate with each other
and proceed, as promptly as is reasonably practicable, to identify and obtain
any necessary or appropriate consents and approvals.
Without limiting the generality of the foregoing, as soon as
practicable after the signing of the Definitive Agreement by the Parties, the
Parties will work together to prepare and file all documents required by the
Securities and Exchange Commission relating to the Proposed Acquisition,
including but not limited to a Schedule 14A Proxy Statement and a Schedule
13E-3.
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8. ENTIRE AGREEMENT. The Binding Provisions constitute the entire
agreement between the Parties, and supersede all prior oral or written
agreements, understandings, representations and warranties, and courses of
conduct and dealing between the Parties on the subject matter hereof. Except as
otherwise provided herein, the Binding Provisions may be amended or modified
only by a writing executed by all of the Parties.
This letter does not contain all matters upon which agreement must be
reached in order for the transaction to be completed. This letter does not
constitute a binding commitment with respect to the Proposed Acquisition itself,
which shall only result from the execution of a Definitive Agreement mutually
agreeable to the Parties and approved by the board of directors of each Party.
9. GOVERNING LAW. The Binding Provisions will be governed by and
construed under the laws of the State of Michigan without regard to conflicts of
laws principles.
10. JURISDICTION. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this letter may be brought
against either of the Parties in the courts of the State of Michigan, County of
Kalamazoo, or, if it has or can acquire jurisdiction, in the United States
District Court for the Western District of Michigan, and each of the Parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein.
11. TERMINATION. The Binding Provisions (1) will automatically
terminate on February 28, 2004 and (2) may be terminated (a) at any time after
December 31, 2003 upon written notice by either Party to the other Party
unilaterally, for any reason or no reason, with or without cause or (b) at any
time by the Company to allow the Company to enter into a definitive agreement to
consummate a Superior Proposal provided that it has complied with all of the
provisions of this letter, including but not limited to the payment specified in
Paragraph 3 of these Binding Provisions; provided, however, in all cases that
the termination of the Binding Provisions will not affect the liability of a
Party for breach of any of the Binding Provisions prior to the termination. Upon
termination of the Binding Provisions, the Parties will have no further
obligations hereunder, except as stated in Paragraphs 2, 3, 6, and 8 through 13
of the Binding Provisions, which will survive any such termination.
12. COUNTERPARTS. This letter may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this letter
and all of which, when taken together, will be deemed to constitute one and the
same agreement.
13. NO LIABILITY. The paragraphs and provisions set forth under the
heading "Principal Terms of Proposed Acquisition" do not constitute and will not
give rise to any
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legally binding obligation on the part of either Party. Moreover, except as
expressly provided in the Binding Provisions (or as expressly provided in any
binding written agreement that the Parties may enter into in the future), no
past or future action, course of conduct, or failure to act relating to the
Proposed Acquisition, or relating to the negotiation of the terms of the
Proposed Acquisition or any Definitive Agreement, will give rise to or serve as
a basis for any obligation or other liability on the part of the Parties.
If you are in agreement with the foregoing, please sign and return one
copy of this letter agreement to the undersigned, which thereupon will
constitute our agreement with respect to its subject matter.
Very truly yours,
KALAMAZOO ACQUISITION
CORPORATION
By: /s/ Gary Herder
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Gary Herder, President
By: /s/ E.A. Thompson
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E.A. (Ned) Thompson, Vice President
Prab, Inc. wishes to proceed with negotiations with respect to a
Definitive Agreement:
Prab, Inc.
By:
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Name:
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Title:
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Date:
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