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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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BIRD CORPORATION
(NAME OF SUBJECT COMPANY)
BIRD CORPORATION
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $1 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
090763103
(CUSIP NUMBER OF CLASS OF SECURITIES)
$1.85 CUMULATIVE CONVERTIBLE PREFERENCE STOCK
(TITLE OF CLASS OF SECURITIES)
090763301
(CUSIP NUMBER OF CLASS OF SECURITIES)
FRANK S. ANTHONY
VICE PRESIDENT
BIRD CORPORATION
1077 PLEASANT STREET
NORWOOD, MA 02062
(781) 551-0656
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE
PERSON FILING STATEMENT)
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LOGO
BIRD
Corporation
January 16, 1998
Dear Stockholder:
I am pleased to report that on January 12, 1998, Bird Corporation (the
"Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with CertainTeed Corporation ("CertainTeed") and its wholly owned
subsidiary, BI Expansion II Corp. (the "Purchaser"), that provides for the
acquisition of the Company by CertainTeed through the acquisition by the
Purchaser of all the outstanding shares of the common stock, $1 par value per
share, of the Company (the "Common Shares") and all the outstanding shares of
the $1.85 Cumulative Convertible Preference Stock, $1 par value per share, of
the Company (the "Preference Shares", and together with the Common Shares, the
"Shares"). Pursuant to the Merger Agreement, the Purchaser has today commenced
a cash tender offer (the "Offer") for all outstanding Common Shares and
Preference Shares at a price of $5.50 per Common Share and $20 per Preference
Share, which amount will not be adjusted for any dividends accrued and unpaid
through the Expiration Date (as defined below). The Offer is currently
scheduled to expire at 12:00 midnight, New York City time, on February 13,
1998, unless the Offer is extended.
Following the successful completion of the Offer, upon approval by
stockholder vote, the Purchaser will be merged (the "Merger") with and into
the Company, and all Shares not purchased in the Offer will be converted into
the right to receive in cash $5.50 per Common Share and $20 per Preference
Share, which amount will not be adjusted for any dividends accrued and unpaid
through the Effective Date (as defined below).
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER
AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN
THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES. EACH OF THE DIRECTORS HAS AGREED TO TENDER HIS
COMMON SHARES AND PREFERENCE SHARES IN THE OFFER. SUCH SHARES REPRESENT
APPROXIMATELY 40.2% OF THE COMMON SHARES AND 16.2% OF THE PREFERENCE SHARES.
In arriving at its recommendations, the Board of Directors gave
consideration to a number of factors. These factors included the opinion of
Lehman Brothers that, from a financial point of view, the consideration to be
paid by CertainTeed pursuant to the Offer and the Merger is fair to the
stockholders of the Company. All of the factors considered by the Board of
Directors are more fully described in the Solicitation/Recommendation
Statement on Schedule 14D-9 filed by the Company with the Securities and
Exchange Commission and enclosed with this letter. We urge you to read
carefully the Schedule 14D-9 in its entirety so that you will be fully
informed as to the Board's recommendations.
Also accompanying this letter is a copy of CertainTeed's and the Purchaser's
Offer to Purchase and related materials, including a Letter of Transmittal for
use in tendering Shares. These documents set forth the terms and conditions of
the Offer and provide instructions as to how to tender your Shares. We urge
you to read each of the enclosed materials carefully.
The Board of Directors and management of the Company thank you for the
support you have given the Company.
On behalf of the Board of Directors,
Sincerely,
/s/ Richard C. Maloof
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Richard C. Maloof
President
ITEM 1. SECURITIES AND SUBJECT COMPANY.
The name of the subject company is Bird Corporation, a Massachusetts
corporation (the "Company"), and the address of its principal executive
offices is 1077 Pleasant Street, Norwood, Massachusetts 02062. The titles of
the classes of equity securities to which this statement relates are (i) the
common stock, par value $1 per share (the "Common Stock"), of the Company and
(ii) the $1.85 Cumulative Convertible Preference Stock, par value $1 per share
(the "Preference Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by BI Expansion II Corp., a
Massachusetts corporation (the "Purchaser"), which is a wholly owned
subsidiary of CertainTeed Corporation, a Delaware corporation ("CertainTeed"),
which is an indirect wholly owned subsidiary of Compagnie de Saint-Gobain, a
French corporation ("Saint-Gobain"), to purchase all outstanding shares of
Common Stock (the "Common Shares") at a price (the "Common Price") of $5.50
per Common Share net to the seller in cash without interest thereon, and all
outstanding shares of Preference Stock (the "Preference Shares", and, together
with the Common Shares, the "Shares") at a price (the "Preference Price") of
$20 per Preference Share, which amount shall not be adjusted for any dividends
accrued and unpaid through the Expiration Date (as defined below), net to the
seller in cash without interest thereon, as disclosed in the Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated January 16, 1998
filed by the Purchaser, CertainTeed and Saint-Gobain with the Securities and
Exchange Commission (the "SEC"), upon the terms and subject to the conditions
set forth in the Offer to Purchase dated January 16, 1998 (the "Offer to
Purchase") and the related Letter of Transmittal (which together constitute
the "Offer" and are referred to collectively herein as the "Offer Documents").
A copy of the Offer to Purchase and the Letter of Transmittal are attached
hereto as Exhibit (a)(1) and Exhibit (a)(2), respectively.
The Offer to Purchase states that the principal executive offices of the
Purchaser and CertainTeed are located at 750 E. Swedesford Road, Valley Forge,
Pennsylvania 19482.
The Offer is being made pursuant to the Agreement and Plan of Merger dated
as of January 12, 1998 (the "Merger Agreement"), among CertainTeed, the
Purchaser and the Company pursuant to which, as soon as practicable following
the consummation of the Offer and the satisfaction or waiver of certain
conditions, including approval of the Merger Agreement by the Company's
stockholders, the Purchaser will be merged with and into the Company (the
"Merger"), with the Company (the "Surviving Corporation") surviving the Merger
as a wholly owned subsidiary of CertainTeed. In the Merger, each Share
outstanding on the effective date of the Merger (the "Effective Date") (other
than Shares held by stockholders who perfect their appraisal rights under
Massachusetts law, Shares held in the Company's treasury and Shares held
directly by the Purchaser or CertainTeed) will be converted into the right to
receive $5.50 (in the case of Common Shares) and $20, which amount shall not
be adjusted for any dividends accrued and unpaid through the Effective Date
(in the case of Preference Shares), in each case in cash, without interest.
The Merger is subject to a number of conditions, including the approval and
adoption of the Merger Agreement by stockholders of the Company. See "The
Merger Agreement--Conditions to the Merger". The purpose of the Offer, the
Merger Agreement and the Merger is to enable CertainTeed, through the
Purchaser, to acquire control of, and the entire equity interest in, the
Company. The Offer, as the first step in the acquisition of the Company, is
intended to facilitate the acquisition of all the Shares. The Purchaser has
indicated that it intends, as soon as practicable following consummation of
the Offer, to hold a special meeting of stockholders (the "Special Meeting")
to approve the Merger and, as soon as practicable thereafter, to consummate
the Merger. The Merger Agreement is filed as Exhibit (c)(1) hereto and is
hereby incorporated herein by reference in its entirety.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the Expiration Date such number of Common
Shares that would constitute at least 66 2/3% of all outstanding Common Shares
(determined on a fully diluted basis on the Expiration Date), (ii) there being
validly tendered and not withdrawn prior to the Expiration Date such number of
Preference Shares that would constitute at least
66 2/3% of all outstanding Preference Shares (clauses (i) and (ii) together
being the "Minimum Condition"), (iii) any waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the regulations
thereunder (the "HSR Act") applicable to the purchase of Shares pursuant to
the Offer having expired or been terminated (the "HSR Condition") and (iv) all
consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any governmental authority required or necessary
in connection with the Offer, the Merger and the Merger Agreement referred to
herein and the transactions contemplated by the Merger Agreement having been
obtained and being in full force and effect (the "Required Consents
Condition"). The Purchaser has reserved the right (subject to obtaining the
consent of the Company, if required, and the applicable rules and regulations
of the SEC) to waive or reduce the Minimum Condition and to elect to purchase,
pursuant to the Offer, fewer than the minimum number of Shares necessary to
satisfy the Minimum Condition. The Purchaser has indicated that it presently
does not intend to waive the Minimum Condition. The conditions to the Offer
are more fully described herein under "The Merger Agreement--Certain
Conditions of the Offer" and in Sections 1 and 14 of the Offer to Purchase,
which is filed as Exhibit (a)(1) hereto, and incorporated herein by reference.
The term "Expiration Date" means 12:00 Midnight, New York City time, on
Friday, February 13, 1998, unless and until the Purchaser shall have extended
the period of time during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as
so extended by the Purchaser, will expire.
As of December 31, 1997, there were 4,159,877 Common Shares outstanding,
497,200 Common Shares authorized for issuance pursuant to the exercise of
outstanding options to purchase Common Shares ("Stock Options"), 731,955
Common Shares authorized for issuance pursuant to conversion of the Preference
Shares at $22.25 per Common Share (which is substantially above the Common
Price) and 814,300 Preference Shares outstanding. For purposes of the Offer,
Common Shares outstanding on a fully diluted basis will not include Common
Shares issuable upon conversion of Preference Shares that have been validly
tendered and not withdrawn prior to the Expiration Date or issuable upon the
exercise of any Stock Options to the extent holders of such Stock Options have
agreed not to exercise such Stock Options as long as the Merger Agreement is
in effect. Based upon the foregoing, the Purchaser has informed the Company
that approximately 2,898,000 Common Shares (assuming that all Preference
Shares are so validly tendered and not withdrawn and all holders of Stock
Options with an exercise price above the Common Price so agree) or
approximately 3,593,000 Common Shares (assuming conversion of all outstanding
Preference Shares and exercise of all outstanding Stock Options) and
approximately 542,900 Preference Shares (assuming no conversion or redemption
of any Preference Shares) must be validly tendered and not properly withdrawn
prior to the Expiration Date in order for the Minimum Condition to be
satisfied.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the entity filing
this statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements and understandings between
the Company and certain of its directors, executive officers and affiliates
are described in the Company's Information Statement (as defined below) in the
sections entitled "EXECUTIVE COMPENSATION" and "DIRECTORS' COMPENSATION". The
Company's Information Statement as mailed to the Company's stockholders on
January 16, 1998 (the "Information Statement") is attached hereto as Annex A,
filed as Exhibit (a)(3) hereto, and incorporated herein by reference. In
addition, certain contracts, agreements, arrangements and understandings
relating to the Company and/or the Company's directors, executive officers and
affiliates are contained in the Merger Agreement, filed as Exhibit (c)(1)
hereto and incorporated herein by reference, and are described below under
"The Merger Agreement" and "Additional Agreements, Arrangements and
Understandings."
THE MERGER AGREEMENT
The Merger Agreement. The Merger Agreement provides that following the
satisfaction or waiver of the conditions described below under "Conditions to
the Merger", the Purchaser will be merged with and into the
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Company, and each then outstanding Share (other than Shares held by
stockholders who perfect their appraisal rights under Massachusetts law,
Shares held in the Company's treasury and Shares held directly by the
Purchaser or CertainTeed) will be converted into the right to receive an
amount in cash equal to (in the case of Common Shares) $5.50 per Common Share
and (in the case of Preference Shares) $20 per Preference Share, which amount
shall not be adjusted for any dividends accrued and unpaid through the
Effective Date. All outstanding shares of the Company's 5% Cumulative
Preferred Stock, par value $100 per share (the "5% Stock"), will remain issued
and outstanding after the Merger and will be called for redemption and
retirement as soon as practicable following the Merger at a price equal to
$110 per share, plus all accrued and unpaid dividends thereon as of the date
of redemption and retirement.
(1) Vote Required to Approve Merger. If the Purchaser acquires, through the
Offer or otherwise (i) at least 66 2/3% of the outstanding Common Shares and
(ii) at least 66 2/3% of the outstanding Preference Shares, which would be the
case if the Minimum Condition were satisfied, it would have sufficient voting
power to effect the Merger without the vote of any other stockholder of the
Company.
(2) Conditions to the Merger.
(A) Conditions to the obligations of CertainTeed and the Purchaser. The
obligations of CertainTeed and the Purchaser under the Merger Agreement are
subject to the satisfaction, on or prior to the closing date of the Merger
(the "Closing Date"), of each of the following conditions, each of which may
be waived by CertainTeed and the Purchaser except as otherwise provided by
law, provided that upon the acceptance of any Common Shares and Preference
Shares, if any, by the Purchaser pursuant to the Offer (the "Consummation of
the Offer") each of the following conditions (other than the conditions set
forth in clauses (iii)(b), (iii)(d) and (iv)(b) below) shall be deemed waived
by the Purchaser and CertainTeed: (i) the representations and warranties of
the Company contained in the Merger Agreement (without regard to any
supplemental information provided after the date of the Merger Agreement) that
are qualified as to materiality shall be true and correct, and the
representations that are not so qualified shall be true and correct in all
material respects, in each case on and as of the date of the Merger Agreement
and on and as of the Effective Date, and between the date of the Merger
Agreement and the Effective Date there shall not have been any event or change
in circumstance causing or reasonably anticipated to cause in the future (a)
any material adverse effect on the business, assets, properties, condition
(financial or other) or results of operations of the Company and its
subsidiaries taken as a whole or the Surviving Corporation and its
subsidiaries taken as a whole or (b) any material adverse effect on the
ability of the Company to carry out the transactions contemplated by the
Merger Agreement without significant unanticipated delay or expense (clauses
(a) and (b) together being a "Material Adverse Effect"); (ii) each of the
obligations of the Company to be performed by it on or before the Closing Date
pursuant to the terms of the Merger Agreement shall have been duly performed
or complied with in all material respects by the Closing Date; (iii)(a) all
corporate action necessary by the Company to authorize the execution, delivery
and performance of the Merger Agreement and the consummation of the
transactions contemplated thereby (including the Offer and the Merger) shall
have been duly and validly taken, and the Company and the Purchaser shall have
full right and power to merge on the terms provided in the Merger Agreement;
(b) the holders of the Common Shares and the Preference Shares shall have duly
approved the Merger at the Special Meeting (other than if such approval shall
not have occurred solely due to the breach by CertainTeed or the Purchaser of
its obligation, upon consummation of the Offer, to vote its Common Shares and
Preference Shares in favor of the Merger); (c) all consents, approvals and
authorizations from third persons and governmental authorities identified in
the Schedules to the Merger Agreement required to consummate the transactions
contemplated by the Merger Agreement shall have been obtained; and (d) all
applicable waiting periods under the HSR Act shall have expired or been
terminated; (iv)(a) there shall not be any pending or threatened suit, action
or proceeding by any governmental authority (1) challenging the acquisition by
CertainTeed or the Purchaser of any Shares, seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions contemplated
by the Merger Agreement that are material in relation to the Company and its
subsidiaries taken as a whole, (2) seeking to prohibit or limit the ownership
or operation by the Company, CertainTeed or any of their respective
subsidiaries of any material portion of the business or assets of the Company,
or any of their respective subsidiaries, or to compel the Company, CertainTeed
or any of
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their respective subsidiaries to dispose of or hold separate any material
portion of the business or assets of the Company, CertainTeed or any of their
respective subsidiaries, as a result of the Merger or any of the other
transactions contemplated by the Merger Agreement, (3) seeking to impose
limitations on the ability of CertainTeed or the Purchaser to acquire or hold,
or exercise full rights of ownership of, any shares of common stock of the
Surviving Corporation, (4) seeking to prohibit CertainTeed or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of the Company or its subsidiaries or of CertainTeed and its
subsidiaries or (5) which otherwise is reasonably likely to have a Material
Adverse Effect, (b) no statute, rule, regulation, executive order, decree,
temporary restraining order, preliminary or permanent injunction or other
order or legal restraint or prohibition enacted, entered, promulgated,
enforced, issued or deemed applicable to the Merger or the transactions
contemplated thereby, or any other action shall be taken by any governmental
authority or court, in each case preventing the consummation of the Merger or
the transactions contemplated thereby, shall be in effect; (v) all directors
of the Company whose resignation is requested by CertainTeed at least five
days before the Closing Date will have submitted their resignations effective
as of the Closing Date; (vi) no more than ten percent of the issued and
outstanding shares of any class of equity securities of the Company entitled
to dissenters rights as of the Closing Date shall be dissenting shares
entitled to receive the fair value of such shares in accordance with Sections
85 through 98 inclusive of the Massachusetts Business Corporation Law (the
"MBCL"); (vii) each outstanding option (each a "Stock Option") issued under
the Company's 1982 Stock Option Plan, as amended (the "1982 Option Plan"), the
Company's 1992 Stock Option Plan, as amended (the "1992 Option Plan") and the
Company's 1992 Non-Employee Directors Stock Option Plan, as amended (the "Non-
Employee Directors Option Plan") shall have been amended to effect the
transactions contemplated by the Merger Agreement; and (viii) the Company
shall have furnished CertainTeed with such certificates of its officers and
others to evidence compliance with the conditions set forth in the Merger
Agreement as may be reasonably requested by CertainTeed, and the form and
substance of all opinions, certificates and other documents required by or
furnished pursuant to the Merger Agreement shall be satisfactory in all
reasonable respects to CertainTeed and its counsel.
(B) Conditions to the Obligations of the Company. The obligations of the
Company under the Merger Agreement are subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, each of which
may be waived by the Company except as otherwise provided by law, provided
that, upon Consummation of the Offer, each of the following conditions (other
than the conditions set forth in clauses (iii) and (iv) below) shall be deemed
waived by the Company: (i) the representations and warranties of CertainTeed
and the Purchaser contained in the Merger Agreement that are qualified as to
materiality shall be true and correct, and the representations that are not so
qualified shall be true and correct in all material respects, in each case on
and as of the date of the Merger Agreement and on and as of the Effective
Date; (ii) each of the obligations of CertainTeed and the Purchaser to be
performed by them on or before the Closing Date pursuant to the terms of the
Merger Agreement shall have been duly performed and complied with in all
material respects by the Closing Date; (iii)(a) all corporate action necessary
by the Purchaser and CertainTeed to authorize the execution, delivery and
performance of the Merger Agreement and the consummation of the transactions
contemplated by the Merger Agreement shall have been duly and validly taken,
the Purchaser shall have full right and power to merge on the terms provided
in the Merger Agreement and the Company's stockholders shall have approved the
Merger at the Special Meeting called for that purpose; (b) all consents,
approvals and authorizations from third persons and governmental authorities
identified in the Schedules to the Merger Agreement required to consummate the
transactions contemplated by the Merger Agreement shall have been obtained;
and (c) all applicable waiting periods under the HSR Act shall have expired or
been terminated; (iv) no judicial, administrative or arbitration order, award,
judgment, writ, injunction or decree shall have been entered by a governmental
authority with proper jurisdiction and not revised prohibiting the Merger, and
no legal action shall have been instituted by any governmental authority
challenging the Merger which if successful would prohibit the consummation of
the Merger; and (v) CertainTeed and the Purchaser shall have furnished the
Company with such certificates of their respective officers and others to
evidence compliance with the conditions set forth in the Merger Agreement as
may be reasonably requested by the Company, and the form and substance of all
certificates and other documents required by or furnished pursuant to the
Merger Agreement shall be satisfactory in all reasonable respects to the
Company and its counsel.
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(3) Termination of the Merger Agreement. Unless the Consummation of the
Offer shall have occurred and Designated Directors (as defined below) shall
constitute at least a majority of the members of the Board of Directors of the
Company (the "Board"), the Merger Agreement shall be terminated, and the
Merger abandoned, if the requisite vote of the Company's stockholders with
respect to the Merger Agreement is not obtained as contemplated by the Merger
Agreement. Notwithstanding approval of the Merger Agreement and the
transactions contemplated thereby by the stockholders of the Company or by
CertainTeed, the Merger Agreement may be terminated, and the Offer and Merger
abandoned, at any time prior to the Effective Date:
(A) by mutual consent of CertainTeed, the Purchaser and the Company;
(B) unless the Consummation of the Offer shall have occurred and
Designated Directors shall constitute at least a majority of the members of
the Board of the Company, by CertainTeed, the Purchaser or the Company at
any time after June 30, 1998;
(C) by CertainTeed or the Purchaser if (a) the Offer terminates without
any Shares being accepted for payment due to (x) failure of the Minimum
Condition or (y) any of the other conditions to the Offer (other than
solely the condition described in Section (c) of numbered paragraph (14)
hereof) shall have become impossible to fulfill and shall not have been
waived (see "--Certain Conditions of the Offer"), (b) any of the conditions
to the obligations of CertainTeed and the Purchaser to consummate the
Merger becomes impossible to fulfill and shall not have been waived or
deemed waived in accordance with the Merger Agreement (it being understood
that with respect to any condition described in clause (iv) (b) of numbered
paragraph (2)(A) above, any condition described therein relating to an
order, injunction or judicial decree shall be deemed not to have become
impossible to fulfill until such order, injunction or decree shall have
become final and non-appealable), (c) the Board of the Company withdraws or
modifies its approval or recommendation of the Merger Agreement, the Offer
or the Merger or (d) unless the Consummation of the Offer shall have
occurred and Designated Directors shall constitute at least a majority of
the members of the Board of the Company, the Company fails to perform in
any material respect any of its obligations under the Merger Agreement or
breaches in any material respect any provision of the Merger Agreement, and
the Company has failed to perform such obligation or cure such breach
within 10 days of its receipt of written notice thereof from CertainTeed or
the Purchaser and such failure to perform shall not have been waived in
accordance with the terms of the Merger Agreement; or
(D) by the Company if (a) any of the conditions to the obligations of the
Company to consummate the Merger shall become impossible to fulfill and
shall not have been waived in accordance with the terms of the Merger
Agreement, (b) CertainTeed or the Purchaser fails to perform in any
material respect any of its obligations under the Merger Agreement or
breaches in any material respect any provision of the Merger Agreement, and
CertainTeed and the Purchaser have failed to perform such obligation or
cure such breach within 10 days of its receipt of written notice thereof
from the Company and such failure to perform shall not have been waived in
accordance with the terms of the Merger Agreement, (c)(i) the Board of the
Company withdraws or modifies its approval or recommendation of the Merger
Agreement, the Offer or the Merger and (ii) the Company pays CertainTeed in
cash all CertainTeed's Expenses and the Alternate Transaction Fee (each as
defined in the first paragraph under "Fees and Expenses" below) or (d) if
the Purchaser (i) shall have failed to commence the Offer within the time
required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or (ii) shall have failed to pay for any Shares accepted
for payment pursuant to the Offer and, in the case of clause (ii), the
Purchaser shall have failed to make such payment within three business days
of receipt of written notice thereof from the Company.
Notwithstanding any provisions to the contrary in the Merger Agreement, (i)
the sole remedy of CertainTeed or the Purchaser for a breach by the Company of
any representation or warranty set forth in the Merger Agreement shall be the
termination of the Merger Agreement (if permitted by the Merger Agreement)
unless such breach was made with the actual knowledge of the President of the
Company or the Vice President and General Counsel of the Company, after due
inquiry of other managerial employees of the Company who would be reasonably
expected to have knowledge as to the matter represented (a "Company Willful
Misrepresentation"), and (ii) the sole remedy of the Company for a breach by
CertainTeed or the Purchaser of
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any representation or warranty set forth in the Merger Agreement shall be the
termination of the Merger Agreement (if permitted by the Merger Agreement)
unless such breach was made with the actual knowledge of the President or
Executive Vice President of CertainTeed, after due inquiry of other managerial
employees of CertainTeed who would be reasonably expected to have knowledge as
to the matter represented (a "CertainTeed Willful Misrepresentation").
(4) Procedure for Termination and Amendment. The Merger Agreement provides
that the termination or amendment of the Merger Agreement pursuant to the
Merger Agreement requires, in the case of the Company, action by its Board or
the duly authorized designee of its Board in order to be effective. In the
event that the Purchaser's designees are appointed or elected to the Board of
the Company as provided in the Merger Agreement, after the Consummation of the
Offer and prior to the time the Merger becomes effective, the affirmative vote
of at least a majority of the Continuing Directors (as defined below) shall be
required for the Company to agree to amend, waive compliance with or terminate
the Merger Agreement.
(5) Takeover Proposals. The Merger Agreement provides that the Company shall
not, nor shall it permit any of its subsidiaries or affiliates to, nor shall
it authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of the Company or any of
its subsidiaries to (a) solicit or initiate, or knowingly encourage the
submission of, any takeover proposal, (b) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, any takeover proposal (except for (i) non-confidential information, or
(ii) filings with the SEC); provided, however, that prior to the earlier of
the Consummation of the Offer or the Special Meeting, to the extent required
by the fiduciary obligations of the Board of the Company, as determined in
good faith by the Board of the Company based on the advice of counsel, the
Company may, (A) in response to an unsolicited request therefor, furnish
information with respect to the Company (pursuant to a confidentiality
agreement at least as restrictive (as determined by the Company's counsel) as
the Confidentiality Agreement dated April 13, 1994, as amended, between the
Company and Saint-Gobain Corporation, a Pennsylvania corporation and an
indirect wholly owned subsidiary of Saint-Gobain) to any person who has
indicated to the Company that it is interested in pursuing a qualified
takeover proposal and discuss such information (but not the terms of any
possible takeover proposal) with such person and (B) upon receipt by the
Company of a qualified takeover proposal, following the delivery to
CertainTeed of the notice required pursuant to the Merger Agreement,
participate in discussions or negotiations regarding such qualified takeover
proposal. Without limiting the foregoing, it is understood that any violation
of the restrictions described in the preceding sentence by any officer of the
Company or any of its subsidiaries or any investment banker, attorney or other
advisor or representative of the Company or its subsidiaries shall be deemed a
breach of the Merger Agreement by the Company. For purposes of this Section
under the heading "Takeover Proposals", "takeover proposal" means any proposal
for a merger or other business combination (regardless of legal form)
involving the Company or any subsidiary or any proposal or offer to acquire in
any manner, directly or indirectly, a substantial portion of the assets or
business of the Company or a substantial equity interest in, or any
substantial amount of voting securities of, the Company or any subsidiary, or
any other transaction outside the ordinary course of business and not
otherwise specifically permitted by the terms of the Merger Agreement the
consummation of which would impede or prevent the consummation of the Merger
pursuant to the terms of the Merger Agreement; and "qualified takeover
proposal" means a takeover proposal having terms which the Board of the
Company determines (based on, among other things, the advice of a financial
advisor of nationally recognized reputation) and after giving due
consideration to the Stockholder Agreement in its good faith reasonable
judgment to be more favorable to the holders of Common Shares than the Common
Price and to the holders of Preference Shares than the Preference Price and
likely to be fully financed and consummated.
The Merger Agreement provides further that, except as described below,
neither the Company's Board nor any committee thereof shall (i) withdraw or
modify or propose to withdraw or modify, in a manner adverse to CertainTeed or
the Purchaser, the approval or recommendation by such Board or any such
committee of the Merger Agreement, the Offer or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any takeover proposal or (iii)
enter into any agreement with respect to any takeover proposal.
Notwithstanding the foregoing, in the event the Board of the Company receives
a qualified takeover proposal, the Board of the
6
Company or any committee thereof or the Company may (subject to the
limitations described in the preceding paragraph) withdraw or modify its
approval or recommendation of the Merger Agreement, the Offer or the Merger at
any time after 48 hours following CertainTeed's receipt of written notice (a
"Notice of Qualified Takeover Proposal") advising CertainTeed that the Board
of the Company has received a qualified takeover proposal, specifying the
material terms and conditions of such qualified takeover proposal and
identifying the person making such qualified takeover proposal. The Company
may take any of the foregoing actions pursuant to the provision described in
the preceding sentence only until the earlier of the Consummation of the Offer
or the approval of the Merger at the Special Meeting. The Company shall not be
prohibited from taking and disclosing to its stockholders a position
contemplated by SEC Rule 14e-2(a) under the Exchange Act following
CertainTeed's receipt of a Notice of Qualified Takeover Proposal provided that
the Company does not withdraw or modify its position with respect to the
Merger or approve or recommend a takeover proposal.
In addition to the obligations of the Company described in the preceding
paragraphs, the Company shall promptly advise CertainTeed orally and in
writing of any request for information or of any takeover proposal, or any
inquiry with respect to any takeover proposal, the material terms and
conditions of such request, takeover proposal or inquiry and the identity of
the person making any such takeover proposal or inquiry. The Company shall
keep CertainTeed fully informed of the status and details of any such request,
takeover proposal or inquiry.
(6) Fees and Expenses. Except with respect to the circumstances described
below, the Merger Agreement provides that each of the Purchaser, CertainTeed
and the Company will bear its own costs, fees and expenses in connection with
the negotiation, execution, delivery and performance of the Merger Agreement
and the consummation of the Offer and the Merger.
The Merger Agreement provides that in the event that the Board of the
Company wishes to withdraw or adversely modify its approval or recommendation
of the Merger Agreement, the Offer or the Merger, prior to such withdrawal or
modification the Company shall pay in same day funds to CertainTeed (a) its
Expenses (defined below) incurred to date and thereafter shall pay in same day
funds to CertainTeed within one business day after demand therefor all
subsequently incurred Expenses, provided, that the Company shall not be
obligated to pay any such Expenses to the extent they exceed an aggregate of
$1 million, and (b) an alternate transaction fee of $1.5 million (the
"Alternate Transaction Fee"). In the event the Company receives a takeover
proposal from a person other than CertainTeed or one of its affiliates or a
takeover proposal is publicly disclosed prior to the Expiration Date (or in
the case of clauses (ii) and (iii), prior to the Special Meeting) or, if
earlier, termination of the Merger Agreement, and (i) at the Expiration Date a
sufficient number of Shares shall not have been tendered to satisfy the
Minimum Condition, (ii) at the Special Meeting the required approval of the
Merger by the Company's stockholders is not obtained, or (iii) the Merger
Agreement is terminated (other than by the Company if the Board of the Company
withdraws or modifies its approval or recommendation of the Merger Agreement
or the Merger) prior to a vote on the Merger at the Special Meeting unless the
Consummation of the Offer shall have occurred, the Company shall pay in same
day funds to CertainTeed within two business days after the earlier of such
Expiration Date, Special Meeting or termination of the Merger Agreement (a)
all Expenses incurred to date, and thereafter will pay in same day funds to
CertainTeed within one business day after demand therefor, all subsequently
incurred Expenses, provided, that the Company shall not be obligated to pay
any such Expenses to the extent they exceed an aggregate of $1 million, and
(b) the Alternate Transaction Fee. With regard to the immediately preceding
sentence, "Expenses" means all out-of-pocket fees and expenses (including
without limitation all travel expenses and all fees and expenses of counsel,
investment banking firms, accountants, experts and consultants to CertainTeed
or the Purchaser) incurred or paid by or on behalf of CertainTeed or the
Purchaser after January 1, 1996 in connection with or leading to the Merger
Agreement, the transactions contemplated thereby, and performing or securing
the performance of the obligations of the parties thereunder, including,
without limitation, such fees and expenses related to preparation and
negotiation of documentation and conducting due diligence. CertainTeed is
required within 36 hours after request therefor to advise the Company of an
estimate of its Expenses if the Company wishes to withdraw or modify its
approval or recommendation of the Merger Agreement, the Offer or the Merger
pursuant to the Merger Agreement.
7
The Merger Agreement also provides that in the event that the Merger
Agreement is terminated, the Offer is terminated or the Merger does not occur
(i) solely due to a breach by CertainTeed or the Purchaser of any of its
covenants or obligations under the Merger Agreement or due to a CertainTeed
Willful Misrepresentation or (ii) solely due to a breach by the Company of any
of its covenants or obligations under the Merger Agreement or due to a Company
Willful Misrepresentation, then in the case of a termination pursuant to
clause (i) above, CertainTeed and the Purchaser shall promptly pay to the
Company, and in the case of termination pursuant to clause (ii) above, the
Company shall promptly pay to CertainTeed and the Purchaser, in same day funds
all Expenses (as defined below) incurred to date (after giving credit for any
reimbursement of expenses already made pursuant to the provisions described in
the immediately preceding paragraph) and thereafter shall pay in same day
funds within one business day after demand therefor all subsequently incurred
Expenses. For purposes of the provisions described in this paragraph,
"Expenses" means all out-of-pocket fees and expenses (including without
limitation all travel expenses and all fees and expenses of counsel,
investment banking firms, accountants, experts and consultants to CertainTeed
or the Company, as the case may be) incurred or paid by or on behalf of
CertainTeed, the Purchaser or the Company, as the case may be, after January
1, 1996 in connection with or leading to the Merger Agreement, the
transactions contemplated thereby, and performing or securing performance of
the obligations of the parties thereunder, including, without limitation, such
fees and expenses related to preparation and negotiation of documentation and
conducting due diligence. Nothing described in this or the immediately
preceding paragraph limits damages that would otherwise be recoverable for
breaches under the Merger Agreement.
(7) Conduct of Business by the Company. Pursuant to the Merger Agreement,
except as otherwise expressly contemplated or permitted by the Merger
Agreement or otherwise consented to or approved by an authorized officer of
CertainTeed, the Company has agreed that prior to the Effective Date (or, if
earlier, when a majority of the members of the Board of the Company are
designees of the Purchaser in accordance with the Merger Agreement) the
business of the Company and its subsidiaries shall be conducted in the
ordinary course consistent with past practice and: (a) no change will be made
in the respective articles or certificate of organization or incorporation or
by-laws of the Company or any of its subsidiaries; (b) no change shall be made
in the number of shares of the Company's authorized, issued or outstanding
capital stock; nor shall any conversion rights by which the Company or any
subsidiary is or may become bound to issue, transfer, sell, repurchase or
otherwise acquire or retire any shares of capital stock or other ownership
interest of the Company or any subsidiary, or any securities convertible into
or exchangeable or exercisable for any such shares or other ownership interest
be granted, made, redeemed or amended; nor will the Company or any subsidiary
issue, deliver, pledge or sell any such shares, securities or obligations
(except deliveries or pledges in favor of the Company's senior lenders);
provided, however, that the Company is permitted to issue shares or other
securities as contemplated by the Company's Employee's Savings and Profit
Sharing Plan (the "Savings Plan") as in effect on the date of the Merger
Agreement and is permitted to issue Common Shares in connection with the due
exercise of Stock Options issued pursuant to the 1982 Option Plan, the 1992
Option Plan, the Non-Employee Directors Option Plan or any other right or
convertible security outstanding as of the date of the Merger Agreement in
accordance with the existing terms thereof; (c) no dividend shall be declared
or paid or other distribution (whether in cash, stock, property or any
combination thereof) or payment declared or made in respect of the Common
Shares, 5% Stock, or Preference Shares or any other outstanding capital stock
of the Company, nor shall the Company or any subsidiary (i) purchase, acquire
or redeem any Common Shares, 5% Stock or Preference Shares or (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; (d) neither the Company nor any subsidiary
shall enter into any material contract, or except in the ordinary course of
business consistent with past practice any other agreement, commitment or
instrument; (e) the Company shall use and shall cause each subsidiary to use
its and their respective reasonable efforts to preserve its and their business
organization intact, to keep available the services of its and their officers
and present key employees and to preserve its and their properties and the
goodwill of its and their suppliers, customers and others with whom business
relationships exist; (f) the Company shall not take, agree to take or permit
any subsidiary to take any action or do or permit to be done anything in the
conduct of its business or that of any subsidiary which would be contrary to
or in breach of any of the terms or provisions of the Merger Agreement or
which would cause any
8
of the representations of the Company contained in the Merger Agreement to be
or become untrue in any material respect; (g) neither the Company nor any of
its subsidiaries shall adopt or amend in any material respect or terminate any
benefit plan, except as required by law, or change any actuarial or other
assumption used to calculate funding obligations with respect to any Company
pension plan (except to the extent that failure to make such change would
result in noncompliance with generally accepted accounting principles
("GAAP"), the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Internal Revenue Code of 1986, as amended (the "Code"), or
change the manner in which contributions to any Company pension plan are made
or the basis on which such contributions are determined, except as required by
applicable law; (h) the Company shall not acquire or agree to acquire (x) by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof or (y) any assets that are material, individually or in the
aggregate, to the Company and its subsidiaries taken as a whole, except
purchases of inventory, raw materials, supplies and similar materials in the
ordinary course of business consistent with past practice and capital
expenditures complying with clause (k) below; (i) the Company shall not sell,
lease, license, mortgage or otherwise encumber or subject to any lien (except
in favor of the Company's senior lenders or certain liens permitted under the
Merger Agreement) or otherwise dispose of any of its material properties or
assets, except bona fide sales of inventory in the ordinary course of business
consistent with past practice; (j) the Company shall not (i) incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its subsidiaries,
guarantee any debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings incurred in the ordinary course of
business consistent with past practice and routine endorsements in the process
of collection, or (ii) make any loans, advances or capital contributions to,
or investments in, any other person, other than to the Company or any direct
or indirect wholly owned subsidiary of the Company or routine travel and
similar advances to employees; (k) the Company shall not make or agree to make
any new capital expenditure or expenditures which, individually, is in excess
of $100,000 or, in the aggregate, are in excess of $250,000; (l) the Company
shall not make any tax election or settle or compromise any income tax
liability; provided that CertainTeed shall not unreasonably withhold any
consent or approval of any such tax election, settlement or compromise; (m)
the Company will not pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities that are reflected or reserved
against in the Company's balance sheet as September 30, 1997, or incurred
since the date of such balance sheet in the ordinary course of business
consistent with past practice, or waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party, except as permitted by the
Merger Agreement; and (n) the Company shall not authorize any of, or commit or
agree to take any of, the foregoing actions.
In addition, without prior consent of an authorized officer of CertainTeed,
which consent shall not be unreasonably withheld, the Company shall not make
any election fixing the rate or rates payable under the Company's revolving
credit agreement for a term that could reasonably be expected to extend beyond
the Effective Date.
The Merger Agreement requires CertainTeed to respond within a reasonable
period of time to any request for consent or approval required to take any of
the actions described in the preceding paragraphs.
The Merger Agreement also requires that the Company promptly advise
CertainTeed orally and in writing of any change or event of which the Company
has knowledge having, or which, insofar as can reasonably be foreseen, would
have, a Material Adverse Effect.
(8) Directors. Subject to compliance with applicable law (including Section
14(f) of the Exchange Act), upon the acquisition by the Purchaser of at least
a majority of the outstanding Common Shares pursuant to the Offer, the
Purchaser shall be entitled to designate at least a majority of the members of
the Board of Directors of
9
the Company, and the Company and its Board of Directors shall, at such time,
take any and all such action (including to increase the size of the Board of
Directors or to use their best efforts to cause directors to resign) needed to
cause a sufficient number of the Purchaser's designees to be appointed to the
Company's Board of Directors such that the designees shall constitute such
majority (any director so designated by the Purchaser, a "Designated
Director"). It is understood that immediately after the acquisition by the
Purchaser of at least a majority of the outstanding Common Shares pursuant to
the Offer (x) the Company's Board of Directors shall consist of seven members,
(y) the initial designees of the Purchaser to the Company's Board of Directors
are expected to be George B. Amoss, Gianpaolo Caccini, James E. Hilyard and
Bradford C. Mattson and (z) the remaining members of the Company's Board of
Directors are expected to be Frank Anthony, Antonio J. Lorusso, Jr. and
Richard C. Maloof. In the event that, after the acquisition by the Purchaser
of at least a majority of the outstanding Common Shares pursuant to the Offer
and prior to the Effective Time (as defined in the Merger Agreement), the
number of members of the Board of Directors increases (including pursuant to
the provisions of the Preference Shares and the 5% Stock), the Company and its
Board of Directors shall, at such time, take any and all such additional
action (including to increase the size of the Board of Directors, to use their
best efforts to cause additional directors to resign and to appoint additional
designees of the Purchaser) needed to cause a sufficient number of the
Purchaser's designees to be appointed to the Board of Directors such that the
designees shall then constitute at least a majority of the members of the
Board of Directors. The Company, CertainTeed and the Purchaser shall use their
respective best efforts to cause at least three members of the Company's Board
of Directors at all times prior to the Effective Time to be Continuing
Directors. "Continuing Director" means (a) any member of the Company's Board
of Directors on the date of the Merger Agreement, (b) any member of the
Company's Board of Directors who is not an employee or director or affiliate
of, and not a Designated Director or other nominee of, the Purchaser or
CertainTeed or their respective subsidiaries, and (c) any successor of a
Continuing Director who is (i) not an employee or director or affiliate of,
and not a Designated Director or other nominee of, the Purchaser or
CertainTeed or their respective subsidiaries and (ii) recommended to succeed
such Continuing Director by at least a majority of the then Continuing
Directors.
(9) Stock Options. The Merger Agreement provides that, with respect to
unexpired Stock Options, whether or not exercisable at the Effective Date,
including stock appreciation rights relating thereto, outstanding on the
Effective Date which have been issued pursuant to the 1982 Option Plan, the
1992 Option Plan or the Non-Employee Directors Option Plan, each such Stock
Option with an exercise price less than the Common Price (an "Eligible
Option") shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive, for each Common
Share subject thereto, a cash payment without interest equal to the Common
Price, less the per share exercise price of each such Stock Option. Such Stock
Options will be canceled upon such cash payment following the Merger. Any
Stock Option with an exercise price equal to or greater than the Common Price
(an "Ineligible Option") shall be canceled upon the Effective Date without
payment of any consideration. The Merger Agreement requires the Company to use
its best efforts to amend each outstanding Stock Option issued under the 1982
Option Plan, the 1992 Option Plan and the Non-Employee Directors Option Plan
to effect the transactions contemplated by the Merger Agreement, including the
cancellation of the Stock Options in connection with the Merger in accordance
with the foregoing. Each Common Share issued by the Company but not yet vested
pursuant to the Savings Plan shall, in connection with the Merger, become
vested in the person to whose account such Common Share was issued and
converted into the right to receive the Common Price pursuant to the Merger
Agreement.
The Company has informed the Purchaser that, as of January 12, 1998, there
were no Common Shares held in escrow pursuant to the Company's Long Term
Incentive Compensation Plan (the "LTIP"), and the LTIP has been terminated.
Immediately following the Effective Date, the Company's 1982 Option Plan, 1992
Option Plan and Non-Employee Directors Option Plan shall be terminated and no
further stock awards or stock options will be granted thereunder from and
after the date of the Merger Agreement.
(10) Indemnification and Insurance. In the Merger Agreement, CertainTeed and
the Purchaser have agreed that all rights to indemnification in existence as
of the date of the Merger Agreement in favor of the directors or officers of
the Company and its subsidiaries (the "Indemnified Parties") as currently
provided in
10
their respective certificates or articles of incorporation or organization and
by-laws or in any agreements, contracts or arrangements with the Company or
any of its subsidiaries in effect as of the date of the Merger Agreement and
previously furnished to CertainTeed and to the extent not in violation of
applicable state law, shall survive the Merger and shall continue in full
force and effect for a period of five years from the Effective Date; provided
that, in the event any claim or claims are asserted or made within such five
year period, all rights to indemnification in respect of any such claim or
claims shall continue until the disposition of any and all such claims. In
addition, the Merger Agreement provides that, to the extent currently provided
in the certificates or articles of incorporation or organization and by-laws
of the Company and its subsidiaries and Massachusetts law, or agreements,
contracts or arrangements disclosed to CertainTeed with the Company or any of
the subsidiaries, in the event that any Indemnified Party becomes involved in
any capacity in any action, proceeding or investigation in connection with any
matter, including the transaction contemplated by the Merger Agreement,
occurring prior to, and including, the Effective Date, or otherwise relating
to or arising out of such matters, CertainTeed or the Surviving Corporation
will periodically advance to such Indemnified Party his or her legal and other
expenses (including the costs of any investigation and preparation incurred in
connection therewith).
The Merger Agreement provides that CertainTeed will use all reasonable
efforts to maintain in effect, or shall cause the Surviving Corporation to use
all reasonable efforts to maintain in effect, for two years after the
Effective Date, directors' and officers' liability insurance ("D&O Insurance")
covering those persons covered by the Company's directors' and officers'
liability insurance on the date of the Merger Agreement or the Effective Date
and which is substantially equivalent in terms of coverage and amount as the
Company has in effect on the Effective Date so long as such insurance is
available and the annual premium therefor would not be in excess of $166,000
(the "Maximum Premium"). If the existing D&O Insurance expires, is terminated
or canceled during such two-year period, CertainTeed shall use all reasonable
efforts to cause to be obtained as much D&O Insurance as can be obtained for
the remainder of such period for an annualized premium not in excess of the
Maximum Premium, on terms and conditions no less advantageous than the
existing D&O Insurance.
The Merger Agreement further provides that (a) any Indemnified Party wishing
to claim indemnification pursuant to the Merger Agreement, upon learning of
any legal action, suit, investigation, inquiry or proceeding by any
governmental authority or other person, shall promptly notify CertainTeed and
the Surviving Corporation with respect thereto, but the failure to so notify
shall not relieve CertainTeed or the Surviving Corporation of any liability it
may have to such Indemnified Party under the Merger Agreement except to the
extent that CertainTeed and the Surviving Corporation are materially
prejudiced thereby, (b) CertainTeed and the Surviving Corporation shall
periodically, as requested, advance to such Indemnified Party his, her or its
legal and other expenses (including the cost of investigation and preparation
incurred in connection therewith) to the extent such Indemnified Party is
indemnified pursuant to the Merger Agreement, unless it is ultimately
determined by a court of competent jurisdiction that such Indemnified Party is
not entitled to indemnification hereunder, and (c) CertainTeed and the
Surviving Corporation shall be subrogated to any rights any Indemnified Party
may have with respect to any amounts paid to or on behalf of such Indemnified
Party by CertainTeed and the Surviving Corporation pursuant to the Merger
Agreement.
(11) Representations and Warranties. The Merger Agreement contains various
customary representations and warranties. The Merger Agreement requires that
CertainTeed, the Purchaser and the Company shall each take such action as is
reasonably necessary to render their respective representations and warranties
accurate on and as of the Effective Date. Without limiting the foregoing, the
Merger Agreement provides that the Company shall take any action required by
CertainTeed to ensure the accuracy of its representations pertaining to
Massachusetts' anti-takeover laws.
(12) The Stockholder Agreement. Pursuant to the Stockholder Agreement, the
directors (the "Selling Stockholders") of the Company have unconditionally
agreed to tender into the Offer, and not to withdraw therefrom, the 1,670,657
Common Shares and 132,200 Preference Shares that they owned on January 12,
1998, together with any Shares they acquire after such time, including upon
the exercise of Stock Options. In addition, the Selling Stockholders have
agreed to sell to the Purchaser, and the Purchaser has agreed to purchase, the
11
foregoing number of Common Shares at a price per Common Share of $5.50, or
such higher price per Common Share as may be offered by the Purchaser in the
Offer and Preference Shares at a price per Preference Share of $20.00, or such
higher price per Preference Share as may be offered by the Purchaser in the
Offer, provided that (i) such obligation to purchase is subject to (a) the
Purchaser having accepted Common Shares and Preference Shares for payment
under the Offer or (b) if the Offer has been terminated for failure to satisfy
the Minimum Condition, (i) all conditions to the Offer (other than the Minimum
Condition) having been satisfied and (ii) including all Common Shares and
Preference Shares tendered and not withdrawn at the time of termination of the
Offer and all Shares to be purchased pursuant to the Stockholder Agreement,
the Minimum Condition would have been satisfied. Notwithstanding the
foregoing, no Selling Stockholder shall be obligated to sell his or her Shares
after the scheduled final expiration time of the Offer unless (i) the Minimum
Condition was not satisfied, (ii) such Selling Stockholder did not tender such
Stockholder's Shares into the Offer or withdrew such Shares and (iii)
including all Common Shares and Preference Shares tendered and not withdrawn
at the time of termination of the Offer and all Shares to be purchased
pursuant to the Stockholder Agreement, the Minimum Condition would have been
satisfied. The Shares subject to the Stockholder Agreement represent
approximately 40.2% of the Common Shares and 16.2% of the Preference Shares.
Each of the Selling Stockholders has agreed not to: (i) sell, transfer,
pledge, assign or otherwise dispose of, or enter into any contract, option or
other arrangement (including any profit sharing arrangement) or understanding
with respect to the sale, transfer, pledge, assignment or other disposition
of, his or her Shares to any person other than the Purchaser or the
Purchaser's designee, (ii) enter into any voting arrangement, whether by
proxy, voting agreement, voting trust, power-of-attorney or otherwise, with
respect to his or her Shares or (iii) take any other action that would in any
way restrict, limit or interfere with the performance of its obligations
hereunder or the transactions contemplated hereby. Each of the Selling
Stockholders has also agreed not to solicit, initiate or encourage (including
by way of furnishing information) and not to participate in any discussions or
negotiations regarding any takeover proposal (as defined in the Merger
Agreement).
Under the Stockholder Agreement, each Selling Stockholder has granted an
irrevocable proxy with respect to the Shares subject to the Stockholder
Agreement to CertainTeed to vote such Shares against (i) any merger agreement
or merger (other than the Merger Agreement and the Merger), consolidation,
combination, sale of substantial assets, reorganization, joint venture,
recapitalization, dissolution, liquidation or winding up of or by the Company
and (ii) any amendment of the Company's articles of incorporation or its by-
laws, or other proposal or transactions (including any consent solicitation to
remove or elect any directors of the Company) involving the Company, which
amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify, or result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under or with respect to, the Offer, the Merger, the Merger Agreement or any
of the transactions contemplated by the Merger Agreement.
The foregoing summary of the Stockholder Agreement is qualified in its
entirety by reference to the Stockholder Agreement, a copy of which is filed
as Exhibit (c)(2) to the Schedule 14D-9. The Stockholder Agreement should be
read in its entirety for a more complete description of the matters summarized
above.
Plans for the Company. Saint-Gobain and its affiliates currently intend that
the Company will continue its present manufacturing operations in
Massachusetts and will continue to operate under its present corporate name,
as a wholly owned subsidiary of CertainTeed. CertainTeed has had preliminary
discussions with Richard C. Maloof, the President of the Company, and Frank S.
Anthony, Vice President, General Counsel and Corporate Secretary of the
Company, regarding their continued employment with the Surviving Corporation
on terms which have yet to be decided, but these discussions have not yet
resulted in any commitments by any of the parties.
Except as otherwise described in the Offer to Purchase, none of the
Purchaser, CertainTeed or Saint-Gobain has any current plans or proposals that
relate to, or would result in, any extraordinary corporate transaction
involving the Company, such as a merger, reorganization or liquidation
involving, the Company or any of its subsidiaries to any unaffiliated third
party.
12
Appraisal Rights. Holders of Shares do not have appraisal rights as a result
of the Offer. However, if the Merger is consummated, holders of outstanding
Common Shares, Preference Shares and 5% Stock on the Effective Date will have
certain rights pursuant to the provisions of Sections 85 through 98,
inclusive, of the MBCL to dissent and demand appraisal of their shares. Under
Sections 85 through 98, inclusive, of the MBCL, dissenting stockholders who
comply with the applicable statutory procedures will be entitled to receive a
judicial determination of the fair value of their shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
and to receive payment of such fair value in cash, together with a fair rate
of interest, if any. Any such judicial determination of the fair value of
shares could be based upon factors other than, or in addition to, the price
per share to be paid in the Merger or the market value of the shares. The
value so determined could be more or less than the price per share to be paid
in the Merger.
The foregoing summary of Sections 85 through 98, inclusive, of the MBCL does
not purport to be complete and is qualified in its entirety by reference to
Sections 85 through 98, inclusive, of the MBCL. Failure to follow the steps
required by Sections 85 through 98, inclusive, of the MBCL for perfecting
appraisal rights may result in the loss of such rights.
Going Private Transactions. The SEC has adopted Rule 13e-3 under the
Exchange Act which is applicable to certain "going private" transactions. The
Purchaser does not believe that Rule 13e-3 will be applicable to the Merger
unless the Merger is consummated more than one year after the termination of
the Offer. If applicable, Rule 13e-3 requires, among other things, that
certain financial information concerning the fairness of the Merger and the
consideration offered to minority stockholders in such transaction be filed
with the SEC and disclosed to stockholders prior to the consummation of the
Merger.
(13) Dividends and Distributions. Pursuant to the terms of the Merger
Agreement, the Company is prohibited from taking any of the actions described
in the two succeeding paragraphs, and nothing herein shall constitute a waiver
by the Purchaser or CertainTeed of any of its rights under the Merger
Agreement or a limitation of remedies available to the Purchaser or
CertainTeed for any breach of the Merger Agreement, including termination
thereof.
If, on or after January 12, 1998, the Company should (a) split, combine or
otherwise change the Shares or its capitalization, (b) acquire or otherwise
cause a reduction in the number of outstanding Shares or other securities
(other than as aforesaid) or (c) issue or sell additional Shares (other than
the issuance of Common Shares under option prior to January 12, 1998, in
accordance with the terms of such options as publicly disclosed prior to
January 12, 1998, shares of any other class of capital stock, other voting
securities or any securities convertible into, or rights, warrants or options,
conditional or otherwise, to acquire, any of the foregoing, then, subject to
the provisions of numbered paragraph (14), the Purchaser, in its sole
discretion, may make such adjustments as it deems appropriate in the Common
Price, the Preference Price and other terms of the Offer, including, without
limitation, the number or type of securities offered to be purchased.
If, on or after January 12, 1998, the Company should declare or pay any cash
dividend on the Common Shares or Preference Shares (including any accrued and
previously unpaid dividends) or other distribution on the Shares, or issue
with respect to the Shares or any additional Shares, shares of any other class
of capital stock, other voting securities or any securities convertible into,
or rights, warrants or options, conditional or otherwise, to acquire, any of
the foregoing, payable or distributable to stockholders of record on a date
prior to the transfer of the Shares purchased pursuant to the Offer to the
Purchaser or its nominee or transferee on the Company's stock transfer
records, then, subject to the provisions of numbered paragraph (14), (a) the
Common Price and/or the Preference Price may, in the sole discretion of the
Purchaser, be reduced by the amount of any such cash dividend or cash
distribution and (b) the whole of any such noncash dividend, distribution or
issuance to be received by the tendering stockholders will (i) be received and
held by the tendering stockholders for the account of the Purchaser and will
be required to be promptly remitted and transferred by each tendering
stockholder to the Depositary for the account of the Purchaser, accompanied by
appropriate documentation of transfer, or (ii) at the direction of the
Purchaser, be exercised for the benefit of the Purchaser, in which case the
proceeds of such exercise will promptly be remitted to the Purchaser. Pending
such remittance and subject to applicable law, the
13
Purchaser will be entitled to all rights and privileges as owner of any such
noncash dividend, distribution, issuance or proceeds and may withhold the
entire Common Price and/or Preference Price or deduct from the Common Price
and/or the Preference Price the amount or value thereof, as determined by the
Purchaser in its sole discretion.
The Merger Agreement provides that the Company shall not declare and pay or
set apart for payment any accumulated dividends on the Common Shares, the 5%
Stock or the Preference Shares. Accordingly, the Company will not declare the
February 15, 1998 dividend on the Preference Shares or the March 1, 1998
dividend on the 5% Stock.
(14) Certain Conditions of the Offer. Notwithstanding any other term of the
Offer or the Merger Agreement, the Purchaser shall not be required to accept
for payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares after the termination or
withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer
unless the Minimum Condition, the HSR Condition and the Required Consents
Condition shall all have been satisfied. Furthermore, notwithstanding any
other term of the Offer or the Merger Agreement, the Purchaser shall not be
required to accept for payment or, subject as aforesaid, to pay for any Shares
not theretofore accepted for payment or paid for, and may terminate the Offer
if, at any time on or after the date of the Merger Agreement and before the
Consummation of the Offer any of the following conditions exist:
(a) the representations and warranties of the Company contained in the
Merger Agreement (without regard to any supplemental information provided
pursuant to the Merger Agreement) that are qualified as to materiality
shall not be true and correct, and the representations that are not so
qualified shall not be true and correct in all material respects, in each
case on and as of the date of the Merger Agreement and on and as of the
Expiration Date;
(b) any of the obligations of the Company to be performed by it on or
before the Expiration Date pursuant to the terms of the Merger Agreement
shall not have been duly performed or complied with in all material
respects by that date;
(c) since September 30, 1997, there shall have occurred (or it shall be
reasonably expected that there will be) any event, change or circumstance
causing, or reasonably anticipated to cause in the future, any Material
Adverse Effect;
(d) any consents, approvals and authorizations from third persons and
governmental authorities identified in the Merger Agreement required to
consummate the transactions contemplated by the Merger Agreement shall not
have been obtained;
(e) there shall be pending or threatened any suit, action or proceeding
by any governmental authority (i) challenging the acquisition by
CertainTeed or the Purchaser of any Shares, seeking to restrain or prohibit
the consummation of the Offer, the Merger or any of the other transactions
contemplated by the Merger Agreement or seeking to obtain from the Company,
CertainTeed or the Purchaser any damages related to the Offer, the Merger
or any of the other transactions contemplated by the Merger Agreement that
are material in relation to the Company and its subsidiaries taken as a
whole, (ii) seeking to prohibit or limit the ownership or operation by the
Company, CertainTeed or any of their respective subsidiaries of any
material portion of the business or assets of the Company, CertainTeed or
any of their respective subsidiaries, or to compel the Company, CertainTeed
or any of their respective subsidiaries to dispose of or hold separate any
material portion of the business or assets of the Company, CertainTeed or
any of their respective subsidiaries, as a result of the Offer, the Merger
or any of the other transactions contemplated by the Merger Agreement,
(iii) seeking to impose limitations on the ability of CertainTeed or the
Purchaser to acquire or hold, or exercise full rights of ownership of, any
common stock of the Surviving Corporation, (iv) seeking to prohibit
CertainTeed or any of its subsidiaries from effectively controlling in any
material respect the business or operations of the Company or its
subsidiaries or of CertainTeed and its subsidiaries or (v) which otherwise
is reasonably likely to have a Material Adverse Effect;
14
(f) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
governmental authority or court, other than the application to the Offer or
the Merger of applicable waiting periods under the HSR Act, that is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (e) above;
(g) the Company's Board or any committee thereof shall have withdrawn or
modified in a manner adverse to CertainTeed its approval or recommendation
of the Offer, the Merger or the Merger Agreement or resolved to take any of
such actions; or
(h) the Merger Agreement shall have been terminated in accordance with
its terms.
The foregoing conditions are for the sole benefit of the Purchaser and
CertainTeed and may, subject to the terms of the Merger Agreement, be waived
by the Purchaser and CertainTeed in whole or in part at any time and from time
to time. The failure by CertainTeed or the Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right,
the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
ADDITIONAL AGREEMENTS, ARRANGEMENTS AND UNDERSTANDINGS
Indemnification of Directors and Officers. Paragraph (d) of Article VI of
the Restated Articles of Organization (the "Restated Articles") of the Company
provides that no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director notwithstanding any provision of law imposing such liability.
Paragraph (d) provides further, however, that to the extent provided by
applicable law, it will not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for distributions
to one or more stockholders of the Company made in violation of the Restated
Articles or which are made when the Company is insolvent or which render it
insolvent, if such distributions are not repaid, (iv) for loans made to
officers or directors of the Company which are not repaid if the director has
voted for such loans and they have not been approved or ratified, as loans
reasonably expected to benefit the Company, by a majority of directors who are
not recipients of such loans or the holders of a majority of voting shares,
which holders are not recipients of such loans, or (v) for any transactions
from which the director derived an improper personal benefit.
Section 13(b)(1 1/2) of the MBCL authorizes the provisions of the Restated
Articles described above, subject to the limitations described above.
Section 1 of Article VI of the Company's By-laws provides that the Company
shall indemnify each of its directors, officers and agents, and persons who
serve at the Company's request as directors, officers or agents of another
organization in which the Company directly or indirectly owns shares or of
which the Company is a creditor, against all liabilities, costs and expenses
(including amounts paid in satisfaction of judgments or in compromise of
claims, penalties, counsel fees and legal costs) reasonably incurred by,
imposed upon or assessed to such person in connection with or resulting from
any action, suit or proceeding, to which such person is or may be made a party
by reason of such person's being or having been such a director, officer or
agent, except in relation to matters as to which such person shall have been
finally adjudicated in any proceeding either to be liable for actual
misconduct in the performance of that person's duties or not to have acted in
good faith in the reasonable belief that such person's action was in the best
interest of the Company.
As to any matter disposed of by a compromise payment by any such person,
pursuant to a consent decree or otherwise, Section 1 of Article VI of the
Company's By-laws provides that no indemnification shall be provided to such
person for such payment or for any other expenses unless such compromise has
been approved
15
as in the best interests of the Company, after notice that it involves such
indemnification (i) by a majority of the disinterested directors then in
office or (ii) if there is not such majority of disinterested directors, by
independent legal counsel to whom the question may be referred by the Board of
Directors.
Section 1 of Article VI of the Company's By-laws provides further that a
majority of the directors then in office may authorize payment by the Company
of expenses incurred by any such person in defending any such action or
proceeding in advance of the final disposition thereof, upon receipt of an
undertaking by the person so indemnified to repay to the Company the amounts
so paid if such person is adjudicated to be not entitled to indemnification
under Section 1 of Article VI.
Section 2 of Article VI of the Company's By-laws gives the Board of
Directors of the Company the power to authorize the purchase and maintenance
of insurance on behalf of any person who is or was a director, officer or
agent of the Company, or who is or was serving at the request of the Company
as a director, officer or agent of another organization in which the Company
directly or indirectly owns shares or of which it is a creditor, against any
liability incurred by such person in any such capacity, or arising out of such
person's status as such director, officer or agent, whether or not such person
is entitled to indemnification by the Company pursuant to Section 1 of Article
VI of the Company's By-laws or otherwise and whether or not the Company would
have the power to indemnify the person against such liability. The Company
currently maintains insurance for the benefit and on behalf of its directors
and officers insuring against certain liabilities that may be incurred by any
such director or officer in or arising out of his capacity as a director,
officer or agent of the Company.
Section 67 of the MBCL authorizes the provisions of Article VI of the
Company's By-laws described above, subject to the limitations described above.
Section 65 of the MBCL provides that performance by a director, officer or
incorporator of that person's duties in good faith and in a manner reasonably
believed to be in the best interests of the corporation, and with such care as
an ordinarily prudent person in a like position would use under similar
circumstances, shall be a complete defense to any claim asserted against such
director, officer or incorporator, except as otherwise expressly provided by
statute, by reason of such person's being or having been a director, officer
or incorporator of the corporation.
Pursuant to the Merger Agreement, CertainTeed and the Purchaser have agreed
to keep such indemnification and insurance arrangements described above in
place for a designated period of time subsequent to the Effective Date. See
"The Merger Agreement--Indemnification and Insurance."
Discussions with Richard C. Maloof and Frank S. Anthony. CertainTeed has had
preliminary discussions with Richard C. Maloof, the President of the Company,
and Frank S. Anthony, Vice President, General Counsel and Corporate Secretary
of the Company, regarding their continued employment with the Surviving
Corporation on terms which have yet to be decided, but these discussions have
not yet resulted in any commitments by any of the parties.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors. The Board has determined
unanimously that the Offer and the Merger are fair to and in the best
interests of the stockholders of the Company and recommends that all holders
of Common Shares and Preference Shares accept the Offer and tender all of
their Shares pursuant to the Offer. This recommendation is based in part upon
an opinion received from Lehman Brothers ("Lehman") that from a financial
point of view the consideration to be paid by CertainTeed pursuant to the
Offer and the Merger is fair to the stockholders of the Company. The full text
of the fairness opinion received by the Company from Lehman, which sets forth
the assumptions made, matters considered and limitations of the review
undertaken by Lehman, is filed herewith as Exhibit (a)(4) and attached hereto
as Annex B. Stockholders are urged to read such opinion in its entirety.
16
As set forth in the Offer to Purchase, the Purchaser will purchase Shares
tendered prior to the Expiration Date if the Minimum Condition has been
satisfied (or waived under certain circumstances) by that time and if all
other conditions to the Offer have been satisfied (or waived under certain
circumstances). Stockholders considering not tendering their Shares in order
to wait for the Merger should note that the Purchaser is not obligated to
purchase any Shares, and can terminate the Offer and the Merger Agreement and
not proceed with the Merger, if the Minimum Condition is not satisfied or any
of the other conditions to the Offer are not satisfied. Under Massachusetts
law, the approval of the Board and the affirmative vote of the holders of at
least 66 2/3% of the issued and outstanding Common Shares and the affirmative
vote of at least 66 2/3% of the issued and outstanding Preference Shares, each
voting as a separate class, are required to approve and adopt the Merger
Agreement. Accordingly, if the Minimum Condition is satisfied and the Offer is
consummated, the Purchaser will have sufficient voting power to cause the
approval and adoption of the Merger Agreement and the transactions
contemplated thereby without the affirmative vote of any other stockholder.
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Friday, February 13, 1998, unless the Purchaser, with the consent of the
Company under certain circumstances, elects to extend the period of time for
which the Offer is open. A copy of the press release issued jointly by the
Company and CertainTeed announcing the Offer and the Merger is filed as
Exhibit (a)(5) hereto and is incorporated herein by reference in its entirety.
(b) Background and Reasons for the Recommendation.
BACKGROUND
The Offer and the Merger represent the culmination of numerous steps
undertaken by the Company over the past several years in an effort to stem
continuing losses, to reduce debt and to find a strategic partner to invest in
the operations of the Company or a buyer to purchase all or a substantial part
of the Company.
In 1993, the Company experienced severe financial setbacks which caused the
Company to default in the performance of certain operating and other covenants
contained in its agreement with its lending banks and required the Company to
classify the related debt as current on its September 30, 1993 balance sheet.
In response to these problems, during 1993, the Company embarked on a program
which included refocusing the Company on its core business (i.e., its building
materials manufacturing businesses), the elimination of unrelated and
nonessential functions, the imposition of strict cost control measures and the
restructuring of its bank lines of credit.
In furtherance of this program, the Company, in the fourth quarter of 1993,
began to eliminate its non-core businesses by (i) withdrawing from its on-site
environmental remediation business pursuant to a series of minor asset sales
and winding down and closing the balance of such business (a process completed
in August 1994) and (ii) seeking a buyer for all of its building materials
distribution business. The sales effort resulted in the sale of the Company's
distribution business to two subsidiaries of Cameron Ashley, Inc. for an
aggregate purchase price of approximately $28,000,000 in two transactions
which closed in August and November of 1994, respectively.
In addition, and as part of its restructuring program, the Company
renegotiated its bank lines of credit, entering into further amendments to its
credit facilities in March of 1994. In its effort to focus on its core
business, the Company built a $5.5 million asphalt oxidizing plant at its
Norwood, Massachusetts roofing plant. The oxidizing plant is designed to (i)
reduce the Company's operating costs associated with obtaining processed
asphalt from suppliers in other states and (ii) provide the Company with a
convenient and reliable source of processed asphalt for use in the Company's
roofing manufacturing operations.
The deterioration of the Company's financial condition continued.
Consequently, in April of 1994, the Company expanded the scope of its
restructuring efforts by commencing an active search to find a buyer or merger
partner for the Company as a whole. The Company engaged a financial advisor to
assist in these efforts. In light of the intensive nature of these efforts, in
May of 1994 the Board formed the Strategic Planning
17
Committee, a special committee of the Board, to supervise the Company's
efforts to attract a purchaser of the Company's stock or assets and to make
appropriate recommendations and reports to the full Board regarding such
process.
As the Company's efforts progressed, the Company's management, the Board,
the Strategic Planning Committee and the Company's financial and legal
advisors met together and individually on numerous occasions between May and
September 1994 to reevaluate the Company's alternatives, including the
possibility of a substantial downsizing of the Company through a sale of the
Company's vinyl business headquartered in Bardstown, Kentucky (the "Vinyl
Business") and the Company's interests in Kensington (as defined below; the
Vinyl Business and the Company's interests in Kensington and such entity's
business operations, taken as a whole, are referred to herein as the "Combined
Vinyl Business"). The sale of the Combined Vinyl Business was proposed to
enable the Company to achieve a significant reduction in, or the elimination
of, the Company's debt.
The Offer and Merger represent the culmination of a series of negotiations
between CertainTeed and the Company that began at the Company's initiation in
1994. During the spring and early summer of that year, management of the
Company and of CertainTeed undertook to negotiate a proposed merger at a cash
price of $13 per Common Share (plus a contingent purchase price of up to $1.25
per Common Share). That transaction would also have included the redemption of
the 5% Stock and the Preference Shares. In July of 1994, however, CertainTeed
informed the Company that because CertainTeed's only interest was in acquiring
the Company's roofing manufacturing business, CertainTeed was not prepared to
acquire the Company's assets and contingent liabilities unrelated to its core
roofing business. As a result, the Company and CertainTeed terminated their
negotiations. Shortly thereafter, CertainTeed indicated orally that it
remained interested in acquiring the Company's roofing plant or the entire
Company if all or a substantial portion of its non-roofing assets could be
divested prior to a CertainTeed acquisition of the Company. In September of
1994, the Company provided additional due diligence materials and suggested
continuing discussions.
During the next several months, the Company received various offers from
potential purchasers to acquire the entire Company, the Combined Vinyl
Business or the Company's roofing manufacturing business. The Board and the
Strategic Planning Committee met on several occasions with senior management
and the Company's financial advisor and independent legal counsel to discuss
the Company's options in light of the various offers presented.
After careful consideration of all available options, in March of 1995 the
Company sold (with prior stockholder approval) the Vinyl Business (the "Vinyl
Sale") to Jannock, Inc. ("Jannock") for $42.5 million plus the assumption by
Jannock of certain specified liabilities of the Vinyl Business. This
transaction also included a grant to Jannock of an option to purchase the
Company's interest in Kensington Partners ("Kensington"), a window fabrication
business. In June 1995 Jannock exercised the option and the Company was
required to pay approximately $1.4 million to divest Kensington.
During the summer of 1995, the Company and CertainTeed renewed discussions,
including a meeting at CertainTeed's headquarters in Valley Forge,
Pennsylvania, at which the status of the Company's asset disposition and
contingent liability management program was discussed. The Company indicated
that all material non-roofing assets, other than its interest in a San Leon,
Texas hydrocarbon waste recycling center, had been divested and that an effort
to sell this interest was underway. During the fall of 1995, CertainTeed
resumed its due diligence investigation of the Company. Discussions between
the parties regarding issues raised during CertainTeed's ongoing due diligence
effort continued on a regular basis through February of 1996.
On September 12, 1995, the Company received a notice (the "Notice") from a
prospective purchaser, indicating that it intended to purchase at least 50% of
the Company's Common Stock in open market or privately negotiated
transactions. The purchases contemplated by the Notice required compliance
with the HSR Act pre-merger filing requirements, which requirements were
subsequently satisfied. On March 12, 1996, the Company received a letter from
the Federal Trade Commission stating that its review of the proposed
transaction was closed but reserving the right to take such further action as
the public interest may require.
18
In November of 1995, the Company caused Bird Environmental Technologies, Inc.
("BETI") to sell BETI's outstanding capital stock of Bird Environmental Gulf
Coast, Inc. ("BEGCI"), which owned the San Leon, Texas based hydrocarbon waste
recycling center, to GTS Duratek, Inc. for a purchase price of $1.00. In
addition, BETI (the 80% owner of BEGCI and an indirect wholly owned subsidiary
of the Company) agreed to pay the Purchaser the amount by which BEGCI's current
liabilities exceeded its current assets at August 31, 1995, which was
approximately $1.3 million. The sale of the recycling center completed the
Company's withdrawal from the environmental remediation and recycling industry.
During January 1996, another qualified prospective purchaser expressed an
interest in purchasing the Company. Pursuant to such expression of interest,
such party performed extensive due diligence of the Company, its assets and
liabilities but ultimately declined to make an offer due to the existence and
the threat of certain contingent liabilities relating to the Company's current
and prior roofing business.
In late February and early March of 1996, representatives of CertainTeed
spoke by telephone with representatives of the Company on a number of occasions
regarding the possibility of CertainTeed making a proposal to acquire the
Company. On March 4, 1996, CertainTeed indicated that (i) it was prepared to
propose an acquisition price of $7.50 per Common Share, subject to negotiation
of definitive agreements and agreement upon a satisfactory arrangement
regarding alternative transaction fees and expenses, and (ii) as in 1994, it
was prepared to cash out the Preference Shares at their liquidation value, plus
all accrued and unpaid dividends, as well as to redeem the 5% Stock in
accordance with its terms. Detailed negotiations ensued between the Company and
CertainTeed, culminating in the execution of a merger agreement (the "1996
Merger Agreement") on March 14, 1996.
On April 3, 1996, CertainTeed indicated it desired to acquire control of the
Company on the somewhat more accelerated timetable permitted by a cash tender
offer. The Board of the Company considered and approved CertainTeed's proposal
on April 5, 1996, and on April 12, 1996 a subsidiary of CertainTeed commenced a
cash tender offer (the "1996 Tender Offer") for all the outstanding Common
Shares and Preference Shares.
On May 2, 1996, CertainTeed informed the Company that CertainTeed had
concluded that certain conditions to the 1996 Tender Offer would not be
satisfied at the scheduled expiration of such offer, that CertainTeed would not
waive the conditions and that, accordingly, such offer would expire without the
CertainTeed subsidiary acquiring any Shares. On May 10, 1996, the 1996 Tender
Offer expired pursuant to its terms without the CertainTeed subsidiary
acquiring any Shares. Thereafter, the 1996 Merger Agreement was terminated.
In August 1996, Joseph D. Vecchiolla, the Company's Chairman at the time, and
Mr. Anthony met in New York City with representatives of a major U.S. roofing
manufacturer to discuss a possible combination, but no proposal was
forthcoming.
In December 1996, Messrs. Maloof and Anthony met in Norwood, Massachusetts
with a representative of a roofing manufacturer that had expressed an interest
in acquiring the Company. Extensive due diligence was performed, but in August
1997 the potential buyer stated over the telephone to Mr. Vecchiolla that it
would not make an offer because of its concerns with respect to possible
environmental liabilities and because the Company's earnings in 1997 had been
deteriorating.
On October 24, 1997, Messrs. Maloof, Anthony and Vecchiolla met with a
roofing manufacturer at its headquarters. After subsequent discussions and a
due diligence review, an acquisition proposal was delivered to the Company. The
Company decided not to pursue the proposal after reviewing its terms and
considering the December 1997 CertainTeed proposal.
In November 1997, Mr. Maloof spoke by telephone to the president of yet
another roofing manufacturer to discuss a possible combination. The
manufacturer delivered to the Company an acquisition proposal. Messrs. Maloof
and Anthony met with this potential acquirer at its offices in December 1997,
which resulted in the issuance of an amended proposal. The Company decided not
to pursue the amended proposal after reviewing its terms and considering the
December 1997 CertainTeed proposal.
During 1997, other roofing manufacturers and non-manufacturers expressed an
interest in combining with the Company. Each was sent detailed financial and
operational information about the Company. None expressed any interest in a
transaction with the Company.
19
On December 11 and 12, 1997, Bradford C. Mattson, Executive Vice President,
Exterior Products Group, of CertainTeed, spoke by telephone with Mr. Maloof
regarding the possibility of a renewed interest by CertainTeed of making a
proposal to acquire the Company. During these conversations, Mr. Mattson was
informed that two other prospective purchasers were conducting investigations
of the Company and had or would likely submit acquisition proposals to the
Company. On December 14, 1997, Mr. Mattson had another telephone conversation
with Mr. Maloof to discuss, among other things, several environmental matters
relating to the Company. On December 15, 1997, John R. Mesher, Vice President
and General Counsel of CertainTeed, spoke by telephone with Mr. Anthony to
discuss the timetable and process for CertainTeed to explore acquiring the
Company. Mr. Mesher was advised that in order for CertainTeed to be involved
in the process, a meaningful, but non-binding, proposal would have to be
submitted on or prior to December 18, 1997. On the evening of December 15,
1997, representatives of CertainTeed (Mr. Mattson, Mickey Trapnell, Vice
President-Finance Controller, Roofing Products Group, and Rudy T. Lee, Vice
President-Sales, Roofing Products Group) had a dinner meeting with Messrs.
Maloof and Anthony. This dinner meeting was followed the next day by a tour of
the Company's facilities and properties and a review of the Company's
operations by Messrs. Mattson, Trapnell and Lee, as well as James E. Hilyard,
the President of CertainTeed's Roofing Products Group. In addition, over the
next several days, James J. Smith, CertainTeed's Director of Environmental
Affairs, discussed with Mr. Maloof several environmental issues relating to
the Company and its operations.
On December 18, 1997, CertainTeed submitted to the Company a non-binding
expression of interest confirming CertainTeed's interest in acquiring all of
the equity of the Company for an aggregate purchase price of about $39.5
million. Between December 20, 1997 and December 22, 1997, Messrs. Maloof
and/or Anthony spoke by telephone with Mr. Mesher and/or George B. Amoss,
CertainTeed's Vice President-Finance, to discuss questions that the Company's
management and Board had with respect to CertainTeed's expression of interest.
Detailed negotiations then ensued between the Company and CertainTeed,
culminating in agreement on the terms of the Merger Agreement. At a meeting on
January 12, 1998, the Board of the Company unanimously determined that the
Offer and the Merger are fair to, and in the best interests of, the Company
and the Company's stockholders and approved the Merger Agreement and
recommended that the holders of Shares tender their Shares pursuant to the
Offer and vote in favor of approval and adoption of the Merger Agreement. The
Merger Agreement was executed and delivered by the parties on January 12,
1998. On that same date, the Directors of the Company also executed the
Stockholder Agreement. The Company and CertainTeed issued a joint press
release regarding the Offer and Merger Agreement on January 13, 1998.
REASONS FOR THE RECOMMENDATION
In reaching its conclusions described in paragraph (a) above, the Board
considered, among other things, the following factors:
(1) The prospect of continuing to operate the Company's roofing plant at
Norwood, Massachusetts as a single plant roofing operation and the Board's
perception that current industry, economic and market conditions and trends
relative to the roofing industry are negative, as well as concerns about
the impact of increased competition resulting from industry consolidation,
and the Board's view of the Company's projected future value on a stand-
alone basis compared to the consideration available in the Offer and the
Merger. The Board took into account certain significant competitive
advantages enjoyed by competitors of the Company's roofing manufacturing
business, including, but not limited to, increased purchasing power for raw
materials, geographical diversity resulting in lower vulnerability to
seasonality due to weather, and stronger balance sheets which, among other
things, provide them with opportunities for growth in a capital intensive
industry, which opportunities are not available to the Company.
(2) The fact that following its extensive but unsuccessful negotiations
with certain interested parties in 1994, 1995, 1996 and 1997, it was
reasonably unlikely that the Company would receive, in the foreseeable
future, offers to engage in alternative transactions on terms more
favorable to the Company and its stockholders than those offered by
CertainTeed.
(3) The proposed terms and structure of the Merger and the terms and
conditions of the Merger Agreement and the Offer. In this regard, the Board
specifically considered the ability of the Company to
20
terminate the Merger Agreement, notwithstanding the non-solicitation
provisions contained therein, upon the occurrence or non-occurrence of
certain events (including upon the failure of the Company's stockholders to
approve the Merger), and the limited application of the provisions
contained in the Merger Agreement pertaining to the $1,500,000 Alternate
Transaction Fee, as described more fully under "The Merger Agreement."
(4) The effect of the Offer and the Merger on the stockholders of the
Company, as well as on the Company's employees.
(5) The written opinion dated January 12, 1998 (the "Opinion") delivered
by Lehman to the Board that, subject to the matters set forth therein, from
a financial point of view the consideration to be paid by CertainTeed
pursuant to the Offer and the Merger is fair to the stockholders of the
Company. A copy of the Opinion, which sets forth the assumptions made,
matters considered and limits of the review by Lehman in rendering the
Opinion, is attached as Annex B hereto and filed as Exhibit (a)(4) hereto.
Stockholders are urged to read the Opinion in its entirety.
(6) The experience, favorable reputation and perceived motivation of
CertainTeed and its executives and CertainTeed's financial condition and
strength, which factors demonstrated CertainTeed's financial ability and
underscored CertainTeed's earnest intent to consummate the Offer and the
Merger.
In light of the Board's uneasiness with operating a single plant roofing
business in an industry that has been consolidating with other participants
that are larger and financially stronger than the Company and the value
available in the Offer and the Merger, the Board determined that the Offer and
the Merger are in the best interest of the Company and its stockholders.
The Board analyzed and considered all of the foregoing factors in comparing
its alternatives to the Offer and the Merger and in evaluating the merits of
the Offer and the Merger, including the opinion of Lehman.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Board did not find it practicable
to, and did not, quantify or otherwise attempt to assign relative weights to
the specific factors considered in reaching its respective determinations. For
purposes of the reviews described above, the Board adopted, as its own, the
analyses of Lehman.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to its agreement with the Company, Lehman is entitled to a fee of
$250,000, which became payable at the time the Opinion of Lehman referred to
in Item 4 was delivered. In addition, whether or not the Offer or the Merger
is completed, the Company has agreed to reimburse Lehman for its reasonable
out-of-pocket expenses, including the fees and disbursements of its counsel,
and to indemnify Lehman against certain expenses and liabilities incurred in
connection with its engagement.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or agreed to compensate any person to make
solicitations or recommendations to shareholders of the Company concerning the
Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, during the past sixty days no
transaction in the Shares has been effected by the Company or any subsidiary
or, to the best of the Company's knowledge, by any executive officer,
director, affiliate or subsidiary of the Company.
(b) All of the Directors are party to the Stockholder Agreement and, to the
best of the Company's knowledge, currently intend to tender pursuant to the
Offer all Shares held of record or beneficially owned by them (other than
Shares issuable upon exercise of options).
21
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in Item 3, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary of the Company, (iii) a tender offer for or other acquisition
of securities by or of the Company or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described under Items 3 and 4, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters
referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex A is being furnished in
connection with the possible designation by CertainTeed, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board other than
at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase dated January 16, 1998.*
(a)(2) Letter of Transmittal.*
(a)(3) Information Statement.*
(a)(4) Fairness Opinion of Lehman dated January 12, 1998.*
(a)(5) Press release issued by the Company and CertainTeed on January 13, 1998.
(a)(6) Letter to shareholders dated January 16, 1998.*
(c)(1) Agreement and Plan of Merger dated as of January 12, 1998, among the Company, the
Purchaser and CertainTeed.
(c)(2) Stockholder Agreement dated as of January 12, 1998 among CertainTeed, the Purchaser
and certain stockholders of the Company.
- --------
* Included in copies mailed to stockholders.
22
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Bird Corporation
By: _________________________________
/s/ Frank S. Anthony
Name: Frank S. Anthony
Title: Vice President
Date: January 16, 1998.
23
EXHIBIT (A) (3)
BIRD CORPORATION
1077 PLEASANT STREET
NORWOOD, MA 02062
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about January 16, 1998 as
part of Bird Corporation's (the "Company") Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record at
the close of business on January 14, 1998 of the Shares. Capitalized terms
used and not otherwise defined herein shall have the meaning ascribed to them
in the Schedule 14D-9. You are receiving this Information Statement in
connection with the possible election of persons to be designated by the
Purchaser to a majority of the seats on the Board of Directors of the Company
(the "Board"). Pursuant to the Merger Agreement, upon the acquisition by the
Purchaser of at least a majority of the outstanding Common Shares pursuant to
the Offer, the Purchaser shall be entitled to designate such number of
directors to be appointed to the Company's Board (the "Designated Directors")
as is required in order for the Designated Directors to constitute a majority
of the Board. At such time, the Company and the Board are required to take all
such action, including increasing the size of the Board or using their best
efforts to secure the resignations of incumbent directors, as needed to assure
that the Designated Directors constitute a majority of the Board. In addition,
in the event that after the acquisition by the Purchaser of at least a
majority of the outstanding Common Shares pursuant to the Offer and prior to
the Effective Date, the number of members of the Company's Board increases,
the Company and the Board are required at such time to take all such
additional action, including increasing the size of the Board, using their
best efforts to secure the resignation of incumbent directors or appointing
additional Designated Directors, as needed to assure that the Designated
Directors shall then constitute a majority of the Board. The parties to the
Merger Agreement have agreed to use their respective best efforts to ensure
that at least three members of the Board shall, at all times prior to the
Effective Date, be Continuing Directors.
This Information Statement is required by Section 14(f) of the Exchange Act,
and Rule 14f-1 thereunder. You are urged to read this Information Statement
carefully. However, you are not required to take any action.
The Purchaser commenced the Offer on January 16, 1998. The Offer is
scheduled to expire on February 13, 1998.
The information contained in this Information Statement (including
information listed in Schedule I to the Purchaser's Offer to Purchase and
information incorporated herein by reference) concerning CertainTeed, the
Purchaser and the Designated Directors has been furnished to the Company by
CertainTeed and the Purchaser, and the Company assumes no responsibility for
the accuracy or completeness of such information.
The Common Shares and the Preference Shares are the only classes of
securities of the Company outstanding which are entitled to vote upon adoption
of the Merger Agreement. Each Common Share and Preference Share has one vote
with respect thereto. As of January 14, 1998, there were 4,159,877 Common
Shares and 814,300 Preference Shares outstanding.
A-1
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Board currently consists of seven members. The Board is divided into
three classes, with each class to hold office for a term of three years and
the term of office of one class to expire each year. Mr. Anthony was appointed
to the Board on January 12, 1998.
DESIGNATED DIRECTORS
Pursuant to the Merger Agreement, immediately after the acquisition by the
Purchaser of at least a majority of the outstanding Common Shares pursuant to
the Offer, the Board will consist of seven members, four of whom will be
Designated Directors and three of whom will be Continuing Directors. Upon the
acquisition by the Purchaser of at least a majority of the outstanding Common
Shares pursuant to the Offer, and during the period after such acquisition and
prior to the Effective Date, the Company and the Board are required to take
any and all such action, including increasing the size of the Board,
appointing Designated Directors and using their best efforts to secure the
resignations of incumbent directors, as needed to cause the Designated
Directors to constitute a majority of the Board.
The Purchaser has informed the Company that it currently intends to choose
the following Designated Directors from the directors and executive officers
listed in Schedule I to the Offer to Purchase, a copy of which is being mailed
to the Company's stockholders together with the Schedule 14D-9: Gianpaolo
Caccini, George B. Amoss, Bradford C. Mattson, and James E. Hilyard. The
Purchaser has informed the Company that each of the Designated Directors has
consented to act as a director. The information on such Schedule I is
incorporated herein by reference. None of the Designated Directors (i) is
currently a director of, or holds any position with, the Company, (ii) has a
familial relationship with any of the directors or executive officers of the
Company or (iii) to the best knowledge of the Purchaser, beneficially owns any
securities (or rights to acquire any securities) of the Company. The Company
has been advised by the Purchaser that, to the best of Purchaser's knowledge,
none of the Designated Directors has been involved in any transaction with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules and regulations of the SEC,
except as may be disclosed herein or in the Schedule 14D-9. The business
address of the Purchaser and CertainTeed is 750 E. Swedesford Road, Valley
Forge, Pennsylvania 19482.
It is expected that the Designated Directors will assume office at any time
following the acquisition by the Purchaser pursuant to the Offer of at least a
majority of the outstanding Common Shares, which acquisition cannot be earlier
than February 13, 1998, and that upon assuming office, the Designated
Directors will thereafter constitute at least a majority of the Board.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The table below sets forth certain information with respect to the current
Board of Directors and executive officers of the Company.
A-2
POSITION WITH THE COMPANY; EXPIRATION
PRINCIPAL OCCUPATION AND OF PRESENT
OTHER BUSINESS ELECTED OR TERM OF
NAME AND AGE AFFILIATIONS(1) APPOINTED(2) OFFICE
---------------------------- ---------------------------- ------------ ----------
Frank S. Anthony, 51........ Director; Vice President, 1998 1998
General Counsel and
Corporate Secretary of the
Company since May 1984
Charles S. Bird, III, 72.... Director; Trustee of family 1962 1998
trusts
Herbert I. Corkin, 75....... Director; President, 1997 2000
Director and majority
shareholder, The Entwistle
Company, Hudson, MA;
Director, Citizen's Bank of
Rhode Island.
Antonio J. Lorusso, Jr., 50. Director; President, S.M. 1996 1999
Lorusso & Sons, Inc.
Richard C. Maloof, 52....... Director; President and 1994 1999
Chief Operating Officer of
the Company since April
1995; Vice President and
Chief Operating Officer of
the Company from April 1994
to April 1995; Vice
President of the Company and
President, Roofing and
Distribution Groups of the
Company for more than five
years prior thereto
Loren R. Watts, 63.......... Director; Retired Managing 1991 1998
Partner, Management
Consultant Services, Coopers
& Lybrand (certified public
accountants)
R. Keith Long, 50........... Director; sole shareholder, 1996 2000
Otter Creek Management,
Inc., a general partner of
Otter Creek Partners I, L.P.
- --------
(1) Includes business experience during past five years.
(2) At the 1990 annual meeting, the stockholders approved a reorganization
pursuant to which the then stockholders of Bird Incorporated became
stockholders of Bird Corporation, a newly organized Massachusetts
corporation, and Bird Incorporated became a wholly owned subsidiary of
Bird Corporation. This column indicates the date as of which a person was
first elected a director of the Company or of Bird Incorporated.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 1997, the Board held seven (7) meetings.
Each of the directors attended more than seventy-five percent of the aggregate
of Board meetings and meetings of committees of the Board of which he is a
member.
The Audit Committee, which consisted during 1997 of Loren R. Watts
(Chairman), R. Keith Long, and Joseph Vecchiolla (until Mr. Vecchiolla's
resignation on December 11, 1997), meets periodically with the Company's
independent accountants to review the scope of the annual audit, to discuss
the adequacy of internal accounting controls and procedures and to perform
general oversight with respect to the accounting principles
A-3
applied in the financial reporting of the Company. The Audit Committee also
meets with the Company's internal auditor and reviews the scope of the
internal audit plan and the results of audits performed thereunder. The Audit
Committee held three (3) meetings during 1997.
The function of the Stock Option, Compensation, and Organizational
Development Committee (the "Compensation Committee") is to administer the
Company's stock option plans, to recommend to the full Board the amount,
character, and method of payment of compensation of all executive officers and
certain other key employees of the Company, and to provide for organizational
development and succession planning. During 1997 the Compensation Committee
consisted of Antonio J. Lorusso (Chairman), Charles S. Bird, III, and Herbert
I. Corkin. The Compensation Committee held four (4) meetings in 1997.
The Company also has a Nominating Committee which, during 1997, consisted of
Charles S. Bird, III, Richard C. Maloof, and Joseph Vecchiolla (until Mr.
Vecchiolla's resignation on December 11, 1997). The Nominating Committee makes
recommendations to and otherwise assists the Board in connection with finding,
evaluating, and nominating directors of the Company. The Nominating Committee
held one (1) meeting during 1997.
A-4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the stockholders known to management to be the
beneficial owners of more than 5% of the outstanding Common Shares as of
December 31, 1997 (except as otherwise noted).
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ----------------- --------
The Entwistle Company................................ 548,639 shares(1) 13.2%
Bigelow Street
Hudson, MA 01749
S.M. Lorusso & Sons, Inc. ........................... 410,121 shares(2) 9.8%
Antonio J. Lorusso, Jr.
James B. Lorusso
Samuel A. Lorusso
331 West Street
Walpole, MA 02081
Mellon Bank Corporation and its Subsidiaries......... 309,000 shares(3) 7.5%
One Mellon Bank Center
Pittsburgh, PA 15258
Charles S. Bird, III................................. 315,358 shares(4) 7.5%
13 Proctor Street
Manchester, MA 01944
Dimensional Fund Advisors Inc. ...................... 218,500 shares(5) 5.3%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
R. Keith Long........................................ 464,762 shares(6) 10.9%
Joan Greco and John Fyfe
Otter Creek Partners I L.P.
400 Royal Palm Way
Palm Beach, Florida 33480
East Ferry Investors, Inc............................ 248,400 shares(7) 6.0%
David G. Booth
15 Garden Place
Brooklyn, NY 11201
- --------
(1) Based on information contained in an amended Schedule 13D filed with the
SEC on April 1, 1987. The Schedule 13D reports that The Entwistle Company
had sole voting and dispositive power with respect to all shares
beneficially owned, including 8,539 shares it had the right to acquire
upon conversion of the Company's Convertible Preference Stock, par value
$1 per share, (the "Preference Stock"). Also includes options for the
purchase of 2,500 Common Shares exercisable as of December 31, 1997 or
within 60 days thereafter or upon a change in control.
(2) Based on information contained in a Schedule 13D amended through June 6,
1996 filed with the SEC. The Schedule 13D reports that S.M. Lorusso &
Sons, Inc. ("Lorusso") had sole voting power and dispositive power with
respect to 230,121 shares. Antonio J. Lorusso, Jr., president, director
and a stockholder of Lorusso, had sole voting and dispositive power with
respect to 20,000 shares and had shared voting and
A-5
dispositive power with respect to 79,500 shares and James B. Lorusso, an
officer, director, and a stockholder of Lorusso, had sole voting and
dispositive power over 1,000 shares; Samuel A. Lorusso, an officer,
director, and stockholder of Lorusso, had shared voting and dispositive
power with respect to 1,500 shares. Also includes options for the purchase
of 5,000 Common Shares exercisable as of December 31, 1997 or within 60
days thereafter or upon a change in control.
(3) Based on information contained in a Schedule 13G amended through February
10, 1997 filed with the SEC. The Schedule 13G reports that Mellon Bank
Corporation had sole voting and dispositive power with respect to 20,000
shares and, together with its subsidiaries, including Boston Safe Deposit
and Trust Company, had shared voting and dispositive power with respect to
289,000 shares, including 274,929 shares referred to in footnote (4),
below.
(4) Includes 274,929 shares held in a trust of which Boston Safe Deposit and
Trust Company and Charles S. Bird, III are co-trustees with shared voting
and dispositive power and 3,595 of Common Shares that he has a right to
acquire upon conversion of the Company's Preference Stock. Also includes
options for the purchase of 22,500 Common Shares exercisable as of
December 31, 1997 or within 60 days thereafter or upon a change in
control.
(5) Based on information contained in a Schedule 13G amended through February
12, 1997 filed with the SEC. The Schedule 13G reports that Dimensional
Fund Advisors Inc. had sole voting and dispositive power with respect to
160,400 shares and sole dispositive power with respect to an additional
58,100 shares.
(6) Based in part on information contained in a Schedule 13D amended through
June 3, 1997 filed with the SEC. The Schedule 13D was filed jointly by
Otter Creek Partners I, L.P. ("Otter Creek"), R. Keith Long and Joan Greco
and John Fyfe, joint tenants with rights of survivorship (together,
"Fyfe"). The Schedule 13D and its amendments report that Otter Creek
Management, Inc. ("OCM") is the sole general partner and investment
advisor of Otter Creek and Mr. Long is the sole executive officer, sole
director and sole shareholder of OCM. Mr. Long also managed discretionary
stock trading accounts for Fyfe. Otter Creek reported sole voting and
dispositive power with respect to 160,900 Common Shares. Fyfe reported
sole voting and dispositive power with respect to 87,300 Common Shares.
Mr. Long reported sole voting and dispositive power over 109,000 shares.
Includes an aggregate of 102,562 shares of Common Stock that Otter Creek,
Fyfe and Mr. Long have a right to acquire upon conversion of the Company's
Preference Stock. Also includes options held by Mr. Long for the purchase
of 5,000 Common Shares exercisable as of December 31, 1997 or within 60
days thereafter or upon a change in control.
(7) Based on information contained in a Schedule 13D filed with the SEC on
August 22, 1997, jointly by East Ferry Investors, Inc. ("East Ferry") and
David G. Booth. The Schedule 13D reports that Mr. Booth controls East
Ferry and is East Ferry's sole stockholder and sole executive officer. Mr.
Booth, with East Ferry, had shared voting power and shared dispositive
power with respect to 248,400 shares of Common Stock.
A-6
The tables below set forth information provided by the individuals named
therein as to the amount of the Company's Common Shares, Preference Shares and
5% Cumulative Preferred Stock, par value $100 per share (the "5% Stock")
beneficially owned by the directors and executive officers of the Company,
individually, and the directors and executive officers as a group, all as of
December 31, 1997 except as otherwise noted. Unless otherwise indicated in the
footnotes, each of the named persons and members of the group has sole voting
and investment power with respect to the shares shown.
COMMON
COMMON SHARES SHARES
BENEFICIALLY SUBJECT
OWNED (EXCLUDING TO STOCK PERCENT
NAME STOCK OPTIONS) OPTIONS(1) TOTAL OF CLASS
---- ---------------- ---------- --------- --------
Charles S. Bird, III............ 292,858(2) 22,500 315,358 7.5%
Herbert I. Corkin............... 546, 139(3) 2,500 548,639 13.2%
R. Keith Long................... 459,762(4) 5,000 464,762 10.9%
Antonio J. Lorusso, Jr. ........ 405,121(5) 5,000 410,121 9.8%
Loren R. Watts.................. 4,000 17,500 21,500 *
Frank S. Anthony................ 32,624(6) 34,000 66,624 1.6%
Richard C. Maloof............... 48,984(7) 155,000 203,984 4.7%
All directors and executive
officers as a group (seven
persons)....................... 1,787,488(8) 241,500 2,030,988 44.9%
- --------
* Less than 1% of the outstanding Common Shares.
(1) Represents shares which the individual has a right to acquire by exercise
of stock options exercisable December 31, 1997 or within 60 days
thereafter, or which are exercisable upon a change in control.
(2) Includes 274,929 shares as to which Mr. Bird shares voting and dispositive
power and 3,595 shares which may be acquired upon conversion of Preference
Shares.
(3) The Entwistle Company has sole voting and dispositive power with respect
to all shares beneficially owned, including 8,539 shares it has the right
to acquire upon conversion of the Company's Preference Stock. Mr. Corkin
controls the Entwistle Company.
(4) Otter Creek Management, Inc. ("OCM") is the sole general partner and
investment advisor of Otter Creek Partners I L.P. ("Otter Creek"). Mr.
Long is the sole executive officer, sole director, and sole shareholder of
OCM. Mr. Long also managed discretionary stock trading accounts for Joan
Greco and John Fyfe, joint tenants with right of survivorship ("Fyfe").
Includes an aggregate of 102,562 shares of Common Stock that Otter Creek,
Mr. Long and Fyfe have a right to acquire upon conversion of the Company's
Preference Stock.
(5) S.M. Lorusso & Sons, Inc. ("Lorusso") has sole voting power and
dispositive power with respect to 230,121 shares. Antonio J. Lorusso, Jr.,
president, director and a stockholder of Lorusso, has sole voting and
dispositive power with respect to 20,000 shares and had shared voting and
dispositive power with respect to 79,500 shares and James B. Lorusso, an
officer, director, and a stockholder of Lorusso, has sole voting and
dispositive power over 1,000 shares; Samuel A. Lorusso, an officer,
director, and stockholder of Lorusso, has shared voting and dispositive
power with respect to 1,500 shares.
(6) Includes 3,048 shares allocated to Mr. Anthony's account under the Bird
Employees' Savings and Profit Sharing Plan (the "Savings Plan") as of
December 31, 1997.
(7) Includes 4,169 shares allocated to Mr. Maloof's account under the Savings
Plan as of December 31, 1997, 10,625 shares held jointly with members of
his family as to which he has shared voting and dispositive power and
2,337 shares of Common Stock which may be acquired upon conversion of the
Preference Stock.
(8) Includes 433,554 shares as to which persons included in the group have
shared voting and investment power, 118,831 shares which may be acquired
upon conversion of Preference Shares, and 7,217 shares allocated to the
accounts of officers under the Savings Plan as of December 31, 1997.
A-7
PREFERENCE
SHARES
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
---- ------------ --------
Charles S. Bird, III.............................. 4,000 *
Herbert I. Corkin................................. 9,500 1.2%
Richard C. Maloof................................. 2,600 *
R. Keith Long..................................... 114,100 14.0%
A.J. Lorusso, Jr.................................. 2,000 *
All directors and executive officers as a group
(five persons)................................... 132,200 16.2%
--------
* Less than 1% of the outstanding Preference Stock.
SHARES OF
5% STOCK
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
---- ------------ --------
Charles S. Bird, III.............................. 1,815 31%
All directors and executive officers as a group
(one person)..................................... 1,815 31%
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who hold more than 10% of the Company's Common
Shares to file with the SEC reports of ownership and changes in ownership of
the Company's equity securities. Based on reports received by the Company and
representations of certain reporting persons, the Company believes that all
filing requirements applicable to its officers, directors, and greater than
10% beneficial owners with respect to fiscal year 1997 have been met.
A-8
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued for services in all capacities to the Company during each of the
last three fiscal years to each of the executive officers of the Company who
served as such during 1997. No one served as Chief Executive Officer during
1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
SECURITIES
OTHER UNDERLYING ALL
ANNUAL RESTRICTED STOCK OTHER
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS/SA LTIP COMPEN-
POSITION YEAR SALARY($) MCIP($) SATION($)(1) AWARDS RS(#) PAYOUTS(2) SATION($)
- ------------------ ---- --------- ------- ------------ ---------- ---------- ---------- ----------
Richard C. Maloof....... 1997 221,106 4,781 -- -- -- -- 7,843(3)
Vice President and 1996 216,154 129,844 -- -- 50,000 22,700 7,500(3)
Chief Operating
Officer(5) 1995 195,962 30,000 11,538 -- 50,000 81,938 7,500(3)
Frank S. Anthony........ 1997 142,490 2,311 -- -- -- -- 5,634(3)
Vice President and 1996 139,808 48,440 -- -- 15,000 13,617 296,682(4)
General Counsel(6) 6,864(3)
1995 135,000 12,540 -- -- -- 49,163 150,000(4)
10,545(3)
1994 135,000 30,000 22,444 -- -- 43,870 8,496(3)
- --------
(1) Payment in lieu of vacation. Does not include certain perquisites and
other personal benefits, the cost of which to the Company was below the
disclosure thresholds established by the Securities and Exchange
Commission.
(2) In 1995 restrictions on all stock held in escrow pursuant to the Company's
Long Term Incentive Plan (the "LTIP") lapsed as a result of the Vinyl Sale
and shares were distributed to the persons named in the table. Represents
the value of Common Stock allocated to each officer on the date of
restriction lapse and reimbursement for withholding taxes arising from the
lapse of restrictions on restricted stock held by each officer in
accordance with provisions of the LTIP. The LTIP is terminated.
(3) Represents contributions by the Company to the Savings Plan.
(4) Represents severance payments received in connection with the change in
control which occurred pursuant to the Vinyl Sale and payment to a
separate trust established by the Company with a bank trustee to which
amounts otherwise payable to Mr. Anthony in excess of those permitted to
be contributed to the Savings Plan under limits imposed by the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), are
contributed.
(5) Mr. Maloof was elected Chief Operating Officer in April 1994, President in
April 1995 and to the Board of Directors in December 1994. Prior to that
time, he served as Vice President and President of the Company's Roofing
and Distribution Groups.
(6) Mr. Anthony was elected Vice President in 1984 and to the Board of
Directors in 1998.
A-9
The following tables provide information concerning grants during 1997 to,
and exercises of stock options and stock appreciation rights ("SARs") during
1997 by, the executive officers named in the Summary Compensation Table above
and the value of unexercised stock options and SARs held by them at December
31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
None
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT YEAR- IN-THE-MONEY OPTIONS/SARS
END(#) AT YEAR-END($)
------------------------- -------------------------
SHARES VALUE
ACQUIRED ON REALIZED
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Richard C. Maloof....... 0 0 85,000 70,000 0 0
Frank S. Anthony........ 0 0 22,000 12,000 0 0
- --------
(1) Based on the difference between the fair market value of the securities
underlying the options at date of exercise and the exercise price of the
options.
STOCK OPTION PLANS
Employee Stock Option Plans. The Company's executive officers currently
participate in the 1992 Option Plan. Prior to the approval of the 1992 Option
Plan by the Company's stockholders on May 27, 1993 the Company's executive
officers participated in the Company's 1982 Option Plan, which was terminated
by the Board on May 27, 1993. To the extent options or stock appreciation
rights granted under the 1982 Option Plan remain outstanding, such options and
stock appreciation rights are governed by the terms of the 1982 Option Plan.
The following is a general description of the 1992 Option Plan and the 1982
Option Plan (together, the "Plans").
The Plans permit the grant of options that qualify as incentive stock
options under Section 422 of the Internal Revenue Code, non-qualified stock
options and stock appreciation rights. Options and rights to purchase up to
450,000 Common Shares, plus any unused Common Shares under the 1982 Option
Plan, may be granted under the 1992 Option Plan. The 1982 Option Plan had
permitted the issuance of 900,000 Common Shares, as adjusted, pursuant to
options and rights granted under such plan. Any Common Shares subject to an
option or right granted under the 1992 Option Plan which expires or is
terminated without being exercised in full may again be subject to an option
or right.
The 1992 Option Plan is administered by a committee of non-employee members
of the Board (the "Committee"). Within specified guidelines, the Committee has
the authority under the 1992 Option Plan to determine the terms and conditions
under which options and rights may be granted and generally to interpret,
construe and implement the provisions of the 1992 Option Plan.
Options or rights under the 1992 Option Plan may be granted to officers and
other selected key employees of the Company and its subsidiaries and to any
other person who is determined by the Committee to contribute to the success
of the Company or any subsidiary.
The exercise price of any option granted under the Plans may not be less
than the fair market value of the Common Shares subject to the option on the
date the option is granted (or, in the case of an incentive stock option
granted to an employee who owns more than 10% of the outstanding Common
Shares, 110% of such fair market value). The maximum term of an option granted
under the 1992 Option Plan is 15 years, and the maximum term of an option
granted under the 1982 Option Plan is 10 years. Each optionee (except non-
employee director optionees under the 1982 Option Plan) must remain in the
continuous employ of the Company for one year after the date of grant of an
option under the Plans before exercising any part of the option.
A-10
The Merger Agreement provides that immediately following the Effective Date,
the 1992 Option Plan will be terminated and that no further rights or options
may be granted under the 1992 Option Plan subsequent to the date of the Merger
Agreement.
Non-Employee Directors Option Plan. The Non-Employee Directors Option Plan
was approved by the Company's stockholders on May 27, 1993. The following is a
general description of the Non-Employee Directors Option Plan.
Options granted under the Non-Employee Directors Option Plan are non-
statutory options not intended to qualify under Section 422 of the Internal
Revenue Code. An aggregate of 100,000 Common Shares are available for grants
under the Non-Employee Directors Option Plan. Common Shares subject to options
which terminate unexercised will be available for future option grants.
The Non-Employee Directors Option Plan automatically provides annual grants
of options to each Director who is serving on the Board at the time of such
grant and who is not also an employee of the Company or any subsidiary. The
exercise price of options granted under the Non-Employee Directors Option Plan
are equal to the fair market value of Common Shares subject thereto on the
date of grant. Options are exercisable in full one year after the date of
grant.
The Merger Agreement provides that immediately following the Effective Date,
the Non-Employee Directors Option Plan will be terminated and that no further
options may be granted thereunder subsequent to the date of the Merger
Agreement.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Employment Contracts
Mr. Anthony entered into a one-year employment contract with the Company,
commencing April 1, 1995, at the same annual rate of compensation ($135,000
plus a bonus of 35% of such amount if MICP targets are obtained) and with the
same fringe benefit package (participation in the Company's Savings Plan and
customary health insurance and life insurance benefits) as he received prior
to the Vinyl Sale. As a result of the "change in control" which was deemed to
have occurred as a result of the Vinyl Sale, Mr. Anthony became entitled to
severance benefits. Pursuant to the terms of his employment contract, Mr.
Anthony received $150,000 as a partial severance payment and agreed to defer
the payment of the balance thereof until the expiration of his employment
contract. Pursuant to the terms of his contract, the balance of Mr. Anthony's
severance payment, approximately $315,000, was paid on March 31, 1996.
On April 1, 1996 Mr. Anthony's employment contract automatically converted
to an oral employment agreement on the same terms, terminable by either party
upon 60 days' notice.
Termination of Employment and Change in Control Arrangements
The Company's 1982 Option Plan, 1992 Option Plan and 1992 Non-Employee
Directors Option Plan provide for accelerated benefits, and the Executive
Severance Contract (as defined below) provides for severance payments,
following the occurrence of a "change in control" of the Company. For purposes
of these plans and such contract, a "change in control" is deemed to have
occurred if, among other things, any person is or becomes the beneficial owner
of securities of the Company representing 30% or more of the combined voting
power of the securities of the Company then outstanding or in the event of a
merger or consolidation of the Company with another corporation resulting in
either (i) the stockholders of the Company, immediately prior to the merger or
consolidation, not beneficially owning, immediately after the merger or
consolidation, shares of the surviving entity representing 50% or more of the
combined voting power of the securities of the surviving entity then
outstanding or (ii) the members of the Board, immediately prior to the merger
or consolidation, not constituting, immediately after the merger or
consolidation, a majority of the Board of Directors of the surviving entity.
A-11
Executive Severance Contract.
The Company has entered into a severance agreement with Richard C. Maloof,
the Company's President and Chief Operating Officer, dated as of October 14,
1984, as amended, April 1, 1986, May 24, 1990 and August 21, 1995, February
17, 1997, and January 12, 1998 (as so amended, the "Executive Severance
Contract") the terms of which provide for severance benefits to be paid to Mr.
Maloof in the event that his employment with the Company is terminated
subsequent to a "change in control" of the Company. Severance benefits are
payable if, after a "change in control," (i) the employment of Mr. Maloof is
terminated either by the Company (other than for "Disability" or "Cause") or
by Mr. Maloof for "Good Reason" (which term includes, but is not limited to a
substantial alteration in the nature of Mr. Maloof's responsibilities from
those in effect immediately prior to a "change in control") or (ii) Mr. Maloof
negotiates in good faith an employment agreement with a person to whom
substantially all of the Company's Common Shares are sold providing for his
employment commencing on the date of sale on such terms and conditions not
less generous than those on which he is then employed by the Company
(regardless of whether or not any such employment agreement is ever executed).
The Company has acknowledged that a "Change in Control" occurred under the
Executive Severance Contract as a result of the Vinyl Sale.
If the right to receive severance benefits is triggered under the Executive
Severance Contract, Mr. Maloof will be entitled to receive severance pay in
the amount of two times the sum of (i) Mr. Maloof's then current annual base
salary and (ii) the amount of any bonus paid (which for severance purposes,
includes any distributions made under the terms of the LTIP in 1995 and 1996
and bonuses awarded to Mr. Maloof by the Compensation Committee). Mr. Maloof
would also receive an amount equal to a pro rata portion of all contingent
bonus awards to which Mr. Maloof might be entitled in the year of termination.
Under no circumstances shall the amount be less than what Mr. Maloof would
have received had the calculation been made in 1996. The Company estimates
that if the right to receive severance benefits under the Executive Severance
Contract is triggered, Mr. Maloof would be entitled to receive approximately
$870,000, including the approximately $135,000 Mr. Maloof will receive
pursuant to the Incentive Compensation Program (discussed below).
Incentive Compensation Program
In the event that the Offer is consummated, Mr. Maloof will receive a bonus
of approximately $135,000 and Mr. Anthony will receive a bonus of
approximately $50,000 pursuant to the 1998 MICP Plan.
Stock Option Plans and Non-Employee Directors Option Plan.
Under the Plans, the vesting of all options to purchase Common Shares
outstanding but not yet exercisable will be accelerated upon a "change in
control." Each optionee will have, for a period of thirty (30) days after the
change in control occurs, the right (the "Cash-Out Right"), with respect to
all or a part of the shares subject to the options or stock appreciation
rights of such person, to receive an amount in cash in lieu of such optionee's
right to exercise all options in full, equal to the product of (i) the number
of shares as to which the employee exercises the Cash-Out Right and (ii) the
amount by which the purchase price of each such share under the applicable
option or stock appreciation right is exceeded by the greater of (x) the fair
market value of such shares on the date the employee exercises the Cash-Out
Right or (y) the highest purchase price paid or offered per share in any bona
fide transaction related to the "change in control" of the Company at any time
during the preceding 60-day period (as determined by the Compensation
Committee of the Board). In addition, if the employment of any employee
terminates after the expiration of the applicable waiting period for the
exercise of an option or right granted to such employee under the Plans, such
employee may for up to three months after the date of termination (or for up
to one year if termination is on account of long-term disability) exercise
such option or right. The Plans provide for a similar one-year period to
exercise options or rights subsequent to the death of an employee occurring
while in the employ of the Company or of any subsidiary or within any period
after termination of employment during which such employee has the right to
exercise such options or rights.
A-12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the fiscal year ended December 31, 1997, the Company paid fees and
disbursements in the amount of $1,707,393 to S. M. Lorusso & Sons, Inc., the
company that operates the Company's quarry located in Wrentham, Massachusetts.
Mr. Antonio J. Lorusso, Jr., is president, director, and a stockholder of S.
M. Lorusso & Sons, Inc. As of January 1, 1998, Mr. Lorusso is a member of a
group that is the beneficial owner of 9.8% of the Company's Common Stock.
LEGAL MATTERS
On or about April 18, 1996, Bird Incorporated, a subsidiary of the Company,
received a grand jury subpoena issued upon application of the United States
Department of Justice, Antitrust Division, for the production of certain
documents. In addition, Mr. Maloof and a senior manager of the Company
received grand jury subpoenas requiring the production of certain documents
and each of them to testify before the grand jury. The Department of Justice
informed the Company on October 8, 1996 that the investigation was closed on
September 27, 1996, without taking any action.
DIRECTORS' COMPENSATION
Mr. Vecchiolla received compensation from April 1, 1995 at the rate of
$100,000 per year for serving as Chairman of the Board and of the Executive
Committee. His compensation was voluntarily reduced to an annual rate of
$60,000 on January 1, 1996. On May 1, 1996, the Board reinstated his salary at
$100,000 per year. On May 23, 1996, Mr. Vecchiolla was granted a non-qualified
option to purchase up to 50,000 shares of Common Stock at an excise price of
$4.375. Mr. Vecchiolla's salary was reduced to $36,000 per year, starting June
1, 1997. Mr. Vecchiolla resigned as a Director on December 11, 1997, and all
payments to him as Director ceased as of December 31, 1997. During 1997, other
non-employee members of the Board received an annual retainer of $7,000, a fee
of $750 for each Board meeting attended ($375 for a telephonic Board meeting)
and a fee of $750 for each committee meeting attended ($375 for a telephonic
committee meeting). The chairmen of the Audit and Compensation Committees
received an annual retainer of $1,000. Expenses incurred in attending meetings
are reimbursed.
Effective October 1, 1997, Directors are paid an annual retainer of $7,000.
They no longer receive compensation for attending Board and Committee meetings
nor does the Chairman of the Compensation Committee or the Audit Committee
receive any additional fee.
Pursuant to the Non-Employee Directors Option Plan, non-employee directors
are also entitled to receive each year a non-qualified stock option to acquire
2,500 shares of the Company's Common Stock (provided that the maximum number
of shares subject to options granted to any director may not exceed 30,000
shares). Such options are granted on the date of the annual meeting each year
and become exercisable in full one year later. During 1997, each non-employee
director was granted such an option to purchase 2,500 Common Shares at an
exercise price of $4.50 per share.
A-13
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for compensation decisions with
respect to senior management of the Company, as well as for organizational
development and succession planning within the Company.
The Compensation Committee's compensation philosophy and policies applicable
to executive officers emphasize pay for performance and increased stockholder
value within a framework of compensation levels comparable to companies of
similar size. Base salary, annual MICP awards, and long-term incentive awards
are structured to provide total compensation levels for executive officers
that are intended to be below competitive compensation amounts when operating
results are at or below acceptable levels and above average levels when
results are outstanding or other targets or personal goals are achieved. The
Compensation Committee has used outside consulting assistance for plan design
and consultant and independent survey data in setting compensation levels and
has relied, in the case of officers other than the Chief Executive Officer, on
recommendations of the Chief Executive Officer which are reviewed and modified
where appropriate by the Committee.
In recent years, long-term awards have primarily taken the form of stock
option grants, which are designed to align the interests of executives with
those of the stockholders and reward executives when stockholder value
increases. Stock options are granted at an exercise price equal to the market
price of the Company's Common Stock on the date of grant.
Salaries for the Chief Executive Officer and other executive officers are
based in part upon a range of salaries for each office developed from a survey
of compensation practices at competitive companies. During 1997, Mr. Maloof's
base salary was decreased from $225,000 annually to $208,125 annually and Mr.
Anthony's base salary was decreased from $145,000 annually to $134,125
annually. In December 1997, Messrs. Maloof's and Anthony's base salaries were
reinstated at $225,000 and $145,000, respectively.
One of the principal elements of variable compensation for senior executive
officers is found in the annual MICP awards. In 1997, the possible pay out for
1997 was set at 60% of base salary in the case of the President, 35% of base
salary in the case of the Vice President, and between 20% and 30% of base
salary in the case of other members of the corporate staff and other key
members of the Company. In 1997, awards to management were tied to achievement
of goals with respect to increased cash flow and profitability on an equal
50/50 basis.
The Committee believes that the combination of salary and bonus rewards was
appropriate based upon the task imposed upon management to simultaneously
operate the business in a very competitive environment and to entertain
prospective merger proposals.
Based on current compensation levels and the present structure of the
Company's executive compensation programs, the Committee believes that the
compensation payable to executives will not be subject to the limitation on
deductibility imposed by the Omnibus Budget Reconciliation Act of 1993. If
such limitation should become applicable in the future, the Committee and the
Company will determine whether any changes in the Company's compensation
programs are advisable.
Stock Option, Compensation,
andOrganizational
DevelopmentCommittee:
Herbert I. Corkin
Charles S. Bird, III
Antonio J. Lorusso, Jr., Chairman
A-14
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Common Stock
of the Company for the last five fiscal years with the cumulative total returns
of the Russell 2000 index and the Value Line Building Materials Industry Index,
assuming an investment of $100 in the Company's Common Stock and each index at
the close of trading on December 31, 1992 and the reinvestment of all
dividends. The total stockholder return data for the Russell 2000 Index and the
Value Line Building Materials Index is provided by Value Line Institutional
Services.
CHART
BIRD CORPORATION
Total Cumulative Shareholder Return for
Five-Year Period Ending December 31, 1997
December 31... 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------
Bird Corporation 100.00 73.97 75.63 40.85 45.82 35.33
- ----------------------------------------------------------------------------------------
Russell 2000 100.00 118.91 116.55 149.70 174.30 213.00
- ----------------------------------------------------------------------------------------
VL Building Materials 100.00 129.20 96.42 134.25 150.44 178.86
- ----------------------------------------------------------------------------------------
A-15
EXHIBIT (A) (4)
LEHMAN BROTHERS
January 12, 1998
Bird Corporation
1077 Pleasant Street
Norwood, MA 02062
Members of the Board:
We understand that Bird Corporation ("Bird" or the "Company") proposes to
enter into a merger agreement with CertainTeed Corporation ("CertainTeed")
pursuant to which CertainTeed will acquire all of the capital stock of the
Company for aggregate consideration of $39.8 million in cash and assumption of
the Company's outstanding indebtedness, which as of September 30, 1997, was
approximately $3.5 million (the "Proposed Transaction"). The terms and
conditions of the Proposed Transaction are set forth in more detail in the
draft merger agreement dated January 9, 1998 among Bird, CertainTeed and BI
Expansion II Corp. (the "Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to
the Company's stockholders of the consideration to be paid by CertainTeed in
the Proposed Transaction. Our opinion does not in any manner address: (i) the
Company's underlying business decision to proceed with or effect the Proposed
Transaction or (ii) consideration to be received by any class of stockholders
of the Company.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company that we believe to be relevant to our
analysis, (3) financial and operating information with respect to the
business, operations and prospects of the Company furnished to us by the
Company (including without limitation the Company's recent financial results
in comparison to original budget), (4) a trading history of the Company's
capital stock from January 1995 to the present and a comparison of that
trading history with those of other companies that we deemed relevant, (5) a
comparison of the historical financial results and present financial condition
of the Company with those of other companies that we deemed relevant, and (6)
a comparison of the financial terms of the Proposed Transaction with the
financial terms of certain other transactions that we deemed relevant. In
addition, we have had discussions with management of the Company concerning
indications of interest received from, and discussions with, potential
strategic buyers of the Company with respect to an acquisition of the Company.
We also have had discussions with the management of the Company concerning its
business, operations, assets, financial condition and prospects and the
current competitive environment in its industry, and have undertaken such
other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of the Company that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial
projections of the Company, upon advice of the Company we have assumed that
such projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company
as to the future financial performance of the Company and we have relied upon
such projections in arriving at our opinion. In arriving at our opinion, we
have conducted only a limited physical inspection of the properties and
facilities of the Company and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company. In addition, you have
not authorized us to solicit, and we have not solicited, any proposals from
any third party with respect to the purchase of all or a part of the Company's
business. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be paid
by CertainTeed in the Proposed Transaction is fair to the stockholders of the
Company.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for the delivery of this opinion.
In addition, the Company has agreed to indemnify us for certain liabilities
that may arise out of the rendering of this opinion.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as
to whether to accept the consideration to be offered to such stockholder in
connection with the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS