SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 2)
CHECK THE APPROPRIATE BOX:
[X] PRELIMINARY INFORMATION STATEMENT [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14C-5(D)(2)).
[ ] DEFINITIVE INFORMATION STATEMENT
BIRD CORPORATION
----------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14C-5(G) AND 0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
COMMON STOCK, PAR VALUE $1 PER SHARE
$1.85 CUMULATIVE CONVERTIBLE PREFERENCE STOCK, PAR VALUE $1.00
PER SHARE
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
170,354 SHARES OF COMMON STOCK, PAR VALUE $1 PER SHARE
41,565 SHARES OF $1.85 CUMULATIVE CONVERTIBLE PREFERENCE STOCK,
PAR VALUE $1.00 PER SHARE
(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED PURSUANT TO
EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH FILING FEE IS
CALCULATED AND STATE HOW IT WAS DETERMINED):
COMMON STOCK, PAR VALUE $1 PER SHARE, $5.50 PER SHARE
$1.85 CUMULATIVE CONVERTIBLE PREFERENCE STOCK,
PAR VALUE $1.00 PER SHARE, $20 PER SHARE
(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
$1,768,247
(5) TOTAL FEE PAID:
$353.64
[X] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
RULE 0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS PAID
PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR
THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) AMOUNT PREVIOUSLY PAID:
(2) FORM, SCHEDULE OR REGISTRATION NO.:
(3) FILING PARTY:
(4) DATE FILED:
[LOGO OF BIRD CORPORATION APPEARS HERE]
[ ], 1998
To Our Stockholders:
You are cordially invited to attend a special meeting (the "Special
Meeting") of the stockholders of Bird Corporation (the "Company"), to be held
on [ ], 1998 at 10:00 a.m., local time, at the Company's office, located at
1077 Pleasant Street, Norwood, MA 02062.
At the Special Meeting, those of you who are holders of the Company's common
stock, par value $1 per share (the "Common Shares"), or the Company's $1.85
Cumulative Convertible Preference Stock, par value $1 per share ("Preference
Shares", and together with the Common Shares, the "Shares"), at the close of
business on [ ], 1998 will be entitled to consider and vote upon a proposal
to approve and adopt an Agreement and Plan of Merger, dated as of January 12,
1998 (the "Merger Agreement"), among the Company, CertainTeed Corporation, a
Delaware corporation ("CertainTeed"), and BI Expansion II Corp., a
Massachusetts corporation and a wholly owned subsidiary of CertainTeed
("Acquisition Sub"), pursuant to which Acquisition Sub will be merged with and
into the Company (the "Merger"), with the Company surviving the Merger as a
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 Acquisition
Sub or CertainTeed) will be converted into the right to receive $5.50 per
share (in the case of Common Shares) and $20 per share, which amount will 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.
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 are expected to 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 through the date of redemption
and retirement. Details of the Merger and other important information are set
forth in the enclosed Information Statement, which you are urged to read
carefully.
As previously communicated in the Tender Offer Statement on Schedule 14D-9
mailed to stockholders in January of this year, your Board of Directors
believes that the Merger is in the best interests of the Company and its
stockholders. In arriving at its decision to recommend the Merger, the Board
of Directors carefully reviewed and considered the terms and conditions of the
Merger Agreement and the factors described in the enclosed Information
Statement.
The Merger is the second step in a two-part transaction, the purpose of
which is the acquisition of the Company by CertainTeed. On January 16, 1998,
Acquisition Sub commenced a tender offer (the "Offer") to purchase all
outstanding Common Shares and Preference Shares at a price of $5.50 per Common
Share and $20, without any adjustment for dividends accrued and unpaid through
the expiration date of the Offer, per Preference Share. In the Offer, which
expired at midnight, February 13, 1998 (the "Expiration Date"), Acquisition
Sub acquired approximately 96% of the outstanding Common Shares and
approximately 95% of the outstanding Preference Shares.
CertainTeed and Acquisition Sub agreed in the Merger Agreement to vote all
Shares acquired in the Offer in favor of the Merger. Approval of the Merger
Agreement requires the affirmative vote of the holders of at least 66 2/3% of
the issued and outstanding Common Shares and 66 2/3% of the issued and
outstanding Preference Shares. Accordingly, Acquisition Sub has sufficient
voting power to approve the Merger Agreement without the vote of any other
stockholder of the Company.
Holders of 5% Stock are receiving notice of, and may attend but not vote at,
the Special Meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
Sincerely,
/s/ Richard C. Maloof
RICHARD C. MALOOF
President
2
BIRD CORPORATION
1077 PLEASANT STREET
NORWOOD, MA 02062
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
[ ], 1998
Notice is hereby given that a special meeting (the "Special Meeting") of
stockholders of Bird Corporation (the "Company") will be held on [ ], 1998
at 10:00 a.m., local time, at the Company's Office, located at 1077, Pleasant
Street, Norwood, MA 02062, to consider and act upon the following:
1. The approval of an Agreement and Plan of Merger, dated as of January 12,
1998 (the "Merger Agreement"), among the Company, CertainTeed Corporation, a
Delaware corporation ("CertainTeed"), and BI Expansion II Corp., a
Massachusetts corporation and a wholly owned subsidiary of CertainTeed
("Acquisition Sub"), pursuant to which Acquisition Sub will be merged with and
into the Company (the "Merger"), with the Company surviving the Merger as a
subsidiary of CertainTeed. In the Merger, each share of the Company's common
stock, par value $1 per share ("Common Shares"), outstanding on the effective
date of the Merger (the "Effective Date") and each share of the Company's
$1.85 Cumulative Convertible Preference Stock, par value $1 per share
("Preference Shares", and together with Common Shares, the "Shares"),
outstanding on 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 by Acquisition Sub or CertainTeed) will be
converted into the right to receive $5.50 per share (in the case of Common
Shares) and $20 per share, which amount will 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. 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 are expected
to 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 through the date of redemption and retirement. Details of the Merger
and other important information are set forth in the enclosed Information
Statement, which you are urged to read carefully.
2. The transaction of such other business as may properly come before the
Special Meeting and any adjournment thereof. The Company's Board of Directors
is not aware of, and does not intend to raise, any other matters to be
considered at the Special Meeting.
Reference is hereby made to the accompanying Information Statement for more
complete information concerning the matters to be acted upon at the Special
Meeting.
Only holders of record of Common Shares and/or Preference Shares (except as
indicated below) at the close of business on [ ], 1998 (the "Record Date")
are entitled to vote at the Special Meeting on the approval and adoption of
the Merger Agreement, including the consummation of the transactions
contemplated thereby. Holders of record of 5% Stock on the Record Date are
entitled to notice of, but not to vote at, the Special Meeting.
The Merger is the second step in a two-part transaction, the purpose of
which is the acquisition of the Company by CertainTeed. On January 16, 1998,
Acquisition Sub commenced a tender offer (the "Offer") to purchase all
outstanding Common Shares and Preference Shares at a price of $5.50 per Common
Share and $20, without any adjustment for any dividends accrued and unpaid
through the expiration date of the Offer, per Preference Share. In the Offer,
which expired at midnight, February 13, 1998 (the "Expiration Date"),
Acquisition Sub acquired approximately 96% of the outstanding Common Shares
and approximately 95% of the outstanding Preference Shares.
CertainTeed and Acquisition Sub agreed in the Merger Agreement to vote all
Shares acquired in the Offer in favor of the Merger. Approval of the Merger
Agreement requires the affirmative vote of the holders of at least 66 2/3% of
the issued and outstanding Common Shares and 66 2/3% of the issued and
outstanding Preference Shares. Accordingly, Acquisition Sub has sufficient
voting power to effect the Merger without the vote of any other stockholder of
the Company.
Pursuant to Section 85 of the Massachusetts Business Corporation Law (the
"MBCL"), Chapter 156B of the Massachusetts General Laws, if the Merger
Agreement is approved by the holders of Common Shares and by the holders of
Preference Shares at the Special Meeting and the Merger is effected by the
Company, any stockholder (i) who files with the Company, before the taking of
the vote on the approval of the Merger Agreement, written objection to the
Merger stating that such stockholder intends to demand payment for such
stockholder's shares if the Merger is consummated, and (ii) in the case of
holders of Common Shares and holders of Preference Shares, whose shares are
not voted in favor of the Merger Agreement (including any holder of Common
Shares or Preference Shares who abstains, which abstention will be treated as
a "no" vote for purposes of determining whether the Merger Agreement has been
adopted or approved), may have the right to demand in writing from the
Company, within 20 days after the date of mailing to such stockholder of
notice in writing that the Merger has become effective, payment for such
stockholder's shares and an appraisal of the value thereof. The Company and
any such stockholder shall in such cases have the rights and duties and shall
follow the procedures set forth in Sections 88 to 98, inclusive, of the MBCL.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
By order of the Board of Directors
/s/ Frank S. Anthony
Frank S. Anthony
Clerk
[ ], 1998
2
BIRD CORPORATION
1077 PLEASANT STREET
NORWOOD, MA 02062
(781) 551-0656
----------------
INFORMATION STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
[ ], 1998
INTRODUCTION
This Information Statement is being furnished on behalf of the Board of
Directors (the "Board") of Bird Corporation, a Massachusetts corporation (the
"Company"), to holders as of the Record Date (as defined below) of common
stock, par value $1 per share ("Common Shares"), and $1.85 Cumulative
Convertible Preference Stock, par value $1 per share ("Preference Shares"), of
the Company, in connection with a special meeting (the "Special Meeting") of
stockholders of the Company to be held on [ ], 1998 at the Company's
office, located at 1077 Pleasant Street, Norwood, MA 02062, at 10:00 a.m.,
local time. This Information Statement is also being furnished to holders as
of the Record Date of the Company's 5% Cumulative Preferred Stock, par value
$100 per share ("5% Stock"), who are entitled to notice of, but not to vote
at, the Special Meeting. The date on which this Information Statement is first
being mailed or given to stockholders is on or about [ ], 1998.
At the Special Meeting, holders of Common Shares and Preference Shares will
be entitled to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of January 12, 1998 (the "Merger
Agreement") among the Company, CertainTeed Corporation, a Delaware corporation
("CertainTeed"), and BI Expansion II Corp., a Massachusetts corporation and a
wholly owned subsidiary of CertainTeed ("Acquisition Sub"), pursuant to which
Acquisition Sub will be merged (the "Merger") with and into the Company, with
the Company surviving the Merger (the "Surviving Company") as a 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 by Acquisition Sub or CertainTeed) will be
converted into the right to receive (in the case of Common Shares) $5.50 per
Common Share and (in the case of Preference Shares) $20, which amount will not
be adjusted for any dividends accrued and unpaid through the Effective Date,
per Preference Share, in each case in cash, without interest. The 5% Stock
will remain issued and outstanding after the Merger and are expected to be
called for redemption and retirement as soon as practicable thereafter at a
price equal to $110 per share, plus all accrued and unpaid dividends through
the date of redemption and retirement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
The Merger is the second step in a two-part transaction, the purpose of
which is the acquisition of the Company by CertainTeed. On January 16, 1998,
Acquisition Sub commenced a tender offer (the "Offer") for all outstanding
Common Shares and Preference Shares at a price of $5.50 per Common Share and
$20, without any adjustment for any dividends accrued and unpaid through the
date of the expiration of the Offer, per Preference Share, in each case net to
the seller in cash, without interest thereon. In the Offer, which expired at
midnight, February 13, 1998, (the "Expiration Date"), Acquisition Sub acquired
approximately 96% of the outstanding Common Shares and approximately 95% of
the outstanding Preference Shares.
CertainTeed and Acquisition Sub agreed in the Merger Agreement to vote all
Shares acquired by Acquisition Sub in the Offer in favor of the Merger.
Approval of the Merger Agreement requires the affirmative vote of the holders
of at least 66 2/3% of the issued and outstanding Common Shares and 66 2/3% of
the issued and outstanding Preference Shares. Accordingly, Acquisition Sub has
sufficient voting power to effect the Merger without the vote of any other
stockholder of the Company.
Only holders of record of Common Shares or Preference Shares at the close of
business on [ ], 1998 (the "Record Date") are entitled to vote at the
Special Meeting on the approval and adoption of the Merger Agreement,
including the consummation of the transactions contemplated thereby.
No person has been authorized to give any information or to make any
representation other than those contained in this Information Statement in
connection with the matters to be acted upon at the Special Meeting and, if
given or made, such information or representation must not be relied upon as
having been authorized by the Company or any other person. All information
pertaining to CertainTeed and Acquisition Sub contained in this Information
Statement has been supplied by CertainTeed.
----------------
The date of this Information Statement is [ ], 1998.
2
TABLE OF CONTENTS
PAGE
----
SUMMARY.................................................................... 1
THE SPECIAL MEETING........................................................ 9
Time, Date and Place of the Special Meeting.............................. 9
Matters to be Considered at the Special Meeting.......................... 9
Voting and Record Date................................................... 9
THE MERGER................................................................. 10
The Company.............................................................. 10
CertainTeed and Acquisition Sub.......................................... 10
Background and Reasons for the Merger.................................... 10
Reasons for the Board's Approval of the Merger Agreement................. 14
Opinion of Lehman Brothers............................................... 15
Interests of Certain Persons in the Merger............................... 18
Certain Regulatory Matters............................................... 20
Accounting Treatment..................................................... 20
Federal Income Tax Consequences.......................................... 20
Effect of the Merger on the Company's Stockholders....................... 21
Dissenting Stockholders' Rights.......................................... 21
THE MERGER AGREEMENT....................................................... 23
General.................................................................. 23
Effective Date of the Merger............................................. 23
Exchange of Certificates and Payment of Cash Merger Consideration........ 23
Dissenting Stockholders' Rights.......................................... 24
Conditions to the Merger................................................. 25
Termination of the Merger Agreement...................................... 25
Procedure for Termination and Amendment.................................. 26
Fees and Expenses........................................................ 26
Directors................................................................ 26
Stock Options............................................................ 26
Indemnification and Insurance............................................ 27
Representations and Warranties........................................... 27
The Stockholder Agreement................................................ 28
Plans for the Company.................................................... 28
Appraisal Rights......................................................... 28
Going Private Transactions............................................... 28
Dividends and Distributions.............................................. 28
CERTAIN INFORMATION WITH RESPECT TO THE COMPANY'S STOCK.................... 29
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 31
i
PAGE
----
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................ 33
Acquisition By CertainTeed.............................................. 33
Financial Condition..................................................... 33
Results of Operations................................................... 34
Inflation............................................................... 36
Environmental Matters................................................... 36
Insurance and Product Liability Claims.................................. 38
Legal Matters........................................................... 38
ADDITIONAL INFORMATION ABOUT THE COMPANY.................................. 39
Significant Business Development........................................ 39
Housing Group........................................................... 39
Compliance with Certain Environmental Laws.............................. 41
Employees............................................................... 41
Properties.............................................................. 41
Legal Proceedings....................................................... 41
Insurance and Product Liability Claims.................................. 41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 43
OTHER MATTERS............................................................. 43
INDEX OF UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH
31, 1998................................................................. A-1
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES............................... F-1
ANNEXES
I. Agreement and Plan of Merger
II. Sections 85-98 of the Massachusetts Business Corporation Law
III. Opinion of Lehman Brothers
ii
SUMMARY
The following is a summary of certain information contained in this
Information Statement. This summary is not intended to be a complete statement
of all information, facts or materials relevant to the matters to be voted upon
at the Special Meeting and is qualified in its entirety by reference to the
more detailed information contained elsewhere in this Information Statement,
the Annexes hereto and the documents referred to herein. Stockholders are urged
to read this Information Statement and the Annexes hereto in their entirety.
All references to the "Company" include the Company and its subsidiaries unless
otherwise indicated by the context.
THE SPECIAL MEETING
Time, Date and Place of the
Special Meeting............ The Special Meeting will be held at the Company's
office, located at 1077 Pleasant Avenue, Norwood,
MA 02062 on , 1998, at 10:00 a.m., local time.
Matters To Be Considered at
the Special Meeting........ The purpose of the Special Meeting is to consider
and vote upon a proposal to approve and adopt the
Merger Agreement, including the consummation of
the transactions contemplated thereby. See "THE
MERGER" and "THE MERGER AGREEMENT."
Record Date; Shares
Entitled To Vote............ Only holders of record of Common Shares or
Preference Shares on the Record Date are entitled
to vote at the Special Meeting on the approval
and adoption of the Merger Agreement, including
the consummation of the transactions contemplated
thereby. See "THE SPECIAL MEETING--Voting and
Record Date."
Required Vote............... The affirmative vote of the holders of at least
66 2/3% of the Common Shares outstanding on the
Record Date and the affirmative vote of the
holders of at least 66 2/3% of the Preference
Shares outstanding on the Record Date, each
voting as a separate class, are required to
approve the Merger Agreement. Abstentions shall
be treated as "no" votes for purposes of
determining whether the Merger has been approved.
Acquisition Sub has sufficient voting power to
approve the Merger Agreement without the vote of
any other stockholder of the Company. See "THE
SPECIAL MEETING--Voting and Record Date--Approval
of the Merger."
THE MERGER
The Company................. The Company, a Massachusetts corporation, is
primarily involved in the business of roofing
manufacturing, sales and marketing. The address
of the Company's principal executive office is
1077 Pleasant Street, Norwood, Massachusetts
02062 and its telephone number is (781) 551-0656.
See "THE MERGER--The Company."
CertainTeed and Acquisition
Sub........................ The principal business of CertainTeed is the
manufacture of building materials (roofing, vinyl
siding, vinyl windows, ventilation products,
vinyl fence and railing, and piping products) and
fiberglass products (insulation and
reinforcements). Acquisition Sub, a wholly owned
subsidiary of CertainTeed, was organized to
acquire the Company
1
and has not conducted any unrelated activities
since its organization. The address of the
principal executive offices of CertainTeed and
Acquisition Sub is 750 East Swedesford Road,
Valley Forge, Pennsylvania 19482, and their
telephone number is (610) 341-7000. See "THE
MERGER--CertainTeed and Acquisition Sub."
Background and Reasons for
the Merger................. 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. See
"THE MERGER--Background and Reasons for the
Merger."
Board of Directors Approval
of the Merger Agreement.... The Board has determined that the terms of the
Merger are fair to and in the best interests of
the Company and its stockholders and has
unanimously approved the Merger Agreement and the
consummation of the transactions contemplated
thereby. The Board's decision to enter into the
Merger Agreement was based upon its evaluation of
a number of factors discussed in detail below,
including the opinion of the Company's financial
advisor. See "THE MERGER--Background and Reasons
for the Merger," "--Reasons for the Board's
Approval of the Merger Agreement" and "--Opinion
of Financial Advisor."
Opinion of Financial
Advisor.................... Lehman Brothers has rendered a written opinion
dated January 12, 1998 to the Board to the effect
that, in its opinion, subject to the matters set
forth in its opinion, the consideration to be
received by the stockholders pursuant to the
Merger is fair to such stockholders from a
financial point of view. See "THE MERGER--Opinion
of Financial Advisor." A copy of such opinion,
which sets forth the assumptions made, the
matters considered and the limits of Lehman
Brothers review, is attached to this Information
Statement as Annex III and should be read in its
entirety.
Interests of Certain
Persons in the Merger...... As a result of the "change in control" which
occurred upon the completion of the Offer,
Richard C. Maloof, the Company's President and
Chief Operating Officer, received a payment of
$720,000 under his employment agreement with the
Company and a payment of $135,000 under the
Company's 1998 Management Incentive Compensation
Program (the "1998 MICP") and Frank S. Anthony,
the Company's Vice President and General Counsel,
received a payment of $50,000 under the 1998
MICP. The Merger Agreement provides, subject to
the terms thereof, for the survival of certain
indemnification rights of the directors and
officers of the Company for a period of five
years after the Effective Date and, subject to
the terms thereof, obligates CertainTeed to use
all reasonable efforts to maintain directors' and
officers' liability insurance covering the
directors and officers of the Company currently
covered under the Company's policy for a period
of two
2
years after the Effective Date. CertainTeed has
had preliminary discussions with Messrs. Maloof
and Anthony regarding continued employment with
the Surviving Company, but these discussions have
not yet resulted in any written commitments by
any of the parties. See "THE MERGER--Interests of
Certain Persons in the Merger" and "THE MERGER
AGREEMENT--Indemnification and Insurance."
Certain Regulatory Matters.. The Offer was subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations thereunder
(the "HSR Act"), which provides that certain
transactions may not be consummated until
required information and material have been
furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division")
and the Federal Trade Commission (the "FTC") and
certain waiting periods have expired or been
terminated. Compagnie de Saint-Gobain ("Saint-
Gobain"), Certain Teed's indirect corporate
parent, and the Company filed the required
information and material with the Antitrust
Division and the FTC on January 15, 1998 and
January 23, 1998 in connection with the Offer.
The waiting period under the HSR Act was
terminated on January 29, 1998. The Company does
not believe that any other material regulatory
approvals are required for consummation of the
Merger. See "THE MERGER--Certain Regulatory
Matters."
Accounting Treatment........ The Merger will be accounted for by CertainTeed
as a purchase of the Company under generally
accepted accounting principles. See "THE MERGER--
Accounting Treatment."
Federal Income Tax
Consequences............... The receipt of cash by holders of Common Shares
and Preference Shares pursuant to the Merger or
upon the exercise of dissenters' rights will be a
taxable transaction for Federal income tax
purposes and may also be a taxable transaction
under applicable state, local, foreign or other
tax laws. All stockholders should consult their
own tax advisors as to the particular tax
consequences of the Merger to them, including the
applicability and effect of the alternative
minimum tax and of any state, local, and foreign
laws. See "THE MERGER--Federal Income Tax
Consequences."
Effect of the Merger on the
Company's Stockholders...... As a result of the Merger (assuming the
redemption of the 5% Stock as required by the
Merger Agreement), the entire equity interest in
the Company will be owned by CertainTeed and the
Company's current stockholders will no longer
have any equity interest in the Company. See "THE
MERGER--Effect of the Merger on the Company's
Stockholders."
Dissenting Stockholders'
Rights..................... Stockholders of the Company who comply with the
requirements of Sections 85 through 98 of the
Massachusetts Business Corporation Law (the
"MBCL"), Chapter 156B of Massachusetts General
Laws, are entitled to appraisal rights. Failure
to strictly adhere to
3
those statutory requirements may result in the
loss of appraisal rights. Holders of Common
Shares and Preference Shares who exercise such
rights will not be entitled to receive the Cash
Merger Consideration (as defined herein). Except
as provided in Section 96 of the MBCL, holders of
5% Stock who exercise such rights will no longer
have the rights of a holder of 5% Stock and will
not have the right to receive any dividends on
the 5% Stock which are paid on or after the date
of the Special Meeting. See "THE MERGER--
Dissenting Stockholders' Rights," "THE MERGER
AGREEMENT--Dissenting Stockholders' Rights" and
Annex II to this Proxy Statement.
THE MERGER AGREEMENT
General..................... Pursuant to the terms of the Merger Agreement,
following the satisfaction or waiver of the
conditions to the Merger, see "THE MERGER
AGREEMENT--Conditions to the Merger," Acquisition
Sub will be merged with and into the Company, and
each then outstanding Share (other than Shares
held directly by stockholders who perfect their
appraisal rights under Massachusetts law, Shares
held in the Company's treasury, and Shares held
by CertainTeed or Acquisition Sub) will be
converted into the right to receive in cash an
amount equal to (in the case of Common Shares)
$5.50 per Common Share (the "Common Merger
Consideration") and (in the case of Preference
Shares) $20, which amount will not be adjusted
for any dividends accrued and unpaid through the
Effective Date, per Preference Share (the
"Preference Merger Consideration"). All
outstanding shares of 5% Stock will remain
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 through the date of redemption
and retirement (the "5% Redemption Price").
Effective Date of the
Merger...................... The Effective Date of the Merger will be the date
on which the Articles of Merger (as defined
herein) are filed with the Secretary of State of
the Commonwealth of Massachusetts. The Articles
of Merger will be filed with the Secretary of
State of the Commonwealth of Massachusetts on the
closing date of the Merger. See "THE MERGER
AGREEMENT--Effective Date of the Merger."
Exchange of Certificates
and Payment of Cash Merger
Consideration.............. Pursuant to the Merger Agreement, CertainTeed
shall make available on a timely basis after the
Effective Date to ChaseMellon Shareholder
Services LLC (the "Paying Agent") funds necessary
to pay the Common Merger Consideration and
Preference Merger Consideration (hereinafter
collectively referred to as the "Cash Merger
Consideration") to holders of Common Shares and
Preference Shares entitled thereto. Payment of
the Cash Merger Consideration will be made by the
Paying Agent after receipt by the Paying Agent of
certificates representing Shares and other
required
4
documents which will be furnished to stockholders
by the Paying Agent. See "THE MERGER AGREEMENT--
Exchange of Certificates and Payment of Cash
Merger Consideration."
Conditions to the Merger.... The consummation of the Merger is subject to the
prior approval of the Merger Agreement by the
holders of Common Shares and Preference Shares
and the satisfaction or waiver of certain other
customary closing conditions. Acquisition Sub has
sufficient voting power to approve the Merger
Agreement without the vote of any other
stockholder of the Company. See "THE MERGER
AGREEMENT--Conditions to the Merger."
Termination of the Merger
Agreement.................. Notwithstanding approval of the Merger Agreement
and the transactions contemplated thereby by the
stockholders of the Company, the Merger Agreement
may be terminated, and the Merger abandoned, at
any time prior to the Effective Date, (A) by
mutual consent of CertainTeed, Acquisition Sub,
and the Company; (B) by CertainTeed or
Acquisition Sub if any of the conditions to the
obligations of CertainTeed and Acquisition Sub to
consummate the Merger become impossible to
fulfill and shall not have been waived or deemed
waived in accordance with the Merger Agreement;
(C) by the Company if 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; or (D) by
CertainTeed, Acquisition Sub, or the Company
under certain circumstances involving breaches of
or defaults under the Merger Agreement.
The sole remedy of the parties to the Merger
Agreement for the breach of a representation or
warranty therein by another party is the
termination of the Merger Agreement (if permitted
by the Merger Agreement), except for certain
willful misrepresentations. See "THE MERGER
AGREEMENT--Termination of the Merger Agreement."
Fees and Expenses........... The Merger Agreement provides that each of
Acquisition Sub, 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
(including the 1996 Merger Agreement (as defined
herein)) and the consummation of the Offer and
the Merger.
The Merger Agreement also provides for the
payment of a party's Expenses (as defined in the
third paragraph under "THE MERGER AGREEMENT--Fees
and Expenses") in the event that the Merger
Agreement is terminated or the Merger does not
occur solely due to a breach of or a willful
misrepresentation under the Merger Agreement by
another party. See "THE MERGER AGREEMENT--Fees
and Expenses."
5
Stock Options............... The Merger Agreement provides that unexpired
options, 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 as defined
herein) and which have an exercise price that is
less than the Common Merger Consideration 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 $5.50, less the per share exercise price
of each such option. Such options will be
canceled upon such cash payment following the
Merger. Any option with an exercise price equal
to or greater than the Common Merger
Consideration shall be canceled upon the
Effective Date without payment of any
consideration. The Company has informed
Acquisition Sub that all options have been
amended to effect the transactions contemplated
by the Merger Agreement, including the
cancellation of the options in connection with
the Merger in accordance with the foregoing. See
"THE MERGER AGREEMENT-- Stock Options."
MARKET PRICES OF THE COMMON
SHARES AND PREFERENCE
SHARES...................... There is currently no public market for the
Common Shares or the Preference Shares. As a
result of the completion of the Offer, the
Company withdrew from Nasdaq Stock Market listing
the Common Shares and the Preference Shares,
effective at the close of business on March 3,
1998. Prior to that time, the Common Shares were
quoted on the Nasdaq National Market under the
symbol BIRD. The last reported sale price of the
Common Shares on January 12, 1998 (the last full
trading day prior to the public announcement of
the execution of the Merger Agreement) on the
Nasdaq National Market was $4 3/8 per share.
Prior to the close of business on March 3, 1998,
the Preference Shares were quoted on the Nasdaq
SmallCap Market under the symbol BIRDP. On
January 12, 1998, the last full trading day prior
to the public announcement of the execution of
the Merger Agreement, the last reported bid
quotation of the Preference Shares on the Nasdaq
SmallCap Market was $14.00 per share. See
"CERTAIN INFORMATION WITH RESPECT TO THE
COMPANY'S STOCK."
6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain audited consolidated financial
information for the Company and its subsidiaries as of December 31, 1997, 1996,
1995, 1994 and 1993 and for the fiscal years then ended as well as unaudited
financial information for the three month periods ended March 31, 1998 and
March 31, 1997. Results for interim periods include all adjustments, consisting
only of normal recurring adjustments, which management considers necessary for
the fair presentation of the results for such periods; however, they are not
necessarily indicative of results for the full year. This information should be
read in conjunction with the Company's consolidated financial statements and
the notes thereto included elsewhere herein.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............... $ 7,360 $ 9,206 $43,132 $51,956 $ 54,180 $167,886 $187,745
Costs and expenses:
Cost of sales......... 6,583 8,456 38,366 43,840 48,007 136,878 151,664
Selling, general and
administrative
expenses............. 1,562 1,387 5,621 5,764 11,817 28,786 32,716
Interest expense...... 40 36 300 435 927 4,782 2,472
Loss (gain) on
disposal of business. -- -- -- (919)(1) (17,570)(2) (1,313)(3) 268
Other (income)
expense.............. -- -- (178)(4) 667(5) 372(6) 4,680(6) 5,903(6)
------- ------- ------- ------- -------- -------- --------
Earnings (loss) from
continuing operations
before income taxes.... (825) (673) (977) 2,169 10,627 (5,927) (5,278)
Provision (benefit) for
income taxes............ -- -- -- -- 11,424 (7,010) (637)
------- ------- ------- ------- -------- -------- --------
Earnings (loss) from
continuing operations... (825) (673) (977) 2,169 (797) 1,083 (4,641)
------- ------- ------- ------- -------- -------- --------
Discontinued
operations:(7)
Income (loss) from
operations of
discontinued
businesses, net of
taxes................ -- -- -- -- -- 1,245 (15,414)
Income (loss) on
disposal of
businesses, net of
taxes................ -- -- 595 134 (11,252) (6,011) (11,000)
------- ------- ------- ------- -------- -------- --------
Net income (loss) from
discontinued operations. -- -- 595 134 (11,252) (4,766) (26,414)
------- ------- ------- ------- -------- -------- --------
Cumulative effect of
accounting change....... -- -- -- -- -- -- 2,733(8)
------- ------- ------- ------- -------- -------- --------
Net earnings (loss)
before dividends........ (825) (673) (382) $ 2,303 $(12,049) $ (3,683) $(28,322)
======= ======= ======= ======= ======== ======== ========
Basic and diluted (loss)
per common share:
Continuing operations. $ (0.29) $ (0.26) $ (0.60) $ 0.15 $ (0.57) $ (0.11) $ (1.51)
Discontinued
operations........... -- -- 0.14 0.03 (2.74) (1.20) (6.45)
Cumulative effect of
accounting change.... -- -- -- -- -- -- 0.67
------- ------- ------- ------- -------- -------- --------
Net earnings (loss) per
common share............ $ (0.29) $ (0.26) $ (0.46) $ 0.18 $ (3.31) $ (1.31) $ (7.29)
======= ======= ======= ======= ======== ======== ========
Cash dividend per common
share................... -- -- -- -- $ -- $ -- $ 0.15
======= ======= ======= ======= ======== ======== ========
7
CONSOLIDATED BALANCE SHEET DATA:
MARCH 31, DECEMBER 31,
--------------- ----------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- --------
(UNAUDITED)
Total assets............ $36,623 $38,954 $34,248 $39,669 $43,703 $85,705 $123,229
Working capital......... $ 1,583 $ 2,843 $ 1,993 $ 3,375 $ 5,978 $ 5,627 $ 30,090
Long-term debt,
excluding current
portion................. $ 0 $ 159 $ 0 $ 255 $ 4,869 $12,504 $ 43,127
Stockholders' equity.... $23,011 $24,632 $23,830 $25,270 $24,416 $37,718 $ 40,561
- --------
(1) Reflects payments of $410,000 in settlement of a dispute related to the
cancellation of a supply and sales representative agreement, $535,000 in
settlement of disputes related to insurance coverage for the Company's
former vinyl and roofing businesses, and $123,000 in reimbursement of costs
associated with environmental remediation at the Company's former
distribution center in Arizona, offset by miscellaneous expenses of
$149,000 related to former business activities.
(2) Reflects a gain of approximately $20.6 million on the sale of substantially
all of the assets of the Company's vinyl business, offset by a loss of
approximately $2.0 million on the sale of the Company's interest in
Kensington Partners ("Kensington") and miscellaneous other charges more
fully described in the Notes to the Consolidated Financial Statements
included elsewhere herein.
(3) Reflects a gain of approximately $2.7 million on the sale of virtually all
of the Company's building materials distribution business offset by a loss
of approximately $1.3 million on the sale of the Company's interest in Mid-
South Building Supply, Inc.
(4) Consists of proceeds of life insurance owned by the Company.
(5) Primarily due to costs of $806,00 associated with the 1996 Merger
Agreement.
(6) In 1995 and 1994, reflects the Company's portion of the results of
operations of Kensington. In 1993, reflects the Company's portion of the
results of operations of Kensington of approximately $2.6 million and
approximately $3.3 million of certain non-recurring charges more fully
described in Note 7 to the Consolidated Financial Statements included
elsewhere herein.
(7) Discontinued operations related to the "off-site" and "on-site"
environmental remediation businesses.
(8) Reflects the cumulative effect of adoption of Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
8
THE SPECIAL MEETING
TIME, DATE AND PLACE OF THE SPECIAL MEETING
This Information Statement is being furnished to the holders of record on
the Record Date of Common Shares and Preference Shares in connection with the
Special Meeting to be held on , 1998 at 10:00 a.m., local time, at the
Company's office, located at 1077 Pleasant Avenue, Norwood, MA 02062. This
Information Statement is also being furnished to the holders of record on the
Record Date of 5% Stock, which are entitled to notice of, but not to vote at,
the Special Meeting.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of Common Shares and Preference Shares
will be entitled to consider and vote upon a proposal to approve the Merger
Agreement, including the consummation of the transactions contemplated
thereby. In addition, the holders of Common Shares will be entitled to
consider and vote upon such other business as may properly come before the
meeting.
VOTING AND RECORD DATE
Approval of the Merger
The Board has fixed the close of business on April 17, 1998 as the Record
Date for the determination of stockholders entitled to notice of and to vote
at the Special Meeting. Accordingly, only holders of record of Common Shares
and/or Preference Shares at the close of business on , 1998 are entitled
to vote at the Special Meeting on the approval of the Merger Agreement. As of
the Record Date, there were 4,161,376 Common Shares and 814,300 Preference
Shares issued and outstanding and entitled to vote on the approval of the
Merger Agreement.
Each holder of record of Common Shares and Preference Shares on the Record
Date is entitled to cast one vote per share, exercisable in person or by a
properly executed proxy, with respect to the approval and adoption of the
Merger Agreement. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding Shares entitled to vote is
necessary to constitute a quorum at the Special Meeting with respect to the
proposal to approve the Merger Agreement. Under the laws of the Commonwealth
of Massachusetts, the affirmative vote of the holders of at least 66 2/3% of
Common Shares issued and outstanding on the Record Date and the affirmative
vote of the holders of at least 66 2/3% of the Preference Shares issued and
outstanding on the Record Date, each voting as a separate class, are required
to approve the Merger Agreement. Acquisition Sub has sufficient voting power
to approve the Merger Agreement without the vote of any other stockholder of
the Company.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
The Board does not know of any matters, other than as described in the
Notice of Special Meeting attached to this Information Statement, which are to
come before the Special Meeting.
9
THE MERGER
THE COMPANY
As a result of the various sales of its assets and businesses within the
last five years, including its vinyl building products business, window
fabrication business and San Leon hydrocarbon waste recycling center, the
Company's current manufacturing operation consists of one primary business
unit--roofing manufacturing, sales, and marketing. Products currently
manufactured at the Company's roofing facility include asphalt shingles and
roll roofing for commercial and residential use. These products are marketed
through independent wholesalers, including wholesalers whose primary customers
are roofing contractors.
The principal executive office of the Company are located at 1077 Pleasant
Street, Norwood, Massachusetts 02062 and its telephone number is (781) 551-
0656.
CERTAINTEED AND ACQUISITION SUB
Acquisition Sub, a Massachusetts corporation and a wholly owned subsidiary
of CertainTeed, was organized to acquire the Company and has not conducted any
unrelated activities since its organization. All outstanding shares of capital
stock of Acquisition Sub are owned by CertainTeed. The principal office of
Acquisition Sub is located at the principal office of CertainTeed.
The principal business of CertainTeed is the manufacture of building
materials (roofing, vinyl siding, vinyl windows, ventilation products, vinyl
fence and railing, and piping products) and fiberglass products (insulation
and reinforcements). The principal office of CertainTeed, a Delaware
corporation and an indirect wholly owned subsidiary of Compagnie de Saint-
Gobain, a French corporation ("Saint-Gobain"), is located at 750 East
Swedesford Road, Valley Forge, Pennsylvania 19842 and its telephone number is
(610) 341-7000.
BACKGROUND AND REASONS FOR THE MERGER
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 it
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. This 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.
10
Despite these restructuring efforts, 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 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 Partners ("Kensington")
(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 expressions of
interest from potential purchasers to acquire the entire Company, the Combined
Vinyl Business, or the Company's roofing manufacturing business but received
only two formal offers, both of which were for the Vinyl 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 offers presented. The Board
decided to pursue only the offer presented by Jannock, Inc., because the Board
believed that a financing contingency included in the other offer made it too
uncertain.
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. The exercise price of this option was $2.8
million, subject to adjustments. These adjustments required the Company to
acquire all of the partnership interests in Kensington prior to selling the
partnership to Jannock. In June of 1995, Jannock exercised this option. The
Company paid approximately $1.4 million to acquire the minority partnership
interests in Kensington prior to the sale to Jannock.
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 (the "San Leon Facility"), had been
divested and that an effort to sell the Company's interest in the San Leon
Facility was
11
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. The Company did not receive any offer or
subsequent notices from the prospective purchaser, however.
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 Facility, 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 San Leon Facility 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 and 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 that it desired to acquire control
of the Company on the somewhat more accelerated timetable permitted by a cash
tender offer. The Board 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 outstanding Common Shares
at a price of $7.50 per share and all outstanding Preference Shares at a price
of $20 per share, plus all accrued and unpaid dividends through the date of
the expiration of the 1996 Tender Offer (approximately $1.85 per share as of
April 1996).
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.
12
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 in
December 1997. The Company decided not to pursue that proposal after reviewing
its terms and considering the December 1997 CertainTeed proposal, which
offered a higher purchase price.
In November 1997, Mr. Maloof spoke by telephone to the president of yet
another roofing manufacturer to discuss a possible combination. This
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 potential acquiror's amended proposal after reviewing its terms
and considering the December 1997 CertainTeed proposal (described in more
detail below), which offered a higher purchase price.
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. After preliminary examinations of
the Company, none of these other roofing manufacturers expressed interest in
presenting offers to acquire the Company.
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, Messrs. Mattson and Maloof discussed, 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
proposal confirming CertainTeed's interest in acquiring all the equity of the
Company for an aggregate purchase price of approximately $40 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, which included
an Offer price and Merger consideration of $5.50 per Common Share and $20 per
Preference Share, without any adjustment for any dividends accrued and unpaid
through the Expiration Date or the Effective Date. The resulting Merger
Agreement did not materially differ from the December 18, 1997 proposal. At a
meeting on January 12, 1998, the Board of the Company unanimously
13
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. Aside from the consideration to be paid by CertainTeed for acquisition
of the Company, this Merger Agreement did not materially differ from the 1996
Merger Agreement.
On February 16, 1998, Acquisition Sub accepted for payment pursuant to the
Offer approximately 96% of the Common Shares and approximately 95% of the
Preference Shares.
REASONS FOR THE BOARD'S APPROVAL OF THE MERGER AGREEMENT
In reaching its conclusions described above, the Board considered 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 Board recognized that performance of the Merger Agreement would
eliminate the possibility that the Company would receive an offer that was
more favorable to the Company and its stockholders. Nevertheless, given its
unsuccessful negotiations with interested parties in 1994, 1995, 1996, and
1997, it was deemed 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 terminate the Merger
Agreement prior to the completion of the Offer, notwithstanding the non-
solicitation provisions contained therein, upon the occurrence or non-
occurrence of certain events, 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 Brothers 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
Brothers in rendering the Opinion, is attached as Annex III 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.
(7) The Board considered that performance of the Merger Agreement would
limit the Company's access to public capital markets. However, given the
Company's current operating results, the Board did not consider such access
to be realistically useful to the Company or its stockholders.
14
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 Brothers.
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 Brothers.
OPINION OF LEHMAN BROTHERS
Lehman Brothers, as part of its services as financial advisor to the Company
in connection with the Offer and the Merger was asked to render an opinion to
the Board as to the fairness, from a financial point of view, to the Company's
stockholders of the consideration to be paid by CertainTeed in the Offer and
the Merger.
On January 12, 1998, Lehman Brothers delivered its oral opinion to the Board
(subsequently confirmed in writing as of such date) to the effect that as of
such date the consideration to be paid by CertainTeed in the Offer and the
Merger is fair to such stockholders from a financial point of view.
THE FULL TEXT OF THE OPINION IS ATTACHED AS ANNEX III TO THIS INFORMATION
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS MAY READ THE
OPINION FOR A DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING THE
OPINION. THE SUMMARY OF THE OPINION SET FORTH IN THIS INFORMATION STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
No limitations were imposed by the Company on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
the Opinion, except that Lehman Brothers was not authorized to solicit, and
did not solicit, any proposals from any third party with respect to a purchase
of all or a part of the Company's business. In arriving at the Opinion, Lehman
Brothers did not ascribe a specific value to the Company, but rather made its
determination as to the fairness, from a financial point of view, of the
consideration to be offered to the stockholders of the Company in the Offer
and the Merger on the basis of the financial and comparative analyses
described below. Lehman Brothers' Opinion is for the use and benefit of the
Board and was rendered to the Board in connection with its consideration of
the Offer and the Merger. Lehman Brothers' 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 offered to such stockholders in connection
with the Offer and the Merger. Lehman Brothers was not requested to opine as
to, and the Opinion does not address, (i) the Company's underlying business
decision to proceed with or effect the Offer and the Merger; or (ii) the
consideration to be received by any class of stockholder of the Company.
In arriving at the Opinion, Lehman Brothers reviewed and analyzed: (1) the
Merger Agreement and the specific terms of the Offer and the Merger; (2)
publicly available information concerning the Company that Lehman Brothers
believed to be relevant to its analysis; (3) financial and operating
information with respect to the business, operations and prospects of the
Company furnished to Lehman Brothers 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 Lehman Brothers deemed relevant; (5) a comparison of the
historical financial results and present financial condition of the Company
with those of other companies that Lehman Brothers deemed relevant; and (6) a
comparison of the financial terms of the Offer and the Merger with the
financial terms
15
of certain other transactions that Lehman Brothers deemed relevant. In
addition, Lehman Brothers 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. Lehman Brothers also 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
undertook such other studies, analyses and investigations as Lehman Brothers
deemed appropriate.
In arriving at the Opinion, Lehman Brothers has assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of management of the
Company that they were 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 Lehman Brothers assumed
that such projections were 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 relied upon such
projections in arriving at the Opinion. In arriving at the Opinion, Lehman
Brothers conducted only a limited physical inspection of the properties and
facilities of the Company and did not make or obtain any evaluations or
appraisals of the assets or liabilities of the Company. In addition, the
Company did not authorize Lehman Brothers to solicit, and Lehman Brothers did
not solicit, any proposals from any third party with respect to the purchase
of all or a part of the Company's business. The Opinion necessarily was based
upon market, economic and other conditions as they existed on, and could be
evaluated as of, the date of such opinion.
In connection with the preparation and delivery of the Opinion to the Board,
Lehman Brothers performed certain financial and comparative analyses as
described below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
and comparative analysis and the application of those methods to the
particular circumstances, and therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at the Opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying the Opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
the Company. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth herein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
Company Projections--Lehman Brothers received and relied upon financial
projections for 1998 prepared by the management of the Company ("Company
Projections"). The Company's revenue, earnings before interest and taxes
("EBIT") and net income (loss) for 1998 were estimated to be $47.2 million,
$2.2 million and ($0.7) million, respectively. Lehman Brothers was not
provided with and did not have access to projections for any period subsequent
to 1998.
THE FOREGOING PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE
OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS OR FORECASTS AND ARE INCLUDED HEREIN ONLY BECAUSE SUCH
INFORMATION WAS PROVIDED TO LEHMAN BROTHERS. THESE FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO SIGNIFICANT RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY PROJECTIONS. THE COMPANY
PROJECTIONS REFLECT NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE,
GENERAL BUSINESS, ECONOMIC, MARKET, AND FINANCIAL
16
CONDITIONS AND OTHER MATTERS, ALL OF WHICH ARE DIFFICULT TO PREDICT, AND MANY
OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE ASSUMPTIONS MADE IN PREPARING THE COMPANY PROJECTIONS WILL
PROVE ACCURATE, AND THE INCLUSION OF SUCH ESTIMATES HEREIN SHOULD NOT BE
REGARDED AS AN INDICATION THAT THE COMPANY OR ANY OTHER PERSON CONSIDERS SUCH
PROJECTIONS TO BE AN ACCURATE PREDICTION OF FUTURE EVENTS.
Discounted Cash Flow Analysis--Lehman Brothers prepared an after-tax cash
flow model that was based upon Company Projections, projections generated by
Lehman Brothers for 1999 through 2002 based upon extrapolation of Company
Projections (which assume 3% growth rate in revenues and 8.6% earnings before
interest, taxes, depreciation and amortization and non-recurring items
("EBITDA") margin), and discussions with management of the Company. Lehman
Brothers used discount rates of 11% to 13% and a terminal value based on: (1)
the perpetuity value of after-tax unlevered free cash flow assuming a growth
rate of 2.0% to 4.0% annually; and (2) range of multiples of 8.0x to 10.0x the
Company's projected fiscal 2002 EBITDA. The discount rates were based on
Lehman Brothers' analysis of the weighted average cost of capital for
comparable companies (which were deemed comparable because they conduct
business in the roofing and other building materials industries) selected by
Lehman Brothers. The consideration to be paid by CertainTeed in the Offer and
the Merger implied an enterprise value for the Company of $43.3 million. The
discounted cash flow analysis, using growth rates ranging from 2.0% to 4.0%,
indicated an estimated enterprise value of $14.5 million to $20.1 million; and
the discounted cash flow analysis using projected EBITDA multiples for fiscal
year 2002 ranging from 8.0x to 10.0x indicated an estimated enterprise value
of $27.1 million to $34.7 million.
Comparable Transactions Analysis--Lehman Brothers reviewed certain publicly
available information on selected transactions which took place from 1993 to
1997 involving target companies that it deemed comparable to the Company
because they conduct business in the roofing or other building materials
industries. The following transactions were included in Lehman Brothers'
analysis: Owens Corning/AmeriMark Building Products; Nortek/PlyGem Industries;
Owens Corning/Fibreboard Corporation; LTV Corporation/Varco Pruden (Division
of United Dominion); Investor Group/Synkoloid Co. & Beadex Manufacturing;
Investcorp/Falcon Building Products; James Hardie Industries/Briar Gypsum
Inc.; USG Corporation/GCG Inc.; Centex Construction Products/Eagle-Gypsum
Products; Fibreboard Corporation/Stone Products; Schuller Corporation/NRG
Barriers; GAF Corporation/U.S. Intec; Atlas Roofing/Georgia-Pacific
Corporation Roofing Business; Schuller Corporation/Owens Corning North
American Commercial and Industrial Roofing Business. For all of these
transactions, relevant publicly available multiples were analyzed, including
total purchase price (equity purchase price plus short and long-term debt, the
value of its preferred stock (market value if publicly traded, liquidation
value if not), and the book value of any minority interest minus its cash and
cash equivalents) divided by the acquired company's latest twelve months'
("LTM") EBITDA and LTM EBIT. The selected transactions provided median LTM
EBITDA and LTM EBIT multiples of 10.4x and 14.2x, respectively. Lehman
Brothers noted that applying the median LTM EBITDA and LTM EBIT multiples of
the comparable transactions analysis to the Company resulted in estimated
enterprise values for the Company of $47.8 million and $24.1 million,
respectively. Although the enterprise value generated by applying the median
LTM EBITDA multiple exceeded the aggregate consideration of the Merger, Lehman
Brothers did not attribute any particular weight to any factor or analysis
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor.
However, because the market conditions, rationale and circumstances
surrounding each of the transactions analyzed were specific to each
transaction and because of the inherent differences between the businesses,
operations, financial conditions and prospects of the Company and the acquired
businesses analyzed, Lehman Brothers believed that it was inappropriate to,
and therefore did not, rely solely on the quantitative results of the
analysis, and accordingly, also made qualitative judgments concerning
differences between the characteristics of these transactions and the Merger
that would affect the acquisition values of the Company and such acquired
companies. In particular, Lehman Brothers considered the size and desirability
of the markets served, the strategic fit involved in the transaction,
associated contingent liabilities, and the form of consideration.
17
Comparable Company Trading Analysis--Lehman Brothers reviewed the public
stock market trading multiples for selected companies that Lehman Brothers
deemed comparable to the Company because they conduct business in the roofing
or other building materials industries. The following companies were included
in Lehman Brothers' analysis: roofing companies including Elcor Corporation,
Johns Manville Corporation and Owens Corning; and other building materials
companies including ABT Building Products Corporation, Armstrong World
Industries, Carlisle Companies, Congoleum Corporation, Dayton Superior
Corporation, Jannock Limited, Justin Industries, Nortek, and USG Corporation.
Using publicly available information, Lehman Brothers calculated and analyzed
the enterprise value multiples of certain historical financial criteria (such
as EBITDA and EBIT). The enterprise value of each company was obtained by
adding its short and long-term debt to the sum of the market value of its
common equity, the value of its preferred stock (market value if publicly
traded, liquidation value if not) and the book value of any minority interest
minus its cash and cash equivalents. The LTM EBITDA and LTM EBIT median
multiples were determined to be 6.5x and 9.0x, respectively. Lehman Brothers
noted that applying the median LTM EBITDA and LTM EBIT multiples of the
comparable companies to the Company resulted in estimated enterprise values
for the Company of $29.9 million and $15.3 million, respectively. However,
this analysis excludes any transaction premium, cost savings, operating
synergies and strategic benefits directly related to the Offer and the Merger.
Lehman Brothers did not have access to, and the Company did not provide,
estimates of any such cost savings, operating synergies, and strategic
benefits.
However, because of the inherent differences between the businesses,
operations, financial conditions and prospects of the Company and the
businesses, operations, financial conditions and prospects of the companies
included in the comparable company group, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly, also made qualitative judgments
concerning differences between the financial and operating characteristics of
the Company and companies in the comparable company group that would affect
the public trading values of the Company and such comparable companies. In
particular, Lehman Brothers noted that all of the comparable companies were
larger and more geographically diversified than the Company.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in,
among other things, the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements, and valuations for corporate and other purposes. The Board
selected Lehman Brothers because of its expertise, reputation and familiarity
with the Company and because its investment banking professionals have
substantial experience in transactions comparable to the Offer and Merger.
Lehman Brothers received a fee of $250,000 for the delivery of the Opinion.
In addition, the Company has agreed to reimburse Lehman Brothers for certain
expenses incurred in connection with its services as financial advisor and to
indemnify Lehman Brothers for certain liabilities that may arise out of the
rendering of its opinion.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Stockholders should be aware that the executive officers and directors of
the Company have interests in the Merger that are in addition to or different
from the interests of stockholders of the Company generally. These interests
are discussed below.
Executive Severance Contract. Under the terms of a severance agreement
between the Company and Richard C. Maloof, the Company's President and Chief
Operating Officer, a "change in control" occurred upon Acquisition Sub's
acceptance for payment and payment for Shares in the Offer and Mr. Maloof
became entitled to a payment of $720,000, which was paid on February 20, 1998.
No further "change in control" will be deemed to have occurred upon the
consummation of the Merger.
Incentive Compensation Program. As a result of the completion of the Offer,
Mr. Maloof was paid a bonus of $135,000 and Frank S. Anthony, the Company's
Vice President and General Counsel, was paid a bonus of $50,000 pursuant to
the Company's 1998 MICP. No additional payment will be due to Mr. Maloof or
Mr. Anthony pursuant to the 1998 MICP as a result of the consummation of the
Merger.
18
Indemnification and Insurance. The Merger Agreement provides that
CertainTeed and Acquisition Sub have agreed that certain rights of
indemnification in existence as of the date of the Merger Agreement in favor
of the directors and officers of the Company and its subsidiaries (the
"Indemnified Parties") as currently provided in their respective certificates
or articles of incorporation or organization and the by-laws or any
agreements, contracts, or arrangements with the Company or any of its
subsidiaries in effect as of the date of the Merger Agreement shall survive
the Merger and shall continue in full force and effect for a period of five
years after 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 Company 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).
In addition, the Merger Agreement provides that CertainTeed shall use all
reasonable efforts to maintain in effect, or cause the Surviving Company 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. See "THE MERGER AGREEMENT--Indemnification and
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 Company with respect thereto, but the failure to so notify shall
not relieve CertainTeed or the Surviving Company of any liability it may have
to such Indemnified Party under the Merger Agreement except to the extent that
CertainTeed and the Surviving Company are materially prejudiced thereby; (b)
CertainTeed and the Surviving Company 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 Company 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
Company pursuant to the Merger Agreement.
Discussions with Certain Executive Officers. CertainTeed has had preliminary
discussions with Messrs. Maloof and Anthony regarding their continued
employment with the Surviving Company on terms which have yet to be decided,
but these discussions have not yet resulted in any written commitments by any
of the parties.
The Board was aware of the foregoing interests and considered them, among
other matters, in approving the Merger Agreement. Other than as described
above, the Board is not aware of any potential material conflicts of interest
management may have in relation to the Merger.
19
CERTAIN REGULATORY MATTERS
Under the provisions of the HSR Act applicable to the Offer, the acquisition
of Shares under the Offer could only be consummated following the expiration
of a 15-calendar day waiting period following the filing by Saint-Gobain of a
Notification and Report Form with respect to the Offer, unless Saint-Gobain
had received a request for additional information or documentary material from
the Antitrust Division or the FTC prior to the expiration of such period or
unless early termination of the waiting period was granted. Saint-Gobain made
such filing on January 15, 1998. The waiting period under the HSR Act
terminated on January 29, 1998. Therefore, the Company does not believe that
this or any other material regulatory approvals are required for consummation
of the Merger.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as Acquisition Sub's proposed
acquisition of the Company. At any time before or after Acquisition Sub's
acquisition of Shares pursuant to the Offer, the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking the divestiture of Shares acquired by Acquisition Sub
or the divestiture of substantial assets of the Company or its subsidiaries or
Saint-Gobain or its subsidiaries. Private parties may also bring legal action
under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the Offer or the Merger on antitrust grounds
will not be made or, if such a challenge is made, of the result thereof.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase of the Company by CertainTeed
in accordance with generally accepted accounting principles, whereby the
purchase price will be allocated based upon the fair values of the assets
acquired and the liabilities assumed by CertainTeed.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax consequences of
the Merger to stockholders of the Company. This summary does not purport to
discuss all income tax consequences of the Merger that may be relevant to
particular stockholders in light of their individual circumstances or to
certain types of stockholders subject to special treatment, such as life
insurance companies, tax-exempt organizations and financial institutions,
persons who are not citizens or residents of the United States or who are
foreign corporations, and stockholders who acquired stock through the exercise
of Company stock options or otherwise as compensation.
The receipt of cash in exchange for Shares pursuant to the Merger, or
pursuant to the exercise of dissenter's appraisal rights, will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"), and may also be a taxable transaction under
applicable state, local or foreign income or other tax laws. Generally, for
federal income tax purposes, a stockholder will recognize gain or loss equal
to the difference between the amount of cash received by the stockholder
pursuant to the Merger, or exercise of dissenter's appraisal rights, and the
aggregate tax basis in the Shares sold by the stockholder, or with respect to
which dissenter's rights are exercised, as the case may be. Gain or loss will
be calculated separately for each block of Shares tendered and purchased
pursuant to the Merger, or with respect to which dissenter's appraisal rights
are exercised, as the case may be.
If Shares are held by a stockholder as capital assets, gain or loss
recognized by the stockholder will be capital gain or loss, which will be
long-term capital gain or loss if the stockholder's holding period for the
Shares exceeds eighteen months. Under present law, long-term capital gains
recognized by an individual stockholder will generally be taxed at a maximum
federal marginal tax rate of 20%, and long-term capital gains recognized by a
corporate stockholder will be taxed at a maximum federal marginal tax rate of
35%. In addition, under present law the ability to use capital losses to
offset ordinary income is limited. Stockholders should consult their
20
tax advisors regarding the applicable rate of taxation and their ability to
use capital losses against ordinary income.
A stockholder that surrenders Shares pursuant to the Merger (or pursuant to
the exercise of dissenter's rights) may be subject to backup withholding
unless the stockholder provides its taxpayer identification number ("TIN") and
certifies that such number is correct or properly certifies that it is
awaiting a TIN, or unless an exemption applies. A stockholder that does not
furnish its TIN may be subject to a penalty imposed by the IRS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT CONSTITUTE TAX
ADVICE. STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICABILITY AND EFFECT OF
THE ALTERNATIVE MINIMUM TAX AND OF ANY STATE, LOCAL OR FOREIGN INCOME AND
OTHER TAX LAWS) OF THE MERGER.
EFFECT OF THE MERGER ON THE COMPANY'S STOCKHOLDERS
Consummation of the Merger is contingent upon, among other things, approval
of the Merger by the holders of Common Shares and Preference Shares. After the
Effective Date, the current holders of Common Shares and Preference Shares of
the Company (other than Acquisition Sub) will cease to be stockholders of the
Company. In addition, pursuant to the Merger Agreement, each share of 5% Stock
issued and outstanding at the Effective Date will be called for redemption and
retirement as soon as practicable following the Merger. Therefore, as a result
of the Merger (assuming the redemption of the 5% Stock as required by the
Merger Agreement), the entire equity interest in the Company will be owned by
CertainTeed and the Company's current stockholders will no longer have any
equity interest in the Company and will no longer share in future earnings and
growth of the Company, the risks associated with achieving any such earnings
and growth, or the potential to realize greater value for their shares of
stock through divestitures, strategic acquisitions or other corporate
opportunities that may be pursued by the Company in the future. Instead, each
current holder of the Company's Common Shares and Preference Shares (other
than Acquisition Sub) will have only the right to receive the Common Merger
Consideration or Preference Merger Consideration, as the case may be, or to
seek appraisal rights as described under "--Dissenting Stockholders' Rights"
below.
DISSENTING STOCKHOLDERS' RIGHTS
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the MBCL and is qualified in its entirety by
reference to the full text of Sections 85 through 98 of the MBCL setting forth
the rights of stockholders who object to the Merger. Dissenting stockholders
wishing to exercise such dissenters' rights or to preserve their rights to do
so should review the following discussion and the provisions of Sections 85
through 98 of the MBCL with counsel. A copy of the relevant sections of the
MBCL is attached to this Information Statement as Annex II. The failure of a
dissenting stockholder to comply in a timely and proper manner with the
procedures set forth in the MBCL will result in its loss of dissenters' rights
with respect to the Merger.
Sections 85 through 98 of the MBCL set forth the rights of stockholders of
the Company who object to the Merger. Any holder of Common Shares or
Preference Shares who does not vote in favor of the Merger (including any such
holder who abstains from voting) and who objects to the Merger, and any holder
of the 5% Stock who objects to the Merger, may, if the Merger is consummated,
obtain payment, in cash, for the fair market value of such holder's shares by
complying with the requirements of Sections 85 through 98 of the MBCL. Holders
of Common Shares and Preference Shares are not eligible to exercise their
dissenters' rights unless they are stockholders on the Record Date and have
not voted in favor of the Merger. Holders of the 5% Stock are not eligible to
exercise their dissenters' rights unless they are stockholders on the Record
Date. Except as provided in Section 96 of the MBCL, holders of 5% Stock who
exercise such rights will no longer have the rights of a holder of 5% Stock
and will not have the right to receive any dividend on the 5% Stock which is
paid on or after the date of the Special Meeting.
21
Before the taking of the vote on the Merger at the Special Meeting, each
dissenting stockholder must file with the Company a written objection to the
Merger stating that the stockholder intends to demand payment in respect of
the shares of any class held by it if the Merger is consummated. A written
objection must be filed with the Company by holders of Common Shares and
Preference Shares who wish to dissent even if they vote against the Merger.
Such written objections should be addressed to: Frank S. Anthony, Clerk, Bird
Corporation, 1077 Pleasant Street, Norwood, Massachusetts 02062.
Within ten days after the Effective Date, the Company must provide written
notice to each dissenting stockholder that the Merger has been consummated. To
exercise dissenters' rights, each dissenting stockholder must, no later than
20 days after the mailing of such notice that the Merger has been consummated,
mail a written demand for payment for such dissenting stockholder's shares.
Such written demands should be sent to: Bird Corporation, 1077 Pleasant
Street, Norwood, Massachusetts 02062, Attention: Clerk. Subject to the
following paragraph, within 30 days following the expiration of such 20-day
period, the Company must pay to each dissenting stockholder fair value for
such dissenting stockholder's shares.
In the event that the Company and any dissenting stockholder are unable to
agree as to fair value within such 30-day period, Section 90 of the MBCL
provides that a court proceeding may be commenced by the Company or the
dissenting stockholder by the filing of a bill in equity, within four months
after the expiration of such 30-day period, in the Superior Court for Norfolk
County, Commonwealth of Massachusetts, demanding a determination of the value
of the shares of all dissenting stockholders who have not agreed with the
Company as to the fair value of their shares.
All dissenting stockholders will be parties to any court proceeding which is
commenced either by the Company or by a dissenting stockholder. The relief
sought in either case is a decree determining the fair value of the stock of
all dissenting stockholders and ordering payment by the Company of that value
with interest from the date of the meeting at which the Merger is approved in
exchange for the transfer to the Company of the certificates representing the
stock held by the dissenting stockholders, if such stock is certificated, or,
if uncertificated, an instruction transferring such stock to the Company. Such
determination of value will be made as of the day preceding the date of the
meeting at which the Merger is approved, and will be exclusive of any element
of value arising from the expectation of consummation of the Merger.
A negative vote on the Merger does not constitute a "written objection" to
be filed by a dissenting stockholder. A dissenting stockholder's abstention
from voting on the Merger or failure to specify any vote on the accompanying
proxy will not constitute a waiver of such stockholder's rights under Sections
85 through 98 of the MBCL, provided that a written objection has been properly
filed. A vote in favor of the Merger will constitute a waiver of such
stockholder's dissenters' rights, however, even if a written objection has
been filed.
A dissenting stockholder's objections to the Merger or demand for payment
for its shares may be made by facsimile transmission, provided such facsimile
is confirmed by a written objection or demand, as the case may be, sent by
certified or registered mail to the address specified above within 24 hours
after transmission of the facsimile. Facsimile communications should be
addressed to: Bird Corporation, Attention: Clerk, and the appropriate
facsimile connection is to (781) 769-0434.
For a discussion of the Federal income tax consequences of receipt of
payment for shares upon exercise of dissenters' rights, see "THE MERGER--
Federal Income Tax Consequences."
22
THE MERGER AGREEMENT
The following is a summary of the terms and conditions of the Merger
Agreement. Any references to the Merger Agreement set forth below or included
elsewhere in this Information Statement are qualified in their entirety by
reference to the Merger Agreement (attached hereto as Annex I) which is
incorporated herein by reference. Terms which are not otherwise defined in
this summary shall have the meanings set forth in the Merger Agreement.
Stockholders are strongly advised to read the Merger Agreement in its entirety
prior to voting.
GENERAL
The Merger Agreement provides that following the satisfaction or waiver of
the conditions described below under "--Conditions to the Merger," Acquisition
Sub will be merged with and into the 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 by Acquisition Sub 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, without adjustment
for any dividends accrued and unpaid through the Effective Date per Preference
Share. All outstanding shares of the Company's 5% Stock will remain
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 through the date of redemption
and retirement.
EFFECTIVE DATE OF THE MERGER
The Effective Date will be such time as the articles of merger ("Articles of
Merger") are filed with the Secretary of State of the Commonwealth of
Massachusetts in accordance with the provisions of Section 78 of the MBCL. The
Articles of Merger will be filed with the Secretary of State of the
Commonwealth of Massachusetts on the Closing Date. The term "Closing Date"
means (i) as soon as practicable after the latest to occur of (a) the date on
which the shareholders of the Company shall have approved the Merger, or (b)
the date of satisfaction of all other conditions to the closing of the Merger
set forth in the Merger Agreement, the satisfaction of which is not waived; or
(ii) on such other date as CertainTeed, Acquisition Sub, and the Company may
mutually agree upon for the closing of the Merger.
EXCHANGE OF CERTIFICATES AND PAYMENT OF CASH MERGER CONSIDERATION
CertainTeed and the Company have selected ChaseMellon Shareholder Services
LLC to act as the Paying Agent for the purpose of exchanging certificates
theretofore representing Common Shares and Preference Shares. CertainTeed will
make available to the Paying Agent on a timely basis after the Effective Date
funds necessary to make the payments provided for in the Merger Agreement to
the holders of outstanding Common Shares and Preference Shares. The Paying
Agent will agree to hold such funds in trust for the benefit of the former
stockholders of the Company and deliver such funds in accordance with the
terms of the Merger Agreement and the terms of a paying agency agreement (the
"Paying Agency Agreement") to be entered into by and between the Paying Agent
and CertainTeed.
The Merger Agreement provides that prior to or at the Effective Date, the
Paying Agent will mail to each record holder of an outstanding certificate or
certificates which, immediately prior to the Effective Date, represented
Shares (the "Certificates"), a form letter of transmittal (which will specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Paying Agent) (the "Transmittal Letter") and instructions for use in effecting
the surrender of the Certificates for payment therefor. Upon surrender to the
Paying Agent of a Certificate, together with such Transmittal Letter duly
executed, the holder of such Certificate will be entitled to receive in
exchange for each Share represented by such Certificate, the Common Merger
Consideration or Preference Merger Consideration, as the case may be, and such
Certificate will be canceled upon receipt by the holder of such Certificate of
the Common Merger Consideration or Preference Merger Consideration, as the
case may be. No interest will be paid or accrued on the Common Merger
Consideration or Preference Merger Consideration payable upon the surrender of
such Certificates.
23
If payment is to be made to a person other than the person in whose name the
Certificate surrendered in exchange therefor is registered, it will be a
condition of payment of the Common Merger Consideration or Preference Merger
Consideration, as the case may be, that the Certificate so surrendered be
properly endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name of the record holder appears on such Certificate,
and is otherwise in proper form for transfer, and that the person requesting
such payment will pay any transfer or other taxes required by law as a result
of such payment to a person other than the record holder of the Certificate
surrendered, or will establish to CertainTeed's satisfaction that such tax has
been paid or is not applicable.
The consideration payable upon the surrender for exchange of Certificates in
accordance with the terms of the Merger Agreement will be deemed to have been
paid in full satisfaction of all rights pertaining to the Shares theretofore
represented by such Certificates, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Company of the
Shares which were outstanding immediately prior to the Effective Date.
The Merger Agreement further provides that after the Effective Date there
will be no further transfers on the stock transfer books of the Surviving
Company of Shares which are outstanding at the Effective Date. If, after the
Effective Date, Certificates are presented for transfer to the Paying Agent or
the Surviving Company, they will be canceled and exchanged for the Common
Merger Consideration or Preference Merger Consideration, as the case may be.
If any Certificates are not surrendered prior to seven years after the
Effective Date (or prior to such earlier date on which such cash payment would
otherwise escheat to or become the property of any governmental unit or
agency), the payment in respect of such Certificate will, to the extent
permitted by applicable law, become the property of the Surviving Company,
free and clear of all claims or interest of any person previously entitled
thereto.
DISSENTING STOCKHOLDERS' RIGHTS
The Merger Agreement provides that any issued and outstanding Common Shares,
Preference Shares, and 5% Stock held by any dissenting stockholder who has not
voted such shares in favor of the Merger (except with respect to the 5% Stock)
and who has properly exercised rights to demand payment of the fair value of
such shares in accordance with Section 85 through 98 of the MBCL ("Dissenting
Shares") will not, in the case of the Common Shares or the Preference Shares,
be converted into the Common Merger Consideration or the Preference Merger
Consideration, respectively, as contemplated by the Merger Agreement and will
not, in the case of the 5% Stock, be called for redemption and paid the 5%
Redemption Price as contemplated by the Merger Agreement, but instead the
holder thereof will be entitled only to obtain payment of the fair value of
such Common Shares, Preference Shares or 5% Stock, as the case may be, in
accordance with the provisions of Sections 85 through 98 of the MBCL. The
procedures for exercising rights of appraisal are set forth above under "THE
MERGER--Dissenting Stockholders' Rights." In addition, a copy of Sections 85
through 98, inclusive, of the MBCL is attached hereto as Annex II. If (i) a
dissenting stockholder fails to file, in accordance with Section 86 of the
MBCL, prior to the taking of the vote on the Merger at the Special Meeting, a
written objection to the Merger with a statement of his intention to demand
payment for his shares if the Merger is effected or, after filing such written
objection, votes in favor of the Merger or, after the Company mails notice
that the Merger has been effected, fails to give to the Company a written
demand for payment for his shares in accordance with Section 89 of the MBCL
or, with the written approval of the Company, delivers to the Company a
written withdrawal of such objection or otherwise fails to establish his
entitlement to appraisal rights as provided in Sections 85 through 98 of the
MBCL; or (ii) a court determines that such dissenting stockholder is not
entitled to receive payment for his or her shares or such dissenting
stockholder otherwise loses his or her appraisal rights, then in any of such
cases, each Common Share or Preference Share held of record by such dissenting
stockholder will automatically be converted into and represent only the right
to receive the Common Merger Consideration or the Preference Merger
Consideration, as the case may be, upon the surrender of the Certificate or
Certificates representing such Dissenting Shares and each share of 5% Stock
will remain outstanding and will be entitled only to receive the 5% Redemption
Price upon redemption of the 5% Stock in accordance with the Merger Agreement
and the terms of the 5% Stock.
24
The Company will give CertainTeed prompt notice of any demands received by
the Company for payment of the fair value of Dissenting Shares, and
CertainTeed will have the right to participate in all negotiations and
proceedings with respect to such demands. The Merger Agreement provides that
the Company shall not, except with the prior written consent of CertainTeed,
make any payment (except to the extent that any such payment is made pursuant
to a court order) with respect to, or settle or offer to settle, any such
demands.
CONDITIONS TO THE MERGER
Conditions to the Obligations of CertainTeed and Acquisition Sub. The
obligations of CertainTeed and Acquisition Sub under the Merger Agreement are
subject to the satisfaction, on or prior to the Closing Date, of the
condition, which may be waived by CertainTeed and Acquisition Sub except as
otherwise provided by law, that 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 shall be in effect, 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.
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, (i)(a) all corporate
action necessary by Acquisition Sub 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, Acquisition Sub 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; and (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 (ii) 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.
TERMINATION OF THE MERGER AGREEMENT. Notwithstanding approval of the Merger
Agreement and the transactions contemplated thereby by the stockholders of the
Company, the Merger Agreement may be terminated, and the Merger abandoned, at
any time prior to the Effective Date:
(A) by mutual consent of CertainTeed, Acquisition Sub and the Company;
(B) by CertainTeed or Acquisition Sub if any of the conditions to the
obligations of CertainTeed and Acquisition Sub to consummate the Merger
becomes impossible to fulfill and shall not have been waived or deemed
waived in accordance with the Merger Agreement; or
(C) by the Company if 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.
Notwithstanding any provisions to the contrary in the Merger Agreement, (i)
the sole remedy of CertainTeed or Acquisition Sub 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 Acquisition Sub of any representation or warranty set forth in
the Merger Agreement shall be the termination of the Merger
25
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").
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. Because,
pursuant to the Merger Agreement, Acquisition Sub's designees have been
appointed to the Board of the Company as provided in the Merger Agreement, the
affirmative vote of at least a majority of the Continuing Directors (as
defined below) will be required for the Company to agree to amend, waive
compliance with or terminate the Merger Agreement.
FEES AND EXPENSES. Except with respect to the circumstances described below,
the Merger Agreement provides that each of Acquisition Sub, 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.
DIRECTORS. Pursuant to the Merger Agreement, as a result of the consummation
of the Offer, Acquisition Sub is entitled to designate at least a majority of
the members of the Board of Directors of the Company. On February 17, 1998,
the Board accepted the resignations of Charles S. Bird, III, Herbert I.
Corkin, Loren R. Watts and R. Keith Long as directors. The remaining
directors, Frank S. Anthony, Antonio J. Lorusso, Jr. and Richard C. Maloof,
then appointed Acquisition Sub's designees (any director so designated by
Acquisition Sub, a "Designated Director"), George B. Amoss, Gianpaolo Caccini,
James E. Hilyard and Bradford C. Mattson, to fill the vacancies created by
such resignations. The Company, CertainTeed and Acquisition Sub are required
by the Merger Agreement to 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, Acquisition Sub 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,
Acquisition Sub or CertainTeed or their respective subsidiaries and (ii)
recommended to succeed such Continuing Director by at least a majority of the
then Continuing Directors.
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 Company's 1982 Stock Option Plan, the
Company's 1992 Option Plan or the Company's 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 Company's 1982 Option Stock Plan, the Company's 1992 Stock Option
Plan, and the Company's 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. The Company has informed Acquisition Sub that all options have been
so amended. Each Common Share issued by the Company but not yet vested
pursuant to the Company's 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.
26
The Company has informed Acquisition Sub 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.
INDEMNIFICATION AND INSURANCE. In the Merger Agreement, CertainTeed and
Acquisition Sub 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 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 Company 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 Company with respect thereto, but the failure to so notify shall
not relieve CertainTeed or the Surviving Company of any liability it may have
to such Indemnified Party under the Merger Agreement except to the extent that
CertainTeed and the Surviving Company are materially prejudiced thereby, (b)
CertainTeed and the Surviving Company 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 Company 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
Company pursuant to the Merger Agreement.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties. The Merger Agreement requires that
CertainTeed, Acquisition Sub and the Company shall each
27
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.
THE STOCKHOLDER AGREEMENT. Pursuant to a stockholder agreement executed
January 12, 1998, the directors (the "Selling Stockholders") of the Company
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 acquired after such
time, including upon the exercise of stock options. Pursuant to this
stockholder agreement, each of the Selling Stockholders tendered into the
Offer all Common Shares and Preference Shares owned by him.
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, the Vice President, General Counsel and Corporate Secretary of the
Company, regarding their continued employment with the Surviving Company on
terms which have yet to be decided, but these discussions have not yet
resulted in any written commitments by any of the parties.
Except for the Merger, none of Acquisition Sub, 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.
APPRAISAL RIGHTS. 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
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which is
applicable to certain "going private" transactions. Acquisition Sub does not
believe that Rule 13e-3 will be applicable to the Merger unless the Merger is
consummated after February 13, 1999, one year after the expiration 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.
DIVIDENDS AND DISTRIBUTIONS. 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 did not declare the February 15, 1998 dividend on the Preference
Shares or the March 1, 1998 dividend on the 5% Stock.
28
CERTAIN INFORMATION WITH RESPECT TO THE COMPANY'S STOCK
As a result of the completion of the Offer, the Company withdrew the Common
Shares and the Preference Shares from the Nasdaq Stock Market, effective at
the close of business on March 3, 1998. Prior to that time, the Common Shares
were quoted on the Nasdaq National Market under the symbol BIRD and the
Preference Shares, were quoted on the Nasdaq SmallCap Market under the symbol
BIRDP. There is currently no public market for the Common Shares or the
Preference Shares.
The following table sets forth, for the periods indicated, the range of high
and low last sale prices per Common Share.
LAST SALE
PRICES OF
COMMON SHARES
--------------
CALENDAR YEAR HIGH LOW
- ------------- --------------
$ $
1996
1st Quarter.................................................... 7 5/8 4 1/8
2nd Quarter.................................................... 7 1/2 3 1/4
3rd Quarter.................................................... 4 3/4 2 3/4
4th Quarter.................................................... 6 4 1/2
1997
1st Quarter.................................................... 6 5/16 5 3/16
2nd Quarter.................................................... 5 1/2 3 5/8
3rd Quarter.................................................... 5 1/8 3 1/2
4th Quarter.................................................... 4 3/4 3 23/32
1998
1st Quarter (through March 3, 1998)............................ 5 3/4 4
On January 12, 1998, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the last sale price of
the Common Shares on the Nasdaq National Market was $4 3/8 per share and there
were approximately 2,000 holders of record of Common Shares. On March 3, 1998,
the last trading day prior to the withdrawal of the Common Shares from the
Nasdaq Stock Market, there were 4,161,376 Common Shares outstanding, of which
the Acquisition Sub was the beneficial owner of 3,991,022.
The following table sets forth, for the periods indicated, the range of high
and low bid quotations for the Preference Shares.
CALENDAR YEAR HIGH BID LOW BID
- ------------- -------- -------
$ $
1996
1st Quarter.................................................. 20 1/2 16
2nd Quarter.................................................. 21 12 1/2
3rd Quarter.................................................. 14 12 3/4
4th Quarter.................................................. 16 1/2 13
1997
1st Quarter.................................................. 16 1/4 14 1/4
2nd Quarter.................................................. 16 1/4 16
3rd Quarter.................................................. 16 1/2 15 1/4
4th Quarter.................................................. 16 1/2 14
1998
1st Quarter (through March 3, 1998).......................... 21 14
29
On January 12, 1998, the last reported bid quotation of the Preference
Shares on the Nasdaq SmallCap Market was $14 per share, and there were
approximately 130 holders of record of Preference Shares. On March 3, 1998,
the last trading day prior to the withdrawal of the Preference Shares from the
Nasdaq SmallCap Market, there were 814,300 Preference Shares outstanding, of
which the Acquisition Sub was the beneficial owner of 772,735.
The Company did not pay cash dividends on the Common Shares in 1996 and 1997
and has not paid cash dividends on the Common Shares in 1998 through the date
of this Information Statement. Under the terms of the loan agreement between
the Company and Fleet National Bank, the Company has agreed that it will
refrain from paying cash dividends on the Common Shares without prior approval
from Fleet National Bank.
The Company is currently in arrears with respect to six dividend payments on
the Preference Shares. The aggregate amount of accrued and unpaid dividends on
the Preference Shares as of March 3, 1998 is $2.77 per share.
The Merger Agreement provides that the Company shall not declare and pay or
set aside for payment any accumulated dividends on the Common Shares, the 5%
Stock or the Preference Shares. Accordingly, the Company did not declare the
February 15, 1998 dividend on the Preference Shares or the March 1, 1998
dividend on the 5% Stock.
30
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain audited consolidated financial
information for the Company and its subsidiaries as of December 31, 1997,
1996, 1995, 1994 and 1993 and for the fiscal years then ended as well as
unaudited financial information for the three month periods ended March 31,
1998 and March 31, 1997.
Results for interim periods include all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for the fair
presentation of the results for such periods; however, they are not
necessarily indicative of results for the full year. This information should
be read in conjunction with the Company's consolidated financial statements
and the notes thereto included elsewhere herein.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ------ ------- ------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............... $7,360 $9,206 $43,132 $51,956 $ 54,180 $167,886 $187,745
Costs and expenses:
Cost of sales......... 6,583 8,456 38,366 43,840 48,007 136,878 151,664
Selling, general and
administrative
expenses............. 1,562 1,387 5,621 5,764 11,817 28,786 32,716
Interest expense...... 40 36 300 435 927 4,782 2,472
Loss (gain) on
disposal of
businesses........... -- -- -- (919)(1) (17,570)(2) (1,313)(3) 268
Other (income)
expense.............. -- -- (178)(4) 667 (5) 372 (6) 4,680 (6) 5,903(6)
------ ------ ------- ------- -------- -------- --------
Earnings (loss) from
continuing operations
before income taxes.... (825) (673) (977) 2,169 10,627 (5,927) (5,278)
Provision (benefit) for
income taxes............ -- -- -- -- 11,424 (7,010) (637)
------ ------ ------- ------- -------- -------- --------
Earnings (loss) from
continuing operations... (825) (673) (977) 2,169 (797) 1,083 (4,641)
------ ------ ------- ------- -------- -------- --------
Discontinued
operations:(7)
Income (loss) from
operations of
discontinued
businesses, net of
taxes................ -- -- -- -- -- 1,245 (15,414)
Income (loss) on
disposal of
businesses, net of
taxes................ -- -- 595 134 (11,252) (6,011) (11,000)
------ ------ ------- ------- -------- -------- --------
Net income (loss) from
discontinued operations. -- -- 595 134 (11,252) (4,766) (26,414)
------ ------ ------- ------- -------- -------- --------
Cumulative effect of
accounting change....... -- -- -- -- -- -- 2,733(8)
------ ------ ------- ------- -------- -------- --------
Net earnings (loss)
before dividends........ $ (825) (673) $ (382) $ 2,303 $(12,049) $ (3,683) $(28,322)
====== ====== ======= ======= ======== ======== ========
Basic and diluted
earnings (loss) per
common share:
Continuing operations. $(0.29) $(0.26) $ (0.60) $ 0.15 $ (0.57) $ (0.11) $ (1.51)
Discontinued
operations........... -- -- 0.14 0.03 (2.74) (1.20) (6.45)
Cumulative effect of
accounting change.... -- -- -- -- -- -- 0.67
------ ------ ------- ------- -------- -------- --------
Net earnings (loss) per
common share............ $(0.29) $(0.26) $ (0.46) $ 0.18 $ (3.31) $ (1.31) $ (7.29)
====== ====== ======= ======= ======== ======== ========
Cash dividend per common
share................... -- -- -- -- -- -- $ 0.15
====== ====== ======= ======= ======== ======== ========
31
CONSOLIDATED BALANCE SHEET DATA:
MARCH 31, DECEMBER 31,
--------------- ----------------------------------------
1998 1997 1997 1996 1995(1) 1994 1993
------- ------- ------- ------- ------- ------- --------
(UNAUDITED)
Total assets............ $36,623 $38,954 $34,248 $39,669 $43,703 $85,705 $123,229
Working capital......... $ 1,583 $ 2,843 $ 1,993 $ 3,375 $ 5,978 $ 5,627 $ 30,090
Long-term debt,
excluding current
portion................. $ 0 $ 159 $ 0 $ 255 $ 4,869 $12,504 $ 43,127
Stockholders' equity.... $23,011 $24,632 $23,830 $25,270 $24,416 $37,718 $ 40,561
- --------
(1) Reflects payments of $410,000 in settlement of a dispute related to the
cancellation of a supply and sales representative agreement, $535,000 in
settlement of disputes related to insurance coverage for the Company's
former vinyl and roofing businesses, and $123,000 in reimbursement of
costs associated with environmental remediation at the Company's former
distribution center in Arizona, offset by miscellaneous expenses of
$149,000 related to former business activities.
(2) Reflects a gain of approximately $20.6 million on the sale of
substantially all of the assets of the Company's vinyl business, offset by
a loss of approximately $2.0 million on the sale of the Company's interest
in Kensington Partners ("Kensington") and miscellaneous other charges more
fully described in the Notes to the Consolidated Financial Statements
included elsewhere herein.
(3) Reflects a gain of approximately $2.7 million on the sale of virtually all
of the Company's building materials distribution business offset by a loss
of approximately $1.3 million on the sale of the Company's interest in
Mid-South Building Supply, Inc.
(4) Consists of proceeds of life insurance owned by the Company.
(5) Primarily due to costs of $806,000 associated with the 1996 Merger
Agreement.
(6) In 1995 and 1994, reflects the Company's portion of the results of
operations of Kensington. In 1993, reflects the Company's portion of the
results of operations of Kensington of approximately $2.6 million and
approximately $3.3 million of certain non-recurring charges more fully
described in Note 8 to the Consolidated Financial Statements included
elsewhere herein.
(7) Discontinued operations relate to the "off-site" and "on-site"
environmental remediation businesses.
(8) Reflects the cumulative effect of adoption of Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACQUISITION BY CERTAINTEED
On February 16, 1998 Acquisition Sub, a wholly-owned subsidiary of
CertainTeed, an indirect wholly-owned subsidiary of Saint-Gobain, accepted for
payment pursuant to the Offer 3,991,022 Common Shares, or approximately 96% of
the Common Shares outstanding, and 772,735 Preference Shares, or approximately
95% of the Preference Shares outstanding, at a price of $5.50 per Common Share
and $20 per Preference Share without any adjustment for dividends accrued and
unpaid through the date of the expiration of the Offer on February 13, 1998.
As a result of the completion of the Offer, CertainTeed owns, through
Acquisition Sub, all but 170,354 shares of the outstanding Common Shares and
all but 41,565 of the outstanding Preference Shares. The Common Shares no
longer meet the continuing inclusion requirements for Nasdaq National Market
securities, and there is little or no market for either the Common Shares or
the Preference Shares. Accordingly, the Company withdrew from Nasdaq Stock
Market listing the Common Shares and the Preference Shares, effective at the
close of business on March 3, 1998.
The Offer was the first step in the acquisition of the Company by
CertainTeed contemplated by the Merger Agreement between the Company,
CertainTeed and Acquisition Sub. The second step in the transaction will be
the Merger, pursuant to which Acquisition Sub will be merged with and into the
Company, with the Company surviving the Merger as a wholly owned subsidiary of
CertainTeed. Upon the effectiveness of the Merger, each outstanding Common
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 Acquisition Sub or CertainTeed) will be converted into
the right to receive $5.50 in cash, and each Preference 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 Acquisition Sub or CertainTeed) will be converted into the right
to receive $20 in cash, which amount will not be adjusted for any dividends
accrued and unpaid through the date of the consummation of the Merger.
Outstanding options to acquire Common Shares with an exercise price of less
than $5.50 per share will be converted into the right to receive a cash
payment equal to the number of shares purchasable upon exercise of the option
multiplied by the difference between $5.50 and the exercise price. The
Company's outstanding 5% Stock will remain issued and outstanding upon the
effectiveness of the Merger and will be called for redemption and retirement
as soon as is practicable thereafter at a price equal to $110, plus all
accrued and unpaid dividends thereon as of the date of redemption and
retirement. The total consideration for CertainTeed's acquisition of the
Company is approximately $40 million, including payment for the Common Shares
and the Preference Shares pursuant to the Offer and Merger and for the 5%
Stock upon redemption, but excluding outstanding indebtedness of the Company.
The closing of the Merger is anticipated during the second quarter of 1998,
following distribution of this Information Statement to the Company's
stockholders and approval of the Merger Agreement at a special meeting of
stockholders. The consummation of the Merger is subject to approval of the
Merger Agreement by at least 66 2/3% of the outstanding Common Shares and at
least 66 2/3% of the outstanding Preference Shares. As a result of the
completion of the Offer, Acquisition Sub has sufficient voting power to effect
the Merger without the vote of any other stockholder of the Company.
FINANCIAL CONDITION
As of March 31, 1998, the Company had cash and cash equivalents on hand
totaling $195,000 and total debt of approximately $4.3 million. Letters of
credit outstanding as of March 31, 1998 totaled $805,000. The Company's
external financing needs prior to the change of control on February 16, 1998,
resulting from completion of the Tender Offer (the "Change in Control"), were
augmented by the ability of the Company's wholly owned subsidiary, Bird
Incorporated, to borrow under a three year $15,000,000 Revolving Credit and
33
Security Agreement (the "Credit Agreement") dated July 8, 1997 between Bird
Incorporated and Fleet National Bank ("Fleet"). The terms of the Credit
Agreement required repayment of Bird Incorporated's indebtedness to Fleet as a
result of the Change of Control. On February 18, 1998, the Company repaid all
of Bird Incorporated's indebtedness to Fleet with the exception of outstanding
letters of credit aggregating $805,000. Fleet will maintain its security
interest in the assets of the Company until these letters of credit are
terminated, which is expected to occur during the second quarter of 1998.
After February 16, 1998, the Company's financing needs have been satisfied
under the terms of a note dated February 17, 1998 between Bird Incorporated
and its indirect parent, CertainTeed. This note allows for borrowings from
time to time at prevailing interest rates; indebtedness under this note is
payable on demand.
Net cash and cash equivalents decreased during the three month period ended
March 31, 1998 by approximately $589,000. Net cash and cash equivalents
decreased during fiscal 1997 by approximately $1.5 million primarily due to
working capital needs. Net cash and cash equivalents decreased during fiscal
year 1996 by approximately $1.4 million primarily due to repayments of debt.
The cash used by operations for the quarter ended March 31, 1998 increased
by $1,823,000 from $882,000 to $2,705,000 as compared to the same period in
1997. Cash used by operations during the first quarter of 1998 was
attributable to a net loss of approximately $825,000 and several changes in
the balance sheet, such as an increase of $1,257,000 in trade accounts
receivable and an increase of $2,370,000 relating to inventories, offset by an
increase of $890,000 in liabilities not related to financing activities.
During fiscal year 1997, the Company generated cash of $1.6 million from
operating activities, including $2.8 million from depreciation and
amortization and $1.6 million from decreased accounts receivable, primarily
offset by $2.5 million in increased liabilities unrelated to financing
activities.
The Company used $194,000 in investing activities for the period ended March
31, 1998, as compared to $447,000 of net cash used for capital expenditures
during the same period in the prior year. During the first quarter of 1998,
net cash provided by financing activities changed by approximately $3.2
million from the same period in the prior year. Cash provided by financing
activities during the first quarter of 1998 was primarily due to approximately
$2.3 million of net borrowings, as compared to the first quarter of 1997 when
the Company had repayments of debt of $586,000 and $384,000 of dividend
payments. The net cash used by financing activities in fiscal year 1997
changed approximately $2.7 million from the prior year. Cash used by financing
activities during fiscal year 1997 was primarily due to $447,000 of net debt
repayments and approximately $1.5 million of dividend payments as compared to
fiscal year 1996 when the Company had net debt repayments of approximately
$3.6 million and approximately $1.2 million of dividend payments.
The Company is dependent upon computer systems for certain phases of its
operations, including financial accounting and production. Since some of the
Company's computer software programs and hardware recognize only the last two
digits of the year in any date ("97" for 1997), some programs may fail to
operate properly in 1999 or 2000 if the software or hardware is not
reprogrammed or replaced. The Company intends to spend approximately $65,000
over the next two years to upgrade its computer systems to address the
problem. The Company believes that the cost of fixing the "Year 2000 Problem"
will not have a material effect on the Company's current financial condition
or results of operations.
RESULTS OF OPERATIONS
The Company's future prospects and sales are tied solely to one line of
business (roofing manufacturing) which is dependent upon the economy in the
northeastern United States. The Company produces all of its output at a single
plant and relies on one major supplier for glass mat, a critical raw material.
Nevertheless, the Company believes it has significant competitive advantages
in this business. These advantages stem from, and are expected to continue in
light of the Company's leading market share, its low cost production abilities
resulting from a state-of-the-art plant, its internal supply of granules from
its own quarry and granule plant and its asphalt oxidizing plant.
34
First Quarter 1998 Compared With First Quarter 1997
Net sales decreased $1,846,000 or 20.1% for the first quarter of 1998
compared to the same quarter in the prior year. Mild weather conditions in the
northeastern region of the United States during the fourth quarter of 1997
unfavorably affected first quarter 1998 sales volume.
The Company's cost of sales from continuing operations for the first quarter
of 1998 compared to the same period in the prior year decreased 22.1% from
$8,456,000 to $6,583,000 primarily due to decreased sales volume. For the
three month period ending March 31, 1998, cost of sales as a percentage of
sales decreased 2.5% from 91.9% to 89.4% as compared to the same period in the
prior year.
Selling, general and administrative ("SG&A") expenses for the three months
ended March 31, 1998 increased $175,000 or 12.6% from $1,387,000 to $1,562,000
for the same period in the prior year. As a percentage of sales, SG&A expenses
increased 6.1% from 15.1% for the three months ended March 31, 1997 to 21.2%
for the same period in the current year as a result of expenses related to the
Company's acquisition by CertainTeed.
Interest expense increased approximately 11.1% from $36,000 to $40,000 for
the first quarter of 1998 compared to the first quarter of 1997.
No tax benefit was recorded for the periods ended March 31, 1998 and March
31, 1997, as there was no reasonable assurance that related deferred tax
assets would be realized in future taxable years.
The roofing business is seasonal to the extent that activity in the outside
repair and remodeling business and in new construction declines in certain
areas of the country during the winter months. Accordingly, the results of
operations for the three month period ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
1997 Compared With 1996
Losses from continuing operations before income taxes in 1997 were $977,000
compared to earnings of $2,169,000 in 1996. Net sales decreased 17% from
$51,956,000 to $43,132,000 as compared to fiscal 1996. Mild weather conditions
in the northeastern region of the United States during 1997 unfavorably
affected sales volume, as inclement weather typically damages roofing
materials and shingles, thus generating demand for the Company's products.
Competitive pricing pressure also had an adverse effect on sales.
The Company's cost of sales in 1997 compared to 1996 decreased 12.5% from
$43,840,000 to $38,366,000. Such decrease was primarily attributable to lower
sales volume. Cost of sales as percentage of sales was 89% in fiscal 1997
compared to 84.4% in fiscal 1996. The fluctuations related primarily to volume
variances and pricing pressure.
SG&A expenses for fiscal 1997 decreased 2.5% from $5,764,000 to $5,621,000.
SG&A expenses as a percentage of sales increased approximately 2% from year to
year, primarily by the result of lower sales volume in 1997.
Interest expense for fiscal 1997 compared to fiscal 1996 decreased
approximately 31% from $435,000 to $300,000. The decreased interest expense is
attributable to the reduction of debt and lower interest rates.
1996 Compared With 1995
Earnings from continuing operations before income taxes in 1996 were
$2,169,000 compared to earnings of $10,627,000 in 1995. Net sales decreased
4.1% from $54,180,000 to $51,956,000 as compared to 1995, a consequence of the
sale of the Company's window fabrication and vinyl products business units
which had aggregate sales of $10,575,000.
35
Cost of sales in 1996 as compared to 1995 decreased 8.7% from $48,007,000 to
$43,840,000, primarily the result of the sale of the Company's window
fabrication and vinyl products business units. Cost of sales, stated as a
percentage of net sales, was 84.4% in fiscal 1996 as compared to 88.6% in
fiscal 1995. Improvements in manufacturing efficiency contributed to the
percentage decrease.
SG&A expenses for fiscal 1996 decreased 51.2% from $11,817,000 to
$5,764,000. SG&A expenses, as stated as a percentage of sales, decreased
approximately 11% from year to year. The decrease was attributable to the sale
of the Company's window fabrication and vinyl products business units,
reduction in corporate staffing and operating expenses and reduction in
roofing plant expenses.
Other expenses in 1996 were primarily due to $806,000 of costs associated
with a terminated merger agreement.
Interest expense in 1996 decreased approximately 53% or $492,000 as compared
to 1995. The decrease reflects a reduction of debt with a portion of the
proceeds from the sale of the Company's vinyl products and window fabrication
business units.
INFLATION
The Company is continually seeking ways to deal with raw material cost
increases by productivity improvements and cost reduction programs. In recent
years, the Company has not always been able to pass on increased raw material
costs to customers by increasing selling prices because of intense competitive
pressures. The Company has an ongoing program of updating productive capacity
to take advantage of improved technology, and although the cumulative impact
of inflation has resulted in higher costs for replacement of plant and
equipment, these costs have been offset, in part, by productivity savings.
ENVIRONMENTAL MATTERS
The Company monitors its compliance with environmental regulations on an
ongoing basis. The Company's general counsel receives environmental site
assessments from the operating managers responsible for site environmental
compliance. Appropriate action is undertaken where needed. When environmental
claims are asserted against the Company, the claims are evaluated by the
Company's general counsel and operating
management in conjunction with external legal counsel and environmental
engineers as necessary, and action is taken with respect to all known sites,
as appropriate. The Company is currently engaged in proceedings relating to or
has received notice of the following environmental matters:
On June 21, 1994, the Arizona Department of Environmental Quality ("ADEQ")
issued a notice of violation ("NV") to Southwest Roofing Supply, a previously
owned division of the Company ("Southwest"), which directed Southwest to
conduct a site investigation of property formerly leased by Southwest. A
consent order between the ADEQ and the Company was issued on September 23,
1994. Pursuant to the order, the Company agreed to submit a work plan with a
view to remediating the soil and groundwater that may have been contaminated
by leaks from an underground storage tank previously removed by the Company.
On December 23, 1996, the consent order was closed between the ADEQ and the
Company; however, the remediation work must still be completed. The Company's
management believes that the net remediation cost to the Company will be
approximately $150,000 after anticipated reimbursement from the Arizona State
Assurance Fund as described below. As of December 31, 1997, the Company had a
reserve of $150,000 for the estimated cost of clean-up. The Company believes
that $250,000 will be reimbursed to the Company from the Arizona State
Assurance Fund administered by the ADEQ in accordance with Arizona law and
regulation.
In 1986, the Company, along with numerous other companies, was named by the
EPA and other governmental agencies responsible for regulation of the
environment as a Potentially Responsible Person ("PRP") pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA") in connection with
hazardous substances at a site known as the
36
Fulton Terminal Superfund site located in Fulton, Oswego County, New York. On
September 28, 1990, the Company and a number of other PRPs reached a
negotiated settlement with the EPA pursuant to which the settling PRPs agreed
to pay the costs of certain expenses in connection with the proceedings and to
pay certain other expenses, including the costs and expenses of administering
a trust fund to be established by the settling PRPs. The settlement agreement
is embodied in a consent decree filed with the United States District Court
for the Western District of New York and fixed the Company's proportionate
share of the total expenses. The soil has been cleaned up and the groundwater
is now being treated. The remaining cost to the Company of the remedial work
and other expenses covered by the settlement agreement is estimated to be
approximately $200,000 payable over the next three years. Under a cost-sharing
arrangement set forth in a consent decree with the EPA, the other PRPs have
agreed to incur 83% of the aggregate cost of remediation of this site. At
December 31, 1997, the Company had a reserve of $200,000 to cover the
estimated cost of the Company's remaining proportionate share (i.e., 17%) of
the cost to clean up the groundwater. Based on information currently available
to the Company, management believes that it is probable that the major
responsible parties will fully pay the cost apportioned to them. Management
believes that, based on its financial position and the estimated accrual
recorded, the remediation expense with respect to this site is not likely to
have a material adverse effect on the consolidated financial position or
results of operations of the Company.
The Company has owned and operated a sanitary landfill since the late 1960's
used exclusively by the Company's roofing plant for the disposal of its own
manufacturing process waste, primarily asphalt roofing materials. No hazardous
or other specially regulated wastes have been disposed of at this site. As a
result of a 1995 regulatory decision by the Massachusetts Department of
Environmental Protection ("D.E.P.") to disallow the continued operation of all
unlined landfills, the Company chose not to seek to renew its operating permit
at the state or local level which expired at the end of August 1997. To
continue to operate the landfill would be of no financial benefit over the
existing outside disposal alternatives, given the new regulatory requirements
and the minimal quantities of waste being disposed of presently. Therefore, as
a result of this decision, the Company has begun negotiating a landfill
closure plan with the D.E.P. which may commence construction in 1998 and be
completed in 1999. As of December 31, 1997, the Company had a reserve of
approximately $800,000 to cover the estimated cost to close the landfill.
Management believes that the closure expense with respect to this site will
not have a material adverse effect on the results of operations or financial
condition of the Company.
The Company has been named as a PRP with respect to certain other sites
which are being investigated by federal or state agencies responsible for
regulation of the environment. As a consequence of its status as a PRP,
the Company may be jointly and severally liable for all of the potential
monetary sanctions and remediation costs applicable to each site. In assessing
the potential liability of the Company at each site, management has
considered, among other things, the aggregate potential clean-up costs of each
site; the apparent involvement of the Company at each site and its prospective
share of the remediation costs attributable thereto; the number of PRPs
identified with respect to each site and their financial ability to contribute
their proportionate shares of the remediation costs for such site; the
availability of insurance coverage for the Company's involvement at each site
and the likelihood that such coverage may be contested; and whether and to
what extent potential sources of contribution from other PRPs or
indemnification by insurance companies constitute reliable sources of recovery
for the Company. Similar consideration has been given in determining the
exposure and potential liability of the Company in connection with other
significant legal proceedings to which the Company is a party. On the basis of
such consideration, management has determined that such environmental matters
will not have a material adverse effect on the Company's financial position or
results of operations.
Since 1981 Bird Incorporated has been named as a defendant in approximately
650 product liability cases throughout the United States by persons claiming
to have suffered asbestos-related diseases as a result of alleged exposure to
asbestos used in products manufactured and sold by Bird Incorporated.
Approximately 150 of these cases are currently pending and costs of
approximately $2 million in the aggregate have been incurred in the defense of
these claims since 1981. Employers Insurance of Wausau ("Wausau") has accepted
the defense of these cases under an agreement for sharing of the costs of
defense, settlements and judgments, if any. At December 31, 1997, the Company
has a reserve of $950,000 to cover the estimated cost of these claims. In
light
37
of the nature and merits of the claims alleged, in the opinion of management,
the resolution of these remaining claims will not have a material adverse
effect on the results of operations or financial condition of the Company.
INSURANCE AND PRODUCT LIABILITY CLAIMS
On April 16, 1996, a class action suit was filed in the Superior Court of
the Commonwealth of Massachusetts against Bird Incorporated, a wholly owned
subsidiary of the Company. The complaint alleges that Bird Incorporated has
knowingly manufactured, distributed and falsely advertised defectively
designed fiber glass based roofing shingles. The complaint sets forth claims
of fraud, negligent misrepresentation, negligence and breach of express and
implied warranty. The Company is currently in the process of defending against
the complaint. The Company has tendered the defense of the action to several
of its insurance carriers, which assumed its defense with reservation of
rights. In the opinion of management, the above matter will not have a
material adverse effect on the Company's financial position or results of
operations.
On June 1, 1993, Wausau commenced an action in the Superior Court for
Norfolk County, Massachusetts, against Bird Incorporated seeking a declaratory
judgment that certain built-up roofing and fiber glass based shingle claims
made against Bird Incorporated were not covered by liability insurance
policies issued by Wausau. Bird Incorporated asserts that the claims are
covered and has answered the complaint. A trial is expected in 1999. In the
opinion of management, the above matter will not have a material adverse
effect on the Company's financial position or results of operations.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business. In the opinion
of management, the resolution of such claims will not have a material adverse
effect on the Company's financial position or results of operations.
The Company is a defendant in a number of suits alleging product defects,
the outcome of which management believes will not in the aggregate have a
material impact on the Company's financial position or results of operations.
LEGAL MATTERS
In 1992, a subsidiary of the company, Bird Atlantic Corporation ("BAC"),
formerly Atlantic Building Products Corporation, commenced an action against a
former vendor, alleging violation of an exclusive
distributorship without adequate and fair compensation to BAC. A jury trial
was held in November 1995 in the Superior Court of Plymouth County,
Massachusetts. The jury found in favor of BAC and judgment was entered on
January 26, 1996 in the principal amount of approximately $1.8 million. The
award, with interest accruing at 12% per annum, is expected to be in excess of
$3 million and will not be reported as income until collected. Both defendant
and BAC have appealed the judgment.
38
ADDITIONAL INFORMATION ABOUT THE COMPANY
The Company is engaged in the manufacture, sale and marketing of roofing
products. Products currently manufactured at the Company's roofing facility
include asphalt shingles and roll roofing for commercial and residential use.
These products are marketed through independent wholesalers, including
wholesalers whose primary customers are roofing contractors.
SIGNIFICANT BUSINESS DEVELOPMENT
On February 16, 1998 Acquisition Sub, a wholly owned subsidiary of
CertainTeed, an indirect wholly-owned subsidiary of Saint-Gobain, accepted for
payment pursuant to the Offer 3,991,022 Common Shares, or approximately 96% of
the Common Shares outstanding, and 772,735 Preference Shares, or approximately
95% of the Preference Shares outstanding, at a price of $5.50 per Common Share
and $20 per Preference Share without any adjustment for dividends accrued and
unpaid through the date of the expiration of the Offer, on February 13, 1998.
As a result of the completion of the Offer, CertainTeed owns, through
Acquisition Sub, all but 170,354 shares of the outstanding Common Shares and
all but 41,565 shares of the outstanding Preference Shares. The Common Shares
no longer meet the continuing inclusion requirements for Nasdaq National
Market securities, and there is little or no market for either the Common
Shares or the Preference Shares. Accordingly, the Company withdrew from Nasdaq
Stock Market listing the Common Shares and the Preference Shares, effective at
the close of business on March 3, 1998.
The Offer was the first step in the acquisition of the Company by
CertainTeed contemplated by the Merger Agreement among the Company,
CertainTeed, and Acquisition Sub. The second step in the transaction will be
the Merger, pursuant to which Acquisition Sub will be merged with and into the
Company, with the Company surviving the Merger as a wholly owned subsidiary of
CertainTeed. Upon the effectiveness of the Merger, each outstanding Common
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 Acquisition Sub or CertainTeed) will be converted into
the right to receive $5.50 in cash, and each Preference 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 Acquisition Sub or CertainTeed) will be converted into the right
to receive $20 in cash, which amount will not be adjusted for any dividends
accrued and unpaid through the date of the consummation of the Merger.
Outstanding options to acquire Common Shares with an exercise price of less
than $5.50 per share will be converted into the right to receive a cash
payment equal to the number of shares purchasable upon exercise of the option
multiplied by the difference between $5.50 and the exercise price. The
Company's outstanding 5% Stock will remain issued and outstanding upon the
effectiveness of the Merger and will be called for redemption and retirement
as soon as is practicable thereafter at a price equal to $110, plus all
accrued and unpaid dividends thereon through the date of redemption and
retirement. The total consideration for CertainTeed's acquisition of the
Company is approximately $40 million, including payment for the Common Shares
and the Preference Shares pursuant to the Offer and Merger and for the 5%
Stock upon redemption, but excluding outstanding indebtedness of the Company.
The closing of the Merger is anticipated during the second quarter of 1998,
following distribution of this Information Statement to the Company's
stockholders and approval of the Merger Agreement at a special meeting of
stockholders. The consummation of the Merger is subject to approval of the
Merger Agreement by at least 66 2/3% of the outstanding Common Shares and at
least 66 2/3% of the outstanding Preference Shares. As a result of the
completion of the Offer, Acquisition Sub has sufficient voting power to effect
the Merger without the vote of any other stockholder of the Company.
HOUSING GROUP
Asphalt roofing products are manufactured and sold at the Company's
facilities in Norwood, Massachusetts. Asphalt shingles and roll roofing are
produced by coating a fiberglass mat with a mixture of hot asphalt and
39
crushed rock (commonly called filler) and covering the coated mat with
Company-manufactured roofing granules. The Company's facilities include a
roofing manufacturing facility, a granule plant, a quarry, an asphalt plant
and a closed private landfill that was for the Company's use only.
The Company's Housing Group produced vinyl siding products at its plant in
Bardstown, Kentucky prior to the sale of such facility in March 1995.
Additionally, the Company sold its interest in Kensington, its joint venture
in the replacement window fabrication business in June 1995.
Net sales of the components of the Housing Group as a percentage of
consolidated net sales of the Company were as follows: sales of asphalt
roofing products, 100% in 1997, 100% in 1996 and 80% in 1995; sales of vinyl
products, 20% in 1995. One customer accounted for slightly more than 15% of
the Company's sales during 1997 and 1996 and 10% during 1995.
The principal geographic markets for the Company's manufactured roofing
products, due to limitations imposed by freight costs, are the northeastern
United States. The building materials business is seasonal to the extent that
outside repair and remodeling and new construction decline during the winter
months. To reduce the impact of this seasonal factor, the Company generally
employs what it believes to be an industry-wide practice of "winter dating",
pursuant to which extended or discounted payment terms are offered to
creditworthy customers who order and accept delivery of roofing products
during specified periods of time in the slow season.
Raw Materials
The principal raw materials used in the manufacture of asphalt roofing
products are fiberglass mat, asphalt saturants and coatings and crushed
granules. The Company's requirements for fiberglass mat are met primarily with
one vendor under an agreement which expires December 31, 1999 with an option
to extend for an additional two years. Fiberglass mat is also generally
available in adequate quantities from a number of outside suppliers. Asphalt
saturants and coatings were, until early 1995, purchased from a major oil
refinery. These materials are also available from other sources at a higher
delivered cost. Since completion of construction of an asphalt plant in
January 1995, the Company has been able to process asphalt at its roofing
facility, thereby reducing its costs and decreasing the potential for
temporary interruptions in its manufacturing operations. The Company can
produce all of its current granule requirements at its granule plant.
Backlog
Order backlog is not a meaningful measure of the Company's building
materials business because there are fewer sales during the last quarter of
the fiscal year and the order-to-shipment cycle is relatively short.
Additionally, it is very rare, at any time, to require more than 30 days from
the receipt of a product order to delivery of the product.
Competition
The building materials business is, to a large degree, a commodities-type
business and is highly competitive with respect to price, delivery terms and
consistent product quality. Many of the Company's competitors are larger and
financially stronger than the Company, but none is dominant in any of its
markets.
The strengths of the Company's asphalt roofing business arise, in part, from
the unique marketing programs the Company directs toward its indirect customer
base, professional roofing contractors, combined with an industry-wide
reputation for providing quality products with a high level of service. The
Company's comprehensive contractor marketing program is designed to support
the position of the Company's contractors in the industry. Such marketing
programs include a special system for in-home sales promotions. Pursuant to
its exclusive certification program, the Company also certifies contractors
who have recorded three (3) successful years in business, who provide the
Company with names of customers for quality checks, sign a letter of ethics,
40
have a good credit history, warrant their workmanship for two years and attend
annual training meetings. Contractors must be recertified every three years.
Certified contractors are supplied with a wide array of marketing materials,
including customized sample cases, special mailers and custom job site signs.
Intellectual Property
The Company owns a number of trademarks, as well as significant technology
and know-how, which it utilizes in connection with its asphalt roofing
business. The Company believes that its trademarks are strong and well
recognized in the industry.
COMPLIANCE WITH CERTAIN ENVIRONMENTAL LAWS
The Company has expended, and expects to continue to expend, funds to comply
with federal, state and local provisions and orders which relate to the
environment. Based on the information available to the Company at this time,
the Company believes that the effect of compliance with these provisions on
the capital expenditures, earnings and competitive position of the Company
will not be material. Proceedings involving environmental matters are
described under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Environmental Matters."
EMPLOYEES
On December 31, 1997, the Company employed 160 people.
PROPERTIES
The Company's executive offices are located at its plant in Norwood,
Massachusetts. The Company believes that its plant and facilities, as
described below, are suitable and adequate for its current and anticipated
business. Operating capacity can be increased by additional man hours,
changing product mix, and/or minimal capital investment should the need arise.
The Company's facilities are well maintained, in sound operating condition,
and in regular use.
Roofing Manufacturing Facility
The Company owns its asphalt roofing manufacturing facility in Norwood,
Massachusetts. The Norwood plant includes the roofing manufacturing facility,
a granule plant and an asphalt plant. The Company's quarry is located in
Wrentham, Massachusetts, and its closed private landfill is located in
Walpole, Massachusetts. The Company leases an industrial laminator and certain
other equipment which were fabricated for use in its roofing plant. The
laminator lease expires in 1998. The Company completed the construction of an
asphalt oxidizer plant at the Norwood premises in January 1995 to ensure a
continuous supply of asphalt. The Company also leases an asphalt storage tank
and terminal facilities in Providence, Rhode Island.
LEGAL PROCEEDINGS
In 1992, a subsidiary of the company, Bird Atlantic Corporation ("BAC"),
formerly Atlantic Building Products Corporation, commenced an action against a
former vendor, alleging violation of an exclusive distributorship without
adequate and fair compensation to BAC. A jury trial was held in November 1995
in the Superior Court of Plymouth County, Massachusetts. The jury found in
favor of BAC and judgment was entered on January 26, 1996 in the principal
amount of approximately $1.8 million. The award, with interest accruing at 12%
per annum, is expected to be in excess of $3 million and will not be reported
as income until collected. Both defendant and BAC have appealed the judgment.
INSURANCE AND PRODUCT LIABILITY CLAIMS
On June 1, 1993, Wausau commenced an action in the Superior Court for
Norfolk County, Massachusetts, against the Company seeking a declaratory
judgment that certain built-up roofing and fiber glass based shingle
41
claims made against the Company were not covered by liability insurance
policies issued by Wausau. The Company asserts that the claims are covered and
has answered the complaint. A trial is expected in 1999. In the opinion of
management, the above matter will not have a material adverse effect on the
Company's financial position or results of operations.
The Company is also exposed to a number of other asserted and unasserted
potential claims encountered in the normal course of business. In the opinion
of management, the resolution of such claims will not have a material adverse
effect on the Company's financial position or results of operations.
The Company is a defendant in a number of suits alleging product defects,
the outcome of which management believes will not in the aggregate have a
material impact on the Company's financial position or results of operations.
42
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 Stock as of March
31, 1998.
AMOUNT AND
NAME AND NATURE OF
ADDRESS OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP OF CLASS
---------------- ---------------- ----------
BI Expansion II Corp. ....................... 3,991,268 shares 95.9%
750 E. Swedesford Road
Valley Forge, PA 19482
The table below sets forth information provided by the individuals named
therein as to the amount of the Company's Common 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 March 31, 1998.
COMMON SHARES PERCENTAGE OF
SUBJECT TO STOCK OUTSTANDING
NAME OPTIONS(1) COMMON SHARES
---- ---------------- -------------
Frank S. Anthony.......................... 34,000 shares *
Richard C. Maloof......................... 155,000 shares 3.6%
All directors and executive officers as a
group (2 persons)........................ 189,000 shares 4.3%
- --------
* Less than 1% of the outstanding Common Stock.
(1) Represents shares which the individual has a right to acquire by exercise
of stock options exercisable within 60 days of March 31, 1998.
OTHER MATTERS
The Board knows of no business which will be presented for consideration at
the Special Meeting other than that described above.
Dated: , 1998
By Order of the Board of Directors,
/s/ Frank S. Anthony
Frank S. Anthony
Clerk
43
BIRD CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED AS OF MARCH 31, 1998
PAGE
----
Unaudited Financial Statements for the First Quarter of 1998:
Unaudited Consolidated Balance Sheet as of March 31, 1998 and December
31, 1997.............................................................. A-2
Unaudited Consolidated Statement of Operations for the Three Months
Ended March 31, 1998 and 1997......................................... A-4
Unaudited Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1998 and 1997......................................... A-5
Notes to Unaudited Consolidated Financial Statements................... A-6
A-1
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE, PAR VALUE, AND LIQUIDATION VALUE DATA)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and equivalents................................. $ 195 $ 784
Accounts and notes receivable........................ 4,824 3,567
Allowance for doubtful accounts..................... (171) (153)
Inventories.......................................... 7,620 5,250
Prepaid expenses and other assets.................... 89 243
Deferred income taxes................................ 153 153
------- -------
Total current assets............................... 12,710 9,844
------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements........................... 3,294 3,294
Buildings............................................ 7,042 7,042
Machinery and equipment.............................. 30,950 30,950
Construction in progress............................. 652 458
------- -------
41,938 41,744
Less--Depreciation................................... 21,972 21,290
------- -------
19,966 20,454
------- -------
Deferred income taxes................................. 3,913 3,913
Other assets.......................................... 34 37
------- -------
$36,623 $34,248
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses................ $ 6,868 $ 5,896
Revolving line of credit............................. 0 1,700
Note payable to parent............................... 4,100 0
Long term debt, portion due within one year.......... 159 255
------- -------
Total current liabilities.......................... 11,127 7,851
Other liabilities.................................... 2,485 2,567
------- -------
Total liabilities.................................. 13,612 10,418
------- -------
STOCKHOLDERS' EQUITY:
5% cumulative preferred stock, par value $100. Au-
thorized 15,000 shares; 5,795 shares issued (liqui-
dating preference $110 per share, aggregating
$637,000)........................................... 580 580
Preference stock, par value $1. Authorized 1,500,000
shares; issued 814,300 shares of $1.85 cumulative
convertible preference stock (liquidating prefer-
ence $20 per share, aggregating $16,286,000)........ 814 814
Common stock, par value $1. Authorized 15,000,000
shares; 4,436,488 shares issued in 1998 and
4,434,989 shares issued in 1997..................... 4,436 4,435
Other capital........................................ 27,516 27,511
Retained earnings (deficit).......................... (7,344) (6,519)
------- -------
26,002 26,821
Less--
Treasury stock, at cost:
Common--275,112 shares............................. (2,991) (2,991)
------- -------
23011 23,830
------- -------
$36,623 $34,248
------- -------
See accompanying notes to consolidated financial statements.
A-2
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS
ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
(UNAUDITED)
Net sales........................................... $ 7,360 $ 9,206
----------- -----------
Costs and expenses:
Cost of sales..................................... 6,583 8,456
Selling, general and administrative expense....... 1,562 1,387
Interest expense.................................. 40 36
----------- -----------
Total costs and expenses........................ 8,185 9,879
----------- -----------
Loss before income taxes............................ (825) (673)
Provision for income taxes.......................... 0 0
----------- -----------
Net loss before dividends........................... (825) (673)
Preferred and preference stock cumulative dividends. 384 384
----------- -----------
Net loss applicable to common stockholders.......... ($ 1,209) ($ 1,057)
=========== ===========
Basic and diluted loss per common share after
dividends.......................................... ($ 0.29) ($ 0.26)
=========== ===========
Average number of shares used in loss per share
computations:
Basic and diluted............................... 4,161,226 4,143,321
See accompanying notes to consolidated financial statements.
A-3
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(UNAUDITED)
Cash flow provided (used) by operations:
Net loss................................................. $ (825) $ (673)
Adjustments to reconcile to net cash used by operations:
Depreciation and amortization.......................... 682 716
Provision for losses on accounts receivable............ 18 0
Changes in balance sheet items:
Accounts receivable.................................... (1,257) (453)
Inventories............................................ (2,370) (1,703)
Prepaid expenses....................................... 154 302
Liabilities not related to financing activities........ 890 893
Other assets........................................... 3 36
--------- ---------
Cash flow used by operations............................. (2,705) (882)
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment........... (194) (447)
Cash flows from financing activities:
Proceeds from borrowings............................... 4,300 0
Debt repayments........................................ (1,996) (586)
Dividends paid......................................... 0 (384)
Other equity changes................................... 6 35
--------- ---------
Net cash provided by (used in) financing activities...... 2,310 (935)
--------- ---------
Net decrease in cash and equivalents..................... (589) (2,264)
Cash and equivalents at beginning of year................ 784 2,310
--------- ---------
Cash and equivalents at end of period.................... $ 195 $ 46
========= =========
See accompanying notes to consolidated financial statements.
A-4
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. In the opinion of Bird Corporation (the "Company"), the accompanying
unaudited Consolidated Financial Statements contain all adjustments
(consisting of only normal, recurring accruals) necessary to present fairly
its financial position as of March 31, 1998 and December 31, 1997 and the
results of its operations and cash flows for the three month periods ended
March 31, 1998 and 1997.
2. The Company's business is seasonal to the extent that activity in the
outside repair and remodeling business and in new construction declines in
certain areas of the country during the winter months. Accordingly, the
results of operations for the three month periods ended March 31, 1998 and
1997 are not necessarily indicative of the results to be expected for calendar
year 1998.
3. On February 16, 1998, BI Expansion II Corp. ("Acquisition Sub"), a wholly
owned subsidiary of CertainTeed Corporation ("CertainTeed"), an indirect
wholly owned subsidiary of Compagnie de Saint-Gobain, accepted for payment
pursuant to a cash tender offer (the "Tender Offer") 3,991,022 shares of
common stock, $1 par value per share, of the Company ("Common Shares") or
approximately 95% of the Common Shares outstanding, and 772,735 shares of the
$1.85 Cumulative Convertible Preference Stock, $1 par value per share, of the
Company ("Preference Shares"), or approximately 95% of the Preference Shares
outstanding, at a price of $5.50 per Common Share and $20 per Preference
Share, without any adjustment for dividends accrued and unpaid through the
date of the expiration of the Tender Offer (February 13, 1998). Such dividends
amounted to $2,260,000 on February 16, 1998, which included the undeclared
dividend of $377,000 due on February 15, 1998. Pursuant to an Agreement and
Plan of Merger dated as of January 12, 1998 between the Company, CertainTeed,
and Acquisition Sub, the Company will not pay or set aside for payment any
accumulated dividends on the Common Shares or the Preference Shares.
4. It is not practical to separate LIFO inventories by raw materials and
finished goods components; however, the following table presents these
components on a current cost basis with the LIFO reserve shown as a reduction
(in thousands):
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
Current costs:
Raw materials.................................... $1,613 $1,318
Finished goods................................... 6,637 4,562
------ ------
8,250 5,880
Less: LIFO reserve............................... 630 630
------ ------
$7,620 $5,250
====== ======
A-5
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. The Company's borrowing and debt obligations are summarized as follows
(in thousands):
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
Debt Obligations:
Note payable to parent........................... $4,100 $ 0
Revolving credit facility........................ 0 1,700
Obligations under capital leases................. 159 255
------ -----
4,259 1,955
Less--portion due within one year.................. 4,259 1,955
------ -----
Long term debt..................................... $ 0 $ 0
====== =====
As of March 31, 1998, the Company had cash and equivalents on hand totaling
$195,000 and total debt of approximately $4.3 million. Letters of credit
outstanding as of March 31, 1998 totaled $805,000. The Company's external
financing needs prior to the change of control on February 16, 1998 were
augmented by the ability of its wholly owned subsidiary, Bird Incorporated, to
borrow under a three year $15,000,000 Revolving Credit and Security Agreement
("Credit Agreement") dated July 8, 1997 between Bird Incorporated and Fleet
National Bank ("Fleet"). As a result of the change of control, the terms of
the Credit Agreement required repayment of all of the Company's indebtedness
under the Credit Agreement. On February 18, 1998, the Company repaid all
indebtedness with the exception of outstanding letters of credit aggregating
$805,000. Fleet will maintain its security interest in the assets of the
Company until these letters of credit are revoked, which is expected to occur
in the second quarter of 1998. After February 16, 1998, the Company's
financing needs have been satisfied under the terms of a note dated February
17, 1998 between Bird Incorporated and its indirect parent, CertainTeed
Corporation. The note allows for borrowings from time to time, at prevailing
interest rates, and is payable on demand.
A-6
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. Basic earnings (loss) per share are computed by dividing earnings (loss)
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflect per
share amounts that would have resulted if dilutive potential common stock had
been converted to common stock. Diluted loss per share amounts exclude
potential common stock as its inclusion would be anti-dilutive.
WEIGHTED
AVERAGE PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Earnings (loss) from continuing operations.... $ (825,000)
Deduct dividend requirements:
Preferred stock............................. (7,000)
Convertible preference stock................ (377,000)
----------- --------- ------
BASIC EARNINGS (LOSS) PER SHARE............... (1,209,000) 4,161,226 $(0.29)
Income (loss) available to common stockhold-
ers
EFFECT OF DILUTIVE SECURITIES
Options..................................... 0 0
Convertible preference stock................ 0 0
----------- ---------
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) available to common stockhold-
ers........................................ $(1,209,000) 4,161,226 $(0.29)
----------- --------- ------
FOR THE THREE MONTHS ENDED MARCH 31, 1997
Earnings (loss) from continuing operations.... $ (673,000)
Deduct dividend requirements:
Preferred stock............................. (7,000)
Convertible preference stock................ (377,000)
-----------
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) available to common stockhold-
ers........................................ (1,057,000) 4,143,321 $(0.26)
EFFECT OF DILUTIVE SECURITIES
Options..................................... 0 0
Convertible preference stock................ 0 0
----------- ---------
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) available to common stockhold-
ers........................................ $(1,057,000) 4,143,321 $(0.26)
=========== ========= ======
7. Since 1981 the Company has been named as a defendant in approximately 650
product liability cases throughout the United States by persons claiming to
have suffered asbestos-related diseases as a result of alleged exposure to
asbestos used in products manufactured and sold by the Company. Approximately
150 of these cases are currently pending and costs of approximately $2 million
in the aggregate have been incurred in the defense of these claims since 1981.
Employers Insurance of Wausau has accepted the defense of these cases under an
agreement for sharing of the costs of defense, settlements and judgments, if
any. At March 31, 1998, the Company had a reserve of $950,000 to cover the
estimated cost of these claims. In light of the nature and merits of the
claims alleged, in the opinion of management, the resolution of these
remaining claims will not have a material adverse effect on the results of
operations or financial condition of the Company.
In 1986, the Company, along with numerous other companies, was named by the
United States Environmental Protection Agency ("EPA") and other governmental
agencies responsible for regulation of the environment as a Potentially
Responsible Person ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), in connection with
A-7
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
hazardous substances at a site known as the Fulton Terminal Superfund site
located in Fulton, Oswego County, New York. On September 28, 1990, the Company
and a number of other PRPs reached a negotiated settlement with the EPA
pursuant to which the settling PRPs agreed to pay the costs of certain
expenses in connection with the proceedings and to pay certain other expenses,
including the costs and expenses of administering a trust fund to be
established by the settling PRPs. This settlement agreement is embodied in a
consent decree filed with the United States District Court for the Western
District of New York and fixed the Company's proportionate share of the total
expenses. The soil has been cleaned-up and the groundwater is now being
treated. The remaining cost to the Company of the remedial work and other
expenses covered by the settlement agreement is estimated to be approximately
$200,000, payable over the next three years. As of March 31, 1998, the Company
had a reserve of $200,000 to cover the estimated cost of the Company's
remaining proportionate share (i.e., 17%) of the cost to clean-up the
groundwater. Based on information currently available to the Company,
management believes that it is probable that the major responsible parties
will fully pay the costs apportioned to them. The Company's management
believes that, based on its financial position and the estimated accrual
recorded, the Company's remediation expense with respect to this site is not
likely to have a material adverse effect on the consolidated financial
position or results of operations of the Company.
8. The Company has owned and operated a sanitary landfill since the late
1960's used exclusively by the Company's roofing plant for the disposal of its
own manufacturing process waste, primarily asphalt roofing materials. The
Company is not aware of any hazardous or other specially regulated wastes
disposed of at this site. As a result of a 1995 regulatory decision by the
Massachusetts Department of Environmental Protection ("DEP") to disallow the
continued operation of all unlined landfills, the Company chose not to seek to
renew its operating permit at the state and local level, which expired at the
end of August 1997. The Company determined that continuation of operations at
the landfill would be of no financial benefit over the existing outside
disposal alternatives, given the new regulatory requirements and the Company's
use of the site. Therefore, as a result of this decision, the Company has
begun negotiating a landfill closure plan with the D.E.P., which may commence
construction in 1998 and be completed in 1999. As of March 31, 1998, the
Company had a reserve of approximately $777,000 to cover the estimated cost to
close the landfill. Management believes that the closure expense with respect
to this site will not have a material adverse effect on the results of
operations or financial condition of the Company.
9. The Company warrants under certain circumstances that its building
material products meet certain manufacturing and material specifications. The
warranty policy is unique to each portion of the labor and material cost and
requires the owner to meet specific criteria, such as proof of purchase. The
Company offers the original manufacturer's warranty only as part of the
original sale and at no addition cost to the customer. In addition, for
marketing considerations, the Company makes elective settlements in response
to customer complaints. The Company records the liability for warranty claims
and elective customer settlements when it determines that a specific liability
exists or a payment will be made.
A-8
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the Company and its
subsidiaries are listed below.
PAGE
----
Consolidated Financial Statements:
Report of independent accountants................................... F-2
Balance sheets at December 31, 1997 and 1996........................ F-3
Statements of operations for each of the three years in the period
ended December 31, 1997............................................ F-4
Statements of stockholders' equity for each of the three years in
the period ended December 31, 1997................................. F-5
Statements of cash flows for each of the three years in the period
ended December 31, 1997............................................ F-6
Notes to consolidated financial statements.......................... F-7
The following consolidated financial statement schedule of the Company and
its subsidiaries should be read in conjunction with the financial statements
included herein:
Schedule II--Valuation and qualifying accounts...................... F-22
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not applicable or the required information is shown in the
financial statements or the notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Bird Corporation
We have audited the accompanying consolidated balance sheets of Bird
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, of stockholders' equity and of
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Bird Corporation
and its subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Price Waterhouse LLP
Boston, Massachusetts
February 26, 1998
F-2
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE, PAR VALUE, AND LIQUIDATION VALUE DATA)
DECEMBER 31,
----------------
1997 1996
------- -------
ASSETS
Current Assets:
Cash and equivalents........................................ $ 784 $ 2,310
Accounts and notes receivable, less allowances--$153 in 1997
and $150 in 1996........................................... 3,414 5,191
Inventories................................................. 5,250 5,273
Prepaid expenses and other assets........................... 243 784
Deferred income taxes....................................... 153 435
------- -------
Total current assets...................................... 9,844 13,993
------- -------
Property, Plant and Equipment:
Land and land improvements.................................. 3,294 3,099
Buildings................................................... 7,042 6,936
Machinery and equipment..................................... 30,950 30,455
Construction in progress.................................... 458 255
------- -------
41,744 40,745
Less--Depreciation and amortization......................... 21,290 18,805
------- -------
20,454 21,940
------- -------
Deferred income taxes........................................ 3,913 3,631
Other assets................................................. 37 105
------- -------
$34,248 $39,669
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 2,180 $ 2,144
Accrued expenses............................................ 3,634 6,214
Revolving line of credit.................................... 1,700 0
Long-term debt, portion due within one year................. 255 2,177
Retirement plan contributions payable....................... 82 83
------- -------
Total current liabilities................................. 7,851 10,618
Long-term debt, portion due after one year................... 0 255
Other liabilities............................................ 2,567 3,526
------- -------
Total liabilities......................................... 10,418 14,399
------- -------
STOCKHOLDERS' EQUITY
5% cumulative preferred stock, par value $100. Authorized
15,000 shares; issued 5,795 shares in 1997 and 5,820 shares
in 1996 (liquidating preference $110 per share, aggregating
$637,000 in 1997 and $640,000 in 1996)..................... 580 582
Preference stock, par value $1. Authorized 1,500,000 shares;
issued 814,300 shares of $1.85 cumulative convertible
preference stock in 1997 and 1996 (liquidating value $20
per share, aggregating $16,286,000)........................ 814 814
Common stock, par value $1. Authorized 15,000,000 shares;
4,435,097 shares issued in 1997 and 4,414,991 shares issued
in 1996.................................................... 4,435 4,415
Other capital............................................... 27,511 27,436
Retained earnings (deficit)................................. (6,519) (4,986)
------- -------
26,821 28,261
Less--
Treasury stock, at cost, Common stock: 275,112 shares in
1997 and 275,102 shares in 1996............................ (2,991) (2,991)
------- -------
23,830 25,270
------- -------
Commitments and contingencies (Note 11)
$34,248 $39,669
======= =======
See accompanying notes to consolidated financial statements.
F-3
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- --------- ----------
Net sales.................................. $ 43,132 $ 51,956 $ 54,180
---------- --------- ----------
Costs and expenses:
Cost of sales............................ 38,366 43,840 48,007
Selling, general and administrative
expense................................. 5,621 5,764 11,817
Equity losses from partnership........... 0 0 372
Other (income) expense, net.............. (178) 667 0
Interest expense......................... 300 435 927
Gain on disposal of businesses........... 0 (919) (17,570)
---------- --------- ----------
Total costs and expenses............... 44,109 49,787 43,553
---------- --------- ----------
Earnings (loss) from continuing operations
before income taxes....................... (977) 2,169 10,627
Provision (benefit) for income taxes....... 0 0 11,424
---------- --------- ----------
Earnings (loss) from continuing operations. (977) 2,169 (797)
Discontinued operations (Note 9):
Income (loss) on disposal of
environmental business, net of taxes.... 595 134 (11,252)
---------- --------- ----------
Net income (loss) from discontinued
operations.............................. 595 134 (11,252)
---------- --------- ----------
Net earnings (loss) before dividends....... (382) 2,303 (12,049)
Preferred and preference stock cumulative
dividends................................. 1,536 1,536 1,536
---------- --------- ----------
Net earnings (loss) applicable to common
stockholders.............................. $ (1,918) $ 767 $ (13,585)
========== ========= ==========
Basic and diluted earnings (loss) per
common share:
Continuing operations.................... $ (0.60) $ 0.15 $ (0.57)
Discontinued operations.................. 0.14 0.03 (2.74)
---------- --------- ----------
Net earnings (loss) after dividends........ $ (0.46) $ 0.18 $ (3.31)
========== ========= ==========
Average number of shares used in earnings
(loss) per share computations:
Basic.................................... 4,150,566 4,130,224 4,104,965
Diluted.................................. 4,150,566 4,147,427 4,104,965
See accompanying notes to consolidated financial statements.
F-4
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
$1.85
5% CUMULATIVE
CUMULATIVE CONVERTIBLE RETAINED COMMON TOTAL
PREFERRED PREFERENCE COMMON OTHER EARNINGS STOCK IN UNEARNED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) TREASURY COMPENSATION EQUITY
---------- ----------- ------ ------- --------- -------- ------------ -------------
Balance December 31,
1994................... $582 $814 $4,375 $27,235 $ 7,860 $(2,991) $(157) $ 37,718
Net loss................ (12,049) (12,049)
Cash dividends declared:
5% cumulative preferred
stock--$1.25 per
share................. (51) (51)
$1.85 cumulative
convertible preference
stock--$1.85 per
share................. (1,506) (1,506)
Common stock issued as
compensation--200
shares................. 1 1
Common stock issued for
contributions to
employees' saving
plan--17,783 shares.... 18 112 130
Common stock issued upon
exercise of stock
options--2,000 shares
common................. 2 14 16
Amortization of unearned
compensation........... 157 157
---- ---- ------ ------- -------- ------- ----- --------
Balance December 31,
1995................... 582 814 4,395 27,362 (5,746) (2,991) 0 24,416
Net earnings............ 2,303 2,303
Cash dividends declared:
5% cumulative preferred
stock--$1.25 per
share................. (37) (37)
$1.85 cumulative
convertible preference
stock--$1.85 per
share................. (1,506) (1,506)
Common stock issued for
contributions to
employees' saving
plan--19,829 shares.... 20 74 94
---- ---- ------ ------- -------- ------- ----- --------
Balance December 31,
1996................... 582 814 4,415 27,436 (4,986) (2,991) 0 25,270
Net earnings............ (382) (382)
Cash dividends declared:
5% cumulative preferred
stock--$1.25 per
share................. (22) (22)
$1.85 cumulative
convertible preference
stock--$1.85 per
share................. (1,129) (1,129)
Common stock issued for
contributions to
employees' saving
plan--20,106 shares.... 20 75 95
Other................... (2) (2)
---- ---- ------ ------- -------- ------- ----- --------
Balance December 31,
1997................... $580 $814 $4,435 $27,511 $ (6,519) $(2,991) $ 0 $ 23,830
==== ==== ====== ======= ======== ======= ===== ========
See accompanying notes to consolidated financial statements.
F-5
BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------
(BRACKETS DENOTE CASH OUTFLOWS) 1997 1996 1995
------------------------------- ------- -------- --------
Cash flow provided (used) by operations:
Net earnings (loss)............................................. $(382) $ 2,303 $(12,049)
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization................................. 2,840 2,817 2,861
Provision for losses on accounts receivable................... 153 0 26
Deferred income taxes......................................... 0 0 11,304
Gain on sale of vinyl business................................ 0 0 (20,579)
Loss on sale of window business............................... 0 0 1,959
Loss (gain) on disposal of environmental business............. (595) (134) 11,252
Changes in balance sheet items:
Accounts receivable........................................... 1,624 270 3,120
Inventories................................................... 23 (572) (2,664)
Prepaid expenses.............................................. 442 1,286 712
Liabilities not related to financing activities............... (2,525) (1,587) (14,325)
Other assets.................................................. 68 (6) 128
------- -------- --------
Cash flow provided (used) by operations:........................ 1,648 4,377 (18,255)
------- -------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment.................. (1,255) (1,130) (1,590)
Proceeds from disposal of assets.............................. 0 0 50,680
Additional investments in discontinued operations............. 0 0 (2,402)
Other investments............................................. 0 0 651
------- -------- --------
Net cash provided by (used in) investing activities ............ (1,255) (1,130) 47,339
------- -------- --------
Cash flows from financing activities:
Debt proceeds................................................. 6,400 9,445 16,627
Debt repayments............................................... (6,877) (12,996) (40,942)
Dividends paid................................................ (1,535) (1,159) (1,558)
Other equity changes.......................................... 93 94 147
------- -------- --------
Net cash used by financing activities........................... (1,919) (4,616) (25,726)
------- -------- --------
Net increase (decrease) in cash and equivalents................. (1,526) (1,369) 3,358
Cash and equivalents at beginning of year....................... 2,310 3,679 321
------- -------- --------
Cash and equivalents at end of year............................. $ 784 $ 2,310 $ 3,679
======= ======== ========
Supplemental Disclosures:
Cash paid during the year for:
Interest.................................................... $ 344 $ 498 $ 1,501
Income taxes................................................ $ 35 $ 0 $ 1,170
See accompanying notes to consolidated financial statements.
F-6
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Nature of Operations
Bird Corporation is a manufacturer of asphalt roofing products. Currently,
asphalt shingles and roll roofing are produced at the Company's plant in
Norwood, Massachusetts for commercial and residential use. These products are
marketed in the northeastern United States through independent wholesalers and
building material retailers whose primary customers are roofing contractors.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Bird Corporation and its majority-owned subsidiaries (the "Company"). All
material intercompany activity has been eliminated from the financial
statements.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Risk and Major Customers
The Company is dependent upon the economy in the northeastern United States
and sells its products primarily to independent wholesalers and building
material retailers for resale primarily to roofing contractors. One customer
accounted for slightly more than 15% of the Company's gross sales during 1997
and 1996 and 10% in 1995.
The principal raw materials used in the manufacture of asphalt roofing
products are fiberglass mat, asphalt saturants and coatings and crushed
granules. The Company's requirements for fiberglass mat are met primarily with
one vendor under an agreement which expires December 31, 1999 with an option
to extend for an additional two years. Fiberglass mat is also generally
available in adequate quantities from a number of outside suppliers. The
Company has a raw material processing agreement with a company whose President
is also a Director of Bird Corporation. The Company's purchases from this
related party amounted to $1,707,000 in 1997, $1,817,000 in 1996, and
$1,619,000 in 1995. Management believes that amounts paid were equivalent to
those that would be paid under an arm's length transaction. At December 31,
1997 and 1996 amounts due to this company totaled $115,000 and $268,000,
respectively.
Revenue Recognition
The Company recognizes revenue when products are shipped or services are
performed.
Cash and Equivalents
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents. On occasion the
Company invests its excess cash in a money market account that is subject to
minimal credit and market risk. There were no such investments at December 31,
1997.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
for a large portion of the inventories by the last-in, first-out (LIFO) method
computed using the dollar value method for natural business unit pools. The
cost of the remaining inventories is determined on a first-in, first-out
(FIFO) basis.
F-7
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation has been
provided in the financial statements primarily on the straight-line method at
rates, based on reasonable estimates of useful lives, which fall within the
following ranges for major asset classifications:
Land improvements............................................. 10 to 20 years
Buildings..................................................... 20 to 25 years
Machinery and equipment....................................... 5 to 13 years
Depreciation expenses for continuing operations for 1997, 1996 and 1995
amounted to $2,741,000, $2,709,000 and $2,831,000, respectively. Maintenance,
repairs and minor renewals are charged to earnings in the year in which the
expense is incurred. Additions, improvements and major renewals are
capitalized. The cost of assets retired or sold, together with the related
accumulated depreciation, are removed from the accounts, and any gain or loss
on disposition is credited or charged to earnings.
Retirement Plans
The Company has a defined contribution plan covering substantially all
eligible non-union salaried and non-union hourly employees. Annual
contributions are made to the plan based on rates identified in the plan
agreement.
Advertising
Advertising costs are charged to operations when incurred. The Company did
not incur any costs associated with direct response advertising in 1997, 1996
and 1995, and there were no capitalized advertising costs at December 31, 1997
and 1996. Advertising expense for 1997, 1996 and 1995 was $443,000, $485,000,
and $503,000, respectively.
Earnings (Loss) per Common Share
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
This statement supercedes the pronouncement of Accounting Principles Board
("APB No. 15") and is effective with the Company's fiscal year ended December
31, 1997. The statement eliminates the calculation of primary earnings per
share and requires the disclosure of basic earnings per share and diluted
earnings per share (formerly referred to as fully dilutive earnings per
share), if applicable. Basic earnings (loss) per common share excludes
dilution and is determined after deducting the dividend requirements of the
preferred and preference shares and is based on the weighted average number of
common shares outstanding during each period. Diluted earnings (loss) per
common share gives effect to the reduction in earnings per share, if any,
which would result from potential common stock (the conversion of the $1.85
cumulative convertible preference stock and the inclusion of dilutive stock
options) during the period if the effect is dilutive. The Company has restated
all prior period earnings (loss) per share information in accordance with the
statement and has excluded potential common stock from the calculation of
diluted weighted average share amounts for the years 1997, 1996 and 1995 as
its inclusion would have been anti-dilutive.
Environmental Matters
The Company records a liability for environmental matters when it is
probable that a liability has been incurred and the amount of the liability
can be reasonably estimated based on the available evidence and site
assessments. If an amount is likely to fall within a range and no single
amount within that range can be determined to be a better estimate, the
minimum amount of the range is recorded. If there are other participants
F-8
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and the liability is joint and several, the financial stability of the other
participants is considered in determining the Company's accrual. Costs of
future expenditures for environmental remediation obligations are not
discounted to their present value. In addition, the liability excludes claims
for recoveries from insurance companies and other third parties until such
claims for recoveries are probable of realization at which point they would be
classified separately as a receivable.
Warranty Costs
The Company warrants under certain circumstances that its building material
products meet certain manufacturing and material specifications. The warranty
policy is unique to each product, ranges from five to forty years, is
generally for the material cost and requires the owner to meet specific
criteria such as proof of purchase. The Company offers the original
manufacturer's warranty only as part of the original sale and at no additional
cost to the customer. In addition, for marketing considerations, the Company
makes elective settlements in response to customer complaints. The Company
records the liability for warranty claims and elective customer settlements
when it determines that a specific liability exists or a payment will be made.
Stock Compensation
The Company's employee stock option plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees". In 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation".
2. INVENTORIES
The percentages of inventories valued on the LIFO method was 98% at December
31, 1997 and 1996. It is not practical to separate LIFO inventories by raw
materials and finished goods components; however, the following table (in
thousands) presents these components on a current cost basis with the LIFO
reserve shown as a reduction.
DECEMBER 31,
-------------
1997 1996
------ ------
Current Costs:
Raw materials................................................ $1,318 $1,378
Finished goods............................................... 4,562 4,093
------ ------
5,880 5,471
Less LIFO reserve............................................ 630 198
------ ------
$5,250 $5,273
====== ======
3. DEBT
At December 31, the Company's borrowings and debt obligations are summarized
as follows (in thousands):
1997 1996
------ ------
Debt Obligations:
Term Loan................................................... $ 0 $1,804
Revolving Credit Facility................................... 1,700 0
Obligations under capital leases............................ 255 628
------ ------
1,955 2,432
Less--portion due within one year........................... 1,955 2,177
------ ------
Long Term Debt.............................................. $ 0 $ 255
====== ======
F-9
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's external financing needs were augmented by its ability to
borrow under the three year Loan and Security Agreement dated November 30,
1994 (and amended March 8, 1995) with Fleet Capital Corporation. It was
replaced on July 8, 1997, with a new three year $15,000,000 Revolving Credit
and Security Agreement ("Credit Agreement") with Fleet National Bank
("Fleet"). Up to $3 million of the revolving credit facility could be used for
letters of credit. At December 31, 1997, letters of credit totaled $805,000
compared to $1,401,000 as of December 31, 1996.
Borrowings by Bird Incorporated under the Credit Agreement were guaranteed
by the Company and the Company's other subsidiaries and were secured by
accounts receivable and inventory. The revolving credit line availability was
determined with reference to a percentage of accounts receivable and
inventory. Under the Credit Agreement, the availability calculation did not
allow borrowings to the full extent of the revolving credit commitment due to
the seasonality of the building materials manufacturing business. As of
December 31, 1997, an aggregate of $5,864,000 was available to the Company
under the terms of the Credit Agreement of which $3,358,000 remained
available, net of current borrowings and letters of credit.
Interest on the Credit Agreement accrued at the Fleet base rate less 1/2%
(as specified in such Credit Agreement) or the London Interbank Offering Rate
("LIBOR") plus 1 1/2% at the Company's election. The interest rates on
outstanding borrowings at December 31, 1997 were 8.25% on a $700,000, 7 day
LIBOR loan expiring January 5, 1998 and 7.46875% on a $1 million, 30 day LIBOR
loan expiring on January 28, 1998.
The Credit Agreement contained certain financial and operating covenants and
placed limits on the Company's capital expenditures. As of December 31, 1997,
the Company was in default under Section 5.9 of the Credit Agreement as a
result of failing to achieve the minimum fixed charge coverage ratio for the
fourth quarter of 1997. As a result of the change of control on February 16,
1998 resulting from completion of the Tender Offer, the terms of the Credit
Agreement required repayment of indebtedness. On February 18, 1998, the
Company repaid all indebtedness with the exception of outstanding letters of
credit aggregating $805,000. Fleet will maintain its security interest in the
assets of the Company until revocation of the letters of credit occurs, which
is expected in the second quarter of 1998.
The weighted average interest rates on short term borrowings at December 31,
1997 and December 31, 1996 were 7.56% and 8.25%, respectively. The fair value
of the Company's total debt approximated the carrying value at December 31,
1997 and 1996, respectively. The fair value is based on management's estimate
of current rates available to the Company for similar debt with the same
remaining maturity.
4. INCOME TAXES
Earnings (loss) from continuing operations before income taxes and the
provision (benefit) for income taxes are shown below (in thousands):
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------- ------- --------
Earnings (loss) from continuing operations before
income taxes: $ (977) $ 2,169 $ 10,627
====== ======= ========
Provision (benefit) for continuing operations:
Currently payable.............................. $ 0 $ 0 $ 120
Deferred....................................... 0 0 11,304
------ ------- --------
$ 0 $ 0 $ 11,424
====== ======= ========
F-10
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes on continuing operations varied
from the U.S. federal statutory rate for the following reasons:
1997 1996 1995
----- ----- -----
Continuing operations:
U.S. federal statutory rate........................... 34.0% 34.0% 34.0%
State income taxes, net............................... 0.0 0.0 7.3
Corporate owned life insurance........................ (6.2) (7.0) 2.5
Effect of valuation allowance......................... (29.7) (28.4) 63.7
Other................................................. 1.9 1.4 0.0
----- ----- -----
0.0% 0.0% 107.5%
===== ===== =====
The deferred income tax asset recorded in the consolidated balance sheet
results from differences between financial statement and tax reporting of
income and deductions. A summary of the composition of the deferred income tax
asset at December 31, 1997 and 1996 is as follows (in thousands):
1997 1996
-------- --------
Deferred tax assets:
Compensation/pension accruals.......................... $ 582 $ 641
Net operating loss carryover........................... 18,740 17,716
Investment tax credit carryover........................ 819 1,136
Minimum tax credit carryover........................... 1,016 1,091
Other reserves & accruals.............................. 1,102 1,789
Other.................................................. 1,036 1,053
-------- --------
Total deferred tax assets............................ 23,295 23,426
Deferred tax liabilities:
Depreciation........................................... (2,227) (2,141)
-------- --------
Net deferred tax asset before valuation reserve.......... 21,068 21,285
Less: Valuation reserve.................................. (17,002) (17,219)
-------- --------
Net deferred tax asset................................... $ 4,066 $ 4,066
======== ========
The Company has available for federal income tax purposes unused net
operating loss and investment tax credit carryforwards, which may provide
future tax benefits, expiring as follows (in thousands):
YEAR OF NET INVESTMENT
EXPIRATION OPERATING LOSS TAX CREDIT
---------- -------------- ----------
1998............................................ $ 0 $135
1999............................................ 0 212
2000............................................ 0 297
2001............................................ 0 175
2002............................................ 138 0
2008............................................ 9,898 0
2009............................................ 16,122 0
2010............................................ 15,449 0
2011............................................ 698 0
2012............................................ 2,344 0
------- ----
$44,649 $819
======= ====
F-11
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additionally, for federal income tax purposes, at December 31, 1997 the
Company had available for carryforward minimum tax credits with no expiration
aggregating $1,016,000. On February 16, 1998, a change in the Company's
ownership occurred as a result of the completion of the tender offer by BI
Expansion II Corp., a wholly owned subsidiary of CertainTeed Corporation (see
Note 13). Consequently, there will be an annual limitation on the amount of
the carryforwards, including certain unrealized built-in losses, which can be
utilized for regular and alternative minimum tax purposes.
At December 31, 1997, the Company's net deferred tax asset is approximately
$21 million less a valuation reserve of $17 million which was determined based
upon the Company's review of all available evidence including projections of
future taxable income. The Company expects to be profitable and with other tax
planning strategies expects to generate future taxable income. Realization of
the $4,066,000 net deferred tax asset is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes that it is more likely than
not that the net deferred tax asset will be realized.
5. STOCKHOLDERS' EQUITY
The $1.85 cumulative convertible preference stock is redeemable, in whole or
in part, at the option of the Company, at a redemption price of $20.00 per
share. The convertible preference stock has a liquidation value of $20.00 per
share and is convertible at the option of the holder into common stock of the
Company at a conversion price of $22.25 per share, subject to adjustment in
certain events. Dividends are cumulative from the date of issue and are
payable quarterly. There are five preference dividends in arrears at December
31, 1997. The Company has the option to redeem the convertible preference
stock. The Company's 5% cumulative preferred stock ranks senior to the
convertible preference stock as to dividends and upon liquidation.
On June 18, 1992, the Company announced that its Board of Directors
authorized it to buy back, on the open market or in privately negotiated
transactions, up to 400,000 of its outstanding shares of common stock at
prices available from time to time that the Company deems attractive. Since
this announcement, the Company has repurchased 97,619 shares.
The Company is prohibited from purchasing its common stock as long as
dividends on the convertible preference stock are in arrears. Under the 1992
Stock Option Plan described in Note 6, 931,325 shares of common stock are
reserved for issuance upon exercise of options and stock appreciation rights
at December 31, 1997.
Restrictions on the payment of dividends on common and preference stock in
arrears are imposed by the terms of the Credit Agreement dated July 8, 1997.
Payment of dividends on currently accrued preferred and preference stock are
permitted under the Credit Agreement. As of December 31, 1997, all dividends
on the preferred stock have been declared and paid in full. Dividends in
arrears on the preference stock in the aggregate amount of $1,506,000 for the
four quarterly periods ended February 15, 1995 and $377,000 for the quarterly
period ended May 15, 1996 require Fleet approval prior to distribution.
Dividends on the preference stock must be paid in full before any dividends
could be declared and paid on the common stock. The quarterly dividends on the
preference stock due February 15, May 15, August 15, and November 15, 1997 in
the aggregate amount of $1,506,000 have, with the consent of Fleet, been
declared and paid in full.
On February 16, 1998 BI Expansion II Corp., a wholly-owned subsidiary of
CertainTeed Corporation, an indirect wholly-owned subsidiary of Compagnie de
Saint-Gobain (Paris, France), accepted for payment pursuant to a cash tender
offer 3,991,022 shares of the common stock, $1 par value per share, of the
Company or approximately 96% of the common stock outstanding, and 772,735
shares of the $1.85 Cumulative Convertible Preference Stock, $1 par value per
share, of the Company, or approximately 95% of the Preference Stock
F-12
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
outstanding, at a price of $5.50 per share of Common Stock and $20 per share
of Preference Stock, without any adjustment for dividends accrued and unpaid
through the date of the expiration of the Tender Offer (February 13, 1998);
such dividends amounted to $1,883,000 on December 31, 1997 and $2,260,000 on
February 16, 1998 which included the undeclared dividend of $377,000 due on
February 15, 1998 (see Note 13).
6. EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company's "Bird Employees' Savings and Profit Sharing Plan" provides for
a defined base contribution and profit sharing and savings contributions.
Defined Base Contribution
The Company contributes annually 2% of plan participants' basic
compensation. Vesting accrues at 20% per year of service. Contributions for
continuing operations for the years ended December 31, 1997, 1996, and 1995
amounted to $68,000, $64,000, and $72,000, respectively.
Profit Sharing Contribution
Profit sharing contributions are made annually, if earned, based upon
certain defined levels of return on equity by the Company and its business
units. The distribution of the contribution to the plan's participants is
based upon annual basic compensation. No profit sharing contributions were
earned for 1997, 1996 or 1995.
Savings Contribution
The Company's savings plan provides that eligible employees may contribute
to the plan any whole percentage of their basic compensation varying from 2 to
15%. The Company may make discretionary matching contributions not exceeding
6% of the participant's basic compensation during the plan year. Such matching
Company contributions are invested in shares of the Company's common stock.
The Company's contributions for continuing operations for the years ended
December 31, 1997, 1996, and 1995 amounted to $93,000, $91,000, and $124,000,
respectively.
Post Retirement Benefits
Certain health care and life insurance benefits were provided for
substantially all of the Company's retired employees, except those covered
under union plans. Benefits are provided by the payment of premiums for life
insurance benefits and the elective reimbursement for eligible employees of a
portion of their health care premiums. On October 30, 1997, all current and
future participants in the health care plan were notified that the Company
would no longer offer health care insurance benefits under the plan after
December 31, 1997. The Company's cost for the years 1997, 1996, and 1995
amounted to $64,000, $71,000, and $66,000, respectively. Life insurance
benefits continue to be provided to eligible retired employees. The effect of
curtailing health care benefits did not have a material effect on the results
of operations in 1997.
Employee Incentive Plans
Under the 1982 Stock Option Plan, as amended, options to purchase up to
900,000 shares of the Company's common stock may be granted to officers,
directors and key employees upon terms and conditions determined by a
committee of the Board of Directors which administers the plan. In 1993, the
Company adopted a new stock option plan which allows the issuance of up to
450,000 stock options in addition to the unissued shares approved for issuance
under the 1982 plan. The new plan will expire in 2002 and no further options
will be
F-13
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
granted under the former plan. A Non-Employee Directors' Stock Option Plan was
also adopted in 1993 which will automatically provide grants of options to
each non-employee director serving on the Board of Directors at the time of
such grant. Each annual grant will cover 2,500 shares of common stock and any
recipient may not receive option grants exceeding a total of 30,000 shares. An
aggregate of 100,000 shares of common stock are available for grants under the
Non-Employee Directors' Stock Option Plan.
Options granted by the committee may be designated as either incentive stock
options, as defined under the current tax laws, or non-qualified options. The
committee may also grant stock appreciation rights, either singly or in tandem
with stock options. A right entitles the holder to benefit from market
appreciation in the Company's common stock subject to the right between the
date of the grant and the date of exercise without any payment on the part of
the holder. Upon exercise of a right, the holder surrenders the option and
receives an amount of common stock (or, at the election of the committee,
cash) equal in value to the amount of such appreciation.
The exercise price of options specified by the committee must be at least
100% of the fair market value of the Company's common stock as of the date of
grant. All options and rights granted become exercisable at the rate of 20 to
25% per year, on a cumulative basis, beginning with the first anniversary of
the date of grant for options granted under the Stock Option Plan and in full
one year after grant for option granted under the Non-Employee Directors'
Stock Option Plan. In case of termination of employment, options and grants
vested, but not yet exercised, are subject to forfeiture under the Stock
Option Plan and are exercisable up to 90 days after termination for the Non-
Employee Directors' Stock Option Plan.
In tandem with the stock options there are 8,000 stock appreciation rights
at December 31, 1997.
Transactions involving the Stock Option Plan are summarized as follows for
the years ended December 31, 1997 and 1996:
1997 1996 1995
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- -------------- -------- --------------
Outstanding beginning of
year................... 546,300 $8.52 438,100 $10.40 500,650 $10.91
Granted................. 12,500 $4.50 171,500 $ 4.35 65,000 $ 7.78
Exercised............... 0 0 0 -- (2,000) $ 5.00
Forfeited............... (56,600) $9.90 (51,500) $10.58 (125,550) $11.15
Expired................. (5,000) $9.50 (11,800) $ 8.75 0 --
Outstanding end of year. 497,200 $8.22 546,300 $ 8.52 438,100 $10.40
Options exercisable at
end of year............ 279,400 $9.73 168,100 $10.00 186,300 $10.70
Weighted average fair
value of options
granted during the year
(exercise price equals
market price).......... $2.40 $ 2.67 $ 4.52
The following table summarizes information about stock options outstanding
at December 31, 1997:
RANGE OF EXERCISE PRICES
-----------------------------
$4.13- $8.13- $11.00-
$6.63 $10.75 $17.50
--------- --------- ---------
Number outstanding at 12/31/97.................... 192,200 185,000 120,000
Weighted Average Remaining Contractual Life....... 5.6 years 3.8 years 2.0 years
Weighted Average Exercise Price................... $ 4.46 $ 9.32 $ 12.62
Number Exercisable at 12/31/97.................... 54,500 114,000 110,900
Weighted Average Exercise Price................... $ 4.65 $ 9.34 $ 12.63
F-14
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Had the Company elected to recognize compensation cost based on the fair
value of options granted in years beginning after December 31, 1994 at grant
date as prescribed by Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation," issued in October 1995, net income
and earning per share would have been reduced to the pro forma amounts
indicated below:
1997 1996 1995
------------ ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss)--as reported... $(1,918) $ 767 $(13,585)
Net income (loss)--pro forma..... $(2,082) $ 600 $(13,650)
Basic earnings (loss) per share--
as reported..................... $ (0.46) $0.19 $ (3.31)
Basic earnings (loss) per share--
pro forma....................... $ (0.50) $0.15 $ (3.33)
Diluted earnings (loss) per
share--as reported.............. $ (0.46) $0.18 $ (3.31)
Diluted earnings (loss) per
share--pro forma................ $ (0.50) $0.14 $ (3.33)
The assumptions and methods used in estimating the fair value at the grant
date of options granted are listed below:
GRANT YEAR
-----------------------------------
1997 1996 1995
------- -------- ---------
Expected Volatility of Share Price............. 52% 46% 43%
Dividend Yield................................. -- -- --
Interest Rate.................................. 6.8% 6.8% 7.0%
Expected Life.................................. 5 years 7.7years 7.3 years
Valuation Methodology.......................... Black-Scholes Option Pricing Model
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants are expected
to be made each year, the above pro forma disclosures are not representative
of pro forma effects of reported net income for future periods.
7. SALE OF BUSINESSES
The Company records income and expenses associated with former business
activities on the Consolidated Statement of Operations under the caption "Gain
on Disposal of Businesses". In April 1996, the Company favorably settled a
legal dispute related to the cancellation of a Supply and Sales Representative
Agreement with a former business partner. The settlement agreement calls for
Bird to receive total payments of $410,000 over a period of two years, for
cancellation of the Sale Representative and Supply Agreements, and termination
of the partnership. In July 1996, the Company received an aggregate of
$535,000 in cash for the settlement of three legal disputes relating to
insurance coverage. These legal disputes related to the Company's former vinyl
and roofing businesses.
In December 1996, the Company was reimbursed $123,000 for costs associated
with the remediation of an underground storage tank system at its former
distribution center located in Arizona.
On March 8, 1995, the Company sold substantially all of the assets of its
vinyl business to Jannock, Inc. for $47.5 million in cash subject to certain
downward adjustments which totaled $4,962,000. Net of adjustments, the gain on
the sale of the vinyl business totaled $20,579,000. Sales of $6,365,000 were
recorded for the vinyl business in 1995 through the date of the sale.
On June 2, 1995 the Company sold all of the outstanding capital stock of
Bird-Kensington Holding Corp., which owned the Company's interest in
Kensington Partners, to Jannock, Inc. The purchase price consisted of
F-15
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cash in the gross amount of $2,780,000 and the assumption of certain
liabilities related to the Kensington window business. The sale resulted in a
loss of $1,959,000. Sales of $4,265,000 were recorded for this business for
the period March 1, 1995 through June 2, 1995.
The Company recorded other expenses related to former business activities of
$149,000, and $1,050,000 for the years 1996, and 1995, respectively. These
charges against earnings include warranty claims and other costs directly
related to former business activities. Expenses incurred in 1995 also included
$1.5 million in provisions relating to employee benefit plans and product
liability claims associated with former roofing operations which were offset
by a $602,000 crude oil refund from the Department of Energy.
8. OTHER EXPENSE, NET
Other income in 1997 related to proceeds on company owned life insurance.
Other expenses in 1996 were primarily due to the $806,000 of costs associated
with a terminated merger agreement.
9. DISCONTINUED OPERATIONS
Environmental Businesses
In 1994, the Company agreed to cause the sale of its 80% interest in its
environmental business, Bird Environmental Gulf Coast, Inc. ("BEGCI") to the
minority shareholders thereof, subject to financing, resulting in the complete
withdrawal from the environmental business. However, during 1995, the minority
partner became unable to finance the purchase of the facility and efforts to
attract another purchaser were unsuccessful. In July 1995, the Company's Board
of Directors suspended further funding of the facility. As a result of this
action, during the second quarter of 1995, the Company's remaining investment
of $8.6 million was written off and a $3 million reserve was established for
additional expenses associated with the closure of the facility. On November
29, 1995, the Company caused the sale of all of the outstanding capital stock
of BEGCI to GTS Duratek, Inc. for a purchase price of $1.00. Net sales
relating to this business amounted to $2,848,000 for 1995. During the fourth
quarter of 1997, the Company recorded income from discontinued operations of
approximately $575,000 resulting from the reversal of a contingency reserve
established at the time of the sale of BEGCI. The contingency period expired
on December 1, 1997.
10. ACQUISITIONS
On July 1, 1992 the Company entered into a 50% joint venture with Kensington
Manufacturing Company to manufacture vinyl replacement windows through
Kensington Partners ("Kensington"). On February 28, 1995, the Company's
ownership in the joint venture was permanently fixed at 90%, resulting in a
change in financial reporting from the equity method to consolidation
beginning March 1, 1995 through June 2, 1995 when the operation was sold (see
Note 7). For the two month period ended February 20, 1995, Kensington reported
net sales of $1,774,000 and a net loss of $413,000.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain manufacturing, administrative, warehousing,
transportation equipment and other facilities. The leases generally provide
that the Company pay the taxes, insurance and maintenance expenses related to
the leased assets.
F-16
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997 minimum lease commitments under non-cancelable
operating leases are as follows (in thousands):
YEAR
----
1998............................. $ 1,003
1999............................. 1,003
2000............................. 1,003
2001............................. 776
2002............................. 740
Later years...................... 8,874
-------
$13,399
=======
Total rental expense for continuing operations, exclusive of taxes,
insurance and other expenses paid by the lessee related to all operating
leases (including those with terms of less than one year) was as follows (in
thousands):
YEAR AMOUNT
---- ------
1997.............................. $ 980
1996.............................. $1,043
1995.............................. $1,059
The following represents property under capital leases (in thousands):
DECEMBER 31,
-------------
1997 1996
------ ------
Machinery and equipment....................................... $2,191 $2,248
Less, accumulated depreciation................................ 1,024 903
------ ------
$1,167 $1,345
====== ======
Litigation
The Company monitors its compliance with environmental regulations on an
ongoing basis. The Company's general counsel receives environmental site
assessments from the operating managers responsible for site environmental
compliance. Appropriate action is undertaken where needed. When environmental
claims are asserted against the Company, the claims are evaluated by the
Company's general counsel and operating management in conjunction with
external legal counsel and environmental engineers as necessary, and action is
taken with respect to all known sites, as appropriate. The Company is
currently engaged in proceedings relating to or has received notice of the
following environmental matters:
On June 21, 1994, the Arizona Department of Environmental Quality ("ADEQ")
issued a notice of violation ("NV") to Southwest Roofing Supply, a previously
owned division of the Company ("Southwest"), which directed Southwest to
conduct a site investigation of property formerly leased by Southwest. The
consent order between the ADEQ and the Company was issued on September 23,
1994. Pursuant to the order, the Company agreed to submit a work plan with a
view to remediating the soil and groundwater that may have been contaminated
by leaks from an underground storage tank previously removed by the Company.
On December 23, 1996, the consent order was satisfactorily closed between the
Arizona State Assurance Fund and the Company; however, the remediation work
must still be completed. The Company's management believes that the net
remediation cost to the Company will be approximately $150,000. As of December
31, 1997, the Company had a reserve of $150,000 for the estimated cost of
clean-up. The Company anticipates that $250,000 will be reimbursed to the
Company by the Arizona State Assurance Fund in accordance with Arizona law and
regulation.
F-17
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1986, the Company, along with numerous other companies, was named by the
EPA and other governmental agencies responsible for regulation of the
environment as a Potentially Responsible Person ("PRP") pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA") in connection with
hazardous substances at a site known as the Fulton Terminal Superfund site
located in Fulton, Oswego County, New York. On September 28, 1990, the Company
and a number of other PRPs reached a negotiated settlement with the EPA
pursuant to which the settling PRPs agreed to pay the costs of certain
expenses in connection with the proceedings and to pay certain other expenses,
including the costs and expenses of administering a trust fund to be
established by the settling PRPs. The settlement agreement is embodied in a
consent decree lodged with the United States District Court for the Western
District of New York and fixed the Company's proportionate share of the total
expenses. The soil has been cleaned-up and the groundwater is now being
treated. The remaining cost to the Company of the remedial work and other
expenses covered by the settlement agreement is estimated to be approximately
$200,000 payable over the next three years. At December 31, 1997, the Company
had a reserve of $200,000 to cover the estimated cost of the Company's
remaining proportionate share (i.e., 17%) of the cost to clean-up the
groundwater. Under a cost-sharing arrangement set forth in a consent decree
with the EPA, the other PRPs have agreed to incur 83% of the aggregate cost of
remediation of this site. Based on information currently available to the
Company, management believes that it is probable that the major responsible
parties will fully pay the cost apportioned to them. Management believes that,
based on its financial position and the estimated accrual recorded, the
remediation expense with respect to this site is not likely to have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
The Company has owned and operated a sanitary landfill since the late 1960's
used exclusively by the Company's roofing plant for the disposal of its own
manufacturing process waste, primarily asphalt roofing materials. No hazardous
or other specially regulated wastes have been disposed of at this site. As a
result of a 1995 regulatory decision by the Massachusetts Department of
Environmental Protection ("D.E.P.") to disallow the continued operation of all
unlined landfills, the Company chose not to seek to renew its operating permit
at the state or local level which expired at the end of August 1997. To
continue to operate the landfill would be of no financial benefit over the
existing outside disposal alternatives, given the new regulatory requirements
and the minimal quantities of waste being disposed of presently. Therefore, as
a result of this decision, the Company has begun negotiating a landfill
closure plan with the D.E.P. which may commence construction in 1998 and be
completed in 1999. As of December 31, 1997, the Company had a reserve of
approximately $800,000 to cover the estimated cost to close the landfill.
Management believes that the closure expense with respect to this site will
not have a material adverse effect on the results of operations or financial
condition of the Company.
The Company has been named as a PRP with respect to certain other sites
which are being investigated by federal or state agencies responsible for
regulation of the environment. As a consequence of its status as a PRP, the
Company may be jointly and severally liable for all of the potential monetary
sanctions and remediation costs applicable to each site. In assessing the
potential liability of the Company at each site, management has considered,
among other things, the aggregate potential clean-up costs of each site; the
apparent involvement of the Company at each site and its prospective share of
the remediation costs attributable thereto; the number of PRPs identified with
respect to each site and their financial ability to contribute their
proportionate shares of the remediation costs for such site; the availability
of insurance coverage for the Company's involvement at each site and the
likelihood that such coverage may be contested; and whether and to what extent
potential sources of contribution from other PRPs or indemnification by
insurance companies constitute reliable sources of recovery for the Company.
Similar consideration has been given in determining the exposure and potential
liability of the Company in connection with other significant legal
proceedings to which the Company is a party. On the basis of such
consideration, management has determined that such environmental matters will
not have a material adverse effect on the Company's financial position or
results of operations.
F-18
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Since 1981 Bird has been named as a defendant in approximately 650 product
liability cases throughout the United States by persons claiming to have
suffered asbestos-related diseases as a result of alleged exposure to asbestos
used in products manufactured and sold by Bird. Approximately 150 of these
cases are currently pending and costs of approximately $2 million in the
aggregate have been incurred in the defense of these claims since 1981.
Employers Insurance of Wausau ("Wausau") has accepted the defense of these
cases under an agreement for sharing of the costs of defense, settlements and
judgments, if any. At December 31, 1997, the Company has a reserve of $950,000
to cover the estimated cost of these claims. In light of the nature and merits
of the claims alleged, in the opinion of management, the resolution of these
remaining claims will not have a material adverse effect on the results of
operations or financial condition of the Company.
In 1992, a subsidiary of the Company, Bird Atlantic Corporation ("BAC")
formerly Atlantic Building Products Corporation, commenced an action against a
former vendor, alleging violation of an exclusive distributorship without
adequate and fair compensation to BAC. A jury trial was held in November 1995
in the Superior Court of Plymouth County, Massachusetts. The jury found in
favor of BAC and judgement was entered on January 26, 1996 in the principal
amount of approximately $1.8 million. The award, with interest accruing at 12%
per annum, is expected to be in excess of $3 million and will not be reported
as income until collected. The defendant and BAC have appealed the judgement.
On April 16, 1996, a class action suit was filed in the Superior Court of
the Commonwealth of Massachusetts against Bird Incorporated, a wholly owned
subsidiary of the Company. The complaint alleges that Bird Incorporated has
knowingly manufactured, distributed and falsely advertised defectively
designed fiber glass based roofing shingles. The complaint sets forth claims
of fraud, negligent misrepresentation, negligence and breach of express and
implied warranty. The Company is currently in the process of defending against
the complaint. The Company has tendered the defense of the action to several
insurance carriers which have assumed its defense. In the opinion of
management, the above matter will not have a material adverse effect on the
Company's financial position or results of operations.
Warranty Obligations
The Company warrants under certain circumstances that its Housing Group's
products meet certain manufacturing and material specifications. In addition,
for marketing considerations, the Company makes elective settlements in
response to customer complaints. The Company records the liability for
warranty claims and elective customer settlements when it determines that a
specific liability exists or a payment will be made. During 1997, 1996 and
1995, the Company recorded (exclusive of those claims related to former
roofing operations) approximately $1,395,000, $2,155,000, and $2,262,000,
respectively, in warranty expenses and elective customer settlements. Based
upon analyses performed by the Company's management, a reasonably possible
range of potential liability from unasserted warranty obligations for all
products sold prior to December 31, 1997 is estimated to be between $3.5
million and $17.5 million. However, the Company has not recorded any liability
for these future unasserted claims or complaints because management has
concluded, based on such analyses, that no particular estimate within this
range is probable.
F-19
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed by dividing earnings (loss)
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflect per
share amounts that would have resulted if dilutive potential common stock had
been converted to common stock. Diluted loss per share amounts exclude
potential common stock as its inclusion would be anti-dilutive.
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
FOR THE YEAR ENDED 1997
Earnings (loss) from continuing
operations............................... $ (977,000)
Deduct dividend requirements:
Preferred stock......................... (30,000)
Convertible preference stock............ (1,506,000)
-----------
Basic earnings (loss) per share
Income (loss) available to common
stockholders........................... (2,513,000) 4,150,566 $(0.60)
Effect of dilutive securities
Options................................. 0 0
Convertible preference stock............ 0 0
----------- ---------
Diluted earnings (loss) per share
Income (loss) available to common
stockholder............................ $(2,513,000) 4,150,566 $(0.60)
=========== ========= ======
FOR THE YEAR ENDED 1996
Earnings (loss) from continuing
operations............................... $ 2,169,000
Deduct dividend requirements:
Preferred stock......................... (30,000)
Convertible preference stock............ (1,506,000)
-----------
Basic earnings (loss) per share
Income (loss) available to common
stockholders........................... 633,000 4,130,224 $ 0.15
Effect of dilutive securities
Options................................. 0 17,203
Convertible preference stock............ 0 0
----------- ---------
Diluted earnings (loss) per share
Income (loss) available to common
stockholders........................... $ 633,000 4,147,427 $ 0.15
=========== ========= ======
FOR THE YEAR ENDED 1995
Earnings (loss) from continuing
operations............................... $ (797,000)
Deduct dividend requirements:
Preferred stock......................... (30,000)
Convertible preference stock............ (1,506,000)
-----------
Basic earnings (loss) per share
Income (loss) available to common
stockholders........................... (2,333,000) 4,104,965 $(0.57)
Effect of dilutive securities
Options................................. 0 0
Convertible preference stock............ 0 0
----------- ---------
Diluted earnings (loss) per share
Income (loss) available to common
stockholder............................ $(2,333,000) 4,104,965 $(0.57)
=========== ========= ======
F-20
BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has 814,300 shares of $1.85 cumulative convertible preference
stock outstanding; convertible into 731,955 shares of common stock. The
preference stock was not included in the 1996 computation of dilutive earnings
per share because the effect of the conversion would be anti-dilutive.
13. SUBSEQUENT EVENT--ACQUISITION BY CERTAINTEED CORPORATION
On February 16, 1998 BI Expansion II Corp. ("Acquisition Sub"), a wholly-
owned subsidiary of CertainTeed Corporation ("CertainTeed"), an indirect
wholly-owned subsidiary of Compagnie de Saint-Gobain (Paris, France), accepted
for payment pursuant to a cash tender offer (the "Tender Offer") 3,991,022
shares of the common stock, $1 par value per share, of the Company (the
"Common Stock"), or approximately 96% of the Common Stock outstanding, and
772,735 shares of the $1.85 Cumulative Convertible Preference Stock, $1 par
value per share, of the Company (the "Preference Stock"), or approximately 95%
of the Preference Stock outstanding, at a price of $5.50 per share of Common
Stock and $20 per share of Preference Stock, without any adjustment for
dividends accrued and unpaid through the date of the expiration of the Tender
Offer (February 13, 1998).
As a result of the completion of the Tender Offer, CertainTeed owns, through
Acquisition Sub, all but 170,354 shares of the outstanding shares of Common
Stock and all but 41,565 shares of the outstanding shares of Preference Stock.
The Common Stock no longer meets the continuing inclusion requirements for
Nasdaq National Market securities, and there is little or no market for either
the Common Stock or the Preference Stock. Accordingly, the Company withdrew
from Nasdaq Stock Market listing the Common Stock and the Preference Stock,
effective at the close of business on March 3, 1998.
The Tender Offer was the first step in the acquisition of the Company by
CertainTeed contemplated by an Agreement and Plan of Merger dated as of
January 12, 1998 (the "Merger Agreement") between the Company, CertainTeed and
Acquisition Sub. The second step in the transaction will be the merger (the
"Merger") of Acquisition Sub with and into the Company, with the Company
surviving the Merger as a wholly-owned subsidiary of CertainTeed. Upon the
effectiveness of the Merger, each outstanding share of Common Stock (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 Acquisition Sub or CertainTeed) will be converted into the right
to receive $5.50 in cash, and each share of Preference Stock (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 Acquisition Sub or CertainTeed) will be converted into the right
to receive $20 in cash, which amount will not be adjusted for any dividends
accrued and unpaid through the date of the consummation of the Merger.
Outstanding options to acquire shares of Common Stock with an exercise price
of less than $5.50 per share will be converted into the right to receive a
cash payment equal to the number of shares purchasable upon exercise of the
option multiplied by the difference between $5.50 and the exercise price. The
Company's outstanding 5% Cumulative Preferred Stock, par value $100 per share
("5% Stock"), will remain issued and outstanding upon the effectiveness of the
Merger and will be called for redemption and retirement as soon as is
practicable thereafter at a price equal to $110, plus all accrued and unpaid
dividends thereon as of the date of redemption and retirement. The total
consideration for CertainTeed's acquisition of the Company is approximately
$40 million, including payment for the Common Stock and the Preference Stock
pursuant to the Tender Offer and Merger and for the 5% Stock upon redemption,
but excluding outstanding indebtedness of the Company.
The closing of the Merger is anticipated during the second quarter of 1998,
following distribution of an information statement to the Company's
stockholders and approval of the Merger Agreement at a special meeting of
stockholders. The consummation of the Merger is subject to approval of the
Merger Agreement by at least 66 2/3% of the outstanding shares of Common Stock
and at least 66 2/3% of the outstanding shares of Preference Stock. As a
result of the completion of the Tender Offer, Acquisition Sub has sufficient
voting power to effect the Merger without the vote of any other stockholder of
the Company.
F-21
SCHEDULE II
BIRD CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
ADDITIONS
----------------------
BALANCE CHARGED TO CHARGED TO
BEGINNING COST AND OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS(A) DEDUCTIONS END OF YEAR
--------- ---------- ----------- ---------- -----------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1997:
Allowance for doubtful
accounts.............. $ 150 $ 153 $ 5 $ (155)(b) $ 153
Valuation allowance for
deferred tax assets... $17,219 $ 175 $ 0 $ (392) $17,002
YEAR ENDED DECEMBER 31,
1996:
Allowance for doubtful
accounts.............. $ 153 $ 0 $ 0 $ (3)(b) $ 150
Valuation allowance for
deferred tax assets... $15,062 $ 2,157 $ 0 $ 0 $17,219
YEAR ENDED DECEMBER 31,
1995:
Allowance for doubtful
accounts.............. $ 3,137 $ 26 $56 $(3,066)(c) $ 153
Valuation allowance for
deferred tax assets... $ 5,000 $10,789 $ 0 $ (727) $15,062
- --------
(a) Represents recovery of balances previously written off.
(b) Uncollectible accounts written off by a charge to reserve.
(c) Represents the allowance for doubtful accounts of vinyl business sold of
$517 and the uncollectible accounts written off by a charge to reserve of
$2,549.
F-22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CERTAINTEED CORPORATION,
BI EXPANSION II CORP.
AND
BIRD CORPORATION
DATED AS OF JANUARY 12, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE OFFER AND THE MERGER
Section 1.01. The Offer................................................. 1
Section 1.02. Company Actions........................................... 2
Section 1.03. Surviving Corporation..................................... 3
Section 1.04. Articles of Organization.................................. 3
Section 1.05. By-Laws................................................... 3
Section 1.06. Directors................................................. 3
Section 1.07. Officers.................................................. 3
Section 1.08. Effective Date............................................ 3
Section 1.09. Additional Actions........................................ 4
Company Common Stock, Preferred Stock and Preference
Section 1.10. Stock..................................................... 4
Section 1.11. Conversion of Acquisition Sub Common Stock................ 4
Section 1.12. Dissenting Shares......................................... 4
Section 1.13. Surrender of Shares....................................... 5
Section 1.14. Certain Benefit Plans..................................... 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 2.01. Corporate Organization.................................... 7
Section 2.02. Capitalization of the Company............................. 7
Section 2.03. Subsidiaries.............................................. 7
Section 2.04. Authorization............................................. 8
Section 2.05. Absence of Conflicts; Consents............................ 8
Section 2.06. Compliance with Laws...................................... 9
Section 2.07. Financial Statements...................................... 9
Section 2.08. Absence of Material Changes............................... 10
Section 2.09. Litigation................................................ 10
Section 2.10. Patents and Trademarks.................................... 11
Section 2.11. Material Contracts; Permits............................... 11
Section 2.12. Title to Properties and Related Matters................... 12
Section 2.13. Taxes..................................................... 12
Section 2.14. Labor Agreements.......................................... 15
Section 2.15. Benefit Plans............................................. 15
Section 2.16. Labor Disputes; Unfair Labor Practices.................... 17
Section 2.17. Product Warranties........................................ 17
Section 2.18. Environmental Matters..................................... 18
Section 2.19. Insurance................................................. 19
Section 2.20. SEC Filings............................................... 19
Section 2.21. Brokers and Finders....................................... 20
Section 2.22. Antitakeover.............................................. 20
Section 2.23. Opinion of Financial Advisor.............................. 20
Section 2.24. Asbestos Claims........................................... 20
Section 2.25. Revolving Credit and Security Agreement................... 20
i
PAGE
----
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 3.01. Corporate Organization..................................... 20
Section 3.02. Authorization.............................................. 21
Section 3.03. Absence of Conflicts; Consents............................. 21
Section 3.04. Litigation................................................. 21
Section 3.05. Brokers and Finders........................................ 21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB
Section 4.01. Corporate Organization..................................... 22
Section 4.02. Authorization.............................................. 22
Section 4.03. Absence of Conflicts; Consents............................. 22
Section 4.04. Litigation................................................. 23
Section 4.05. Capitalization............................................. 23
Section 4.06. Brokers and Finders........................................ 23
ARTICLE V
COVENANTS
Section 5.01. Access and Information..................................... 23
Section 5.02. Proxy Statement............................................ 23
Section 5.03. Stockholders' Meeting...................................... 24
Section 5.04. Supplemental Information................................... 24
Section 5.05. Further Assurances......................................... 24
Section 5.06. Conduct of Company Business Prior to the Effective Date.... 24
Section 5.07. Consents................................................... 26
Section 5.08. Filings.................................................... 26
Section 5.09. Filing of Articles of Merger............................... 27
Section 5.10. Interim Financial Statements............................... 27
Section 5.11. Public Announcements....................................... 27
Section 5.12. No Solicitation............................................ 27
Section 5.13. Validity of Representations................................ 28
Section 5.14. Employees; Benefits........................................ 28
Section 5.15. Indemnification and Insurance.............................. 29
Section 5.16. Redemption of 5% Stock..................................... 29
Section 5.17. Material Contracts......................................... 30
Section 5.18. Tax Matters................................................ 30
Section 5.19. Dividend Payments.......................................... 30
Section 5.20. Satisfaction of Conditions................................. 30
Section 5.21. Directors.................................................. 30
ii
PAGE
----
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITION SUB
Section 6.01. Representations and Warranties True...................... 31
Section 6.02. Company's Performance.................................... 31
Section 6.03. Authorization of Merger.................................. 31
Section 6.04. Absence of Litigation.................................... 31
Section 6.05. Directors................................................ 32
Section 6.06. Dissenting Shares........................................ 32
Section 6.07. Options.................................................. 32
Section 6.08. Certificates............................................. 32
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
Section 7.01. Representations and Warranties True...................... 32
Section 7.02. Parent's and Acquisition Sub's Performance............... 32
Section 7.03. Authorization of Merger.................................. 32
Section 7.04. Absence of Litigation.................................... 33
Section 7.05. Certificates............................................. 33
ARTICLE VIII
CLOSING
Section 8.01. Time and Place........................................... 33
Section 8.02. Deliveries at the Closing................................ 33
ARTICLE IX
TERMINATION AND ABANDONMENT OF THE MERGER
Section 9.01. Termination.............................................. 33
Section 9.02. Effect of Termination.................................... 34
Section 9.03. Procedure for Termination and Amendment.................. 35
ARTICLE X
MISCELLANEOUS
Section 10.01. Expenses; Alternate Transaction Fee....................... 35
Section 10.02. Non-Survival of Representations and Warranties............ 36
Section 10.03. Headings.................................................. 36
Section 10.04. Notices................................................... 37
Section 10.05. Assignment................................................ 37
Section 10.06. Complete Agreement........................................ 38
Section 10.07. Amendments and Waivers.................................... 38
Section 10.08. Counterparts.............................................. 38
Section 10.09. Governing Law............................................. 38
Section 10.10. Accounting Terms.......................................... 38
Section 10.11. Parties................................................... 38
iii
EXHIBITS
Exhibit A Conditions to the Offer
Exhibit B Articles of Merger
SCHEDULES
Schedule 2.01 Foreign Jurisdictions
Schedule 2.02 Capitalization
Schedule 2.03 Subsidiaries
Schedule 2.05 Conflicts, Consents, Approvals and Authorizations
Schedule 2.07 Company Financial Statements
Schedule 2.08 Absence of Material Changes
Schedule 2.09 Litigation
Schedule 2.10 Patents and Trademarks
Schedule 2.11 Material Contracts
Schedule 2.12 Real Property
Schedule 2.13 Taxes
Schedule 2.14 Labor Agreements
Schedule 2.15 Benefit Plans
Schedule 2.17 Product Warranties
Schedule 2.18 Environmental Matters
Schedule 2.19 Insurance
Schedule 2.20 SEC Filings
Schedule 5.06 Conduct of Business
iv
INDEX OF DEFINITIONS
DEFINITION SECTION
---------- -------
"Acquisition Sub"...................................... Introduction
"Acquisition Sub Common Stock"......................... Section 1.11
"Alternate Transaction Fee"............................ Section 10.01(b)
"Antitrust Division"................................... Section 2.05(e)
"Applicable Laws"...................................... Section 2.05(d)
"Articles of Merger"................................... Section 1.08
"Balance Sheet"........................................ Section 2.07(a)
"Balance Sheet Date"................................... Section 2.07(a)
"Benefit Plans"........................................ Section 2.15(i)
"CERCLA"............................................... Section 2.18
"Certificates"......................................... Section 1.13(b)
"Closing".............................................. Section 8.01
"Closing Date"......................................... Section 8.01
"Code"................................................. Section 2.13(a)
"Commonly Controlled Entity"........................... Section 2.15(i)
"Company".............................................. Introduction
"Common Stock Offer Price"............................. Introduction
"Company Common Stock"................................. Section 1.10(a)(i)
"Company Estimates".................................... Section 2.18(g)
"Company Financial Statements"......................... Section 2.07(a)
"Company Pension Plan"................................. Section 2.15(iii)
"Company Property"..................................... Section 2.12(a)
"Company Willful Misrepresentation".................... Section 9.02(b)
"Consummation of the Offer"............................ Section 5.02(e)
"Continuing Directors"................................. Section 5.21
"Conversion Rights".................................... Section 2.02(c)
"Covered Taxes"........................................ Section 2.13(c)
"Defined Benefit Plan"................................. Section 2.15(vi)
"Designated Director".................................. Section 5.21
"Director Option Plan"................................. Section 1.14(a)(i)
"Dissenting Consideration"............................. Section 1.12
"Dissenting Shares".................................... Section 1.12
"D&O Insurance"........................................ Section 5.15(a)
"Effective Date"....................................... Section 1.08
"Effective Time"....................................... Section 1.08
"Eligible Option"...................................... Section 1.14(a)(i)
"Environmental Laws"................................... Section 2.18
"ERISA"................................................ Section 2.15(i)
"Exchange Act"......................................... Section 1.01(b)
"Expenses"............................................. Section 10.01(b)
"5% Stock"............................................. Section 1.10(b)
"5% Stock Consideration"............................... Section 1.10(b)
"French parcel"........................................ Section 2.04(d)
"FTC".................................................. Section 2.05(e)
"GAAP"................................................. Section 2.07(a)
"Governmental Authority"............................... Section 2.05(d)
"Hazardous Materials".................................. Section 2.18
"HSR Act".............................................. Section 2.05(e)
"Inactive Subsidiary".................................. Section 2.03(a)
"Indemnified Parties".................................. Section 5.15(a)
"Ineligible Option".................................... Section 1.14(a)(ii)
v
DEFINITION SECTION
---------- -------
"Information Statement"................................. Section 2.20(b)
"Judgment".............................................. Section 2.05(d)
"Leased Real Property".................................. Section 2.12(a)
"Legal Action".......................................... Section 2.09
"Lien".................................................. Section 2.05(b)
"LTIP".................................................. Section 1.14(b)
"Material Adverse Effect"............................... Section 2.01
"Material Contracts".................................... Section 2.11
"Maximum Premium"....................................... Section 5.15(a)
"MBCL".................................................. Section 1.03
"McFarland Dewey"....................................... Section 3.05
"Merger"................................................ Introduction
"MICP".................................................. Section 2.15(xi)
"1982 Stock Option Plan"................................ Section 1.14(a)(i)
"1992 Stock Option Plan"................................ Section 1.14(a)(i)
"Notice of Qualified Takeover Proposal"................. Section 5.12(b)
"Offer"................................................. Introduction
"Offer Document"........................................ Section 1.01(b)
"Options"............................................... Section 1.14(a)(i)
"Owned Real Property"................................... Section 2.12(a)
"Parent"................................................ Introduction
"Parent Willful Misrepresentation"...................... Section 9.02(c)
"Paying Agent".......................................... Section 1.13
"PBGC".................................................. Section 2.15(v)
"Pension Plan".......................................... Section 2.15(i)
"Permits"............................................... Section 2.06
"Permitted Liens"....................................... Section 2.12(b)
"Person"................................................ Section 2.05(c)
"Preference Stock"...................................... Section 1.10(c)
"Preference Stock Consideration"........................ Section 1.10(c)
"Preference Stock Offer Price".......................... Introduction
"Proxy Statement"....................................... Section 5.02(a)
"qualified takeover proposal"........................... Section 5.12(a)
"Release"............................................... Section 2.18
"Return" or "Returns"................................... Section 2.13(a)
"Revolving Credit Agreement"............................ Section 2.25
"Savings Plan".......................................... Section 1.14(c)
"Schedule 14D-9"........................................ Section 1.02(b)
"SEC"................................................... Section 1.01(a)
"SEC Documents"......................................... Section 2.20(a)
"Securities Act"........................................ Section 2.20(a)
"Special Meeting"....................................... Section 5.03(a)
"Subsidiary"............................................ Section 2.01
"Surviving Corporation"................................. Section 1.03
"Surviving Corporation Common Stock".................... Section 1.11
"takeover proposal"..................................... Section 5.12(a)
"Tax" or "Taxes"........................................ Section 2.13(a)
"Taxing Authority"...................................... Section 2.13(a)
"Total Merger Consideration"............................ Section 1.10(a)(i)
"Transmittal Letter".................................... Section 1.13(b)
"Welfare Plan".......................................... Section 2.15(i)
vi
This AGREEMENT AND PLAN OF MERGER dated as of January 12, 1998, is entered
into by and among CERTAINTEED CORPORATION, a Delaware corporation
("Parent"), BI EXPANSION II CORP., a Massachusetts corporation
("Acquisition Sub"), and BIRD CORPORATION, a Massachusetts corporation (the
"Company").
WHEREAS the respective Boards of Directors of Parent, Acquisition Sub and
the Company have approved the making by Acquisition Sub of a tender offer from
time to time (the "Offer") to purchase all outstanding shares of Company
Common Stock (as defined below) at a price per share equal to the Total Merger
Consideration (as defined below) (the "Common Stock Offer Price") and all
outstanding shares of Preference Stock (as defined below) at a price per share
equal to $20, which amount shall not be adjusted for any accrued and unpaid
dividends thereon as of, or any dividends paid prior to, the date of the
expiration of the Offer (the "Preference Stock Offer Price") along with the
merger of Acquisition Sub with and into the Company (the "Merger"), upon the
terms and subject to the conditions set forth herein, as a result of which the
Company will become a wholly owned subsidiary of Parent and the stockholders
of the Company (other than stockholders who perfect appraisal rights) will be
entitled to receive the consideration provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and of the representations, warranties, covenants and
agreements hereinafter contained, Parent, Acquisition Sub and the Company
agree as follows:
ARTICLE I
THE OFFER AND THE MERGER
Section 1.01. The Offer. (a) Subject to the provisions of this Agreement, as
promptly as practicable, but in no event later than five business days after
the public announcement of the Offer, Acquisition Sub shall commence the
Offer. The obligation of Acquisition Sub to commence the Offer and accept for
payment, and pay for, any shares of Company Common Stock or Preference Stock
tendered pursuant to the Offer shall be subject to the conditions set forth in
Exhibit A (any of which may be waived in whole or in part by Acquisition Sub
in its sole discretion) and to the terms and conditions of this Agreement.
Acquisition Sub expressly reserves the right to modify the terms of the Offer,
except that, without the consent of the Company, Acquisition Sub shall not (i)
reduce the number of shares of Company Common Stock or Preference Stock to be
purchased in the Offer, (ii) reduce the Common Stock Offer Price or the
Preference Stock Offer Price, (iii) modify or add to the conditions set forth
in Exhibit A, (iv) except as provided in the next sentence, extend the Offer,
(v) change the form of consideration payable in the Offer or (vi) amend any
other term of the Offer in a manner adverse in any material respect to the
holders of Company Common Stock or Preference Stock. Notwithstanding the
foregoing, Acquisition Sub may, without the consent of the Company, (i) extend
the Offer beyond any scheduled expiration date (the initial scheduled
expiration date being 20 business days following commencement of the Offer)
for a period not to exceed 20 business days, if at any scheduled expiration
date of the Offer, any of the conditions to Acquisition Sub's obligation to
accept for payment, and pay for, shares of Company Common Stock or Preference
Stock shall not be satisfied or waived, until such time as such conditions are
satisfied or waived, (ii) extend the Offer for any period required by any
rule, regulation, interpretation or position of the Securities and Exchange
Commission (the "SEC") or the staff thereof applicable to the Offer and (iii)
terminate the Offer without prejudice to any of its and Parent's rights under
this Agreement, including to proceed with the Merger in accordance with, and
subject to the terms and conditions of, this Agreement. Subject to the terms
and conditions of the Offer and this Agreement, Acquisition Sub shall accept
for payment, and pay for, all shares of Company Common Stock and Preference
Stock validly tendered and not withdrawn pursuant to the Offer that
Acquisition Sub becomes obligated to accept for payment, and pay for, pursuant
to the Offer as soon as practicable after expiration of the Offer, subject to
compliance with Rule 14e-1(c) under the Exchange Act (as defined below).
(b) On the date of commencement of the Offer, Parent and Acquisition Sub
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with
respect to the Offer, which shall contain an offer to purchase and a
1
related letter of transmittal and summary advertisement (such Schedule 14D-1
and the documents included therein pursuant to which the Offer will be made,
together with any supplements or amendments thereto, the "Offer Documents").
Parent and Acquisition Sub agree that the Offer Documents shall comply as to
form in all material respects with the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the "Exchange
Act") and, on the date first published, sent or given to the Company's
stockholders, shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading, except that no representation is made by
Parent or Acquisition Sub with respect to information regarding the Company or
its subsidiaries or provided by the Company for inclusion or incorporation by
reference in the Offer Documents. Each of Parent, Acquisition Sub and the
Company agrees promptly to correct any information provided by it for use in
the Offer Documents if and to the extent that such information shall have
become false or misleading in any material respect, and each of Parent and
Acquisition Sub further agrees to take all steps necessary to amend or
supplement the Offer Documents and to cause the Offer Documents as so amended
or supplemented to be filed with the SEC and to be disseminated to the
Company's stockholders, in each case as and to the extent required by
applicable Federal securities laws. The Company and its counsel shall be given
a reasonable opportunity to review and comment upon the Offer Documents and
all amendments and supplements thereto prior to their filing with the SEC or
dissemination to stockholders of the Company. Parent and Acquisition Sub agree
to provide the Company and its counsel any comments or requests for additional
information Parent, Acquisition Sub or their counsel may receive from the SEC
or its staff with respect to the Offer Documents promptly after the receipt of
such comments and shall provide the Company and its counsel an opportunity to
participate, including by way of discussion with the SEC or its staff, in the
response of Parent and/or Acquisition Sub to such comments.
(c) Parent shall provide or cause to be provided to Acquisition Sub on a
timely basis the funds necessary to accept for payment, and pay for, any
shares of Company Common Stock and Preference Stock that Acquisition Sub
accepts for payment, and becomes obligated to pay for, pursuant to the Offer.
Section 1.02. Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents that the Board of Directors of the
Company, at a meeting duly called and held, adopted resolutions approving this
Agreement, the Offer, the Merger and the transactions contemplated hereby,
determining that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's stockholders and recommending that the
Company's stockholders approve and adopt this Agreement, accept the Offer and
tender their shares pursuant to the Offer and/or vote their shares of Company
Common Stock and Preference Stock in favor of the Merger.
(b) Not later than the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 (which shall include the information required by Section 14(f)
of the Exchange Act and Rule l4f-1 promulgated thereunder with respect to the
persons to be named directors of the Company pursuant to Section 5.21) with
respect to the Offer (such Schedule 14D-9, as amended from time to time, the
"Schedule 14D-9") containing the recommendation described in Section 1.02(a)
and shall mail the Schedule 14D-9 to the stockholders of the Company. The
Schedule 14D-9 shall comply as to form in all material respects with the
Exchange Act and the rules and regulations promulgated thereunder and, on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information provided by
Parent or Acquisition Sub for inclusion or incorporation by reference in the
Schedule 14D-9. Each of the Company, Parent and Acquisition Sub agrees
promptly to correct any information provided by it for use in the Schedule
14D-9 if and to the extent that such information shall have become false or
misleading in any material respect, and the Company further agrees to take all
steps necessary to amend or supplement the Schedule 14D-9 and to cause the
Schedule 14D-9 as so amended or supplemented to be filed with the SEC and
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable Federal securities laws.
2
Parent and its counsel shall be given a reasonable opportunity to review and
comment upon the Schedule 14D-9 and all amendments and supplements thereto
prior to their filing with the SEC or dissemination to stockholders of the
Company. The Company agrees to provide Parent and its counsel in writing with
any comments or requests for additional information the Company or its counsel
may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments and shall provide Parent and its
counsel an opportunity to participate, including by way of discussions with
the SEC or its staff, in the response of the Company to such comments.
(c) In connection with the Offer, the Company shall cause its transfer agent
to furnish Acquisition Sub promptly with mailing labels containing the names
and addresses of the record holders of Company Common Stock and of the record
holders of Preference Stock as of a recent date and of those persons becoming
record holders subsequent to such date, together with copies of all lists of
stockholders, security position listings and computer files and all other
information in the Company's possession or control regarding the beneficial
owners of Company Common Stock and the beneficial owners of Preference Stock,
and shall furnish to Acquisition Sub such information and assistance
(including updated lists of stockholders, security position listings and
computer files) as Parent may request in communicating the Offer to holders of
Company Common Stock and Preference Stock.
Section 1.03. Surviving Corporation. In accordance with the provisions of
this Agreement and the Massachusetts Business Corporation Law, as amended (the
"MBCL"), at the Effective Date (as defined in Section 1.08), Acquisition Sub
shall be merged with and into the Company, and the Company shall be the
surviving corporation in the Merger (hereinafter sometimes called the
"Surviving Corporation"). At the Effective Date, the separate existence of
Acquisition Sub shall cease.
Section 1.04. Articles of Organization. (a) The Articles of Organization of
the Company as amended pursuant to the Articles of Merger (as defined in
Section 1.08), shall be the Articles of Organization of the Surviving
Corporation.
(b) The purposes of the Surviving Corporation shall be as set forth in the
Articles of Organization of Acquisition Sub as in effect on the date hereof
until such time as such purposes may be amended as provided in the Articles of
Organization of the Surviving Corporation and by applicable law.
Section 1.05. By-Laws. The By-Laws of Acquisition Sub as in effect at the
Effective Date shall be the By-Laws of the Surviving Corporation, until
thereafter amended or repealed as provided by law.
Section 1.06. Directors. The directors of Acquisition Sub at the Effective
Date shall, from and after the Effective Date, be the directors of the
Surviving Corporation and shall hold office from the Effective Date until
their respective successors are duly elected or appointed and qualified in the
manner provided in the Articles of Organization and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
Section 1.07. Officers. The officers of Acquisition Sub at the Effective
Date shall, from and after the Effective Date, be the officers of the
Surviving Corporation and shall hold office from the Effective Date until
their respective successors are duly elected or appointed and qualified in the
manner provided in the Articles of Organization and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
Section 1.08. Effective Date. The Merger shall become effective at the time
of filing of articles of merger (substantially in the form set forth in
Exhibit B annexed hereto) with the Secretary of State of the Commonwealth of
Massachusetts in accordance with the provisions of Section 78 of the MBCL (the
"Articles of Merger"). The Articles of Merger shall be filed with the
Secretary of State of the Commonwealth of Massachusetts on the Closing Date.
The date and time when the Merger becomes effective shall be herein referred
to as the "Effective Date" and the "Effective Time", respectively.
3
Section 1.09. Additional Actions. If, at any time after the Effective Date,
the Surviving Corporation determines that any deeds, bills of sale,
assignments, assurances or any other acts or things are necessary or desirable
(a) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, its right, title or interest in, to or under any of the rights,
properties or assets of the Company or its Subsidiaries acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise to
carry out the purposes of this Agreement, the Surviving Corporation and its
proper officers and directors shall be authorized to execute and deliver, in
the name and on behalf of the Company and its Subsidiaries, all such deeds,
bills of sale, assignments and assurances and to do, in the name and on behalf
of the Company and its Subsidiaries, all such other acts and things necessary
or desirable to vest, perfect or confirm any and all right, title or interest
in, to or under such rights, properties or assets in the Surviving Corporation
or otherwise to carry out the purposes of this Agreement.
Section 1.10. Company Common Stock, Preferred Stock and Preference
Stock. (a) Company Common Stock. (i) Each share of Common Stock of the
Company, par value $1 per share (the "Company Common Stock") actually issued
and outstanding at the Effective Date (except for Dissenting Shares, as
defined in Section 1.12) shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into the right to receive
$5.50 (the "Total Merger Consideration").
(ii) Each share of Company Common Stock held directly by Parent or
Acquisition Sub or in the Company's treasury at the Effective Date shall, by
virtue of the Merger, be canceled without payment of any consideration
therefor and without any conversion thereof.
(b) 5% Cumulative Preferred Stock. Each share of the Company's 5% Cumulative
Preferred Stock, par value $100 per share (the "5% Stock"), actually issued
and outstanding at the Effective Date, shall remain issued and outstanding
after the Merger and shall be called for redemption and retirement as soon as
practicable following the Merger (except for Dissenting Shares, as defined in
Section 1.12), in accordance with the terms of Section 5.16(a), at a price
equal to $110, plus all accrued and unpaid dividends thereon as of the date of
redemption and retirement (the "5% Stock Consideration"), in accordance with
the terms of the 5% Stock.
(c) $1.85 Cumulative Convertible Preference Stock. (i) Each share of the
Company's $1.85 Cumulative Convertible Preference Stock, par value $1 per
share (the "Preference Stock"), actually issued and outstanding at the
Effective Date (except for Dissenting Shares, as defined in Section 1.12)
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive $20, which amount shall
not be adjusted for any accrued and unpaid dividends thereon as of, or any
dividends paid prior to, the Effective Date (the "Preference Stock
Consideration").
(ii) Each share of Preference Stock held directly by Parent or Acquisition
Sub or in the Company's treasury at the Effective Date shall, by virtue of the
Merger, be canceled without payment of any consideration therefor and without
any conversion thereof.
Section 1.11. Conversion of Acquisition Sub Common Stock. All issued and
outstanding shares of Common Stock, par value $1 per share, of Acquisition Sub
(the "Acquisition Sub Common Stock") at the Effective Date shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for, in the aggregate, 100 fully paid and
nonassessable shares of Common Stock, par value $1 per share, of the Surviving
Corporation (the "Surviving Corporation Common Stock"), which shall constitute
all the issued and outstanding shares of Surviving Corporation Common Stock.
From and after the Effective Date, each outstanding certificate theretofore
representing shares of Acquisition Sub Common Stock shall be deemed for all
purposes to evidence ownership of, and to represent the number of shares of,
Surviving Corporation Common Stock into which such shares of Acquisition Sub
Common Stock shall have been converted.
Section 1.12. Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock, 5% Stock and Preference Stock
issued and outstanding on the Effective Date which are held of record by
stockholders who shall not have voted such shares in favor of the Merger, if
applicable,
4
and who shall have properly exercised rights to demand payment of the fair
value of such shares in accordance with Sections 86 through 98, inclusive, of
the MBCL ("Dissenting Shares") shall not be converted into the right to
receive the consideration specified in Section 1.10(a), 1.10(b), or 1.10(c),
respectively, but the holders thereof instead shall be entitled to payment of
the fair value of such shares in accordance with the provisions of Sections 86
to 92, inclusive, of the MBCL (the "Dissenting Consideration"); provided,
however, that (i) if such a holder fails to file a notice of election to
dissent in accordance with Section 86 of the MBCL or, after filing such notice
of election, subsequently delivers an effective written withdrawal of such
notice or fails to establish his entitlement to appraisal rights as provided
in Sections 87 through 98, inclusive, of the MBCL, if he or she be so
required, or (ii) if a court shall determine that such holder is not entitled
to receive payment for his shares or such holder shall otherwise lose his or
her appraisal rights, then in either of such cases, each share of Company
Common Stock, 5% Stock or Preference Stock, respectively, held of record by
such holder or holders shall automatically be converted into and represent
only the right to receive the Total Merger Consideration, the 5% Stock
Consideration or the Preference Stock Consideration, respectively, upon the
surrender of the certificate or certificates representing such Dissenting
Shares. The Company shall give Parent prompt notice of any demands received by
the Company for payment of the fair value of such shares, and Parent shall
have the right to participate in all the negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Parent, make any payment (except to the extent that any such
payment is made pursuant to a court order) with respect to, or settle or offer
to settle, any such demands.
Section 1.13. Surrender of Shares. (a) At and after the Effective Date,
Parent shall make available on a timely basis, by transferring to ChaseMellon
Shareholder Services, Inc. (the "Paying Agent") for the benefit of former
stockholders of the Company, such funds as and when necessary to make the
payments provided for in Section 1.10 herein with respect to the outstanding
shares of Company Common Stock and Preference Stock. The Paying Agent shall
agree to hold such funds in trust for the benefit of the former stockholders
of the Company and deliver such funds in accordance with the terms hereof and
the terms of a Paying Agency Agreement to be entered into by and between the
Paying Agent and Parent.
(b) Prior to or at the Effective Date, the Paying Agent shall mail or cause
to be mailed to each record holder of an outstanding certificate or
certificates which, immediately prior to the Effective Date, represented
shares of Company Common Stock or Preference Stock (the "Certificates"), a
form letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Paying Agent) (the "Transmittal
Letter") and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Paying Agent of a
Certificate, together with such Transmittal Letter duly executed, the holder
of such Certificate shall be entitled to receive in exchange for each share of
Company Common Stock or Preference Stock represented by such Certificate, the
Total Merger Consideration or Preference Stock Consideration, respectively,
and such Certificate shall forthwith be canceled upon receipt by the holder of
such Certificate of the Total Merger Consideration or Preference Stock
Consideration, respectively. No interest will be paid or accrued on the Total
Merger Consideration or Preference Stock Consideration payable upon the
surrender of such Certificates.
(c) If payment is to be made to a person other than the person in whose name
the Certificate surrendered in exchange therefor is registered, it shall be a
condition of payment of the Total Merger Consideration or Preference Stock
Consideration, as the case may be, that the Certificate so surrendered be
properly endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name of the record holder appears on such Certificate,
and is otherwise in proper form for transfer, and that the Person requesting
such payment shall pay any transfer or other taxes required by law as a result
of such payment to a Person other than the record holder of the Certificate
surrendered, or shall establish to Parent's satisfaction that such tax has
been paid or is not applicable.
(d) After the Effective Date, there shall be no further transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock or Preference Stock which are outstanding at the Effective
5
Date. If, after the Effective Date, Certificates are presented to the
Surviving Corporation or the Paying Agent for transfer, they shall be canceled
and there shall be issued to the transferee in exchange for each share of
Company Common Stock the Total Merger Consideration and in exchange for each
share of Preference Stock the Preference Stock Consideration in accordance
with Section 1.10 hereof.
(e) The consideration payable upon the surrender for exchange of
Certificates in accordance with the terms of this Article I shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock or Preference Stock theretofore represented by such
Certificates, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock or Preference Stock which were outstanding immediately prior to
the Effective Date.
(f) None of Parent, Acquisition Sub, the Company or the Paying Agent shall
be liable to any person in respect of any cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to seven years after the
Effective Date (or immediately prior to such earlier date on which any payment
pursuant to this Article I would otherwise escheat to or become the property
of any Governmental Authority), the payment in respect of such Certificate
shall, to the extent permitted by applicable law, become the property of any
Governmental Authority), the payment in respect of such Certificate shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
Section 1.14. Certain Benefit Plans. (a)(i) With respect to unexpired
options ("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 Company's 1982 Stock
Option Plan, as amended (the "1982 Stock Option Plan"), the Company's 1992
Stock Option Plan, as amended (the "1992 Stock Option Plan"), or the Company's
1992 Non-Employee Directors Stock Option Plan, as amended (the "Director
Option Plan"), each such Option with an exercise price less than the Total
Merger Consideration (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 share of Company Common Stock subject thereto, a
cash payment without interest equal to the Total Merger Consideration, less
the per share exercise price of each such Option. Such Options shall be
canceled upon such cash payment following the Merger.
(ii) Any Option with an exercise price equal to or greater than the Total
Merger Consideration (an "Ineligible Option") shall be canceled upon the
Effective Date without payment of any consideration.
(iii) The Company shall use its best efforts to amend each outstanding
Option issued under the 1982 Stock Option Plan, the 1992 Stock Option Plan
and the Director Option Plan to effect the transactions contemplated by
this Agreement, including the cancellation of the Options in connection
with the Merger in accordance with this Section 1.14.
(b) There are no shares of Company Common Stock held in escrow pursuant to
the Company's former Long Term Incentive Compensation Plan (the "LTIP"), and
the LTIP has been terminated.
(c) Each share of Company Common Stock issued by the Company but not yet
vested pursuant to the Company's Employees' Savings and Profit Sharing Plan
(the "Savings Plan") shall, in connection with the Merger, become vested in
the Person to whose account such share of Company Common Stock was issued and
converted into the right to receive the Total Merger Consideration as provided
in Section 1.10(a).
(d) Immediately following the Effective Date, the Company's 1982 Stock
Option Plan, 1992 Stock Option Plan and Director Option Plan shall be
terminated and no further stock awards or stock options shall be granted
thereunder from and after the date of this Agreement.
6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Acquisition Sub as
follows with respect to the Company and its Subsidiaries:
Section 2.01. Corporate Organization. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as now
being conducted. The Company is qualified to do business and is in good
standing in each jurisdiction set forth in Schedule 2.01, which are the only
jurisdictions in which such qualification is necessary except where failure to
be qualified could not reasonably be expected to have a Material Adverse
Effect. For purposes of this Agreement, a "Material Adverse Effect" is (a) a
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) a material adverse effect on the ability
of the Company to carry out the transactions contemplated by this Agreement
without significant unanticipated delay or expense. For purposes of this
Agreement, a "Subsidiary" of any Person is any corporation of which a majority
of all outstanding shares of capital stock (the holders of which are
ordinarily and generally entitled to vote in the election of a majority of the
members of the board of directors thereof) is owned, directly or indirectly,
by such Person and/or other Subsidiaries of such Person. The Company has
delivered to Parent complete and correct copies of its Articles of
Organization and By-Laws, as amended to the date hereof.
Section 2.02. Capitalization of the Company. (a) The authorized capital
stock of the Company consists of 15,000,000 shares of Company Common Stock,
15,000 shares of 5% Stock and 1,500,000 shares of Preference Stock. As of
December 31, 1997, 4,159,985 shares of Company Common Stock, 5,795 shares of
5% Stock and 814,300 shares of Preference Stock were issued and are
outstanding, and 275,112 shares of Company Common Stock were held in the
Company's treasury. All issued and outstanding shares of Company Common Stock,
5% Stock and Preference Stock are duly and validly issued and outstanding,
fully paid and nonassessable. As of the date hereof, the aggregate amount of
accrued and unpaid dividends on the 5% Stock is zero and on the Preference
Stock is $1,881,033.
(b) As of the date hereof, there are outstanding unexercised, unexpired
Options to purchase 497,200 shares of Company Common Stock, in each case with
the exercise or "strike" price and other terms as set forth on Schedule 2.02
hereto.
(c) Except as set forth in this Section 2.02 or on Schedule 2.02 hereto,
there are no other shares of capital stock of the Company, or securities
convertible into or exchangeable or exercisable for shares of capital stock of
the Company or any of its Subsidiaries, outstanding, and there are no
outstanding options, warrants, rights, contracts, commitments, understandings,
arrangements or claims of any character 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
(all of the foregoing being called "Conversion Rights") and, except as set
forth in Section 2.02(a) and as reserved for issuance upon exercise of the
Options described in Section 2.02(b) or the other Conversion Rights described
in Schedule 2.02, no shares of capital stock of the Company are reserved for
issuance. There are no voting trusts or other agreements or understandings to
which the Company is a party with respect to the voting of the capital stock
of the Company or any Subsidiary. Following consummation of the Merger no
holder or beneficiary of any Conversion Rights shall be entitled to receive
any securities of the Surviving Corporation or any other consideration not
expressly contemplated by this Agreement.
Section 2.03. Subsidiaries. (a) Schedule 2.03 hereto sets forth each
Subsidiary and the jurisdiction of incorporation of such Subsidiary. Schedule
2.03 also sets forth each inactive Subsidiary (an "Inactive
7
Subsidiary") of the Company. No Inactive Subsidiary has any assets or
liabilities valued in excess of $5,000 or any business operations or real
property nor has any Inactive Subsidiary conducted any business during the
two-year period prior to the date of this Agreement. Except as disclosed on
Schedule 2.03 hereto, all of the outstanding shares of capital stock and other
ownership interest of the Company's Subsidiaries are owned, directly or
indirectly, by the Company. Except as disclosed on Schedule 2.03, none of the
shares or other ownership interests of the Subsidiaries owned or held by the
Company, directly or indirectly, is subject to any pledge, Lien (as defined
below) or claim of any kind.
(b) Each Subsidiary (excluding each Inactive Subsidiary) is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of incorporation of each such Subsidiary, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. Each Subsidiary (excluding each
Inactive Subsidiary) is also qualified to do business and is in good standing
in each jurisdiction in which such qualification is necessary, except where
failure to be so qualified would not have a Material Adverse Effect. The
Company has delivered to Parent complete and correct copies of the respective
articles or certificates of incorporation or organization or By-Laws, as
amended to the date hereof, of each of its Subsidiaries.
(c) Except for its Subsidiaries, the Company does not directly or indirectly
own any capital stock of or other equity interest in any corporation,
partnership or other person and neither the Company nor any of its
Subsidiaries is a member of or participant in any partnership, joint venture
or similar person.
Section 2.04. Authorization. (a) The Company has requisite corporate power
and authority to execute and deliver this Agreement, and subject to the
approval by the stockholders of the Company, to execute, deliver and file the
Articles of Merger and, subject to the satisfaction of the conditions set
forth herein and therein, to consummate the transactions contemplated hereby
and thereby.
(b) This Agreement, the Offer, the Merger and the other transactions
contemplated hereby have been approved by the Board of Directors of the
Company and, except for the approval of the Merger by the stockholders of the
Company, no other corporate proceeding on the part of the Company is necessary
to authorize this Agreement, the Offer, the Merger or the other transactions
contemplated hereby or to consummate the Offer, the Merger and the other
transactions contemplated hereby. The affirmative vote of the holders of (i)
two-thirds of the outstanding shares of Company Common Stock and (ii) two-
thirds of the outstanding shares of the Preference Stock, approving the Merger
are the only votes of the holders of any class or series of the Company's
capital stock necessary to approve any of the transactions contemplated by
this Agreement.
(c) This Agreement has been duly and validly executed and delivered by the
Company and is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, and the Articles of Merger
when executed and delivered pursuant hereto will be a valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws in effect now or hereafter in effect relating to creditors'
rights generally, and by equitable principles (whether considered in a
proceeding at law or in equity).
(d) The transfer of the Company's granule crushing equipment to the
Company's Wrentham and Franklin, MA quarry (at least with respect to the
"French parcel" of such quarry) and its operation at such location will not
conflict with, constitute a default under, result in the termination or in a
right of termination of, or violate or be in conflict with, provide a basis
for increased rights under, or result in a breach of any term or provision of,
any term or provision of any Material Contract.
Section 2.05. Absence of Conflicts; Consents. Except as set forth in
Schedule 2.05, neither the execution and delivery by the Company of this
Agreement and the Articles of Merger nor the consummation by the Company of
the transactions contemplated hereby and thereby will:
8
(a) assuming the approvals set forth in Section 2.04(b) have been
obtained, conflict with or result in a breach of any provision of the
respective articles or certificate of incorporation or organization or By-
Laws of the Company or any Subsidiary;
(b) to the knowledge of the Company, result in the creation of any lien,
mortgage, agreement, right of way, charge, option, security interest,
claim, restriction, easement, covenant, lease or encumbrance ("Lien") upon
any of the properties of the Company or any of its Subsidiaries;
(c) with or without giving of notice or the passage of time, or both,
violate, or conflict with, or constitute a default under, or result in the
termination or in a right of termination of, violate or be in conflict
with, result in a breach of any term or provision of, or constitute a
default under, or accelerate or permit the acceleration of the performance
required by, or give any other natural person, corporation, trust,
association, company, partnership, joint venture or other entity or any
government, governmental agency, instrumentality or political subdivision
("Person") a basis for increased rights or termination or nonperformance
under, or require any consent, authorization or approval under, any term or
provision of any material Lien or any Material Contract to which the
Company or any Subsidiary is a party or by which any of them are or their
respective properties are subject or bound;
(d) subject to the approval of the Merger by the Company's stockholders,
to the knowledge of the Company, violate any provision of, or, except as
set forth in Section 2.05(e), require any consent, authorization or
approval under, any statute, law, ordinance, or administrative rule or
regulation, Permit, order or license (collectively, but excluding
Environmental Laws, "Applicable Laws") of any governmental agency, body or
instrumentality (whether Federal, state, local or foreign) ("Governmental
Authority"), or any judicial, administrative or arbitration order, award,
judgment, writ, injunction or decree (collectively, "Judgment") in each
case applicable to the Company or any Subsidiary; or
(e) require any consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Authority, to be made or
obtained by or on behalf of the Company except (i) as required by the
Exchange Act, (ii) the filing of the Articles of Merger and other
appropriate merger documents, if any, as required by the MBCL, or in
connection with the maintenance of qualification to do business in other
jurisdictions, such other jurisdictions, and (iii) filings with the Federal
Trade Commission ("FTC") and with the Antitrust Division of the U.S.
Department of Justice (the "Antitrust Division") pursuant to Title II of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the rules and
regulations thereunder (the "HSR Act").
Section 2.06. Compliance with Laws. Neither the Company nor any Subsidiary
has been or is presently in violation of any provision of their respective
certificates or articles of organization or incorporation or By-Laws, or of
any Applicable Law or Judgment that would have a Material Adverse Effect.
Except where the failure thereof would not cause a Material Adverse Effect,
the Company and its Subsidiaries possess, and are in compliance in all
material respects with the terms and provisions of all licenses, permits,
certificates, authorizations, rights and other approvals of Governmental
Authorities ("Permits") necessary for the operation of the business of the
Company and its Subsidiaries. Except as set forth in Schedule 2.09 or 2.18,
neither the Company nor any Subsidiary has been given written notice by any
Governmental Authority of, or to the knowledge of Company, is under
investigation by any Governmental Authority with respect to, any violation of
any Applicable Law, Judgment or Permit. This Section 2.06 does not relate to
environmental representations and warranties, which matters are exclusively
the subject of Section 2.18.
Section 2.07. Financial Statements. (a) Set forth on Schedule 2.07 are the
Forms 10-K and 10-Q filed with the SEC for the year ended December 31, 1996,
and the period ended September 30, 1997, respectively, including the
consolidated balance sheets of Company and its Subsidiaries as at December 31,
1995, December 31, 1996, and September 30, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the respective
years or, in the case of September 30, 1997, the nine month period, then
ended, including the notes thereto, and, other than in respect of the
statements as at and for the period ended September 30, 1997, the report
thereon of Price Waterhouse, independent certified public accountants (the
"Company
9
Financial Statements"). The Company Financial Statements present fairly in all
material respects the consolidated financial position and the results of
operations of the Company and its Subsidiaries as of the dates and for the
periods indicated in the Company Financial Statements, in each case in
conformity with generally accepted accounting principles ("GAAP"),
consistently applied during such periods other than, in the case of the
statements as at and for the period ended September 30, 1997, for the absence
of required footnote disclosure and customary year-end adjustments. Except as
expressly contemplated or permitted by this Agreement or disclosed in the
Schedules hereto, to the knowledge of the Company, the Company and its
Subsidiaries do not have any material liabilities of any nature (whether
accrued, absolute, contingent, unasserted or otherwise) except (1) as
disclosed, reflected or reserved against in the balance sheet (the "Balance
Sheet") dated September 30, 1997 (the "Balance Sheet Date"), included in the
Company Financial Statements, and (2) as incurred in the ordinary course of
business consistent with past practice and not in violation of this Agreement.
(b) The inventory of the Company and its Subsidiaries, whether reflected on
the Balance Sheet or subsequently acquired, is, and will be as of the
Effective Date, generally of a quality and quantity usable and saleable,
consistent in all material respects with past practice, in the ordinary course
of business. The inventory of the Company and its Subsidiaries is reflected on
the Balance Sheet and in their respective accounting records in accordance
with GAAP applied on a basis consistent with past practice.
(c) All accounts receivable of the Company and its Subsidiaries, whether
reflected on the Balance Sheet or subsequently created, have arisen from bona
fide transactions in the ordinary course of business. To the knowledge of the
Company, all accounts receivable reflected on the Balance Sheet are good and
collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for doubtful accounts reflected on the Balance Sheet and all accounts
receivable created since the Balance Sheet Date are and will be as of the
Effective Date good and collectible at the aggregate recorded amounts thereof,
net of any applicable reserves for doubtful accounts reflected on the Balance
Sheet or subsequently created consistent with past practice and experience.
Section 2.08. Absence of Material Changes. Except as set forth in Schedule
2.08 or as permitted by Section 5.06 or set forth in Schedule 5.06 or as
expressly contemplated or permitted by this Agreement, since the Balance Sheet
Date, each of the Company and its Subsidiaries has conducted its business in
the ordinary course, and there has not been (and it is not reasonably expected
there will be) (i) any event, change or circumstance causing, or reasonably
anticipated to cause in the future, any Material Adverse Effect, except as
otherwise disclosed to Parent in writing prior to the date of this Agreement,
(ii) any declaration, setting aside or payment of any dividend (whether in
cash, stock or property) with respect to any of the Company's capital stock,
other than the minimum required dividends declared on the 5% Stock or the
Preference Stock, (iii) (x) any granting by the Company or any of its
Subsidiaries to any executive officer or director of the Company or any of its
Subsidiaries of any increase in compensation, except as was required under
employment agreements in effect as of the Balance Sheet Date, (y) any granting
by the Company or any of its Subsidiaries to any such executive officer or
director of any increase in severance or termination pay, except as was
required under employment, severance or termination agreements in effect as of
the Balance Sheet Date or (z) any entry by the Company or any of its
Subsidiaries into any employment, severance or termination agreement with any
such executive officer or director, (iv) any damage, destruction or loss,
whether or not covered by insurance, that has or could have a Material Adverse
Effect, (v) any change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in GAAP or (vi) any other action
that would be prohibited by Section 5.06 on and after the date of this
Agreement. As of the date hereof, the Company's reserves for potential
liabilities have not been materially reduced since the Balance Sheet Date and
the Company believes that such reserves are sufficient to cover the Company's
liabilities.
Section 2.09. Litigation. Except as set forth in Schedule 2.09 and other
than routine warranty claims against the Company that do not in the aggregate
exceed in any material respect the level of such claims experienced
historically by the Company in the ordinary course, neither the Company nor
any Subsidiary is engaged in, and there is not to the knowledge of the Company
pending, nor has the Company or any Subsidiary received written notice of, any
legal action, suit, investigation, inquiry or proceeding by any Governmental
Authority or other Person ("Legal Action").
10
Section 2.10. Patents and Trademarks. To the knowledge of the Company, the
Company and its Subsidiaries own all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and
processes necessary for their business as now conducted without any conflict
with or infringement of the rights of others. Except as set forth in Schedule
2.10, there are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company nor any Subsidiary bound by or a
party to any material options, licenses or agreements of any kind with respect
to the patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes of any other Person.
Except as set forth in Schedule 2.10 or relating to any matter that has been
resolved or that the Company reasonably believes has been abandoned, none of
the Company nor any Subsidiary has received any written communications
alleging that the Company or any Subsidiary has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other Person.
Section 2.11. Material Contracts; Permits. Schedule 2.11(a) sets forth a
complete and accurate list of any of the following to which the Company or any
Subsidiary is a party or by which Company or any Subsidiary is bound
(collectively, "Material Contracts"):
(a) all deeds, indentures, leases, subleases or other instruments by
which an ownership, leasehold or other interest in real property is held by
the Company or any Subsidiary;
(b) all contracts, commitments or agreements, including contracts or
licenses pertaining to the payment of royalties (but excluding customer
purchase orders, purchase orders for raw materials and warranties), to the
extent such agreements include provisions that do or could involve payments
or commitments (whether fixed or contingent) to or from the Company or any
Subsidiary (i) for an amount (or potential amount) in excess of $200,000 or
(ii) have a term longer than twelve (12) months in duration (except for
such contracts, commitments or agreements terminable by the Company or the
appropriate Subsidiary of the Company without penalty upon notice of 90
days or less);
(c) all written management, compensation or employment contracts or
contracts entered into with any executive officer or director of the
Company or any Subsidiary;
(d) all contracts or agreements under which the Company or any Subsidiary
has any outstanding indebtedness, obligation or liability for borrowed
money or the deferred purchase price of property or has the right or
obligation to incur any such indebtedness, obligation or liability, in each
case in an amount greater than $200,000;
(e) all bonds or agreements of guarantee or indemnification in which the
Company or any Subsidiary acts as surety, guarantor or indemnitor with
respect to any obligation (fixed or contingent) in an amount or potential
amount greater than $200,000;
(f) all secrecy, noncompete or other agreements which (i) restrict the
right of the Company or any Subsidiary to engage in any business reasonably
related to its present activities or (ii) would restrict the right of
Parent to engage in any business after the consummation of the transactions
contemplated by this Agreement;
(g) all current bank accounts that contain balances and safe deposit
arrangements;
(h) all agreements relating to preemptive or other preferential rights
relating to capital stock, restrictions on the disposition of capital stock
and registration rights;
(i) all partnership and joint venture agreements;
(j) all agreements relating to material business acquisitions or
dispositions during the last five years, including any separate tax or
indemnification agreements; and
(k) all material customer and supply agreements and all material sales
representative, marketing, agency or distributorship agreements, to the
extent such agreements include provisions that do or could involve payments
or commitments (whether fixed or contingent) to or from the Company or any
Subsidiary (i) for an amount in excess of $200,000 or (ii) have a term
(including renewals that do not require the
11
Company's or a Subsidiary's consent) longer than twelve months in duration
(except for such contracts, commitments or agreements terminable by the
Company or the appropriate Subsidiary of the Company without penalty upon
notice of 90 days or less).
Except as set forth on Schedule 2.11(a), (i) neither the Company nor any
Subsidiary is in default under the terms of any Material Contract, which
default permits the other party to adversely alter or terminate any rights of
the Company or any Subsidiary or accelerate the obligations of the Company or
any Subsidiary under such Material Contract or to collect damages, (ii) to the
knowledge of the Company, no other party thereto is in default under the terms
of any Material Contract and (iii) each Material Contract is in full force and
effect.
In order for the Company or any Subsidiary to perform its payment
obligations noted under each of the Material Contracts set forth on Schedule
2.11 (b), the only required payment will be the payment of the outstanding
principal amount (and accrued interest thereon) owed by the Company under each
such Material Contract which as of the date of this Agreement is set forth on
Schedule 2.11 (b) for each such Material Contract, without the payment of any
premium or penalty, other than accrued interest or default interest. Upon the
making of such payment under each such Material Contract, the Company will
have no further obligation or liability under any such Material Contract,
except for immaterial expenses relating to the termination of such Material
Contracts.
Section 2.12. Title to Properties and Related Matters. (a) Schedule 2.12(a)
sets forth all of the real property owned by the Company and each Subsidiary
(the "Owned Real Property"). Schedule 2.12(b) sets forth all of the real
property and interests in real property leased by the Company and each
Subsidiary (the "Leased Real Property", and together with the Owned Real
Property, the "Company Property"). Each of the Company or its Subsidiaries, as
the case may be, has good and marketable fee title to the Owned Real Property,
subject only to Permitted Liens (as defined in Section 2.12(b) below). Each of
the Company or its Subsidiaries, as the case may be, has a valid and existing
leasehold interest in all Leased Real Property, subject only to Permitted
Liens (as defined in Section 2.12(b) below).
(b) All Company Property and personal properties owned by the Company or any
Subsidiary are owned free and clear of all Liens (other than mortgages
securing the Company's existing credit facility described in Schedule 2.11
(b)) or leased free and clear of all Liens, except for (A) Liens for taxes and
assessments or governmental charges or levies which are not at the time of
Closing due or payable, (B) Liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, carriers', warehousemen's,
mechanics', laborers' and materialmen's and similar Liens, which have been
incurred in the ordinary course of business, so long as the obligations
secured by such Liens are not then delinquent, (C) Liens incidental to the
conduct of the business of the Company and its Subsidiaries (other than
arising out of claims of infringement) which were not incurred in connection
with the borrowing of money or the obtaining of advances or credits and which
do not individually or in the aggregate materially detract from the value or
materially impair the use and operation of the Company Property to which it
relates or the value and operation of the business of the Company as presently
conducted, (D) covenants, conditions, restrictions, easements and other
similar matters of record existing as of the Effective Date which do not,
individually or in the aggregate, impair the use and operation of the Company
Property to which it relates in the business of the Company as presently
conducted and (E) Liens set forth on Schedule 2.18 arising pursuant to
Environmental Laws (the liens described in the foregoing clauses (A), (B),
(C), (D) and (E) being "Permitted Liens") and (ii) the Owned Real Property and
personal properties owned by the Company or any Subsidiary are not subject to
any Liens, building or use restrictions, exceptions, variances, reservations
or limitations of any nature whatsoever which interfere with or are violated
by the existence of the improvements thereon or the current use and operation
of each such Owned Real Property or personal properties, respectively, to
which it relates in the business of the Company as currently conducted.
Section 2.13. Taxes. (a) For purposes of this Agreement, (A) "Tax" or
"Taxes" shall mean all Federal, state, provincial, county, local, municipal,
foreign and other taxes, assessments, duties or similar charges of any kind
whatsoever, including all corporate franchise, income, sales (including bulk
sales), use, ad valorem, intangibles, receipts, value added, profits, license,
withholding, payroll, employment, excise, premium, real
12
property, personal property, customs, net worth, estimated, capital gains,
transfer, stamp, documentary, social security, alternative minimum,
accumulated earnings, goods and services, recapture, recording, severance,
environmental (including but not limited to, taxes under Section 59A of the
Code), occupation and other taxes, and including any interest, penalties and
additions imposed with respect to such amounts; (B) "Code" shall mean the
Internal Revenue Code of 1986, as amended, and reference to any Section of the
Code shall refer to that Section in effect at the date hereof; (C) "Taxing
Authority" shall mean any domestic, foreign, federal, national, state,
provincial, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental body
exercising any taxing authority or any other authority exercising Tax
regulatory authority; and (D) "Return" or "Returns" shall mean all returns,
declarations of estimated tax payments, reports, estimates, information
returns and statements, including any related or supporting information filed
with respect to any of the foregoing, maintained, filed or to be filed with
any Taxing Authority in connection with the determination, assessment,
collection or administration of any Taxes.
(b) Except as set forth on Schedule 2.13, the Company and each of the
Subsidiaries has timely filed or will timely file, as the case may be, with
the appropriate Taxing Authority all Returns required to be filed on or prior
to the date hereof or the Closing Date, as the case may be, and each such
Return was or will be, as the case may be, complete and correct in all
material respects at the time of filing.
(c) Except as set forth on Schedule 2.13, all Taxes (including Taxes for
which no Returns are required to be filed and including payroll and wage
withholding Taxes) of the Company and any of the Subsidiaries or for which the
Company or any of the Subsidiaries is or could otherwise be held liable, or
which are or could otherwise become chargeable as an encumbrance upon any
property or assets of the Company or any of the Subsidiaries ("Covered
Taxes"), have been duly and timely paid. The amount of "accrued Taxes" shown
on the Balance Sheet adequately reflects the liability for unpaid Taxes
(including deferred Taxes) of Company and the Subsidiaries as of the Balance
Sheet Date.
(d) Except as set forth on Schedule 2.13, the Company has made available for
inspection by Parent (A) complete and correct copies of all Returns of the
Company and each of the Subsidiaries, with respect to Federal, state,
provincial, county, local, municipal, foreign and other income, profits,
corporate franchise, receipts, sales, excise, property, net worth and all
other material Taxes, that are or have been required to be filed (except as
noted in (b) above) for taxable periods ending with or within the last five
calendar years and for such longer period as Parent has requested not to
exceed the period of the relevant statute of limitations and (B) complete and
correct copies of all ruling requests, private letter rulings, revenue agent
reports, information document requests and responses thereto, notices of
proposed deficiencies, deficiency notices, applications for changes in method
of accounting, protests, petitions, closing agreements, settlement agreements,
and any similar documents submitted by, received by or agreed to by or on
behalf of the Company or any of the Subsidiaries and relating to material
Covered Taxes.
(e) Except as set forth on Schedule 2.13, no liens for Taxes exist with
respect to any of the assets or properties of any of the Subsidiaries or
Company. The Returns of the Company and each of the Subsidiaries with respect
to Federal income Taxes have been examined by the Internal Revenue Service, or
the statute of limitations with respect to the relevant Tax liability has
expired, for all taxable periods through and including the year ended December
31, 1982. All Returns with respect to state, county, local, municipal,
provincial, foreign and other income, profits, corporate franchise, receipts,
sales, excise, property, net worth, and capital Taxes, and with respect to all
other material Taxes, have been examined by the appropriate Taxing Authority,
or the statute of limitations with respect to the relevant Tax liability has
expired, for all taxable periods through and including the taxable period
listed with respect to each such jurisdiction. Except as set forth on Schedule
2.13, each deficiency resulting from any audit or examination relating to
Covered Taxes by any Taxing Authority has been paid and no material issues
were raised in writing by the relevant Taxing Authority during any such audit
or examination that might apply to taxable periods other than the taxable
period to which such audit or examination related. Except as set forth on
Schedule 2.13, (A) no Returns with respect to Federal income Taxes are
currently under audit or examination by the Internal Revenue Service and any
other Taxing Authority, (B) no audit or examination relating to Covered Taxes
is currently being conducted by the Internal Revenue Service or any other
13
Taxing Authority and (C) neither the Internal Revenue Service nor any other
Taxing Authority has given notice in writing that it will commence any such
audit or examination.
(f) Except as set forth in Schedule 2.13, no Taxing Authority is now
asserting (in writing), or, to the knowledge of the Company or any of the
Subsidiaries, threatening to assert (in writing), any deficiency or claim
for Covered Taxes or any adjustment to any item of income, gain, deduction,
loss, credit, or tax basis entering into the computation of Covered Taxes
and there is no reasonable basis for any such assertion.
(g) Except as set forth in Schedule 2.13, (A) no person has made with
respect to the Company or any of the Subsidiaries, or with respect to any
property held by the Company or any of the Subsidiaries, any consent under
Section 341 of the Code, (B) no property of Company or any of the
Subsidiaries constitutes "tax-exempt use property" (as defined in Section
168(h) of the Code), (C) neither the Company nor any of the Subsidiaries is
a party to any lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect prior to the date of
enactment of the Tax Equity and Fiscal Responsibility Act of 1982 and (D)
none of the assets of Company or any of the Subsidiaries is subject to a
lease under Section 7701(h) of the Code or under any predecessor.
(h) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any Covered
Taxes and no unrevoked power of attorney with respect to any Covered Taxes
has been executed or filed with the Internal Revenue Service or any other
Taxing Authority.
(i) The Company has never been a member of any affiliated, consolidated,
combined, unitary or aggregate group for purposes of filing Returns or
paying Taxes at any time.
(j) Except as set forth in Schedule 2.13, none of the Company or any of
the Subsidiaries is a party to or is bound by any Tax sharing agreements
(whether formal or informal) with any of its affiliates, or with any Taxing
Authority.
(k) None of the Company or any of the Subsidiaries will be required to
include in a taxable period on or after the Closing Date taxable income
attributable to income that economically accrued in a taxable period ending
on or before the Closing Date, including, without limitation, as a result
of the installment method of accounting, the completed contract method of
accounting or the cash method of accounting.
(1) Except as set forth on Schedule 2.13, none of the Company or any of
the Subsidiaries will be required in a taxable period beginning on or after
the Closing Date to include any amount in income pursuant to Section 481 of
the Code (or any comparable provisions of state, local or foreign law), by
reason of a change in accounting methods or otherwise, as a result of
actions taken prior to the Closing Date.
(m) Schedule 2.13 lists each state, county, local, municipal or foreign
jurisdiction in which Company or any of the Subsidiaries files, has filed,
is required to file or has been required to file a Return or is or has been
liable for Tax on a "nexus" basis for the current and preceding five years.
(n) The Company is not, and has not been during the five-year period
ending on the date hereof or the Closing Date, as the case may be, a
"United States real property holding corporation" within the meaning of
Section 897 of the Code.
(o) Schedule 2.13 provides true and correct descriptions of the
following: items for which amounts for taxes have been reserved on the
Balance Sheet in excess of reserves necessary to currently pay its
operating tax liabilities. The Company has a consolidated net operating
loss carryover for regular Federal income tax purposes as of December 31,
1996, of approximately $42 million. The Company has no material net
operating loss carryovers in states other than Massachusetts (in which it
has a net operating loss carryover of $58 million as of December 31, 1996).
The Company has tax credit carry forwards as of December 31, 1996, of
approximately $1.1 million for regular Federal income tax purposes, and no
tax credit carryforwards for state tax purposes. In addition, the Company
had approximately $1.1 million of minimum tax carryovers.
(p) Schedule 2.13 sets forth the Company's best estimates, made in good
faith, of the excess loss accounts for the Company and its Subsidiaries as
of December 31, 1996. The Company estimates in good
14
faith that neither it nor its Subsidiaries had positive balances in any
deferred intercompany gain accounts as of December 31, 1996.
(q) The schedules of the Company's best estimates, made in good faith, of
the temporary and permanent differences as of December 31, 1996, previously
submitted to the Company are true, correct and complete in all material
respects.
(r) None of the Company, any of the Subsidiaries or any other affiliate
of the Company has made any election under Section 13261(g)(2) or Section
13261(g)(3) of the Revenue Reconciliation Act of 1993.
(s) None of the Company, any of the Subsidiaries or any other affiliate
of the Company has available any foreign tax credits.
Section 2.14. Labor Agreements. Except as identified on Schedule 2.14,
neither the Company nor any Subsidiary is a party to any union, collective
bargaining, works council or similar agreement or arrangement.
Section 2.15. Benefit Plans. (i) Schedule 2.15 is a list of each "employee
pension benefit plan" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (hereinafter a "Pension
Plan"), "employee welfare benefit plan" (as defined in Section 3(l) of ERISA,
hereinafter a "Welfare Plan"), and each other plan, arrangement or policy
relating to stock options, stock purchases, compensation, deferred
compensation, severance, fringe benefits or other employee benefits, in each
case maintained or contributed to, or required to be maintained or contributed
to, by the Company and its Subsidiaries or any other person or entity that,
together with the Company, is treated as a single employer under Section
414(b), (c), (m) or (o) of the Code (each a "Commonly Controlled Entity") for
the benefit of any present or former employees of the Company or any of its
Subsidiaries (all the foregoing being herein called "Benefit Plans"). The
Company has made available to Parent true, complete and correct copies of (1)
each Benefit Plan, (2) the most recent annual report on Form 5500 as filed
with the Internal Revenue Service with respect to each applicable Benefit
Plan, (3) the most recent summary plan description (or similar document) with
respect to each applicable Benefit Plan and (4) each trust agreement and
insurance or annuity contract relating to any Benefit Plan.
(ii) Except as disclosed in Schedule 2.15, to the knowledge of the Company,
each Benefit Plan has been administered in all material respects in accordance
with its terms. Except as disclosed in Schedule 2.15, to the knowledge of the
Company, the Company, its Subsidiaries and all the Benefit Plans are in
compliance in all material respects with the applicable provisions of ERISA,
the Code, and all other Applicable Laws. Except as disclosed in Schedule 2.15,
to the knowledge of the Company, there are no investigations by any
governmental agency, termination proceedings or other claims (except claims
for benefits payable in the normal operation of the Benefit Plans), suits or
proceedings against or involving any Benefit Plan or asserting any rights to
or claims for benefits under any Benefit Plan that could give rise to a
Material Adverse Effect, and to the knowledge of the Company, there are not
any facts that could give rise to a Material Adverse Effect in the event of
any such investigation, claim, suit or proceeding.
(iii) Except as disclosed on Schedule 2.15, to the knowledge of the Company:
(1) all contributions to the Benefit Plans required to be made by the Company
or any of its Subsidiaries in accordance with the terms of the Benefit Plans,
any applicable collective bargaining agreement and, when applicable, Section
302 of ERISA or Section 412 of the Code, have been timely made, (2) there has
been no application for or waiver of the minimum funding standards imposed by
Section 412 of the Code with respect to any Benefit Plan that is a Pension
Plan, excluding any Pension Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA (hereinafter a "Company Pension Plan") and (3) no
Company Pension Plan had an "accumulated funding deficiency" within the
meaning of Section 412(a) of the Code as of the end of the most recently
completed plan year. All such contributions to the Benefit Plans for any
period ending before the Balance Sheet Date are properly accrued and reflected
in the Balance Sheet and such contributions since such Balance Sheet Date will
be reflected on subsequent balance sheets.
15
(iv) Except as disclosed on Schedule 2.15, to the knowledge of the Company,
(1) each Company Pension Plan that is intended to be a tax-qualified plan has
been the subject of a determination letter from the Internal Revenue Service
to the effect that such Company Pension Plan and each related trust is
qualified and exempt from Federal income taxes under Sections 401(a) and
501(a), respectively, of the Code, (2) no such determination letter has been
revoked, and revocation has not been threatened, (3) no event has occurred and
no circumstances exist that would adversely affect the tax-qualification of
such Company Pension Plan and (4) such Company Pension Plan has not been
amended since the effective date of its most recent determination letter in
any respect that might adversely affect its qualification, materially increase
its cost or require security under Section 307 of ERISA. The Company has made
available to Parent a copy of the most recent determination letter received
with respect to each Company Pension Plan for which such a letter has been
issued, as well as a copy of any pending application for a determination
letter. The Company has also provided to Parent a list of all Company Pension
Plan amendments as to which a favorable determination letter has not yet been
received.
(v) Schedule 2.15 discloses whether: (1) to the knowledge of the Company,
any non-exempt "prohibited transaction" (as defined in Section 4975 of the
Code or Section 406 of ERISA) has occurred that involves the assets of any
Benefit Plan; (2) to the knowledge of the Company, any Company Pension Plan
has been terminated or has been the subject of a "reportable event" (as
defined in Section 4043 of ERISA and the regulations thereunder) for which the
30-day notice requirement has not been waived by the Pension Benefit Guaranty
Corporation ("PBGC"); and (3) to the knowledge of the Company, the Company,
any of its Subsidiaries or any trustee, administrator or other fiduciary of
any Benefit Plan has engaged in any transaction or acted in a manner that
could, or has failed to act so as to, subject the Company, any such Subsidiary
or any trustee, administrator or other fiduciary to any material liability for
breach of fiduciary duty under ERISA or any other applicable law.
(vi) Except as disclosed on Schedule 2.15, to the knowledge of the Company,
as of the most recent valuation date for each Company Pension Plan that is a
"defined benefit pension plan" (as defined in Section 3(35) of ERISA
(hereinafter a "Defined Benefit Plan")), there was not any amount of "unfunded
benefit liabilities" (as defined in Section 4001(a)(18) of ERISA) under such
Defined Benefit Plan, and the Company is not aware of any facts or
circumstances that would materially change the funded status of any such
Defined Benefit Plan. The Company has made available to Parent the most recent
actuarial report or valuation with respect to each Defined Benefit Plan.
(vii) Except as disclosed on Schedule 2.15, to the knowledge of the Company,
no Commonly Controlled Entity has incurred any liability to a Pension Plan
(other than for contributions not yet due) or to the PBGC (other than for the
payment of premiums not yet due) that, when aggregated with other such
liabilities, would result in a Material Adverse Effect to the Company, which
liability has not been fully paid as of the date hereof if due and payable.
(viii) No Commonly Controlled Entity has (a) engaged in a transaction
described in Section 4069 of ERISA that could subject the Company to a
material liability at any time after the date hereof or (b) acted in a manner
that could, or failed to act so as to, result in material fines, penalties,
taxes or related charges under (x) Section 502(c), (i) or (1) of ERISA, (y)
Section 4071 of ERISA or (z) Chapter 43 of the Code.
(ix) Except as disclosed in Schedule 2.15, to the knowledge of the Company,
no Commonly Controlled Entity has announced an intention to withdraw, but has
not yet completed withdrawal, from a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA). Except as disclosed on Schedule 2.15, to the
knowledge of the Company, no action has been taken, and no circumstances
exist, that could result in either a partial or complete withdrawal from such
a multiemployer plan by any Commonly Controlled Entity. Schedule 2.15 also
lists for each Benefit Plan that is a multiemployer plan (excluding the
multiemployer plan in respect of the Company's former New York Building
Products, Inc. operations) the Company's best estimate, based upon the
information supplied to it by each multiemployer plan, of the amount of
withdrawal liability that would be incurred if each Commonly Controlled Entity
were to make a complete withdrawal from each such plan as of the dates
specified in Schedule 2.15. Schedule 2.15 also lists for each Benefit Plan
that is a multiemployer plan
16
(excluding the multiemployer plans in respect of the Company's former New York
Building Products, Inc., and Bardstown operations) the Company's best
estimate, based upon the information supplied to it by each multiemployer
plan, of the amount of "unfunded vested benefits" (within the meaning of
Section 4211 of ERISA) as of the dates specified in Schedule 2.15. As of the
most recent valuation date for the multiemployer plan in respect of the
Company's former New York Building Products Inc. operations, to the knowledge
of the Company, based upon the information supplied to it by such
multiemployer plan, there was not any amount of "unfunded vested benefits"
under such plan.
(x) The list of Welfare Plans in Schedule 2.15 discloses whether each
Welfare Plan is (i) unfunded, (ii) funded through a "welfare benefit fund", as
such term is defined in Section 419(e) of the Code, or other funding mechanism
or (iii) insured. Except as disclosed on Schedule 2.15, to the knowledge of
the Company, apart from the written provisions of the Welfare Plans disclosed
to Parent, there are no understandings, agreements or undertakings, written or
oral, that would prevent any such Welfare Plan from being amended or
terminated at any time after the Closing Date. The Company and its
Subsidiaries comply with the applicable requirements of Section 4980B(f) of
the Code with respect to each Benefit Plan that is a group health plan, as
such term is defined in Section 5000(b)(1) of the Code.
(xi) Except as provided in Section 1.14 with respect to the 1982 Stock
Option Plan, the 1992 Stock Option Plan, the Director Option Plan, the 1998
Incentive Compensation Program (the "MICP") and the Savings Plan, and as
provided in the employment and severance agreements listed in Schedules 2.11
(a) and 2.15, no employee of the Company or any of its Subsidiaries will be
entitled to any additional material benefits or any acceleration of the time
of payment or vesting of any material benefits under any Benefit Plan as a
result of the transactions contemplated by this Agreement.
(xii) During the period beginning on January 1, 1995, and ending on the date
of this Agreement, there has been no change (a) in any actuarial or other
assumption used to calculate funding obligations with respect to any Company
Pension Plan or (b) in the manner in which contributions to any Company
Pension Plan are made or the basis on which such contributions are determined.
(xiii) Except as disclosed on Schedule 2.15, to the knowledge of the Company
and based upon its best estimate, any amount that could be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect would not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(B)(1) of the Code). Schedule 2.15 sets forth (i) the Company's
best estimate of the maximum amount that could be paid to each executive
officer of Company as a result of the transactions contemplated by this
Agreement under all employment, severance and termination agreements, other
compensation arrangements and Benefit Plans currently in effect and (ii) the
Company's best estimate of the "base amount" (as such term is defined in
Section 280(b)(3) of the Code) for each such executive officer calculated as
of the date of this Agreement.
Section 2.16. Labor Disputes; Unfair Labor Practices. (a) There is neither
pending nor, to the knowledge of the Company, threatened any labor dispute
which could materially adversely affect the facility that is the subject of
such dispute, or any strike or work stoppage involving the Company or any
Subsidiary.
(b) There is not now pending or, to the knowledge of the Company, threatened
any charge or complaint against the Company or any Subsidiary by the National
Labor Relations Board, any state or local labor or employment agency or any
representative thereof.
Section 2.17. Product Warranties. (a) The standard forms of product
warranties and guarantees used by the Company and each Subsidiary during the
past five (5) years are attached as Schedule 2.17 hereto. Neither the Company
nor any Subsidiary has authorized any product warranty or guaranty during such
period of time other than pursuant to such forms.
17
(b) Other than as set forth on Schedule 2.17 or relating to any matter that
has been resolved or that the Company reasonably believes has been abandoned,
as of date of this Agreement, the Company has not received written notice of
any product warranty or similar claims with an actual or alleged liability to
the Company or any Subsidiary other than routine warranty claims against the
Company that do not in the aggregate exceed in any material respect the level
of such claims historically experienced by the Company in the ordinary course.
The Company does not believe that the Assurance of Discontinuance dated
November 1995 between the Commonwealth of Massachusetts and Bird, Inc. will
result in an increase in liability for claims under product warranties over
the level historically experienced by the Company in the ordinary course.
(c) The class action litigation captioned Lindholm et. al. v. Bird
Incorporated, Mass. Superior Ct, C.A. No. 96-00788, in respect of certain
company shingle products is being defended by the Company's insurers with
reservation of rights.
(d) Since the Balance Sheet Date, the Company has not modified its policies
or practices with respect to settlement of warranty claims.
Section 2.18. Environmental Matters. Except as disclosed in Schedule 2.18,
with respect to the business and operations of the Company and its
Subsidiaries (which terms for purposes of this Section 2.18 shall be deemed to
include all predecessors and former Subsidiaries) and to the Owned Real
Property and Leased Real Property:
(a) No Hazardous Material has been used, possessed, Released, generated,
manufactured or treated, on or under such Owned Real Property or Leased
Real Property, as the case may be, by the Company or any Subsidiary in
material violation of any Environmental Law.
(b) The Company and each Subsidiary, as the case may be, has through the
date hereof (i) secured and maintained compliance with all permits,
certificates, licenses, approvals, registrations or authorizations required
for the conduct of their respective businesses under Environmental Laws and
(ii) maintained such Owned Real Property or Leased Real Property and
conducted their respective business thereon in accordance in all material
respects with all Environmental Laws.
(c) No written notice, written request for information pursuant to common
law, law or regulation, citation, summons, complaint or order has been
received by the Company or any Subsidiary, and no penalty has been assessed
and, to the knowledge of the Company, no investigation or review is pending
or threatened by any Governmental Authority or other Person, with respect
to the business and operations of the Company and its Subsidiaries or to
such Owned Real Property or Leased Real Property, as the case may be, other
than relating to any matter that has been resolved or that the Company
reasonably believes has been abandoned, regarding (i) any alleged violation
by the Company or any Subsidiary of any Environmental Laws, (ii) any
alleged failure by the Company or any Subsidiary to have any environmental
permit, certificate, license, approval, registration or authorization
required under any Environmental Law, or (iii) any use, possession, spill,
Release, threatened Release, storage, generation, manufacture, treatment,
deposit, discharge, transportation or disposal by or on behalf of the
Company or any Subsidiary of any Hazardous Material.
(d) Neither the Company nor any Subsidiary has entered into or agreed to
any court decree or order nor are any of them subject to any judgment,
decree or order relating to compliance with any Environmental Law or to
investigation or cleanup under any Environmental Law.
(e) There are no aboveground or underground storage tanks on any such
Owned Real Property or Leased Real Property.
(f) Neither the Company nor any Subsidiary has received any written
notice of non-compliance with any applicable statutes, laws, ordinances,
rules, orders and regulations of any Governmental Authority that relate to
occupational health and safety, other than relating to any matter that has
been resolved or that the Company reasonably believes has been abandoned.
18
(g) The investigation, remediation, cleanup and other costs of the
Company relating to compliance with any Environmental Law will not exceed
an amount equal to $2.2 million (the "Company Estimates"). The Company has
used its best efforts in preparing the Company Estimates consistent with
all recognized best engineering practices.
As used in this Agreement, the term "Environmental Laws" means any and all
applicable treaties, laws, regulations, enforceable requirements, binding
determinations, orders, decrees, judgments, injunctions, permits, approvals,
authorizations, licenses or variances, promulgated or entered into by any
Governmental Authority, relating to the environment, conservation,
preservation or reclamation of natural resources, or to the management,
Release or threatened Release of Hazardous Materials, including without
limitation the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. (S)(S) 9601 et seq. ("CERCLA"),
the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)(S) 1251 et
seq., Clean Air Act of 1970, as amended, 42 U.S.C. (S)(S) 7401 et seq., the
Toxic Substances Control Act of 1976, 15 U.S.C. (S)(S) 2601 et seq., the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. (S)(S) 651
et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. (S)(S) 11001 et seq., the Safe Drinking Water Act of 1974, as amended,
42 U.S.C. (S)(S) 300(f) et seq., the Hazardous Materials Transportation Act,
49 U.S.C. (S)(S) 1801 et seq., and any similar or implementing state or local
law, and all amendments or regulations promulgated thereunder.
As used in this Agreement, the term "Hazardous Materials" means all
explosive or regulated radioactive materials or substances, hazardous or toxic
substances, wastes or chemicals, petroleum (including crude oil or any
fraction thereof) or petroleum distillates, asbestos or asbestos containing
materials, including materials listed in 49 C.F.R. (S) 172.101 and materials
defined as hazardous substances pursuant to Section 101(14) of the CERCLA.
As used in this Agreement, the term "Release" means any spilling, emitting,
leaking, pumping, pouring, emptying, injecting, depositing, disposing,
discharging, dispersing, leaching, emanating or migrating of any Hazardous
Materials in, into, onto, or though the environment (including ambient air,
surface water, groundwater, soils, land surface, subsurface strata, workplace
or structure).
Section 2.19. Insurance. The Company and each Subsidiary has been and is
insured by financially sound and reputable insurers unaffiliated with the
Company with respect to its and their properties and the conduct of its and
their business in such amounts and against such risks as are consistent with
industry practice. The insurance coverage provided by such policies of
insurance will be continued through the Effective Date and will not terminate
or lapse by reason of the transactions contemplated by this Agreement. The
Company has provided to Parent copies of such policies of insurance. Except as
set forth in Schedule 2.19, neither the Company nor any Subsidiary has been
denied insurance coverage by any carrier in the last three years.
Section 2.20. SEC Filings. (a) Schedule 2.20 sets forth all of the documents
filed since January 1, 1995, through the date of this Agreement by the Company
with the Securities and Exchange Commission (the "SEC") under the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "Securities Act"), or the Exchange Act. The documents listed in Schedule
2.20 (the "SEC Documents") are all the documents the Company was required to
file under the Securities Act or the Exchange Act since January 1, 1995, and
at the time they were filed and when supplemented or amended, the SEC
Documents complied with the requirements of the Securities Act and the
Exchange Act, as applicable, and at such time, none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the SEC Documents, at the time they were filed and when
supplemented or amended, complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present
19
in all material respects the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods therein indicated
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(b) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (i) the Offer Documents or (ii) the
information to be filed by the Company in connection with the Offer pursuant
to Section 14(f) of the Exchange Act and Rule l4f-1 promulgated thereunder
(the "Information Statement"), will, at the respective times the Offer
Documents and the Information Statement are filed with the SEC and first
published, sent or given to holders of shares of Company Common Stock or
Preference Stock, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. The Information Statement will comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder.
Section 2.21. Brokers and Finders. The Company has not employed any broker
or finder or incurred any liability for any brokerage fees, commissions,
finders' fees or similar fees or expenses in connection with this Agreement or
the Merger contemplated herein except for Lehman Brothers Inc. The Company has
delivered to Parent a copy of its engagement letter with Lehman Brothers Inc.
The estimated investment banking and legal fees and expenses incurred and to
be incurred by the Company in connection with this Agreement and the Merger
contemplated by this Agreement have been disclosed to Parent in writing on the
date hereof.
Section 2.22. Antitakeover. The Company has taken or will take prior to
Closing all action necessary to approve the Offer and the Merger such that the
approval (along with the stockholder approval required pursuant to Section
6.03) is sufficient to render entirely inapplicable to the Offer and the
Merger or Parent or Acquisition Sub the provisions of Chapter 110C, 110D, 110E
and 110F of the Massachusetts General Laws. No other antitakeover or similar
statute or regulation applies or purports to apply to the transactions
contemplated by this Agreement.
Section 2.23. Opinion of Financial Advisor. The Company has received the
opinion of Lehman Brothers Inc. to the effect that the consideration to be
received in the Offer and the Merger by the Company's stockholders is fair to
the Company's stockholders from a financial point of view, a copy of which
opinion has been delivered to Parent.
Section 2.24. Asbestos Claims. The Agreement of Settlement dated March 8,
1993, between Employers Insurance of Wausau and the Company with respect to
insurance coverage for the Company's exposure for future asbestos expenses and
liabilities is in full force and effect, and the Company believes it has
defenses to any payment Employers Insurance of Wausau may assert it is due
under such agreement.
Section 2.25. Revolving Credit and Security Agreement. The Revolving Credit
and Security Agreement (the "Revolving Credit Agreement") between the Company
and Fleet National Bank, dated as of July 8, 1997, may be terminated by the
Company at any time without any premium or penalty, except as set forth in
paragraph 2.17 of the Revolving Credit Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company as follows:
Section 3.01. Corporate Organization. Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware
with all requisite power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. Parent is
qualified to do business and is in good standing in each jurisdiction in which
such qualification is necessary, except where failure to be qualified would
20
not reasonably be expected to have a material adverse effect on the ability of
Parent to carry out the transactions contemplated hereby without significant
unanticipated delay.
Section 3.02. Authorization. (a) Parent has requisite corporate power and
authority to execute and deliver this Agreement and, subject to the
satisfaction of the conditions set forth herein and therein, to consummate the
transactions contemplated hereby and thereby.
(b) This Agreement has been approved by the Board of Directors of Parent and
upon such approval no other corporate proceeding on the part of Parent is
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered by
Parent and is a valid and binding agreement of Parent, enforceable against
Parent in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws in effect now or hereafter in effect relating to
creditors' rights generally and by equitable principles (whether considered in
a proceeding at law or in equity).
Section 3.03. Absence of Conflicts; Consents. Neither the execution and
delivery by Parent of this Agreement nor the consummation by Parent of the
transactions contemplated hereby will:
(a) conflict with or result in a breach of any provision of the
certificate of incorporation or By-laws of Parent which would have a
material adverse effect on the ability of Parent to carry out the
transactions contemplated hereby without significant unanticipated delay;
(b) result in the creation of any Lien upon any of the properties of
Parent which would have a material adverse effect on the ability of Parent
to carry out the transactions contemplated hereby without significant
unanticipated delay;
(c) with or without giving of notice or the passage of time, or both,
violate, or conflict with, or constitute a default under, or result in the
termination or in a right of termination of, violate or be in conflict
with, result in a breach of any term or provision of, or constitute a
default under, or accelerate or permit the acceleration of the performance
required by, or give any other Person a basis for accelerated or increased
rights or termination or nonperformance under, or require any consent,
authorization or approval under, any term or provision of any Lien, lease,
license or other agreement or instrument to which Parent or any of its
Subsidiaries is a party or by which it or they are bound, except to the
extent that such circumstance would not have a material adverse effect on
the ability of Parent to carry out the transactions contemplated hereby
without significant unanticipated delay;
(d) subject to the approval of the Merger by the Company's stockholders,
to the knowledge of Parent, violate any provision of, or require any
consent, authorization or approval under, any Applicable Laws of any
Governmental Authority, or any Judgment applicable to Parent or any of its
Subsidiaries, except to the extent that such circumstance would not have a
material adverse effect on the ability of Parent to carry out the
transactions contemplated hereby without significant unanticipated delay;
or
(e) require any consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Authority, to be made or
obtained by or on behalf of Parent except (i) as required by the Exchange
Act, (ii) the filing of the Articles of Merger and other appropriate merger
documents, if any, as required by the laws of the Commonwealth of
Massachusetts or, in connection with the maintenance of qualification to do
business in other jurisdictions, such other jurisdictions and (iii) filings
with the FTC and with the Antitrust Division under the HSR Act.
Section 3.04. Litigation. Neither Parent nor any of its Subsidiaries is
engaged in, and there is not, to the knowledge of Parent, pending, nor has
Parent or any of its Subsidiaries received any written notice of, any Legal
Action which would prevent Parent from consummating the transactions
contemplated hereby.
21
Section 3.05. Brokers and Finders. Parent has not employed any broker or
finder or incurred any liability for any brokerage fees, commissions, finders'
fees or similar fees or expenses in connection with this Agreement or the
transactions contemplated hereby except for McFarland Dewey Securities Co.,
L.P. ("McFarland Dewey"). In the event that the Company shall be obligated to
pay Parent's Expenses pursuant to Article X, Parent will deliver to the
Company a copy of its engagement letter with McFarland Dewey.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB
Acquisition Sub hereby represents and warrants to the Company as follows:
Section 4.01. Corporate Organization. Acquisition Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has not engaged in any operations or
incurred any obligations other than incident to its organization and the
performance of this Agreement.
Section 4.02. Authorization. (a) Acquisition Sub has all requisite corporate
power and authority, if necessary, to execute, deliver and file the Articles
of Merger and to execute and deliver this Agreement and, subject to the
satisfaction of the conditions set forth herein, to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Board of Directors of Acquisition Sub, and no other corporate proceeding on
the part of Acquisition Sub is necessary to authorize this Agreement or to
consummate the transactions contemplated hereby without significant
unanticipated delay.
(b) The Agreement has been duly and validly executed and delivered by
Acquisition Sub and is a valid and binding agreement of Acquisition Sub,
enforceable against Acquisition Sub in accordance with its terms, except in
each case as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws in effect
now or hereafter in effect relating to creditors' rights generally and by
equitable principles (whether considered in a proceeding at law or in equity).
Section 4.03. Absence of Conflicts; Consents. Neither the execution and
delivery by Acquisition Sub of this Agreement nor the consummation by
Acquisition Sub of the transactions contemplated hereby will:
(a) conflict with or result in a breach of any provision of the Articles
of Organization or By-laws of Acquisition Sub which would have a material
adverse effect on the ability of Acquisition Sub to carry out the
transactions contemplated hereby without significant unanticipated delay;
(b) result in the creation of any Lien upon any of the properties of
Acquisition Sub which would have a material adverse effect on the ability
of Acquisition Sub to carry out the transactions contemplated hereby
without significant unanticipated delay;
(c) with or without giving of notice or the passage of time, or both,
violate, or conflict with, or constitute a default under, or result in the
termination or in a right of termination of, violate or be in conflict
with, result in a breach of any term or provision of, or constitute a
default under, or accelerate or permit the acceleration of the performance
required by, or give any other Person a basis for accelerated or increased
rights or termination or nonperformance under, or require any consent,
authorization or approval under, any term or provision of any Lien, lease,
license or other agreement or instrument to which Acquisition Sub or any of
its Subsidiaries is a party or by which it or they are bound, unless such
circumstance would not have a material adverse effect on the ability of
Acquisition Sub to carry out the transactions contemplated hereby without
significant unanticipated delay;
(d) subject to the approval of the Merger by the Company's stockholders,
to the knowledge of Acquisition Sub, violate any provision of, or require
any consent, authorization or approval under, any Applicable Laws of any
Governmental Authority, or any Judgment applicable to Acquisition Sub or
any of
22
its Subsidiaries, except to the extent that such circumstance would not
have a material adverse effect on the ability of Acquisition Sub to carry
out the transactions contemplated hereby without significant unanticipated
delay; or
(e) require any consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Authority, to be made or
obtained by or on behalf of Acquisition Sub except (i) as required by the
Exchange Act, (ii) the filing of the Articles of Merger and other
appropriate merger documents, if any, as required by the laws of the
Commonwealth of Massachusetts or, in connection with the maintenance of
qualification to do business in other jurisdictions, such other
jurisdictions and (iii) filings with the FTC and with the Antitrust
Division under the HSR Act.
Section 4.04. Litigation. Neither Acquisition Sub nor any of its
Subsidiaries is engaged in, and there is not, to the knowledge of Acquisition
Sub, pending, nor has Acquisition Sub received any written notice of, any
Legal Action which would prevent Acquisition Sub from consummating the
transactions contemplated hereby.
Section 4.05. Capitalization. The authorized capital stock of Acquisition
Sub consists of 200,000 shares of Common Stock, $1 par value, of which 100
shares are issued and outstanding. All issued and outstanding shares of
Acquisition Sub Common Stock have been validly issued and are fully paid,
nonassessable and free of preemptive rights and all of such shares are owned,
beneficially and of record, by Parent. There are no outstanding securities
convertible into or exchangeable or exercisable for shares of capital stock of
Acquisition Sub.
Section 4.06. Brokers and Finders. Acquisition Sub has not employed any
broker or finder or incurred any liability for any brokerage fees,
commissions, finders' fees or similar fees or expenses in connection with this
Agreement or the transactions contemplated hereby.
ARTICLE V
COVENANTS
Section 5.01. Access and Information. From the date hereof until the
Effective Date or, if earlier, the date of termination of this Agreement
pursuant to Section 9.01, the Company shall, and shall cause its Subsidiaries
to, afford to Parent and to Parent's officers, employees, accountants, counsel
and other authorized representatives full access, upon reasonable notice to
the Company, to their plants, properties, books and records during normal
business hours for the purpose of making such investigations as Parent shall
reasonably desire in connection with the transactions contemplated hereby, at
its expense (except as otherwise contemplated by Section 10.01), and the
Company shall use its reasonable efforts to cause its and its Subsidiaries'
representatives to furnish promptly to Parent such additional financial and
operating data and other information regarding the business and properties of
the Company and its Subsidiaries as Parent may from time to time reasonably
request for such purpose. In addition, the Company shall afford to Parent and
to Parent's officers, employees, accountants, counsel and other authorized
representatives the right to speak directly with the lenders of the Company
and its Subsidiaries in the presence of representatives of the Company
selected by the President of the Company, including without limitation, Fleet
National Bank.
Section 5.02. Proxy Statement. (a) The Company shall prepare and file with
the SEC, as soon as reasonably practicable, the proxy statement to be
distributed to the Company's stockholders in connection with the Special
Meeting referred to in Section 5.03 (the "Proxy Statement"), and the Company
shall use all reasonable efforts to have such Proxy Statement cleared by the
SEC. The Proxy Statement shall comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation is made by the Company with respect to
statements made or incorporated by reference therein based on information
supplied or required to be supplied by Parent or Acquisition Sub for inclusion
or incorporation by reference in the Proxy Statement.
23
(b) Parent shall cooperate with the Company in preparing the Proxy Statement
and making any filings required to be made pursuant to this Section 5.02, and
the Company shall consult with Parent in that regard and keep Parent fully
informed of its progress with respect thereto and provide to Parent copies of
the Proxy Statement and all such filings for review and approval prior to the
finalization thereof.
(c) Parent and the Company shall furnish to each other, and each other's
counsel, all such information as may be required and requested in connection
with the preparation of the Proxy Statement and the filing of the Proxy
Statement with the SEC, and each represents and warrants to the other that no
written information furnished as provided for in this Section 5.02(c) which
has been prepared by the responsible party will contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
order to make any information so furnished, in light of the circumstances
under which it is so furnished, not misleading.
(d) Parent and the Company shall each promptly notify the other if at any
time before the Effective Date it becomes aware that the Proxy Statement
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading. In such event, the Company shall prepare a supplement or
amendment to the Proxy Statement which corrects such misstatements or
omissions and shall cause the same to be filed with the SEC and distributed to
the stockholders of the Company in accordance with the Exchange Act.
(e) Upon the acceptance of any shares of Company Common Stock and Preference
Stock (if any) by Acquisition Sub pursuant to the Offer (the "Consummation of
the Offer"), Parent shall cause Acquisition Sub to vote all its shares of
Company Common Stock and Preference Stock in favor of the Merger.
Section 5.03. Stockholders' Meeting. (a) The Company shall call a special
meeting of its stockholders ("Special Meeting") to consider and vote upon the
matters necessary for the consummation of the transactions contemplated by
this Agreement and shall recommend to its stockholders a vote "FOR" the
Merger; provided, however, that nothing contained in this Section 5.03(a) or
any other provision of this Agreement shall prohibit the Company or its Board
of Directors, or the representatives of either of them, from recommending to
the stockholders of the Company against, or withdrawing, modifying or changing
its recommendation to the stockholders with respect to, the Merger, if
permitted by Section 5.12 hereof.
(b) The date of the Special Meeting shall be determined jointly by Parent
and the Company, but shall occur as soon as practicable following the SEC's
approval of the Proxy Statement and related proxy materials.
Section 5.04. Supplemental Information. From time to time prior to the
Effective Date, the Company shall promptly advise Parent of any inaccuracy of
which it has knowledge in any Schedules which it has delivered pursuant to
this Agreement if any matter arises hereafter which, if existing or occurring
at the date of this Agreement, would have been required to be set forth or
described in any such Schedule. Such updating shall not cure any breach or
misrepresentation or failure of any closing condition that may exist based on
the Schedules originally delivered with this Agreement.
Section 5.05. Further Assurances. Consistent with the terms and conditions
hereof, each party hereto shall execute and deliver such instruments and take
such other action as the other parties hereto may reasonably require in order
to carry out this Agreement and the transactions contemplated hereby.
Section 5.06. Conduct of Company Business Prior to the Effective
Date. (a) Except as set forth on Schedule 5.06 or any other Schedule hereto
with reference to this Section 5.06 or otherwise consented to or approved by
an authorized officer of Parent or as expressly contemplated or permitted by
this Agreement, the Company agrees that prior to the Effective Date (or, if
earlier, when a majority of the members of the Board of Directors of the
Company are designees of Acquisition Sub in accordance with Section 5.21) the
business of the Company and its Subsidiaries shall be conducted in the
ordinary course consistent with past practice and:
24
(i) no change shall be made in the respective articles or certificate of
organization or incorporation or By-Laws of the Company or any of its
Subsidiaries;
(ii) 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 be granted, made, redeemed or amended; nor shall 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 shall be permitted to issue
shares or other securities as contemplated by the Savings Plan as in effect
on the date hereof and shall be permitted to issue shares of Common Stock
in connection with the due exercise of Options under the 1982 Stock Option
Plan, the 1992 Stock Option Plan, the Director Option Plan or any other
right or convertible security outstanding as of the date of this Agreement
in accordance with the existing terms thereof;
(iii) 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 Company Common Stock, 5% Stock,
Preference Stock or any other outstanding capital stock of the Company, nor
shall the Company or any Subsidiary (y) purchase, acquire or redeem any
shares of Company Common Stock, 5% Stock or Preference Stock or (z) 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;
(iv) 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;
(v) 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;
(vi) 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 this Agreement or which would
cause any of the representations of the Company contained herein to be or
become untrue in any material respect;
(vii) 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 GAAP, ERISA or 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;
(viii) 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 (xi);
(ix) 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 Permitted Liens) 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;
(x) the Company shall not (x) 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
25
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 (y) 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;
(xi) 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;
(xii) the Company shall not make any tax election or settle or compromise
any income tax liability; provided that Parent shall not unreasonably
withhold any consent or approval of any such tax election, settlement or
compromise;
(xiii) the Company shall 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 Balance Sheet or incurred since the
date of the 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
Section 5.12; and
(xiv) the Company shall not authorize any of, or commit or agree to take
any of, the foregoing actions.
(b) Without the prior consent of an authorized officer of Parent, which
consent shall not be unreasonably withheld, the Company shall not make any
election fixing the interest rate or rates payable under the Revolving
Credit Agreement for a term that could reasonably be expected to extend
beyond the Effective Date.
(c) Parent shall respond within a reasonable period of time to any
request for consent or approval required under Section 5.06.
(d) Advice of Changes. The Company shall promptly advise Parent 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.
Section 5.07. Consents. Each of the Company, Parent and Acquisition Sub
shall, and shall cause each of their Subsidiaries to, use its and their
reasonable efforts to obtain prior to the Effective Date all approvals,
authorizations and consents of all third Persons identified on Schedule 2.05
and all Permits which are necessary for (i) the consummation of the Offer, the
Merger and the other transactions contemplated hereby, (ii) the ownership or
leasing and operation by the Surviving Corporation and each of its
Subsidiaries of all the properties and assets of the Company and its
Subsidiaries and (iii) the conduct by the Surviving Corporation and each of
its Subsidiaries of the business of the Company and its Subsidiaries as
conducted by such entities on the date hereof.
Section 5.08. Filings. The Company, Parent and Acquisition Sub shall use
their reasonable efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation in connection with all notices, reports or other
documentation filed by Parent and the Company under the HSR Act. The Company,
Parent and Acquisition Sub shall take such reasonable action as may be
necessary under state and Federal securities laws applicable to or necessary
for, and will file all documents and notifications with the SEC and other
Governmental Authorities reasonably necessary for, the consummation of the
Offer, the Merger and the transactions contemplated hereby. Each party shall
furnish the other and the other's counsel with all information reasonably
requested by such other party pertaining to it and its subsidiaries and
affiliates as may be required in order to enable such other party to take all
such actions as required by this Section 5.08. Nothing in this Agreement shall
require Parent to dispose of, or make any change
26
in, any portion of its or the Company's assets or business or to pay any
material amount or incur any other material burden in order to obtain any
consent, approval or authorization or satisfy any condition in connection with
the Closing.
Section 5.09. Filing of Articles of Merger. Subject to the terms and
conditions of this Agreement, as soon as practicable following the approval of
the Merger by the stockholders of the Company contemplated by Section 5.03
hereof, the Company, Parent and Acquisition Sub will cause the Articles of
Merger to be filed with the Secretary of State of the Commonwealth of
Massachusetts.
Section 5.10. Interim Financial Statements. Until the Effective Date or, if
earlier, the date of termination of this Agreement pursuant to Section 9.01,
as soon as practicable but in no event later than 30 days after the end of
each month beginning with October 1997, the Company shall deliver to Parent
unaudited consolidated financial information for such month and the
corresponding month of the preceding year as prepared by the Company's
management for its own internal purposes. Until the Effective Date or, if
earlier, the date of termination of this Agreement pursuant to Section 9.01,
the Company shall deliver to Parent (a) its Form 10-K for the year ended
December 31, 1997 prior to March 31, 1998 (but not later than the business day
prior to the date of filing of such Form 10-K with the SEC) and (b) its Form
10-Q for each quarter within 45 days after the end of such quarter after the
date of this Agreement (but not later than the business day prior to the date
of filing of such Form 10-Q with the SEC). The financial statements contained
therein shall present fairly in all material respects the Company's
consolidated financial condition, results of operations and changes in
financial position (on a consolidated basis) as at the date or for the periods
indicated in accordance with GAAP consistently applied, except as otherwise
indicated in such statements and except as to format and footnote disclosure
shall be prepared in conformity with the requirements of Rule 10-01 of
Regulation S-X under the Exchange Act and Item 303 of Regulation S-K.
Section 5.11. Public Announcements. (a) The parties agree that the initial
press release to be issued with respect to the transactions contemplated by
this Agreement shall be in the form heretofore agreed to by the parties.
Thereafter, unless required by Applicable Law or by the rules of any
applicable self-regulatory organizations, the Company, Parent and Acquisition
Sub shall not, and shall each cause their respective officers, employees and
other authorized representatives not to, prior to the Effective Date, issue
any press release or make any other public disclosure or announcement or
otherwise make any disclosure to any third Person (other than by way of the
Offer Documents, the Schedule 14D-9 and the Proxy Statement referred to in
Section 5.02) concerning the transactions contemplated by this Agreement or
the terms and provisions hereof.
(b) Should any press release or other public disclosure be required to be
made, then the party required to make such release or disclosure shall not
make such release or disclosure without first using its reasonable efforts to
obtain the prior written consent of the other parties hereto as to both the
timing and content of such press release or public disclosure, which consent
shall not be unreasonably withheld.
Section 5.12. No Solicitation. (a) 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, (i) solicit or initiate, or knowingly encourage the
submission of, any takeover proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to any takeover proposal (except for (1) non-confidential information, or (2)
filings with the SEC); provided, however, that prior to the earlier of (x) the
Consummation of the Offer or (y) the Special Meeting, to the extent required
by the fiduciary obligations of the Board of Directors of the Company, as
determined in good faith by the Board of Directors 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 the Confidentiality Agreement dated April
13, 1994, between the Company and Saint-Gobain Corporation, as amended (as
determined by the Company's counsel)) 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
27
person and (B) upon receipt by the Company of a qualified takeover proposal,
following the delivery to Parent of the notice required pursuant to Section
5.12(c), participate in discussions or negotiations regarding such qualified
takeover proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth 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 any of its
Subsidiaries, shall be deemed to be a breach of this Section 5.12 by the
Company. For purposes of this Agreement, "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 this Agreement the
consummation of which would impede or prevent the consummation of the Merger
pursuant to the terms of this Agreement; and "qualified takeover proposal"
means a takeover proposal having terms which the Board of Directors 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 dated the date hereof among Parent, Acquisition
Sub and the persons identified on Schedule A thereto) in its good faith
reasonable judgment to be more favorable to the holders of Company Common
Stock than the Total Merger Consideration and holders of Preference Stock than
the Preference Stock Consideration and likely to be fully financed and
consummated.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Acquisition Sub, the approval or recommendation by such
Board of Directors or any such committee of this 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
Directors of the Company receives a qualified takeover proposal, the Board of
Directors or any committee thereof or the Company may (subject to the
limitations contained in this Section) withdraw or modify its approval or
recommendation of this Agreement, the Offer or the Merger at any time after 48
hours following Parent's receipt of written notice (a "Notice of Qualified
Takeover Proposal") advising Parent that the Board of Directors 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 preceding sentence only until the earlier of (x) the
Consummation of the Offer or (y) the approval of the Merger at the Special
Meeting. Nothing contained herein shall prohibit the Company from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
following Parent'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.
(c) In addition to the obligations of the Company set forth in paragraph (b)
of this Section, the Company shall promptly advise Parent 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 Parent fully informed of the status and details of any such request,
takeover proposal or inquiry.
Section 5.13. Validity of Representations. Parent, Acquisition Sub 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 Company shall take any action
required by Parent to ensure the accuracy of Section 2.22 if Parent determines
that would be desirable.
Section 5.14. Employees; Benefits. Parent and Acquisition Sub shall honor
(i) all employment, severance or similar contractual arrangements in
accordance with their terms in existence on the date of this Agreement and
disclosed prior to the date of this Agreement to Parent and (ii) all legally
imposed obligations relating to employment matters. After the Closing Date,
Parent and Acquisition Sub shall comply with enforceable Applicable Law,
including without limitation the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. (S) 2101 et seq. It is the current intention of Parent and
Acquisition Sub to cause the Surviving
28
Corporation to provide benefits to employees of the Company and its
Subsidiaries that are no less favorable in the aggregate to such employees
than those in effect on the date of this Agreement; provided, however, that
the foregoing shall not limit or restrict the right of the Surviving
Corporation or its Subsidiaries to terminate the employment of such employees
or subsequently to modify the benefits or other terms of employment of such
employees, to the extent permitted by enforceable Applicable Law.
Section 5.15. Indemnification and Insurance. (a) Parent and Acquisition Sub
hereby agree that all rights to indemnification now existing in favor of the
directors or officers of the Company and its Subsidiaries (the "Indemnified
Parties") as currently provided in 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 on the
date hereof and previously furnished to Parent 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. Without limiting the foregoing, 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 Parent 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 this Agreement, occurring
prior to, and including, the Effective Date, or otherwise relating to or
arising out of such matters, Parent or the Surviving Corporation shall
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). Parent shall 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
this 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 cancelled during such two-year period,
Parent will 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.
(b) Any Indemnified Party wishing to claim indemnification hereunder, upon
learning of any such Legal Action, shall promptly notify Parent and the
Surviving Corporation with respect thereto, but the failure to so notify shall
not relieve Parent or the Surviving Corporation of any liability it may have
to such Indemnified Party hereunder except to the extent that Parent and the
Surviving Corporation are materially prejudiced thereby.
(c) Parent 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
terms of this Section 5.15, unless it is ultimately determined by a court of
competent jurisdiction that such Indemnified Party is not entitled to
indemnification hereunder.
(d) Parent 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 Parent and the Surviving Corporation
hereunder.
Section 5.16. Redemption of 5% Stock. (a) In connection with the Merger, the
Company, Parent and Acquisition Sub hereby agree that the 5% Stock shall be
redeemed and retired, as soon as practicable following the Effective Date for
the 5% Stock Consideration in accordance with the Surviving Corporation's
Articles of Organization.
29
(b) Prior to the date specified in the call notice for the redemption and
retirement of the 5% Stock, the Surviving Corporation shall cause to be
deposited with an appropriate trust company or bank, for the credit of the
holders of the 5% Stock, sufficient funds to be paid to such holders for
redemption and retirement of all of such shares of 5% Stock as provided for
herein and in the Surviving Corporation's Articles of Organization.
Section 5.17. Material Contracts. The Company shall not enter into any
material modification or amendment concerning any Material Contract listed on
Schedule 2.11(a) or 2.11(b) without the consent of Parent, which consent shall
not be unreasonably withheld. Immediately after the Closing, Parent shall
cause the Surviving Corporation to pay the outstanding principal amount (and
accrued interest thereon) owed by the Company under each Material Contract set
forth on Schedule 2.11(b).
Section 5.18. Tax Matters. Promptly after the request of Parent and in any
event no later than three months from the date of such request, the Company
shall provide to Parent true, complete and correct (in all material respects)
copies of (a) a schedule setting forth the deferred intercompany gain account,
and the excess loss account of each of its Subsidiaries, and (b) a schedule
setting forth the Federal income tax basis for the stock of each of the
Subsidiaries except those Subsidiaries for which such information cannot be
obtained after due inquiry.
Section 5.19. Dividend Payments. The Company shall not declare or pay or set
apart for payment any accumulated dividends on the Preference Stock or 5%
Stock.
Section 5.20. Satisfaction of Conditions. The Company, Parent and
Acquisition Sub shall each take all reasonable actions that may be required to
satisfy the conditions set forth in Article VI and Article VII hereof,
respectively.
Section 5.21. Directors. Subject to compliance with applicable law
(including Section 14(f) of the Exchange Act), upon the acquisition by
Acquisition Sub of at least a majority of the outstanding Common Stock
pursuant to the Offer, Acquisition Sub shall be entitled to designate at least
a majority of the members of the Board of Directors of 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 its
best efforts to cause directors to resign) needed to cause a sufficient number
of Acquisition Sub's designees to be appointed to the Company's Board of
Directors that such designees shall constitute such majority (any director so
designated by Acquisition Sub, a "Designated Director"). It is understood that
immediately after the acquisition by Acquisition Sub of at least a majority of
the outstanding Common Stock pursuant to the Offer (x) the Company's Board of
Directors shall consist of seven members, (y) the initial designees of
Acquisition Sub 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
Antonio J. Lorusso, Jr., Richard C. Maloof and Frank Anthony. In the event
that, after the acquisition by Acquisition Sub of at least a majority of the
outstanding Common Stock pursuant to the Offer and prior to the Effective
Time, the number of members of the Board of Directors increases (including
pursuant to the provisions of the Preference Stock 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 its best efforts to cause additional directors to resign and to appoint
additional designees of Acquisition Sub) needed to cause a sufficient number
of Acquisition Sub's designees to be appointed to the Board of Directors that
such designees shall then constitute at least a majority of the members of the
Board of Directors. The parties hereto 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 this 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, Acquisition Sub or Parent 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,
Acquisition Sub or Parent or their respective Subsidiaries and (ii)
recommended to succeed such Continuing Director by at least a majority of the
then Continuing Directors.
30
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITION SUB
Each and every obligation of Parent and Acquisition Sub under this Agreement
shall be subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, each of which may be waived by Parent and
Acquisition Sub except as otherwise provided by law, provided that, upon the
Consummation of the Offer, each of the following conditions (other than the
conditions set forth in Section 6.03(b) and (d) and 6.04(b)) shall be deemed
waived by Parent and Acquisition Sub:
Section 6.01. Representations and Warranties True. The representations and
warranties of the Company contained in this Agreement (without regard to any
information provided under Section 5.04) 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 hereof and on and as of the Effective Date, and between the date
hereof and the Effective Date there shall not have been any event or change in
circumstance causing or reasonably anticipated to cause in the future any
Material Adverse Effect.
Section 6.02. Company's Performance. Each of the obligations of the Company
to be performed by it on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed or complied with in all material
respects by the Closing.
Section 6.03. Authorization of Merger. (a) All corporate action necessary by
the Company to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
(including the Offer and the Merger) shall have been duly and validly taken,
and the Company and Acquisition Sub shall have full right and power to merge
on the terms provided herein.
(b) The holders of the Company Common Stock and of the Preference Stock
shall have duly approved the Merger at the Special Meeting called for that
purpose (other than if such approval shall not have occurred solely due to the
breach by Parent or Acquisition Sub of Section 5.02(e)).
(c) All consents, approvals and authorizations from third Persons and
Governmental Authorities identified on Schedule 2.05 and Schedule 2.11(b)
required to consummate the transactions contemplated by this Agreement shall
have been obtained.
(d) All applicable waiting periods under the HSR Act shall have expired or
been terminated.
Section 6.04. Absence of Litigation. (a) There shall not be pending or
threatened any suit, action or proceeding by any Governmental Authority (i)
challenging the acquisition by Parent or Acquisition Sub of any shares of
Company Common Stock or Preference Stock, seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement or seeking to obtain from the Company, Parent or Acquisition
Sub any damages related to the Merger or the other transactions contemplated
hereby 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, Parent or any of their respective Subsidiaries of any material
portion of the business or assets of the Company, Parent or any of their
respective Subsidiaries, or to compel the Company, Parent or any of their
respective Subsidiaries to dispose of or hold separate any material portion of
the business or assets of the Company, Parent or any of their respective
Subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement, (iii) seeking to impose limitations on the
ability of Parent or Acquisition Sub to acquire or hold, or exercise full
rights of ownership of, any shares of Surviving Corporation Common Stock, (iv)
seeking to prohibit Parent or any of its Subsidiaries from effectively
controlling in any material respect the business or operations of the Company
or its Subsidiaries or of Parent and its Subsidiaries or (v) which otherwise
is reasonably likely to have a Material Adverse Effect.
31
(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.
Section 6.05. Directors. All directors of the Company whose resignation is
requested by Parent at least five days before the Closing Date will have
submitted their resignations as directors effective as of the Closing Date.
Section 6.06. Dissenting Shares. 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 Dissenting Consideration as provided in Section 1.12
hereof.
Section 6.07. Options. Each outstanding Option issued under the 1982 Stock
Option Plan, the 1992 Stock Option Plan and the Director Option Plan shall
have been amended as contemplated by Section 1.14.
Section 6.08. Certificates. The Company shall have furnished Parent with
such certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VI as may be reasonably requested by
Parent. The form and substance of all opinions, certificates and other
documents hereunder shall be satisfactory in all reasonable respects to Parent
and its counsel.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
Each and every obligation of Company under this Agreement shall be 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 44 by law, provided that, upon the Consummation of the Offer, each of
the following conditions (other than the conditions set forth in Sections 7.03
and 7.04) shall be deemed waived by the Company:
Section 7.01. Representations and Warranties True. The representations and
warranties of Parent and Acquisition Sub contained in this 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 hereof and on and as of the Effective Date.
Section 7.02. Parent's and Acquisition Sub's Performance. Each of the
obligations of Parent and Acquisition Sub to be performed by them on or before
the Closing Date pursuant to the terms hereof shall have been duly performed
and complied with in all material respects by the Closing.
Section 7.03. Authorization of Merger. (a) All corporate action necessary by
Acquisition Sub and Parent to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken, and Acquisition
Sub shall have full right and power to merge on the terms provided herein. 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 on Schedule 2.05 required to consummate
the transactions contemplated by this Agreement shall have been obtained.
(c) All applicable waiting periods under the HSR Act shall have expired or
been terminated.
32
Section 7.04. Absence of Litigation. No Judgment 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.
Section 7.05. Certificates. Parent and Acquisition Sub shall have furnished
Company with such certificates of their respective officers and others to
evidence compliance with the conditions set forth in this Article VII as may
be reasonably requested by Company. The form and substance of all certificates
and other documents hereunder shall be satisfactory in all reasonable respects
to Company and its counsel.
ARTICLE VIII
CLOSING
Section 8.01. Time and Place. Subject to the provisions of Articles VI, VII
and IX hereof, the closing (the "Closing") of the Merger shall take place at
the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York
10019 at 9:30 a.m., local time, on a date (the "Closing Date") which is to be:
(a) as soon as practicable after the latest to occur of the date by which
the stockholders of the Company shall have approved the Merger pursuant to
Section 5.03, the date of expiration or termination of any waiting period,
including any extensions thereof, which may be applicable to the Merger
under the provisions of the HSR Act, or the date of satisfaction of all
other conditions to the Closing set forth herein the satisfaction of which
is not waived other than conditions that, by their terms, are to be
satisfied on the Closing Date; or
(b) such other place, at such other time, or on such other date as
Parent, Acquisition Sub and the Company may mutually agree upon for the
Closing to take place.
The Closing Date shall be the Effective Date.
Section 8.02. Deliveries at the Closing. Subject to the provisions of
Articles VI, VII and IX hereof, at the Closing:
(a) If the Consummation of the Offer shall not have occurred, there shall
be delivered to Parent, Acquisition Sub and the Company the certificates
and other documents and instruments required to be delivered under Articles
VI and VII hereof.
(b) Parent, Acquisition Sub and Company shall cause the Articles of
Merger to be filed in accordance with the provisions of the MBCL and shall
take any and all other lawful actions and do any and all other lawful
things necessary to effect the Merger and to cause the Merger to become
effective.
ARTICLE IX
TERMINATION AND ABANDONMENT OF THE MERGER
Section 9.01. Termination. (a) 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 Directors of the Company, this Agreement shall be
terminated, and the Merger abandoned, if the stockholders of the Company fail
to approve the Merger as contemplated by Section 5.03 hereof.
(b) Notwithstanding approval of this Agreement and the transactions
contemplated hereby by the stockholders of the Company or by the sole
stockholder of Acquisition Sub, this Agreement may be terminated, and the
Offer and the Merger abandoned, at any time prior to the Effective Date:
33
(i) by the mutual consent of Parent, Acquisition Sub and the Company; or
(ii) 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 Directors of the Company, by Parent, Acquisition Sub or the
Company at any time after June 30, 1998; or
(iii) by Parent or Acquisition Sub, (A) if 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 set forth in Exhibit A hereto
(other than solely paragraph (c) thereto) shall have become impossible to
fulfill and shall not have been waived, (B) if any of the conditions set
forth in Article VI hereof shall become impossible to fulfill and shall not
have been waived or deemed waived in accordance with the terms of this
Agreement (it being understood that with respect to Section 6.04(b) any
condition 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) or (C) if
the Board of Directors pursuant to Section 5.12(b) withdraws or modifies
its approval or recommendation of this Agreement, the Offer or the Merger;
or
(iv) by the Company, if any of the conditions set forth in Article VII
hereof shall become impossible to fulfill, and shall not have been waived
in accordance with the terms of this Agreement; or
(v) 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 Directors of the Company, by Parent or Acquisition Sub if the
Company fails to perform in any material respect any of its obligations
hereunder or breaches in any material respect any provision hereof, and the
Company has failed to perform such obligation or cure such breach, within
10 days of its receipt of written notice thereof from Parent or Acquisition
Sub, and such failure to perform shall not have been waived in accordance
with the terms of this Agreement;
(vi) by the Company if Parent or Acquisition Sub fails to perform in any
material respect any of its obligations hereunder or breaches in any
material respect any provision hereof, and Parent and Acquisition Sub 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 this
Agreement;
(vii) by the Company if (A) the Board of Directors pursuant to Section
5.12(b) withdraws or modifies its approval or recommendation of this
Agreement, the Offer or the Merger and (B) the Company pays Parent all
Expenses and the Alternate Transaction Fee in cash, in each case as
provided in Section 10.01(b); or
(viii) by the Company if Acquisition Sub (A) shall have failed to
commence the Offer within the time required under the Exchange Act or (B)
shall have failed to pay for any Company Common Stock or Preference Stock
accepted for payment pursuant to the Offer and, in the case of clause (B),
Acquisition Sub shall have failed to make such payment within three
business days of receipt of written notice thereof from the Company.
Section 9.02. Effect of Termination. (a) In the event of the termination and
abandonment of this Agreement and the Merger:
(i) this Agreement shall become void and have no effect, without any
liability on the part of any party or its directors, officers or
stockholders, except as provided in Article X hereof; provided that, except
as provided in Sections 9.02(b) and 9.02(c), each party shall have the
right to bring suit against any other party for any breach of this
Agreement; and
(ii) upon written request, each party will redeliver all documents, work
papers and other material and all copies thereof of any other party
relating to the transactions contemplated hereby, whether so obtained
34
before or after the execution hereof, to the party furnishing the same and,
at the request of any other party, will destroy any analyses, compilations,
studies or other documents prepared using such furnished information.
(b) Notwithstanding any provisions to the contrary herein, the sole remedy
of Parent or Acquisition Sub for a breach by the Company of any representation
or warranty set forth in Article II of this Agreement shall be the termination
of this Agreement (if permitted by Section 9.01) 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").
(c) Notwithstanding any provisions to the contrary herein, the sole remedy
of the Company for a breach by Parent or Acquisition Sub of any representation
or warranty set forth in Article III or IV, respectively, of this Agreement
shall be the termination of this Agreement (if permitted by Section 9.01)
unless such breach was made with the actual knowledge of the President or
Executive Vice President of Parent, after due inquiry of other managerial
employees of Parent who would be reasonably expected to have knowledge as to
the matter represented (a "Parent Willful Misrepresentation").
Section 9.03. Procedure for Termination and Amendment. A termination of this
Agreement pursuant to Section 9.01 or an amendment of this Agreement in
accordance with Section 10.07 shall, in order to be effective, require in the
case of the Company action by its Board of Directors or the duly authorized
designee of its Board of Directors. In the event that Acquisition Sub's
designees are appointed or elected to the Board of Directors of the Company as
provided in Section 5.21, after the Consummation of the Offer and prior to the
Effective Time, the affirmative vote of at least a majority of the Continuing
Directors shall be required for the Company to agree to amend, waive
compliance with or terminate this Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.01. Expenses; Alternate Transaction Fee. (a) Except as provided
by Section 10.01(b), (c) or (d) each of the parties hereto shall bear its own
costs, fees and expenses in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, including, without limitation, fees,
commissions and expenses (including, without limitation, all filing, printing,
copying, mailing, telephone, transportation and delivery charges) payable to
brokers, finders, investment bankers, consultants, exchange or transfer
agents, attorneys, accountants and other professionals, whether or not the
Consummation of the Offer occurs or the Merger is consummated.
(b) If the Board of Directors of the Company pursuant to Section 5.12(b)
wishes to withdraw or adversely modify its approval or recommendation of this
Agreement, the Offer or the Merger, prior to exercising its rights under
Section 5.12(b), the Company shall pay in same day funds to Parent: (i) its
Expenses incurred to date and thereafter shall pay in same day funds to Parent
within one business day after demand therefor all subsequently incurred
Expenses, provided that the Company shall not be obligated hereunder to pay
any such Expenses to the extent they exceed an aggregate of $1 million and
(ii) an alternative transaction fee of $1.5 million (the "Alternate
Transaction Fee"). For purposes of Sections 10.01(b) and (c), "Expenses" shall
mean 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 Parent or Acquisition Sub)
incurred or paid by or on behalf of Parent or Acquisition Sub after January 1,
1996, in connection with or leading to this Agreement, the transactions
contemplated hereby, and performing or securing the performance of the
obligations of the parties hereunder, including, without limitation, such fees
and expenses related to preparation and negotiation of documentation and
conducting due diligence. Parent shall within 36 hours after request therefor
advise the Company of an estimate of its Expenses if the Company wishes to
exercise its rights under Section 5.12(b).
35
(c) In the event a takeover proposal from a party other than Parent or one
of its affiliates is received by the Company or publicly disclosed prior to
the expiration of the Offer (or in the case of clauses (B) and (C), prior to
the Special Meeting) or, if earlier, termination of this Agreement, and (A) at
the scheduled expiration date of the Offer a sufficient number of shares of
Company Common Stock and Preference Stock shall not have been tendered to
satisfy the Minimum Condition, (B) at the Special Meeting the required
approval of the Merger by the Company's stockholders is not obtained, or (C)
this Agreement is terminated (other than by the Company pursuant to Section
9.01(vi)) 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 Parent within two business days after the earlier of such
expiration date, Special Meeting or termination of this Agreement (i) all
Expenses incurred to date and thereafter will pay in same day funds to Parent
within one business day after demand therefor all subsequently incurred
Expenses, provided, that the Company shall not be obligated hereunder to pay
any such Expenses to the extent they exceed an aggregate of $1 million, and
(ii) the Alternate Transaction Fee.
(d) In the event this Agreement is terminated, the Offer is terminated or
the Merger does not occur (i) solely due to a breach by Parent or Acquisition
Sub of any of its covenants or obligations hereunder or due to a Parent
Willful Misrepresentation or (ii) solely due to a breach by the Company of any
of its covenants or obligations hereunder or due to a Company Willful
Misrepresentation, then in the case of a termination pursuant to clause (i)
above, Parent and Acquisition Sub shall promptly pay to the Company, and in
the case of termination pursuant to clause (ii) above, the Company shall
promptly pay to Parent and Acquisition Sub, in same day funds all Expenses
incurred to date (after giving credit for any reimbursement already made under
Section 10.01(b) or (c)) and thereafter shall pay in same day funds within one
business day after demand therefor all subsequently incurred Expenses. For
purposes of this paragraph 10.01(d) "Expenses" shall mean 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 Parent or the Company, as the case may be) incurred or paid
by or on behalf of Parent, Acquisition Sub or the Company, as the case may be,
after January 1, 1996, in connection with or leading to this Agreement, the
transactions contemplated hereby, and performing or securing performance of
the obligations of the parties hereunder, including, without limitation, such
fees and expenses related to preparation and negotiation of documentation and
conducting due diligence. This Section shall not limit damages that would
otherwise be recoverable for breaches hereunder.
Section 10.02. Non-Survival of Representations and Warranties. The
respective representations and warranties, obligations, covenants and
agreements of the Company, Parent and Acquisition Sub contained herein or in
any Schedule, certificate or letter delivered pursuant hereto (other than
those contained in Section 10.01 hereof and those which by their terms extend
beyond the Effective Date or termination of this Agreement) shall expire with,
and be terminated and extinguished by the effectiveness of the Merger and
shall not survive the Effective Date or, if earlier, the date of termination
of this Agreement pursuant to Article IX hereof.
Section 10.03. Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement and shall not in any manner affect the
meaning or interpretation of the terms of this Agreement.
36
Section 10.04. Notices. (a) Any notices or other communications required or
permitted hereunder shall be addressed as follows:
If to Parent or Acquisition Sub to:
CertainTeed Corporation
750 E. Swedesford Road
Valley Forge, Pennsylvania 19482
Attn: Bradford C. Mattson
Executive Vice President
Tel: (610) 341-7922
Fax: (610) 341-7112
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attn: Philip A. Gelston
Tel: (212) 474-1548
Fax: (212) 474-3700
If to the Company to:
Bird Corporation
1077 Pleasant Street
Norwood, Massachusetts 02062-6714
Attn: Richard C. Maloof
President
Tel: (781) 551-0656
Fax: (781) 769-0434
Copy to:
Timothy B. Bancroft, Esq.
Warner & Stackpole LLP
75 State Street
Boston, Massachusetts 02109
Tel: (617) 951-9152
Fax: (617) 951-9151
or such other address as shall be furnished in writing by either party in
accordance with this Section 10.04, and any such notice or communication shall
be deemed to have been given as of the date so mailed.
(b) Notices or other communications shall be deemed given (i) if delivered
personally, upon delivery, (ii) if delivered by registered or certified mail
(return receipt requested), upon the earlier of actual delivery or three
business days after being mailed, (iii) if delivered by overnight courier or
similar service, upon delivery, or (iv) if given by fax, upon confirmation of
transmission by fax; provided that if such notice or other communications
would be otherwise deemed given on a day which is not a business day, the
delivery shall be deemed given the first business day following such day.
Section 10.05. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto, either in whole or in part, without the prior
written consent of the other parties hereto.
37
Section 10.06. Complete Agreement. This Agreement, including the Schedules,
exhibits and other writings referred to herein or delivered pursuant hereto,
contains the entire understanding among the parties with respect to the Offer,
the Merger and the related transactions and supersedes all prior arrangements
or understandings with respect thereto, except for the Confidentiality
Agreement. There are no restrictions, agreements, promises, warranties,
covenants or undertakings other than those expressly set forth herein.
Section 10.07. Amendments and Waivers. (a) Subject to the provisions
contained in Articles VI and VII hereof and subject to Section 9.03, at any
time prior to the Effective Date if authorized by their respective Boards of
Directors and to the extent permitted by law, the parties hereto may, by
written agreement, modify, amend, or supplement any term or provision of this
Agreement. Any written instrument or agreement referred to in this paragraph
shall be validly and sufficiently authorized for the purposes of this
Agreement if signed on behalf of the Company, Parent and Acquisition Sub by a
person authorized to sign this Agreement on their behalf.
(b) This Agreement may be amended at any time only by a written instrument
executed by the Company, Parent and Acquisition Sub. No delay on the part of
any party hereto in exercising any right hereunder shall operate as a waiver
of such right, nor shall any waiver, express or implied, by any party hereto
of any right hereunder or of any failure to provide and perform hereunder or
breach hereof by either party hereto constitute or be deemed to constitute a
waiver of any other failure to provide and perform hereunder or breach hereof
by any party hereto whether of a similar or dissimilar nature thereto.
Section 10.08. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
Section 10.09. Governing Law. EXCEPT AS TO THE PROVISIONS OF SECTIONS 1.03
THROUGH 1.14 (WHICH SHALL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS), THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS RULES) AS TO ALL
MATTERS, INCLUDING, BUT NOT LIMITED TO, MATTERS OF VALIDITY, CONSTRUCTION,
EFFECT AND PERFORMANCE.
Section 10.10. Accounting Terms. All accounting terms used herein that are
not expressly defined in this Agreement shall have the meanings given to them
in accordance with GAAP.
Section 10.11. Parties. Nothing in this Agreement is intended to confer any
rights or remedies under or by reason of this Agreement on any persons or
entities other than the parties hereto and their respective successors and
permitted assigns in accordance with Section 10.05 hereof, except for the
provisions of Section 5.15. Without limiting the foregoing, no third Person
shall be a beneficiary of any provision of this Agreement, except for the
provisions of Section 5.15.
38
IN WITNESS WHEREOF, each of Parent, Acquisition Sub and the Company has
executed this Agreement, or has caused this Agreement to be executed on its
behalf by a representative duly authorized, all as of the day and year first
above written.
BIRD CORPORATION,
By: /s/ Richard C. Maloof
-----------------------------------
Name:Richard C. Maloof
[Seal] Title:President
By: /s/ Frank Anthony
-----------------------------------
Name:Frank Anthony
Title:Vice President
By: /s/ Donald L. Sloper, Jr.
-----------------------------------
Name:Donald L. Sloper, Jr.
Title:Treasurer
CERTAINTEED CORPORATION,
By: /s/ James E. Hilyard
-----------------------------------
Name:James E. Hilyard
Title:Vice President
BI EXPANSION II CORP.,
By: /s/ James E. Hilyard
-----------------------------------
Name:James E. Hilyard
[Seal] Title:Vice President
By: /s/ John R. Mesher
-----------------------------------
Name:John R. Mesher
Title:Assistant Treasurer
39
EXHIBIT A
CONDITIONS TO THE OFFER
Notwithstanding any other term of the Offer or this Agreement, Acquisition
Sub shall not be required to accept for payment or, subject to any applicable
rules and regulations of the SEC, to pay for any shares of Company Common
Stock or Preference Stock tendered pursuant to the Offer unless, (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer such number of shares of Company Common Stock that would constitute
at least 66 2/3% of the outstanding shares (determined on a fully diluted
basis) of Company Common Stock, (ii) there shall have been validly tendered
and not withdrawn prior to the expiration of the Offer such number of shares
of Preference Stock that would constitute at least 66 2/3% of the outstanding
shares of Preference Stock (clauses (i) and (ii) together being the "Minimum
Condition"), (iii) any waiting period under the HSR Act applicable to the
purchase of shares of Company Common Stock and Preference Stock pursuant to
the Offer shall have expired or been terminated 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 this Agreement and the transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect. Furthermore, notwithstanding any other term of the Offer or
this Agreement, Acquisition Sub shall not be required to accept for payment
or, subject as aforesaid, to pay for any shares of Company Common Stock or
Preference Stock not theretofore accepted for payment or paid for, and may
terminate the Offer if, at any time on or after the date of this Agreement and
before the Consummation of the Offer, any of the following conditions exist:
(a) The representations and warranties of the Company contained in this
Agreement (without regard to any information provided under Section 5.04)
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 hereof and on and
as of the date of the scheduled expiration of the Offer.
(b) Any of the obligations of the Company to be performed by it on or
before the date of the scheduled expiration of the Offer pursuant to the
terms of this Agreement shall not have been duly performed or complied with
in all material respects by that date.
(c) Since the Balance Sheet Date, 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 on Schedule 2.05 and Schedule 2.11(b)
required to consummate the transactions contemplated by this 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 Parent or
Acquisition Sub of any shares of Company Common Stock or Preference Stock,
seeking to restrain or prohibit the consummation of the Offer, the Merger
or any of the other transactions contemplated by this Agreement or seeking
to obtain from the Company, Parent or Acquisition Sub any damages related
to the Offer, the Merger or the other transactions contemplated hereby 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, Parent or any of their respective Subsidiaries of any material
portion of the business or assets of the Company, Parent or any of their
respective Subsidiaries, or to compel the Company, Parent or any of their
respective Subsidiaries to dispose of or hold separate any material portion
of the business or assets of the Company, Parent or any of their respective
Subsidiaries, as a result of the Offer, the Merger or any of the other
transactions contemplated by this Agreement, (iii) seeking to impose
limitations on the ability of Parent or Acquisition Sub to acquire or hold,
or exercise full rights of ownership of, any shares of Surviving
Corporation Common Stock, (iv) seeking to prohibit Parent or any of its
Subsidiaries from effectively controlling in any material respect the
business or operations of the Company or its Subsidiaries or of Parent and
its Subsidiaries or (v) which otherwise is reasonably likely to have a
Material Adverse Effect.
40
(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 Board of Directors of the Company or any committee thereof shall
have withdrawn or modified in a manner adverse to Parent its approval or
recommendation of the Offer, the Merger or this Agreement or resolved to
take any of such actions.
(h) The Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Acquisition Sub and
Parent and may, subject to the terms of the Agreement, be waived by
Acquisition Sub and Parent in whole or in part at any time and from time to
time in their sole discretion. The failure by Parent or Acquisition Sub 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.
41
ANNEX II
MASSACHUSETTS GENERAL LAWS CHAPTER 156B,
SECTIONS 85 THROUGH 98:
RIGHTS OF DISSENTING STOCKHOLDERS
(S)85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation
or corporations under the provisions of sections seventy-eight or seventy-nine
who objects to such consolidation or merger may demand payment for his stock
from the resulting or surviving corporation and an appraisal in accordance
with the provisions of sections eighty-six to ninety-eight, inclusive, and
such stockholder and the resulting or surviving corporation shall have the
rights and duties and follow the procedure set forth in those sections. This
section shall not apply to the holders of any shares of stock of a constituent
corporation surviving a merger if, as permitted by subsection (c) of section
seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
(S)86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before the taking of the
vote of the shareholders on such corporate action, written objection to the
proposed action stating that he intends to demand payment for his shares if
the action is taken and (2) his shares are not voted in favor of the proposed
action.
(S)87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice of
a statement of opinion by the management as to the existence or non-existence
of the right of the stockholders to demand payment for their stock on account
of the proposed corporate action. The notice may be in such form as the
directors or officers calling the meeting deem advisable, but the following
form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the corporation (or, in the case of a consolidation or merger, the name
of the resulting or surviving corporation shall be inserted), within twenty
days after the date of mailing to him of notice in writing that the corporate
action has become effective, payment for his shares and an appraisal of the
value thereof. Such corporation and any such stockholder shall in such cases
have the rights and duties and shall follow the procedure set forth in
sections 88 to 98, inclusive, of chapter 156B of the General Laws of
Massachusetts."
(S)88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of
AII-1
which he is a stockholder has become effective. The giving of such notice
shall not be deemed to create any rights in any stockholder receiving the same
to demand payment for his stock. The notice shall be sent by registered or
certified mail, addressed to the stockholder at his last known address as it
appears in the records of the corporation.
(S)89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the corporation was required to give
such notice shall demand in writing from the corporation taking such action,
or in the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon which such demand is
made shall pay to him the fair value of his stock within thirty days after the
expiration of the period during which such demand may be made.
(S)90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county
where the corporation in which such objecting stockholder held stock had or
has its principal office in the commonwealth.
(S)91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares
and with whom the corporation has not reached agreement as to the value
thereof, and service of the bill shall be made upon the corporation by
subpoena with a copy of the bill annexed. The corporation shall file with its
answer a duly verified list of all such other stockholders, and such
stockholders shall thereupon be deemed to have been added as parties to the
bill. The corporation shall give notice in such form and returnable on such
date as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of such
stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-
nine shall be deemed to have consented to the provisions of this section
relating to notice, and the giving of notice by the corporation to any such
stockholder in compliance with the order of the court shall be a sufficient
service of process on him. Failure to give notice to any stockholder making
demand shall not invalidate the proceedings as to other stockholders to whom
notice was properly given, and the court may at any time before the entry of a
final decree make supplementary orders of notice.
(S)92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment
of such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if
uncertificated, upon receipt of an instruction transferring such stock to the
corporation. For this purpose, the value of the shares shall be determined as
of the day preceding the date of the vote approving the proposed corporate
action and shall be exclusive of any element of value arising from the
expectation or accomplishment of the proposed corporate action.
AII-2
(S)93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
(S)94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may on motion dismiss the bill as to any stockholder
who fails to comply with such order.
(S)95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
(S)96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
(S)97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
(S)98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground
that such corporate action will be or is illegal or fraudulent as to him.
AII-3
ANNEX III
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
AIII- 2