EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY
AND AMONG
R-B CAPITAL CORPORATION,
R-B ACQUISITION CORPORATION
AND
PEERLESS INDUSTRIAL GROUP, INC.
Dated as of April 11, 1997
TABLE OF CONTENTS
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Page
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RECITALS.................................................................... 3
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1. THE TENDER OFFER........................................................ 3
1.1. The Offer........................................................ 3
1.2. Company Action................................................... 4
1.3. Shareholder Lists................................................ 5
1.4. Funding of Tender Offer.......................................... 5
1.5. Boards of Directors and Committees; Section 14(f)................ 6
2. THE MERGER.............................................................. 7
2.1. Merger........................................................... 7
2.1.1. Merger................................................... 7
2.1.2. Effect of Merger......................................... 7
2.1.3. Conversion of Shares..................................... 7
2.1.4. Stock Options and Warrants............................... 8
2.2. Merger Without Shareholders' Meeting............................. 8
2.3. Shareholders' Meeting of the Company............................. 8
2.4. Consummation of the Merger....................................... 9
2.5. Dissenters' Rights............................................... 9
2.6. Payment for Shares...............................................10
2.7. Closing of the Company's Transfer Books..........................11
2.8. Further Acts.....................................................11
3. REPRESENTATIONS AND WARRANTIES..........................................11
3.1. Representations and Warranties of Parent and the
Purchaser........................................................11
3.1.1. Corporate Organization...................................11
3.1.2. Authority................................................11
3.1.3. Tender Offer Material....................................12
3.1.4. Proxy Statement..........................................12
3.1.5. Consents; No Violation...................................12
3.1.6. Financing................................................13
3.2. Representations and Warranties of the Company....................13
3.2.1. Corporate Organization...................................13
3.2.2. Capitalization...........................................14
3.2.3. Authority................................................15
3.2.4. Consents; No Violation...................................15
3.2.5. SEC Reports..............................................15
3.2.6. No Material Adverse Change...............................16
3.2.7. Fees.....................................................17
3.2.8. Schedule 14D-9 and Proxy Statement.......................17
3.2.9. Trademarks, Patents and Copyrights.......................18
3.2.10. Litigation...............................................18
3.2.11. Labor Matters............................................18
3.2.12. Taxes....................................................19
3.2.13. Environment..............................................21
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3.2.14. Employee Benefit Plans; ERISA........................ 21
3.2.15. Compliance........................................... 23
3.2.16. Properties........................................... 24
3.2.17. Regulatory Matters................................... 24
3.2.18. Voting Requirements.................................. 24
3.2.19. State Takeover Laws.................................. 24
4. COVENANTS............................................................. 25
4.1. No Solicitation............................................... 25
4.2. Stock Options and Warrants.................................... 26
4.3. Interim Operations............................................ 26
4.3.1. Conduct of Business.................................. 27
4.3.2. Charters and Bylaws.................................. 27
4.3.3. Capital Stock........................................ 27
4.3.4. Dividends............................................ 27
4.3.5. Relationships........................................ 27
4.3.6. Employee Plans, Compensation, Promotion,
Demotion, Reassignment, Etc.......................... 27
4.3.7. Certain Agreements................................... 28
4.3.8. Indebtedness......................................... 28
4.3.9. Acquisitions and Dispositions of Assets.............. 28
4.3.10. Accounting and Tax Matters........................... 28
4.3.11. Certain Actions...................................... 29
4.3.12. Payment of Claims.................................... 29
4.3.13. Transactions with Affiliates......................... 29
4.3.14. Representations and Warranties....................... 29
4.4. Access and Information........................................ 29
4.5. Certain Filings, Consents and Arrangements.................... 30
4.6. Proxy Statement............................................... 30
4.7. State Takeover Statutes....................................... 30
4.8. Best Efforts.................................................. 30
4.9. Indemnification............................................... 31
4.10. Certain Agreements............................................ 31
5. CONDITIONS............................................................ 31
5.1. Conditions to the Obligations of Parent, the
Purchaser and the Company..................................... 31
6. MISCELLANEOUS......................................................... 32
6.1. Termination................................................... 32
6.2. Non-Survival of Representations and Warranties................ 33
6.3. Waiver and Amendment.......................................... 33
6.4. Entire Agreement.............................................. 34
6.5. Applicable Law................................................ 34
6.6. Headings...................................................... 34
6.7. Notices....................................................... 34
6.8. Counterparts.................................................. 35
6.9. Severability.................................................. 35
6.10. Parties in Interest; Assignment............................... 36
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6.11. Expenses........................................................36
6.12. Publicity.......................................................38
6.13. Specific Performance............................................38
6.14. Certain Definitions.............................................38
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of April 11, 1997, by and
among R-B Capital Corporation, a Delaware corporation ("Parent"), R-B
Acquisition Corporation, a Minnesota corporation and a wholly owned subsidiary
of Parent (the "Purchaser"), and Peerless Industrial Group, Inc., a Minnesota
corporation (the "Company").
RECITALS
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A. The Boards of Directors of Parent, the Purchaser and the Company each
have approved the acquisition of the Company by the Purchaser and, in
furtherance of the acquisition, the Purchaser proposes to make a tender offer
for all outstanding shares of Common Stock, no par value (the "Common Stock")
and all outstanding shares of Class B Common Stock, no par value (the "Class B
Common Stock") of the Company (hereinafter the Common Stock and the Class B
Common Stock shall be referred to collectively as the "Shares"), and the Board
of Directors of the Company has approved the Offer (as defined below), has
determined that the Offer is fair and in the best interests of the shareholders
of the Company, and recommends that the Offer be accepted by the shareholders of
the Company.
B. The Boards of Directors of Parent, the Purchaser and the Company each
have determined that it is advisable to merge the Purchaser with and into the
Company pursuant to this Agreement, with the result that the Company will become
a wholly owned subsidiary of Parent.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, Parent, the Purchaser and the Company hereby agree as follows:
1. THE TENDER OFFER
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1.1. The Offer. (a) Provided that none of the events set forth in
Exhibit A hereto shall have occurred or be existing, the Purchaser, as promptly
as practicable, but in any event within five business days after the public
announcement of this Agreement, shall commence a tender offer (the "Offer") for
all outstanding Shares at a price of $1.67 per Share, net to the seller in cash.
Assuming the prior satisfaction or waiver of the conditions to the Offer set
forth in Exhibit A hereto, the Purchaser will accept for payment all Shares
validly tendered pursuant to the Offer, and not withdrawn, as soon as legally
permissible and shall pay for all
such Shares as soon as practicable (but in any event within five business days)
thereafter; provided, however, that the Offer may be extended by the Purchaser,
in its sole discretion, (i) as may be required from time to time to satisfy any
condition set forth in Exhibit A, and (ii) following satisfaction or waiver of
all conditions set forth in Exhibit A hereto, for not more than ten business
days beyond the scheduled expiration date as in effect at the time such
conditions are satisfied or waived, if the number of Shares that have been
validly tendered and not withdrawn pursuant to the Offer represent less than 90%
of the outstanding Shares. Without the prior written consent of the Company, the
Purchaser will not decrease the price per Share, decrease the number of Shares
being sought in the Offer, change the form of consideration payable in the
Offer, add additional conditions to the Offer, or, subject to the preceding
sentence, make any other change in the terms of the Offer which is materially
adverse to the holders of Shares. It is agreed that the Offer will be subject
only to the conditions set forth in Exhibit A hereto, which are for the benefit
of the Purchaser and may be asserted or waived by the Purchaser in whole or in
part at any time and from time to time, in its sole discretion; provided,
however, that the Purchaser may not waive the Minimum Condition (as defined in
Exhibit A hereto) without the prior written consent of the Company.
(b) As soon as practicable on the date of commencement of the Offer,
Parent and the Purchaser shall file with the Securities and Exchange Commission
(the "Commission") a Tender Offer Statement on Schedule 14D-1 with respect to
the Offer (the "Schedule 14D-1"), which will contain the offer to purchase and
form of the related letter of transmittal (together with any supplements or
amendments thereto, the "Offer Documents"). Parent and the Purchaser shall give
the Company and its counsel the opportunity to review the Offer Documents prior
to their being filed with the Commission, and shall furnish to the Company and
its counsel copies of any comments that Parent or the Purchaser may receive from
the Commission or its staff with respect to the Offer Documents promptly after
receipt of such comments. Parent, the Purchaser and the Company each agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that any such information shall have become false
or misleading in any material respect. The Purchaser may, at any time, transfer
or assign to one or more corporations directly or indirectly wholly owned by
Parent the right to purchase all or any portion of the Shares tendered pursuant
to the Offer, but any such transfer or assignment shall not relieve the
Purchaser of its obligations under the Offer or prejudice the rights of
tendering shareholders to receive payment for Shares properly tendered and
accepted for payment.
1.2. Company Action. The Company hereby approves of and consents to the
Offer. As soon as practicable on the date of the commencement of the Offer, the
Company shall file with the
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Commission a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), and shall mail the Schedule 14D-9 to the holders of the
Shares as promptly as practicable after the commencement of the Offer. The
Schedule 14D-9 will at all times set forth, and the Company hereby represents,
that the Board of Directors of the Company has unanimously (a) determined that
the Offer and the Merger (as defined in Section 2.1) are fair to and in the best
interests of the Company and its shareholders, (b) approved this Agreement and
the transactions contemplated hereby, including the Offer and the Merger, and
(c) resolved to recommend acceptance of the Offer and approval and adoption of
the Merger and this Agreement by the holders of Shares. The Company shall give
the Parent and its counsel an opportunity to review the Schedule 14D-9 and any
amendments or supplements thereto prior to their being filed with the
Commission, and shall furnish to Parent and its counsel copies of any comments
the Company may receive from the Commission or its staff with respect to the
Schedule 14D-9 promptly after receipt of such comments. Parent, the Purchaser
and the Company each agrees promptly to correct any information provided by it
for use in the Schedule 14D-9 if and to the extent that any such information
shall have become false or misleading in any material respect. The Company
hereby consents to the inclusion in the Offer Documents and any other Tender
Offer Material (as defined in Rule 14d-2(b)(5) adopted pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the
recommendation and determinations referred to in this Section 1.2. The Company
further represents and warrants that Summit Investment Corporation, financial
advisor to the Company (the "Advisor"), has delivered to the Company's Board of
Directors its written opinion to the effect that the consideration to be
received by the holders of Shares pursuant to the Offer and the Merger is fair
to such holders from a financial point of view. The Company has been authorized
by the Advisor to permit the inclusion of such fairness opinion in the Offer
Documents and the Schedule 14D-9, and in the Proxy Statement referred to in
Section 3.2.8(c). The Company hereby consents to the inclusion of such fairness
opinion in the Offer Documents and any other Tender Offer Material.
1.3. Shareholder Lists. The Company shall promptly furnish the Purchaser
with a list of the holders of Shares and mailing labels containing the names and
addresses of all record holders of Shares and lists of securities positions of
Shares held in stock depositories, each as of a recent date, and shall promptly
furnish the Purchaser with such additional information, including updated lists
of shareholders of the Company, mailing labels and lists of securities
positions, and such other assistance, as the Purchaser or its agents may
reasonably request in connection with communicating the Offer to the record and
beneficial holders of the Shares.
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1.4. Funding of Tender Offer. Parent shall make available to the
Purchaser on a timely basis funds as necessary to pay for the Shares that
Purchaser becomes obligated to accept for payment and pay for pursuant to the
Offer.
1.5. Boards of Directors and Committees; Section 14(f). (a) Promptly
upon the purchase by Purchaser of Shares pursuant to the Offer and from time to
time thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Company's Board of
Directors that equals the product of (i) the total number of directors on the
Company's Board of Directors (giving effect to the election of any additional
directors pursuant to this Section) and (ii) the percentage that the number of
Shares owned by Purchaser and its affiliates (including any Shares purchased
pursuant to the Offer) bears to the total number of outstanding Shares, and the
Company shall, upon request by Purchaser, subject to the provisions of Section
1.5(b), promptly either increase the size of its Board of Directors (and shall,
if necessary, amend the Company's By-Laws to permit such an increase) or use its
best efforts to secure the resignation of such number of directors as is
necessary to enable Purchaser's designees to be elected to such Board of
Directors, and shall cause Purchaser's designees to be so elected. Promptly
upon request by Purchaser, the Company will, subject to the provisions of
Section 1.5(b), use its best efforts to cause persons designated by Purchaser to
constitute the same percentage as the number of Purchaser's designees to the
Company's Board of Directors bears to the total number of directors on such
Board of Directors on (i) each committee of such Board of Directors, (ii) each
board of directors or similar governing body or bodies of each subsidiary of the
Company designated by Purchaser and (iii) each committee of each such board or
body.
(b) The Company's obligations to appoint designees to its Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under this Section 1.5 and shall include in the Schedule 14D-9 or a separate
Rule 14f-1 Statement provided to shareholders such information with respect to
the Company and its officers and directors as is required under Section 14(f)
and Rule 14f-1. Parent or Purchaser will supply to the Company in writing and
be solely responsible for any information with respect to either of them and
their nominees, officers, directors and affiliates required by Section 14(f) and
Rule 14f-1.
(c) Following the election or appointment of Purchaser's designees
pursuant to this Section 1.5 and prior to the Effective Time (as defined below),
any amendment of this Agreement or the Restated Articles of Incorporation or By-
Laws of the
4
Company, any termination of this Agreement by the Company, any extension by the
Company of the time for the performance of any of the obligations or other acts
of Parent or Purchaser or any waiver of any of the Company's rights hereunder
will require the concurrence of a majority of the directors of the Company then
in office who are not designees of Purchaser or employees of the Company.
2. THE MERGER
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2.1. Merger.
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2.1.1. Merger. At the Effective Time (as defined in Section 2.4),
and upon the terms and subject to the conditions of this Agreement, the
Purchaser will be merged with and into the Company (the "Merger"), in accordance
with Chapter 302A of the Minnesota Business Corporation Act ("MBCA"), whereupon
the separate existence of the Purchaser shall cease and the Company shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue its existence under the laws of the
State of Minnesota. The name of the Surviving Corporation shall be "Peerless
Industrial Group, Inc."
2.1.2. Effect of Merger. The Merger shall have the effects set forth
in the MBCA. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Purchaser
shall become the debts, liabilities and duties of the Surviving Corporation. The
Articles of Incorporation and the Bylaws of the Purchaser in effect upon
consummation of the Merger shall be the Articles of Incorporation and Bylaws of
the Surviving Corporation. The directors of the Purchaser upon consummation of
the Merger shall be the directors of the Surviving Corporation, and the officers
of the Purchaser shall be the officers of the Surviving Corporation, in each
case until their respective successors are duly elected and qualified. The
Merger shall have the other effects set forth in Section 641 of the MBCA.
2.1.3. Conversion of Shares. At the Effective Time (as defined in
Section 2.4), by virtue of the Merger and without any action on the part of any
holder of any Shares, (a) each Share issued and outstanding immediately prior to
the Effective Time (other than Shares to be cancelled pursuant to Section
2.1.3(b) and any Dissenting Shares (as defined in Section 2.5)) shall be
converted into the right to receive in cash an amount per Share equal to the
price paid per Share pursuant to the Offer (the "Merger Consideration"), without
interest, and such Shares shall be
5
cancelled and extinguished; and (b) each Share owned by Parent, the Purchaser or
any other direct or indirect subsidiary of Parent, immediately prior to the
Effective Time, shall be cancelled and extinguished, and no payment will be made
with respect to those Shares; and (c) each share of common stock, par value $.01
per share of the Purchaser then issued and outstanding shall be converted into
one validly issued, fully paid share of common stock of the Surviving
Corporation, which shares thereafter will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation.
2.1.4. Stock Options and Warrants. At or before the Effective Time,
each option and warrant granted under the plans and agreements set forth in
Schedule 2.1.4, whether or not then exercisable, which is outstanding as of the
date hereof and which has not been exercised prior to the acquisition of Shares
pursuant to the Offer (the "Stock Purchase Rights") shall be cancelled and each
holder of a cancelled Stock Purchase Right shall be entitled to receive from the
Company, in cancellation and settlement of the Stock Purchase Right, an amount
in cash (less applicable withholding taxes) equal to the product of (x) the
number of Shares previously subject to such Stock Purchase Right and (y) the
excess, if any, of the Merger Consideration over the exercise price per Share
provided for in the Stock Purchase Right.
2.2. Merger Without Shareholders' Meeting. If Parent, the Purchaser and
any other corporations directly or indirectly owned by Parent together acquire
at least 90% of the outstanding Shares, the parties agree to take all necessary
and appropriate action to cause the Merger to become effective, as soon as
practicable after consummation of the Offer, without a meeting of shareholders
of the Company, in accordance with Section 621 of the MBCA.
2.3. Shareholders' Meeting of the Company. If the conditions are not met
to permit the Merger to occur without a meeting of shareholders under Section
2.2, the Company will take all action necessary in accordance with applicable
law and its Articles of Incorporation and Bylaws to duly call, give notice of,
convene and hold a special meeting of its shareholders as promptly as
practicable after consummation of the Offer to consider and vote upon the
approval of the Merger and adoption of this Agreement. In connection with any
such meeting, the Company will (a) include in the Proxy Statement the
recommendation of its Board of Directors that shareholders of the Company vote
in favor of the approval and adoption of this Agreement and the Merger and the
other transactions contemplated hereby, and (b) use its best efforts (i) to
obtain and furnish the information required to be included by it in the Proxy
Statement and, after consultation with Parent, respond promptly to any comments
made by the Commission or its staff with respect to the Proxy Statement and any
preliminary version thereof and cause the Proxy Statement to be mailed to its
shareholders at
6
the earliest practicable time following the consummation of the Offer and (ii)
to obtain the necessary approvals by its shareholders of this Agreement and the
transactions contemplated hereby. At any such meeting, all of the Shares then
owned by Parent, the Purchaser or any other direct or indirect subsidiary of
Parent will be voted in favor of the approval of the Merger and adoption of this
Agreement.
2.4. Consummation of the Merger. Upon the terms and subject to the
conditions of this Agreement, as soon as practicable after consummation of the
Offer, and, if the vote of the shareholders of the Company is required pursuant
to Section 2.3, after the vote of such shareholders in favor of the Merger and
this Agreement has been obtained, the Company (or the Purchaser, if appropriate)
shall execute in the manner required by the MBCA and file with the Secretary of
State of the State of Minnesota a certificate of merger, as required by the
MBCA, and the parties shall take all such other and further actions as may be
required by law to make the Merger effective. Prior to the filing referred to in
this Section 2.4, a closing will be held at the offices of Mayer, Brown & Platt,
190 South LaSalle Street, Chicago, Illinois 60603 (or such other place as the
parties may agree) for the purpose of confirming all of the foregoing. The time
the Merger becomes effective in accordance with applicable law is referred to as
the "Effective Time".
2.5. Dissenters' Rights. Notwithstanding any provision of this Agreement
to the contrary, any Shares outstanding immediately prior to the Effective Time
held by a holder who has demanded and perfected the right, if any, to receive
fair value for such Shares ("Dissenting Shares") in accordance with the
provisions of Section 473 of the MBCA and as of the Effective Time has not
withdrawn or lost such dissenter's rights shall not be converted into or
represent a right to receive a cash payment pursuant to Section 2.1.3(a), but
the holder shall only be entitled to such rights as are granted by the MBCA. If
a holder of Shares who asserts dissenter's rights under the MBCA withdraws or
loses such rights (through failure to perfect or otherwise), then, as of the
Effective Time or the occurrence of such event, whichever last occurs, those
Shares shall be converted into and represent only the right to receive the
Merger Consideration as provided in Section 2.1.3(a), without interest, upon the
surrender of the certificate or certificates representing those Shares. The
Company shall give Parent (i) prompt notice of any written notice of intent to
demand fair value for any Shares, attempted withdrawals of such demands, the
deposit of any Shares for which payment is demanded, and any other instruments
served pursuant to the MBCA received by the Company relating to dissenters'
rights and (ii) the opportunity to participate in all negotiations and
proceedings with respect to the assertion of dissenters' rights under the MBCA.
The Company shall not, except with the prior written consent of Parent,
voluntarily
7
make any payment with respect to any such demands for payment of fair value,
offer to settle or settle any such demands or approve any withdrawal of any such
demands.
2.6. Payment for Shares. Prior to the Effective Time, the Purchaser shall
designate a commercial bank or trust company organized under the laws of the
United States or any state of the United States with capital, surplus and
undivided profits of at least $100,000,000 to act as Paying Agent with respect
to the Merger (the "Paying Agent"). Each holder (other than Parent, the
Purchaser or any subsidiary of Parent) of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
outstanding Shares will be entitled to receive, upon surrender to the Paying
Agent of the Certificates for cancellation, cash in an amount equal to the
product of the number of Shares previously represented by the Certificates
multiplied by the Merger Consideration, subject to any required withholding of
taxes. When and as needed, the Purchaser shall make available to the Paying
Agent sufficient funds to make all payments pursuant to the preceding sentence.
No interest shall accrue or be paid on the cash payable upon the surrender of
the Certificates. If payment is to be made to a person other than the person in
whose name the Certificates surrendered are registered, it shall be a condition
of payment that the Certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting the payment
shall pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificates surrendered or
establish to the satisfaction of the Surviving Corporation that the tax has been
paid or is not applicable. Following the Effective Time, until surrendered to
the Paying Agent in accordance with the provisions of this Section 2.6, each
Certificate (other than Certificates representing Dissenting Shares and Shares
owned by Parent or any subsidiary of Parent) shall represent for all purposes
only the right to receive upon surrender the Merger Consideration multiplied by
the number of Shares evidenced by the Certificate, without any interest, subject
to any required withholding of taxes. Any funds delivered or made available to
the Paying Agent pursuant to this Section 2.6 and not exchanged for Certificates
within 12 months after the Effective Time will be returned by the Paying Agent
to the Surviving Corporation, which thereafter will act as Paying Agent, subject
to the rights of holders of unsurrendered Certificates under this Article 2, and
any former shareholders of the Company who have not previously exchanged their
Certificates will thereafter be entitled to look only to the Surviving
Corporation for payment of their claims for the consideration set forth in
Section 2.1.3(a), without any interest, but will have no greater rights against
the Surviving Corporation than may be accorded to general creditors thereof
under applicable law. As soon as practicable after the Effective Time, the
Surviving Corporation will cause the Paying Agent to mail to each record
8
holder of Certificates a form of letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title of the Certificates will
pass, only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates for payment.
2.7. Closing of the Company's Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for cash as provided in Section 2.6, subject to applicable law in the case of
Dissenting Shares.
2.8 Further Acts. If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable 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 the Purchaser acquired or to be acquired
by the Surviving Corporation as a result of or in connection with the Merger, or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of the Company or the Purchaser, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm of record or otherwise any
and all right, title and interest in, to and under such rights, properties or
assets of the Surviving Corporation or otherwise to carry out this Agreement.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1. Representations and Warranties of Parent and the Purchaser. Parent
and the Purchaser hereby jointly and severally represent and warrant to the
Company that:
3.1.1. Corporate Organization. Parent and the Purchaser are
corporations duly organized, validly existing and, where applicable, in good
standing, under the laws of their respective jurisdictions of incorporation, and
have the requisite corporate power to carry on their respective businesses as
they are now being conducted. Parent directly owns all of the issued and
outstanding capital stock of the Purchaser.
3.1.2. Authority. Each of Parent and the Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions
9
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and the
Purchaser. This Agreement has been duly executed and delivered by each of Parent
and the Purchaser and constitutes a valid and binding obligation of each of
them, enforceable against each of them in accordance with its terms, except as
such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) is subject to general principles of equity.
3.1.3. Tender Offer Material. The Tender Offer Material relating to
the Offer and the related Schedule 14D-1 will comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder. None of the information contained in the Tender Offer Material or
the Schedule 14D-1, or in any amendment or supplement, will contain, on the date
of filing with the Commission, any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
are made, not misleading; provided, however, that the foregoing representation
and warranty shall not include or relate to any information obtained or derived
from any SEC Report (as defined in Section 3.2.5) and included in the Tender
Offer Material following review by the Company or its counsel or any other
information furnished by the Company and/or its representatives to Parent or the
Purchaser specifically for inclusion in the Tender Offer Material.
3.1.4. Proxy Statement. None of the information supplied by Parent
or the Purchaser specifically for inclusion in any Proxy Statement of the
Company required to be mailed to the Company's shareholders in connection with
the Merger, or in any amendments or supplements thereto, at the time of the
first mailing and at the time of the meeting of shareholders of the Company to
be held in connection with the Merger, will contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.1.5. Consents; No Violation. Neither the execution and delivery of
this Agreement by Parent and Purchaser nor the consummation of the transactions
contemplated by this Agreement will (a) conflict with, or result in any breach
or violation of, any provision of the Articles of Incorporation or Bylaws of the
Purchaser or Parent; (b) assuming that all consents, authorizations, approvals
contemplated by subsection (c) below have been obtained and all filings
described therein have been made, constitute, with or without the passage of
time, a breach, violation or default, create a lien, or give rise to any right
of
10
termination, modification, cancellation, prepayment or acceleration, under any
order, writ, injunction, decree, law, statute, rule or regulation, governmental
permit or license, or any mortgage, indenture, lease, agreement or other
instrument of Parent, the Purchaser or any of their respective subsidiaries, or
to which Parent, the Purchaser or any of their respective subsidiaries or any of
their respective properties is subject (except for breaches, violations,
defaults, liens, or rights of termination, modification, cancellation,
prepayment or acceleration which would not, singly or in the aggregate, have a
material adverse effect on the business, financial condition, assets,
liabilities, results of operations or prospects (the "Business Condition") of
Parent and its subsidiaries taken as a whole) or adversely affect the ability of
Parent or the Purchaser to consummate the transactions contemplated hereby; or
(c) require any consent, approval or authorization of, notification to, or
filing with, any court, governmental agency or regulatory or administrative
authority, (each, a "Governmental Entity"), on the part of Parent or the
Purchaser, other than (i) the filing of a certificate of merger with respect to
the Merger in accordance with the MBCA and the laws of such other states as may
be applicable, (ii) filings with the Commission under the Exchange Act, (iii)
any applicable filings under state securities, "Blue Sky" or state anti-takeover
laws, and (iv) consents, approvals, authorizations, notifications or filings the
failure of which to obtain or make would not, singly or in the aggregate, have a
material adverse effect on the Business Condition of Parent or its subsidiaries
taken as a whole or the ability of Parent or the Purchaser to consummate the
transactions contemplated hereby.
3.1.6. Financing. Parent has or will have available to it sufficient
funds to purchase all outstanding Shares pursuant to the Offer and the Merger
and to pay all related fees and expenses of Parent and Purchaser.
3.2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent and the Purchaser that:
3.2.1. Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. The Company's sole subsidiary (the "Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota. The Subsidiary's sole subsidiary (the "Iowa Subsidiary" and
along with the Subsidiary, the "Subsidiaries") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Iowa. The
Company and its Subsidiaries are each in good standing as a foreign corporation
in each jurisdiction where the character of its properties owned or leased or
the nature of its activities makes qualification
11
necessary, except to the extent that lack of qualification or good standing
would not have a material adverse effect on the Business Condition of the
Company and its Subsidiaries taken as a whole or materially adversely affect the
ability of the Company to consummate the transactions contemplated hereby (a
"Material Adverse Effect"). The Company and its Subsidiaries each has the
requisite corporate power to own, lease and operate its properties and assets
and to carry on its businesses as they are now being conducted. The Company has
delivered to Parent copies of the Articles of Incorporation and Bylaws of the
Company and each Subsidiary, as amended to this date, which Articles and Bylaws
are in full force and effect. Neither the Company nor any of its Subsidiaries is
in violation of any of the provisions of its respective Articles of
Incorporation or By-Laws. Neither the Company nor any Subsidiary owns, directly
or indirectly, any equity or voting interest in any Person that is not a
Subsidiary, and neither the Company, nor any of its Subsidiaries has made any
commitment to purchase any additional equity interests, make any capital
contributions to or invest any funds in any business or entity other than any
wholly-owned subsidiary of the Company.
3.2.2. Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares, of which 1,227,273 are designated as Class B
Common Stock and the remainder are designated as Common Stock. As of the date
hereof, (a) 5,045,151 shares of Common Stock and 1,227,273 shares of Class B
Common Stock were issued and outstanding, all of which are validly issued, fully
paid and nonassessable and not subject to preemptive rights, and (b) under the
plans and agreements set forth in Schedule 2.1.4 (copies of which have been
delivered to Parent) there are outstanding Stock Purchase Rights to purchase an
aggregate of 1,373,500 Shares of Common Stock. No Stock Purchase Rights have
been issued or have otherwise arisen since such date. All the outstanding shares
of capital stock of the Subsidiaries are validly issued, fully paid and
nonassessable, and, except as set forth in Schedule 3.2.2, are owned by the
Company, free and clear of all liens, claims or encumbrances. Except for the
Stock Purchase Rights, there are no outstanding subscriptions, options,
warrants, rights, convertible or exchangeable securities or other agreements or
commitments of any character relating to or based upon the issued or unissued
capital stock or other securities of the Company or securities of its
Subsidiaries obligating the Company or its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, or to make any payments based
upon the value of, any securities. Except as set forth in Schedule 3.2.2, there
are no voting trusts or other agreements or understandings to which the Company
or its Subsidiaries is a party with respect to the voting of capital stock of
the Company or its Subsidiaries. No person has any stock purchase or other
contractual rights to acquire any shares of capital stock of the Subsidiaries
and no person has any
12
preemptive rights to acquire any shares of capital stock of the Company or its
Subsidiaries.
3.2.3. Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject only, to the extent required, to approval, if necessary, by the
shareholders of the Company as provided in Section 2.3. Without limiting the
generality of the foregoing, the Board of Directors of the Company has approved
this Agreement, the Offer and the Tender and Stock Option Agreement executed and
delivered by the Purchaser, Parent and certain shareholders of the Company. This
Agreement has been duly executed and delivered by, and is a valid and binding
obligation of, the Company, enforceable in accordance with its terms, except as
such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) is subject to general principles of equity.
3.2.4. Consents; No Violation. Neither the execution, delivery and
performance of this Agreement by the Company nor the consummation of the
transactions contemplated hereby will (a) conflict with, or result in a breach
or a violation of, any provision of the Articles of Incorporation or Bylaws of
the Company; (b) except as otherwise provided on Schedule 3.2.4 constitute, with
or without the passage of time, a breach, violation or default, create a lien,
or give rise to any right of termination, modification, cancellation, prepayment
or acceleration, under any order, writ, injunction, decree, statute, rule or
regulation, governmental permit or license, or any mortgage, indenture, lease,
agreement or other instrument of the Company or its Subsidiaries, or to which
the Company or its Subsidiaries or any of their respective properties is
subject, except for breaches, violations, defaults, liens or rights of
termination, modification, cancellation, prepayment or acceleration which would
not, singly or in the aggregate, have a Material Adverse Effect or materially
adversely affect the ability of the Company to consummate the transactions
contemplated hereby; or (c) require any consent, approval or authorization of,
notification to, or filing with, any Governmental Entity on the part of the
Company or its Subsidiaries, other than (i) the filing of the certificate of
merger with respect to the Merger in accordance with the MBCA, (ii) filings with
the Commission under the Exchange Act, and (iii) consents, approvals,
authorizations, notifications or filings the failure of which to obtain or make
would not, in the aggregate, have a Material Adverse Effect.
13
3.2.5. SEC Reports. (a) Except as set forth in Schedule 3.2.5, the
Company has filed all forms, reports, statements (including proxy statements)
and schedules with the Commission required to be filed pursuant to the Exchange
Act or other federal securities laws (the "SEC Reports"). The SEC Reports
complied in all material respects with all applicable requirements of the
Exchange Act and did not (as of their respective filing dates) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
audited and unaudited consolidated financial statements of the Company included
(or incorporated by reference) in the SEC Reports have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and fairly present the financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited financial statements, to normal year-end
audit adjustments which shall not have a Material Adverse Effect.
(b) Except as reflected or reserved against in the audited consolidated
balance sheet of the Company and its Subsidiaries at December 31, 1996, the
Company and its Subsidiaries have no liabilities of any nature (whether accrued,
absolute, contingent or otherwise), except for liabilities incurred in the
ordinary course of business since December 31, 1996 or liabilities which would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
set forth in Schedule 3.2.5, neither the Company nor any of its subsidiaries is
liable as an indemnitor, guarantor, surety or endorser, and no person has the
power to confess judgment against the Company or any of its subsidiaries,
assets, properties or business except as would not, individually or in the
aggregate, result in or reasonably be likely to result in a Material Adverse
Effect.
3.2.6. No Material Adverse Change. Except as set forth in Schedule
3.2.6, since September 30, 1996, the Company and its Subsidiaries have operated
their respective businesses in the ordinary course and there has not been (i)
any material adverse change in the Business Condition of the Company and its
Subsidiaries taken as a whole; (ii) any damage, destruction or loss, whether
covered by insurance or not, materially and adversely affecting the assets or
businesses of the Company and its Subsidiaries taken as a whole; (iii) any
declaration, setting aside or payment of any dividend (whether in cash, stock or
property) with respect to the capital stock of the Company; (iv) any entry into
an employment, consulting or other agreement or any increase in the compensation
payable or to become payable by the Company or its Subsidiaries to any of their
respective directors or officers
14
or any increase in any bonus, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such directors or officers; (v)
any entry into any commitment or transaction material to the Company and its
Subsidiaries taken as a whole (including, without limitation, any borrowing,
capital expenditure or sale of assets), other than new customer agreements,
supplier agreements, equipment purchase agreements or other vendor agreements in
the ordinary course of business; (vi) any change by the Company in accounting
principles or methods, or (vii) any other transaction or event set forth in
Section 4.3.2 through 4.3.13. As of March 30, 1997, the aggregate amount of all
capital expenditures made or committed by the Company since December 31, 1996
does not exceed $420,000.
3.2.7. Fees. Except for the fees payable to Coopers & Lybrand
Securities, L.L.C. and the Advisor, neither the Company nor its Subsidiaries has
paid or become obligated to pay any fee or commission to any broker, finder,
intermediary or financial advisor in connection with the transactions
contemplated hereby. Copies of the agreements evidencing such fees payable to
Coopers & Lybrand Securities, L.L.C., and the Advisor have been provided to the
Parent.
3.2.8. Schedule 14D-9 and Proxy Statement.
(a) The Schedule 14D-9 (copies of the proposed form of which
shall be delivered to Parent prior to the filing of the Schedule 14D-9), and all
amendments thereto, and, if a Proxy Statement is required for the consummation
of the Merger under applicable law, the Proxy Statement, will each comply in all
material respects with the Exchange Act, and the rules and regulations
thereunder, and will not, at the date of filing with the Commission, and at the
date first published or mailed and at the time of the meeting of shareholders of
the Company to be held in connection with the Merger, 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 written information
supplied by Parent or any affiliate of Parent specifically for inclusion in the
Schedule 14D-9 or the Proxy Statement.
(b) None of the written information relating to the Company or
its Subsidiaries supplied by the Company for inclusion in the Tender Offer
Material (including any amendments or supplements) or any schedules required to
be filed with the Commission in connection therewith will, at the respective
times the Tender Offer Material or any amendments or supplements or any such
schedules are filed with the Commission, contain any untrue statement of a
material fact or omit to state any material fact
15
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.
(c) The letter to stockholders, notice of meeting, Proxy
Statement and form of proxy, or the information statement, as the case may be,
that may be distributed to shareholders in connection with the Merger (including
any supplements and amendments), and any schedules required to be filed with the
Commission in connection therewith, are collectively referred to as the "Proxy
Statement."
3.2.9. Trademarks, Patents and Copyrights. Except as set forth in
Schedule 3.2.9, the Company or its Subsidiaries own or possess adequate licenses
or other valid rights to use all copyrights, patents, patent rights, trademarks,
trademark rights and proprietary information used or held for use in connection
with its business as currently being conducted and are unaware of any assertions
or claims challenging the validity of any of the foregoing which are reasonably
likely to have a Material Adverse Effect, and the conduct of the Company's
business as now conducted or proposed to be conducted does not and will not
conflict with any patents, patent rights, licenses, trademarks, trademark
rights, trade names, trade name rights or copyrights of others known to the
Company or its Subsidiaries in any way reasonably likely to have a Material
Adverse Effect. No material infringement of any proprietary right owned by or
licensed by or to the Company or the Subsidiaries is known to the Company or the
Subsidiaries which is reasonably likely to have a Material Adverse Effect.
3.2.10. Litigation. Except as disclosed in the SEC Reports filed
prior to the date hereof or as disclosed on Schedule 3.2.10, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or its Subsidiaries, or
any properties or rights of the Company or its Subsidiaries, before any court,
administrative, governmental or regulatory authority or body, domestic or
foreign, which if determined adversely to the Company are reasonably likely, in
the aggregate, to have a Material Adverse Effect or which challenge or seek to
prevent or delay the performance of this Agreement or any of the transactions
contemplated hereby. As of the date hereof, neither the Company nor its
Subsidiaries nor any of their property is subject to any order, judgment,
injunction or decree having a Material Adverse Effect.
3.2.11. Labor Matters.
(a) Except as set forth in Schedule 3.2.11: (i) neither the
Company nor the Subsidiaries is a party to any agreement, policy or practice
that requires it to pay termination
16
or severance pay to salaried, non-exempt or hourly employees (other than is
required by law); (ii) neither the Company nor the Subsidiaries is a party to
any collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or its Subsidiaries, nor does the Company or its
Subsidiaries know of any activities or proceedings of any labor union to
organize any such employees.
(b) Except as would not, either individually or in the aggregate,
have a Material Adverse Effect: (i) the Company and its Subsidiaries are in
compliance with all applicable laws relating to employment and employment
practices, wages, hours, and terms and conditions of employment; (ii) there is
no unfair labor practice charge or complaint pending before the National Labor
Relations Board ("NLRB"); (iii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or, to the knowledge of the
Company, threatened against or affecting the Company or its Subsidiaries, and
neither the Company nor its Subsidiaries has experienced any strike, material
slowdown or material work stoppage or lockout; (iv) there is no representation
claim or petition pending before the NLRB or any labor organizing drive; (v)
there are no charges with respect to or relating to the Company or its
Subsidiaries pending before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
employment practices; and (vi) neither the Company nor its Subsidiaries has
formal notice from any federal, state, local or foreign agency responsible for
the enforcement of labor or employment laws of an intention to conduct an
investigation of the Company or a Subsidiary and no such investigation is in
progress.
3.2.12. Taxes.
(a) Except as would not, either individually or in the aggregate, have a
Material Adverse Effect: (i) the Company and its Subsidiaries have duly and
timely filed (and until the Effective Time will duly and timely file all Tax and
information reports, returns and related documents required to be filed or sent
by them as of the Effective Time (including any consolidated Tax returns that
include the income or loss of the Company or any of its Subsidiaries) ("Tax
Returns") with respect to Federal, state, local, foreign and other taxes,
assessments, fees and other governmental charges, including without limitation
income, franchise, gross receipts, sales, use, occupation, employment,
withholding, excise, transfer, real and personal property and other taxes,
charges and levies, including without limitation interest, penalties,
assessments, deficiencies and other charges due or claimed to be due from it by
any governmental authority ("Taxes"), and have duly paid, or made adequate
provision for the due and timely payment of, all such Taxes; (ii) all Tax
Returns were (or will be) true, correct and complete in all material respects
when
17
filed for all periods ending on or before the Effective Time; and (iii) the most
recent financial statements contained in the SEC Reports reflect an adequate tax
reserve in accordance with generally accepted accounting principles.
(b) Except as set forth on Schedule 3.2.12(b): (i) there are no material
Tax claims pending against the Company or any of its Subsidiaries and no
deficiencies for any Taxes for which the Company or its Subsidiaries may be
liable have been asserted in writing or assessed against the Company or its
Subsidiaries or any former subsidiary for which the Company or its Subsidiaries
may be liable which remain unpaid and neither the Company nor any of its
Subsidiaries knows of any threatened claim for Tax deficiencies or any basis for
such claims; (ii) no Tax Returns for the Company or any of its Subsidiaries have
been or are currently being examined by any taxing authority; (iii) no material
issues have been raised in any examination by any taxing authority with respect
to the Company or any of its Subsidiaries which, by application of similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so examined; (iv) there are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any Tax, nor
has any such waiver or agreement been requested by the Internal Revenue Service
or any other taxing authority; and (v) the statute of limitations with respect
to any year or period to and including the fiscal year ended 1991 has expired.
(c) The Company and its Subsidiaries have paid or are withholding and will
pay when due to the proper taxing authorities all material withholding amounts
required to be withheld with respect to all Taxes, including without limitation
sales and use Taxes on income or benefits and Taxes for unemployment, social
security or other similar programs with respect to salary and other compensation
of directors, officers and employees of the Company and its Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries has any liability for
any material federal, state, local, foreign or other Taxes of any corporation or
entity other than the Company and its Subsidiaries, including without limitation
any liability arising from the application of U.S. Treasury Regulation (S)
1.1502-6 or an analogous provision of state, local or foreign law.
(e) Neither the Company nor any of its Subsidiaries is or has been a party
to any material Tax sharing agreement with any corporation other than the
Company and its Subsidiaries.
(f) To the best of the Company's knowledge and as of the date hereof, no
person who holds 5 percent or more of the stock of the Company is a "foreign
person" as defined in Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
18
(g) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or any of its Subsidiaries that
individually or collectively provides for the payment of any amount that is not
deductible under Section 162(a)(1) or 404 of the Code or that is an "excess
parachute payment" pursuant to Section 280G of the Code.
3.2.13. Environment. Except as set forth in Schedule 3.2.13, neither
the Company nor the Subsidiaries or any former subsidiary nor any prior or
current other owner or lessee has generated, handled, manufactured, treated,
stored, used, released, transported or disposed of any Environmentally Regulated
Materials (as defined below) on, beneath, to, from or about any of the leased
real property or any other properties formerly owned, leased or operated by the
Company or the Subsidiaries or any former subsidiary, except for the generation,
handling, manufacture, treatment, storage, use, release, transportation and
disposal, in compliance with all applicable laws, of such substances used in the
ordinary course of the Company's business. Except as set forth in Schedule
3.2.13, no Environmentally Regulated Material has been disposed of or allowed to
be disposed of on or off any of such properties which may give rise to a clean-
up responsibility, personal injury liability or property damage claim against
the Company or the Subsidiaries, or give rise to the Company or the Subsidiaries
being named a potentially responsible party for any such clean-up costs,
personal injuries or property damage, or create any cause of action by any third
party against the Company or the Subsidiaries under any Environmental Laws (as
defined below). Except as set forth in Schedule 3.2.13, neither the Company nor
the Subsidiaries has received any notices or claims of violations or liabilities
relating to pollution control or protection of the environment. The term
"Environmentally Regulated Materials" means any element, compound, pollutant,
contaminant, substance, material or waste, or any mixture thereof, designated,
listed, referenced, regulated or identified pursuant to any Environmental Law,
and includes without limitation petroleum and all fractions thereof, and
asbestos and asbestos-containing materials, and lead and lead paint. The term
"Environmental Law" means the National Environmental Policy Act, 42 U.S.C.
(S)(S) et seq., the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. (S)(S) 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. (S)(S) 6901 et seq., the Federal Water Pollution Control
Act, 33 U.S.C. (S)(S) 1251 et seq., the Federal Clean Air Act, 42 U.S.C. (S)(S)
7401 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq.,
the Emergency Planning and Community Right to Know Act, 42 U.S.C. (P) 11001, the
Hazard Communication Act (S)(S) 651 et seq., and the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. (S) 136, each as amended, and the
related rules and regulations, and applicable state and local laws, rules and
regulations that address environmental issues.
19
3.2.14. Employee Benefit Plans; ERISA.
(a) Schedule 3.2.14 sets forth a true and complete list of each
"employee benefit plan" (as that term is defined under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and any
other plan, program, arrangement or agreement that is maintained by the Company
or a Subsidiary or with respect to which the Company, any of its Subsidiaries or
any ERISA Affiliate (as defined below) could have any liability related to the
employment or benefits of any present or former director, officer or employee of
the Company or a Subsidiary under which the Company or a Subsidiary has any
present or future obligation or liability including, but not limited to, the
Employee Arrangements (as defined in Section 4.3.6) as in effect on the date of
this Agreement (collectively the "Employee Benefit Plans").
(b) Each of the Employee Benefit Plans complies and has been
operated in all material respects in accordance with applicable law (including,
without limitation, ERISA and the Code); each of the Employee Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service;
each trust maintained in connection with each such qualified plan has been
determined by the Internal Revenue Service to be tax-exempt under Code Section
501(a); nothing has occurred to cause the loss of the qualified status of any
such qualified plan; no Employee Benefit Plan has an accumulated or waived
funding deficiency within the meaning of Code Section 412; neither the Company
nor the Subsidiaries nor any trade or business which together with the Company
or a Subsidiary would be deemed a "single employer" within the meaning of ERISA
Section 4001 ("ERISA Affiliate") has incurred, directly or indirectly, any
material liability (including any material contingent liability) to or on
account of an Employee Benefit Plan pursuant to Title IV of ERISA; no
proceedings have been instituted to terminate any Employee Benefit Plan that is
subject to Title IV of ERISA; no "reportable event," as such term is defined in
ERISA Section 4043(b), has occurred with respect to any Employee Benefit Plan;
and no condition exists that presents a material risk to the Company or an ERISA
Affiliate of incurring a liability to or on account of a Employee Benefit Plan
pursuant to Title IV of ERISA.
(c) No Employee Benefit Plan is a multiemployer plan (within the
meaning of ERISA Section 4001(a)(3)) and no Employee Benefit Plan is a multiple
employer plan as defined in Code Section 413; all material contributions or
other amounts that are required to be paid by the Company or the Subsidiaries as
of the Effective Time with respect to each Employee Benefit Plan have been
either paid or accrued; and there are no material, pending, threatened or
anticipated claims (other than routine claims for
20
benefits) by, or on behalf of or against any of the Employee Benefit Plans or
any trusts related thereto.
(d) Neither the Company nor the Subsidiaries, nor any ERISA
Affiliate, nor any Employee Benefit Plan, nor any trust created thereunder, nor
any trustee or administrator thereof has engaged in a transaction in connection
with which the Company, the Subsidiaries, any ERISA Affiliate, any Employee
Benefit Plan, any such trust, or any trustee or administrator thereof, or any
party dealing with any Employee Benefit Plan or any such trust could be subject
to either a material civil penalty assessed pursuant to ERISA, including without
limitation, Section 409, 502 or 4071 or a material tax or penalty imposed
pursuant to the Code, including without limitation, Section 4975, 4976 or 6652.
(e) With respect to each Employee Benefit Plan that is a "group
health plan" within the meaning of ERISA Section 601(a) and that is subject to
Code Section 4980B, the Company and the Subsidiaries have operated such plans in
material compliance with the continuation coverage requirements of those
provisions and Part 6 of Title I of ERISA.
(f) To the extent available to the Company, the Company has
supplied Parent with true and correct copies of each of the Employee Benefit
Plans, all contracts relating thereto, or to the funding thereof, including,
without limitation, all trust agreements, insurance contracts, administration
contracts, investment management agreements, subscription and participation
agreements, and recordkeeping agreements and, to the extent applicable, true and
correct copies of the most recent annual report, actuarial report, accountant's
opinion of the plan's financial statements, summary plan description and
Internal Revenue Service determination letter with respect to each Employee
Benefit Plan, in each case as in effect on the date hereof.
3.2.15. Compliance. Neither the Company nor any of its subsidiaries
is in violation of, or has violated, any applicable provisions of (i) any laws,
rules, statutes, orders, ordinances or regulations or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise, or
other instrument or obligation to which the Company or its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties are bound or affected, which, in the case of either
subsection (i) or (ii), individually or in the aggregate, would result or
reasonably be likely to result in a Material Adverse Effect. Without limiting
the generality of the foregoing, neither the Company nor any of its subsidiaries
is in violation of, or has violated any applicable provisions of the Foreign
Corrupt Practices Act, the Trading with the Enemy Act, the Anti-Economic
Discrimination Act or any law or regulation relating to Medicare or Medicaid
anti-kickback fraud and
21
abuse, except for such violations that would not, individually or in the
aggregate, result in or reasonably be likely to result in a Material Adverse
Effect.
3.2.16. Properties. The Company and its subsidiaries have good and
marketable title to all real property owned or leased by them, subject only to
Liens and imperfections of title that in the aggregate would not have a Material
Adverse Effect. True and complete copies of all material leases to which the
Company or any Subsidiary is a party have heretofore been furnished to Parent.
Such leases are valid and binding, and there does not exist any event which,
with notice or lapse of time or both, would constitute a material default under
such leases by the Company.
3.2.17. Regulatory Matters. (a) Except as disclosed in Schedule
3.2.17 and except as would not, individually or in the aggregate, have a
Material Adverse Effect, since September 30, 1996 there have been no written
notices, citations or decisions by any governmental or regulatory body that any
product produced, manufactured, marketed or distributed at any time by the
Company or any Company subsidiary (the "Company Products") is defective or fails
to meet any applicable standards promulgated by any such governmental or
regulatory body, or any other governmental or regulatory body, agency or office
of any other jurisdiction to which the Company or any of its subsidiaries is
subject.
3.2.18. Voting Requirements. The affirmative vote of a majority of
the outstanding shares of Common Stock and Class B Common Stock (voting as a
single class) approving this Agreement is the only vote of the holders of any
class or series of Company Securities necessary to approve this Agreement and
the transactions contemplated by this Agreement.
3.2.19. State Takeover Laws. A committee of the Company's Board of
Directors formed in accordance with Section 302A.673 of the MBCA has approved
the transactions contemplated hereby so as to render inapplicable to such
transactions, including, without limitation, the Offer and the Merger
(including, without limitation, the Tender and Stock Option Agreements executed
and delivered by certain shareholders of the Company), the restrictions on
business combinations contained in Section 302A.673 of the MBCA and the
provisions regarding control share acquisitions contained in Section 302A.671 of
the MBCA. Neither the Offer, the Merger, the Tender and Stock Option Agreement,
nor the acquisition of shares pursuant to any thereof will constitute a Control
Share Acquisition as defined in the MBCA. Other than the filing of a
registration statement as required by Section 80B.03, Minnesota Statutes, no
filing with or approval by any governmental agency of the State of Minnesota is
required in connection with the Offer, the Merger, the Tender and Stock Option
Agreements and the transactions contemplated thereby. The Company has taken all
steps
22
necessary irrevocably to exempt the transactions contemplated by this Agreement
from any applicable provisions of the Company's Articles of Incorporation and
By-Laws which would have the effect of delaying, preventing or materially
reducing the expected benefits to Parent or Purchaser of the transactions
contemplated by this Agreement.
4. COVENANTS
---------
4.1. No Solicitation. (a) The Company will immediately cease any
existing discussions or negotiations with any third parties conducted prior to
the date hereof with respect to any Acquisition Proposal (as defined below).
The Company shall not, directly or indirectly, through any officer, director,
employee, representative or agent, or any of its subsidiaries, or otherwise (i)
solicit, initiate, continue or encourage any inquiries, proposals or offers that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including, without limitation, by way of a tender
offer), liquidation, reorganization or similar transactions involving the
Company or any of its subsidiaries or divisions, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"), (ii) solicit,
initiate, continue or engage in negotiations or discussions concerning, or
provide any information or data to any person or entity relating to, or
otherwise cooperate in any way with, or assist or participate in, or facilitate
or encourage any Acquisition Proposal, or (iii) agree to, approve or recommend
any Acquisition Proposal; provided, that nothing contained in this Section 4.1
shall prevent the Company from, prior to the acceptance for payment by the
Purchaser of Shares pursuant to the Offer, furnishing non-public information to,
or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited Acquisition Proposal by such person or entity
(including a new and unsolicited Acquisition Proposal received by the Company
after the execution of this Agreement from a person or entity whose initial
contact with the Company may have been solicited by the Company prior to the
execution of this Agreement), and may recommend such an unsolicited bona fide
written Acquisition Proposal to the shareholders of the Company, if and only to
the extent that (i) the Board of Directors of the Company determines in good
faith (after consultation with and based upon the advice of its financial
advisor and considering the affect of such Acquisition Proposal upon the
employees, customers and the community) that such Acquisition Proposal would, if
consummated, result in a transaction more favorable to the shareholders of the
Company than the Offer and Merger and that the person or entity making such
Acquisition Proposal has the financial means, or the ability to obtain the
necessary financing, to conclude such
23
transaction (any such more favorable Acquisition Proposal being referred to in
this Agreement as a "Superior Proposal"), (ii) the Board of Directors of the
Company determines in good faith (after consultation with and based upon the
advice of its outside legal counsel) that the failure to take such action would
be inconsistent with the fiduciary duties of such Board of Directors to its
shareholders under applicable law, and (iii) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, such Board of Directors receives from such person or entity an
executed confidentiality agreement with confidentiality provisions not
materially less favorable to the Company than those contained in the
Confidentiality Agreement.
(b) The Company agrees not to release any third party from, and to enforce
strictly any confidentiality or standstill agreement to which the Company and
such third party are parties. The Company shall notify Parent immediately (and
in no event later than 24 hours) after receipt by the Company of any Acquisition
Proposal or amendment or supplement thereto or any request for non-public
information in connection with an Acquisition Proposal or for access to the
properties, books or records of the Company by any person or entity that informs
the Company that it is considering making, or has made, an Acquisition Proposal.
Such notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and shall be accompanied by a copy of any
written documentation received by the Company in connection with such
Acquisition Proposal and financing related thereto.
4.2. Stock Options and Warrants. Prior to the acquisition of Shares
pursuant to the Offer, the Company shall (a) make all necessary and appropriate
adjustments to and shall obtain all necessary consents with respect to, all of
the Stock Purchase Rights to ensure that, in full cancellation and settlement
thereof, the Company shall make a cash payment to the holder of each cancelled
Stock Purchase Right as described in Section 2.1.4 hereof, and following the
Effective Time, no participant in any stock, stock option, stock appreciation or
other benefit plan of the Company or any of its subsidiaries or any holder of
any Stock Purchase Right shall have any right thereunder to acquire any capital
stock of the Surviving Corporation or any subsidiary thereof, and (b) enter into
amendments to the employment and other arrangements of William H. Spell to
eliminate any provision for severance or termination payments, or for
accelerated vesting or payment of compensation or other benefits, upon a change
in control of the Company or upon termination of employment.
4.3. Interim Operations. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement or as otherwise approved in writing by the Purchaser:
24
4.3.1. Conduct of Business. The Company shall, and shall cause each
Subsidiary to, conduct its business only in, and not to take any action except
in, the ordinary and usual course of business and consistent with past practice.
4.3.2. Charters and Bylaws. The Company shall not, and shall not
permit its Subsidiaries to, make or propose any change or amendment in their
respective charters or bylaws.
4.3.3. Capital Stock. Except for common stock issued upon exercise
of Stock Purchase Rights, the Company shall not, and shall not permit its
Subsidiaries to, issue, pledge or sell any shares of capital stock or any other
securities of any of them or issue any securities convertible into, exchangeable
for or representing a right to purchase or receive, or enter into any contract,
understanding or arrangement with respect to the issuance of, any shares of
capital stock or stock related or based awards or any other securities of any of
them, or enter into any arrangement or contract with respect to the purchase or
voting of shares of their capital stock, or adjust, split, combine or reclassify
any of their securities, or make any other changes in their capital structures.
4.3.4. Dividends. The Company shall not, and shall not permit its
Subsidiaries to, declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to, or
purchase or redeem, any shares of the capital stock of any of them.
4.3.5. Relationships. The Company shall, and shall cause each of its
Subsidiaries to, use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with it.
4.3.6. Employee Plans, Compensation, Promotion, Demotion,
Reassignment, Etc. Except (i) as required by law, (ii) as provided in Sections
4.2 and 4.10, and (iii) except for the hiring, promotion, demotion,
reassignment, and termination of employees (other than officers) in the ordinary
course of business, the Company shall not, and shall not permit its Subsidiaries
to, adopt, enter into, amend or terminate any profit sharing, retirement,
pension, severance, salary continuation, stock option, bonus, compensation,
incentive, deferred compensation, retirement, employment, consulting or other
employee benefit plan, agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any former or present director, former or present officer
or former or present employee ("Employee Arrangements"), or increase in any
manner the compensation, severance or fringe benefits of any
25
former or present director, former or present officer or, except in the ordinary
course and consistent with past practice, former or present employee or pay any
benefit not required by any existing plan or arrangement, or grant any awards
under any bonus, incentive, performance or other compensation plan or
arrangement (including, without limitation, the granting of stock options, stock
appreciation rights, stock related or based awards, or restricted stock, or the
removal of existing restrictions in any benefit plans or agreements or awards
made thereunder) or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing. Except as may be required under the
terms of any Employee Arrangements or applicable law as in effect on the date of
this Agreement, the Company shall not, and shall not permit its Subsidiaries to,
terminate, contribute to or otherwise fund or secure the benefits or
compensation provided under, any of the Employee Arrangements.
4.3.7. Certain Agreements. Neither the Company nor its Subsidiaries
will knowingly waive any provision of any confidentiality agreement to which it
is a party.
4.3.8. Indebtedness. Neither the Company nor any of its Subsidiaries
shall (i) other than borrowings under the existing CIT line of credit in the
ordinary course of business consistent with past practice and consistent with
any projections previously provided by the Company to the Parent, incur any
indebtedness for borrowed money or issue any debt securities or, assume,
guarantee or endorse the obligations of any other person; (ii) make any loans,
advances or capital contributions to, or investments in, any other person (other
than to wholly owned subsidiaries of the Company); (iii) pledge or otherwise
encumber shares of capital stock of the Company or any of its subsidiaries; or
(iv) mortgage or pledge any of its assets, tangible or intangible, or create or
suffer to exist any Lien thereupon.
4.3.9. Acquisitions and Dispositions of Assets. Neither the Company
nor any of its Subsidiaries shall acquire, sell, lease, license, encumber,
transfer or dispose of any assets outside the ordinary course of business
consistent with past practice or any assets which in the aggregate are material
to the Company and its subsidiaries, taken as a whole, or enter into any
contract, agreement, commitment or transaction outside the ordinary course of
business consistent with past practice.
4.3.10. Accounting and Tax Matters. Neither the Company nor any of
its Subsidiaries shall (a) change any of the accounting principles or practices
used by it, except as may be required as a result of a change in law or in
generally accepted accounting principles, or (b) make any tax election or settle
or compromise any material Tax liability.
26
4.3.11. Certain Actions. Neither the Company nor any of its
Subsidiaries shall (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof; (ii) without the approval of Parent, which will not be
unreasonably withheld, authorize any new capital expenditure or expenditures
exceeding $100,000 in the aggregate; (iii) without the approval of Parent, which
will not be unreasonably withheld, settle any litigation for amounts in excess
of $25,000 individually or $50,000 in the aggregate; or (iv) enter into or amend
any contract, agreement, commitment or arrangement with respect to any of the
foregoing.
4.3.12. Payment of Claims. Neither the Company nor any of its
Subsidiaries shall pay, discharge or satisfy any 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 reflected or reserved against in the consolidated
financial statements (or the notes thereto) of the Company and its consolidated
subsidiaries or incurred in the ordinary course of business consistent with past
practice, except where such action would not result in a Material Adverse
Effect.
4.3.13. Transactions with Affiliates. Neither the Company nor any of
its Subsidiaries shall enter into any transaction nor amend any existing
relationship with any affiliate of the Company.
4.3.14. Representations and Warranties. Neither the Company nor any
of its Subsidiaries shall take, or agree in writing or otherwise to take, any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or would result in any of the
conditions to the Offer not being satisfied.
4.4. Access and Information. Throughout the period prior to the
Effective Time, the Company shall afford to Parent and its representatives such
access, during normal business hours, to the Company's and its Subsidiaries'
books and records as Parent shall reasonably request, shall permit each of
Parent and Purchaser and their respective counsel, financial advisors, auditors
and other authorized representatives to make such inspections as Parent or
Purchaser may reasonably require and will cause the Company's officers or
representatives and those of its subsidiaries to furnish promptly to Parent or
Purchaser or their representatives such financial and operating data and other
information with respect to the business and properties of the Company and any
of its subsidiaries as Parent or Purchaser may from time to time request.
Parent and the Purchaser will treat, and will cause their respective
accountants, counsel and other representatives to, treat
27
confidentially all non-public information concerning or related to the Company
or its business furnished or made available to Parent or the Purchaser in
connection with the transactions contemplated by this Agreement, in accordance
with that certain confidentiality and non-disclosure agreement dated October 29,
1996 between Pandora Capital Corporation and the Company (the "Confidentiality
Agreement"). No investigation pursuant to this Section 4.4 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereunder.
4.5. Certain Filings, Consents and Arrangements. Parent, the
Purchaser and the Company shall cooperate with one another (i) in promptly
determining whether any filings are required to be made or consents, approvals,
permits or authorizations are required to be obtained under any federal, state
or foreign law or regulation or any consents, approvals or waivers are required
to be obtained from other parties to loan agreements or other contracts material
to the Company's and the Subsidiaries' business in connection with the
consummation of the Offer or the Merger and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such consents, permits, authorizations, approvals or
waivers.
4.6. Proxy Statement. If necessary to consummate the Merger, promptly
after the termination or expiration of the Offer, the Company shall prepare the
Proxy Statement, file it with the Commission and mail it to all holders of
Shares. Parent, the Purchaser and the Company shall cooperate with each other
in the preparation of the Proxy Statement.
4.7. State Takeover Statutes. The Company shall (a) take all action, if
any, necessary to exempt the Offer and the Merger from the effects of any state
takeover law and (b) upon the request and at the expense of the Purchaser, take
all reasonable steps to assist in any challenge by the Purchaser to the
validity, or applicability to the Offer or the Merger, of any such state
takeover law.
4.8. Best Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto agrees to use its best efforts to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including without limitation using its best efforts to obtain
all necessary waivers, consents and approvals and effecting all necessary
registrations and filings (including, but not limited to, in the preparation and
filing of the Offer Documents, the Schedule 14D-9, and the Proxy Statement). In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement,
28
the proper officers of Parent, the Purchaser and the Company shall take the
necessary action.
4.9. Indemnification.
(a) From and after the Effective Time, the Surviving Corporation shall
assume the indemnification and expense advancement obligations of the Company
and its Subsidiaries to present and former directors, officers, employees and
agents (i) pursuant to the Indemnification Agreements identified in Schedule 4.9
and (ii) as provided in the Articles of Incorporation and By-Laws of the Company
and its subsidiaries as in effect at the date hereof (the "Indemnification
Obligations").
(b) Parent hereby guarantees the Indemnification Obligations of the
Surviving Corporation.
4.10. Certain Agreements. At the Effective Time, the Parent shall cause
the Company, as the surviving corporation in the Merger, and Peerless Chain
Company, the Company's operating subsidiary, to enter into a consulting
agreement with William H. Spell for a two-year term following the Effective
Time, and providing for payments to Mr. Spell of (a) within seven days after the
execution of such agreement, the sum of $120,000, and thereafter, (b) the sum of
$25,000 per quarter for the first four quarters of such agreement, payable
quarterly in arrears, and (c) $22,500 per quarter for the second four quarters
of such agreement, payable quarterly in arrears.
4.11 Repayment of Certain Debt. At or before the Effective Time, Parent
and Purchaser shall cause to be prepaid all amounts outstanding under that
certain Redemption Note dated December 13, 1995, made by Peerless Chain Company
in favor of Bridgewater Resources Corp. in the principal amount of $2,500,000.
5. CONDITIONS
----------
5.1. Conditions to the Obligations of Parent, the Purchaser and the
Company. The obligations of Parent, the Purchaser and the Company to consummate
the Merger are also subject to the satisfaction, at or before the Effective
Time, of each of the following conditions:
5.1.1. The shareholders of the Company shall have duly approved the
Merger, if required by applicable law or pursuant to Section 2.3.
5.1.2. The consummation of the Merger shall not be prohibited by any
order, decree or injunction of a court of competent jurisdiction (each party
agreeing to use its best efforts to have any such order reversed or injunction
lifted), and there
29
shall not have been any action taken or any statute, rule or regulation enacted,
promulgated or deemed applicable to the Merger by any Governmental Entity that
makes consummation of the Merger illegal.
5.1.3. The Purchaser shall have accepted for payment and paid for
Shares tendered pursuant to the Offer.
6. MISCELLANEOUS
-------------
6.1. Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether prior to or after approval by the shareholders of the Company:
(a) by the mutual written consent of Parent, the Purchaser and the
Company;
(b) by the Company if (i) the Offer shall not have been commenced
within five business days from the date of public announcement of this Agreement
or (ii) the Offer shall have expired and the Purchaser shall not have accepted
for payment Shares pursuant to the Offer (provided, that the right to terminate
this Agreement under this Section 6.1(b) shall not be available if the Company's
failure to fulfill any obligation under this Agreement has been the cause of, or
results in, the Offer not being so commenced or consummated);
(c) by either Parent or the Company if the Offer terminates or expires
pursuant to its terms on account of the failure of any condition specified in
Exhibit A to have been satisfied without the Purchaser having purchased any
Shares thereunder (provided, that the right to terminate this Agreement under
this Section 6.1(c) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or results in, the
failure of any such condition);
(d) by either Parent or the Company if either (or any permitted
assignee) is prohibited by an order or injunction of a court of competent
jurisdiction from consummating the Offer or the Merger and such order or
injunction shall have become final and non-appealable;
(e) by Parent if the Board of Directors of the Company shall have
withdrawn or modified, or resolved to withdraw or modify, in any manner which is
materially adverse to Parent or the Purchaser, its recommendation or approval of
the Offer, the Merger or this Agreement;
30
(f) by Parent if there has been a material breach by the Company of
any representation, warranty, covenant or agreement set forth in this Agreement
on the part of the Company and which the Company fails to cure within 10 days
after notice thereof is given by the Parent;
(g) by the Company if there has been a material breach by Parent or
the Purchaser of any representation, warranty, covenant or agreements as set
forth in this Agreement on the part of Parent or the Purchaser and which Parent
or the Purchaser, as the case may be, fails to cure with 10 days after notice
thereof is given by the Company;
(h) by either Parent or the Company if, prior to the acceptance for
payment of Shares pursuant to the Offer (i) the Company shall have received a
Superior Proposal (as defined in Section 4.1), provided that such proposal has
not been obtained in violation of Section 4.1, and (ii) Parent does not make,
within five business days of receipt of written notice of the Company's desire
to accept such Superior Proposal, an offer that the Company's Board of Directors
believes, in good faith after consultation with its financial advisors, is at
least as favorable, from a financial point of view, to the shareholders of the
Company, as the Superior Proposal;
(i) by Parent if, prior to the purchase of Shares pursuant to the
Offer, if any person, corporation, entity or "group," as defined in Section
13(d)(3) of the Exchange Act (other than Parent or the Purchaser), shall have
acquired after the date of this Agreement beneficial ownership of twenty-five
percent of the outstanding Shares; or
(j) by either Parent or the Company, if the Purchaser has not accepted
Shares for payment on or before July 11, 1997; provided, that the right to
terminate this Agreement under this Section 6.1(j) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in such failure to accept Shares for payment or the failure
to satisfy any condition set forth in Exhibit A, and shall not be available to
the Company if any shareholder of the Company shall have breached any provision
of the Tender and Stock Option Agreement among the Purchaser, Parent and certain
shareholders of the Company (the "Tender Agreement").
In the event of a termination and abandonment, no party hereto (or any of
its directors or officers) shall have any liability or further obligation to any
other party to this Agreement except as provided in Section 6.2 and Section 6.11
and except that nothing herein will relieve any party from liability for any
breach of this Agreement. No termination shall limit the liability of the
Company (if any) under Section 6.11.
31
6.2. Non-Survival of Representations and Warranties. The representations
and warranties in this Agreement (other than the representation and warranty set
forth in Section 3.2.2) shall not survive the payment for Shares in the Offer.
The representation and warranty set forth in Section 3.2.2 and the agreements in
this Agreement shall terminate at the Effective Time or the termination of this
Agreement pursuant to Section 6.1, as the case may be, except that the
agreements set forth in Sections 2.1.4, 2.5, 2.6, 4.9, 4.10 and 6.10, and the
last sentence of Section 4.8, shall survive the Effective Time indefinitely, and
the agreements set forth in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.9, 6.11, and
6.13 and the last paragraph of Section 6.1, shall survive termination of this
Agreement indefinitely.
6.3. Waiver and Amendment. Any provision of this Agreement may be waived
at any time by the party which is, or whose shareholders are, entitled to the
benefits thereof and this Agreement may be amended or supplemented at any time
before or after adoption of this Agreement by the shareholders of the Company
but, after any such approval, no amendment shall be made which decreases the
cash price per Share or which adversely affects the rights of the holders of
Shares hereunder without the approval of such holders. No waiver, amendment or
supplement shall be effective unless in writing and signed by the party or
parties sought to be bound thereby.
6.4. Entire Agreement. This Agreement, the Confidentiality Agreement and
the Offer Documents contain the entire agreement among Parent, the Purchaser and
the Company with respect to the Offer, the Merger and the other transactions
contemplated hereby and thereby, and such agreements supersede all prior
agreements among the parties (including, without limitation, the letter
agreement dated February 28, 1997, as amended) with respect to these matters.
6.5. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota without giving effect to
the conflicts of law principles thereof.
6.6. Headings. The descriptive headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.7. Notices. Each party shall promptly give written notice to the other
party upon becoming aware of the occurrence or, to its knowledge, impending or
threatened occurrence, of any event which would cause or constitute a breach of
any of its representations, warranties or covenants contained or referenced in
this Agreement and will use its best efforts to prevent or promptly remedy the
same. All notices or other communications under this Agreement shall be in
writing and shall be mailed by first class, registered
32
or certified mail return receipt requested, postage prepaid; hand delivered; or
sent by facsimile transmission or by nationally recognized overnight delivery
service for next business day delivery, addressed as set forth below, or at such
other address as the intended recipient shall have previously designated by
written notice to the parties. Notice by registered or certified mail shall be
deemed to have been delivered to and received by the addressee, and shall be
effective, five days following the date deposited in the United States mail.
Notices delivered by hand or sent by facsimile shall be deemed to have been
delivered to and received by the addressee, and shall be effective, on the date
sent or delivered. Notices sent by nationally recognized overnight delivery
service for next business day delivery shall be deemed to have been delivered to
and received by the addressee, and shall be effective, on the next business day.
If to the Company:
Peerless Industrial Group, Inc.
2430 Metropolitan Center
333 South Seventh Street
Minneapolis, MN 55402
Attention: William Spell
With a copy to:
Briggs and Morgan, Professional Association
2400 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attention: Brian D. Wenger, Esq.
If to Parent or the Purchaser:
Ridge Capital Corporation
257 East Main Street, Suite 302
Barrington, IL 60010
Attention: J. Bradley Davis
With copies to:
William Blair Mezzanine
Capital Partners
222 West Adams Street
Chicago, IL 60606
Attention: Terrance M. Shipp
and
33
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, IL 60603
Attention: Richard S. Millard
6.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
6.9. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
6.10. Parties in Interest; Assignment. Except as otherwise specifically
set forth in this Agreement, this Agreement is binding upon and solely for the
benefit of the parties hereto and their respective successors, legal
representatives and assigns, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement. The
Purchaser shall have the right to assign to Parent or any direct or indirect
wholly owned subsidiary of Parent any and all rights and obligations of the
Purchaser under this Agreement, including, without limitation, the right to
substitute in its place such a subsidiary as one of the constituent corporations
in the Merger (such subsidiary assuming all of the obligations of the Purchaser
in connection with the Merger) and may require the Subsidiaries of the Company
to merge with subsidiaries of the Purchaser (or its assignees) in connection
with the Merger, and to transfer to Parent or to any direct or indirect wholly
owned subsidiary of Parent the right to purchase Shares tendered pursuant to the
Offer. If the Purchaser exercises its right to so restructure the transaction,
the Company shall promptly enter into appropriate agreements to reflect such
restructuring.
6.11. Expenses. (a) Except as set forth in paragraphs (b) and (f) below,
and except as provided in the Tender Agreement, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Offer, this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
(b) Notwithstanding the foregoing, if (i) this Agreement is terminated
after the occurrence of a Triggering Event (as defined
34
below), and (ii) within six months after such termination the Company either (A)
consummates any Alternative Transaction (as defined below) or (B) becomes a
party to any agreement relating to an Alternative Transaction that is thereafter
consummated, then upon the consummation of such Alternative Transaction the
Company shall pay Parent a non-refundable fee of $900,000 (the "Fee") which
amount shall be payable by wire transfer of same day funds on the date such
Alternative Transaction is consummated.
(c) The Company shall reimburse the Parent in connection with any legal or
other fees incurred by the Parent in connection with the collection of the Fee
from the Company.
(d) As used herein, a "Triggering Event" shall mean any of the following:
(i) the Board of Directors of the Company shall have withdrawn or modified
its recommendation of the Offer or shall have resolved or publicly announced its
intention to do so; or
(ii) an Alternative Transaction shall have taken place or the Board of
Directors of the Company shall have recommended such an Alternative Transaction
to shareholders, or shall have resolved or publicly announced its intention to
recommend or engage in an Alternative Transaction; or
(iii) a tender offer or exchange offer with respect to shares of the
Company shall have been commenced or a registration statement with respect
thereto shall have been filed (other than by Parent and its affiliates), and the
Board of Directors of the Company shall have (A) recommended (or shall have
resolved or publicly announced its intention to recommend) that the shareholders
of the Company tender their shares in such tender or exchange offer or (B)
resolved or publicly announced its intention to take no position with respect to
such offer; or
(iv) the Offer shall have expired without satisfaction of the majority
Minimum Condition described therein, and at any time during the Offer an
Alternative Transaction shall have been publicly announced and not absolutely
and unconditionally withdrawn and abandoned; or
(v) a material breach by the Company of this Agreement shall have
occurred, and at the time of such breach or any termination based thereon an
Alternative Transaction shall have been publicly announced and not absolutely
and unconditionally withdrawn and abandoned; or
(vi) The Company shall have negotiated with, furnished information to,
entered into any agreement with, or consummated or recommended any transaction
with, any person other than Parent or
35
its affiliates, based on a determination regarding a "Superior Proposal" made as
described in Section 4.1 hereof; or
(vii) The Company shall breach or fail to perform its obligations under
Section 4.1 hereof.
(e) As used herein, an "Alternative Transaction" shall mean (a) any
transaction or series of transactions by which any person or group (other than
Parent and its affiliates) acquires or would acquire shares (or securities
exercisable or convertible into shares) representing 20% or more of the
outstanding shares of the Company, pursuant to a tender offer, exchange offer or
otherwise, (b) a merger, consolidation, share exchange, sale of substantial
assets or other business combination involving the Company, (c) any other
transaction or series of transactions whereby any person acquires or would
acquire control of the board of directors, business or assets of the Company, or
(d) any agreement with respect to any of the foregoing, which in the case of any
transaction or agreement described in clauses (a) through (d) above, involves a
greater value (considering the amounts payable to shareholders and all payments
under employment, consulting and other arrangements in connection therewith)
than the value of the Offer and the Merger and the other arrangements related
thereto.
(f) The parties agree that the Company shall bear a total of $502,000 in
expenses incurred in connection with this Agreement and the Offer and the
transactions contemplated hereby and thereby and not reflected on the Company's
audited balance sheet as at December 31, 1996, and that any such expenses in
excess of such amount shall be borne by certain shareholders of the Company as
provided in the Tender Agreement. To the extent that the Company has not
expended the full $502,000 for payment of such expenses prior to the Effective
Time, Parent shall cause the Company to pay the balance of such $502,000 in
expenses at the Effective Time, and if required shall contribute cash to the
capital of the Company to fund such payment.
6.12. Publicity. So long as this Agreement is in effect, Parent, the
Purchaser and the Company agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement, and none of them shall issue any
press release or make any such public statement prior to such consultation,
except as may be required by law or the National Association of Securities
Dealers, Inc.
6.13. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or
36
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
6.14. Certain Definitions. For purposes of this Agreement, the term:
6.14.1. "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person;
6.14.2. "business day" shall mean any day other than a Saturday,
Sunday or federal holiday.
6.14.3. "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
6.14.4. "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession in the
United States, in each case applied on a basis consistent with the manner in
which the audited financial statements for the fiscal year of the Company ended
December 31, 1996 were prepared;
6.14.5. "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
6.14.6. "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holder of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation, partnership, joint
venture or other legal entity.
37
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
R-B CAPITAL CORPORATION
By /s/ Harrington Bischof
----------------------------
Its President
---------------------------
R-B ACQUISITION CORPORATION
By /s/ Harrington Bischof
------------------------------
Its President
----------------------------
PEERLESS INDUSTRIAL GROUP, INC.
By /s/ William H. Spell
-----------------------------
Its CEO
---------------------------
38
EXHIBIT A
Conditions of the Offer
-----------------------
Notwithstanding any other provision of the Offer, the Purchaser shall not
be required to accept for payment or pay for any tendered Shares, and may
terminate or amend the Offer and may postpone the acceptance for payment and
payment for tendered Shares, and may terminate or amend the Offer and not accept
for payment any Shares, if (i) there are not validly tendered prior to the
expiration of the Offer (the "Expiration Date") and not withdrawn prior to the
expiration date of the Offer a number of Shares which constitutes on the date of
purchase at least (A) a majority of the Shares and (B) a number of outstanding
Shares entitled to elect a majority of the board of directors, in each case on a
fully diluted basis (or, if the Purchaser so elects in its sole discretion, on
the basis of the number of Shares outstanding at the expiration date of the
Offer) (the "Minimum Condition") or (ii) at any time on or after the
commencement of the Offer (unless otherwise indicated below) and before the time
of payment for such Shares (whether or not Shares have been accepted for payment
or paid for pursuant to the Offer), any of the following events (each, an
"Event") shall occur:
(a) there shall have been instituted or pending any action or
proceeding by or before any court or governmental regulatory or
administrative agency, authority or tribunal, domestic or foreign, which
could (i) directly or indirectly restrain or prohibit the consummation of
the Offer or the Merger, or impose any material fines, penalties or damages
in connection therewith, (ii) make the purchase of or payment for some or
all of the Shares pursuant to the Offer or the Merger illegal, (iii) impose
or confirm material limitations on the ability of Parent or the Purchaser
(or any of their affiliates) effectively to acquire or hold, or requiring
Parent, the Purchaser or the Company or any of their respective affiliates
or subsidiaries to dispose of or hold separate, any material portion of the
assets or the business of Parent or the Purchaser and their affiliates
taken as a whole or the Company and its Subsidiaries taken as a whole or
(iv) impose material limitations on the ability of Parent (or its
affiliates) to acquire, hold or exercise full rights of ownership of the
Shares purchased by it on all matters properly presented to the
shareholders of the Company; or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any state, federal or
governmental authority or by any court, any statute, rule, regulation,
judgment, decree,
A-1
order or injunction, that could, directly or indirectly, result in any of
the consequences referred to in clauses (i) through (iv) of subsection (a)
above; or
(c) the Agreement shall have been terminated in accordance with its
terms; or
(d) (i) any of the representations or warranties made by the Company
in the Merger Agreement that is not qualified by reference to materiality
shall not have been true and correct in all material respects when made, or
(other than representations and warranties made as of a specified date)
shall thereafter have ceased to be true and correct in all material
respects on the Expiration Date, or (ii) any of the representations or
warranties made by the Company in the Merger Agreement that is qualified by
reference to materiality shall not have been true and correct when made, or
(other than (x) with respect to the representations and warranties set
forth in Section 3.2.6(i), changes in or disruptions of the Company's
business resulting from the execution of the Agreement or the announcement
of the Offer and the Merger, and (y) representations and warranties made as
of a specified date) shall thereafter have ceased to be true and correct on
the Expiration Date, or (iii) the Company shall not in all material
respects have performed each obligation and agreement and complied with
each covenant to be performed and complied with by it under the Agreement
and the Company shall not have cured such breach within 10 days after
notice thereof is given by the Purchaser, but in no event later than the
Expiration Date; or
(e) a tender or exchange offer for at least a majority of the then
outstanding Shares shall have been publicly proposed to be made, or shall
have been made, by any person, corporation, entity or "group," as defined
in Section 13(d)(3) of the Exchange Act (other than Parent or the
Purchaser); which, in any case, and regardless of the circumstances
(including any action or inaction by Parent or the Purchaser or any of
their affiliates) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with acceptance for payment or payment for
Shares; or
(f) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any securities exchange or
in the over-the-counter market in the United States (other than a
shortening of trading hours or any coordinated trading halt triggered
solely as a result of a specified increase or decrease in a market index),
(ii) the declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States (whether or not mandatory), or
(iii) any limitation
A-2
(whether or not mandatory), by any United States governmental authority or
agency on the extension of credit by banks or other financial institutions.
The foregoing conditions are for the sole benefit of the Purchaser and
may be asserted by the Purchaser regardless of the circumstances giving rise to
any such condition or may be waived by the Purchaser in whole or in part at any
time or from time to time in its sole discretion. The failure by the Purchaser
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to particular facts
or circumstances shall not be deemed a waiver with respect to any other facts or
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time or from time to time.
A-3