UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-12
THE DWYER GROUP, INC.
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, ($0.10 par value)
(2) Aggregate number of securities to which transaction applies:
6,546,574 shares, 838,250 options and 337,920 warrants
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
$6.75
(4) Proposed maximum aggregate value of transactions:
$48,868,615.50
(5) Total fee paid:
$3,953.47
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:______________________________________________
(2) Form, Schedule or Registration Statement No.:________________________
(3) Filing Party:________________________________________________________
(4) Date Filed:__________________________________________________________
(DWYER LOGO)
THE DWYER GROUP, INC.
1010 NORTH UNIVERSITY PARKS DRIVE
WACO, TEXAS 76707
, 2003
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
The Dwyer Group, Inc. to be held on , 2003, at
, local time, at Dwyer's corporate offices located
at 1010 North University Parks Drive, Waco, Texas 76707.
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger, dated as of May 11, 2003,
among Dwyer, TDG Holding Company and TDG Merger Co. and approve the merger
contemplated by the merger agreement. TDG Merger Co. is a wholly owned
subsidiary of TDG Holding Company and was formed by TDG Holding Company solely
for the purpose of acquiring all of the outstanding shares of Dwyer common
stock. Both TDG Holding Company and TDG Merger Co. are affiliates of The
Riverside Company.
If the merger is completed as proposed, TDG Merger Co. will be merged with
and into Dwyer with Dwyer continuing as the surviving corporation. Upon
completion of the merger, you will be entitled to receive $6.75 in cash for each
share of Dwyer common stock that you own. This represents a premium of
approximately 59% over the closing price per share of $4.25 on May 9, 2003, the
last trading day prior to the public announcement of the merger agreement and a
premium of approximately 61% over the average closing price per share of Dwyer
common stock for the week prior to the public announcement of the merger
agreement.
Details of the merger and the merger agreement are discussed in the
enclosed proxy statement, which includes a copy of the merger agreement,
attached as Exhibit A. We encourage you to read the proxy statement and the
merger agreement carefully.
The board of directors, acting on the recommendation of the special
committee, has determined that the merger and the terms of the merger agreement
are advisable and in the best interest of the Dwyer stockholders and recommends
that you vote FOR the adoption of the merger agreement and the approval of the
merger.
In considering the recommendation of the board of directors, you should be
aware that members of the board of directors and certain key members of Dwyer's
management have interests in the merger that may be different from your
interests as a Dwyer stockholder. These interests are summarized in the
accompanying proxy statement in the section entitled "SPECIAL
FACTORS -- Interests of Certain Officers and Directors and the Rollover
Stockholders in the Merger."
The affirmative vote of a majority of the outstanding shares of Dwyer
common stock is required to adopt the merger agreement and approve the merger.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN
THE ENCLOSED POSTAGE PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING.
Sincerely yours,
-s- Dina Dwyer-Owens
Dina Dwyer-Owens,
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This proxy statement is dated , 2003 and is first being mailed to Dwyer
stockholders on or about , 2003.
(DWYER LOGO)
THE DWYER GROUP, INC.
1010 NORTH UNIVERSITY PARKS DRIVE
WACO, TEXAS 76707
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2003
---------------------
To Our Stockholders:
Notice is hereby given that a special meeting of the stockholders of The
Dwyer Group, Inc. will be held on , 2003 at
, local time, at Dwyer's corporate offices located
at 1010 North University Parks Drive, Waco, Texas 76707 for the following
purposes:
- to consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of May 11, 2003, by and among Dwyer, TDG Holding Company
and TDG Merger Co., and to approve the merger contemplated by the merger
agreement pursuant to which TDG Merger Co. will be merged with and into
Dwyer, with Dwyer being the surviving corporation. The merger agreement
is described in the accompanying proxy statement, which includes a copy
of the merger agreement attached as Exhibit A; and
- to consider, act upon and transact such other matters as may properly
come before the special meeting or any adjournments or postponements of
the special meeting.
The board of directors has fixed the close of business on
, 2003 as the record date for determining the
stockholders entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements of the special meeting. Only holders of record of
shares of Dwyer common stock at the close of business on the record date are
entitled to notice of, and to vote at, the special meeting.
You have the right to dissent from the proposed merger and, upon compliance
with the procedural requirements of the Delaware General Corporation Law, to
receive the "fair value" of your shares if the merger is completed. See "SPECIAL
FACTORS -- Appraisal Rights" in the attached proxy statement, which includes a
copy of the relevant sections of the Delaware General Corporation Law regarding
appraisal rights.
YOU SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON STOCK WITH YOUR
PROXY CARD. IF THE PROPOSED MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS
REGARDING THE SURRENDER OF YOUR CERTIFICATES.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meeting, you should complete, sign, date and promptly return the enclosed proxy
card to ensure that your shares will be represented at the meeting. If you
attend the special meeting and wish to vote in person, you may withdraw your
proxy and vote in person.
By Order of the Board of Directors,
-s- Deborah Wright-Hood
DEBORAH WRIGHT-HOOD
Secretary
Waco, Texas
, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY TERM SHEET.......................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 8
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... 12
DWYER SELECTED HISTORICAL FINANCIAL DATA.................... 13
DWYER PRO FORMA FINANCIAL DATA.............................. 15
MARKET AND MARKET PRICE..................................... 16
Market Information........................................ 16
Number of Stockholders.................................... 16
Dividends................................................. 16
THE SPECIAL MEETING......................................... 17
General................................................... 17
Matters to be Considered at the Special Meeting........... 17
Record Date and Voting Information........................ 18
Quorum.................................................... 18
Proxies; Revocation....................................... 18
Expenses of Proxy Solicitation............................ 19
Adjournments.............................................. 19
Appraisal Rights.......................................... 19
THE PARTICIPANTS............................................ 20
The Dwyer Group, Inc...................................... 20
TDG Holding Company....................................... 20
TDG Merger Co............................................. 21
SPECIAL FACTORS............................................. 22
Background of the Merger.................................. 22
Recommendation of the Board of Directors; Fairness of the
Merger................................................. 24
Position of the Rollover Stockholders, Riverside, RCAF
2000, TDG Holding Company and TDG Merger Co. as to the
Fairness of the Merger................................. 25
Reasons for the Special Committee's Determination......... 27
Reasons for the Board of Directors' Determination......... 29
Fairness of the Merger to the Dwyer Unaffiliated Public
Stockholders........................................... 30
Forward Looking Information; Certain Projections.......... 30
Opinion of Financial Advisor to the Board of Directors and
the Special Committee.................................. 32
Purpose and Structure of the Merger....................... 37
Alternatives to the Merger................................ 38
Effects of the Merger..................................... 38
Risks that the Merger will not be Completed............... 39
Interests of Certain Officers and Directors of Dwyer and
the Rollover Stockholders in the Merger................ 39
Transactions with Affiliates.............................. 46
</Table>
<Table>
<Caption>
PAGE
----
Indemnification........................................... 47
Certain Risks in the Event of Bankruptcy.................. 48
Merger Financing.......................................... 48
Estimated Fees and Expenses of the Merger................. 50
Litigation Challenging the Merger......................... 51
Federal Income Tax Consequences........................... 51
Anticipated Accounting Treatment of Merger................ 52
Certain Regulatory Matters................................ 52
Appraisal Rights.......................................... 52
THE MERGER AGREEMENT........................................ 56
The Merger................................................ 56
Effective Time of Merger.................................. 56
Certificate of Incorporation, Bylaws and Directors and
Officers of Dwyer as the Surviving Corporation......... 56
Conversion of Common Stock................................ 56
Payment for Shares........................................ 56
Transfer of Shares........................................ 57
Treatment of Stock Options................................ 57
Indemnification and Insurance............................. 57
Representations and Warranties............................ 58
Conduct of Business Pending the Merger.................... 59
No Shopping............................................... 60
Access to Information..................................... 60
Conditions to the Merger.................................. 60
Termination of the Merger Agreement....................... 62
Termination Fees and Expenses............................. 62
Expense Reimbursement..................................... 63
Amendments................................................ 63
RECENT TRANSACTIONS......................................... 63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............. 64
INDEPENDENT AUDITORS........................................ 66
FUTURE STOCKHOLDER PROPOSALS................................ 66
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION................ 66
Exhibit A Agreement and Plan of Merger, dated as of May 11,
2003, among The Dwyer Group, Inc., TDG Holding
Company and TDG Merger Co. ....................... A-1
Exhibit B Section 262 of the Delaware General Corporation
Law............................................... B-1
Exhibit C Fairness Opinion of William Blair & Company....... C-1
Exhibit D Information Relating to Dwyer and TDG Holding
Company Parties .................................. D-1
</Table>
ii
SUMMARY TERM SHEET
This summary term sheet briefly describes the material terms of the
proposed merger of The Dwyer Group, Inc. with TDG Merger Co. and may not contain
all of the information that is important to you. To understand the transactions
fully and for a more complete description of the legal terms of the
transactions, you should carefully read this entire document and the additional
documents to which you are referred, including the Agreement and Plan of Merger
attached as Exhibit A to this proxy statement. You may obtain the information
incorporated by reference into this proxy statement without charge by following
the instructions in the section entitled "Where Stockholders Can Find More
Information."
THE PARTICIPANTS (PAGES 20-21)
THE DWYER GROUP, INC. and its wholly owned subsidiaries provide a diverse
array of specialty services internationally through its service-based, brand
name franchising businesses. Dwyer currently owns six such businesses, which
service an aggregate of approximately 800 franchisees located in the United
States and Canada, and through their master licensees, approximately 275
additional franchisees in 15 other countries.
THE RIVERSIDE COMPANY is one of the leading private equity firms investing
in premier companies at the smaller end of the middle market, focusing on
industry-leading companies valued at $10 million to $100 million. The firm has
more than half a billion dollars of capital under management. Since its
inception in 1988, Riverside has invested in 69 acquisitions, including 34
platform companies and 35 add-on acquisitions across a variety of industries
through its three funds and other investment vehicles. Riverside has offices in
New York, Cleveland, Dallas and San Francisco.
TDG HOLDING COMPANY is a newly organized Delaware corporation formed by
Riverside solely for the purpose of holding the common stock of TDG Merger Co.
and, following the merger, of Dwyer. The stockholders of TDG Holding Company
following the merger will be 2000 Riverside Capital Appreciation Fund, L.P., an
affiliate of Riverside ("RCAF 2000 "), certain co-investors with RCAF 2000,
including affiliates of Madison Capital Funding LLC and Massachusetts Mutual
Life Insurance Company, and the Rollover Stockholders.
TDG MERGER CO. is a newly organized Delaware corporation formed and wholly
owned by TDG Holding Company. TDG Merger Co. was formed solely for the purpose
of effecting the merger.
THE ROLLOVER STOCKHOLDERS are the senior management of Dwyer and affiliates
of the Dwyer family, including Dina Dwyer-Owens (President, Chief Executive
Officer and Director), Theresa Dwyer (Chairperson of the Board of Directors and
Director), Darren Dwyer, Robert Tunmire (Executive Vice President and Director),
Thomas J. Buckley (Vice President, Treasurer and Chief Financial Officer),
Deborah Wright-Hood (Vice President of Administration, Secretary and Assistant
Treasurer), Michael Bidwell (Chief Operating Officer), Donald J. Dwyer, Jr.
(Director of International Operations and Director), David Bethea (President,
Rainbow), Michael Hawkins (Vice President, Franchise Sales), James Johnston, Jr.
(Vice President, General Counsel) and Dwyer Investments, Ltd. (a limited
partnership controlled by members of the Dwyer family). The Rollover
Stockholders will own shares of common stock of TDG Holding Company and may be
granted options to purchase shares of common stock of TDG Holding Company if the
merger is consummated as described herein.
THE SPECIAL MEETING
DATE, TIME AND PLACE (PAGE 17)
The special meeting will be held on [ ], 2003 at [ : ], local
time, at Dwyer's corporate offices located at 1010 North University Parks Drive,
Waco, Texas 76707. At the special meeting, you will be asked to consider and
vote upon the proposal to adopt the merger agreement and approve the merger.
1
RECORD DATE, QUORUM AND VOTE REQUIRED (PAGE 18)
The board of directors has set the close of business on [ ], 2003,
as the record date for determining the holders of shares of Dwyer common stock
entitled to notice of, and to vote at, the special meeting. On the record date,
there were [ ] shares of common stock outstanding.
The holders of a majority of the outstanding shares of Dwyer common stock
as of the close of business on [ ], 2003, and entitled to vote at the
special meeting must be present in person or by proxy in order for a quorum to
exist at the special meeting. Abstentions and broker non-votes will be counted
as present for purposes of determining a quorum and will have the effect of a
vote against the merger.
The merger proposal must be approved by the affirmative vote of the holders
of a majority of the outstanding shares of Dwyer common stock. The Rollover
Stockholders, together with Donna Dwyer-VanZandt, Douglas Dwyer and the Donald
J. Dwyer Family Trust, have entered into a voting agreement pursuant to which
they have agreed to vote all of their shares of Dwyer common stock in favor of
approving the merger. These stockholders hold 4,421,514 shares of Dwyer common
stock, constituting approximately 62% of the total number of issued and
outstanding shares. The affirmative vote of the shares held by the parties to
the voting agreement is sufficient under Delaware law to adopt the merger
agreement and approve the merger.
REVOCATION OF PROXIES (PAGE 18)
You may revoke your proxy at any time before the special meeting by
delivering a written notice of revocation to Dwyer's Secretary, by executing and
delivering a later-dated proxy or by attending the meeting and voting in person.
Your attendance at the meeting will not by itself constitute a revocation of
your proxy. You must also vote your shares in person at the meeting. If you have
instructed a broker to vote your shares, you must follow the directions received
from your broker to change those instructions.
Unless contrary instructions are indicated on your proxy, all of your
shares represented by valid proxies will be voted FOR the adoption of the merger
agreement and approval of the merger.
THE MERGER
WHAT YOU WILL RECEIVE IN THE MERGER (PAGES 56-57)
You will receive $6.75 per share in cash, without interest, in exchange for
each share of Dwyer common stock that you own. The per share cash price
represents a premium of approximately 59% over the $4.25 per share closing price
of Dwyer common stock on May 9, 2003, the last trading day before Dwyer
announced the merger.
TREATMENT OF STOCK OPTIONS AND WARRANTS (PAGE 57)
All holders of outstanding options and warrants to purchase shares of Dwyer
common stock, including those options held by the Rollover Stockholders, will
receive, for each share of Dwyer common stock subject to the options and
warrants, an amount equal to the positive difference between the exercise price
of such options and warrants and the per share merger consideration.
BACKGROUND OF THE MERGER; REASONS FOR THE MERGER (PAGES 22-24)
For a description of the events leading to the approval of the merger by
the board of directors, you should refer to "SPECIAL FACTORS -- Background of
the Merger," "-- Recommendation of the Board of Directors; Fairness of the
Merger" and "-- Reasons for the Special Committee's Determination."
2
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS (PAGE 24)
A special committee of the Dwyer board of directors has unanimously
determined that the terms of the merger as contemplated by the merger agreement
are fair to, and in the best interests of, the Dwyer unaffiliated public
stockholders. Consequently, the special committee has recommended that the Dwyer
board of directors adopt the merger agreement, submit the merger agreement to
Dwyer stockholders and recommend that the Dwyer stockholders adopt the merger
agreement and approve the merger. The special committee consists solely of
directors who are not officers or employees of Dwyer, who are not Rollover
Stockholders, who will not be stockholders, directors, officers or employees of
Dwyer or TDG Holding Company following the merger and who have no financial
interest in the proposed merger different from the Dwyer unaffiliated public
stockholders, other than the receipt of board of directors and special committee
fees.
The board of directors, taking into account the analyses and recommendation
of the special committee and the opinion of William Blair & Company, the special
committee's independent financial advisor, has unanimously determined that the
merger is fair to, and in the best interests of, Dwyer and the Dwyer
unaffiliated public stockholders and recommends that you vote FOR adoption of
the merger agreement and approval of the merger.
OPINION OF SPECIAL COMMITTEE'S FINANCIAL ADVISOR (PAGES 32-37)
William Blair delivered an opinion to the Dwyer board of directors and the
special committee to the effect that, as of the date of its opinion, the price
per share to be received by the holders of Dwyer common stock in the merger was
fair to the unaffiliated public stockholders from a financial point of view. A
copy of this opinion is attached as Exhibit C to this proxy statement. The
opinion of William Blair is addressed to the board of directors and the special
committee and does not constitute a recommendation as to how you should vote at
the special meeting.
PURPOSE AND STRUCTURE OF THE MERGER (PAGES 37-38)
For Dwyer, the purpose of the merger is to allow Dwyer stockholders the
opportunity to receive cash for their shares at a price that represents a
substantial premium over the market prices at which the common stock traded
before the public announcement of the merger.
TDG Holding Company's purpose for the merger is to acquire 100% ownership
of Dwyer.
CERTAIN EFFECTS OF THE MERGER (PAGES 38-39)
This is a "going private" transaction. The merger will extinguish all
equity interests in Dwyer held by its stockholders and will result in Dwyer
being a wholly owned subsidiary of TDG Holding Company. RCAF 2000, its
co-investors and the Rollover Stockholders will, as stockholders of TDG Holding
Company, be the principal beneficiaries of any earnings and growth of Dwyer
following the merger and will bear the risks of any decrease in the value of
Dwyer following the merger.
Following the merger, Dwyer common stock will no longer be publicly traded,
and Dwyer will no longer file periodic reports with the SEC.
INTERESTS IN THE MERGER OF MANAGEMENT AND THE ROLLOVER STOCKHOLDERS (PAGES
39-46)
In considering the board of directors' recommendation that you vote in
favor of the merger, you should be aware that the Rollover Stockholders and some
of the directors and officers of Dwyer have interests in the merger that are
different from your interests as a stockholder, including the following:
- the Rollover Stockholders, together with Donna Dwyer-VanZandt, Douglas
Dwyer and the Donald J. Dwyer Family Trust, have entered into a voting
agreement pursuant to which they have agreed to vote all of their shares
of Dwyer common stock in favor of the merger.
3
- immediately prior to the merger, the Rollover Stockholders will, pursuant
to the terms of a contribution agreement, contribute a portion of their
common stock of Dwyer and/or cash having an aggregate value of $4,190,000
to TDG Holding Company in exchange for shares of common stock of TDG
Holding Company. Through their ownership interest in TDG Holding Company,
the Rollover Stockholders will continue to participate in the earnings
and growth of Dwyer following the merger.
- the Rollover Stockholders have entered into a stockholders agreement with
RCAF 2000 and TDG Holding Company, pursuant to which the Rollover
Stockholders have agreed to certain voting arrangements and restrictions
on the transfer of their shares of TDG Holding Company common stock.
- certain Rollover Stockholders, who are also members of management of
Dwyer, have entered into employment agreements, pursuant to which they
will continue as management of Dwyer following the merger.
The special committee and the board of directors were aware of these
interests and considered them in making their recommendations.
MERGER FINANCING; SOURCE OF FUNDS (PAGES 48-50)
The obligation of TDG Holding Company and TDG Merger Co. to complete the
merger is not subject to a financing condition. TDG Holding Company estimates
that approximately $58 million will be required to complete the merger and pay
related fees and expenses. TDG Holding Company expects this amount to be funded
through a combination of equity contributions by RCAF 2000, its co-investors and
the Rollover Stockholders and new credit facilities with a syndicate of banks.
Riverside has received financing commitment letters that, when combined with the
equity contributions, will be sufficient to fund these amounts.
CONDITIONS TO THE MERGER (PAGES 60-61)
Each party's obligation to complete the merger is subject to the following
conditions:
- adoption of the merger agreement by a majority of the Dwyer stockholders;
- the absence of any order or injunction prohibiting the merger; and
- the receipt of all required governmental and regulatory approvals.
Dwyer's obligation to complete the merger is subject to the following
additional conditions:
- TDG Holding Company's and TDG Merger Co.'s representations and warranties
in the merger agreement must be accurate in all material respects;
- TDG Holding Company and TDG Merger Co. must have performed their
respective obligations under the merger agreement in all material
respects; and
- TDG Holding Company and RCAF 2000 must have performed their respective
obligations under the contribution agreement in all material respects.
TDG Holding Company's and TDG Merger Co.'s obligations to complete the
merger are subject to the following additional conditions:
- Dwyer's representations and warranties in the merger agreement must be
accurate in all material respects;
- Dwyer must have performed its obligations under the merger agreement in
all material respects;
- there will not have occurred any event that has had a material adverse
effect on Dwyer;
4
- Dwyer's earnings before interest, taxes, depreciation and amortization
("EBITDA") for the trailing 12 months as of the month end immediately
preceding the mailing of this proxy statement must be not less than
$6,460,000;
- holders of not more than 10% of the outstanding shares of Dwyer common
stock shall have exercised appraisal rights under Delaware law; and
- TDG Holding Company, RCAF 2000 and the Rollover Stockholders shall have
consummated the transactions contemplated by the contribution agreement.
TDG Holding Company's and TDG Merger Co.'s obligations to complete the
merger are not subject to a financing condition.
LIMITATIONS ON CONSIDERING OTHER TAKEOVER PROPOSALS (PAGE 60)
Dwyer has agreed not to solicit or enter into discussions with any third
party regarding an acquisition proposal while the merger is pending. However, at
any time prior to the special meeting, the Dwyer board of directors may furnish
information to or enter into discussions with a third party in response to an
unsolicited takeover proposal if:
- the board of directors determines in good faith and in its reasonable
judgment, after consultation with its financial advisor, that the
proposal is a superior proposal, as defined in the merger agreement;
- the board of directors determines in good faith and in its reasonable
judgment, after consultation with its outside legal counsel, that failure
to do so would result in a breach of its fiduciary duties; and
- the third party enters into a confidentiality agreement with Dwyer on
terms not substantially more favorable to the third party than the
confidentiality agreement Dwyer entered into with Riverside in October
2002.
TERMINATION OF THE MERGER AGREEMENT (PAGE 62)
Dwyer and TDG Holding Company may terminate the merger agreement at any
time by mutual written consent. In addition, either party may terminate the
merger agreement if:
- any final and nonappealable order permanently restrains, enjoins or
otherwise prohibits the merger after the parties have used their best
efforts to have the order removed;
- Dwyer does not complete the merger by December 31, 2003, or such later
date as Dwyer and TDG Holding Company mutually agree;
- the other party is in material breach of the merger agreement and fails
to cure that breach following written notice; or
- the Dwyer stockholders do not adopt the merger agreement.
TDG Holding Company may terminate the merger agreement if the Dwyer board
of directors withdraws, or adversely modifies its approval of the merger or its
recommendation that the Dwyer stockholders approve the merger.
In addition, the voting agreement terminates upon termination of the merger
agreement or in the event that the board of directors withdraws, modifies or
changes its recommendation or approval of the merger agreement or the merger or
it recommends any proposal other than by TDG Holding Company or Riverside.
5
TERMINATION FEES AND EXPENSE REIMBURSEMENT (PAGES 62-63)
Dwyer will be required to pay certain amounts to TDG Holding Company, as
TDG Holding Company's and TDG Merger Co.'s sole and exclusive remedy, if the
merger agreement is terminated by TDG Holding Company as a result of a material
breach by Dwyer of its representations, warranties, covenants or agreements made
in the merger agreement, as follows:
- if such breach is willful and frustrates the consummation of the merger,
then Dwyer will be required to pay TDG Holding Company's actual and
reasonable documented expenses not to exceed $750,000;
- if, at the time of such breach, a third party made an offer with respect
to an acquisition transaction that has not been either rejected by Dwyer
or withdrawn by the third party, then Dwyer will be required to pay TDG
Holding Company's actual and reasonable documented expenses not to exceed
$750,000; and if, within two years of termination of the merger
agreement, Dwyer consummates an acquisition transaction with such third
party, then Dwyer will also be required to pay TDG Holding Company a
termination fee of $2,000,000; and
- if the agreement is terminated as a result of such breach other than as
set forth above, then TDG Holding Company may pursue any rights and
remedies available to it at law or in equity, subject to a maximum
aggregate recovery against Dwyer of $100,000.
Dwyer will be required to pay certain amounts to TDG Holding Company, as
TDG Holding Company's and TDG Merger Co.'s sole and exclusive remedy, if another
acquisition transaction has been made known to Dwyer or made directly to the
Dwyer stockholders and if the merger agreement is terminated, as follows:
- if the merger agreement is terminated by Dwyer or TDG Holding Company
because the stockholders of Dwyer fail to approve the merger, then Dwyer
will be required to pay TDG Holding Company's actual and reasonable
documented expenses not to exceed $750,000; and, if such acquisition
transaction is consummated, then Dwyer will be required to pay TDG
Holding Company a termination fee of $2,000,000; or
- if the merger agreement is terminated by TDG Holding Company because the
board of directors of Dwyer withdraws, modifies or changes its
recommendation or recommends any proposal other than by TDG Holding
Company or TDG Merger Co., then Dwyer will be required to pay TDG Holding
Company's actual and reasonable documented expenses not to exceed
$750,000; and, if such acquisition transaction is consummated, then Dwyer
will be required to pay TDG Holding Company a termination fee of
$2,000,000.
TDG Holding Company will be required to pay certain amounts to Dwyer, as
Dwyer's sole and exclusive remedy, if the merger agreement is terminated by
Dwyer as a result of a material breach by TDG Holding Company or TDG Merger Co.
of their representations, warranties, covenants or agreements made in the merger
agreement, as follows:
- if such breach is willful and frustrates the consummation of the merger
and occurs at such time as all conditions to TDG Holding Company's and
TDG Merger Co.'s obligations to consummate the merger have been
fulfilled, then TDG Holding Company will be required to pay Dwyer's
actual and reasonable documented expenses not to exceed $750,000 and a
termination fee of $2,000,000; and
- if the agreement is terminated as a result of such breach other than as
set forth above, then Dwyer may pursue any rights and remedies available
to it at law or in equity, subject to a maximum aggregate recovery
against TDG Holding Company of $100,000.
APPRAISAL RIGHTS (PAGES 52-55)
If the merger is to be completed, but you do not wish to exchange your
shares of Dwyer common stock for the merger consideration, you have the right
under Delaware law to have the "fair value" of your
6
shares determined by the Delaware Court of Chancery. This "right of appraisal"
is subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights, you must:
- not vote in favor of adoption of the merger agreement and approval of the
merger;
- make a written demand to Dwyer for appraisal before the vote on the
merger agreement and the merger; and
- hold your shares of record continuously from the time of making a written
demand for appraisal until the closing date of the merger.
You will not protect your right of appraisal by merely voting against the
merger agreement and the merger. A copy of the relevant sections of the Delaware
General Corporation Law (referred to as the "DGCL") is attached to this proxy
statement as Exhibit B.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 51)
You will be taxed on the cash you receive in the merger to the extent that
the cash exceeds your tax basis in your shares or, conversely, you will
recognize loss to the extent that your tax basis exceeds the cash you receive.
You should consult your tax advisor regarding the U.S. federal income tax
consequences of the merger, as well as any tax consequences under state, local
or foreign laws.
7
QUESTIONS AND ANSWERS ABOUT THE MERGER
WHAT AM I BEING ASKED TO VOTE UPON?
You are being asked to adopt the merger agreement and approve the merger.
Under the merger agreement, TDG Merger Co. will be merged with and into Dwyer
with Dwyer continuing as the surviving corporation. TDG Merger Co. is a Delaware
corporation formed in May 2003 and is wholly owned by TDG Holding Company. TDG
Holding Company is a Delaware corporation formed in May 2003 and is wholly owned
by RCAF 2000.
WHAT WILL HAPPEN TO DWYER AS A RESULT OF THE MERGER?
If the merger agreement is adopted by the stockholders and the merger is
approved and completed, Dwyer will no longer be a publicly held corporation.
Prior to the merger, the Rollover Stockholders will contribute shares of Dwyer
common stock and/or cash having an aggregate value of $4,190,000 to TDG Holding
Company in exchange for shares of common stock of TDG Holding Company. The
Rollover Stockholders will indirectly own an equity interest in Dwyer as the
surviving corporation through their ownership of TDG Holding Company common
stock.
WHAT WILL I RECEIVE IN THE MERGER?
If the merger is completed, each of your shares of Dwyer common stock will
be converted into the right to receive $6.75 in cash, without interest.
WHAT KIND OF PREMIUM TO THE PRICE OF DWYER COMMON STOCK IS IMPLIED BY THE MERGER
CONSIDERATION?
The merger consideration represents a premium of approximately (i) 59% over
the $4.25 closing sale price for Dwyer common stock as traded on The NASDAQ
National Market on May 9, 2003, the last trading day before Dwyer announced the
merger, (ii) 61% over the average closing sale price per share of $4.20 during
the one week preceding the initial announcement of the merger and (iii) a 114%
premium over the 52-week low trading price of $3.15.
WHAT WILL HAPPEN TO MY STOCK OPTIONS AND WARRANTS?
All holders of outstanding options and warrants to purchase shares of Dwyer
common stock, including those options held by Rollover Stockholders, will
receive, for each share of Dwyer common stock subject to the options and
warrants, an amount equal to the positive difference between the exercise price
of such options and warrants and the per share merger consideration.
WHY WAS THE SPECIAL COMMITTEE FORMED?
Four members of the Dwyer board of directors, Theresa Dwyer, Dina
Dwyer-Owens, Robert Tunmire and Donald J. Dwyer Jr., are Rollover Stockholders
and will be stockholders of TDG Holding Company following the merger. In
addition, two members of the Dwyer board of directors, Dina Dwyer-Owens and
Robert Tunmire, will remain officers of Dwyer following the merger. As a result
of these potential conflicts, the Dwyer board of directors concluded that the
formation of a special committee of independent directors who were not officers
or employees of Dwyer or Rollover Stockholders and who will not be stockholders,
directors, officers or employees of Dwyer or TDG Holding Company following the
merger was necessary to evaluate and negotiate the merger and, if appropriate,
recommend the adoption of the merger agreement and approval of the merger.
WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN FAVOR OF THE MERGER
AGREEMENT?
Based in part upon the unanimous recommendation of the special committee,
the Dwyer board of directors determined that the terms of the merger agreement
and the merger are fair to, and in the best interests of, the Dwyer unaffiliated
public stockholders. The board of directors, based in part on the
8
unanimous recommendation of the special committee, recommends that you vote FOR
the adoption of the merger agreement and approval of the merger.
WHAT WILL HAPPEN TO PRESENT MEMBERS OF MANAGEMENT AND THE BOARD OF DIRECTORS?
It is expected that Dwyer's current management will continue as management
following the merger. In addition, following the merger, at least four members
of the board of directors of Dwyer will be designated by Riverside and at least
three members, one of whom will be Dina Dwyer-Owens, will be designated by the
Rollover Stockholders. Like all other Dwyer stockholders, members of management
and the board of directors will be entitled to receive $6.75 per share in cash,
without interest, for each of their shares of Dwyer common stock (other than the
shares that the Rollover Stockholders plan to contribute to TDG Holding Company
in exchange for common stock of TDG Holding Company). Options held by the
Rollover Stockholders will be canceled. In exchange for such cancellation, each
Rollover Stockholder will be entitled to receive a cash payment equal to the
excess, if any, of the $6.75 per share cash consideration over the exercise
price per share of the cancelled options, multiplied by the number of shares of
Dwyer common stock subject to the option. The Rollover Stockholders who have
entered into employment agreements will receive options to purchase an equity
interest in TDG Holding Company. Following the merger, the Rollover Stockholders
will own approximately 14% of the common stock of TDG Holding Company, and those
Rollover Stockholders that have entered into employment agreements will receive
options, which if exercised will constitute an additional 15% of the common
stock of TDG Holding Company. TDG Holding Company will own all of the common
stock of Dwyer.
IS THE MERGER SUBJECT TO THE SATISFACTION OF ANY CONDITIONS?
Yes. Before the merger can be completed, a number of conditions must be
satisfied or waived. The mutual conditions of each party include (i) the
requirement that the merger agreement be adopted by the holders of a majority of
the outstanding shares of Dwyer common stock, (ii) obtaining any necessary
governmental approvals and (iii) the absence of any order or injunction that
would prevent the consummation of the merger. The additional conditions to TDG
Holding Company's and TDG Merger Co.'s obligations, which can only be waived by
TDG Holding Company and TDG Merger Co., include (i) the accuracy of Dwyer's
representations and warranties, (ii) compliance by Dwyer in all material
respects with its obligations under the merger agreement, (iii) exercise of
appraisal rights by the holders of not more than 10% of the outstanding shares
of Dwyer common stock, (iv) absence of a material adverse change in Dwyer's
business and (v) the requirement that Dwyer's EBITDA for the 12 months
immediately preceding the mailing of this proxy statement must be not less than
$6,460,000. The additional conditions to Dwyer's obligations, which may only be
waived by Dwyer, include compliance by each of TDG Holding Company and TDG
Merger Co. in all material respects with its respective obligations under the
merger agreement and the accuracy of TDG Holding Company's and TDG Merger Co.'s
representations and warranties.
WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
Dwyer, TDG Holding Company and TDG Merger Co. are working toward completing
the merger as quickly as possible. If the merger agreement is adopted and the
merger is approved and the other conditions to the merger are satisfied or
waived, the merger is expected to be completed promptly after the special
meeting.
WHAT WILL HAPPEN TO THE MARKET FOR DWYER COMMON STOCK FOLLOWING THE MERGER?
Following the merger, listing of Dwyer common stock on The NASDAQ National
Market will cease, and there will no longer be a public market for Dwyer common
stock. Price quotations for Dwyer common stock will no longer be available and
the registration of Dwyer common stock under the Securities Exchange Act of
1934, as amended, will be terminated.
9
WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
The receipt of cash for shares of Dwyer common stock in the merger will be
a taxable transaction for U.S. federal income tax purposes and also may be a
taxable transaction under applicable state, local, foreign or other tax laws.
Generally, you will recognize gain or loss equal to the difference between $6.75
per share and your tax basis for the shares of common stock that you owned
immediately before completion of the merger. For U.S. federal income tax
purposes, this gain or loss generally will be a capital gain or loss if you held
the shares of common stock as a capital asset. TAX MATTERS ARE VERY COMPLICATED
AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR
OWN SITUATION. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO
YOUR OWN INDIVIDUAL TAX CONSEQUENCES AS A RESULT OF THE MERGER.
WHEN AND WHERE IS THE SPECIAL MEETING?
The special meeting of the Dwyer stockholders will be held at
[ ], local time, on [ ], 2003, at
Dwyer's corporate offices located at 1010 North University Parks Drive, Waco,
Texas 76707.
WHO CAN VOTE ON THE MERGER AGREEMENT?
Holders of Dwyer common stock at the close of business on [
], 2003, the record date for the special meeting, may vote in
person or by proxy at the special meeting.
WHAT VOTE IS REQUIRED TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER?
The merger agreement must be adopted by the affirmative vote of at least a
majority of the outstanding shares of Dwyer common stock. The Rollover
Stockholders, together with Donna Dwyer-Van Zandt, Douglas Dwyer and the Donald
J. Dwyer Family Trust, have agreed to vote their shares of Dwyer common stock in
favor of the adoption of the merger agreement pursuant to the voting agreement
unless the board of directors withdraws its recommendation of the merger or the
merger agreement is terminated. These stockholders hold 4,421,514 shares of
Dwyer common stock, constituting approximately 62% of the total number of issued
and outstanding shares. The affirmative vote of these stockholders is sufficient
under Delaware law to adopt the merger agreement and approve the merger.
WHAT DO I NEED TO DO NOW?
You should read this proxy statement carefully, including the exhibits
accompanying this proxy statement and the documents incorporated by reference
into this proxy statement, and consider how the merger affects you. Then, please
mark your vote on your proxy card and date, sign and mail it in the enclosed
postage paid return envelope as soon as possible so that your shares can be
voted at the special meeting.
WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?
The failure to return your proxy card will have the same effect as voting
against the merger agreement.
MAY I VOTE IN PERSON?
Yes. You may attend the special meeting of the Dwyer stockholders and vote
your shares in person whether or not you sign and return your proxy card. If
your shares are held of record by a broker, bank or other nominee and you wish
to vote at the meeting, you must obtain a "legal proxy" from the broker, bank or
other nominee. You must bring this legal proxy to the meeting in order to vote
in person.
10
MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
Yes. You may change your vote at any time before your proxy card is voted
at the special meeting. You can do this in one of three ways. First, you can
send a written notice to the Secretary of Dwyer at Dwyer's executive offices
located at 1010 North University Parks Drive, Waco, Texas 76707, stating that
you would like to revoke your proxy. Second, you can complete and submit a new
proxy card before the special meeting. Third, you can attend the meeting and
vote in person. Your attendance alone will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the directions you
receive from your broker to change those instructions.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares by following the
procedures provided to you by your broker.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. If the merger is completed, you will receive written instructions for
exchanging your shares of Dwyer common stock for a cash payment of $6.75 per
share.
DO I HAVE A RIGHT TO SEEK AN APPRAISAL OF MY SHARES?
Yes. If you wish, you may seek an appraisal of the fair value of your
shares, but only if you comply with all requirements of Delaware law as
described on pages 52-55 of this proxy statement and in Exhibit B to this proxy
statement. Based on the determination of the Delaware Court of Chancery, the
appraised fair value of your shares of Dwyer common stock, which will be paid to
you if you seek an appraisal, may be more than, less than or equal to the $6.75
per share to be paid in the merger.
WHO CAN HELP ANSWER MY QUESTIONS?
The information provided above in question and answer format is for your
convenience only and is merely a summary of the information contained in this
proxy statement. You should carefully read this entire proxy statement,
including the exhibits and the documents incorporated by reference into this
proxy statement. If you would like additional copies, without charge, of this
proxy statement or if you have questions about the merger, including the
procedures for voting your shares, you should contact:
The Dwyer Group, Inc.
1010 North University Parks Drive
Waco, Texas 76707
Telephone: (254) 745-2482
Attn: Thomas J. Buckley, Chief Financial Officer
11
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement contains certain forward-looking statements regarding
Dwyer within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are based on the beliefs of Dwyer's management as well as assumptions made
by and information currently available to Dwyer's management. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. Certain
factors that could cause actual results to differ materially from Dwyer's
expectations include, but are not limited to, general business conditions,
competition, taxes, government regulations and other factors which are described
from time to time in Dwyer's public filings with the SEC, news releases and
other communications. Also, when Dwyer uses the words "believes," "expects,"
"anticipates," "estimates," "plans," "intends," "objectives," "goals," "aims,"
"projects" or similar words or expressions, Dwyer is making forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Dwyer assumes no
obligation to update any forward-looking statements made herein or elsewhere
whether as a result of new information, future events or otherwise.
12
DWYER SELECTED HISTORICAL FINANCIAL DATA
Dwyer's selected historical financial data presented below as of and for
the five fiscal years ended December 31, 2002, are derived from the audited
consolidated financial statements of Dwyer and its subsidiaries. Data as of and
for the three-month periods ended March 31, 2003, and March 31, 2002, have been
derived from unaudited consolidated financial statements of Dwyer. Interim
operating results are not necessarily indicative of the results that may be
achieved for the entire year. The following selected historical financial data
should be read in conjunction with Dwyer's most recent Annual Report on Form
10-KSB and Quarterly Report on Form 10-QSB, which are incorporated by reference
herein. See "Where Stockholders Can Find More Information."
<Table>
<Caption>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------------- -----------------------
1998 1999 2000 2001 2002 2002 2003
----------- ----------- ----------- ----------- ----------- ---------- ----------
REVENUES:
Royalties..................... $ 8,483,380 $ 9,416,439 $11,392,596 $12,891,657 $14,421,796 $2,956,917 $3,464,068
Franchise fees................ 2,474,579 4,314,885 4,421,977 4,557,359 6,295,992 1,593,587 1,839,498
Sales of products and
services.................... 1,858,339 1,599,493 2,142,354 3,409,058 3,585,504 948,133 642,257
Tax services.................. 673,234 -- -- -- -- -- --
Interest...................... 594,391 542,944 694,740 748,331 821,867 177,600 222,906
Gain on sale of investments... -- -- -- 112,270 -- -- --
Other......................... 727,257 550,376 566,271 645,902 740,825 190,072 210,245
----------- ----------- ----------- ----------- ----------- ---------- ----------
TOTAL REVENUES.............. 14,811,180 16,424,137 19,217,938 22,364,577 25,865,984 5,866,309 6,378,974
----------- ----------- ----------- ----------- ----------- ---------- ----------
COSTS AND EXPENSES:
General, administrative and
selling..................... 13,644,074 11,778,559 13,185,138 14,197,261 16,427,130 3,846,171 4,478,219
Costs of product and service
sales....................... 2,034,448 1,359,971 1,821,744 2,832,089 2,979,154 776,341 545,643
Depreciation and
amortization................ 695,526 811,925 1,369,830 1,461,160 1,350,086 316,833 353,436
Interest...................... 97,134 87,410 310,802 445,152 480,710 51,484 55,777
----------- ----------- ----------- ----------- ----------- ---------- ----------
TOTAL COSTS AND EXPENSES.... 16,471,182 14,037,865 16,687,514 18,935,662 21,237,080 4,990,829 5,433,075
----------- ----------- ----------- ----------- ----------- ---------- ----------
OPERATING INCOME (LOSS)......... (1,660,002) 2,386,272 2,530,424 3,428,915 4,628,904 875,480 945,899
----------- ----------- ----------- ----------- ----------- ---------- ----------
OTHER INCOME:
Gain on sale of assets........ 1,445,563 -- -- -- -- -- --
Gain on sale of securities.... 332,920 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ---------- ----------
TOTAL OTHER INCOME.......... 1,778,483 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ---------- ----------
Income before income taxes...... 118,481 2,386,272 2,530,424 3,428,915 4,628,904 875,480 945,899
Income tax expense.............. (65,221) (851,323) (477,159) (1,090,637) (1,682,488) (317,746) (342,282)
----------- ----------- ----------- ----------- ----------- ---------- ----------
NET INCOME...................... $ 53,260 $ 1,534,949 $ 2,053,265 $ 2,338,278 $ 2,946,416 $ 557,734 $ 603,617
=========== =========== =========== =========== =========== ========== ==========
EARNINGS PER SHARE -- BASIC..... $ 0.01 $ 0.22 $ 0.29 $ 0.33 $ 0.42 $ 0.08 $ 0.09
=========== =========== =========== =========== =========== ========== ==========
EARNINGS PER SHARE -- DILUTED... $ 0.01 $ 0.22 $ 0.29 $ 0.33 $ 0.40 $ 0.08 $ 0.08
=========== =========== =========== =========== =========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES........................ 6,910,587 6,968,401 6,999,939 6,997,931 7,030,397 6,997,931 7,063,931
=========== =========== =========== =========== =========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
AND POTENTIAL DILUTIVE COMMON
SHARES........................ 7,061,659 7,121,770 7,123,025 7,180,199 7,405,053 7,436,346 7,420,748
=========== =========== =========== =========== =========== ========== ==========
RATIO OF EARNINGS TO FIXED
CHARGES....................... 1.6 12.7 7.0 8.1 10.3 17.0 16.7
=========== =========== =========== =========== =========== ========== ==========
</Table>
13
BALANCE SHEET DATA:
<Table>
<Caption>
AS OF DECEMBER 31,
-------------------------------------------------------------------
1998 1999 2000 2001 2002
----------- ----------- ----------- ----------- -----------
Working capital............. $ 2,471,086 $ 1,347,332 $ 836,013 $ 2,043,313 $ 2,713,360
Total current assets........ $ 6,037,118 $ 5,105,663 $ 5,569,186 $ 5,904,540 $ 7,036,978
Total assets................ $18,717,300 $19,416,927 $23,575,200 $24,546,462 $27,171,362
Total current liabilities... $ 3,566,032 $ 3,758,331 $ 4,733,173 $ 3,861,227 $ 4,323,618
Total liabilities........... $ 6,100,171 $ 5,657,470 $ 7,688,129 $ 7,281,880 $ 7,096,971
Total shareholders'
equity.................... $12,617,129 $13,759,457 $15,887,071 $17,264,582 $20,074,391
</Table>
<Table>
<Caption>
AS OF MARCH 31,
-------------------------
2002 2003
----------- -----------
Working capital............................................. $ 1,664,322 $ 2,816,916
Total current assets........................................ $ 5,990,010 $ 6,880,071
Total assets................................................ $25,355,657 $27,401,320
Total current liabilities................................... $ 4,325,688 $ 4,063,155
Total liabilities........................................... $ 7,532,894 $ 6,654,496
Total shareholders' equity.................................. $17,822,763 $20,746,824
</Table>
The book value per share as of March 31, 2003 was $2.94.
14
PRO FORMA FINANCIAL DATA
The following unaudited pro forma balance sheet for Dwyer reflects the merger as
if it were consummated as of March 31, 2003.
THE DWYER GROUP, INC.
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
<Table>
<Caption>
AS OF MARCH 31,2003
-------------------------------------------------------------
PRO FORMA ADJUSTMENTS
FOR THE TRANSACTION PRO FORMA
---------------------------- FOR THE
HISTORICAL DEBITS CREDITS TRANSACTION
------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,459,200 $ 1,359,200(a) $ 100,000
Marketable securities, available-for-sale 579,231 579,231(a) --
Trade accounts receivable, net 1,477,356 1,477,356
Accounts receivable from related parties 151,643 151,643
Accrued interest receivable 74,171 74,171
Trade notes receivable, current portion, net 2,249,161 2,249,161
Inventories 58,667 58,667
Prepaid expenses 647,356 647,356
Notes receivable from related parties, current portion 183,286 183,286
------------ ------------ ------------ ------------
Total current assets 6,880,071 1,938,431 4,941,640
Property and equipment, net 4,222,573 4,222,573
Notes and accounts receivable from related parties 75,484 75,484
Trade notes receivable, net 7,035,342 7,035,342
Goodwill, net 5,030,081 33,185,507 (a) 38,215,588
Purchased franchise rights, net 2,699,977 2,699,977
Net deferred tax asset 844,311 844,311
Other assets 613,481 613,481
------------ ------------ ------------ ------------
TOTAL ASSETS $ 27,401,320 $ 33,185,507 $ 1,938,431 $ 58,648,396
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 591,821 $ 591,821
Accrued liabilities 1,229,668 1,229,668
Accrued interest 277,701 277,701
Accrued payroll 850,671 850,671
Deferred franchise sales revenue 173,073 173,073
Federal income taxes payable 283,527 283,527
Current maturities of long-term debt 656,694 656,694 (a) --
------------ ------------ ------------ ------------
Total current liabilities 4,063,155 656,694 3,406,461
Long-term debt, less current portion 2,530,170 2,530,170 (a) --
New term debt 18,500,000(a) 18,500,000
New subordinated debt 8,750,000(a) 8,750,000
Deferred franchise sales revenue 61,171 61,171
Stockholders' equity: --
Common stock 771,122 771,122 27,930,555(a) 27,930,555
Additional paid-in capital 9,112,248 9,112,248 (a) --
Retained earnings 12,073,397 12,073,397 (a) --
Accumulated other comprehensive income 209 209
Treasury stock, at cost (1,210,152) 1,210,152(a) --
------------ ------------ ------------ ------------
Total stockholders' equity 20,746,824 21,956,767 29,140,707 27,930,764
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,401,320 $ 25,143,631 $ 56,390,707 $ 58,648,396
------------ ------------ ------------ ------------
</Table>
(a) Sources to fund the transaction include debt, assumption of liabilities and
equity. Management has determined that the fair value of existing assets
approximates their book value, and will be recorded as such. The excess of the
total consideration over the assets acquired is shown as goodwill. An allocation
of the total consideration is as follows:
<Table>
Total Consideration:
Term debt $ 18,500,000
Subordinated debt 8,750,000
Assumption of liabilities 3,467,841
Common stock 27,930,555
------------
$ 58,648,396
============
Allocation:
Fair value of assets acquired $ 25,462,889
Goodwill 33,185,507
------------
$ 58,648,396
============
</Table>
MARKET AND MARKET PRICE
MARKET INFORMATION
Dwyer common stock is listed on The NASDAQ National Market under the symbol
"DWYR." The table below sets forth the range of high and low closing sales
prices on The NASDAQ National Market for the period from January 1, 2001 to
, 2003.
<Table>
<Caption>
HIGH LOW
----- -----
YEAR ENDED DECEMBER 31, 2001
First Quarter............................................... $2.63 $1.75
Second Quarter.............................................. $2.75 $2.20
Third Quarter............................................... $3.50 $2.46
Fourth Quarter.............................................. $4.95 $2.70
YEAR ENDED DECEMBER 31, 2002
First Quarter............................................... $4.79 $3.75
Second Quarter.............................................. $5.00 $3.85
Third Quarter............................................... $4.39 $3.35
Fourth Quarter.............................................. $4.05 $3.55
YEAR TO DATE, 2003
First Quarter............................................... $4.47 $3.60
Second Quarter.............................................. $ [ ] $ [ ]
Third Quarter (through , 2003)...................... $ [ ] $ [ ]
</Table>
The closing sale price for shares of Dwyer common stock on The NASDAQ
National Market on May 9, 2003, the last trading day before Dwyer announced the
merger, was $4.25 per share. The average closing sale price per share of Dwyer
common stock was $4.20 during the one week preceding the initial announcement of
the merger. On May 9, 2003, the last full trading day before the public
announcement of the signing of the merger agreement, the high and low sales
prices of Dwyer common stock as reported on The NASDAQ National Market were
$4.35 and $4.24 per share, respectively. On [ ], 2003, the last
practicable trading day for which information was available prior to the date of
the first mailing of this proxy statement, the closing price per share of Dwyer
common stock as reported on The NASDAQ National Market was $[ ].
Stockholders should obtain a current market quotation for Dwyer common stock
before making any decision with respect to the merger.
NUMBER OF STOCKHOLDERS
As of the record date there were issued and outstanding [ ]
shares of Dwyer common stock and approximately [ ] record owners
and [ ] beneficial owners of Dwyer common stock.
DIVIDENDS
Dwyer has not declared or paid cash dividends on its common stock since
June 1993 and does not plan to pay any cash dividends in the foreseeable future.
Under the merger agreement, Dwyer has agreed not to pay any dividends on its
shares of common stock prior to the completion of the merger.
16
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to the Dwyer stockholders as part
of the solicitation of proxies by the Dwyer board of directors for use at the
special meeting of stockholders to be held at Dwyer's corporate offices located
at 1010 North University Parks Drive, Waco, Texas 76707 on
[ ], 2003, beginning at [ ], local
time, and at any adjournments or postponements thereof. This proxy statement is
accompanied by a form of proxy for use at the special meeting.
At the special meeting, the Dwyer stockholders will be asked to consider
and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of
May 11, 2003, by and among Dwyer, TDG Holding Company, and TDG Merger Co. and to
approve the merger contemplated by the merger agreement pursuant to which TDG
Merger Co. will be merged with and into Dwyer, with Dwyer being the surviving
corporation.
This proxy statement and the accompanying form of proxy are first being
mailed to stockholders on or about [ ], 2003.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, the stockholders will be asked to consider and vote
upon a proposal to adopt the merger agreement and approve the merger. If the
requisite votes in favor of the proposal are obtained and certain other
conditions are satisfied or, where permissible, waived, TDG Merger Co. will be
merged with and into Dwyer with Dwyer being the surviving corporation. At the
effective time of the merger, each share of common stock of Dwyer issued and
outstanding immediately prior to the filing of a certificate of merger with the
Secretary of State of the State of Delaware will be converted into the right to
receive $6.75 in cash, without interest, except for:
- shares for which appraisal rights have been perfected properly under
Section 262 of the DGCL, which will be entitled to receive the
consideration provided for by the DGCL;
- shares held by Dwyer in treasury, which will be canceled without payment;
and
- shares held by TDG Holding Company, which will be canceled without
payment.
Like all other Dwyer stockholders, members of management and the board of
directors will be entitled to receive $6.75 per share in cash, without interest,
for each of their shares of Dwyer common stock held by them at the time of the
merger. All holders of outstanding options and warrants to purchase shares of
Dwyer common stock, including those options held by the Rollover Stockholders,
will receive, for each share of Dwyer common stock subject to the options and
warrants, an amount equal to the positive difference between the exercise price
of such options and warrants and the per share merger consideration.
Immediately prior to the merger, the Rollover Stockholders will, pursuant
to the terms of a contribution agreement, contribute a portion of their common
stock of Dwyer and/or cash having an aggregate value of $4,190,000 to TDG
Holding Company in exchange for shares of common stock of TDG Holding Company.
In addition, certain Rollover Stockholders who have entered into employment
agreements with Dwyer, effective upon consummation of the merger, will receive
options, which if exercised will constitute, in the aggregate, an additional 15%
of the common stock of TDG Holding Company.
Dwyer does not expect a vote to be taken at the special meeting on any
matter other than the proposal to adopt the merger agreement and approve the
merger and, if necessary, a vote to adjourn or postpone the meeting. However, if
any other matters are properly presented at the special meeting for
consideration, the holders of the proxies will have discretion to vote on these
matters in accordance with their best judgment. Dwyer is soliciting proxies to
grant discretionary authority to vote in favor of adjournment or postponement of
the special meeting.
17
RECORD DATE AND VOTING INFORMATION
Only holders of record of Dwyer common stock at the close of business on
[ ], 2003, will be entitled to notice of, and to
vote at, the special meeting. At the close of business on [
], 2003, there were outstanding and entitled to vote
[ ] shares of Dwyer common stock. A list of the Dwyer stockholders
will be available for review at Dwyer's executive offices during regular
business hours for a period of 10 days before the special meeting. Each holder
of record of Dwyer common stock on the record date will be entitled to one vote
for each share held.
All votes will be tabulated by the inspector of elections appointed for the
special meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Brokers who hold shares in street name for
clients typically have the authority to vote on "routine" proposals when they
have not received instructions from beneficial owners. However, absent specific
instructions from the beneficial owner of the shares, brokers are not allowed to
exercise their voting discretion with respect to the adoption and approval of
non-routine matters, such as the merger agreement. Proxies submitted without a
vote by the brokers on these matters are referred to as "broker non-votes."
Abstentions and broker non-votes are counted for purposes of determining whether
a quorum exists at the special meeting.
The affirmative vote of a majority of the outstanding shares of common
stock entitled to vote at the special meeting is required to adopt the merger
agreement and approve the merger. The Rollover Stockholders, together with Donna
Dwyer-VanZandt, Douglas Dwyer and the Donald J. Dwyer Family Trust, have entered
into a voting agreement pursuant to which they have agreed to vote all of the
shares of Dwyer common stock held by them, aggregating 4,421,514 shares, for
adoption and approval of the merger agreement unless the board of directors
withdraws its recommendation of the merger or the merger agreement is
terminated. The shares of Dwyer common stock held by these stockholders
constituted approximately 62% of the total number of shares outstanding on the
record date. The affirmative vote of the shares held by these stockholders is
sufficient under Delaware law to adopt the merger agreement and approve the
merger.
Because the affirmative vote of a majority of all outstanding shares of
Dwyer common stock is required in order to adopt the merger agreement and
approve the merger, abstentions and broker non-votes will have the same effect
as votes AGAINST adoption and approval of the merger agreement.
With the exception of broker non-votes, the treatment of which is discussed
above, each share of Dwyer common stock represented by a proxy properly executed
and received by Dwyer in time to be voted at the special meeting and not revoked
will be voted in accordance with the instructions indicated on such proxy and,
if no instructions are indicated, will be voted FOR the proposal to adopt the
merger agreement and approve the merger.
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Dwyer common stock entitled to vote at the special meeting
is necessary to constitute a quorum for the transaction of business at the
special meeting.
PROXIES; REVOCATION
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of Dwyer at Dwyer's executive offices located at 1010 North University
Parks Drive, Waco, Texas 76707, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
special meeting and voting in person. Attendance at the special meeting will
not, by itself, revoke a proxy. Furthermore, if a stockholder's shares are held
of record by a broker, bank or other nominee and the stockholder wishes to vote
at the meeting, the stockholder must obtain a "legal proxy" from the record
holder. The stockholder must bring this legal proxy to the meeting in order to
vote in person.
18
EXPENSES OF PROXY SOLICITATION
Dwyer will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of common stock beneficially owned by
others for forwarding to these beneficial owners. Dwyer may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, facsimile or personal
solicitation by directors, officers or other regular employees of Dwyer. No
additional compensation will be paid to directors, officers or other regular
employees for their services.
ADJOURNMENTS
It is not expected that the special meeting will be adjourned for the
purpose of soliciting additional proxies.
APPRAISAL RIGHTS
Stockholders who do not vote in favor of adoption of the merger agreement
and approval of the merger, and who otherwise comply with the applicable
statutory procedures of the DGCL summarized elsewhere in this proxy statement,
will be entitled to seek appraisal of the value of their Dwyer common stock as
set forth in Section 262 of the DGCL. See "SPECIAL FACTORS -- Appraisal Rights."
PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME. IN THE EVENT THE
MERGER IS COMPLETED, DWYER WILL DISTRIBUTE INSTRUCTIONS TO YOU REGARDING THE
PROCEDURES FOR EXCHANGING YOUR DWYER STOCK CERTIFICATE(S) FOR THE $6.75 PER
SHARE CASH PAYMENT.
19
THE PARTICIPANTS
THE DWYER GROUP, INC.
1010 North University Parks Drive
Waco, Texas 76707
(254) 745-2400
Dwyer and its wholly owned subsidiaries provide a diverse array of
specialty services internationally through its service-based, brand-name
franchising businesses. Dwyer currently owns six such businesses, which service
an aggregate of approximately 800 franchisees located in the United States and
Canada, and through their master licensees, approximately 275 additional
franchisees in 15 other countries. Dwyer has positioned itself as a consolidator
of franchising businesses in order to benefit from economies of scale achievable
through the pooling of resources.
Dwyer operates its businesses through eight wholly owned subsidiaries:
- Mr. Rooter Corporation;
- Rainbow International Carpet Dyeing and Cleaning Co.;
- Mr. Electric Corp.;
- Synergistic International, Inc.;
- Aire Serv Heating & Air Conditioning, Inc.;
- Mr. Appliance Corp.;
- The Dwyer Group National Accounts, Inc.; and
- The Dwyer Group Canada, Inc.
Dwyer was incorporated in 1970 in the State of Oklahoma under the name Mr.
Rooter Corporation of America, Inc. The company's name was changed to Mr. Rooter
Corporation in 1972, and in 1986 the company was reincorporated as a Delaware
corporation. In 1993, the board of directors approved a plan to convert the
company into a holding company and to form a new subsidiary to operate the Mr.
Rooter business. In that same year, this new subsidiary was incorporated in
Texas under the name Mr. Rooter Corporation and the company was renamed "The
Dwyer Group, Inc."
A detailed description of Dwyer's business and financial results is
contained in Dwyer's most recent Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2002, and Dwyer's Quarterly Report on Form 10-QSB for
the fiscal quarter ended March 31, 2003, each of which is incorporated by
reference into this proxy statement. See also "Where Stockholders Can Find More
Information." Information about the directors and executive officers of Dwyer is
set forth in Exhibit D to this proxy statement.
TDG HOLDING COMPANY
c/o The Riverside Company
Rockefeller Center
630 Fifth Avenue, Suite 1530
New York, New York 10011
(212) 265-6575
TDG Holding Company is a newly organized Delaware corporation formed by
Riverside solely for the purpose of holding the common stock of TDG Merger Co.
and, following the merger, Dwyer. The stockholders of TDG Holding Company
following the merger will be RCAF 2000, its co-investors and the Rollover
Stockholders. Information about the directors and executive officers of TDG
Holding Company and certain of its affiliates is set forth in Exhibit D to this
proxy statement.
20
TDG MERGER CO.
c/o The Riverside Company
Rockefeller Center
630 Fifth Avenue, Suite 1530
New York, New York 10011
(212) 265-6575
TDG Merger Co. is a newly organized Delaware corporation formed and wholly
owned by TDG Holding Company. TDG Merger Co. was formed solely for the purpose
of effecting the merger. Information about the directors and executive officers
of TDG Merger Co. is set forth in Exhibit D to this proxy statement.
21
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In the opinion of the Dwyer board of directors, Dwyer's public market
valuation has been constrained by Dwyer's small market capitalization, limited
public float, relatively low trading volume and limited research coverage from
securities analysts. Consequently, the board of directors has, from time to
time, considered strategic alternatives available to Dwyer in order to maximize
stockholder value, including the possibility of pursuing a sale or
recapitalization of Dwyer.
During the first quarter of 2001, the board of directors took its first
active step by engaging Schiff Hardin & Waite, as legal counsel to Dwyer in the
event Dwyer pursued a strategic transaction. On May 30, 2001, the board of
directors engaged William Blair as financial advisor to advise and assist it in
connection with such a transaction.
During the summer of 2001, William Blair familiarized itself with Dwyer and
performed due diligence. After consulting with Dwyer on possible strategic
transactions, William Blair was directed to identify and contact approximately
30 potential strategic buyers to assess their interest in pursuing a business
combination with Dwyer.
In response to its initial marketing efforts, William Blair received
several preliminary oral expressions of interest in acquiring the common stock
of Dwyer for cash. However, the prices indicated in these expressions were
unsatisfactory to the board of directors, which, when combined with the events
occurring on September 11, 2001, significantly affected the momentum of the
process and ultimately ended any additional formal marketing of a possible
transaction.
During the summer of 2002, an unsolicited private equity fund (the "Initial
Bidder") expressed informally an interest in acquiring Dwyer. The Initial Bidder
and management of Dwyer held preliminary discussions to assess the likelihood of
an acquisition by the Initial Bidder. After these discussions, the Initial
Bidder and Dwyer entered into a confidentiality agreement and exchanged due
diligence materials.
After limited due diligence, the Initial Bidder made an oral offer on or
about September 3, 2002, to buy all of the common stock of Dwyer for $5.00 per
share in cash. The board of directors believed that the merger consideration
offered by the Initial Bidder was insufficient given Dwyer's recent share prices
and its historical and projected financial performance. The closing share price
of the Dwyer common stock on September 3, 2002, as reported on The NASDAQ
National Market, was $3.74 per share. Consequently, the board of directors
concluded that it was not in the stockholders' best interest to pursue
negotiations. However, the board of directors suspected that the Initial
Bidder's interest signaled the possibility that other potential buyers existed.
On September 4, 2002, in response to the offer from the Initial Bidder, the
board of directors established a special committee to evaluate and implement
strategic plans, proposals and alternatives for Dwyer. The special committee was
composed of four directors: Theresa Dwyer, Chairman of the Board of Directors,
Dina Dwyer-Owens, President and CEO of Dwyer, and Donald E. Latin and Burton D.
Cohen, non-employee directors.
In October 2002, another unsolicited financial bidder, Riverside, contacted
Dwyer management and expressed an interest in learning more about Dwyer with a
view toward purchasing Dwyer. On October 23, 2002, Riverside signed a
confidentiality agreement with Dwyer. During the next two months,
representatives from Riverside met with management and began preliminary due
diligence in mid-December 2002. In the meantime, management, the special
committee and William Blair worked to identify other potential acquirers.
Management and William Blair had exploratory conversations with various
potential acquirers, including a possible strategic purchaser and the Initial
Bidder.
In January 2003, Riverside made an initial offer to buy all Dwyer common
stock for $5.35 per share. After further negotiations, Riverside revised their
initial bid to $6.00 per share on February 6, 2003.
22
Riverside's revised offer was accompanied by details regarding its proposed
transaction structure and conditions, including a financing condition, the
satisfactory completion of confirmatory due diligence and the negotiation of a
mutually acceptable merger agreement. In particular, Riverside required:
- that the transaction be structured as a merger, subject to stockholder
approval;
- that certain executive officers enter into employment contracts with
Dwyer at the then-current compensation levels;
- that certain executive officers and Dwyer family members enter into a
voting agreement and also make equity investments in TDG Holding Company
in an amount not to exceed 30% of its equity;
- that Dwyer meet certain EBITDA targets during the first six months of
2003;
- that the merger agreement include a $2 million breakup fee; and
- that Dwyer agree to a 90-day exclusivity period.
Because the second offer involved management's participation, the special
committee was advised that the contemplated transaction involved a potential
conflict of interest. As a result of the potential conflicts of management, the
board of directors reconstituted the special committee to consist solely of non-
employee directors who would not be stockholders, directors, officers or
employees of Dwyer following the merger. The reconstituted special committee
consisted of Donald E. Latin, Burton D. Cohen and John P. Hayes. Mr. Latin was
elected chairman of the reconstituted special committee. The special committee
was charged with evaluating the Riverside proposal and any other proposals that
may be received from other interested parties. The special committee confirmed
the engagement of Schiff Hardin & Waite as its legal counsel and William Blair
as its financial advisor. Members of senior management and related stockholders
separately engaged Gardere Wynne Sewell LLP to advise them, and the special
committee agreed that Dwyer would pay management's legal fees.
While William Blair continued to negotiate with Riverside to improve the
offered price and terms of the agreement, management and William Blair continued
to seek to identify additional interested bidders. However, no interested buyers
were identified. On or about February 23, 2003, the Initial Bidder again
contacted William Blair. After receiving additional due diligence, the Initial
Bidder offered to purchase Dywer's shares of common stock for $6.75 per share in
cash in a transaction structured as a tender offer. Riverside was informed that
a competitive bidder had emerged, and subsequently revised its bid to $6.80 per
share in cash. Riverside withdrew its demand for a financing condition, but
insisted on the merger structure previously outlined. In the alternative,
Riverside offered $6.50 per share if the acquisition was structured as a tender
offer.
The special committee met on February 24, 2003, to consider the two
proposals. After receiving a report from William Blair, the special committee
interviewed the Initial Bidder, who confirmed that $6.75 represented its final
and best price. Following deliberations, the special committee unanimously
determined to enter into a 30-day exclusivity period with Riverside based upon
Riverside's offer of $6.80 per share.
During the exclusivity period, Riverside and its advisors performed
extensive business, financial and legal due diligence, during which time the
exclusivity period was periodically extended. In addition, counsel to Riverside,
Jones Day, delivered an initial draft form of an agreement and plan of merger
for the acquisition of all of the shares of Dwyer common stock and other
transaction documents, including draft forms of a voting agreement, pursuant to
which senior management and certain stockholders agreed to vote their shares in
favor of the merger with Riverside, and a contribution agreement, pursuant to
which senior management and certain stockholders would make equity investments
in TDG Holding Company. In addition, Gardere Wynne Sewell negotiated the various
employment arrangements, as well as the contribution agreement, the voting
agreement, the stockholders agreement and the various option agreements on
behalf of management and certain stockholders.
In a letter to the special committee dated April 2, 2003, and in follow-up
conversations, Riverside identified several business, financial and legal issues
that Riverside felt justified a reduction in its offer
23
price of $0.15 per share. In response, from April 6 through April 22, the
special committee had numerous discussions with its financial and legal advisors
concerning Riverside's proposed price reduction. Concurrently, the special
committee directed William Blair and Schiff Hardin & Waite to contact and
negotiate with Riverside and Jones Day, respectively. As a result of these
negotiations, as well as discussions with management, the special committee
agreed to a reduction of $0.05 per share and the inclusion of an EBITDA test as
a condition to the transaction. Riverside subsequently sought an additional
price reduction in the form of a limitation on certain of Dwyer's transaction
expenses. However, certain Dwyer family members agreed to assume a portion of
Dwyer's transaction expenses, and no price reduction resulted. Thereafter,
Dwyer's legal and financial advisors proceeded to negotiate the remaining issues
with Riverside and Jones Day.
At a meeting on May 10, 2003, William Blair provided the special committee
with a financial analysis of the proposed merger. William Blair summarized the
history of the negotiations and explained the different valuation methodologies,
including a market trading analysis, a market multiple analysis, a comparable
transaction analysis and a discounted cash flow analysis, employed by William
Blair in its analysis. William Blair then rendered its oral opinion to the
special committee to the effect that, as of the date of such opinion, and on the
basis of its analyses and subject to the conditions and limitations set forth in
its opinion, the merger consideration to be received by the holders of the
common stock of Dwyer pursuant to the terms and subject to the conditions set
forth in the merger agreement was fair from a financial point of view to the
Dwyer unaffiliated public stockholders. The special committee also discussed
with Schiff Hardin & Waite and William Blair the conditions to the merger, the
terms of the voting agreement and other matters related to the merger documents.
Following discussion among the members of the special committee, the special
committee unanimously (i) determined that the merger and merger agreement are
advisable and in the best interests of the Dwyer unaffiliated public
stockholders, (ii) recommended to the board of directors that the merger and
merger agreement be authorized, approved and adopted by the board of directors
and (iii) recommended that the stockholders of Dwyer vote to adopt the merger
agreement and approve the merger.
The Dwyer board of directors met after the meeting of the special committee
on May 10, 2003. At the Dwyer board of directors meeting, the special committee
recommended that the Dwyer board of directors authorize and approve the merger
agreement and the transactions contemplated thereby. Following discussion with
the special committee members and their financial and legal advisors, the Dwyer
board of directors accepted the special committee's recommendations and
unanimously (i) determined that the merger and merger agreement are advisable
and in the best interests of the Dwyer unaffiliated public stockholders, (ii)
approved the merger agreement and the merger and (iii) recommended that the
stockholders of Dwyer vote to adopt the merger agreement and approve the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
The special committee of the board of directors has unanimously determined
that the terms of the merger agreement and the merger are fair to, and in the
best interests of, the Dwyer unaffiliated public stockholders. The special
committee unanimously recommended to the board of directors that the merger
agreement be adopted and approved. The special committee considered a number of
factors, as more fully described above under "Background of the Merger" and as
described below under "Reasons for the Special Committee's Determination," in
making its recommendation. The board of directors, acting in part upon the
unanimous recommendation of the special committee, unanimously determined that
the terms of the merger agreement and the proposed merger are advisable and in
the best interests of the Dwyer unaffiliated public stockholders. The board of
directors, based in part on the unanimous recommendation of the special
committee, recommends that Dwyer stockholders vote FOR the adoption of the
merger agreement and approval of the merger.
24
POSITION OF THE ROLLOVER STOCKHOLDERS, RIVERSIDE, RCAF 2000, TDG HOLDING COMPANY
AND TDG MERGER CO. AS TO THE FAIRNESS OF THE MERGER
Under a potential interpretation of the rules governing "going private"
transactions, the Rollover Stockholders, Riverside, RCAF 2000, TDG Holding
Company and TDG Merger Co. may be deemed affiliates of Dwyer and required to
express their beliefs as to the fairness of the merger to Dwyer's public
stockholders. Each of the Rollover Stockholders, Riverside, RCAF 2000, TDG
Holding Company and TDG Merger Co. believes that the merger is fair to the Dwyer
unaffiliated public stockholders on the bases of the factors described below.
POSITION OF THE ROLLOVER STOCKHOLDERS AS TO THE FAIRNESS OF THE MERGER
Although the Rollover Stockholders may have interests in the merger that
are different from the interests of the Dwyer unaffiliated public stockholders,
the Rollover Stockholders believe that the terms of the merger agreement and the
proposed merger are substantively and procedurally fair to the Dwyer
unaffiliated public stockholders based on the facts and information available to
the Rollover Stockholders.
Although the Rollover Stockholders did not participate in the deliberations
of the special committee, the Rollover Stockholders have considered the same
factors examined by the special committee described below under "-- Reasons for
the Special Committee's Determination" and have adopted the conclusion, and the
analysis underlying the conclusion, of the special committee based upon each
Rollover Stockholder's view as to the reasonableness of that analysis. The
Rollover Stockholders believe that the terms of the merger agreement and the
proposed merger are substantively and procedurally fair to the Dwyer
unaffiliated public stockholders. The Rollover Stockholders have formed this
belief with respect to the substantive and procedural fairness even though no
disinterested representative, other than the special committee and its advisors,
was retained to act solely on behalf of the Dwyer unaffiliated public
stockholders.
The Rollover Stockholders did not consider the relationship of the merger
consideration to the liquidation value or book value of Dwyer because they
believed that those measures of asset value were not relevant to the market
value of Dwyer's business. See also, "-- Reasons for the Special Committee's
Determination."
The Rollover Stockholders believe that the foregoing analyses and factors
provide a reasonable basis upon which to form their respective beliefs that the
merger is fair to the Dwyer unaffiliated public stockholders. This belief should
not, however, be construed as a recommendation to the Dwyer unaffiliated public
stockholders to adopt the merger agreement. The Rollover Stockholders do not
make any recommendation as to how stockholders of Dwyer should vote their
shares. The Rollover Stockholders have not undertaken any formal evaluation of
the fairness of the merger to Dwyer's unaffiliated public stockholders, nor have
they assigned specific relative weights to the factors considered by them. Each
of the Rollover Stockholders is a party to the voting agreement pursuant to
which they have agreed to vote all of their shares of Dwyer common stock in
favor of adopting the merger agreement and approving the merger.
POSITION OF RIVERSIDE, RCAF 2000, TDG HOLDING COMPANY AND TDG MERGER CO. AS TO
THE FAIRNESS OF THE MERGER
Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co. based their
belief on the following factors:
- the current and historical market prices for shares of Dwyer common
stock;
- the relationship between the $6.75 price per share to be paid in the
merger and the recent market prices of Dwyer common stock. The $6.75
price per share to be paid in the merger represents a premium of (i) 59%
over the $4.25 per share closing sales price for the common stock on The
NASDAQ National Market on May 9, 2003, the last trading day before Dwyer
announced the
25
merger and (ii) 61% over the average closing sale price per share of
$4.20 during the one week preceding the initial announcement of the
merger;
- the special committee's determination that the merger is fair to, and in
the best interests of, the Dwyer unaffiliated public stockholders and its
recommendation that the stockholders vote to adopt the merger agreement
and approve the merger;
- the special committee's receipt of an opinion from William Blair as to
the fairness from a financial point of view and as of the date of the
opinion, of the $6.75 per share merger consideration to be received by
the Dwyer unaffiliated public stockholders;
- Riverside's knowledge of the business, financial condition, results of
operations and prospects of Dwyer;
- the extensive negotiations between the special committee and Riverside;
- the likelihood that the merger will be consummated, including the absence
of a financing condition in the merger agreement; and
- the measures taken by the board of directors and the special committee to
ensure the procedural fairness of the transaction, including the
formation of the special committee.
Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co. believe that
these analyses and factors provide a reasonable basis upon which to form their
respective beliefs that the merger is fair to the Dwyer unaffiliated public
stockholders. This belief should not, however, be construed as a recommendation
to the Dwyer unaffiliated public stockholders to adopt the merger agreement.
Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co. do not make any
recommendation as to how the public stockholders of Dwyer should vote their
shares. Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co. have not
undertaken any formal evaluation of the fairness of the merger to Dwyer's
unaffiliated public stockholders, nor have they assigned specific relative
weights to the factors considered by them. Rather, their position is based on
the totality of the information presented and considered by them, with
particular emphasis on the receipt and acceptance by the special committee of
the William Blair fairness opinion.
Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co. believe that
the merger is procedurally fair to the Dwyer unaffiliated public stockholders
even though the merger agreement does not require the approval of at least a
majority of the Dwyer unaffiliated public stockholders because of the measures
taken by the Dwyer board of directors and the special committee to ensure the
procedural fairness of the transaction, including the formation of the special
committee, the retention of legal and financial advisors by the special
committee and the extensive nature of the negotiations between the special
committee and Riverside.
The foregoing constitute all the material factors considered by Riverside,
RCAF 2000, TDG Holding Company and TDG Merger Co. in making their fairness
determinations. Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co. did
not consider the relationship of the merger consideration to the liquidation
value or book value of Dwyer because they believed that those measures of asset
value were not relevant to the market value of Dwyer's business. See also,
"-- Reasons for the Special Committee's Determination."
Riverside, RCAF 2000, TDG Holding Company, TDG Merger Co. and the Rollover
Stockholders have not made any provision in connection with the merger to grant
unaffiliated stockholders of Dwyer access to Dwyer's corporate records, or to
obtain counsel or appraisal services at the expense of Dwyer, Riverside, RCAF
2000, TDG Holding Company, TDG Merger Co. or the Rollover Stockholders.
26
REASONS FOR THE SPECIAL COMMITTEE'S DETERMINATION
In recommending adoption of the merger agreement and approval of the merger
to the board of directors, the special committee considered a number of factors
which, in the opinion of the members of the special committee, supported the
committee's recommendation, including:
- the special committee's knowledge of the business, financial results and
prospects of Dwyer, as well as the special committee's knowledge of the
franchising industry generally that committee members had developed in
their time as members of the full board of directors of Dwyer as well as
through their outside business experiences. Specifically, the special
committee considered the potential for growth through new franchises and
the views expressed by William Blair and management of Dwyer regarding
the financial condition, results of operations, business and prospects of
Dwyer, including the prospects of Dwyer if it were to remain publicly
owned;
- the limitations Dwyer suffered and would likely continue to suffer as a
public company, including its limited trading volume resulting from the
significant ownership interest held by the insiders, its lack of
significant institutional sponsorship, the limited coverage by
institutional research analysts, its limited ability to raise capital in
the public markets to finance further growth and increase the public
float and the expenses of compliance with the reporting requirements of a
public company, all of which adversely affect the trading market in, and
the value of, Dwyer common stock;
- the relationship between the $6.75 price per share to be paid in the
merger and the recent market prices of Dwyer common stock. The $6.75 per
share to be paid in the merger represents (i) a 59% premium over the
$4.25 closing sale price for the shares of common stock on The NASDAQ
National Market on May 9, 2003, the last trading day before Dwyer
announced the merger, (ii) a 61% premium over the average closing sale
price per share of $4.20 during the one week preceding the initial
announcement of the merger; and (iii) a 114% premium over the 52-week low
trading price of $3.15;
- the negotiations with respect to the merger consideration that, among
other things, led to an increase in Riverside's offer from $5.35 per
share of Dwyer common stock to $6.75 per share of Dwyer common stock, and
the special committee's determination that $6.75 per share was the
highest price that Riverside would agree to pay;
- William Blair's presentations at various special committee meetings and
its final presentation at the May 10, 2003 meeting, including its
opinion, subject to the considerations and limitations set forth in the
opinion, that the merger is fair, from a financial point of view, to the
Dwyer unaffiliated public stockholders; see "-- Opinion of Financial
Advisor to the Special Committee," and see a copy of the opinion of
William Blair attached as Exhibit C to this proxy statement;
- William Blair's advice to the special committee that its discounted cash
flow analysis of management's projections indicated an Enterprise Value
range of $48.9 million to $84.2 million, that the $53.6 million
Enterprise Value for Dwyer at a $6.75 per share merger price is within
that range, and that the discounted cash flow analysis was one of the
factors relied upon by William Blair in rendering its fairness opinion;
see "-- Opinion of Financial Advisor to the Special Committee;"
- the fact that cash will be paid to the Dwyer stockholders in the merger,
eliminating any uncertainties in valuing the merger consideration to be
received by the Dwyer stockholders;
- the board of directors' ability pursuant to the merger agreement to
consider unsolicited competing acquisition proposals that are superior to
the merger, as described in "The Merger Agreement -- No Solicitation;"
- the voting agreement's termination upon termination of the merger
agreement or in the event that the Dwyer board of directors withdraws,
modifies or changes its recommendation or approval of the merger or it
recommends any proposal other than by TDG Holding Company or Riverside;
27
- the ability, under Delaware law, of the Dwyer stockholders who do not
vote in favor of the merger and who file a written objection with Dwyer
and otherwise follow the procedures prescribed by Delaware law to have
the "fair value" of their shares determined by a court, if the merger is
completed; see "-- Appraisal Rights;"
- the special committee's judgment that it was unlikely for the Dwyer
stockholders to realize in excess of $6.75 per share due to the current
and prospective environment in which Dwyer operates, and more
particularly, the difficulty that Dwyer would have in the future
competing against larger, more aggressive competitors with greater
capital resources;
- the special committee's judgment, in view of Dwyer's prospects, as well
as William Blair's discussions with a number of possible acquirors, none
of whom expressed an interest to acquire Dwyer at a price higher than
$6.75 per share, that it was unlikely that any other buyer would be
willing to pay a price for Dwyer equal to or greater than $6.75 per share
in cash;
- the reputation of Riverside and its strong track record in completing
transactions similar to the merger; and
- the elimination, through negotiations with Riverside, of numerous
conditions and contingencies originally proposed by Riverside, including
removal of a financing condition, revisions to representations,
warranties, covenants and closing conditions and a limitation on the
payment of a break-up fee to Riverside only if Dwyer is actually acquired
by a party other than Riverside.
The special committee also determined that the merger is procedurally fair
because among other things:
- the Dwyer board of directors established a special committee to consider
and negotiate the merger agreement;
- the special committee is composed of independent directors who are not
officers or employees of Dwyer or Rollover Stockholders and will not be
stockholders, directors, officers or employees of Dwyer or TDG Holding
Company following the merger and who have no financial interest in the
merger different from the Dwyer unaffiliated public stockholders, other
than the receipt of board of directors and special committee fees;
- the special committee was given exclusive and unlimited authority to,
among other things, evaluate, negotiate and recommend the terms of any
proposed transactions;
- the special committee retained and received advice from its own
independent legal counsel and financial advisors in evaluating,
negotiating and recommending the terms of the merger agreement;
- William Blair rendered an opinion concerning the fairness, from a
financial point of view, of the merger consideration to be received by
the Dwyer unaffiliated public stockholders;
- the price of $6.75 per share and the other terms and conditions of the
merger agreement resulted from active and lengthy negotiations between
the special committee and its representatives, on the one hand, and
Riverside and its representatives on the other hand; and
- under Delaware law, the Dwyer stockholders have a right to demand
appraisal of their shares.
The special committee also considered a variety of risks and other
potentially negative factors concerning the merger. The material risks and
potentially negative factors considered by the special committee were as
follows:
- following the merger, the Dwyer stockholders (other than the Rollover
Stockholders) will cease to participate in any future earnings growth of
Dwyer or benefit from any increase in the value of Dwyer;
- under the terms of the merger agreement, Dwyer is unable to solicit other
acquisition proposals;
28
- if the merger is not completed under circumstances further discussed in
"The Merger Agreement -- Termination of the Merger Agreement," Dwyer may
be required to reimburse TDG Holding Company for transaction expenses
and, in certain instances, pay a break-up fee;
- the cash consideration received by a stockholder generally will be
taxable in an amount equal to the excess of $6.75 over the stockholder's
tax basis in the stockholder's shares of Dwyer common stock;
- the Rollover Stockholders have conflicts of interest because of their
equity interests in TDG Holding Company and continued employment in Dwyer
following the merger; see "Interests of Certain Officers and Directors of
Dwyer and the Rollover Stockholders in the Merger;"
- the fact that certain conditions to TDG Holding Company's and TDG Merger
Co.'s obligations to complete the merger are, in whole or in part, beyond
Dwyer's control, including the condition that Dwyer maintain EBITDA of no
less than $6,460,000 for the 12 months preceding the mailing of the proxy
and the condition that holders of no more than 10% of the outstanding
shares of Dwyer common stock exercise appraisal rights (see "The Merger
Agreement -- Conditions to the Merger"); and
- the possibility of disruption to the operations of Dwyer following
announcement of the merger, and the resulting effect on Dwyer if, for any
reason, the merger does not occur.
The special committee concluded, however, that these negative factors could
be managed or mitigated by Dwyer or were unlikely to have a material impact on
the merger, and that, overall, the potentially negative factors associated with
the merger were outweighed by the potential benefits of the merger. For example,
the special committee believed that the merger could be completed on the
proposed terms.
The special committee did not determine the liquidation value of Dwyer and
gave little consideration to the book value of Dwyer of $2.94 per share, as of
March 31, 2003, because it believed that those measures of asset value would be
considerably less than the merger consideration and Dwyer's going concern value.
This belief was based upon the special committee's understanding of the
franchising industry, and the committee members' knowledge that liquidation
sales generally result in proceeds substantially less than sales of going
concerns. Based upon the various analyses of value by William Blair, the special
committee concluded that liquidation value and book value were not materially
relevant to the market value of Dwyer's business. While the special committee
reviewed with William Blair its various financial analyses and reviewed with
officers of Dwyer its historical and projected results, the special committee
did not independently generate its own separate financial analysis of the
merger.
After considering these factors, the special committee concluded that the
positive factors relating to the merger outweighed the negative factors. Because
of the variety of factors considered, the special committee did not find it
practicable to quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in reaching its
determination. In addition, individual members of the special committee may have
assigned different weights to various factors. The determination of the special
committee was made after consideration of all of the factors together.
Other than the recommendations of the special committee and the board of
directors that the stockholders vote in favor of the adoption of the merger
agreement and approval of the merger, no other person filing the Schedule 13E-3
with the SEC has made any recommendation with respect to the merger.
REASONS FOR THE BOARD OF DIRECTORS' DETERMINATION
The Dwyer board of directors consists of seven directors, three of whom
serve on the special committee. At the May 10, 2003 meeting of the board of
directors, the special committee, with its legal and financial advisors
participating, reported to the other members of the board of directors on the
course of its negotiations with Riverside and its legal advisor. The special
committee also recounted the review it undertook of the merger agreement and the
factors it took into account in reaching its determination that the merger is
fair to, and in the best interests of, the Dwyer unaffiliated public
stockholders. In view of the wide variety of factors considered in its
evaluation of the merger, the board of directors did not find it
29
practicable to quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in reaching its
determination. Rather, the board of directors based its position on the totality
of the information presented and considered. In considering the determination of
the special committee, the board of directors believed that the analysis of the
special committee was reasonable and adopted the special committee's conclusion
and the analysis underlying the conclusion.
FAIRNESS OF THE MERGER TO THE DWYER UNAFFILIATED PUBLIC STOCKHOLDERS
The board of directors believes that the merger agreement and the merger
are substantively and procedurally fair to, and in the best interests of, the
Dwyer unaffiliated public stockholders for all of the reasons set forth above
under "-- Reasons for the Special Committee's Determination" and "-- Reasons for
the Board of Directors' Determination." In addition, with respect to procedural
fairness, the board of directors established a special committee, consisting of
three independent directors of Dwyer, none of whom has an interest in the merger
different from that of the Dwyer stockholders generally, other than the receipt
of board of directors and special committee fees. None of the members of the
special committee is an officer or employee of Dwyer or a Rollover Stockholder
and none will be a stockholder, director, officer or employee of Dwyer or TDG
Holding Company following the merger. The merger consideration of $6.75 in cash
per share was the highest price Riverside indicated it was willing to pay
following extensive negotiations between the special committee and its
representatives.
In reaching these conclusions, the board of directors considered it
significant that the special committee retained its own financial and legal
advisors who have extensive experience with transactions similar to the merger
and who assisted the special committee in evaluating the merger and in
negotiating with Riverside.
William Blair was retained to advise the special committee as to the
fairness, from a financial point of view, of the proposal received from TDG
Holding Company and TDG Merger Co. William Blair reached the conclusion
expressed in its opinion dated May 10, 2003, that, subject to the considerations
and limitations set forth in the opinion, the merger is fair, from a financial
point of view, to the Dwyer unaffiliated public stockholders.
THE BOARD OF DIRECTORS, BASED IN PART ON THE UNANIMOUS RECOMMENDATION OF
THE SPECIAL COMMITTEE, RECOMMENDS THAT THE DWYER STOCKHOLDERS VOTE FOR THE
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. THE RECOMMENDATION
OF THE BOARD OF DIRECTORS WAS MADE AFTER CONSIDERATION OF ALL THE MATERIAL
FACTORS, BOTH POSITIVE AND NEGATIVE, AS DESCRIBED ABOVE.
FORWARD LOOKING INFORMATION; CERTAIN PROJECTIONS
Dwyer does not, as a matter of course, make public projections as to future
sales, earnings or other results. However, in connection with the negotiations
that led to the execution of the merger agreement and the approval of the
merger, Dwyer's management prepared and provided to the board of directors, the
special committee and William Blair the projections, which are summarized below
under the caption "Projections Prepared by Dwyer" for the five fiscal years
ending December 31, 2007.
In the view of Dwyer's management, the projections were prepared on a
reasonable basis, reflect the best currently available estimates and judgments
and present, to the best of the knowledge and belief of Dwyer's management, the
expected course of action and the expected future performance of Dwyer. Neither
Dwyer's independent accountants, nor any other independent accountants have
compiled, examined or reviewed these projections. No independent accountants
have expressed any opinion or other form of assurance with respect to these
projections or their achievability, and Dwyer's independent accountants assume
no responsibility for, and disclaim any association with, these projections.
The projections were initially prepared by management as of April 2003.
The projections below are forward-looking statements regarding Dwyer within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act that are based on the beliefs of Dwyer's management as
well as assumptions made by, and information currently available to,
30
Dwyer's management. Such statements are subject to risks and uncertainties that
could cause actual results to differ materially from those contemplated in such
forward-looking statements. Certain factors that could cause actual results to
differ materially from Dwyer's expectations include, but are not limited to,
general business conditions, competition, taxes, government regulations and
other factors which are described from time to time in Dwyer's public filings
with the SEC, news releases and other communications. Accordingly, there can be
no assurance that the projections are indicative of Dwyer's future performance
or that actual results will not differ materially from those in the projections
set forth below. See "Cautionary Statement Concerning Forward-Looking
Information."
In light of the uncertainties inherent in projections of any kind, the
inclusion of these projections in this proxy statement should not be regarded as
a representation by Dwyer, the board of directors of Dwyer, the special
committee or any of their advisors, agents or representatives that these
projections will prove to be correct.
THE DWYER GROUP, INC.
PROJECTIONS PREPARED AS OF APRIL 2003
THE DWYER GROUP, INC.
PROJECTED INCOME STATEMENTS
2003-2007
<Table>
<Caption>
2003 2004 2005 2006 2007
------- ------- ------- ------- -------
Revenues:
Royalties.................................. $15,489 $17,679 $19,774 $21,928 $24,273
Franchise fees............................. 6,352 7,200 7,625 7,750 7,825
Sales of products and services............. 3,261 3,874 4,434 4,849 5,296
Other...................................... 1,533 1,610 1,704 1,793 1,818
------- ------- ------- ------- -------
Total revenues.......................... 26,635 30,363 33,537 36,320 39,212
------- ------- ------- ------- -------
Costs and expenses:
General, administrative and selling........ 16,694 18,560 20,119 21,748 23,463
Costs of product and service sales......... 2,680 3,187 3,646 3,987 4,358
Depreciation and amortization.............. 1,546 1,573 1,609 1,651 1,677
Interest................................... 282 229 173 173 173
------- ------- ------- ------- -------
Total costs and expenses................ 21,202 23,549 25,547 27,559 29,671
------- ------- ------- ------- -------
Income before income taxes................... 5,433 6,814 7,990 8,761 9,541
Income tax expense........................... (1,956) (2,453) (2,876) (3,154) (3,435)
------- ------- ------- ------- -------
Net income................................... $ 3,477 $ 4,361 $ 5,114 $ 5,607 $ 6,106
======= ======= ======= ======= =======
Earnings per share........................... $ 0.46 $ 0.55 $ 0.60 $ 0.70 $ 0.72
======= ======= ======= ======= =======
</Table>
ASSUMPTIONS:
1. Royalty revenues are based on estimates for each franchise concept of
the number of franchisees and sales volume per franchisee.
2. Franchise fee revenues are based on estimated sales of new franchises by
concept.
3. Increases in general, administrative and selling expenses were based on
estimates of costs necessary to support the increased revenues.
31
OPINION OF FINANCIAL ADVISOR TO THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE
The board of directors and the special committee retained William Blair to
act as their financial advisor. In that capacity, the special committee
requested William Blair to render an opinion as to whether the $6.75 per share
merger consideration to be received by the Dwyer unaffiliated public
stockholders in the merger, as contemplated in the merger agreement, was fair to
such stockholders from a financial point of view. The fairness opinion was
prepared to assist the special committee in evaluating the terms of the merger.
William Blair presented its analysis as described below at a meeting of the
special committee on May 10, 2003, in connection with the special committee's
consideration of Riverside's proposal of $6.75 per share. At that meeting,
William Blair rendered to the special committee its oral opinion and
subsequently confirmed in writing, that, as of such date, and subject to the
matters described in the fairness opinion, the price per share of $6.75 to be
received by the Dwyer unaffiliated public stockholders was fair from a financial
point of view to such stockholders. The amount and form of the merger
consideration were determined by the special committee's negotiations with
Riverside.
THE SUMMARY OF THE FAIRNESS OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE FAIRNESS OPINION DELIVERED BY
WILLIAM BLAIR, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
VALUATION TECHNIQUES, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW
UNDERTAKEN BY WILLIAM BLAIR AND IS ATTACHED AS EXHIBIT C TO THIS DOCUMENT.
WILLIAM BLAIR'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE MERGER
CONSIDERATION, FROM A FINANCIAL POINT OF VIEW, TO THE DWYER UNAFFILIATED PUBLIC
STOCKHOLDERS. WILLIAM BLAIR'S OPINION WAS PROVIDED AT THE REQUEST AND FOR THE
INFORMATION OF THE SPECIAL COMMITTEE IN EVALUATING THE MERGER CONSIDERATION, AND
DID NOT, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER TO VOTE IN
FAVOR OF THE MERGER. A COPY OF THIS FAIRNESS OPINION WILL BE MADE AVAILABLE FOR
INSPECTION AND COPYING AT THE PRINCIPAL EXECUTIVE OFFICES OF DWYER DURING
REGULAR BUSINESS HOURS BY ANY INTERESTED STOCKHOLDER OR OTHER PERSON DESIGNATED
IN WRITING AS A REPRESENTATIVE OF SUCH STOCKHOLDER. WILLIAM BLAIR HAS CONSENTED
TO THE REFERENCES TO ITS NAME AND OPINION IN THIS PROXY STATEMENT AND TO THE
ATTACHMENT OF ITS OPINION TO THIS DOCUMENT AS EXHIBIT C. YOU ARE URGED TO READ
THE FAIRNESS OPINION IN ITS ENTIRETY.
In connection with its opinion, William Blair examined, among other things:
- a draft of the merger agreement;
- certain audited historical financial statements of Dwyer for the three
years ended December 31, 2002;
- the unaudited financial statements of Dwyer for the quarter ended March
31, 2003;
- certain internal business, operating and financial information and
forecasts of Dwyer prepared by the senior management of Dwyer;
- the publicly available terms of certain other unrelated business
combinations it deemed relevant;
- the financial position and operating results of Dwyer compared with those
of certain other publicly traded companies it deemed relevant;
- current and historical market prices and trading volumes of Dwyer common
stock;
- certain other publicly available information on Dwyer; and
- such other matters, as it deemed relevant.
In its review and analysis, and in arriving at its opinion, William Blair:
- assumed and relied upon the accuracy and completeness of all the
information provided to it, examined by it or otherwise reviewed or
discussed with it for purposes of its opinion;
- did not attempt to verify independently any of such information;
32
- was advised by the management of Dwyer that financial forecasts and other
information and data provided to or otherwise reviewed by or discussed
with it had been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Dwyer as
to the future financial performance of Dwyer; and
- expressed no view with respect to such forecasts and other information
and data or the assumptions on which they were based.
William Blair was not requested to consider, and its opinion did not
address, any term of the merger or any of the related transactions or
agreements, other than the merger consideration. William Blair's opinion was
based upon economic, market, financial and other conditions that existed on the
date of its opinion. William Blair disclaimed any undertaking or obligation to
update, revise or reaffirm its opinion as a result of subsequent developments
which may affect its opinion.
William Blair's opinion is limited to the fairness, from a financial point
of view, to the Dwyer unaffiliated public stockholders of the merger
consideration, and does not address the merits of the underlying decision by
Dwyer to engage in the merger. William Blair's opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the proposed merger.
William Blair performed the financial analyses described below, and
reviewed with the special committee the assumptions upon which its analyses were
based, as well as other factors. The summary set forth below is not a complete
description of the analyses performed or factors considered by William Blair.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES COMPARABLE TO DWYER
William Blair reviewed and compared certain financial information relating
to Dwyer to corresponding financial information, ratios and public market
multiples for 22 publicly traded companies that were grouped into the following
two categories that William Blair deemed relevant:
- Business Services Group: (i) ABM Industries, (ii) Cendant, (iii) Chemed,
(iv) Comfort Systems, (v) Ecolab, (vi) MPW Industrial Services Group,
(vii) Rentokil Initial, (viii) Rollins and (ix) ServiceMaster.
- Franchise Group: (i) BCT International, (ii) Dollar Thrifty Automotive,
(iii) Dreams, (iv) FirstService, (v) IHOP, (vi) Midas, (vii) New Horizons
Worldwide, (viii) Party City, (ix) Pizza Inn, (x) Regis, (xi) Rocky
Mountain Chocolate Factory, (xii) Schlotzsky's and (xiii) Winmark.
Although William Blair compared the trading multiples of the selected
companies at the date of its opinion to the trading multiples of Dwyer, none of
the selected companies is identical to Dwyer. Accordingly, any analysis of the
selected publicly traded companies necessarily involved complex consideration
and judgments concerning the differences in financial and operating
characteristics and other factors that would necessarily affect the analysis of
trading multiples of the selected publicly traded companies.
Among the information William Blair considered were revenue, EBITDA, EBIT,
net income, 2003 projected net income from publicly available consensus
estimates and book value. The multiples for the comparable companies were based
on the most recent publicly available financial information as publicly
disclosed for each company and used the closing share prices as of May 7, 2003.
The multiples for Dwyer were based on the most recently available financial
information as provided by Dwyer management and used the merger consideration of
$6.75 per share of common stock.
William Blair calculated the multiples of equity value ("Equity Value") to
net income, 2003 projected net income and book value. William Blair also
calculated multiples of Equity Value plus book value of total debt less cash and
equivalents ("Enterprise Value") to revenue, EBITDA and EBIT. Equity Value is
the value of the common equity based on the stock price. William Blair then
compared these multiples to the relevant Dwyer multiples implied by the terms of
the merger. Information regarding the
33
multiples implied by the terms of the merger compared to the multiples from
William Blair's analysis of selected comparable publicly traded companies is set
forth in the following table.
<Table>
<Caption>
DWYER
MULTIPLE AT COMPARABLE COMPANY MULTIPLES
$6.75 PER -----------------------------
METRIC SHARE MINIMUM MEDIAN MAXIMUM
- ------ ----------- -------- ------- --------
Business Services Group:
Enterprise Value/Latest Twelve Months Revenue... 2.03x 0.50x 1.42x 2.16x
Enterprise Value/Latest Twelve Months EBITDA.... 8.2 4.3 9.3 10.8
Enterprise Value/Latest Twelve Months EBIT...... 10.3 8.2 11.0 15.9
Equity Value/Latest Twelve Months Net Income.... 17.5 11.6 17.4 26.4
Equity Value/2003 Net Income.................... 15.2 10.0 15.4 24.3
Equity Value/Latest Twelve Months Book Value.... 2.53 0.49 1.77 5.46
Franchise Group:
Enterprise Value/Latest Twelve Months Revenue... 2.03x 0.66x 1.19x 2.18x
Enterprise Value/Latest Twelve Months EBITDA.... 8.2 5.4 8.4 9.9
Enterprise Value/Latest Twelve Months EBIT...... 10.3 6.8 9.1 14.4
Equity Value/Latest Twelve Months Net Income.... 17.5 6.7 11.2 19.4
Equity Value/ 2003 Net Income................... 15.2 5.4 9.6 13.5
Equity Value/Latest Twelve Months Book Value.... 2.53 0.56 1.57 2.39
</Table>
William Blair noted that the implied trading multiple for Dwyer at a merger
price of $6.75 per share was in each case within or above the relevant range
implied by the comparable publicly traded company analysis.
COMPARABLE TRANSACTIONS ANALYSIS
William Blair performed an analysis of selected recent merger or
acquisition transactions. The selected transactions were chosen based on William
Blair's judgment that they were generally comparable, in whole or in part, to
the proposed transaction. In total, William Blair examined 14 transactions that
were announced after January 1, 1998. Although William Blair compared the
transaction multiples of these companies to the implied purchase multiples of
Dwyer, none of the selected companies is identical to Dwyer.
William Blair reviewed the consideration paid in such transactions in terms
of the Enterprise Value of such transactions as a multiple of revenue, EBITDA
and EBIT, and the Equity Value as a multiple of net income and book value.
Information regarding the multiples implied by the terms of the merger compared
to the acquisition multiples from William Blair's analysis is set forth in the
following table.
<Table>
<Caption>
DWYER COMPARABLE TRANSACTIONS
MULTIPLE AT MULTIPLES
$6.75 PER --------------------------
METRIC SHARE MINIMUM MEDIAN MAXIMUM
- ------ ----------- ------- ------ -------
Enterprise Value/Latest Twelve Months Revenue... 2.03x 0.51x 0.67x 1.55x
Enterprise Value/Latest Twelve Months EBITDA.... 8.2 5.0 8.1 10.3
Enterprise Value/Latest Twelve Months EBIT...... 10.3 6.1 10.0 16.9
Equity Value/Latest Twelve Months Net Income.... 17.5 6.7 9.1 10.9
Equity Value/Latest Twelve Months Book Value.... 2.53 0.65 0.77 1.78
</Table>
William Blair noted that the implied acquisition multiple for Dwyer at a
merger price of $6.75 per share was in each case within or above the relevant
range implied by the comparable transactions analysis.
34
GOING PRIVATE TRANSACTIONS
William Blair reviewed 24 public transactions involving purchases of whole
or remaining interests by management led investor groups, which were announced
after January 1, 2001, for the premiums paid over each company's stock prior to
the announcement of a transaction. The selected transactions were chosen based
on William Blair's judgment that they were generally comparable, in whole or in
part, to the proposed transaction. William Blair analyzed the final offer price
premiums paid over each company's share price one day, one week and four weeks
prior to the announcement of a transaction. This analysis was based on the
closing price of Dwyer common stock as of May 7, 2003.
This premium analysis conducted by William Blair indicated the following:
<Table>
<Caption>
DWYER
PREMIUM AT GOING PRIVATE PREMIUMS
$6.75 PER --------------------------
PREMIUM ANALYZED SHARE MINIMUM MEDIAN MAXIMUM
- ---------------- ---------- ------- ------ -------
One Day Before Announcement.................... 63% 15% 29% 87%
One Week Before Announcement................... 62% 12% 34% 90%
One Month Before Announcement.................. 44% 17% 35% 87%
</Table>
William Blair noted that the merger premium implied by the $6.75 merger
price was within the range of the transactions considered in this analysis.
PREMIUMS PAID ANALYSIS
In addition to evaluating multiples paid in transactions, William Blair
considered, for 422 public company transactions announced since January 1, 2001
whose Equity Value ranged from $10 million to $100 million, the premiums paid
over each company's stock price one day, one week and one month prior to the
announcement of a transaction. William Blair then considered the top 25%, 50%
and 75% percentiles of these transactions. This analysis was based on the
closing price of Dwyer stock as of May 7, 2003.
This premium analysis conducted by William Blair indicated the following:
<Table>
<Caption>
DWYER
PREMIUM AT DATA PERCENTILE
$6.75 PER ------------------
PREMIUM ANALYZED SHARE 25TH 50TH 75TH
- ---------------- ---------- ---- ---- ----
One Day Before Announcement............................... 63% 14% 34% 66%
One Week Before Announcement.............................. 62% 17% 41% 76%
Four Weeks Before Announcement............................ 44% 19% 43% 80%
</Table>
William Blair noted that the merger premium implied by the $6.75 merger
price was within the range of the mergers considered in this analysis.
DISCOUNTED IMPLIED FUTURE SHARE PRICE ANALYSIS
William Blair utilized projected earnings per share for 2004 through 2007
based on the financial projections provided by Dwyer management to calculate an
estimate of Dwyer's future share price for each of these years by multiplying
the range of forward price/earnings multiples of 8.0x to 16.0x by Dwyer's then
current-year projected earnings per share. The range of forward price/earnings
multiples of 8.0x to 16.0x represents a range based on comparable companies
previously referenced. William Blair then discounted these implied future share
prices to March 31, 2003, using a discount rate of 14% based on its judgment of
Dwyer's cost of equity capital. The discounted implied future share price
analysis conducted by William Blair indicated the following range:
Per Share Value of Dwyer: $3.21 - $7.65
35
William Blair noted that the $6.75 per share merger price fell within the
range of per share values implied by the discounted implied future share price
analysis.
DISCOUNTED CASH FLOW ANALYSIS
Using a discounted cash flow analysis, William Blair estimated the present
value of the free cash flows that Dwyer could produce over a five-year period
from 2003 to 2007. Free cash flows means EBIT, minus taxes, plus depreciation
and amortization, less capital expenditures and working capital changes. In
estimating these cash flows, William Blair used the financial projections
provided by Dwyer management. To calculate terminal value, William Blair
considered multiples of enterprise value to EBITDA ranging from 5.0x to 10.0x,
which ranges William Blair believed to be appropriate for such an analysis. The
annual and terminal free cash flows were discounted at rates ranging from 13.0%
to 15.0% based upon an analysis of the weighted average cost of capital for
Dwyer and the comparable publicly traded companies mentioned above to determine
a present value of the Enterprise Value for Dwyer. The discounted cash flow
analysis conducted by William Blair indicated the following range:
Enterprise Value of Dwyer: $48.9 - $84.2 million
William Blair noted that the $53.6 million Enterprise Value for Dwyer at a
$6.75 per share merger price fell within the range of Enterprise Values implied
by the discounted cash flow analysis.
LEVERAGED ACQUISITION ANALYSIS
William Blair also performed a leveraged acquisition analysis of Dwyer to
ascertain the price that would be attractive to a potential financial buyer
based upon current market conditions. For this analysis, William Blair used the
same financial projections provided by Dwyer management that were used in the
discounted cash flow analysis. William Blair assumed a capital structure that a
financial buyer might apply to Dwyer, an exit EBITDA multiple ranging from 6.0x
to 8.0x, and an equity investment that would achieve a 25-30% rate of return.
Based on these assumptions, the leveraged acquisition analysis conducted by
William Blair indicated the following range:
Enterprise Value of Dwyer: $43.3 - $47.4 million
William Blair noted that the $53.6 million Enterprise Value for Dwyer at a
$6.75 merger price was above the range of Enterprise Values implied by the
leveraged acquisition analysis.
GENERAL
This summary is not a complete description of the analysis performed by
William Blair but contains the material elements of the analysis. The
preparation of a fairness opinion is a complex process that involves
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
Therefore, such an opinion is not readily susceptible to summary description.
The preparation of a fairness opinion does not involve a mathematical evaluation
or weighing of the results of the individual analyses performed, but requires
William Blair to exercise its professional judgment, based on its experience and
expertise in considering a wide variety of analyses taken as a whole. Each of
the analyses conducted by William Blair was carried out in order to provide a
different perspective on the merger and add to the total mix of information
available. The analyses were prepared solely for the purpose of William Blair
providing its opinion as to the fairness, from a financial point of view, to the
Dwyer unaffiliated public stockholders of the consideration to be paid by TDG
Holding Company to the other holders of Dwyer common stock, and do not purport
to be appraisals or necessarily reflect the prices at which securities actually
may be sold. William Blair did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness. Rather, in reaching its conclusion, William Blair
considered the results of the analyses in light of each other and ultimately
reached its opinion based on the results of all analyses taken as a whole.
William Blair did not place particular reliance or weight on any particular
analysis, but instead concluded that its analyses, taken as a whole, supported
its determination. Accordingly, notwithstanding
36
the separate factors summarized above, William Blair believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors, may
create an incomplete view of the evaluation process underlying its opinion. No
company or transaction used in the above analyses as a comparison is directly
comparable to Dwyer or the contemplated merger. In performing its analyses,
William Blair made numerous assumptions with respect to industry performance,
business and economic conditions and other matters. The analyses performed by
William Blair are not necessarily indicative of future actual values and future
results, which may be significantly more or less favorable than suggested by
such analyses.
William Blair is a nationally recognized firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and other
types of strategic combinations and acquisitions. In the ordinary course of its
business, William Blair may actively trade Dwyer common stock for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
The board of directors hired, and the special committee reaffirmed the
engagement of, William Blair based on its qualifications and expertise in
providing financial advice to companies and as a nationally recognized
investment banking firm. Pursuant to a letter agreement dated May 30, 2001, the
total fee payable to William Blair for its role as financial advisor is
$1,450,000, of which $250,000 was paid upon delivery of the opinion, as to the
fairness, from a financial point of view, of the consideration to be received by
the Dwyer unaffiliated public stockholders in connection with merger. The
remainder of the fee is payable upon the merger being effective. Furthermore,
the board of directors has agreed to reimburse William Blair for reasonable
out-of-pocket expenses. The board of directors has also agreed to indemnify
William Blair against certain liabilities and expenses in connection with its
engagement, including certain liabilities under the U.S. federal securities
laws.
PURPOSE AND STRUCTURE OF THE MERGER
For Dwyer, the purpose of the merger is to allow the Dwyer stockholders to
realize the value of their investment in Dwyer in cash at a price that
represents a substantial premium over the market price of Dwyer common stock
before the public announcement of the merger. The board of directors concluded
that Dwyer has been unable to realize fully the benefits of public company
status because of the limited ability of the Dwyer stockholders to sell their
stock quickly at the current market price due to the low trading volume, the
significant ownership interest held by the Dwyer family, the lack of significant
institutional sponsorship, the limited coverage by institutional research
analysts, the limited ability to raise capital in the public markets to finance
further growth and increase the public float and the expenses of compliance with
the reporting requirements of a public company. All these factors adversely
affect the trading market in, and the value of, the Dwyer common stock. The
merger also provides the Dwyer stockholders with liquidity for their shares.
Between January 1, 2003, and May 12, 2003, when Dwyer announced the signing of
the merger agreement, the trading volume of Dwyer common stock exceeded 5,000
shares on only 10 days and the average trading volume during such period was
approximately 3,114 shares per day. Because the trading volume of Dwyer common
stock has been limited, any sale by a stockholder of a significant number of
shares would likely adversely affect the market price.
For Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co., the
purpose of the merger is to acquire 100% ownership of Dwyer in a transaction in
which the stockholders of Dwyer would have their equity interest in Dwyer
extinguished. As described in the "Background of the Merger" section, Riverside,
RCAF 2000, TDG Holding Company and TDG Merger Co. believe that Dwyer has strong
business prospects for the future, based upon publicly available information
regarding Dwyer and based upon their knowledge of the service-based franchise
industry. Riverside, RCAF 2000, TDG Holding Company and TDG Merger Co. believe
that Dwyer will have greater operating flexibility to focus on its long-term
value by emphasizing growth and operating cash flow without the constraint of
the public market's emphasis on quarterly earnings. The transaction has been
structured as a merger of TDG Merger Co. with and into Dwyer in order to
preserve Dwyer's identity and existing contractual arrangements with third
parties.
37
The transaction has been structured as a cash merger in which TDG Holding
Company will supply cash from equity capital and Dwyer, as the surviving
corporation, will incur indebtedness to acquire all shares of Dwyer common stock
for cash. Dwyer's purpose in submitting the merger to the vote of its
stockholders with a favorable recommendation is to allow the stockholders an
opportunity to receive a cash payment at a fair price for all of their shares of
Dwyer common stock.
ALTERNATIVES TO THE MERGER
Riverside considered alternatives to the merger to accomplish its goal of
acquiring all of the outstanding equity interests in Dwyer, including a
first-step tender offer followed by a second-step merger. The acquisition was
structured as a cash merger, however, to accomplish the acquisition in a single
step, and to provide a means to negotiate the transactions contemplated with the
Rollover Stockholders, which, because of federal securities law requirements,
would not have been feasible utilizing a tender offer structure. Riverside did
not consider any alternatives that would have allowed the unaffiliated public
stockholders of Dwyer to maintain an equity interest in Dwyer because no such
alternative would have accomplished Riverside's purposes described above.
Riverside determined to undertake the transaction at this time because Riverside
believed that a long-term strategy for increasing the value of Dwyer would be
more readily achievable if Dwyer were private.
EFFECTS OF THE MERGER
Following the merger, Dwyer will be a privately held corporation, wholly
owned by TDG Holding Company. The current stockholders of Dwyer (other than the
Rollover Stockholders) will cease to have ownership interests in Dwyer or rights
as Dwyer stockholders and will not benefit from any continuing operations or
growth of Dwyer, or any transactions in which Dwyer may be involved in the
future. Stockholders will be entitled to receive $6.75 in cash for each of their
shares of Dwyer common stock. The Rollover Stockholders will indirectly, through
their ownership interest in TDG Holding Company, own approximately 14% of the
outstanding shares of common stock in Dwyer as the surviving corporation. All
holders of outstanding options to purchase shares of Dwyer common stock,
including those options held by Rollover Stockholders, will receive, for each
share of Dwyer common stock subject to the options, an amount equal to the
positive difference between the exercise price of such options and the merger
consideration upon payment of the exercise price of the options. In addition,
certain Rollover Stockholders who have entered into employment agreements with
Dwyer, effective following the merger, will receive options, which if exercised
will constitute, in the aggregate, an additional 15% of the common stock of TDG
Holding Company.
As a result of the merger, Dwyer will be privately held, and there will be
no public market for its common stock. Following the merger, the shares of
common stock will cease to be listed on The NASDAQ National Market, and price
quotations of sales of shares of common stock in the public market will no
longer be available. In addition, registration of the common stock under the
Securities Exchange Act will be terminated. This termination will make most
provisions of the Securities Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b) and the requirement of furnishing a proxy
or information statement in connection with stockholders' meetings, no longer
applicable to Dwyer. Following the effective time of the merger, Dwyer will no
longer be required to file periodic reports with the SEC.
At the effective time of the merger, the directors of TDG Merger Co.,
consisting of Stuart C. Baxter and Loren J. Schlachet, will become the directors
of Dwyer as the surviving corporation. Following the merger, pursuant to the
stockholders agreement, at least four members of the board of directors of Dwyer
will be designated by Riverside and at least three members, one of whom will be
Dina Dwyer-Owens, will be designated by the Rollover Stockholders. In addition,
the current management of Dwyer, consisting of Dina Dwyer-Owens (President,
Chief Executive Officer and Director), Deborah Wright-Hood (Vice President of
Administration, Secretary and Assistant Treasurer), James Johnston, Jr. (Vice
President, Legal and Government Relations and General Counsel), Michael Bidwell
(Chief Operating Officer), Robert Tunmire (Executive Vice President and
Director), Thomas J. Buckley (Vice President, Treasurer and Chief Financial
Officer), David Bethea (President, Rainbow) and Michael Hawkins (Vice President,
38
Franchise Sales), have entered into employment agreements pursuant to which they
will remain the management of Dwyer as the surviving corporation. At the
effective time of the merger, TDG Merger Co.'s certificate of incorporation and
bylaws will become Dwyer's certificate of incorporation and bylaws.
It is expected that, following the merger, the operations of Dwyer will be
conducted substantially as they are currently being conducted. RCAF 2000, its
co-investors, Dwyer, TDG Holding Company, TDG Merger Co. and the Rollover
Stockholders do not have any present plans or proposals that relate to or would
result in an extraordinary corporate transaction following completion of the
merger involving Dwyer's corporate structure, business or management, such as a
merger, reorganization, liquidation, relocation of any operations or sale or
transfer of a material amount of assets. However, Dwyer, TDG Holding Company,
TDG Merger Co. and Riverside will continue to evaluate Dwyer's business and
operations following the merger and may develop new plans and proposals that
Dwyer, TDG Holding Company, TDG Merger Co. and Riverside consider to be in the
best interests of Dwyer and its then current stockholders.
Following the merger, TDG Holding Company may seek to obtain additional or
replacement financing involving debt, equity or a combination of debt and
equity. To facilitate such financing, RCAF 2000 may sell to the party or parties
providing the financing, shares of TDG Holding Company that it holds immediately
following the merger. Alternatively, RCAF 2000 may sell such shares of TDG
Holding Company independent of any such financing. There presently are no
proposals, negotiations or plans to obtain such financing or to make any such
sales. Whether such financing or sales are sought or concluded will depend upon
business needs, personal financial objectives, market conditions and other
factors which TDG Holding Company and Riverside deem relevant at the time.
See "Summary Term Sheet," "Questions and Answers About the Merger,"
"-- Interests of Certain Officers and Directors of Dwyer and the Rollover
Stockholders," "-- Risks that the Merger will not be Completed" and
"-- Estimated Fees and Expenses of the Merger."
RISKS THAT THE MERGER WILL NOT BE COMPLETED
Completion of the merger is subject to various risks, including, but not
limited to, the following:
- the holders of more than 10% of the outstanding shares of Dwyer common
stock exercise their appraisal rights;
- Dwyer, TDG Holding Company or TDG Merger Co. will not have performed in
all material respects their obligations contained in the merger agreement
before the effective time of the merger;
- Dwyer's, TDG Holding Company's or TDG Merger Co.'s representations and
warranties in the merger agreement will not be true and correct at the
closing date of the merger; and
- a court or governmental authority issues a non-appealable final order,
decree or ruling or takes any other action that permanently restrains or
prohibits the merger.
As a result of various risks to the completion of the merger, there can be
no assurance that the merger will be completed. It is expected that, if the
merger is not completed, the current management of Dwyer, under the direction of
the board of directors, will continue to manage Dwyer as an ongoing business. If
the merger is not completed, depending upon the circumstances, Dwyer may be
required to reimburse certain expenses of the Rollover Stockholders. See
"-- Estimated Fees and Expenses of the Merger."
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS OF DWYER AND THE ROLLOVER
STOCKHOLDERS IN THE MERGER
In considering the recommendation of the special committee to the Dwyer
board of directors and the recommendation of the Dwyer board of directors, you
should be aware that certain members of the Dwyer board of directors and certain
executive officers have interests different from you as a Dwyer stockholder
generally. As a result of the conflict of interest, the board of directors
appointed the special committee,
39
consisting of three directors who are not officers or employees of Dwyer, who
are not Rollover Stockholders, who will not be stockholders, directors, officers
or employees of Dwyer or TDG Holding Company following the merger and who have
no financial interest in the proposed merger different from the Dwyer
stockholders generally, other than the receipt of board of directors and special
committee fees. The special committee was appointed to evaluate, negotiate and,
if appropriate, recommend the merger agreement and to evaluate whether the
merger is in the best interests of the stockholders other than executive
officers and directors with an interest in the merger. The special committee was
aware of these differing interests and considered them, among other matters, in
evaluating and negotiating the merger agreement and the merger and in
recommending to the Dwyer board of directors that the merger agreement be
adopted and the merger approved. In addition, each member of the Dwyer board of
directors was aware of these interests and considered them, among other matters,
in adopting the merger agreement and approving the merger.
COMPENSATION OF THE SPECIAL COMMITTEE
In consideration for the substantial amount of time demanded by the merger
transaction, the special committee determined that each member of the special
committee should be compensated by an amount equal to $1,500 per meeting,
payable regardless of whether or not a transaction is completed. The members of
the special committee will receive an additional fixed amount payable only upon
the closing of a transaction consisting of the sale of all or substantially all
of the assets or the stock of Dwyer, or the acquisition of Dwyer by tender
offer, merger, consolidation or other business combination. The contingent
nature of the payment was intended to reduce the financial burden to Dwyer and
its stockholders in the event a transaction was not completed. Upon consummation
of the merger, Mr. Latin, chairman of the special committee, will receive
$150,000, and Mr. Cohen and Mr. Hayes, members of the special committee, will
each receive $125,000. The payments to the special committee will not exceed
$500,000 in the aggregate.
MERGER CONSIDERATION TO BE RECEIVED BY DIRECTORS, EXECUTIVE OFFICERS AND
AFFILIATES OF DWYER
As of the record date for the special meeting, directors, executive
officers and affiliates of Dwyer owned [ ] shares of Dwyer common
stock, or approximately [ ]% of the outstanding shares. Additionally, they
collectively have options to purchase [ ] shares of Dwyer common stock
at a weighted average exercise price per share of $[ ]. See "Security
Ownership of Certain Beneficial Owners" for information regarding the current
directors and executive officers and their stock ownership in Dwyer.
Following the merger, directors, executive officers and affiliates of Dwyer
will be entitled to receive $6.75 per share in cash, without interest, for each
share of Dwyer common stock held by them, other than the shares of Dwyer common
stock that are exchanged by the Rollover Stockholders for TDG Holding Company
common stock, as described below under the caption "-- Interests of Certain
Officers and Directors of Dwyer and the Rollover Stockholders in the
Merger -- Equity Interest of Rollover Stockholders in TDG Holding Company."
40
The aggregate amount to be paid to directors, executive officers and
affiliates of Dwyer is expected to be approximately $25,825,864. The following
table sets forth the cash amounts that certain directors, executive officers and
affiliates of Dwyer are expected to receive upon completion of the merger:
<Table>
<Caption>
PROCEEDS TO BE
NAME NUMBER OF SHARES RECEIVED IN MERGER(2)
- ---- ---------------- ---------------------
Theresa Dwyer..................................... 320,488(1) $ 1,963,291
Dina Dwyer-Owens.................................. 30,800(1) -0-
Robert Tunmire.................................... 50,719(1) $ 292,349
Thomas J. Buckley................................. 34,700(1) $ 34,222
Deborah Wright-Hood............................... 29,069(1) $ 146,211
Michael Bidwell................................... 31,745(1) -0-
Donald J. Dwyer, Jr............................... 34,400(1) $ 162,465
Dwyer Investments, Ltd............................ 3,800,706(1) $23,154,761
Burton D. Cohen................................... -0- -0-
John P. Hayes..................................... 250 $ 1,687
Donald E. Latin................................... 10,500 $ 70,875
</Table>
- ---------------
(1) Represents shares of Dwyer common stock owned by such Rollover Stockholder
prior to the contribution of certain shares to TDG Holding Company in
exchange for TDG Holding Company common stock pursuant to the contribution
agreement. See "-- Interests of Certain Officers and Directors of Dwyer and
the Rollover Stockholders in the Merger -- Equity Interest of Rollover
Stockholders in TDG Holding Company."
(2) Proceeds are adjusted to account for amounts to be contributed by Rollover
Stockholders pursuant to the contribution agreement. See "-- Interests of
Certain Officers and Directors of Dwyer and the Rollover Stockholders in the
Merger -- Equity Interest of Rollover Stockholders in TDG Holding Company."
Proceeds do not include amounts to be received for outstanding options to
purchase shares of common stock, which amounts are equal to the positive
difference between the exercise price of such options and the merger
consideration.
Prior to the effective time of the merger, all unexpired and unexercised
options or similar rights to purchase shares of Dwyer common stock, whether or
not then exercisable, including those options held by the Rollover Stockholders,
will be cancelled. In exchange for such cancellation, each former holder will be
entitled to receive a cash payment, without interest, equal to the excess, if
any, of the $6.75 per share cash consideration over the exercise price per share
of the cancelled options, multiplied by the number of shares of Dwyer common
stock subject to the option, less any applicable withholding taxes.
The aggregate amount to be paid to directors and executive officers of
Dwyer for their outstanding stock options is expected to be approximately
$2,225,862, before taxes and other withholding. The following table sets forth
the cash amounts, before taxes and any withholding, that the directors and
41
executive officers of Dwyer are expected to receive in respect of their stock
options upon completion of the merger:
<Table>
<Caption>
PROCEEDS TO BE
SHARES SUBJECT WEIGHTED AVERAGE RECEIVED IN MERGER
NAME TO OPTIONS EXERCISE PRICE FROM OPTIONS(1)
- ---- -------------- ---------------- ------------------
Theresa Dwyer........................... -0- N/A -0-
Dina Dwyer-Owens........................ 5,000 $1.88 $ 24,375
Robert Tunmire.......................... 100,000 $2.50 $425,000
Thomas J. Buckley....................... 126,205 $2.07 $590,059
Deborah Wright-Hood..................... -0- N/A -0-
Michael Bidwell......................... 101,000 $2.52 $427,480
Donald J. Dwyer, Jr..................... 5,000 $1.88 $ 24,375
Burton D. Cohen......................... 50,000 $4.11 $132,100
John P. Hayes........................... 76,420 $2.44 $329,223
Donald E. Latin......................... 65,000 $2.55 $273,250
</Table>
- ---------------
(1) Calculated by multiplying the number of shares subject to the option by the
excess, if any, of the $6.75 per share cash consideration over the exercise
price of the options and assumes that no options will be exercised prior to
the merger.
EQUITY INTEREST OF ROLLOVER STOCKHOLDERS IN TDG HOLDING COMPANY
Pursuant to the terms of the contribution agreement among the Rollover
Stockholders, TDG Holding Company and RCAF 2000, each Rollover Stockholder has
agreed to invest in TDG Holding Company a specified amount immediately prior to
the completion of the merger. The investment is to be made either (1) through
the contribution to TDG Holding Company of shares of Dwyer common stock owned by
such Rollover Stockholder in exchange for common stock of TDG Holding Company
or, (2) if a Rollover Stockholder does not own Dwyer common stock with an
aggregate value equal to at least the amount to be contributed, then such
Rollover Stockholder will purchase for cash, at a price of $100.00 per share,
the number of shares of TDG Holding Company common stock necessary to fulfill
such Rollover Stockholder's investment commitment. For purposes of the exchange,
each share of Dwyer common stock is valued at $6.75, and each share of TDG
Holding Company common stock is valued at $100.00. TDG Holding Company is not
entitled to receive merger consideration for shares of Dwyer common stock
exchanged by the Rollover Stockholders.
After the contribution of Dwyer common stock to TDG Holding Company and the
purchase of shares of TDG Holding Company common stock, the Rollover
Stockholders are expected to own approximately 14% of the outstanding common
stock of TDG Holding Company. The following table sets forth the respective
dollar value of the contribution of, and the number of shares of TDG Holding
Company to be received by, each Rollover Stockholder who is an executive
officer, director or affiliate of Dwyer.
<Table>
<Caption>
CASH OR CONVERTED NUMBER OF SHARES OF TDG
STOCKHOLDER SHARE VALUE CONTRIBUTED HOLDING COMPANY STOCK
- ----------- ----------------------- -------------------------
Dwyer Investments, Ltd.................. $2,500,000 25,000
Donald J. Dwyer......................... $ 70,000 700
Dina Dwyer-Owens........................ $ 400,000 4,000
Darren Dwyer............................ $ 350,000 3,500
Theresa Dwyer........................... $ 200,000 2,000
Robert Tunmire.......................... $ 50,000 500
Deborah Wright-Hood..................... $ 50,000 500
Thomas J. Buckley....................... $ 200,000 2,000
Michael Bidwell......................... $ 250,000 2,500
</Table>
42
The Rollover Stockholders have certain rights with respect to their equity
interest in TDG Holding Company pursuant to a stockholders agreement among TDG
Holding Company, RCAF 2000 and the Rollover Stockholders, which is described
below under "-- Interests of Certain Officers and Directors of Dwyer and the
Rollover Stockholders in the Merger -- Rights Pursuant to Stockholders
Agreement." The stockholders agreement will be amended following the merger to
include RCAF 2000's co-investors, Madison Capital and Mass Mutual, as parties to
the stockholders agreement.
EMPLOYMENT AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
As a condition to the transaction, Riverside required that certain
executives enter into employment agreements with Dwyer at the time of the
execution of the merger agreement. Each employment agreement is for a term of
three years, commencing on the effective date of the merger. At the end of the
three-year period and on each anniversary thereafter, unless the executive's
employment has been otherwise terminated, the term of the employment agreement
will be extended for an additional year. The respective positions, salaries and
bonuses of executive officers entering into employment agreements are summarized
below.
Dina Dwyer-Owens. Under her employment agreement, Ms. Dwyer-Owens will
serve as the Chief Executive Officer of Dwyer following the merger. Her base
salary will be $212,000 for 2003. On January 1 of each year during the term of
her employment agreement, her base salary will increase by 5% if Dwyer meets its
budgeted goals for the preceding year. If such goals are not met, her base
salary will increase by an amount equal to any increase in the consumer price
index percentage over the previous year multiplied by the then-current base
salary. Ms. Dwyer-Owens is eligible for a bonus with a target amount of 35% of
her base salary per year, based on the achievement of specified performance
goals.
Robert E. Tunmire. Under his employment agreement, Mr. Tunmire will serve
as an Executive Vice President of Dwyer and President of Synergistic
International, Inc. (d/b/a Glass Doctor), a subsidiary of Dwyer, following the
merger. His base salary will be $138,000 for 2003. On January 1 of each year
during the term of his employment agreement, his base salary will increase by 5%
if Dwyer meets its budgeted goals for the preceding year. If such goals are not
met, his base salary will increase by an amount equal to any increase in the
consumer price index percentage over the previous year multiplied by the
then-current base salary. Mr. Tunmire is eligible to receive bonuses and
commissions with a target amount of 186% of his base salary per year, based on
the achievement of specified performance goals.
Michael Bidwell. Under his employment agreement, Mr. Bidwell will serve as
the Chief Operating Officer of Dwyer following the merger. His base salary will
be $156,112 for 2003. On January 1 of each year during the term of his
employment agreement, his base salary will increase by 5% if Dwyer meets its
budgeted goals for the preceding year. If such goals are not met, his base
salary will increase by an amount equal to any increase in the consumer price
index percentage over the previous year multiplied by the then-current base
salary. Mr. Bidwell is eligible for a bonus with a target amount of 64% of his
base salary per year, based on the achievement of specified performance goals.
Thomas J. Buckley. Under his employment agreement, Mr. Buckley will serve
as the Chief Financial Officer of Dwyer following the merger. His base salary
will be $144,000 for 2003. On January 1 of each year during the term of his
employment agreement, his base salary will increase by 5% if Dwyer meets its
budgeted goals for the preceding year. If such goals are not met, his base
salary will increase by an amount equal to any increase in the consumer price
index percentage over the previous year multiplied by the then-current base
salary. Mr. Buckley is eligible for a bonus with a target amount of 35% of his
base salary per year, based on the achievement of specified performance goals.
Deborah Wright-Hood. Under her employment agreement, Ms. Wright-Hood will
serve as the Vice President -- Administration of Dwyer following the merger. Her
base salary will be $121,800 for 2003. On January 1 of each year during the term
of her employment agreement, her base salary will increase by 5% if Dwyer meets
its budgeted goals for the preceding year. If such goals are not met, her base
salary will increase by an amount equal to any increase in the consumer price
index percentage over the previous year
43
multiplied by the then-current base salary. Ms. Wright-Hood is eligible for a
bonus with a target amount of 27% of her base salary per year, based on the
achievement of specified performance goals.
In the event that the employment of any executive officer who has an
employment agreement with Dwyer is terminated without cause, or in the event
such executive officer terminates his or her employment agreement for a good
reason, Dwyer will be obligated to continue to pay such person his or her base
salary at the time of termination for a period of 18 months, if termination
occurs prior to the third anniversary of the consummation of the merger, or 12
months, if termination occurs on or after the third anniversary of the
consummation of the merger. In addition, in the event of such termination, the
executive will be entitled to a prorated lump sum payment based on the
executive's target bonus amount, and the executive will continue to participate,
at Dwyer's cost, in Dwyer's medical, dental, disability and life insurance plans
until the earlier of (i) such executive's eligibility for any such coverage
under another employer's or any other medical, dental or life insurance plans or
(ii) one year following the termination of the executive's employment.
In addition to the compensation described above, the executive officers
entering into employment agreements will receive other benefits, including
vacation benefits, expense reimbursement, long-term disability insurance and a
standard executive benefits package (including insurance and other benefits) for
which all of the executives of Dwyer are from time to time generally eligible as
determined by the board of directors. In addition, the executive officers
entering into employment agreements are subject to non-competition,
non-solicitation and confidentiality obligations which survive the termination
of their employment agreements.
STOCK OPTIONS FOR CERTAIN EXECUTIVE OFFICERS
In addition to common stock of TDG Holding Company acquired as Rollover
Stockholders described above under "-- Interests of Certain Officers and
Directors of Dwyer and the Rollover Stockholders in the Merger -- Equity
Interest of Rollover Stockholders in TDG Holding Company," executive officers
who have executed employment agreements will receive options to acquire common
stock of TDG Holding Company following the merger pursuant to a stock option
plan to be adopted by TDG Holding Company and nonqualified stock option
agreements to be entered into between each such executive officer and TDG
Holding Company as soon as practicable following the consummation of the merger.
The number of shares included in the grant of options for each executive officer
is set forth below and is expressed as a percentage of the common stock of TDG
Holding Company outstanding immediately following the merger.
<Table>
<Caption>
NAME PERCENTAGE
- ---- ----------
Dina Dwyer-Owens............................................ 3.0%
Robert E. Tunmire........................................... 2.455%
Michael Bidwell............................................. 2.455%
Thomas J. Buckley........................................... 1.82%
Deborah Wright-Hood......................................... 2.0%
</Table>
For each such executive officer, one-third of the options granted may be
exercised at a price of $150 per share (the "Tranche I Option Shares"),
one-third of the options granted may be exercised at a price of $200 per share
(the "Tranche II Option Shares") and one-third of the options granted may be
exercised at a price of $225 per share (the "Tranche III Option Shares"). Twenty
percent of each of the Tranche I Option Shares, the Tranche II Option Shares and
the Tranche III Option Shares will vest and become exercisable on each of the
first five anniversaries of the date of the grant if the executive officer
remains an employee of Dwyer or any subsidiary of Dwyer on each such
anniversary. All options will immediately vest upon a change in control of TDG
Holding Company or Dwyer if the executive officer is an employee of Dwyer or any
subsidiary of Dwyer on the date of the change in control. The options will
expire ten years from the date of the grant but may be terminated earlier in the
event of a termination of employment, including a termination of employment due
to death or disability.
44
Beginning on the fifth anniversary date of the option agreement, each
recipient of options may elect to require Dwyer to purchase a portion of his or
her vested options and shares of common stock of TDG Holding Company at a
purchase price per vested option or share equal to the fair value determined in
accordance with the following formula: the product of 7.0 times EBITDA for the
12-month period ended on the last day of the calendar quarter immediately
preceding the date of such election plus cash or marketable securities, less
outstanding indebtedness, less the aggregate liquidation preference for any
outstanding shares of preferred stock, all of which is divided by the number of
shares of common stock outstanding on a fully diluted basis. However, the option
recipient will not be entitled to exercise the repurchase rights described in
the preceding sentence with respect to (i) any vested options representing in
excess of 15% of the option recipient's vested options in any calendar year or
(ii) shares representing in excess of 15% of the option recipient's shares in
any calendar year. In addition, Dwyer will not be required to repurchase any
options or shares in a calendar year if the aggregate value of all vested
options and shares repurchased exceeds $150,000.
RIGHTS PURSUANT TO STOCKHOLDERS AGREEMENT
In connection with the contribution of shares, the Rollover Stockholders
entered into a stockholders agreement with TDG Holding Company and RCAF 2000,
which also governs options granted to certain executive officers and directors,
as described above under "-- Interests of Certain Officers and Directors of
Dwyer and the Rollover Stockholders in the Merger -- Stock Options for Certain
Executive Officers." The stockholders agreement will be amended following the
merger to include RCAF 2000's co-investors, Madison Capital and Mass Mutual, as
parties to the stockholders agreement.
Pursuant to the stockholders agreement, the Rollover Stockholders,
including certain executive officers and directors entering into employment
agreements, may only transfer their shares of TDG Holding Company common stock
in the following limited circumstances:
- In the event that RCAF 2000 sells, assigns or otherwise transfers shares,
the result of which is that RCAF 2000 owns less than a majority of the
outstanding shares of Dwyer, then the Rollover Stockholders may
participate in such transaction on a pro rata basis;
- In the event that RCAF 2000 sells, assigns or otherwise transfers shares,
the result of which is that RCAF 2000 owns less than a majority of the
outstanding shares of Dwyer, then RCAF 2000 may require the Rollover
Stockholders to participate in such transaction on a pro rata basis;
- In the event that a Rollover Stockholder who is also an employee is
terminated for cause within three years of the consummation of the
merger, Dwyer may elect to require such person to sell all shares
beneficially owned by him or her at a price equal to the lesser of (i)
the price at which he or she acquired such shares (plus interest equal to
3% per annum) or (ii) the fair value of the shares, determined in
accordance with the following formula: the product of 7.0 times EBITDA
for the 12-month period ended on the last day of the calendar quarter
immediately preceding the date of such termination plus cash or
marketable securities, less outstanding indebtedness, less the aggregate
liquidation preference for any outstanding shares of preferred stock, all
of which is divided by the number of shares of common stock outstanding
on a fully diluted basis, and multiplied by the number of shares of
common stock held by such person;
- In the event that a Rollover Stockholder who is also an employee is
terminated for cause after the third anniversary of the consummation of
the merger, Dwyer may elect to require such person to sell all shares
beneficially owned by him or her at a price equal to the fair value of
the shares, calculated as set forth above;
- A Rollover Stockholder may transfer shares to his or her spouse or to an
estate planning trust or family limited partnership primarily for the
benefit of each such spouse or the natural or adopted descendents of such
Rollover Stockholder;
- A Rollover Stockholder may transfer shares to Dwyer, RCAF 2000 or their
respective designees; and
45
- In the case of a death of a Rollover Stockholder, shares may be
transferred to his or her heirs, executors or administrators or to a
trust under his or her will.
In the event that Dwyer proposes to register any of its capital stock or
other securities under the Securities Act in connection with a public offering
resulting in at least $15 million in aggregate net proceeds to Dwyer, then each
Rollover Stockholder may elect to have all or a portion of his or her shares
registered in connection with the registered offering (subject to customary
"cutbacks" and other customary terms recommended by the underwriters).
Finally, if Dwyer issues additional shares of common stock (other than in
connection with incentive compensation and the exercise of employee stock
options), each Rollover Stockholder will have the right, but not the obligation,
to purchase a number of additional shares at the price or prices and other terms
at which such additional shares are proposed to be offered for sale to maintain
his or her percentage ownership of Dwyer common stock.
DIRECTORS OF THE SURVIVING CORPORATION
Pursuant to the stockholders agreement, at least four members of the board
of directors of Dwyer will be designated by Riverside and at least three
members, one of whom will be Dina Dwyer-Owens, will be designated by the
Rollover Stockholders.
VOTING AGREEMENT
The Rollover Stockholders, together with Donna Dwyer-VanZandt, Douglas
Dwyer and the Donald J. Dwyer Family Trust, have entered into a voting agreement
pursuant to which they have agreed to vote all of their shares of Dwyer common
stock in favor of approving the merger. The voting agreement will terminate, and
such stockholders will not be required to vote in favor of the merger and the
merger agreement if either the board of directors or the special committee
withdraws its recommendation of the merger or the merger agreement is
terminated. These stockholders hold 4,421,514 shares of common stock (excluding
stock options) or approximately 62% of the total number of issued and
outstanding shares of Dwyer common stock.
TRANSACTIONS WITH AFFILIATES
LEASE AMENDMENTS
Dwyer is a party to two improved property commercial lease agreements
pursuant to which it leases certain warehouse space to Worldwide Supply, Inc.,
an affiliated company owned by the Dwyer family. The first lease was entered
into as of April 3, 2001, relating to a warehouse located at 209 Bosque Blvd.,
Waco, Texas; the second lease was entered into as of April 4, 2001, relating to
a rear warehouse located at 209B Bosque Blvd., Waco, Texas. In respect of the
two leases, Dwyer receives aggregate rental payments of $2,193 per month.
Both leases were amended on May 11, 2003, with such amendments taking
effect upon the effective date of the merger, to provide that Dwyer may
terminate the leases upon 90 days' written notice. In the event of such
termination, Dwyer will pay (i) all reasonable costs and expenses arising out of
the relocation of Worldwide Supply's personal property to another location
designated by Worldwide Supply, (ii) all reasonable and necessary costs and
expenses which are necessary to make the new location compliant with all
applicable laws, rules and regulations and (iii) all reasonable and necessary
costs and expenses relating to or arising out of the construction of an
explosion-proof coating room and any other reasonable and necessary structures,
all of which shall be substantially similar to the existing explosion-proof
coating room and other structures located on the current leased premises.
SERVICE AGREEMENTS
Dwyer has historically provided services to certain of its affiliates,
including performance of certain legal, accounting, MIS and related services and
functions necessary to operate their businesses. In order to
46
evidence this relationship in writing with two of its affiliates, Worldwide
Supply and Worldwide Refinishing Systems, Inc., doing business as DreamMaker
Bath & Kitchen by Worldwide ("DreamMaker"), Dwyer entered into separate service
agreements with each of Worldwide Supply and DreamMaker. Under the terms of
these service agreements, Dwyer will continue to perform, on behalf of Worldwide
Supply and DreamMaker, such services. DreamMaker will pay Dwyer an annual fee of
$204,000, and Worldwide Supply will pay Dwyer an annual fee of $108,000 per
year, subject in each case to annual increases of the greater of 5% or the
increase in the consumer price index percentage. The initial term of each
service agreement expires on January 1, 2008, unless either Worldwide Supply or
DreamMaker are sold to a non-affiliate prior to such date, with the term to be
automatically extended from year-to-year thereafter unless terminated by either
party upon prior written notice.
LICENSE AGREEMENT
On May 11, 2003, Dwyer entered into a written license agreement with Dwyer
Investments, Ltd., an affiliate of Dwyer, pursuant to which Dwyer Investments,
Ltd. granted Dwyer a non-exclusive royalty-free, worldwide, non-terminable and
perpetual license to use certain printed works of authorship entitled "Code of
Values" and "Design Your Life" that are owned by Dwyer Investments, Ltd.
CONSULTING SERVICES
John Hayes, a member of the special committee, provides consulting services
regarding public relations, marketing and special projects. Dwyer paid Mr. Hayes
approximately $106,000 in 2002 and $108,000 in 2001 for these services and for
board of directors fees.
INDEMNIFICATION
The Seventh Section of Dwyer's certificate of incorporation, as amended,
provides that Dwyer shall indemnify its officers and directors to the full
extent permitted by law.
Article VI of Dwyer's bylaws includes provisions for indemnification of
Dwyer's officers and directors to the extent permitted by the DGCL. Section 145
of the DGCL authorizes a corporation to indemnify its directors, officers,
employees or agents in non-derivative suits if such party acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, as
determined in accordance with the DGCL. Section 145 further provides that
indemnification shall be provided if the party in question is successful on the
merits or otherwise.
Pursuant to the merger agreement, the certificate of incorporation and
bylaws of TDG Merger Co., the subsidiary of TDG Holding Company which will merge
with and into Dwyer, will be the certificate of incorporation and bylaws of
Dwyer following the merger. TDG Merger Co.'s bylaws include provisions for
indemnification of officers and directors to the extent permitted by Section 145
of the DGCL, as discussed in the previous paragraph.
The employment agreements described under the caption "-- Interests of
Certain Officers and Directors of Dwyer and the Rollover Stockholders in the
Merger -- Employment Agreements with Certain Executive Officers" provides that,
with respect to such employee's acts or failures to act during his or her
employment period, each such employee is entitled to indemnification from Dwyer
to the extent permitted by law and to liability insurance coverage on the same
basis as other officers and directors of Dwyer.
The merger agreement provides that Dwyer as the surviving corporation will
continue to honor all indemnification obligations in force as of the date of the
merger agreement and will not amend, repeal or otherwise modify those
obligations in a way that would adversely affect the rights of the individuals
who are covered by the indemnification obligations. In addition, following the
completion of the merger, Dwyer as the surviving corporation, is required to
indemnify, defend and hold harmless all current and former officers, directors
and employees of Dwyer and its subsidiaries from all liabilities, costs,
expenses and claims arising out of actions taken before the effective time of
the merger in performance of their duties as
47
directors or officers of Dwyer or any subsidiaries in connection with the
transactions contemplated by the merger agreement. In addition, Dwyer, as the
surviving corporation, is required to maintain its directors and officers'
liability insurance policies in effect for three years following the effective
time of the merger, except that TDG Holding Company or Dwyer as the surviving
corporation will not be required to pay insurance premiums in excess of 200% of
the premiums it currently pays. TDG Holding Company has agreed to cause Dwyer to
comply with the obligations described in this paragraph.
CERTAIN RISKS IN THE EVENT OF BANKRUPTCY
If Dwyer is insolvent at the effective time of the merger or becomes
insolvent as a result of the merger, the transfer of funds representing the
$6.75 per share price payable to stockholders upon completion of the merger may
be deemed to be a "fraudulent conveyance" under applicable law, and therefore
may be subject to claims of creditors of Dwyer. If such a claim is asserted by
the creditors of Dwyer following the merger, there is a risk that persons who
were stockholders at the effective time of the merger will be ordered by a court
to return to Dwyer's trustee in bankruptcy all or a portion of the $6.75 per
share in cash they received upon the completion of the merger.
Based upon the projected capitalization of Dwyer at the time of the merger
and projected results of operations and cash flow following the merger,
management of Dwyer has no reason to believe that Dwyer and its subsidiaries, on
a consolidated basis, will be insolvent immediately after giving effect to the
merger.
MERGER FINANCING
The obligation of TDG Holding Company and TDG Merger Co. to complete the
merger is not subject to a financing condition. TDG Holding Company estimates
that approximately $58 million will be required to complete the merger and pay
related fees and expenses. TDG Holding Company expects this amount to be funded
through a combination of equity contributions by RCAF 2000, its co-investors and
the Rollover Stockholders and new credit facilities with a syndicate of banks.
Riverside has received a commitment letter from each of Madison Capital and Mass
Mutual that, when combined with the equity contributions, will be sufficient to
fund these amounts.
The estimated sources and uses of funds in connection with the merger and
related transactions are as follows (assuming the merger is completed on
[ ], 2003):
SOURCES AND USES OF FUNDS
$ IN MILLIONS
(ALL FIGURES ARE APPROXIMATE)
<Table>
<Caption>
SOURCES USES
- ------- ----
Dwyer Cash..................... $ Merger Consideration........... $ --
Senior Credit Facility & Repay Existing Debt(including
Subordinated Debt............ $ accrued interest).............. $ --
Equity Contributions........... $ Fees and Expenses.............. $ --
-------- --------
Total.......................... $ Total.......................... $ --
======== ========
</Table>
EQUITY CONTRIBUTIONS
In connection with the merger, RCAF 2000 and certain affiliates of its
co-investors, Madison Capital and Mass Mutual, intend to collectively contribute
approximately $[ ] million in cash to TDG Holding Company in
exchange for shares of TDG Holding Company common stock. In addition, the
Rollover Stockholders will contribute shares of Dwyer common stock and/or cash
to TDG Holding Company with a value of $4,190,000 (assuming a value of $6.75 per
share of Dwyer common stock) in exchange for shares of TDG Holding Company
common stock. In addition to the shares of TDG Holding Company common stock
described in the previous sentence, the Rollover Stockholders who have
48
employment agreements with Dwyer following the merger will receive options to
acquire TDG Holding Company common stock following the merger. See "-- Interests
of Certain Officers and Directors of Dwyer and the Rollover Stockholders in the
Merger -- Stock Options for Certain Executive Officers."
SENIOR SECURED CREDIT FACILITIES
Madison Capital and Riverside have entered into a commitment letter (the
"Madison Capital Letter"), whereby Madison Capital has committed to make loans
to Dwyer and to act as agent under senior secured credit facilities consisting
of a $6,000,000 revolving loan facility (the "Revolving Facility"), a
$10,000,000 Term A loan facility (the "Term A Facility") and a $8,500,000 Term B
loan facility (the "Term B Facility"), upon the terms and conditions set forth
in the Madison Capital Letter. The Revolving Facility, the Term A Facility and
the Term B Facility are sometimes called the "Senior Secured Credit Facilities."
The Revolving Facility and the Term A Facility will initially bear
interest, at Dwyer's option, at either the base rate plus 2.75% per annum or the
LIBOR rate plus 4.25%. The Term B Facility will initially bear interest, at
Dwyer's option, of either the base rate plus 3.25% or the LIBOR rate plus 4.75%.
The terms "base rate" and "LIBOR rate" will have meanings customary and
appropriate for financings of this type.
The Revolving Facility and the Term A Facility will mature on the fifth
anniversary of the closing date of the merger. The Term B Facility will mature
on the sixth anniversary of the closing date of the merger. Both the Term A
Facility and Term B Facility will amortize in scheduled quarterly installments,
commencing six months following the closing date of the merger.
The Revolving Facility will be used to finance the working capital and
general corporate needs of Dwyer and its subsidiaries. The Term A loan facility,
the Term B loan facility and a portion of the revolving credit facility will be
used for the following purposes:
- to finance the merger (including repayment of outstanding indebtedness);
and
- to pay fees and expenses associated with the merger.
Funding of these Senior Secured Credit Facilities will be subject to the
following material conditions, as well as other customary closing conditions:
- since March 31, 2003, no material adverse change in the business, assets,
prospects, results of operation, condition (financial or otherwise) or
prospects of Dwyer has occurred;
- no material disruption of or material adverse change in the financial,
banking or capital markets generally affecting credit facilities of this
type has occurred;
- satisfactory completion of due diligence with respect to Dwyer;
- satisfactory negotiation and execution of appropriate loan documents
relating to the senior credit facilities;
- consummation of the merger on terms acceptable to Madison Capital;
- receipt at the closing of the merger of minimum cash equity of
$29,100,000 and net cash proceeds of $8,750,000 from the issuance of
unsecured subordinated debt on terms acceptable to Madison Capital;
- satisfaction of certain financial conditions, including (i) maximum
senior debt to EBITDA, (ii) maximum total debt to EBITDA and (iii)
minimum trailing 12-month EBITDA of Dwyer at the closing of the merger of
at least $7,100,000 (provided that if EBITDA is less than $7,100,000,
then the aggregate amount of loans under the facilities will decrease
pursuant to a defined formula); and
- payment of Madison Capital's fees and expenses.
49
SUBORDINATED DEBT
MassMutual and Riverside have entered into a commitment letter (the
"MassMutual Letter"), pursuant to which MassMutual has committed to purchase
subordinated notes with detachable warrants of TDG Holding Company in the amount
of $8,750,000 and limited liability company units or the equivalent in the
amount of $1,250,000, upon the terms and conditions set forth in the MassMutual
Letter.
The notes will bear interest at 14% per annum, payable quarterly, will be
subject to customary prepayment penalties, will be subordinated to the Senior
Secured Credit Facilities and will mature on the eighth anniversary of the
closing date of the merger.
The warrants of TDG Holding Company will initially represent 3% of the
ownership of Dwyer at the closing of the merger, will have a nominal exercise
price, will be allocated to the purchasers of the notes in proportion to the
amount of notes purchased by each purchaser, will have customary registration
rights, dilution protection and co-sale, drag-along and preemptive rights as set
forth in the stockholders agreement and will have a term of eight years,
measured from the closing date of the merger.
MassMutual and various other entities will purchase the units, which will
be subject to the stockholders agreement.
The subordinated debt will be used to finance the merger and pay related
transaction costs and expenses.
The purchase of the notes, warrants and units will be subject to the
following material conditions, as well as other customary closing conditions:
- no material adverse change or condition affecting Dwyer's business that
has not been disclosed to MassMutual in writing has occurred;
- internal approval by MassMutual;
- satisfactory completion of due diligence with respect to Dwyer;
- satisfactory negotiation and execution of appropriate documents relating
to the subordinated debt;
- receipt at the closing of the merger of minimum cash equity of
$27,500,000;
- satisfaction of certain financial conditions, including (i) maximum total
leverage and (ii) minimum trailing 12-month EBITDA of Dwyer at the
closing of the merger of at least $7,100,000 (provided that if EBITDA is
less than $7,100,000, then Riverside must contribute additional equity);
- noteholders' receipt of board observation rights; and
- payment of MassMutual's fees and expenses.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Dwyer expects to incur approximately $2.9 million in costs and expenses in
connection with the merger and the related transactions, as set forth in the
table below:
<Table>
<Caption>
EXPENSES ESTIMATED AMOUNT
- -------- ----------------
Financial advisory fees..................................... $1,450,000.00
Legal fees.................................................. $ 900,000.00
Special Committee Fees...................................... $ 500,000.00
Accounting fees............................................. $ 25,000.00
Printing and mailing fees................................... $ 25,000.00
SEC filing fees............................................. $ 3,953.47
Miscellaneous............................................... $ 5,000.00
Total....................................................... $2,908,953.47
</Table>
50
LITIGATION CHALLENGING THE MERGER
On May 20, 2003, an individual plaintiff filed a purported class action
complaint in the Court of Chancery of the State of Delaware for New Castle
County against Dwyer and certain of the current directors of Dwyer. The
complaint alleges that the directors breached their fiduciary duties to the
plaintiff. The plaintiff seeks to have the action maintained as a class action,
to have the defendants enjoined from proceeding with or closing the proposed
transaction and to recover unspecified costs of the action. The class is alleged
to include all public stockholders of Dwyer, excluding the defendants and the
Rollover Stockholders. Dwyer and the director defendants intends to defend
vigorously against the complaint.
FEDERAL INCOME TAX CONSEQUENCES
Upon completion of the merger, each outstanding share of Dwyer common stock
(other than shares held by TDG Holding Company and shares as to which appraisal
rights are properly exercised) will be converted into the right to receive the
$6.75 in cash, without interest.
The following discussion is a summary of the principal United States
federal income tax consequences of the merger to stockholders whose shares are
surrendered pursuant to the merger (including any cash amounts received by
dissenting stockholders pursuant to the exercise of appraisal rights). The
discussion applies only to stockholders in whose hands shares of Dwyer common
stock are capital assets, and may not apply to shares of Dwyer common stock
received pursuant to the exercise of employee stock options or otherwise as
compensation, or to stockholders who are not citizens or residents of the United
States.
The United States federal income tax consequences set forth below are based
upon present law. Because individual circumstances may differ, each stockholder
is urged to consult his or her own tax advisor to determine the applicability of
the rules discussed below to him or her and the particular tax effects of the
merger, including the application and effect of state, local and other tax laws.
The receipt of cash pursuant to the merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of appraisal
rights) will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended, and also may be a taxable transaction
under applicable state, local and other income tax laws. In general, for federal
income tax purposes, a stockholder will recognize gain or loss equal to the
difference between the cash received by the stockholder pursuant to the merger
and the stockholder's adjusted tax basis in the shares of Dwyer common stock
surrendered in the merger. Such gain or loss will be capital gain or loss and
will be long-term gain or loss if, on the effective date of the merger, the
shares of Dwyer common stock were held for more than one year. There are
limitations on the deductibility of capital losses.
Payments in connection with the merger may be subject to "backup
withholding" at a 30% rate. Backup withholding generally applies if the
stockholder fails to furnish such stockholder's social security number or other
taxpayer identification number, or furnishes an incorrect taxpayer
identification number. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons generally are exempt from backup
withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for failure to
include the reportable payments in income. Stockholders should consult with
their own tax advisors as to the qualifications for exemption from withholding
and procedures for obtaining such exemption.
Neither TDG Holding Company nor TDG Merger Co. will recognize gain or loss
for United States federal tax purposes as a result of the merger. The Rollover
Stockholders will not recognize gain or loss for federal income tax purposes as
a result of their exchange of Dwyer common stock for TDG Holding Company capital
stock. The aggregate tax basis of the TDG Holding Company capital stock received
in exchange for Dwyer common stock will be the same as the aggregate tax basis
of the Dwyer common stock surrendered in the exchange. The holding period of TDG
Holding Company capital stock received as a result of the exchange will include
the holding period of the Dwyer common stock surrendered.
Dwyer will not recognize gain or loss for United States tax purposes as a
result of the merger.
51
ANTICIPATED ACCOUNTING TREATMENT OF MERGER
The merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the merger will be allocated among
Dwyer's consolidated assets and liabilities based on the fair values of the
assets acquired and liabilities assumed.
CERTAIN REGULATORY MATTERS
Dwyer, TDG Holding Company, TDG Merger Co. and the Rollover Stockholders do
not believe that any governmental filings are required with respect to the
merger other than (i) the filing of the certificate of merger with the Secretary
of State of the State of Delaware, (ii) filings with the SEC and The NASDAQ
National Market, (iii) filings relating to franchises and (iv) filings with the
Department of Justice and the Federal Trade Commission pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
APPRAISAL RIGHTS
Under Section 262 of the DGCL any holder of common stock who does not wish
to accept $6.75 per share in cash for the holder's shares of common stock may
exercise appraisal rights under the DGCL and elect to have the fair value of the
holder's shares of common stock (exclusive of any element of value arising from
the accomplishment or expectation of the merger) judicially determined and paid
to the holder in cash, together with a fair rate of interest, if any, provided
that the holder complies with the provisions of Section 262 of the DGCL.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL, and it is qualified in its entirety by the
full text of Section 262, which is provided in its entirety as Exhibit B to this
proxy statement. All references to a "stockholder" in Section 262 and in this
summary are to the record holder of the shares of common stock as to which
appraisal rights are asserted. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES
OF COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER
OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS
SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under Section 262, where a proposed merger is to be submitted for adoption
and approval at a meeting of stockholders, as in the case of the special
meeting, the corporation, not less than 20 days before the meeting, must notify
each of its stockholders entitled to appraisal rights that appraisal rights are
available and include in that notice a copy of Section 262. This proxy statement
constitutes that notice to the holders of common stock, and the applicable
statutory provisions of the DGCL are attached to this proxy statement as Exhibit
B. Any stockholder who wishes to exercise appraisal rights or who wishes to
preserve that right should review carefully the following discussion and Exhibit
B to this proxy statement. Stockholders who consider exercising such appraisal
rights may wish to seek the advice of counsel, which counsel or other appraisal
services will not be paid for by Dwyer. FAILURE TO COMPLY WITH THE PROCEDURES
SPECIFIED IN SECTION 262 TIMELY AND PROPERLY WILL RESULT IN THE LOSS OF
APPRAISAL RIGHTS.
FILING WRITTEN OBJECTION
Any holder of common stock wishing to exercise the right to demand
appraisal under Section 262 of the DGCL must satisfy each of the following
conditions:
- as more fully described below, the holder must deliver to Dwyer a
separate written demand for appraisal of the holder's shares before the
vote on the merger agreement at the special meeting, which demand must
reasonably inform Dwyer of the identity of the holder and that the holder
intends to demand the appraisal of the holder's shares;
- the holder must not vote the holder's shares of common stock in favor of
the merger agreement at the special meeting, or any postponement or
adjournment thereof, or consent thereto in writing pursuant to Section
228 of the DGCL; and
52
- the holder must continuously hold the shares from the date of making the
demand through the effective time of the merger; a stockholder who is the
record holder of shares of common stock on the date the written demand
for appraisal is made, but who thereafter transfers those shares before
the effective time of the merger, will lose any right to appraisal in
respect of those shares.
The written demand for appraisal must be in addition to and separate from
any proxy or vote. Neither voting (in person or by proxy) against, abstaining
from voting or failing to vote on the merger agreement and the merger will
constitute a written demand for appraisal within the meaning of Section 262.
Only a holder of record of shares of common stock issued and outstanding
immediately before the effective time of the merger is entitled to assert
appraisal rights for the shares of common stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the
stockholder of record and that the stockholder intends to demand appraisal of
the stockholder's common stock. If the shares of common stock are owned of
record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian), depository or other
nominee, such demand must be executed by or for the record owner. If a
stockholder holds shares of common stock through a broker who in turn holds the
shares through a central securities depository nominee such as Cede & Co., a
demand for appraisal of such shares must be made by or on behalf of the
depository nominee and must identify the depository nominee as record holder. If
the shares of record are owned by more than one person, as in a joint tenancy or
tenancy-in-common, the demand should be executed by or on behalf of all owners.
An authorized agent, including one or more joint owners, may execute a demand
for appraisal on behalf of a stockholder; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is acting as agent for such owner or owners. A record holder
such as a broker who holds shares as nominee for several beneficial owners may
exercise appraisal rights with respect to the shares held for one or more other
beneficial owners while not exercising appraisal rights with respect to the
shares held for one or more beneficial owners; in such case, the written demand
should set forth the number of shares as to which appraisal is sought, and where
no number of shares is expressly mentioned, the demand will be presumed to cover
all shares held in the name of the record owner. STOCKHOLDERS WHO HOLD THEIR
SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS AND WHO WISH TO EXERCISE
APPRAISAL RIGHTS ARE URGED TO CONSULT WITH THEIR BROKERS TO DETERMINE
APPROPRIATE PROCEDURES FOR THE MAKING OF A DEMAND FOR APPRAISAL BY THE NOMINEE.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, following the effective time of the merger, be entitled to
vote the shares subject to that demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares as of a record date
before the effective time of the merger).
Any stockholder may withdraw its demand for appraisal and accept $6.75 per
share by delivering to Dwyer a written withdrawal of the stockholder's demand
for appraisal. However, any such attempt to withdraw made more than 60 days
following the effective date of the merger will require Dwyer's written approval
as the surviving corporation. No appraisal proceeding in the Delaware Court of
Chancery will be dismissed with respect to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just. If Dwyer, as the surviving corporation, does not approve a
stockholder's request to withdraw a demand for appraisal when that approval is
required, or if the Delaware Court of Chancery does not approve the dismissal of
an appraisal proceeding, the stockholder will be entitled to receive only the
appraised value determined in any such appraisal proceeding, which value could
be more than, the same as or less than $6.75 per share.
A stockholder who elects to exercise appraisal rights under Section 262
should mail or deliver a written demand to The Dwyer Group, Inc., 1010 North
University Parks Drive, Texas 76707, Attn.: Secretary.
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NOTICE BY DWYER
Within 10 days following the effective time of the merger, Dwyer, as the
surviving corporation, must send a notice as to the effectiveness of the merger
to each of Dwyer's former stockholders who (i) has made a written demand for
appraisal in accordance with Section 262 and (ii) has not voted, nor consented,
to adopt the merger agreement or to approve the merger.
Under the merger agreement, Dwyer has agreed to give TDG Holding Company
prompt notice of any demands for appraisal received by Dwyer. In addition, a
condition to the completion of the merger requires the holders of no more than
10% of the total number of issued and outstanding shares of Dwyer common stock
request to exercise their appraisal rights. TDG Holding Company has the right to
participate in all negotiations and proceedings with respect to demands for
appraisal under the DGCL. Dwyer will not, except with the prior written consent
of TDG Holding Company, make any payment with respect to any demands for
appraisal, or offer to settle, or settle, any such demands.
Within 120 days following the effective time of the merger, any former
stockholder of Dwyer who has complied with the provisions of Section 262 to that
point in time will be entitled to receive from Dwyer, as the surviving
corporation, upon written request, a statement setting forth the aggregate
number of shares not voted in favor of the merger agreement and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Dwyer, as the surviving corporation, must mail that
statement to the stockholder within 10 days of receipt of the request or within
10 days after expiration of the period for delivery of demands for appraisals
under Section 262, whichever is later.
FILING A PETITION FOR APPRAISAL
Within 120 days following the effective date of the merger, either Dwyer,
as the surviving corporation, or any stockholder who has complied with the
requirements of Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the shares of common
stock held by all such stockholders. Dwyer is under no obligation, and has no
present intent, to file a petition for appraisal, and stockholders seeking to
exercise appraisal rights should not assume that Dwyer, as the surviving
corporation, will file such a petition or that it will initiate any negotiations
with respect to the fair value of the shares. Accordingly, stockholders who
desire to have their shares appraised should initiate any petitions necessary
for the perfection of their appraisal rights within the time and the manner
prescribed in Section 262. Inasmuch as Dwyer has no obligation to file such a
petition, the failure of a stockholder to do so within the time specified could
nullify the stockholder's previous written demand for appraisal.
A stockholder timely filing a petition for appraisal with the Delaware
Court of Chancery must deliver a copy to Dwyer as the surviving corporation,
which will then be obligated within 20 days to provide the Register in Chancery
with a duly verified list containing the names and addresses of all stockholders
who have demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by Dwyer, as the surviving
corporation. After notice to those stockholders, the Delaware Court of Chancery
may conduct a hearing on the petition to determine which stockholders have
become entitled to appraisal rights. The Delaware Court of Chancery may require
stockholders who have demanded an appraisal of their shares and who hold stock
represented by certificates to submit their certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings. If
any stockholder fails to comply with the requirement, the Delaware Court of
Chancery may dismiss the proceedings as to that stockholder.
DETERMINATION OF FAIR VALUE
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value.
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STOCKHOLDERS CONSIDERING SEEKING APPRAISAL SHOULD BE AWARE THAT THE FAIR
VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION 262 COULD BE MORE THAN, THE
SAME AS OR LESS THAN THE $6.75 PER SHARE THEY WOULD RECEIVE UNDER THE MERGER
AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES. TDG HOLDING COMPANY
DOES NOT ANTICIPATE OFFERING MORE THAN $6.75 PER SHARE TO ANY STOCKHOLDER
EXERCISING APPRAISAL RIGHTS AND RESERVES THE RIGHT TO ASSERT, IN ANY APPRAISAL
PROCEEDING, THAT, FOR PURPOSES OF SECTION 262, THE "FAIR VALUE" OF A SHARE OF
COMMON STOCK IS LESS THAN $6.75.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Court of Chancery is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider "market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which were known or
which could be ascertained as of the date of the merger and which throw any
light on future prospects of the merged corporation." Furthermore, the court may
consider "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation."
The costs of the action may be determined by the Delaware Court of Chancery
and taxed upon the parties as the Delaware Court of Chancery deems equitable.
However, costs do not include attorneys' and expert witness fees. Each
dissenting stockholder is responsible for his or her attorneys' and expert
witness fees, although upon application of a dissenting stockholder, the
Delaware Court of Chancery may also order that all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' and expert witness fees, be
charged pro rata against the value of all of the shares entitled to appraisal.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION
262 OF THE DGCL MAY RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS.
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THE MERGER AGREEMENT
The description of the merger agreement contained in this proxy statement
describes the material terms of the merger agreement. A complete copy of the
merger agreement, without schedules or exhibits, appears in Exhibit A to this
proxy statement and is incorporated by reference into this proxy statement. You
are urged to read the entire merger agreement because it is the legal document
that governs the merger.
THE MERGER
The merger agreement provides that, subject to the conditions summarized
below, TDG Merger Co. will merge with and into Dwyer. Following the merger, TDG
Merger Co. will cease to exist, and Dwyer will continue as the surviving
corporation.
EFFECTIVE TIME OF MERGER
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with the
DGCL. This time is referred to as the "effective time." The filing is expected
to occur as soon as practicable after adoption of the merger agreement, the
approval of the merger by the Dwyer stockholders at the special meeting and
satisfaction or waiver of the other conditions to the merger set forth in the
merger agreement.
CERTIFICATE OF INCORPORATION, BYLAWS AND DIRECTORS AND OFFICERS OF DWYER AS THE
SURVIVING CORPORATION
Following the merger:
- the certificate of incorporation of TDG Merger Co. as in effect
immediately prior to the effective time will be the certificate of
incorporation of Dwyer as the surviving corporation;
- the bylaws of TDG Merger Co. in effect immediately prior to the effective
time will be the bylaws of Dwyer as the surviving corporation;
- the directors of TDG Merger Co. immediately prior to the effective time
will become the directors of Dwyer as the surviving corporation; and
- the officers of Dwyer immediately prior to the effective time will be the
initial officers of Dwyer as the surviving corporation.
CONVERSION OF COMMON STOCK
At the effective time, each outstanding share of Dwyer common stock will
automatically be converted into and represent the right to receive $6.75 in
cash, without interest (referred to as the "merger consideration"), except for:
- those shares of Dwyer common stock held by TDG Holding Company, including
those that were exchanged by Rollover Stockholders immediately prior to
the merger for shares of common stock of TDG Holding Company;
- shares held by stockholders seeking appraisal rights in accordance with
Delaware law; and
- shares held by Dwyer in treasury that will be canceled without any
payment thereon.
At the effective time, each share of common stock of TDG Merger Co. issued
and outstanding immediately before the effective time will thereafter represent
one validly issued, fully paid and nonassessable share of common stock of Dwyer
as the surviving corporation.
PAYMENT FOR SHARES
At the effective time and promptly as needed following the effective time,
TDG Merger Co. will deposit with the paying agent appointed by TDG Merger Co.
sufficient funds to pay the merger
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consideration. Promptly following the effective time, Dwyer as the surviving
corporation will cause to be mailed to each record holder of shares of Dwyer
common stock immediately prior to the effective time instructions to effect the
surrender of their certificate(s) in exchange for payment of the merger
consideration.
STOCKHOLDERS OF DWYER SHOULD NOT FORWARD STOCK CERTIFICATES TO THE PAYING
AGENT UNTIL THEY HAVE RECEIVED THE INSTRUCTIONS FOR THE SURRENDER OF THEIR
SHARES.
Each stockholder will be entitled to receive $6.75 per share, without
interest, only upon surrender to the paying agent of a share certificate in
accordance with the instructions provided by Dwyer. If payment of the merger
consideration is to be made to a person whose name is other than that of the
person in whose name the share certificate is registered, it will be a condition
of payment that (i) the share certificate so surrendered be properly endorsed or
otherwise in proper form for transfer and (ii) the person requesting such
exchange pay any transfer or other taxes that may be required to the
satisfaction of the paying agent. No interest will be paid or accrued upon the
surrender of the share certificates for the benefit of holders of the share
certificates on any merger consideration.
One year following the effective time, TDG Holding Company will cause the
paying agent to deliver to Dwyer as the surviving corporation all cash and
documents in its possession, which have been deposited with the paying agent and
which have not been disbursed to holders of share certificates. Thereafter,
holders of certificates representing shares of Dwyer common stock outstanding
before the effective time may surrender their certificates to Dwyer as the
surviving corporation and receive the merger consideration relating thereto,
without any interest or dividends. Dwyer, TDG Holding Company, TDG Merger Co.
and the paying agent will not be liable to any person in respect of any merger
consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
TRANSFER OF SHARES
At the effective time, the stock transfer books of Dwyer will be closed and
there will be no further transfers on the records of Dwyer as the surviving
corporation, or its transfer agent of certificates representing shares of Dwyer
common stock outstanding before the effective time, and any such certificates
presented to Dwyer as the surviving corporation for transfer, other than shares
held by stockholders seeking appraisal rights, will be canceled. Following the
effective time, the holders of share certificates representing shares of Dwyer
common stock before the effective time will cease to have any rights with
respect to these shares except as otherwise provided for in the merger agreement
or by applicable law. All merger consideration paid upon the surrender for
exchange of those share certificates in accordance with the terms of the merger
agreement will be deemed to have been issued and paid in full satisfaction of
all rights pertaining to the share certificates.
TREATMENT OF STOCK OPTIONS
Dwyer will provide that, upon the effective time of the merger, each
outstanding option to purchase shares of Dwyer common stock and each outstanding
warrant to purchase shares of Dwyer common stock whether or not then exercisable
or vested, will be acquired by Dwyer for cancellation. In exchange, the holders
of such options and warrants will receive, for each share of Dwyer common stock
represented by such option or warrant, an amount in cash equal to the product of
the excess, if any, of the merger consideration over the per share exercise
price of such option or warrant.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Dwyer as the surviving corporation will
not amend, repeal or otherwise modify indemnification obligations in a way that
would adversely affect the rights of the individuals who as of the date of the
merger agreement were directors, officers, employees, fiduciaries or agents of
Dwyer or otherwise entitled to indemnification under the certificate of
incorporation, bylaws or indemnification agreements. Dwyer as the surviving
corporation is required to indemnify, defend and hold harmless all such persons
against any costs or expenses, judgments, fines, losses, claims, damages,
57
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation to the extent it was based on the fact that
such person is or was a director, officer or employee of Dwyer arising out of
actions taken at or prior to the effective time. In addition, following the
completion of the merger, Dwyer as the surviving corporation is required to
indemnify, defend and hold harmless all current and former officers, directors
and employees of Dwyer and its subsidiaries from and against all liabilities,
costs, damages, expenses and claims arising out of actions taken before the
effective time in performance of their duties as directors or officers of Dwyer
or any subsidiaries in connection with the transactions contemplated by the
merger agreement. In addition, Dwyer is required to maintain its directors and
officers' liability insurance policies in effect for three years following the
effective time of the merger, except that TDG Holding Company or Dwyer, as the
surviving corporation will not be required to pay annual insurance premiums in
excess of 200% of the premiums it currently pays.
REPRESENTATIONS AND WARRANTIES
ALL REPRESENTATIONS AND WARRANTIES ARE SUBJECT TO VARIOUS QUALIFICATIONS
AND LIMITATIONS. THE SECTION REFERENCE IN THE PARENTHETICAL FOLLOWING EACH
BULLET POINT DIRECTS YOU TO THE SECTION OF THE MERGER AGREEMENT WHERE THESE
QUALIFICATIONS AND LIMITATIONS TO THE REPRESENTATIONS AND WARRANTIES ARE
DESCRIBED.
The merger agreement contains various customary representations and
warranties of Dwyer (which will not survive completion of the merger) relating
to, among other things:
- the due organization, valid existence, good standing and necessary
corporate power and authority of Dwyer and its subsidiaries to carry on
their business (see Section 3.1);
- the capitalization of Dwyer (see Section 3.2);
- the authorization, execution, delivery and enforceability of the merger
agreement (see Section 3.3);
- the absence of any conflicts between the merger agreement and Dwyer's
certificate of incorporation and bylaws, the charter or bylaws of any
Dwyer subsidiary, and any applicable law or other contracts or documents
(see Section 3.4);
- the absence of consents, approvals, authorizations or permits of
governmental authorities, except those specified in the merger agreement,
required for Dwyer to complete the merger (see Section 3.4);
- the adequacy and accuracy of filings made by Dwyer with the SEC (see
Section 3.5);
- the conduct of Dwyer's business and operations in the ordinary course of
business since December 31, 2002, except as disclosed in Dwyer's reports
filed with the SEC and the absence of any material adverse effect (see
Section 3.6);
- the accuracy of information concerning Dwyer in this proxy statement (see
Section 3.9);
- the absence of any claim, action, suit, proceeding or investigation
actually pending or threatened against Dwyer or its subsidiaries that if
adversely determined, would, individually or in the aggregate, be
reasonably expected to have a material adverse effect on Dwyer's business
or operations (see Section 3.7);
- the inapplicability of Delaware anti-takeover laws to the merger and the
transactions contemplated by the merger (see Section 3.17);
- adoption of the merger agreement by the holders of outstanding shares of
Dwyer common stock as being the only vote of the holders of any class of
capital stock of Dwyer necessary under Dwyer's restated certificate of
incorporation, as amended, and Delaware law to approve the merger
agreement (see Section 3.18); and
- brokers', finders' and investment bankers' fees (see Section 3.20).
58
The merger agreement contains various customary representations and
warranties of TDG Holding Company and TDG Merger Co. (which will not survive
completion of the merger) relating to, among other things:
- the due organization, valid existence, good standing and necessary
corporate power and authority of TDG Holding Company and TDG Merger Co.
to carry on their business (see Section 2.1);
- the authorization, execution, delivery and enforceability of the merger
agreement (see Section 2.2);
- the absence of any conflicts between the merger agreement and TDG Holding
Company's or TDG Merger Co.'s certificate of incorporation or bylaws, any
applicable law or other contracts or documents (see Section 2.3);
- the absence of consents, approvals, authorization or permits of
governmental authorities, except those specified in the merger agreement,
required for TDG Holding Company or TDG Merger Co. to complete the merger
(see Section 2.3);
- the availability of sufficient funds to purchase the shares of Dwyer
common stock and to pay all related fees and expenses pursuant to the
merger (see Section 2.4);
- the accuracy of information concerning information provided by TDG
Holding Company or TDG Merger Co. in connection with this proxy statement
(see Section 2.5); and
- brokers', finders' and investment bankers' fees (see Section 2.6).
CONDUCT OF BUSINESS PENDING THE MERGER
Dwyer is subject to restrictions on its conduct and operations until the
effective time. In the merger agreement, Dwyer has agreed that, prior to the
effective time, it and its subsidiaries will not:
- conduct their business other than in the ordinary course of business and
in a manner consistent with past practice;
- amend their certificates of incorporation or bylaws or similar
organizational documents;
- declare or pay any dividends;
- issue or encumber any additional shares of common stock;
- incur any debt, except in the ordinary course of business and in a manner
consistent with past practice;
- redeem, purchase or otherwise acquire directly or indirectly any of their
capital stock or other securities;
- enter into, amend or terminate any material contract, except in the
ordinary course of business;
- grant any increase in the compensation or benefits payable to any
employee; adopt, enter into, amend, increase or accelerate the payment or
vesting under any benefit plan; grant any severance or termination pay to
any officer, director or employee; or enter into or amend any employment
or collective bargaining agreement in each case, subject to certain
exceptions, except in the ordinary course of business;
- change the accounting principles used by them unless required by GAAP
(or, if applicable with respect to Dwyer subsidiaries, foreign generally
accepted accounting principles);
- acquire by merger or consolidation, or by purchasing an equity interest
in or a portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization
or division thereof, or otherwise acquire any material assets of any
other entity;
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- sell, lease, exchange, transfer or otherwise dispose of, or agree to
sell, lease, exchange, transfer or otherwise dispose of, any of their
material assets;
- mortgage, pledge, hypothecate, grant any security interest in, or
otherwise subject to any other lien, any of their material properties or
assets;
- compromise, settle, grant any waiver or release relating to or otherwise
adjust any material claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than in
the ordinary course of business and in a manner consistent with past
practice;
- terminate any franchisee or licensee other than in the ordinary course of
business and in a manner consistent with past practice; or
- enter into an agreement, contract, commitment or arrangement to do any of
the foregoing.
NO SHOPPING
Dwyer has agreed that it will not, directly or indirectly, solicit,
initiate or encourage any proposal for a merger or similar transaction with any
other person or entity (referred to as an "acquisition transaction"). This
includes participating in negotiations or discussions with or offering or
furnishing any nonpublic information to any person or cooperating in any way
with any person to do or seek an acquisition transaction.
However, prior to the adoption of the merger agreement by the Dwyer
stockholders, Dwyer may furnish information to, and enter into negotiations
with, any party that makes an unsolicited written offer for an acquisition
transaction, if the board of directors of Dwyer determines in its good faith and
reasonable judgment, after consultation with its legal and financial advisors,
that:
- the failure to take such action would result in a breach of the
directors' fiduciary duties; and
- the proposal is more favorable to the Dwyer stockholders and for which no
financing contingency exists.
Promptly after receiving a proposal or inquiry relating to an acquisition
transaction, Dwyer will notify TDG Holding Company of the proposal, including
the identity of the person making the proposal and its material terms and
conditions.
ACCESS TO INFORMATION
Dwyer has agreed to afford to the officers, employees, financial advisors,
agents and other representatives of TDG Holding Company or TDG Merger Co.
reasonable access upon reasonable notice and during normal business hours, to
Dwyer's or any of its subsidiaries' officers, employees, agents, properties,
offices and other facilities and to all books and records, and to furnish TDG
Holding Company and TDG Merger Co. with all financial, operating and other data
as either TDG Holding Company or TDG Merger Co. may reasonably request.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION
Dwyer's, TDG Holding Company's and TDG Merger Co.'s obligations to complete
the merger are subject to the satisfaction or waiver on or prior to the closing
date of the following conditions:
- the adoption of the merger agreement and the approval of the merger by
the holders of a majority of the outstanding shares of Dwyer common
stock;
- the absence of any law, order or injunction that prohibits the completion
of the merger; and
- the receipt of all required governmental and regulatory approvals.
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CONDITIONS TO TDG HOLDING COMPANY AND TDG MERGER CO.'S OBLIGATIONS
TDG Holding Company's and TDG Merger Co.'s obligations to complete the
merger are subject to the satisfaction or waiver by TDG Holding Company and TDG
Merger Co. on or prior to the closing date of the following conditions:
- Dwyer's representations and warranties in the merger agreement that are
qualified by materiality must be true and correct in all respects as of
the date of the merger agreement and as of the effective time;
- Dwyer's representations and warranties in the merger agreement that are
not qualified by materiality must be true and correct in all material
respects as of the date of the merger agreement and as of the effective
time;
- Dwyer must have performed in all material respects all obligations under
the merger agreement required to be performed at or prior to the
effective time;
- holders of not more than 10% of the outstanding shares of Dwyer common
stock exercise their right to appraisal under the DGCL;
- the absence of any event that has had a material adverse effect on Dwyer;
- each option or warrant to purchase Dwyer common stock will have been
exercised, forfeited or cancelled;
- TDG Holding Company, RCAF 2000 and the Rollover Stockholders will have
consummated the transactions contemplated by the contribution agreement;
and
- Dwyer's EBITDA for the 12 months immediately preceding the mailing of
this proxy statement must be not less than $6,460,000.
CONDITIONS TO DWYER'S OBLIGATION
Dwyer's obligation to effect the merger is subject to the satisfaction, or
waiver by Dwyer on or prior to the closing date of the following conditions:
- TDG Holding Company's and TDG Merger Co.'s representations and warranties
that are qualified by materiality must be true and correct in all
material respects as of the date of the merger agreement and the
effective time;
- TDG Holding Company's and TDG Merger Co.'s representations and warranties
in the merger agreement that are not qualified by materiality must be
true and correct in all material respects as of the date of the merger
agreement and as of the effective time;
- each of TDG Holding Company and TDG Merger Co. must have performed in all
material respects all obligations under the merger agreement required to
be performed at or prior to the effective time; and
- TDG Holding Company and RCAF 2000 must have performed in all material
respects all obligations and complied in all material respects, all
agreements and covenants required to be performed or complied with by
them under the contribution agreement.
WAIVER
At any time before the effective time of the merger, Dwyer, TDG Holding
Company or TDG Merger Co. may waive any of the conditions to their obligations
to consummate the merger, to the extent permitted by law.
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TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time, whether before or after approval by the Dwyer stockholders:
- by mutual written consent of TDG Holding Company and Dwyer;
- by either TDG Holding Company or Dwyer if:
- any final and nonappealable order, decree or ruling permanently
restrains, enjoins or otherwise prohibits the merger after the parties
have used their best efforts to have the order removed;
- the merger has not occurred by December 31, 2003, or such later date as
TDG Holding Company and Dwyer mutually agree;
- the Dwyer stockholders fail to adopt the merger agreement;
- by Dwyer if TDG Holding Company or TDG Merger Co. is in material breach
of the merger agreement and does not cure the breach within 30 days after
written notice;
- by TDG Holding Company if:
- TDG Merger Co. is in material breach of any representation, warranty or
covenant in the merger agreement and does not cure the breach within 30
days after written notice;
- the board of directors of Dwyer, prior to the approval of the merger
agreement by the Dwyer stockholders, withdraws, modifies or changes its
recommendation or approval of the merger; recommends any proposal, other
than by TDG Holding Company or TDG Merger Co., for an acquisition
transaction; or resolves to take any of the foregoing actions; or
- Dwyer's EBITDA for the 12 months immediately preceding the mailing of
this proxy statement is less than $6,460,000.
TERMINATION FEES AND EXPENSES
Dwyer will be required to pay certain amounts to TDG Holding Company, as
TDG Holding Company's and TDG Merger Co.'s sole and exclusive remedy, if the
merger agreement is terminated by TDG Holding Company as a result of a material
breach by Dwyer of its representations, warranties, covenants or agreements made
in the merger agreement, as follows:
- If such breach is willful and frustrates the consummation of the merger,
then Dwyer will be required to pay TDG Holding Company's actual and
reasonable documented expenses not to exceed $750,000;
- If, at the time of such breach, a third party made an offer with respect
to an acquisition transaction that has not been rejected by Dwyer or
withdrawn by the third party, then Dwyer will be required to pay TDG
Holding Company's actual and reasonable documented expenses not to exceed
$750,000; and if, within two years of termination of the merger
agreement, Dwyer consummates an acquisition transaction with such third
party, then Dwyer will also be required to pay TDG Holding Company a
termination fee of $2,000,000; and
- If the agreement is terminated as a result of such breach other than as
set forth above, then TDG Holding Company may pursue any rights and
remedies available to it at law or in equity, subject to a maximum
aggregate recovery against Dwyer of $100,000.
Dwyer will be required to pay certain amounts to TDG Holding Company, as
TDG Holding Company's and TDG Merger Co.'s sole and exclusive remedy, if another
acquisition transaction has been
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made known to Dwyer or made directly to the Dwyer stockholders and if the merger
agreement is terminated, as follows:
- If the merger agreement is terminated by Dwyer or TDG Holding Company
because the stockholders of Dwyer fail to approve the merger, then Dwyer
will be required to pay TDG Holding Company's actual and reasonable
documented expenses not to exceed $750,000; and, if such acquisition
transaction is consummated, then Dwyer will be required to pay TDG
Holding Company a termination fee of $2,000,000; or
- If the merger agreement is terminated by TDG Holding Company because the
board of directors of Dwyer withdraws, modifies or changes its
recommendation or recommends any proposal other than by TDG Holding
Company or TDG Merger Co., then Dwyer will be required to pay TDG Holding
Company's actual and reasonable documented expenses not to exceed
$750,000; and, if such acquisition transaction is consummated, then Dwyer
will be required to pay TDG Holding Company a termination fee of
$2,000,000.
TDG Holding Company will be required to pay certain amounts to Dwyer, as
Dwyer's sole and exclusive remedy, if the merger agreement is terminated by
Dwyer as a result of a material breach by TDG Holding Company or TDG Merger Co.
of their representations, warranties, covenants or agreements made in the merger
agreement, as follows:
- If such breach is willful and frustrates the consummation of the merger
and occurs at such time as all conditions to TDG Holding Company's and
TDG Merger Co.'s obligations to consummate the merger have been
fulfilled, then TDG Holding Company will be required to pay Dwyer's
actual and reasonable documented expenses not to exceed $750,000 and a
termination fee of $2,000,000; and
- If the agreement is terminated as a result of such breach other than as
set forth above, then Dwyer may pursue any rights and remedies available
to it at law or in equity, subject to a maximum aggregate recovery
against TDG Holding Company of $100,000.
EXPENSE REIMBURSEMENT
Except for the reimbursement of expenses to TDG Holding Company or Dwyer in
the event of termination of this merger agreement as described above, all fees
and expenses incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid by the party
incurring the expenses, whether or not the merger is completed.
AMENDMENTS
The merger agreement may be amended by agreement of the parties in writing
at any time before or after any required approval of matters presented in
connection with the merger by the stockholders; provided, however, that after
any such approval, no amendment may be made that would:
- reduce the amount or change the type of consideration into which each
share of Dwyer common stock will be converted upon consummation of the
merger; or
- alter or change any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the Dwyer stockholders.
RECENT TRANSACTIONS
There have been no transactions in the common stock of Dwyer effected
during the last 60 days by Dwyer or any Rollover Stockholder.
63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of Dwyer common stock as of June 1, 2003, by (i) all those known to
Dwyer to be beneficial owners of more than 5% of its common stock, (ii) each
executive officer and director of Dwyer and (iii) all executive officers and
directors of Dwyer as a group. TDG Holding Company and TDG Merger Co. currently
do not beneficially own any Dwyer common stock. Unless otherwise indicated, the
address for each of the stockholders listed below is c/o The Dwyer Group, Inc.,
1010 North University Parks Drive, Waco, Texas 76707.
<Table>
<Caption>
SHARES OF
COMMON
STOCK
BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS(2)
- ---- ------------ ----------
Theresa Dwyer(3)(5)......................................... 4,236,853 60.0%
Dwyer Investments, Ltd.(4).................................. 3,800,706 53.8%
Donald J. Dwyer, Jr.(5)(6)(7)............................... 685,422 9.7%
Robert Tunmire(6)(8)........................................ 683,934 9.5%
Renaissance Capital Growth & Income Fund III(9)............. 675,000 9.6%
Dina Dwyer-Owens(6)(7)...................................... 569,015 8.0%
Deborah Wright-Hood(6)...................................... 562,284 8.0%
Donna Dwyer Van-Zandt(6).................................... 559,879 7.9%
Douglas Dwyer(6)............................................ 550,597 7.8%
Darren Dwyer(6)............................................. 533,215 7.5%
Michael Bidwell(10)......................................... 129,345 1.8%
Thomas Buckley(11).......................................... 127,105 1.8%
Donald J. Dwyer Family Trust(4)............................. 115,659 1.6%
John Hayes(12).............................................. 60,670 *
Donald E. Latin(13)......................................... 32,500 *
Burton D. Cohen(14)......................................... -0- N/A
Officers and directors as a group(3)(15).................... 4,855,991 65.2%
</Table>
- ---------------
* Less than 1%
(1) Each beneficial owner's percentage interest is determined by including
shares over which the person has voting power or dispositive power and by
assuming that exercisable options that are held by such person (but not
those held by any other person) have been exercised. Except as noted, Dwyer
believes that all persons named in the table have voting and dispositive
power with respect to all shares of common stock owned by them.
(2) Based on a total of 7,063,931 shares of common stock outstanding as of June
1, 2003, prior to the exercise of any outstanding options or warrants.
(3) Includes 3,800,706 shares of common stock owned by the Partnership (defined
below) over which Theresa Dwyer has sole dispositive power as Managing
Partner.
(4) Donald J. Dwyer, Sr., former Chairman of the Board, President and CEO of
Dwyer, died in 1994. In 1997, his estate distributed 4,077,501 shares of
common stock beneficially owned by the estate to Theresa Dwyer with the
remaining 115,423 shares distributed to the Donald J. Dwyer Family Trust
(the "Trust"), of which Theresa Dwyer and Donald J. Dwyer, Jr. are
co-trustees. Also in 1997, Theresa Dwyer contributed 3,899,182 beneficially
owned shares, and the Trust contributed 115,092 beneficially owned shares,
to Dwyer Investments, Ltd., (the "Partnership") in exchange for equity
interests. In 1998, Theresa Dwyer sold 13.3% limited partnership interests
in the Partnership to the Donald J. Dwyer, Jr. GST Trust, the Donna
Dwyer-Van Zandt GST Trust, the Deborah Wright-
64
Hood GST Trust, the Dina Dwyer-Owens GST Trust, the Darren Dwyer GST Trust,
the Douglas Dwyer GST Trust, (each individual is trustee of their
generation-skipping trusts) and to Robert Tunmire, individually. Theresa
Dwyer, as managing partner, has sole dispositive power over the stock owned
by the Partnership.
(5) Includes 115,659 shares of common stock of the Trust over which Theresa
Dwyer and Donald J. Dwyer, Jr. have shared voting power as co-trustees.
(6) Includes 533,215 shares of common stock of the Partnership over which each
individual has sole voting power but no dispositive power.
(7) Includes options to purchase 5,000 shares of common stock now exercisable
under an incentive stock option plan.
(8) Includes options to purchase 100,000 shares of common stock now exercisable
under an incentive stock plan.
(9) Based on a Schedule 13G filed with the SEC on February 5, 1998. The
principal business address of Renaissance Capital Growth & Income Fund III,
Inc. is c/o Renaissance Capital Group, Inc., 8080 North Central Expressway,
Suite 210, Dallas, Texas 75206.
(10) Includes options to purchase 97,600 shares of common stock now exercisable
or exercisable within 60 days under an incentive stock option plan.
(11) Includes options to purchase 92,405 shares of common stock now exercisable
or exercisable within 60 days under an incentive stock option plan.
(12) Includes options to purchase 60,420 shares of common stock now exercisable
or exercisable within 60 days. The principal business address for Mr. Hayes
is 6612 Dupper Court, Dallas, Texas 75252.
(13) Includes options to purchase 22,000 shares of common stock now exercisable
or exercisable within 60 days. The principal address for Mr. Latin is 3102
Maple Avenue, Suite 450, Dallas, Texas 75201.
(14) The principal business address for Mr. Cohen is 300 Cedar Avenue, Highland
Park, Illinois 60035.
(15) Includes options to purchase 382,425 shares of common stock now exercisable
or exercisable within 60 days under an incentive stock option plan.
65
INDEPENDENT AUDITORS
Dwyer's financial statements for the fiscal years ended December 31, 2002
and 2001, and incorporated by reference in this proxy statement, have been
audited by BDO Seidman, LLP, independent auditors, as stated in their report
incorporated herein by reference from Dwyer's annual report on Form 10-KSB for
the year ended December 31, 2002. Representatives of BDO Seidman, LLP are
expected to be available at the special meeting to respond to appropriate
questions of stockholders and to make a statement if they desire to do so.
FUTURE STOCKHOLDER PROPOSALS
If the merger is completed, there will be no public participation in any
future meetings of stockholders of Dwyer. However, if the merger is not
completed, Dwyer stockholders will continue to be entitled to attend and
participate in Dwyer stockholders' meetings. If the merger is not completed,
Dwyer will inform its stockholders, by press release or other means determined
reasonable by Dwyer, of the date by which stockholder proposals must be received
by Dwyer for inclusion in the proxy materials relating to the annual meeting,
which proposals must comply with the rules and regulations of the SEC then in
effect.
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
Dwyer files annual, quarterly and special reports, proxy statements and
other information with the SEC. In addition, because the merger is a "going
private" transaction, Dwyer has filed a Rule 13e-3 Transaction Statement on
Schedule 13E-3 with respect to the merger. The Schedule 13E-3, the exhibits to
the Schedule 13E-3 and such reports, proxy statements and other information
contain additional information about Dwyer. Each exhibit to the Schedule 13E-3,
including the reports and opinions of William Blair, and the other documentation
relating to the merger and the merger financing, will be made available for
inspection and copying at Dwyer's executive offices during regular business
hours by any Dwyer stockholder or a representative of a stockholder as so
designated in writing.
Dwyer stockholders may read and copy the Schedule 13E-3 and any reports,
statements or other information filed by Dwyer at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the SEC: 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 233 Broadway, New York, New York 10279. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Dwyer's filings with the SEC are also available to the public
from commercial document retrieval services and at the website maintained by the
SEC located at: http://www.sec.gov.
The SEC allows Dwyer to "incorporate by reference" information into this
proxy statement. This means that Dwyer can disclose important information by
referring to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this proxy statement. This
proxy statement and the information that Dwyer files later with the SEC may
update and supersede the information incorporated by reference. Similarly, the
information that Dwyer later files with the SEC may update and supersede the
information in this proxy statement. Dwyer incorporates by reference each
document it files under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act after the date of this proxy statement and before the special
meeting. Dwyer also incorporates by reference into this proxy statement the
following documents filed by it with the SEC under the Securities Exchange Act:
- Dwyer's Annual Report on Form 10-KSB for the year ended December 31,
2002;
- Dwyer's Quarterly Report on Form 10-QSB for the quarter ended March 31,
2003; and
- Dwyer's Current Reports on Forms 8-K dated March 7, 2003 and May 15,
2003.
This proxy statement does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the solicitation of a proxy,
in any jurisdiction to or from any person to whom it is not lawful to make any
offer or solicitation in such jurisdiction. The delivery of this proxy statement
should not create
66
an implication that there has been no change in the affairs of Dwyer since the
date of this proxy statement or that the information herein is correct as of any
later date.
Stockholders should not rely on information other than that contained or
incorporated by reference in this proxy statement. Dwyer has not authorized
anyone to provide information that is different from that contained in this
proxy statement. This proxy statement is dated [ ],
2003. No assumption should be made that the information contained in this proxy
statement is accurate as of any date other than such date, and the mailing of
this proxy statement will not create any implication to the contrary.
67
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
TDG HOLDING COMPANY,
TDG MERGER CO. AND
THE DWYER GROUP, INC.
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 11, 2003
TABLE OF CONTENTS
<Table>
ARTICLE I THE MERGER.................................................. A-4
SECTION 1.1 The Merger.................................................. A-4
SECTION 1.2 Effective Time.............................................. A-5
SECTION 1.3 Effect of the Merger; Closing............................... A-5
SECTION 1.4 Subsequent Actions.......................................... A-5
SECTION 1.5 Certificate of Incorporation; Bylaws; Directors and
Officers.................................................... A-5
SECTION 1.6 Conversion of Securities.................................... A-5
SECTION 1.7 Dissenting Shares........................................... A-6
SECTION 1.8 Surrender of Shares; Stock Transfer Books................... A-6
SECTION 1.9 Stock Plans, Non-Plan Options and Warrant Agreements........ A-7
SECTION 1.10 Certain Adjustments......................................... A-8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...... A-8
SECTION 2.1 Corporate Organization...................................... A-8
SECTION 2.2 Authority Relative to this Agreement........................ A-8
SECTION 2.3 No Conflict; Required Filings and Consents.................. A-9
SECTION 2.4 Financing Arrangements...................................... A-9
SECTION 2.5 Proxy Statement; Schedule 13E-3............................. A-9
SECTION 2.6 Brokers..................................................... A-9
SECTION 2.7 No Additional Representations of Warranties................. A-10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-10
SECTION 3.1 Organization and Qualification; Subsidiaries................ A-10
SECTION 3.2 Capitalization.............................................. A-10
SECTION 3.3 Authority Relative to this Agreement........................ A-11
SECTION 3.4 No Conflict; Required Filings and Consents.................. A-11
SECTION 3.5 SEC Filings; Financial Statements........................... A-12
SECTION 3.6 Absence of Certain Changes or Events........................ A-12
SECTION 3.7 Litigation.................................................. A-13
SECTION 3.8 Employee Benefit Plans; Labor Matters....................... A-13
SECTION 3.9 Proxy Statement; Schedule 13E-3............................. A-15
SECTION 3.10 Compliance; Permits......................................... A-16
SECTION 3.11 Taxes....................................................... A-16
SECTION 3.12 Intellectual Property....................................... A-17
</Table>
A-1
<Table>
SECTION 3.13 Contracts................................................... A-18
SECTION 3.14 Environmental Matters....................................... A-19
SECTION 3.15 Related Party Transactions.................................. A-20
SECTION 3.16 Relationships with Franchisees.............................. A-20
SECTION 3.17 State Takeover Statutes..................................... A-21
SECTION 3.18 Required Vote of Company Stockholders....................... A-21
SECTION 3.19 Opinion of Financial Advisor................................ A-21
SECTION 3.20 Brokers..................................................... A-22
SECTION 3.21 No Additional Representations of Warranties................. A-22
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER...................... A-22
SECTION 4.1 Conduct of Business Pending the Merger...................... A-22
SECTION 4.2 No Shopping................................................. A-23
ARTICLE V ADDITIONAL AGREEMENTS....................................... A-24
SECTION 5.1 Proxy Statement; Schedule 13E-3............................. A-24
SECTION 5.2 Meeting of Stockholders of the Company...................... A-25
SECTION 5.3 Notification of Certain Matters............................. A-25
SECTION 5.4 Access to Information; Transition........................... A-25
SECTION 5.5 Reasonable Best Efforts; Cooperation........................ A-25
SECTION 5.6 Public Announcements........................................ A-27
SECTION 5.7 Agreement to Defend and Indemnify........................... A-27
SECTION 5.8 Stockholder Litigation...................................... A-28
SECTION 5.9 Standstill Agreements; Confidentiality Agreements........... A-28
SECTION 5.10 Delisting................................................... A-28
SECTION 5.11 Employee and Termination Benefits........................... A-28
SECTION 5.12 Tax Treatment............................................... A-29
ARTICLE VI CONDITIONS OF MERGER........................................ A-29
SECTION 6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-29
SECTION 6.2 Conditions to Obligations of Parent and Purchaser to Effect
the Merger.................................................. A-30
SECTION 6.3 Conditions to Obligations of the Company to Effect the
Merger...................................................... A-31
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................... A-31
SECTION 7.1 Termination................................................. A-31
SECTION 7.2 Effect of Termination....................................... A-32
ARTICLE VIII GENERAL PROVISIONS.......................................... A-33
SECTION 8.1 Non-Survival of Representations, Warranties and
Agreements.................................................. A-33
SECTION 8.2 Notices..................................................... A-33
SECTION 8.3 Expenses.................................................... A-34
SECTION 8.4 Certain Definitions......................................... A-34
SECTION 8.5 Headings.................................................... A-36
SECTION 8.6 Severability................................................ A-36
SECTION 8.7 Entire Agreement; No Third-Party Beneficiaries.............. A-36
SECTION 8.8 Assignment.................................................. A-36
SECTION 8.9 Governing Law............................................... A-36
SECTION 8.10 Amendment................................................... A-36
</Table>
A-2
<Table>
SECTION 8.11 Waiver...................................................... A-36
SECTION 8.12 Consent to Jurisdiction..................................... A-37
SECTION 8.13 Specific Enforcement........................................ A-37
SECTION 8.14 Interpretation.............................................. A-37
SECTION 8.15 Counterparts................................................ A-37
</Table>
A-3
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 11, 2003 (this
"Agreement"), is among THE DWYER GROUP, INC., a Delaware corporation (the
"Company"), TDG HOLDING COMPANY, a Delaware corporation ("Parent"), and TDG
MERGER CO., a Delaware corporation and a wholly owned subsidiary of Parent
("Purchaser").
BACKGROUND INFORMATION
A. The Board of Directors of the Company has determined that it is
advisable and in the best interests of its stockholders for Parent to acquire
the Company upon the terms and subject to the conditions set forth herein.
B. The Boards of Directors of the Company, Purchaser and Parent each have
approved and declared advisable this Agreement, which provides for the merger of
Purchaser with and into the Company (the "Merger") in accordance with the
General Corporation Law of the State of Delaware, as amended ("Delaware Law"),
and upon the terms and subject to the conditions set forth herein, whereby all
of the issued and outstanding shares (the "Shares") of Company Common Stock,
other than Dissenting Shares, the Converted Shares and any shares of Common
Stock owned by Parent, Purchaser or held in the treasury of the Company, will be
converted into the right to receive the Merger Consideration.
C. The Board of Directors of the Company (the "Board of Directors") has
unanimously resolved to recommend this Agreement and acceptance of the Merger to
the holders of Shares and has determined that the consideration to be paid for
each Share in the Merger is fair to the holders of such Shares and to recommend
that the holders of such Shares adopt this Agreement.
D. In order to induce Parent and Purchaser to enter into this Agreement,
concurrently with the execution and delivery hereof, Parent, Purchaser, the
Company and certain of the Company's stockholders (who together beneficially own
approximately 58.5% of the outstanding Shares), are entering into a voting
agreement dated the date hereof (the "Voting Agreement").
E. Concurrently with the execution and delivery hereof, the stockholders of
the Company listed on Section A of the Disclosure Schedule (the "Rollover
Stockholders"), 2000 Riverside Capital Appreciation Fund, L.P., a Delaware
limited partnership ("Riverside"), and Parent have entered into a contribution
agreement (the "Contribution Agreement"), pursuant to which, subject to the
satisfaction of the conditions set forth therein, (a) Riverside will contribute
cash to Parent in exchange for shares of common stock, $.01 par value per share,
of Parent ("Parent Stock"), and (b) the Rollover Stockholders will contribute
shares of Company Common Stock (the "Converted Shares") or cash to Parent in
exchange for shares of Parent Stock, all as set forth in the Contribution
Agreement. Section A of the Disclosure Schedule sets forth the respective
aggregate dollar value to be contributed to Parent in cash or converted shares
by each Rollover Stockholder.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company, Parent and Purchaser hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and Delaware Law, Purchaser shall be
merged with and into the Company, the separate corporate existence of Purchaser
shall cease, and the Company shall continue as the surviving corporation.
A-4
The Company as the surviving corporation after the Merger hereinafter sometimes
is referred to as the "Surviving Corporation."
SECTION 1.2 Effective Time. On or as promptly as practicable after the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing a Certificate of Merger (the "Certificate of Merger") with the Secretary
of State of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law (the time of such
filing being the "Effective Time").
SECTION 1.3 Effect of the Merger; Closing. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, 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 closing of
the Merger (the "Closing") shall take place at a time and on a date (the
"Closing Date") to be specified by the parties, which shall be as soon as
practicable, but in any event no later than the third Business Day after
satisfaction or waiver of the latest to occur of the conditions precedent set
forth in Article VI, at the offices of Jones Day, 2727 N. Harwood Street,
Dallas, Texas or such other location as may be reasonably requested by Parent's
financing sources, unless another time, date or location is agreed to in writing
by the parties. "Business Day" means any day other than Saturday, Sunday, a
federal holiday or a day on which banks in the State of New York are required to
be closed.
SECTION 1.4 Subsequent Actions. 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 either of the Company or 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 either the Company or 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 any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.5 Certificate of Incorporation; Bylaws; Directors and Officers.
(a) At the Effective Time, the certificate of incorporation of the
Purchaser, as in effect immediately before the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended as provided by Law and such certificate of incorporation.
(b) The bylaws of Purchaser, as in effect immediately before the Effective
Time, shall be the bylaws of the Surviving Corporation until thereafter amended
as provided by Law, the certificate of incorporation of the Surviving
Corporation and such bylaws.
(c) The board of directors of Purchaser immediately before the Effective
Time will be the initial board of directors of the Surviving Corporation, and
the officers of the Company immediately before the Effective Time will be the
initial officers of the Surviving Corporation, in each case until their
successors are elected or appointed and qualified. If, at the Effective Time, a
vacancy shall exist on the board of directors of the Surviving Corporation or in
any office of the Surviving Corporation, such vacancy may thereafter be filled
in the manner provided by Law.
SECTION 1.6 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any further action on the part of Purchaser, the Company
or the holder of any capital stock of the Company or Purchaser:
(a) Each Share issued and outstanding immediately before the Effective Time
(other than any Shares to be canceled pursuant to Section 1.6(b) and any
Dissenting Shares) shall be converted into the
A-5
right to receive $6.75 in cash payable to the holder thereof, without interest
(the "Merger Consideration"), upon surrender of the certificate which
immediately prior to the Effective Time represented such Share in the manner
provided in Section 1.8. All such Shares, when so converted as provided herein,
shall automatically be canceled and extinguished and will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist, and each holder of a certificate which immediately prior to the Effective
Time represented such Share will cease to have any rights with respect thereto
except as otherwise provided herein and by Law and shall only represent the
right to receive the Merger Consideration therefor upon the surrender of such
certificate in accordance with Section 1.8. Any payment made pursuant to this
Section 1.6(a) will be made net of applicable withholding taxes to the extent
such withholding is required by Law.
(b) Each Share issued and outstanding immediately before the Effective Time
and held in the treasury of the Company or owned by Parent, Purchaser or any
other subsidiary of Parent (including, without limitation, the Converted Shares)
shall be automatically canceled and will cease to exist and no payment or other
consideration shall be made with respect thereto.
(c) Each share of common stock, par value $.01 per share, of Purchaser
issued and outstanding immediately before the Effective Time shall thereafter
represent one validly issued, fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock").
SECTION 1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
Shares that are issued and outstanding immediately prior to the Effective Time
and that are held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal of the Shares owned
by such holder in accordance with Delaware Law (including, but not limited to,
sec.262 thereof) and as of the Effective Time has neither effectively withdrawn
nor lost the right to such appraisal ("Dissenting Shares"), shall not be
converted into or represent the right to receive cash pursuant to Section 1.6,
and the holder thereof shall be entitled to only such rights as are granted by
Delaware Law.
(b) Notwithstanding the provisions of Section 1.7(a), if any holder of
Dissenting Shares shall fail to perfect or effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then such holder's
Shares shall be treated as if they had been automatically converted as of the
Effective Time into and represent only the right to receive cash as provided in
Section 1.6(a), without interest thereon upon surrender of the certificate or
certificates formerly representing such Shares.
(c) The Company shall give Purchaser (i) prompt notice of any written
demands for appraisal or payment of the fair value of any Shares, withdrawals of
such demands, and any other instruments served pursuant to Delaware Law received
by the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. The
Company shall not voluntarily make any payment with respect to any demands for
appraisal and shall not, except with the prior written consent of Purchaser,
settle or offer to settle any such demands.
SECTION 1.8 Surrender of Shares; Stock Transfer Books.
(a) Before the Effective Time, Purchaser shall designate a bank or trust
company reasonably acceptable to the Company to act as agent for the holders of
Shares (other than the Converted Shares) (the "Paying Agent") to receive the
funds necessary to make the payments contemplated by Section 1.6. Immediately
following the Effective Time, and promptly as needed thereafter, Purchaser shall
deposit, or cause to be deposited, in trust with the Paying Agent for the
benefit of holders of Shares (other than the Shares to be cancelled pursuant to
Section 1.6(b)) the aggregate consideration to which such holders shall be
entitled at the Effective Time pursuant to Section 1.6.
(b) Promptly after the Effective Time, Purchaser shall cause the
distribution to holders of record of Shares (other than the Converted Shares) as
of the Effective Time of appropriate materials to facilitate such surrender in a
form mutually acceptable to Purchaser and the Company. Each holder of a
certificate
A-6
or certificates which immediately before the Effective Time represented Shares
(other than the Converted Shares) (the "Certificate(s)") may thereafter
surrender such Certificate or Certificates to the Paying Agent, as agent for
such holder. Upon the surrender of Certificates for cancellation, together with
such materials, Purchaser shall cause the Paying Agent to promptly pay the
holder of such Certificates in exchange therefor, cash in an amount equal to the
Merger Consideration multiplied by the number of Shares formerly represented by
such Certificate. Until so surrendered, each such Certificate (other than
Certificates representing Converted Shares, Dissenting Shares and Certificates
representing Shares held by Parent, Purchaser, or any subsidiary of Parent or in
the treasury of the Company) shall represent solely the right to receive the
Merger Consideration relating thereto.
(c) If payment of cash in respect of canceled Shares is to be made to a
Person other than the Person in whose name a surrendered Certificate is
registered, it shall be a condition to such payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the Person requesting such payment shall have paid any
transfer and other taxes required by reason of such payment in a name other than
that of the registered holder of the Certificate or instrument surrendered or
shall have established to the satisfaction of Purchaser or the Paying Agent that
such tax either has been paid or is not payable.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and there shall not be any further registration of transfers of any
Shares thereafter on the records of the Company. If, at or after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for cash as provided in Section 1.6(a). No interest shall
accrue or be paid on any cash payable upon the surrender of a Certificate or
Certificates which immediately before the Effective Time represented issued and
outstanding Shares.
(e) Promptly following the date which is one (1) year after the Effective
Time, the Paying Agent shall deliver to Purchaser all cash, Certificates and
other documents in its possession relating to the transactions contemplated
hereby, and the Paying Agent's duties shall terminate. Thereafter, each holder
of a Certificate (other than Certificates representing Converted Shares,
Dissenting Shares and Certificates representing Shares held by Parent,
Purchaser, or any other subsidiary of Parent or in the treasury of the Company)
may surrender such Certificate to Parent or the Surviving Corporation and
(subject to applicable abandoned property, escheat and similar Laws) receive in
consideration thereof the Merger Consideration relating thereto, without any
interest or dividends thereon.
(f) The Merger Consideration paid in the Merger shall be net to the holder
of Shares in cash, subject to reduction only for any applicable federal back-up
withholding.
(g) In the event any Certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed, the Paying Agent will issue in exchange for
such lost, stolen or destroyed Certificate, the Merger Consideration deliverable
in respect thereof as determined in accordance with Section 1.6 if the Person to
whom the Merger Consideration is paid shall, as a condition precedent to the
payment thereof, give the Surviving Corporation a bond in such sum as the
Surviving Corporation may reasonably direct or otherwise indemnify the Surviving
Corporation in a manner reasonably satisfactory to it against any claim that may
be made against the Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
SECTION 1.9 Stock Plans, Non-Plan Options and Warrant Agreements.
(a) The Company shall (which shall include, but are not limited to,
satisfying the requirements of Rule 16b-3(e) which is promulgated under Section
16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
without incurring any liability in connection therewith) provide that, upon
consummation of the Merger, (i) each then outstanding option to purchase Shares
(the "Options") granted under any of the Company's stock option plans referred
to in Section 3.2(a), each as amended (collectively, the "Option Plans"), (ii)
each then outstanding option to purchase Shares (the "Non-Plan Options") granted
outside of the Option Plans referred to in Section 3.2(a), each as amended
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(collectively, the "Non-Plan Option Agreements") and (iii) each then outstanding
warrant to purchase Shares (the "Warrants") granted under any of the warrant
agreements referred to in Section 3.2(a), each as amended (collectively, the
"Warrant Agreements"), whether or not then exercisable or vested, shall be
acquired by the Company for cancellation in consideration of payment to the
holders of such Options, Non-Plan Options and Warrants of an amount in cash in
respect thereof equal to the product of (A) the excess, if any, of the Merger
Consideration over the per share exercise price thereof and (B) the number of
Shares subject thereto (such payment to be net of applicable withholding taxes).
Without limiting the generality of the Company's obligations under this Section
1.9(a), the Company shall obtain any consents required of holders of Options,
Non-Plan Options and Warrants to effect the foregoing.
(b) Subject to Sections 1.9(a) and (b), the Company shall cause the Option
Plans, Non-Plan Option Agreements and Warrant Agreements to terminate as of the
Effective Time, and the Company shall ensure that following the Effective Time
no holder of Options, Non-Plan Options or Warrants or any participant in the
Option Plans, shall have any right to acquire any equity securities of the
Surviving Corporation or any subsidiary thereof solely as a result of such
holder's Options, Non-Plan Options or Warrants.
SECTION 1.10 Certain Adjustments. If at any time during the period
between the date of this Agreement and the Effective Time, any change in the
outstanding shares of capital stock of the Company shall occur by reason of any
reclassification, recapitalization, stock split, reverse stock split, exchange
or readjustment of shares, or any similar transaction, or any stock dividend
thereon with a record date during such period, the Merger Consideration shall be
appropriately adjusted to provide the holders of Shares, Options, Non-Plan
Options and Warrants the same economic effect as contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, represent and warrant to the
Company as follows:
SECTION 2.1 Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the Laws
of the jurisdiction in which it is organized and has the requisite corporate
power and authority and any necessary governmental authority to own, operate or
lease the properties that it purports to own, operate or lease and to carry on
its business as it is now being conducted. Purchaser is a wholly owned
subsidiary of Parent.
SECTION 2.2 Authority Relative to this Agreement. Each of Parent and
Purchaser has the necessary corporate power and authority to enter into this
Agreement and, subject to the filing of the Certificate of Merger as required by
Delaware Law, to carry out each of their obligations hereunder. The execution
and delivery of this Agreement by Parent and Purchaser and the consummation by
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
and, subject to the filing of the Certificate of Merger as required by Delaware
Law, no other corporate proceeding is necessary for the execution and delivery
of this Agreement by Parent or Purchaser, the performance by Parent or Purchaser
of their respective obligations hereunder and the consummation by Parent or
Purchaser of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Parent and Purchaser and, assuming due authorization,
execution and delivery of this Agreement by the Company, constitutes a legal,
valid and binding obligation of each such corporation, enforceable against each
of them in accordance with its terms, except that (a) the enforceability hereof
may be subject to applicable bankruptcy, insolvency or other similar Laws, now
or hereinafter in effect, affecting creditors' rights generally, and (b) the
general principles of equity (regardless of whether enforceability is considered
at a proceeding at Law or in equity).
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SECTION 2.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Purchaser do
not, and the consummation by Parent and Purchaser of the transactions
contemplated hereby will not, (i) conflict with or violate any Law, court order,
judgment or decree applicable to Parent or Purchaser or by which any of their
property is bound, (ii) violate or conflict with the organizational documents of
either Parent or Purchaser, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination or cancellation of,
or result in the creation of a lien, encumbrance, pledge, claim, option, charge,
easement, restriction, covenant, condition of record, encroachment, encumbrance
or security interest (a "Lien") on any of the property or assets of Parent or
Purchaser pursuant to, any material contract, instrument, permit, license to
which Parent or Purchaser is a party or by which Parent or Purchaser or any of
their property is bound, except in the case of clauses (i) and (iii) for
conflicts, violations, breaches or defaults that individually or in the
aggregate would not be reasonably expected to prevent or materially impair or
delay the consummation by Parent or Purchaser of the transactions contemplated
hereby (each, a "Parent Material Adverse Effect").
(b) Except for applicable requirements, if any, under the Exchange Act or
under Competition Laws, and the filing of the Certificate of Merger as required
by Delaware Law, neither Parent nor Purchaser is required to submit any notice,
report or other filing with any federal, state or local or foreign government,
any court, administrative, regulatory or other governmental agency, commission
or authority or any non-governmental United States or foreign self-regulatory
agency, commission or authority or any arbitral tribunal (each, a "Governmental
Entity"), in connection with the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby, the
failure of which to submit would have a Parent Material Adverse Effect. Parent,
as the sole stockholder of Purchaser, has voted or consented in writing to the
adoption of this Agreement. "Competition Laws" means statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines, and other
Laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization, lessening of competition or
restraint of trade, and includes the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and, to the extent applicable,
equivalent Laws of the European Union or the Member States thereof, Canada and
any other country in which the Company or any of its Subsidiaries has operations
or derives revenue.
SECTION 2.4 Financing Arrangements. Parent has, or at the Closing will
have, and at the Closing will make available to Purchaser, sufficient cash,
available lines of credit or other sources of immediately available funds
necessary to purchase all of the Shares (other than the Converted Shares),
Options, Non-Plan Options and Warrants, in accordance with the terms of this
Agreement and to pay all related fees and expenses pursuant to the Merger.
SECTION 2.5 Proxy Statement; Schedule 13E-3. None of the information
supplied or to be supplied by Parent, Purchaser, their respective officers,
directors, representatives, agents or employees (the "Parent Information"), for
inclusion in the Proxy Statement or the Schedule 13E-3, or in any amendments
thereof or supplements thereto, will, (a) in the case of the Proxy Statement, on
the date the Proxy Statement is first mailed to stockholders of the Company or
at the time of the Company Stockholders Meeting, or (b) in the case of the
Schedule 13E-3, as of the date thereof and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
will be made, will be false or misleading with respect to any material fact, or
will omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders Meeting which has become false or misleading.
Notwithstanding the foregoing, Parent and Purchaser do not make any
representation or warranty with respect to any information that has been
supplied by the Company or its accountants, counsel or other authorized
representatives for use in any of the foregoing documents.
SECTION 2.6 Brokers. Except for any affiliate of The Riverside Company,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the
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transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Parent or Purchaser.
SECTION 2.7 No Additional Representations of Warranties. Other than the
representations and warranties expressly set forth in this Article II, Parent
and Purchaser make no representations or warranties in connection with the
transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Disclosure Schedule to this Agreement (the
"Disclosure Schedule"), which is expressly incorporated herein by reference, the
Company hereby represents and warrants to Parent and Purchaser as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. The Company and
each of its Subsidiaries (a) is a corporation or other legal entity duly
organized, validly existing and in good standing under the Laws of the
jurisdiction in which it is organized and has the requisite corporate or other
power, as the case may be, and authority and any necessary governmental
authority to own, operate or lease the properties that it purports to own,
operate or lease and to carry on its business as it is now being conducted, and
(b) is duly qualified as a foreign corporation or other legal entity to do
business, and is in good standing, in each other jurisdiction where the
character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except in the case of clause (b)
for failures which, when taken together with all other such failures, would not
have a Company Material Adverse Effect. Section 3.1 of the Disclosure Schedule
lists each of the Company's Subsidiaries (specifying those that as of the date
of this Agreement are Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X under the Exchange Act)) and their respective jurisdictions of
incorporation or organization. The term "Subsidiary" means any corporation or
other legal entity of which the Company (either alone or through or together
with any other Subsidiary) owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity. The Company has previously delivered to
Parent a complete and correct copy of the certificate of incorporation and
bylaws (or comparable organizational documents) of the Company and each
Subsidiary, as currently in effect.
SECTION 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of 15,000,000
shares of common stock, $.10 par value (the "Company Common Stock"), and 500,000
shares of preferred stock, $1.00 par value (the "Company Preferred Stock"). As
of the close of business on May 11, 2003, (i) 7,063,931 shares of Company Common
Stock were issued and outstanding, all of which were duly authorized, validly
issued, fully paid and nonassessable, (ii) 647,254 shares of Company Common
Stock were held in the treasury of the Company, (iii) 990,000 shares of Company
Common Stock were reserved for issuance under the Option Plans and the Non-Plan
Option Agreements, as listed on Section 3.2(a) of the Disclosure Schedule in the
amounts stated in such schedule, (iv) 337,920 shares of Company Common Stock
were reserved for issuance upon the exercise of Warrants issued under the
Warrant Agreements, as listed on Section 3.2(a) of the Disclosure Schedule, and
(v) no shares of Preferred Stock were issued and outstanding. Section 3.2(a) of
the Disclosure Schedule sets forth the holders of all outstanding Options,
Non-Plan Options, Warrants, restricted stock, performance shares or units,
deferred shares, stock units and other stock awards and the number, exercise
prices, vesting schedules, performance targets, expiration dates and other
forfeiture provisions of each grant to such holders. Except as disclosed on
Section 3.2(a) of the Disclosure Schedule, there are no existing (i) options,
warrants, calls, preemptive rights, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating the Company or
any of its Subsidiaries to issue, transfer or sell any shares of capital stock
or other equity interest in, the Company or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or equity interests,
(ii) contractual obligations of the Company or any of its Subsidiaries to
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repurchase, redeem or otherwise acquire any capital stock of the Company or any
of its Subsidiaries or (iii) voting trusts or similar agreements to which the
Company or any of its Subsidiaries is a party with respect to the voting of the
capital stock of the Company or any of its Subsidiaries.
(b) All outstanding shares of capital stock of, or other equity interests
in, each of the Company's Subsidiaries (i) have been validly issued and are
fully paid and nonassessable; (ii) are free and clear of all Liens; and (iii)
are free of any other restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other ownership
interests), except as provided by applicable Law. All outstanding shares of
capital stock (or equivalent equity interests of entities other than
corporations) of each of the Company's Subsidiaries are beneficially owned,
directly or indirectly, by the Company. The Company does not, directly or
indirectly, own more than 20% but less than 100% of the capital stock or other
equity interest in any Person except as listed on Section 3.2(b) of the
Disclosure Schedule, nor is it obligated to make any capital contribution to or
other investment in any other Person.
SECTION 3.3 Authority Relative to this Agreement. The Company has the
necessary corporate power and authority to enter into this Agreement and,
subject to obtaining any necessary stockholder vote required by Delaware Law and
the filing of a Certificate of Merger as required by Delaware Law, to carry out
its obligations hereunder. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company and, subject to any necessary stockholder vote required by
Delaware Law and the filing of the Certificate of Merger as required by Delaware
Law, no other corporate proceeding is necessary for the execution and delivery
of this Agreement by the Company, the performance by the Company of its
obligations hereunder and the consummation by the Company of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery of this
Agreement by Parent and Purchaser, constitutes a legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms,
except that (a) the enforceability hereof may be subject to applicable
bankruptcy, insolvency or other similar Laws, now or hereinafter in effect,
affecting creditors' rights generally, and (b) the general principles of equity
(regardless of whether enforceability is considered at a proceeding at Law or in
equity).
SECTION 3.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company does not,
and the consummation by the Company of the transactions contemplated hereby will
not, (i) conflict with or violate any Law, court order, judgment or decree
applicable to the Company or by which its property is bound, (ii) violate or
conflict with the certificates of incorporation or bylaws (or comparable
organizational documents) of the Company or any of its Subsidiaries, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time of both would become a default) under, or give to others any
rights of termination or cancellation of, or result in the creation of a Lien on
any of the properties or assets of the Company or any of its Subsidiaries
pursuant to, any contract, instrument, Permit, License Agreement or Franchise
Agreement to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries or their respective property is bound,
except in the case of clauses (i) and (iii) for conflicts, violations, breaches
or defaults which, individually or in the aggregate, would not have or result in
a Company Material Adverse Effect.
(b) Except for applicable requirements, if any, of the Exchange Act or
under Competition Laws, "takeover" or "blue sky" Laws of various states, filing
of the Certificate of Merger as required by Delaware Law, and as set forth on
Section 3.4(b) of the Disclosure Schedule, the Company is not required to submit
any notice, report or other filing with any Governmental Entity in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby the failure of which to
submit would, individually or in the aggregate, have or result in a Company
Material Adverse Effect. Except as set forth on Section 3.4(b) of the Disclosure
Schedule, no waiver, consent, approval or authorization of any Governmental
Entity or any third party is required to be obtained or made by the Company in
connection with its execution, delivery or performance of this
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Agreement the failure of which to obtain or make, individually or in the
aggregate, would have or result in a Company Material Adverse Effect.
SECTION 3.5 SEC Filings; Financial Statements.
(a) The Company has timely filed all forms, reports, schedules, statements
and other documents required to be filed with the SEC since January 1, 2000,
except where any failure to so timely file would not have or result in a Company
Material Adverse Effect, and the Company has heretofore delivered or made
available to Parent, in the form filed with the Securities and Exchange
Commission (the "SEC "), its (i) Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, (ii) all proxy statements relating to the Company's
meetings of stockholders (whether annual or special) held since January 1, 2000,
and (iii) all other forms, reports or registration statements (other than
registration statements on Form S-8) filed by the Company with the SEC pursuant
to the Exchange Act and the Securities Act of 1933, as amended (the "Securities
Act "), as the case may be, since January 1, 2000 (collectively, whether filed
before, on or after the date hereof, the "SEC Reports"). The SEC Reports (i)
complied as to form in all material respects with the applicable requirements of
the Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder, and (ii) did not at the time they
were filed 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 therein, in the light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements contained in the SEC Reports were
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis ("GAAP ") throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q) and fairly presented in all
material respects the consolidated financial position of the Company and its
Subsidiaries as at the respective dates thereof and the consolidated results of
operations and changes in financial position of the Company and its Subsidiaries
for the periods indicated, except that the unaudited interim financial
statements contained in the SEC Reports may not contain footnotes and were or
are subject to normal and recurring year-end adjustments which should not be
materially adverse to the Company and its Subsidiaries taken as a whole.
(c) Except as reflected or reserved against in the consolidated financial
statements contained in the SEC Reports filed prior to the date hereof or
otherwise disclosed in the SEC Reports filed prior to the date hereof, neither
the Company nor any of its Subsidiaries has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) which in the
aggregate would have or result in a Company Material Adverse Effect or which
would be required to be set forth in consolidated financial statements in
accordance with GAAP.
(d) Section 3.5(d) of the Disclosure Schedule, as of the date indicated
therein, includes a true, correct and complete list of the individual components
(indicating the amount and the Person to whom such Debt is owed) of all Debt
outstanding with respect to the Company or any of its Subsidiaries. "Debt"
means: either (i) any liability (A) for borrowed money (including the current
portion thereof); (B) under any reimbursement obligation relating to a letter of
credit, bankers' acceptance or note purchase facility; (C) evidenced by a bond,
note, debenture or similar instrument (including a purchase money obligation);
(D) for the payment of money relating to a lease that is required to be
classified as a capitalized lease obligation in accordance with GAAP; or (E) for
all or any part of the deferred purchase price of property or services (other
than trade payables); or (ii) any liability of others described in the preceding
clause (i) that such Person has guaranteed, that is recourse to such Person or
any of its assets or that is otherwise its legal liability or that is secured in
whole or in part by the assets of such Person.
SECTION 3.6 Absence of Certain Changes or Events. Since December 31,
2002, except as contemplated by this Agreement, set forth in the SEC Reports
filed prior to the date hereof or set forth on Section 3.6 of the Disclosure
Schedule, (a) the Company and its Subsidiaries have conducted their respective
operations only in the ordinary course consistent with past practices, (b) there
has not been a Company Material Adverse Effect, and (c) the Company and its
Subsidiaries have not taken action that if taken after the date hereof would
constitute a violation of Section 4.1 hereof.
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SECTION 3.7 Litigation. Except as disclosed in the SEC Reports filed
prior to the date hereof or as set forth on Section 3.7 of the Disclosure
Schedule, there are no claims, actions, suits, proceedings or investigations of
any nature pending or, to the knowledge of the Company, threatened against the
Company, or any properties or rights of the Company, before any court,
administrative, governmental or regulatory authority or body, domestic or
foreign which, if adversely determined individually or in the aggregate with all
such other claims, actions, suits, proceedings or investigations would be
reasonably expected to (a) have a Company Material Adverse Effect, or (b)
materially and adversely affect the Company's ability to perform its obligations
under this Agreement. The Company is not subject to any order, judgment,
injunction or decree having, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 3.8 Employee Benefit Plans; Labor Matters.
(a) Section 3.8(a) of the Disclosure Schedule sets forth a complete list of
(i) all "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA "), (ii) all other
severance pay, salary continuation, bonus, incentive, stock option, retirement,
pension, profit sharing or deferred compensation plans, contracts, programs,
funds, or arrangements of any kind, and (iii) all other employee benefit plans,
contracts, programs, funds, or arrangements (whether written or oral, qualified
or nonqualified, funded or unfunded, foreign or domestic, currently effective or
terminated) and any trust, escrow, or similar agreement related thereto, whether
or not funded, in respect of any present or former employees, directors,
officers, stockholders, consultants, or independent contractors of the Company
or any of its Subsidiaries or with respect to which the Company or any of its
Subsidiaries has made or is required to make payments, transfers, or
contributions (all of the above being hereinafter individually or collectively
referred to as "Employee Plan" or "Employee Plans," respectively). The Company
and its Subsidiaries have no liability with respect to any plan, arrangement or
practice of the type described in the preceding sentence other than (x) the
Employee Plans and (y) as set forth on Section 5.11(c) of the Disclosure
Schedule.
(b) Copies of the following materials have been delivered or made available
to Parent: (i) all current plan documents for each Employee Plan or, in the case
of an unwritten Employee Plan, a written description thereof, (ii) all
determination letters or prototype opinion letters from the Internal Revenue
Service ("IRS ") with respect to any of the Employee Plans intended to satisfy
the qualification requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), (iii) all current summary plan descriptions, summaries of material
modifications and annual reports, and summary annual reports for the two plan
years immediately preceding the date hereof, (iv) all current trust agreements,
insurance contracts, and other documents relating to the funding or payment of
benefits under any Employee Plan, and (v) any other documents, forms or other
instruments relating to any Employee Plan reasonably requested by Parent.
(c) Each Employee Plan has been maintained, operated, and administered in
compliance in all material respects with its terms and any related documents or
agreements and in compliance in all material respects with all applicable Laws.
There have been no prohibited transactions or breaches of any of the duties
imposed on "fiduciaries" (within the meaning of Section 3(21) of ERISA) by ERISA
with respect to the Employee Plans that could result in any material liability
or excise tax under ERISA or the Code being imposed on the Company or any of its
Subsidiaries.
(d) Each Employee Plan intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter or prototype opinion letter
from the IRS, and the Company is not aware of any circumstances likely to result
in revocation of any such favorable determination letter.
(e) Neither the Company nor any member of a trade or business (whether or
not incorporated) (i) under common control within the meaning of Section
4001(b)(1) of ERISA with the Company or (ii) which together with the Company is
treated as a single employer under Section 414(t) of the Code (the "Controlled
Group") currently has and at no time in the past has had an obligation to
contribute to a "defined benefit plan" as defined in Section 3(35) of ERISA, a
pension plan subject to the funding standards of Section 302 of ERISA or Section
412 of the Code, a "multiemployer plan" as defined in
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Section 3(37) of ERISA or Section 414(f) of the Code or a "multiple employer
plan" within the meaning of Section 210(a) of ERISA or Section 413(c) of the
Code.
(f) With respect to each group health plan benefiting any current or former
employee of the Company or any member of the Controlled Group that is subject to
Section 4980B of the Code, the Company and each member of the Controlled Group
has complied in all material respects with the continuation coverage
requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of
ERISA.
(g) With respect to each group health plan that is subject to Section
1862(b)(1) of the Social Security Act (42 U.S.C. sec. 1395y(b)), to the
knowledge of the Company, the Company and its Subsidiaries have complied with
the secondary payer requirements of Section 1862(b)(1) of such Act.
(h) No Employee Plan is or at any time was funded through a "welfare
benefit fund" as defined in Section 419(e) of the Code, and no benefits under
any Employee Plan are or at any time have been provided through a voluntary
employees' beneficiary association (within the meaning of subsection 501(c)(9)
of the Code) or a supplemental unemployment benefit plan (within the meaning of
Section 501(c)(17) of the Code).
(i) All contributions, transfers, and payments in respect of any Employee
Plan, other than transfers incident to an incentive stock option plan within the
meaning of Section 422 of the Code, have been or are fully deductible under the
Code.
(j) There is no pending or, to the knowledge of the Company, threatened
assessment, complaint, proceeding, or investigation of any kind in any court or
government agency with respect to any Employee Plan (other than routine claims
for benefits), nor, to the knowledge of the Company, is there any basis for one.
(k) All (i) insurance premiums required to be paid with respect to, (ii)
benefits, expenses, and other amounts due and payable under, and (iii)
contributions, transfers, or payments required to be made to, any Employee Plan
have been paid, made or accrued.
(l) To the knowledge of the Company, with respect to any insurance policy
providing funding for benefits under any Employee Plan, (i) there is no
liability of the Company or any of its Subsidiaries, in the nature of a
retroactive rate adjustment, loss sharing arrangement, or other actual or
contingent liability, nor would there be any such liability if such insurance
policy was terminated on the date hereof, and (ii) no insurance company issuing
any such policy is in receivership, conservatorship, liquidation or similar
proceeding, and no such proceedings with respect to any insurer are imminent.
(m) No Employee Plan provides benefits, including, without limitation,
death or medical benefits, beyond termination of service or retirement other
than (i) coverage mandated by law, (ii) death or retirement benefits under any
qualified Employee Plan, (iii) deferred compensation benefits reflected on the
books of the Company or any of its Subsidiaries, or (iv) the exercise of options
following termination of service or retirement.
(n) Except as set forth on Section 4.1(d) of the Disclosure Schedule, the
execution and performance of this Agreement will not (i) constitute a stated
triggering event under any Employee Plan that will result in any payment
(whether of severance pay or otherwise) becoming due from the Company or any of
its Subsidiaries to any officer, employee, or former employee (or dependents of
such employee), or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due to any employee, officer or director of the
Company or any of its Subsidiaries.
(o) The Company and its Subsidiaries have not agreed or committed to
institute any plan, program, arrangement or agreement for the benefit of
employees or former employees of the Company or any of its Subsidiaries other
than the Employee Plans, or to make any amendments to any of the Employee Plans,
except (i) for amendments required by applicable Law or this Agreement, (ii) for
amendments deemed necessary by the Company to obtain a favorable determination
letter from the IRS and (iii) as set forth in Section 4.1(d) of the Disclosure
Schedule.
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(p) The Company and its Subsidiaries have reserved all rights necessary to
amend or terminate each of the Employee Plans except as required by applicable
Law.
(q) Except as set forth on Section 3.8(q) of the Disclosure Schedule, no
Employee Plan provides benefits to any individual who is not a current or former
employee, director, officer, stockholder, consultant or independent contractor
of the Company or any of its Subsidiaries, or the dependents or other
beneficiaries of any such current or former employee, director, officer,
stockholder, consultant or independent contractor, except for benefits for
continued group health coverage required by Part 6 of Title I of ERISA or
Section 4980B of the Code, or similar state Laws.
(r) All premium payments required to be paid by the Company with respect to
workers' compensation arrangements of the Company have been made or accrued as a
liability on the Company's consolidated financial statements.
(s) No amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the Company or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Employee Plan
currently in effect would be characterized as an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code). The disallowance of a
deduction under Section 162(m) of the Code for employee remuneration will not
apply to any amount paid or payable by the Company or any of its Subsidiaries
under any contract, Employee Plan, program, arrangement or understanding
currently in effect.
(t) The term "Foreign Plan" shall mean any Employee Plan that is maintained
outside of the United States. Neither the Company, nor any member of the
Controlled Group currently has and at no time in the past has sponsored or
maintained or had an obligation to contribute to a Foreign Plan.
(u) None of the Company or any of its Subsidiaries is a party to any
collective bargaining agreement or other labor agreement with any union or labor
organization, and the Company does not know of any activity or proceeding of any
labor organization (or representative thereof) to organize any of its or their
employees. The Company and its Subsidiaries are not, and have not since January
1, 2000 been, subject to any pending, or to the knowledge of the Company,
threatened (i) unfair labor practice, employment discrimination or sexual
harassment claim, suit, action, demand, governmental investigation or other
complaint; (ii) strike, lockout or dispute, slowdown or work stoppage; or (iii)
claim, suit, action, demand, governmental investigation or other complaint, in
respect of which any director, officer, employee or agent of the Company or any
of its Subsidiaries is or may be entitled to claim indemnification from the
Company or any of its Subsidiaries.
(v) No representation or warranty set forth in this Section 3.8 shall be
deemed to be breached unless such breach, individually or in the aggregate,
would result in a Company Material Adverse Effect.
SECTION 3.9 Proxy Statement; Schedule 13E-3. The proxy statement or
information statement to be sent to the stockholders of the Company in
connection with the meeting of the Company's stockholders to consider the
adoption of the Agreement, including any adjournment or postponement thereof
(the "Company Stockholders Meeting") (such proxy statement or information
statement, as amended or supplemented, is herein referred to as the "Proxy
Statement"), at the date mailed to the stockholders of the Company and at the
time of the Company Stockholders Meeting (a) will comply in all material
respects with the applicable requirements of the Exchange Act and the rules and
regulations thereunder, and (b) will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Rule 13E-3
Transaction Statement on Schedule 13E-3 (such transaction statement, as amended
or supplemented, is herein referred to as the "Schedule 13E-3"), as of the date
of such Schedule 13E-3 and at the Effective Time, (a) will comply in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations thereunder, and (b) will not contain any untrue statement
of a material fact or omit to state any material fact required to
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be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. No
representation or warranty is made by the Company with respect to any
information supplied by Parent or Purchaser or their respective accountants,
counsel or other authorized representatives for use in any of the foregoing
documents.
SECTION 3.10 Compliance; Permits.
(a) Except as disclosed in the SEC Reports filed prior to the date hereof,
the business of the Company and its Subsidiaries is not being conducted in
default or violation of any term, condition or provision of (i) their respective
certificate of incorporation or bylaws (or comparable organizational documents);
(ii) any note, bond, mortgage, indenture, contract, agreement, franchise, lease
or other instrument or agreement of any kind to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
respective properties or assets may be bound; or (iii) any Law, judgment,
decree, order, concession, grant, franchise, permit or license or other
governmental authorization or approval applicable to the Company or any
Subsidiary, except, with respect to the foregoing clauses (ii) and (iii),
defaults or violations that would not, individually or in the aggregate, have or
result in a Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received any written notice, or has knowledge of any claim,
alleging any such violation, except for such violations that, individually or in
the aggregate, would not have or result in a Company Material Adverse Effect.
(b) The Company and its Subsidiaries hold all licenses, permits, variances,
consents, authorizations, waivers, grants, franchises, concessions, exemptions,
orders, registrations and approvals of any Governmental Entity or other Persons
necessary for the ownership, leasing, operation, occupancy and use of their
respective property and assets and the conduct of their respective businesses as
currently conducted ("Permits"), except where the failure to hold such Permits,
individually or in the aggregate, would not have or result in a Company Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has received
written notice that any Permit will be terminated or modified or cannot be
renewed in the ordinary course of business, and the Company has no knowledge of
any reasonable basis for any such termination, modification or nonrenewal,
except for such terminations, modifications or nonrenewals as, individually or
in the aggregate, would not have or result in a Company Material Adverse Effect.
SECTION 3.11 Taxes.
(a) Except as would result in a Company Material Adverse Effect, (i) the
Company and each Subsidiary have timely filed with the appropriate Governmental
Entities all Tax Returns required to be filed; (ii) except for those Taxes being
contested in good faith and for which adequate reserves have been established in
the financial statements included in the SEC Reports in accordance with GAAP,
the Company and each Subsidiary have paid all Taxes (whether or not shown to be
due on such Tax Returns), and all Taxes required to be withheld by the Company
or any Subsidiary have been timely withheld and paid to the appropriate taxing
authority in the manner provided by Law; (iii) no federal, state, local or
foreign audits, administrative proceedings or court proceedings are pending with
regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries and
there are no outstanding Tax deficiencies or assessments asserted to the Company
in writing or, to the knowledge of the Company, proposed; (iv) there are no
outstanding agreements, consents or waivers extending the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies against
the Company or any Subsidiary; (v) none of the Company or any of its
Subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes; and (vi) none of the Company or any of its Subsidiaries is liable for
the payment of Taxes as a result of any express or implied obligation to
indemnify any other Person.
(b) None of the Company nor any Subsidiary has filed a consent to the
application of Section 341(f) of the Code.
(c) No Debt of the Company or any Subsidiary is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
(d) Except as set forth on Section 3.11(d) of the Disclosure Schedule, none
of the Company nor any Subsidiary has (i) been a member of an affiliated group
filing consolidated or combined Tax Returns other
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than a federal income tax group the common parent of which is the Company, or
(ii) has any liability for Taxes of any Person (other than any of the Company or
any of its Subsidiaries) under Treasury Regulation sec. 1.1502-6 (or any similar
provision of Law), as a transferee or successor, by contract, or otherwise.
(e) None of the Company or any of its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code.
(f) The transfer pricing agreements or arrangements among the Company and
its Subsidiaries or affiliates comply in all material respects with the
requirements of applicable Law.
(g) None of the Company or any of its Subsidiaries will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Effective
Time as a result of any change in method of accounting for a taxable period
ending on or prior to the Effective Time under Section 481 of the Code (or any
corresponding provision of Law).
(h) For purposes of this Agreement, "Taxes" means all taxes, charges, fees,
levies or other assessments imposed by any United States Federal, state, or
local taxing authority or by any non-U.S. taxing authority, including but not
limited to, income, gross receipts, excise, property, sales, use, transfer,
payroll, license, ad valorem, value added, withholding, social security,
national insurance (or other similar contributions or payments), franchise,
estimated, severance, stamp, and other taxes (including any interest, fines,
penalties or additions attributable to or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments).
(i) For purposes of this Agreement, "Tax Return" means any return, report,
information return or other document (including any related or supporting
information and, where applicable, profit and loss accounts and balance sheets)
with respect to Taxes.
SECTION 3.12 Intellectual Property.
(a) The term "Intellectual Property" means any (i) patents, (ii)
trademarks, service marks, trade names, brand names, trade dress, slogans, logos
and internet domain names, (iii) inventions, discoveries, ideas, processes,
formulae, designs, models, industrial designs, know-how, proprietary
information, trade secrets, and confidential information (including, without
limitation, customer and Franchisee lists, Franchisee training materials and
related matters, research, Franchisee financial business information and
Franchisee marketing and sales plans), whether or not patented or patentable,
(iv) copyrights, writings and other copyrightable works and works in progress,
databases and software, (v) all other intellectual property rights and foreign
equivalent or counterpart rights and forms of protection of a similar or
analogous nature or having similar effect in any jurisdiction throughout the
world, (vi) all registrations and applications for registration of any of the
foregoing, (vii) all common law trademarks and service marks used by the Company
or any of its Subsidiaries and (viii) any renewals, extensions, continuations,
divisionals, reexaminations or reissues or equivalent or counterpart of any of
the foregoing in any jurisdiction throughout the world. The term "Company IP"
means any Intellectual Property used or held for use by the Company or any of
its Subsidiaries, in the conduct of their respective businesses as currently
conducted.
(b) Section 3.12(b) of the Disclosure Schedule sets forth, a complete and
accurate list (including, the owner, title, registration and/or application
number and country of registration and/or application, as applicable) of all of
the following Company IP: (i) registered trademarks, (ii) applications for
trademark registration, (iii) domain names, (iv) patents, (v) applications for
patents, (vi) registered copyrights (vii) applications for copyright
registration, and (viii) licenses of all Intellectual Property (other than
Desktop Software) to or from the Company or any of is Subsidiaries. The Company
has delivered or made available to Parent prior to the execution of this
Agreement complete and correct copies of all licenses of Company IP both to and
from the Company or any of its Subsidiaries, except off-the-shelf business
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productivity software that is the subject of a shrink wrap or click wrap
software license agreement ("Desktop Software").
(c) The Company IP constitutes all of the Intellectual Property used by and
necessary for the Company and its Subsidiaries to operate their respective
business as currently conducted, except where the lack of such Intellectual
Property would not have or result in a Company Material Adverse Effect. Except
for Desktop Software and other Intellectual Property that is the subject of a
license agreement as set forth on Section 3.12(c) of the Disclosure Schedule,
the Company or its Subsidiary(ies) owns all legal and beneficial right, title
and interests in the Company IP, and the Company and/or its respective
Subsidiary(ies) has/have the valid, sole and exclusive right to use, assign,
transfer and license all such Company IP for the life thereof for any purpose,
free from (i) any Liens, and (ii) any requirement of any past, present or future
royalty payments, license fees, charges or other payments, or conditions or
restrictions whatsoever, except where such lack of ownership or rights would not
have or result in a Company Material Adverse Effect.
(d) All patent, trademark, service mark, copyright, patent and domain name
registrations set forth on Schedule 3.12(b) of the Disclosure Schedule are in
full force and effect and have not been abandoned, dedicated, disclaimed or
allowed to lapse for non-payment of fees or taxes or for any other reason.
(e) None of the Company IP owned by the Company or any of the Subsidiaries
has been declared or adjudicated invalid, null or void, unpatentable or
unregistrable in any judicial or administrative proceeding. To the knowledge of
the Company, none of the Company IP used (but not owned) by the Company or any
of the Subsidiaries has been declared or adjudicated invalid, null or void,
unpatentable or unregistrable in any judicial or administrative proceeding.
(f) Except as set forth on Section 3.12(f) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has received any written notices
of, or has knowledge of, any infringement or misappropriation by or of, or
conflict with, any third party with respect to the Company IP or Intellectual
Property owned by any third party. Neither the Company nor any of its
Subsidiaries has infringed, misappropriated or otherwise violated or conflicted
with any Intellectual Property of any third party except where such
infringement, misappropriation, violation or conflict would not have or result
in a Company Material Adverse Effect. The operation of the Company and its
Subsidiaries does not, as currently conducted, infringe, misappropriate or
otherwise violate or conflict with the Intellectual Property of any third party
except where such infringement, misappropriation, violation or conflict would
not have or result in a Company Material Adverse Effect.
(g) There is currently no claim that would have or result in a Company
Material Adverse Effect by any past or present officer, director, stockholder,
employee, consultant, agent or other representative of the Company and its
Subsidiaries that he, she or it owns or asserts any rights in (nor has any of
them made application for registration of) any of the Company IP and to the
knowledge of the Company there are no grounds for any of the foregoing claims;
and, to the knowledge of the Company, there are no such claims threatened.
(h) The transactions contemplated by this Agreement will have no Company
Material Adverse Effect on the right, title and interest of the Company and its
Subsidiaries in and to the Company IP, and the Company and its Subsidiaries have
taken all necessary action to maintain and protect the Company IP set forth on
Section 3.12(b) of the Disclosure Schedule and, until the Effective Time, will
continue to maintain and protect such Company IP so as to not materially
adversely affect the validity or enforceability of such Company IP.
SECTION 3.13 Contracts. Except as set forth on Section 3.13 of the
Disclosure Schedule, each contract or agreement to which the Company or any of
its Subsidiaries or Licensors is a party or by which any of them is bound
(including, without limitation, the License Agreements and Franchise Agreements)
is in full force and effect, and neither the Company nor any of its
Subsidiaries, nor, to the actual knowledge of the Company, any other Person, is
in breach of, or default under, any such contract or agreement, and no event has
occurred that with notice or passage of time or both would constitute such a
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breach or default thereunder by the Company or any of its Subsidiaries, or, to
the actual knowledge of the Company, any other Person, except for such failures
to be in full force and effect and such breaches and defaults as, individually
or in the aggregate, would not have or result in a Company Material Adverse
Effect.
SECTION 3.14 Environmental Matters.
(a) Except as disclosed in the SEC Reports filed since January 1, 2000 (the
"Recent SEC Reports"), or where noncompliance, individually or in the aggregate,
would not have or result in a Company Material Adverse Effect, the Company and
its Subsidiaries are and have been in compliance with all applicable
Environmental Laws and Environmental Permits.
(b) Except as disclosed in the Recent SEC Reports, there are no written
Environmental Claims pending or, to the knowledge of the Company, threatened,
against the Company or any of its Subsidiaries and, to the knowledge of the
Company, there are no existing conditions, circumstances or facts that could
reasonably be expected to result in an Environmental Claim.
(c) The Company has set forth on Section 3.14(c) of the Disclosure Schedule
all material information, including such studies, audits, analyses and test
results, in the possession, custody or control of the Company and its
Subsidiaries relating to (i) the Company's and its Subsidiaries' past or present
noncompliance with Environmental Laws and Environmental Permits, or (ii)
Environmental Conditions on, under or about any of the properties or assets
owned, leased, or operated by any of the Company or any of its Subsidiaries at
any time or for which any of the Company or any of its Subsidiaries may be
liable and that would have or result in a Company Material Adverse Effect.
(d) Except as disclosed in the Recent SEC Reports, during and, to the
knowledge of the Company, prior to, the period of ownership or operation by the
Company or any of its Subsidiaries, there were no Releases of Hazardous
Substance in, on, under, from or affecting any currently or previously owned or
leased properties that would, individually or in the aggregate, have or result
in a Company Material Adverse Effect.
(e) Except as disclosed in the Recent SEC Reports, none of the Company or
any of its Subsidiaries has received from any Governmental Entity or other third
party any written (or to the knowledge of the Company, other) notice that any of
them or any of their predecessors is or may be a potentially responsible party
in respect of, or may otherwise bear liability for, any actual or threatened
Release of Hazardous Substance at any site or facility that is, has been or
could reasonably be expected to be listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability Information
System or any similar or analogous federal, state, provincial, territorial,
municipal, county, local or other domestic or foreign list, schedule, inventory
or database of Hazardous Substance sites or facilities.
(f) As used in this Agreement:
(i) the term "Environment" means soil, surface waters, ground water,
land, stream sediments, surface or subsurface strata, ambient air, indoor
air or indoor air quality, including, without limitation, any material or
substance used in the physical structure of any building or improvement.
(ii) the term "Environmental Claim" means any demand, suit, action,
proceeding, investigation or notice to any of the Company or any of its
Subsidiaries by any Person alleging any potential liability (including,
without limitation, potential liability for investigatory costs, risk
assessment costs, cleanup costs, governmental response costs, natural
resource damages, or penalties) arising out of, based on, or resulting from
(1) alleged noncompliance with any Environmental Law or Environmental
Permit; (2) alleged injury or damage arising from exposure to Hazardous
Substances; or (3) the presence, Release or threatened Release into the
Environment, of any Hazardous Substance at or from any location, whether or
not owned, leased, operated or used by the Company or any of its
Subsidiaries.
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(iii) the term "Environmental Laws" means all Laws in effect as of the
date of this Agreement, relating to (1) pollution or protection of the
Environment; (2) emissions, discharges, Releases or threatened Releases of
Hazardous Substances; (3) threats to human health or ecological resources
arising from exposure to Hazardous Substances; or (4) the manufacture,
generation, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport or handling of Hazardous Substances, and
includes, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conversation and Recovery Act,
the Clean Air Act, the Clean Water Act, the Water Pollution Control Act,
the Toxic Substances Control Act, the Occupational Safety and Health Act
and any similar foreign, state or local Laws.
(iv) the term "Hazardous Substance" means (1) chemicals, pollutants,
contaminants, hazardous wastes, toxic substances, and oil and petroleum
products; (2) any substance that is or contains asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls ("PCBs"), petroleum or
petroleum-derived substances or wastes, radon gas or related materials; (3)
any substance that requires removal or remediation under any Environmental
Law, or is defined, listed or identified as a "hazardous waste" or
"hazardous substance" thereunder; or (4) any substance that is regulated
under any Environmental Law due to its actual or potentially toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or hazardous properties or that could otherwise give rise to
liability under any Environmental Law.
(v) the term "Release" means any releasing, disposing, discharging,
injecting, spilling, leaking, pumping, dumping, emitting, escaping,
emptying or migration into or upon, any land, soil, sediment, surface
water, ground water or air, or otherwise entering into the Environment or
resulting in exposure of a Person.
(vi) the term "Law" means any foreign, federal, state, local,
municipal or provincial law, statute, code, ordinance, regulation, rule,
principle of common law or other legally enforceable obligation imposed by
a court or other Governmental Entity in the applicable jurisdiction.
(vii) the term "Environmental Permit" means all Permits or the timely
submission of applications for Permits, as required under Environmental
Laws.
(viii) the term "Environmental Condition" means any contamination,
damage, injury or other condition related to Hazardous Substances and
includes, without limitation: Releases from any present or former Hazardous
Substance treatment, storage, disposal or recycling units, underground
storage tanks, or wastewater treatment or management systems; or the
current presence of asbestos containing materials, lead paint or
PCB-containing articles.
SECTION 3.15 Related Party Transactions. Except for those arrangements,
agreements and contracts set forth on Section 3.15 of the Disclosure Schedule,
there are no written arrangements, agreements or contracts currently in effect
entered into by the Company or any of its Subsidiaries with any Person who is an
executive officer, director or affiliate of the Company or any of its
Subsidiaries, or any entity of which any of the foregoing is an affiliate.
Except as set forth on Section 3.15 of the Disclosure Schedule, there are no
amounts owed to the Company or any of its Subsidiaries by any such executive
officer, director or affiliate.
SECTION 3.16 Relationships with Franchisees.
(a) Section 3.16(a) of the Disclosure Schedule contains a true, correct and
accurate list of all current master licensees of the Company and its
Subsidiaries with respect to the franchise business (collectively, the
"Licensees") as of the date hereof and the states or other jurisdictions in
which such Licensees are located, and true, complete and accurate copies of all
the written contracts, agreements or arrangements with such Licensees, including
any material addenda, modifications or side letters (the "License Agreements"),
have been made available for review by Parent.
(b) Section 3.16(b) of the Disclosure Schedule contains a true, complete
and accurate list of all current franchisees of the Company and its Subsidiaries
(collectively, "Franchisees") as of the date hereof
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and the states or other jurisdictions in which such Franchisees are located, and
true, complete and accurate copies of all the written contracts, agreements or
arrangements with such Franchisees, including any material addenda,
modifications or side letters (the "Franchise Agreements"), have been made
available for review by Parent.
(c) Except as set forth on Section 3.16(c) of the Disclosure Schedule, as
of the date hereof, neither the Company nor any of the Subsidiaries has received
written notice of any default (including any financial or other material
obligation) from any other party under any Franchise Agreement or License
Agreement. The enforcement by the Company or any of the Subsidiaries of any
Franchise Agreement in accordance with its terms will not violate any franchise
Law applicable to such Franchise Agreement, except where such noncompliance or
enforcement, as the case may be, would not, individually or in the aggregate,
have or result in a Company Material Adverse Effect. The Franchise Agreements
and License Agreements do not give any Franchisee or Licensee the right, as a
result of the consummation of the Merger, to terminate its relationship with the
Company or any of its Subsidiaries or reduce the amount of royalties payable by
such Franchisee or Licensee to the Company or any of its Subsidiaries.
(d) Section 3.16(d) of the Disclosure Schedule sets forth a true, complete
and accurate list, as of the date hereof, of (i) all states in which the Company
or any of its Subsidiaries has registered to offer to sell or has sold its
franchises or has received an official written notice from the appropriate state
officials that the offer to sell and the sale of its franchises are exempt from
the registration provisions of such jurisdiction's franchise registration Laws,
and (ii) all other states in which the Company or any of its Subsidiaries or
Licensees has offered to sell or has sold its franchises based upon a claimed
exemption from the registration provisions of such state's applicable franchise
registration laws. True and correct copies of all written notices of
registrations and all written notices of exemption, as described in clauses (i)
and (ii) above, have been made available to Parent, and such registrations and
exemption notices are in full force and effect as of the date hereof except as
set forth on Section 3.16(d) of the Disclosure Schedule; in each case, except
as, individually or in the aggregate, would not have or result in a Company
Material Adverse Effect.
(e) The Company has delivered to Parent a true, complete and accurate copy
of each of the Company's Uniform Franchise Offering Circulars ("UFOCs") that are
currently being used in connection with the offers to sell and the sales of its
franchises. The UFOCs currently used by the Company and its Subsidiaries (i)
comply in all material respects with all applicable Laws pertaining to offers to
sell and the sale of franchises in jurisdictions in which they are being used,
including, without limitation, in the United States and under the Uniform
Franchise Offering Circular Guidelines adopted by the North American Securities
Administrators Association on April 25, 1993, and approved by the Federal Trade
Commission ("FTC ") on December 30, 1993, as an alternative to the FTC
disclosure statement, and (ii) do not 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 therein, in light of the circumstances under
which they are made, not misleading; in all cases, except where any failure to
comply or an untrue statement or omission would not, individually or in the
aggregate, have or result in a Company Material Adverse Effect.
SECTION 3.17 State Takeover Statutes. The Board of Directors has taken
all actions necessary so that no "fair price," "moratorium," "control share
acquisition" or other antitakeover statute or regulation, including Section 203
of Delaware Law or any applicable antitakeover provision in the Company's
certificate of incorporation or bylaws, is applicable to the transactions
contemplated by this Agreement, including, without limitation, the Voting
Agreement.
SECTION 3.18 Required Vote of Company Stockholders. The affirmative vote
of the holders of a majority of the outstanding Shares entitled to vote thereon
is the only vote of any class of capital stock of the Company required by
Delaware Law or the certificate of incorporation or the bylaws of the Company to
adopt this Agreement.
SECTION 3.19 Opinion of Financial Advisor. William Blair & Co. has
rendered an opinion to the Board of Directors of the Company, dated the date of
this Agreement, to the effect that, as of such date, the Merger Consideration is
fair from a financial point of view to the holders of Shares.
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SECTION 3.20 Brokers. Except for William Blair & Co., no broker, finder
or investment banker is entitled to any brokerage, finder's, financial advisor's
or other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of the Company. The
Company has heretofore furnished to Parent true and complete information
concerning the financial arrangements between the Company and William Blair &
Co. pursuant to which such firm would be entitled to any payment as a result of
the transactions contemplated hereunder.
SECTION 3.21 No Additional Representations of Warranties. Other than the
representations and warranties expressly set forth in this Article III, the
Company makes no representations or warranties with respect to itself, its
Subsidiaries, its business or otherwise in connection with the transactions
contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business Pending the Merger. The Company covenants
and agrees that, between the date of this Agreement and the Effective Time or
earlier termination of this Agreement, unless Parent shall otherwise consent in
writing:
(a) the business of the Company and its Subsidiaries shall be conducted
only in, and the Company shall not take, or permit any Subsidiary to take, any
action except in the ordinary course of business and in a manner consistent with
past practice; and the Company will use its reasonable efforts to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its Subsidiaries and to preserve the present
relationships of the Company and its Subsidiaries with Franchisees, customers,
suppliers and other Persons with which the Company or any Subsidiary has
significant business relations, in each case in the ordinary course of business
and in a manner consistent with past practice;
(b) the Company and its Subsidiaries will not amend their respective
certificates of incorporation or bylaws (or comparable organizational
documents);
(c) the Company will not declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock; and neither the Company nor any of its Subsidiaries will (i) issue, sell,
transfer, pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of any class of
the Company or any of its Subsidiaries, other than issuances of Shares pursuant
to securities, Options, Non-Plan Options or Warrants existing at the date hereof
and previously disclosed on Section 3.2(a) to the Disclosure Schedule; (ii)
incur any Debt, except in the ordinary course of business and in a manner
consistent with past practice; (iii) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock or other securities; or (iv)
enter into, amend, terminate, cancel, renew or fail to use reasonable efforts to
renew in any material respect any material contract;
(d) except as set forth on Section 4.1(d) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries will (i) grant any increase in
the compensation or benefits payable or to become payable by the Company or any
of its Subsidiaries to any employee; (ii) adopt, enter into, amend (except for
amendments required by applicable Law or amendments deemed reasonably necessary
by the Company to obtain a favorable determination letter from the IRS) or
otherwise increase, or accelerate the payment or vesting of the amounts,
benefits or rights payable or accrued or to become payable or accrued under any
bonus, incentive compensation, deferred compensation, severance, termination,
change in control, retention, hospitalization or other medical, life,
disability, insurance or other welfare, profit sharing, stock option, stock
appreciation right, restricted stock or other equity based, pension, retirement
or other employee compensation or benefit plan, program agreement or
arrangement; or (iii) enter into or amend in any material respect any employment
or collective bargaining agreement or, except in accordance with the
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existing written policies of the Company or existing contracts or agreements,
grant any severance or termination pay to any officer, director or employee of
the Company or any of its Subsidiaries;
(e) neither the Company nor any of its Subsidiaries will change the
accounting principles used by it unless required by GAAP (or, if applicable with
respect to Subsidiaries, foreign generally accepted accounting principles);
(f) neither the Company nor any of its Subsidiaries shall acquire by
merging or consolidating with, by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire any material assets of any other Person;
(g) neither the Company nor any of its Subsidiaries shall sell, lease,
exchange, transfer or otherwise dispose of, or agree to sell, lease, exchange,
transfer or otherwise dispose of, any of its material assets;
(h) the Company and its Subsidiaries shall not mortgage, pledge,
hypothecate, grant any security interest in, or otherwise subject to any other
Lien on any of its material properties or assets;
(i) neither the Company nor any of its Subsidiaries shall compromise,
settle, grant any waiver or release relating to or otherwise adjust any material
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than in the ordinary course of business and in a
manner consistent with past practice;
(j) neither the Company nor any of its Subsidiaries shall terminate any
Franchisee or Licensor other than in the ordinary course of business and in a
manner consistent with past practice; and
(k) neither the Company nor any of its Subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing.
SECTION 4.2 No Shopping.
(a) The Company and its Subsidiaries will not, directly or indirectly,
through any officer, director, agent, financial adviser, attorney, accountant or
other representative or otherwise, solicit, initiate or encourage submission of
proposals or offers from any Person relating to, or that could reasonably be
expected to lead to, an Acquisition Transaction or participate in any
negotiations or discussions regarding, or furnish to any other Person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek an Acquisition Transaction; provided, however, that, prior
to the approval of this Agreement by the stockholders at the Company
Stockholders Meeting, the Company may, in response to an unsolicited written
proposal with respect to an Acquisition Transaction from a third party that the
Board of Directors determines, in its good faith and reasonable judgment, after
consultation with its financial advisor, is a Superior Proposal, pursuant to a
customary confidentiality agreement with terms not substantially more favorable
to such third party than the confidentiality agreement, dated as of October 23,
2002, between the Company and the Parent (the "Confidentiality Agreement"),
furnish the same information to such third party as was previously furnished to
Parent, as revised or updated to reflect any changes or additions to such
information (provided that such revised information is contemporaneously
furnished to Parent to the extent it had not been previously so furnished), and
negotiate, explore or otherwise engage in substantive discussions with such
third party, but only if the Board of Directors determines, in good faith and in
its reasonable judgment after consultation with its outside counsel that failing
to take such action would result in a breach of the fiduciary duties of the
Board of Directors under applicable Law. Notwithstanding the foregoing, the
Company shall be permitted to take and disclose to the Company's stockholders a
position with respect to the Merger or another Acquisition Transaction proposal,
or amend or withdraw such position, pursuant to Rules 14d-9 and 14e-2 under the
Exchange Act.
(b) Except as expressly permitted by this Section 4.2(b), neither the Board
of Directors nor any committee thereof may (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent or Purchaser, the
approval or recommendation by the Board of Directors or such committee of the
Merger or this Agreement; (ii) approve or recommend, or propose publicly to
approve or
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recommend, any Acquisition Transaction; or (iii) cause the Company to enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement related to any Acquisition Transaction (each, an "Acquisition
Agreement"). Notwithstanding the foregoing, prior to the approval of this
Agreement by the stockholders at the Company Stockholders Meeting, in response
to an unsolicited Acquisition Transaction proposal, if the Board of Directors
determines, in its good faith reasonable judgment, (1) after consultation with
its financial advisor, that such proposal is a Superior Proposal, and (2) after
consultation with its outside counsel, that failure to do any of the actions set
forth in clauses (i) or (ii) above would result in a breach of the fiduciary
duties of the Board of Directors under applicable Law, the Board of Directors
may withdraw or modify its approval or recommendation of the Merger or this
Agreement or approve or recommend an Acquisition Transaction; provided, however,
that it gives Parent three Business Days prior written notice of its intention
to do so (provided, further, that the foregoing will in no way limit or
otherwise affect Parent's right to terminate this Agreement pursuant to Section
7.1(g) at such time as the requirements of such subsection have been met). Any
such withdrawal or modification of the recommendation of the Board of Directors
of the Merger or this Agreement or any such approval or recommendation of an
Acquisition Transaction will not change the approval of the Board of Directors
for purposes of causing any state takeover statute or other state Law to be
inapplicable to the transactions contemplated hereby, including the Merger.
Nothing in this Section 4.2(b) shall be construed to (i) permit the Company to
terminate this Agreement (except as provided by Section 7.1 of this Agreement),
(ii) permit the Company to enter into any agreement with respect to any
Acquisition Transaction, or (iii) affect any other obligation of the Company
under this Agreement.
(c) The Company will (i) immediately (and in any event, no later than one
Business Day after receipt) advise Parent in writing of the receipt of a request
for information or any inquiries or proposals relating to an Acquisition
Transaction (including the specific terms and conditions thereof and the
identity of the other party or parties involved) and any actions taken pursuant
to Section 4.2(a); (ii) promptly deliver to Parent a copy of any such written
inquiry or proposal and copies of any information provided to or by any third
party relating thereto; and (iii) keep Parent informed of the status of any such
request or proposed Acquisition Transaction.
(d) For purposes of this Agreement, (i) "Acquisition Transaction" means
(other than the transactions contemplated by this Agreement) (1) a merger,
consolidation or other business combination, share exchange, sale of shares of
capital stock, tender offer or exchange offer or similar transaction involving
the Company or any of its Subsidiaries; (2) acquisition in any manner, directly
or indirectly, of a material interest in any voting securities of, or a material
equity interest in a material portion of the assets of, the Company or any of
its Subsidiaries, including any single or multi-step transaction or series of
related transactions which is structured to permit a third party to acquire
beneficial ownership of a majority or greater equity interest in the Company; or
(3) the acquisition in any manner, directly or indirectly, of any material
portion of the business or assets of the Company, and (ii) "Superior Proposal"
means a proposed Acquisition Transaction involving at least a majority of the
shares of capital stock of the Company or all or substantially all of the assets
of the Company that the Board of Directors determines, after consulting with the
Company's financial advisors to be more favorable to the Company's stockholders
than the Merger and for which no financing contingency exists; provided,
however, that a proposed Acquisition Transaction will not be deemed to be a
Superior Proposal unless it involves consideration per Share that exceeds the
Merger Consideration.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Proxy Statement; Schedule 13E-3. As promptly as practicable
after the date of this Agreement, the Company shall prepare and file with the
SEC, and shall use all reasonable efforts to have cleared by the SEC, the Proxy
Statement and the Schedule 13E-3 and shall promptly thereafter mail to its
stockholders the Proxy Statement. The Proxy Statement shall contain the
recommendation of the Board of Directors that stockholders of the Company adopt
this Agreement. The Company agrees not to mail the
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Proxy Statement to its stockholders until Parent confirms that the information
provided by Parent continues to be accurate. If at any time prior to the Company
Stockholders Meeting any event or circumstance relating to the Company or any of
its Subsidiaries or affiliates, or its or their respective officers or
directors, should be discovered by the Company that is required to be set forth
in a supplement to the Proxy Statement or the Schedule 13E-3, the Company shall
promptly inform Parent and Purchaser, so supplement the Proxy Statement and the
Schedule 13E-3 and mail such Proxy Statement supplement to its stockholders.
SECTION 5.2 Meeting of Stockholders of the Company. As promptly as
practicable after the date of this Agreement, and clearance by the SEC of the
Proxy Statement and the Schedule 13E-3, the Company shall promptly take all
action necessary in accordance with Delaware Law and its certificate of
incorporation and bylaws to convene the Company Stockholders Meeting. The
Company shall use its reasonable best efforts to solicit from stockholders of
the Company proxies in favor of adoption of this Agreement. Without limiting the
generality of the foregoing but subject to its rights pursuant to Section 4.2,
the Company agrees that its obligations pursuant to the first sentence of this
Section 5.2 will not be affected by the commencement, public proposal, public
disclosure or communication to the Company of any Acquisition Transaction or the
Board of Directors' withdrawal or modification of its recommendation of the
Merger or this Agreement.
SECTION 5.3 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence or non-occurrence of any event whose occurrence or
non-occurrence could reasonably be expected to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect as of the Effective Time, and (b) any failure of the Company, Parent or
Purchaser, as the case may be, or any officer, director, employee or agent
thereof, to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the Company shall not be permitted or required to
supplement or update any Disclosure Schedule after the date hereof; provided,
further, that the delivery of any notice pursuant to this Section 5.3 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 5.4 Access to Information; Transition.
(a) From the date hereof to the Effective Time, subject to applicable
antitrust Laws relating to the exchange of information, the Company shall, and
shall cause each of its subsidiaries, its officers, directors, employees,
auditors and agents to, afford Parent Representatives reasonable access upon
reasonable notice and during normal business hours to its officers, employees,
agents, properties (including for purposes of conducting environmental
assessments and sampling of the Environment), offices and other facilities and
to all books and records, and shall furnish Parent and Purchaser with all
financial, operating and other data and information as Parent or Purchaser,
through Parent Representatives, may reasonably request for purposes consistent
with this Agreement and the transactions contemplated hereby.
(b) Parent and Purchaser will, and will cause their affiliates and each of
their respective officers, directors, employees, financial advisors, agents and
other authorized representatives (the "Parent Representatives") to, hold in
strict confidence all data and in accordance with the Confidentiality Agreement
and be responsible for any breaches of such obligation by the Parent
Representatives.
SECTION 5.5 Reasonable Best Efforts; Cooperation.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable, subject to applicable Laws, to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement and to obtain satisfaction or waiver of the conditions precedent to
consummation of the Merger, including (i) the obtaining of all necessary actions
or nonactions, waivers, consents and approvals from Governmental Entities and
the making of all necessary registrations and filings and the taking of all
steps as may be necessary to obtain an approval or waiver
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from, or to avoid an action or proceeding by, any Governmental Entity; (ii) the
obtaining of all necessary consents, approvals or waivers from third parties;
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby or thereby, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed; and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement.
(b) In connection with and without limiting the foregoing, the Company and
Parent will, in compliance with applicable Laws (i) take all action necessary to
ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to the Merger, this Agreement or any of the other
transactions contemplated hereby, and (ii) if any state takeover statute or
similar statute or regulation becomes applicable to the Merger, this Agreement
or any of the other transactions contemplated hereby, take all action necessary
to ensure that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger and the other transactions contemplated by
this Agreement. Nothing in this Agreement will be deemed to require Parent to
agree to, or proffer to, divest or hold separate any assets or any portion of
any business of Parent, the Company or any of their respective Subsidiaries if
the Parent determines that so doing would materially impair the benefit intended
to be obtained by Parent in the Merger.
(c) Each of Parent and the Company will (i) make the filings required of
such party under Competition Laws with respect to the Merger and the other
transactions contemplated by this Agreement as soon as practicable or as
otherwise required after the date of this Agreement; (ii) comply at the earliest
practicable date with any request under the HSR Act for additional information,
documents or other materials received by such party from the FTC or the
Department of Justice (the "DOJ ") or any other Governmental Entity in respect
of such filings or the Merger and the other transactions contemplated by this
Agreement; (iii) promptly notify the other of (A) the receipt of any comments
on, or any request of amendments or supplements to any such filings or
information, documents, or other materials by any Governmental Entity or
official and (B) any other communications from or with any Governmental Entity
with respect to the Merger; and (iv) cooperate with the other party in
connection with making any filing under Competition Laws and in connection with
any filings, conferences or other submissions related to resolving any
investigation or other inquiry by any such Governmental Entity under Competition
Laws with respect to the Merger and the other transactions contemplated by this
Agreement, including (A) keeping the other party apprised of the status of
matters relating to the completion of the transactions contemplated hereby and
working cooperatively in connection with obtaining any consents from any
Governmental Entity, (B) not participating in any meeting with any Governmental
Entity unless it consults with the other party in advance and to the extent
permitted by such Governmental Entity gives the other party the opportunity to
attend and participate therein, and (C) providing copies of all such documents
and correspondence to the non-filing party and its advisors prior to filing and,
if requested, to accept all reasonable additions, deletions or changes suggested
in connection therewith. Notwithstanding anything to the contrary contained
herein, in no event will Parent be required to (1) dispose of or hold separate
any material portion of its, the Surviving Corporation's or any of their
respective affiliates or Subsidiaries assets or business or the Company's assets
or business, (2) accept any material limitation on its, the Surviving
Corporation's or any of their respective affiliates or Subsidiaries ability to
acquire, operate or hold their respective assets or business or the Company's
asset or business, or (3) defend any litigation instituted by the FTC or the DOJ
or any other Governmental Entity that seeks to restrain or prohibit the
consummation of the Merger or that seeks to impose any of the actions set forth
in clauses (1) or (2) above.
(d) The Company and the Subsidiaries will provide reasonable cooperation
with Parent to obtain all releases, including, without limitation, under the
Uniform Commercial Code, of any financing statements filed against any of the
assets or properties of the Company or any of its Subsidiaries, evidencing
discharge, removal and termination of Liens in respect of Debt of the Company to
be retired by Parent in
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connection with the transactions contemplated by this Agreement. In addition,
unless otherwise requested by Parent in writing the Company will use
commercially reasonable efforts to cause the amounts owed to it set fourth on
Section 3.15 to be paid to it at or prior to the Effective Time.
SECTION 5.6 Public Announcements. Parent and the Company will consult
with each other before holding any press conferences, analysts calls or other
meetings or discussions and before issuing any press release or other public
announcements with respect to the transactions contemplated by this Agreement,
including the Merger. The parties will provide each other the opportunity to
review and comment upon any press release or other public announcement or
statement with respect to the transactions contemplated by this Agreement,
including the Merger, and will not issue any such press release or other public
announcement or statement prior to such consultation, except as may be required
by applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press release or releases to be issued with respect to the transactions
contemplated by this Agreement will be mutually agreed upon prior to the
issuance thereof. In addition, the Company will, and will cause its Subsidiaries
to, (a) consult with Parent regarding communications with customers,
stockholders, Franchisees and employees relating to the transactions
contemplated by this Agreement, and (b) allow and facilitate Parent reasonable
contact with stockholders and Franchisees of the Company in accordance with
applicable Law and upon prior written approval from the Company in each
instance.
SECTION 5.7 Agreement to Defend and Indemnify.
(a) The certificate of incorporation and bylaws of the Surviving
Corporation shall not be amended, repealed or otherwise modified in any manner
that would adversely affect the rights thereunder of individuals who as of the
date hereof were directors, officers, employees, fiduciary or agents of the
Company or otherwise entitled to indemnification under the certificate of
incorporation, bylaws or indemnification agreements (the "Indemnified Parties");
provided, that all rights to indemnification in respect of any claims (each a
"Claim") asserted or made shall continue until the disposition of such Claim. It
is understood and agreed that the Company shall, to the fullest extent permitted
under Delaware Law and regardless of whether the Merger becomes effective,
indemnify, defend and hold harmless, and after the Effective Time, Parent will
cause the Surviving Corporation, to the fullest extent permitted under Delaware
Law, to indemnify, defend and hold harmless, each Indemnified Party against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, including
without limitation liabilities arising out of this transaction, to the extent
that it was based on the fact that such Indemnified Party is or was a director,
officer or employee of the Company and arising out of actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time, and in
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) the Company or the Surviving
Corporation, as applicable, shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Company or the Surviving Corporation, promptly as statements
therefor are received, and (ii) the Company and the Surviving Corporation will
cooperate in the defense of any such matter; provided, however, that neither the
Company nor the Surviving Corporation shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld); and provided, further, that neither the Company nor the Surviving
Corporation shall be obliged pursuant to this Section 5.7 to pay the fees and
disbursements of more than one counsel for all Indemnified Parties in any single
action except to the extent that, in the opinion of counsel for the Indemnified
Parties, two or more of such Indemnified Parties have conflicting interests in
the outcome of such action. For three years after the Effective Time, the
Surviving Corporation shall be required to maintain or obtain officers' and
directors' liability insurance covering the Indemnified Parties who are
currently covered by the Company's officers and directors liability insurance
policy on terms not less favorable than those in effect on the date hereof in
terms of coverage and amounts; provided, however, that the Surviving Corporation
will not be required to expend in any year an amount in excess of 200% of the
annual aggregate premiums currently paid by the Company for such insurance; and
provided, further, that if the annual premiums of such
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insurance coverage exceed such amount, the Surviving Corporation will be
obligated to obtain a policy with the best coverage available, in the reasonable
judgment of its Board of Directors, for a cost not exceeding such amount. This
Section 5.7 shall survive the consummation of the Merger. Parent shall cause
Surviving Corporation to reimburse all expenses, including reasonable attorney's
fees and expenses, incurred by any Person to enforce the obligations of Parent
and the Surviving Corporation under this Section 5.7. Notwithstanding Section
8.7 hereof, this Section 5.7 is intended to be for the benefit of and to grant
third party rights to Indemnified Parties whether o r not parties to this
Agreement, and each of the Indemnified Parties shall be entitled to enforce the
covenants contained herein.
(b) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.7.
SECTION 5.8 Stockholder Litigation. The parties to this Agreement will
cooperate and consult with one another, to the fullest extent possible, in
connection with any stockholder litigation against any of them or any of their
respective directors or officers with respect to the transactions contemplated
by this Agreement. In furtherance of and without in any way limiting the
foregoing, each of the parties will use its respective reasonable best efforts
to prevail in such litigation so as to permit the consummation of the
transactions contemplated by this Agreement in the manner contemplated by this
Agreement. Notwithstanding the foregoing, the Company agrees that it will not
compromise or settle any litigation commenced against it or its directors or
officers relating to this Agreement or the transactions contemplated hereby
(including the Merger) without Parent's prior written consent, which will not be
unreasonably withheld or delayed.
SECTION 5.9 Standstill Agreements; Confidentiality Agreements. During the
period from the date of this Agreement through the Effective Time, the Company
will not terminate, amend, modify or waive any provision of any confidentiality
or standstill agreement to which it or any of its Subsidiaries is a party, other
than (a) the Confidentiality Agreement, pursuant to its terms or by written
agreement of the parties thereto; (b) confidentiality agreements under which the
Company does not provide any confidential information to third parties; or (c)
standstill agreements that do not relate to the equity securities of the Company
or any of its Subsidiaries. During such period, the Company will enforce, to the
fullest extent permitted under applicable Law, the provisions of any such
agreement, including by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in any
court of the United States of America or of any state having jurisdiction.
SECTION 5.10 Delisting. Each of the parties hereto agrees to cooperate
with each other in taking, or causing to be taken, all actions necessary to
delist the Company Common Stock from The Nasdaq National Market, provided that
such delisting shall not be effective until after the Effective Time of the
Merger.
SECTION 5.11 Employee and Termination Benefits.
(a) Except as otherwise provided in this Section 5.11 and except with
respect to the individuals set forth on Section 5.11(a) of the Disclosure
Statement, as of and after the Effective Time, and at Purchaser's election and
subject to the requirements of the Code and ERISA, the Employee Plans shall
continue to be maintained separately or terminated; provided, however, that the
Surviving Corporation or Parent shall, through December 31, 2004, provide
employees who continue employment with the Surviving Corporation or Parent after
the Effective Time ("Continuing Employees") and their dependents with employee
benefits that are substantially comparable, in the aggregate, to those available
to such Continuing Employees and their dependents at the Effective Time. In
furtherance of the foregoing, in the event of a termination of any or all
Employee Plans, Continuing Employees shall receive credit for all service with
both the Company and the Surviving Corporation or Parent at any time prior to
the effective time of such termination for purposes of eligibility and vesting
determination under any successor or substitute Surviving Corporation Employee
Plan or Parent Employee Plan. Such prior service shall also
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apply for purposes of satisfying any waiting periods, actively-at-work
requirements, and evidence of insurability requirements of any successor or
substitute Surviving Corporation or Parent health plan. Continuing Employees who
become covered under a successor or substitute Surviving Corporation health plan
or Parent health plan shall not be required to satisfy the deductible
limitations of such health plan for the plan year in which coverage commences to
the extent that prior to the time coverage commences the dollar amount of such
deductibles have been satisfied for such Continuing Employees under a Company
health plan.
(b) The Surviving Corporation or Parent, as the case may be, shall honor
all obligations under the 2003 Associate Bonus Plan and the Executive Bonus Plan
and shall make the payments required thereunder, which payments shall be
calculated as set forth on Section 5.11(b) of the Disclosure Schedule. The
budgeted amounts for such payments are set forth on Section 5.11(b) of the
Disclosure Schedule.
(c) For the period from the Effective Time until the first anniversary of
the Effective Time, the Surviving Corporation or Parent shall provide severance
benefits to any Continuing Employee in accordance with the severance pay
guidelines set forth on Section 5.11(c) of the Disclosure Schedule.
(d) In the event of any termination of any Company health or disability
plan, (i) terminated Company or Surviving Corporation employees and qualified
beneficiaries will have the right to continued coverage under group health plans
of the Surviving Corporation or Parent, as the case may be, as required by Code
Section 4980B(f) and ERISA Sections 601 through 609 ("COBRA"), and (ii) any
pre-existing condition, limitation or exclusion in a successor or substitute
Surviving Corporation or Parent health or disability plan shall not apply to
Continuing Employees or their covered dependents who have satisfied such
pre-existing condition limitation or exclusion waiting period under a Company
health or disability plan with respect to such pre-existing condition at the
time of such termination of the Company health or disability plan.
(e) Notwithstanding any other provision of this Agreement to the contrary,
effective as of the Closing Date, except as required by COBRA, no Employee Plan
shall provide benefits to any individual who is not a current or former employee
of the Company or any of its Subsidiaries.
(f) The Surviving Corporation shall honor its obligations set forth on
Section 5.11 of the Disclosure Schedule.
SECTION 5.12 Tax Treatment. The parties to this Agreement (and each of
their affiliates, employees, representatives, or other agents) may disclose to
any and all Persons, without limitation of any kind, the tax treatment and tax
structure of the transaction contemplated by this Agreement and the Contribution
Agreement and all materials of any kind (including opinions and other tax
analyses) that are provided to the taxpayer relating to such tax treatment or
tax structure; provided, however, that the parties shall not be required to
disclose non-tax related proprietary business information.
ARTICLE VI
CONDITIONS OF MERGER
SECTION 6.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions (any or all of which may be waived by the parties hereto in
writing, in whole or in part, to the extent permitted by applicable Law):
(a) Stockholder Approval. This Agreement shall have been adopted by the
requisite vote of the stockholders of the Company under Delaware Law.
(b) No Challenge. No Law, judgment, writ, decree, order or injunction
(whether temporary, preliminary or permanent) shall have been promulgated,
enacted, entered or enforced, and no other action shall have been taken, by any
Governmental Entity or by any court of competent jurisdiction, that in any
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of the foregoing cases has the effect of making illegal or directly or
indirectly restraining, prohibiting or restricting the consummation of the
Merger.
(c) Governmental and Regulatory Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental Entity required of
Parent, Purchaser, the Company or any of its Subsidiaries to consummate the
Merger and the other transactions contemplated hereby, the failure of which to
be obtained or taken is reasonably expected to have or result in a material
adverse effect on the Surviving Corporation and its subsidiaries, taken as a
whole, shall have been obtained.
(d) HSR Act. The waiting period (including any extension thereof)
applicable to the consummation of the Merger under the HSR Act, if any, shall
have expired or been terminated.
SECTION 6.2 Conditions to Obligations of Parent and Purchaser to Effect
the Merger. The obligations of Parent and Purchaser to effect the Merger shall
be further subject to the satisfaction or waiver of the following conditions
prior to the Effective Time:
(a) Representations and Warranties. Those representations and warranties of
the Company set forth in this Agreement which are qualified by materiality or a
Company Material Adverse Effect or words of similar effect shall be true and
correct as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date (except to the extent such representations
and warranties expressly relate to a specific date in which case such
representations and warranties shall be true and correct as of such date). Those
representations and warranties of the Company set forth in this Agreement which
are not so qualified by materiality or a Company Material Adverse Effect or
words of similar effect shall be true and correct in all material respects as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date (except to the extent such representations and warranties
expressly relate to a specific date in which case such representations and
warranties shall be true and correct in all material respects as of such date).
Notwithstanding the foregoing, the representations and warranties of the Company
set forth in Sections 3.2, 3.3 and 3.5(b) and (c) shall be true and correct on
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date (except to the extent such representations and warranties
expressly relate to a specific date, in which case such representations and
warranties shall be true and correct as of such date).
(b) Agreements and Covenants. The Company shall have performed in all
material respects all obligations and complied in all material respects with all
agreements and covenants of the Company required to be performed or complied
with by it under this Agreement, including, without limitation, its obligations
under Section 4.1 hereof.
(c) Dissenting Shares. The holders of not more than ten percent (10%) of
the issued and outstanding shares of Company Common Stock shall have taken
action prior to or at the time of the stockholders vote on the Merger as is
necessary as of that time to entitle them to the statutory dissenters' rights
referred to in Section 1.7.
(d) No Company Material Adverse Effect. There shall not have occurred any
Company Material Adverse Effect.
(e) Cancellation of Options, Non-Plan Options and Warrants. Each Option,
Non-Plan Option and Warrant shall have been exercised, forfeited or cancelled.
(f) Contribution Agreement. Parent, Riverside and the Rollover Stockholders
shall have consummated the transactions contemplated by the Contribution
Agreement.
(g) Consents, etc. Any consent, authorization, order or approval of (or
filing or registration with) any third party identified on Section 6.2(g) of the
Disclosure Schedule.
(h) Minimum EBITDA. Twelve-month trailing EBITDA is not less than
$6,460,000, as calculated and certified by the Company's chief financial officer
and measured as of the month end immediately preceding the mailing of the Proxy
Statement pursuant to Section 5.1.
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SECTION 6.3 Conditions to Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger shall be further
subject to the satisfaction or waiver of the following conditions prior to the
Effective Time:
(a) Representations and Warranties. Those representations and warranties of
Parent and Purchaser set forth in this Agreement which are qualified by
materiality or a Parent Material Adverse Effect or words of similar effect shall
be true and correct as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date (except to the extent such
representations and warranties expressly relate to a specific date in which case
such representations shall be true and correct as of such date). Those
representations and warranties of Parent and Purchaser set forth in this
Agreement which are not so qualified by materiality or a Parent Material Adverse
Effect or words of similar effect shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as though
made on the Closing Date (except to the extent such representations and
warranties expressly relate to a specific date in which case such
representations and warranties shall be true and correct in all material
respects as of such date).
(b) Agreements and Covenants. Parent and Purchaser shall have performed in
all material respects all obligations and complied in all material respects with
all agreements and covenants of Parent and Purchaser required to be performed or
complied with by them under this Agreement.
(c) Contribution Agreement. Parent and Riverside shall have performed in
all material respects all obligations and complied in all material respects with
all agreements and covenants required to be performed or complied with by them
under the Contribution Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
before the Effective Time, whether before or after the adoption of this
Agreement by the stockholders of the Company:
(a) By mutual written consent of Parent and the Company by action of their
respective Board of Directors;
(b) By either Parent or the Company if a court of competent jurisdiction or
Governmental Entity shall have issued a final nonappealable order, decree or
ruling or taken any other action (which order, decree, ruling or actions the
parties hereto shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement;
(c) By either Parent or the Company if the Merger has not been consummated
by December 31, 2003, or such later date, if any, as Parent and the Company
mutually agree upon; provided, however, that no party may terminate this
Agreement pursuant to this paragraph (c) if such party's failure to fulfill any
of its obligations under this Agreement shall have been the reason that the
consummation of the Merger shall not have occurred on or before said date;
(d) By either Parent or the Company, if the stockholders of the Company
fail to adopt this Agreement at the Company Stockholders Meeting (including any
postponement or adjournment thereof);
(e) By the Company, if it shall not be in material breach of its
representations, warranties, covenants or agreements hereunder, if (i) there
shall be a material breach of any of Parent's or Purchaser's representations or
warranties hereunder, which breach shall not have been cured within 30 days of
the receipt of written notice thereof by Parent from the Company, or (ii) there
shall have been a material breach on the part of Parent or Purchaser of any of
their respective covenants or agreements hereunder, which breach shall not have
been cured within 30 days of the receipt of written notice thereof by Parent
from the Company;
(f) By Parent, if it shall not be in material breach of its
representations, warranties, covenants or agreements hereunder, if (i) there
shall be a material breach of any of the Company's representations or
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warranties hereunder, which breach shall not have been cured within 30 days of
the receipt of written notice thereof by the Company from Parent, or (ii) there
shall have been a material breach on the part of the Company of any of its
covenants or agreements hereunder, which breach shall not have been cured within
30 days of the receipt of written notice thereof by the Company from Parent;
(g) By Parent, at any time prior to the approval of this Agreement by the
stockholders at the Company Stockholders Meeting, if (i) the Board of Directors
shall have withdrawn, modified or changed its recommendation or approval in
respect of this Agreement or the Merger; (ii) the Board of Directors shall have
recommended any proposal other than by Parent or Purchaser in respect of an
Acquisition Transaction; or (iii) the Board of Directors shall have resolved to
take any of the foregoing actions; or
(h) By Parent, if the condition set forth in Section 6.2(h) is not
satisfied in accordance with its terms.
SECTION 7.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided in Section
7.1 hereof, the terminating party shall provide prompt written notice to the
other party of such termination and the applicable grounds therefor under this
Section 7.1 (except in the case of a termination pursuant to Section 7.1(a)),
and this Agreement shall forthwith become void and there shall be no liability
on the part of the Parent, Purchaser or the Company, except (i) as set forth in
Sections 5.4 (b), 5.6, 7.2 and 8.3 hereof, and (ii) subject to the limitations
set forth in Section 7.2(b), nothing herein shall relieve any party from
liability for any breach of this Agreement. All payments to be made in
accordance with the provisions of Section 7.2(b) shall be made by wire transfer
of immediately available funds.
(b) (i)(1) If this Agreement is terminated in accordance with Section
7.1(f) as a result of a willful breach by the Company which frustrates the
consummation of the Merger (including, without limitation, a breach of
Section 4.2), then the Company shall promptly (but not later than two
Business Days after any termination notice delivered in accordance with
Section 7.2(a)) pay Parent's actual and reasonably documented Expenses,
which shall not exceed $750,000; (2) if this Agreement is terminated in
accordance with Section 7.1(f), and, if at the time of the Company's breach
of this Agreement, there shall have been a third-party offer or proposal
with respect to an Acquisition Transaction which at the time of such
termination shall not have been rejected by the Company and the Board of
Directors or withdrawn by the third party then the Company (jointly and
severally with its affiliates) shall promptly (but no later than two
Business Days after any termination notice delivered in accordance with
Section 7.2(a)) pay Parent's actual and reasonably documented Expenses,
which shall not exceed $750,000, and if within two years of any such
termination the Company or an affiliate thereof becomes a subsidiary of
such offeror or a subsidiary of an affiliate of such offeror or consummates
an Acquisition Transaction with such offeror or an affiliate thereof, then,
no later than two Business Days after the consummation of such Acquisition
Transaction, if any, the Company (jointly and severally with its
affiliates) shall pay Parent or its designee a fee equal to $2,000,000 (the
"Termination Fee"); provided, however, that in no event shall the
Termination Fee provided for in Section 7.2(b)(ii) be payable if the
Termination Fee referred to in this Section 7.2(b)(i)(2) has been paid; and
(3) if this Agreement is terminated in accordance with Section 7.1(f) for
any reason other than as set forth in clauses (1) and (2), then Parent will
be entitled to pursue any and all rights and remedies it may have against
the Company at Law or in equity, but will be limited to a maximum aggregate
recovery against the Company and its affiliates of $100,000. The remedies
set forth in this Section 7.2(b)(i), as applicable, will constitute the
sole and exclusive remedies of Parent and Purchaser for any claims arising
from Section 7.1(f) of this Agreement.
(ii) If an Acquisition Transaction shall have been made known to the
Company or any of its Subsidiaries or has been made directly to its
stockholders generally or any Person shall have publicly announced an
intention (whether or not conditional) to make an Acquisition Transaction,
and (1) this Agreement is terminated by either the Company or Parent in
accordance with Section 7.1(d), then the Company shall (x) promptly (but no
later than two Business Days after any
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termination notice delivered in accordance with Section 7.2(a)) pay Parent
or its designee Parent's actual and reasonably documented Expenses, which
shall not exceed $750,000, and (y) no later than two Business Days after
the consummation of such Acquisition Transaction, if any, pay the
Termination Fee or (2) this Agreement is terminated by Parent in accordance
with Section 7.1(g), then the Company shall (x) promptly (but no later than
two Business Days after any termination notice delivered in accordance with
Section 7.1(a)) pay Parent or its designee Parent's actual and reasonably
documented Expenses, which shall not exceed $750,000, and (y) no later than
two Business Days after the consummation of such Acquisition Transaction,
if any, pay the Termination Fee. The Company acknowledges that the
agreements contained in Sections 7.2(b)(i) and (ii) are an integral part of
the transactions contemplated by this Agreement, and that, without these
agreements, Parent would not enter into this Agreement. The remedies set
forth in this Section 7.2(b)(ii), as applicable, will constitute the sole
and exclusive remedies of Parent and Purchaser for any claims arising from
Sections 7.1(d) and (g) of this Agreement.
(iii) If, at any time after the conditions set forth in Section 6.1
and Section 6.2 have been satisfied, this Agreement is terminated in
accordance with Section 7.1(e) as a result of a willful breach by Parent or
Purchaser which frustrates the consummation of the Merger, then Parent
(jointly and severally with its affiliates) shall promptly (but not later
than two Business Days after any termination notice delivered in accordance
with Section 7.2(a)) pay to the Company the Termination Fee plus the
Company's actual and reasonably document Expenses, which shall not exceed
$750,000. If this Agreement is terminated pursuant to Section 7.1(e) for
any reason other than as set forth in the preceding sentence, then Company
shall be entitled to pursue any and all rights and remedies it may have at
Law or in equity against Parent or Purchaser but will be limited to a
maximum aggregate recovery against Parent, Purchaser and their affiliates
of $100,000. The remedies set forth in this Section 7.2(b)(iii) will
constitute the sole and exclusive remedies of the Company for any claims
arising from Section 7.1(e) of this Agreement.
(c) The term "Expenses" means all reasonable out-of-pocket fees, costs and
other expenses incurred or assumed by Parent or Purchaser, or the Company, as
the case may be, or incurred on their behalf in connection with this Agreement
or any of the transactions contemplated hereby, including, but not limited to,
in connection with the negotiation, preparation, execution and performance of
this Agreement, the structuring and financing of the Merger and the other
transactions contemplated hereby, or any commitments or agreements relating to
such financing, including, without limitation, fees and expenses payable to all
banks, investment banking firms, other financial institutions and other Persons
and their respective agents and counsel for arranging, committing to provide or
providing any financing for the Merger and any other transactions contemplated
hereby or structuring, negotiating or advising with respect to such transactions
or such financing, and all fees and expenses of counsel, accountants, experts
and environmental, actuarial, insurance and other consultants to Parent or
Purchaser, or the Company, as the case may be.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time, except that the agreements set forth in
Article I and Section 5.7 shall survive the Effective Time indefinitely and
those set forth in Sections 5.4(b), 5.6, 7.2 and 8.3 shall survive termination
indefinitely.
SECTION 8.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made (a) as of the date delivered if delivered personally or by overnight
courier, (b) on the third Business Day after deposit in the U.S. mail, if mailed
by registered or certified mail (postage prepaid, return receipt requested), or
(c) when successfully transmitted by facsimile (with a confirming copy of such
communication to be sent as provided in clauses (a) or (b) above), and, in each
case to the parties at the following addresses or
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facsimile number (or at such other address for a party as shall be specified by
like notice, except that notices of changes of address shall be effective upon
receipt):
(a) if to Parent or Purchaser:
c/o The Riverside Company
Rockefeller Center
630 Fifth Avenue, Suite 1530
New York, NY 10011
Attention: Chief Financial Officer
Facsimile: 212-265-6478
With a copy (which shall not constitute notice) to:
Jones Day
2882 Sand Hill Road
Suite 240
Menlo Park, CA 94025
Attention: Sean M. McAvoy
Facsimile: 650.739.3900
(b) if to the Company:
The Dwyer Group, Inc.
1010 N. University Parks Drive
Waco, TX 76707
Attention: President
Facsimile: 254.745.2590
With a copy (which shall not constitute notice) to:
Schiff, Hardin & Waite
6600 Sears Tower
Chicago, IL 60606
Attention: Michael D. Lurie
Facsimile: 312.258.5600
SECTION 8.3 Expenses. Except as expressly set forth in Section 7.2(b),
all fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
costs and expenses.
SECTION 8.4 Certain Definitions. For purposes of this Agreement, the
term:
(a) "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;
(b) "Change of Control " means if at any time any of the following events
shall have occurred:
(i) Parent is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders
of shares of Parent Common Stock outstanding immediately prior to such
transaction;
(ii) Parent sells or otherwise transfers all or substantially all of
its assets to any other corporation (other than a subsidiary of Parent) or
other legal person, and less than a majority of the combined voting power
of the then-outstanding securities of such corporation or person
immediately after such sale or transfer is held in the aggregate by the
holders of shares of Parent Common Stock outstanding immediately prior to
such sale or transfer;
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(iii) If 2000 Riverside Capital Appreciation Fund, L. P. together with
its affiliates cease for any reason, other than a public offering of the
Parent's equity securities, to own a majority of the combined voting power
of the outstanding securities of Parent;
(iv) If, at any time after any public offering of any of Parent's
equity securities, any "person" (as such term is used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) becomes a "beneficial owner" (as such
term is defined in Rule 13d-3 promulgated under the Exchange Act ) (other
than Parent, any trustee or other fiduciary holding securities under an
employee benefit plan of Parent, or any corporation owned, directly or
indirectly, by the stockholders of Parent in substantially the same
proportions as their ownership of stock of Parent), directly or indirectly,
of securities of Parent representing more than fifty percent (50%) of the
combined voting power of Parent's then outstanding securities; or
(v) The stockholders of Parent approve a plan of complete liquidation
or dissolution of Parent.
(c) "Company Material Adverse Effect" means any change or effect that is
materially adverse to the business, assets, properties (including intangible
properties), financial condition, results of operations, liabilities or
regulatory status of the Company and the Subsidiaries taken as a whole;
provided, however, that none of the following shall be deemed in themselves,
either alone or in combination, to constitute, and none of the following shall
be taken into account in determining whether there has been or will be, a
Company Material Adverse Effect: any change or effect that results from (i)
conditions affecting the United States economy generally; (ii) conditions
affecting the franchising industry generally, so long as such changes or effects
do not affect the Company and its Subsidiaries in a disproportionate manner as
compared to companies of a similar size; and (iii) any acts of terrorism against
the United States or any war involving the armed forces of the United States;
provided, further that the Company shall bear the burden of proof in any
proceeding or action with regard to establishing that any change or effect is
not Company Material Adverse Effect because it is attributable to the causes or
effects set forth in clauses (i), (ii) or (iii) of this sentence;
(d) "control " (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of stock, as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "EBITDA" means the Company's consolidated net income as reflected in
the Company's consolidated financial statements for the relevant period,
excluding (i) any extraordinary gains or losses, plus (i) the amount reflected
in such financial statements as expenses incurred for interest, income Taxes,
depreciation and amortization, but only to the extent that such items were
deducted in computing the Company's consolidated net income, and (ii) any
expenses or charges relating to the consummation of the transactions
contemplated by this Agreement, including, without limitation, any and all
financial advisory fees and expenses, legal and accounting fees and expenses,
printing, mailing and proxy solicitation costs, filing fees and expenses and
compensation, in the amounts set forth on Section 3.6 of the Disclosure
Schedule, paid to members of the independent special committee of the Board of
Directors, calculated consistent with prior practice and in each case (x) in
accordance with GAAP as in effect during such period and as consistently applied
by the Company; and (y) without giving effect after the date of this Agreement
to any (A) change in any accounting, financial reporting or Tax practice or
policy of the Company or any method of calculating any bad debt, contingency or
other reserve of the Company for accounting, financial reporting or Tax (B)
write-off or write-down of or any determination to write-off or down any of the
assets and properties of the Company not consistent with prior practice (C)
change in the general pricing practices or policies or any change in the credit
or allowance practices or policies of the Company not in the ordinary course of
business consistent with prior practice;
(f) "knowledge of the Company" or words of similar import means all
information that is actually known after reasonable inquiry by the individuals
set forth on Section 8.4 of the Disclosure Schedule;
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(g) "Person" means an individual, corporation, partnership, limited
liability company, association, trust or any unincorporated organization;
(h) "tax structure" means any fact that may be relevant to understanding
the purported or claimed Federal income tax treatment of the transaction; and
(i) "tax treatment" means a purported or claimed Federal income tax
treatment of the transaction.
SECTION 8.5 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.6 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
SECTION 8.7 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Voting Agreement, the Contribution Agreement and the
Confidentiality Agreement constitute the entire agreement and supersede any and
all other prior agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof. Except as
expressly provided in Article I, Section 5.7 and Section 5.11 (which are
intended to be for the benefit of the Persons covered thereby and may be
enforced by such persons only following the Effective Time), this Agreement is
not intended to confer upon any other Person any rights or remedies hereunder.
SECTION 8.8 Assignment. This Agreement shall not be assigned by operation
of Law or otherwise, except that Parent and Purchaser may assign all or any of
their rights hereunder to any affiliate of Parent or to or for the account of
any financing sources solely and specifically for the purposes of securing any
debt; provided, however, that no such assignment shall relieve the assigning
party of its obligations hereunder. This Agreement shall be binding upon, and
shall be enforceable by and inure to the benefit of the parties hereto and their
respective successors and assigns.
SECTION 8.9 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State.
SECTION 8.10 Amendment. This Agreement may be amended by agreement of the
parties hereto in writing by action taken by (a) Parent and Purchaser, and (b)
by or on behalf of the Company's Board of Directors at any time before the
Effective Time notwithstanding the adoption of this Agreement by the
stockholders of the Company; provided, however, that, after the adoption of this
Agreement by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
Share will be converted upon consummation of the Merger or alter or change any
of the terms or conditions of this Agreement if such alteration or change would
adversely affect the holders of Shares. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
SECTION 8.11 Waiver. At any time before the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only as against such party and only if
set forth in an instrument in writing signed by such party. Any such waiver
shall constitute a waiver only with respect to the specific matter described in
such writing and shall in no way impair the rights of the party granting such
waiver in any other respect or at any other time. Neither the
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waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and, except as otherwise set forth in Section 7.2, none
is exclusive of any other, or of any rights or remedies that any party may
otherwise have at Law or in equity.
SECTION 8.12 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement; (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court;
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of Delaware or an Delaware state court.
SECTION 8.13 Specific Enforcement. The parties 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 will be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any federal court
located in the State of Delaware or a Delaware state court, this being in
addition to any other remedy to which they are entitled at Law or in equity.
SECTION 8.14 Interpretation. In the event of an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement.
SECTION 8.15 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which shall
constitute one and the same agreement.
[The rest of this page intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
TDG HOLDING COMPANY
By: /s/ STUART BAXTER
------------------------------------
NAME: STUART BAXTER
TITLE: PRESIDENT
TDG MERGER CO.
By: /s/ STUART BAXTER
------------------------------------
Name: Stuart Baxter
Title: President
THE DWYER GROUP, INC.
By: /s/ DINA DWYER-OWENS
------------------------------------
Name: Dina Dwyer-Owens
Title: President & CEO
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EXHIBIT B
DELAWARE CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, then either a constituent corporation
before the effective date of the merger or consolidation or the surviving
or resulting corporation within ten days thereafter, shall notify each of
the holders of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the
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transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final
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determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
EXHIBIT C
FAIRNESS OPINION OF WILLIAM BLAIR & COMPANY, L.L.C.
May 10, 2003
Independent Special Committee
of the Board of Directors
The Dwyer Group, Inc.
1010 N. University Parks Dr.
Waco, TX 76707
Board of Directors
The Dwyer Group, Inc.
1010 N. University Parks Dr.
Waco, TX 76707
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, of the $6.75 per share cash consideration (the "Merger Consideration")
to be received in connection with the proposed merger (the "Merger") of The
Dwyer Group, Inc. (the "Company") and TDG Merger Co. (the "Merger Sub"),
pursuant to the Agreement and Plan of Merger substantially in the form of a
draft dated May 6, 2003 (the "Merger Agreement"), by and among TDG Holding
Company ("Parent"), Merger Sub, a wholly-owned subsidiary of Parent, by holders
of common stock, $0.10 par value per share, of the Company other than the
Rollover Stockholders and Parent (the "Minority Stockholders"). Unless otherwise
defined, all capitalized terms used herein have the meanings ascribed to them in
the Merger Agreement.
In connection with our review of the Merger and the preparation of our
opinion herein, we have examined: (a) the Merger Agreement; (b) certain audited
historical financial statements of the Company for the five years ended December
31, 2002; (c) the unaudited financial statements of the Company for the three
months ended March 31, 2003; (d) certain internal business, operating and
financial information and forecasts of the Company (the "Forecasts"), prepared
by the senior management of the Company; (e) information regarding publicly
available financial terms of certain other business combinations we deemed
relevant; (f) the financial position and operating results of the Company
compared with those of certain other publicly traded companies we deemed
relevant; (g) current and historical market prices and trading volumes of the
common stock of the Company; and (h) certain other publicly available
information on the Company. We have also held discussions with members of the
senior management of the Company to discuss the foregoing, have considered other
matters which we have deemed relevant to our inquiry and have taken into account
such accepted financial and investment banking procedures and considerations as
we have deemed relevant. In connection with our engagement, we were requested to
approach, and held discussions with, third parties to solicit indications of
interest in a possible acquisition of the Company.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all the information examined
by or otherwise reviewed or discussed with us for purposes of this opinion
including without limitation the Forecasts provided by senior management. We
have not made or obtained an independent valuation or appraisal of the assets,
liabilities or solvency of the Company. We have been advised by the senior
management of the Company that the Forecasts examined by us have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior management of the Company, as the case may be. In that
regard, we have assumed, with your consent, that (i) the Forecasts will be
achieved in the amounts and at the times contemplated thereby and (ii) all
material assets and liabilities (contingent or otherwise) of the Company are as
set forth in the Company's financial statements or other information made
available to us. We
C-1
express no opinion with respect to the Forecasts or the estimates and judgments
on which they are based. Our opinion herein is based upon economic, market,
financial and other conditions existing on, and other information disclosed to
us as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We have relied as to all legal
matters on advice of counsel to the Company, and have assumed that the Merger
will be consummated on the terms described in the Merger Agreement, without any
waiver of any material terms or conditions by the Company.
William Blair & Company has been engaged in the investment banking business
since 1935. We continually undertake the valuation of investment securities in
connection with public offerings, private placements, business combinations,
estate and gift tax valuations and similar transactions. In the ordinary course
of our business, we may from time to time trade the securities of the Company
for our own account and for the accounts of customers, and accordingly may at
any time hold a long or short position in such securities. We have acted as the
investment banker to the Company in connection with the Merger and will receive
a fee from the Company for our services, a significant portion of which is
contingent upon consummation of the Merger. In addition, the Company has agreed
to indemnify us against certain liabilities arising out of our engagement.
We are expressing no opinion herein as to the price at which the common
stock of the Company will trade at any future time or as to the effect of the
Merger on the trading price of the common stock of the Company. Such trading
price may be affected by a number of factors, including but not limited to (i)
changes in prevailing interest rates and other factors which generally influence
the price of securities, (ii) adverse changes in the current capital markets,
(iii) the occurrence of adverse changes in the financial condition, business,
assets, results of operations or prospects of the Company or in the business and
consumer services market, (iv) any necessary actions by or restrictions of
federal, state or other governmental agencies or regulatory authorities, and (v)
timely completion of the Merger on terms and conditions that are acceptable to
all parties at interest.
Our investment banking services and our opinion were provided for the use
and benefit of the Board of Directors and the Independent Special Committee of
the Board of Directors of the Company in connection with their consideration of
the transactions contemplated by the Merger Agreement. Our opinion is limited to
the fairness, from a financial point of view, to the Minority Stockholders of
the Merger Consideration in connection with the Merger, and we do not address
the merits of the underlying decision by the Company to engage in the Merger,
and this opinion does not constitute a recommendation to any stockholder as to
how such stockholder should vote with respect to the proposed Merger. It is
understood that this letter may not be disclosed or otherwise referred to
without prior written consent, except that the opinion may be included in its
entirety in proxy materials of the Company with respect to the Merger, and any
amendments thereto.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the Minority Stockholders.
Very truly yours,
/s/ WILLIAM BLAIR & COMPANY, L.L.C.
--------------------------------------
William Blair & Company, L.L.C.
C-2
EXHIBIT D
INFORMATION RELATING TO DWYER AND TDG HOLDING COMPANY PARTIES
The following sets forth certain information relating to Dwyer, Dwyer
Investments Ltd., members of Dwyer management, TDG Merger Co., TDG Holding
Company and certain affiliates of TDG Holding Company that Dwyer is required to
provide under SEC rules.
THE DWYER GROUP, INC.
The Dwyer Group, Inc. is a Delaware corporation. The principal business
address of Dwyer is 1010 North University Parks Drive, Waco, Texas 76707.
Neither Dwyer, nor to the best of its knowledge, any of its respective
directors, executive officers or controlling persons, (i) have been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) were a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanctions or settlement) that resulted in a
judgment, decree for final order enjoining further violations of, or prohibiting
activities, subject to, federal or state securities laws or finding any
violation of such federal or state securities laws. Each of Dwyer's executive
officers and directors is a U.S. citizen.
EXECUTIVE OFFICERS AND DIRECTORS OF DWYER
<Table>
<Caption>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
Theresa Dwyer............................ Chairperson of the Board of Directors and
Director
Dina Dwyer-Owens......................... President, Chief Executive Officer and
Director
Robert Tunmire........................... Executive Vice President and Director
Thomas J. Buckley........................ Vice President, Treasurer and Chief
Financial Officer
Deborah Wright-Hood...................... Vice President of Administration,
Secretary and Assistant Treasurer
Michael Bidwell.......................... Chief Operating Officer
Donald J. Dwyer, Jr...................... Director of International Operations and
Director
Burton D. Cohen.......................... Director
John P. Hayes............................ Director
Donald E. Latin.......................... Director
</Table>
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR EMPLOYMENT DURING PREVIOUS FIVE
YEARS
Theresa Dwyer. Mrs. Dwyer has been Chairperson of the Board of Directors
since July 1995, and Director since December 1994. She is the majority
stockholder of the following privately held companies: Worldwide Refinishing
Systems, Inc., Worldwide Supply, Inc., and Dwyer Real Estate. Mrs. Dwyer also
serves as Managing Partner of Dwyer Investments, Ltd.
Dina Dwyer-Owens. Ms. Dwyer-Owens has served as President and Chief
Executive Officer since January 1, 1999 and has been a Director since 1989.
Prior to that time, she served as Vice President of Operations since September
1995 after serving as Co-Chairperson of the Board of Directors from December
1994 to July 1995. Ms. Dwyer-Owens also served as Secretary of Dwyer from 1989
through December 1998. She also serves as Director of Rainbow, Mr. Rooter and
National Accounts. Ms. Dwyer-Owens has approximately 22 years experience in the
franchising industry.
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Robert Tunmire. Mr. Tunmire has been Executive Vice President since
January 1, 1999. Prior to that time, he served as President and Chief Executive
Officer of Dwyer since December 1994 after serving as Executive Vice President
since June 1993. Mr. Tunmire also currently serves as President of Synergistic
International, Inc. (d/b/a Glass Doctor). Mr. Tunmire served as President of
Dwyer, then operating as Mr. Rooter Corporation, from January 1992 through May
1993. From 1989 to 1992, he served as Vice President of Mr. Rooter. From
December 1980 until May 1989, Mr. Tunmire was employed by Rainbow, most recently
as Executive Vice President of Franchise Counseling. He also serves as Director
of Mr. Rooter and National Accounts. Mr. Tunmire has approximately 27 years
experience in the franchising industry.
Thomas J. Buckley. Mr. Buckley has served as Treasurer and Chief Financial
Officer since August 1997 and as Vice President since June 1998. He also served
as President of Mr. Electric from May 1999 to May 2002. Prior to employment by
Dwyer, he served as Chief Financial Officer of Watermarc Food Management Co.
since 1994. From 1990 to 1994, Mr. Buckley served as Vice President of Finance
and Franchising for Western Sizzlin' Restaurants. Mr. Buckley has also owned and
operated his own franchising business as a regional franchisor of SpeeDee Oil
Change & Tune-Up, and has 21 years overall experience in the franchising
industry.
Deborah Wright-Hood. Ms. Wright-Hood has served as Secretary of Dwyer
since December 1998 and as Vice President of Administration since June 1998.
Prior to that time, she was employed by Dwyer in various capacities since 1985,
including Director of Administration since 1994. Ms. Wright-Hood was also
President of Worldwide Supply, Inc. from 1985 until December 2000. She also
serves as Director of Aire Serv, Mr. Appliance, Mr. Electric, Rainbow and Glass
Doctor. Ms. Wright-Hood has over 23 years experience in the franchising
industry.
Michael Bidwell. Mr. Bidwell has been Chief Operating Officer since July
2000, has been President of Mr. Rooter and Mr. Appliance since August 1998 and
has been President of Aire Serv Heating & Air Conditioning, Inc. since May 2003.
He also served as President of Rainbow from July 1995 to February 2002. Mr.
Bidwell was a Rainbow franchisee in Tucson, Arizona from April 1984 to June
1995, and a Mr. Rooter franchisee from August 1992 to June 1995. From 1986 to
June 1995, Mr. Bidwell served as President of Ramsoo, Inc., an Arizona
corporation, which operated the Rainbow and Mr. Rooter franchises in Tucson,
Arizona. From November 1987 until July 1995, Mr. Bidwell was also a franchisee
and regional director for Worldwide Refinishing Systems, Inc., a related party
to Dwyer. Mr. Bidwell also serves as a Director of National Accounts. Mr.
Bidwell has over 18 years experience in the franchising industry.
Donald J. Dwyer, Jr. Mr. Dwyer has served as a Director since May 1989.
Mr. Dwyer is currently, and has been since 1994, employed by Dwyer as Director
of International Operations. He previously served as Director of International
Operations for Rainbow from 1987 to 1994. He also serves as Director of Rainbow
and Mr. Rooter. Mr. Dwyer has approximately 19 years experience in the
franchising industry.
Burton D. Cohen. Mr. Cohen has served as a director since May 2002. Since
July 1999, Mr. Cohen has served as a business consultant. In July 1999, he
retired as Senior Vice President and Chief Franchising Officer of McDonald's
Corporation, a position he held since 1980. In that role, he was responsible for
overseeing McDonald's franchising activities worldwide. During that time, he
also served as Advisory Member of McDonald's Corporation Board of Directors. Mr.
Cohen was with McDonald's for a total of 35 years. Prior to 1980, he served as
Assistant General Counsel and Director of McDonald's corporate legal department.
John P. Hayes. Mr. Hayes has served as a Director since July 1994. He
founded and served, from 1987 to 1995, as President of The Hayes Group, Inc., an
international marketing and promotion company specializing in franchised
businesses. Since 1996, Mr. Hayes has served as a consultant to franchisers. Mr.
Hayes has approximately 24 years experience in the franchising industry.
Donald E. Latin. Mr. Latin has served as a Director since July 1995. He
founded and, since 1986, has served as President of D. Latin and Company, Inc.,
an investment banking company which provides
D-2
such corporate finance services as: the raising of capital, mergers and
acquisitions, valuation of businesses, fairness opinions, and other financial
advisory services.
DWYER INVESTMENTS, LTD.
Dwyer Investments, Ltd. is a Texas limited partnership, whose principal
business consists of holding Dwyer common stock for investment. The principal
business and office address of Dwyer Investments is 1010 North University Parks
Drive, Waco, Texas 76707. Theresa Dwyer is the managing general partner of Dwyer
Investments.
Neither Dwyer Investments, nor to the best of its knowledge, any of its
respective partners, executive officers or controlling persons, (i) have been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) were a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanctions or settlement) that
resulted in a judgment, decree for final order enjoining further violations of,
or prohibiting activities, subject to, federal or state securities laws or
finding any violation of such federal or state securities laws. Each of Dwyer
Investments' general partners is a U.S. citizen.
GENERAL PARTNERS OF DWYER INVESTMENTS
<Table>
<Caption>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
Theresa Dwyer................................... Chairperson of the Board of Directors of
Dwyer
Donald J. Dwyer, Jr............................. Director of International Operations of
Dwyer
Donna Dwyer-Van Zandt........................... Real estate agent with Coldwell Banker
Deborah Wright-Hood............................. Vice President of Administration, Secretary
and Assistant Treasurer of Dwyer
Dina Dwyer-Owens................................ President and Chief Executive Officer of
Dwyer
Darren Dwyer.................................... Insurance agent with Farm & Ranch
Healthcare
Douglas Dwyer................................... President of Worldwide Refinishing Systems,
Inc.
</Table>
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR EMPLOYMENT DURING PREVIOUS FIVE
YEARS
Since its formation, Theresa Dwyer has been the managing general partner of
Dwyer Investments. Additional information about the material occupations,
offices or employment of Mrs. Dwyer is provided above under The Dwyer Group,
Inc.
Since its formation, Donald J. Dwyer, Jr., Donna Dwyer-Van Zandt, Deborah
Wright-Hood, Dina Dwyer-Owens, Darren Dwyer and Douglas Dwyer have served as
general partners of Dwyer Investments. Additional information about the material
occupations, offices or employment of Theresa Dwyer, Donald J. Dwyer, Jr.,
Deborah Wright-Hood and Dina Dwyer-Owens is provided above under The Dwyer
Group, Inc.
Donna Dwyer-Van Zandt. Ms. Dwyer-Van Zandt has been a real estate broker
with Coldwell Banker, J. Stewart Realtors in Waco, Texas since January 2003 and
has served as the Vice President Real Estate and a broker for Dwyer Real Estate
& Development, Inc. since 1981. During 2002, Ms. Dwyer-Van Zandt did real estate
consulting work in Waco, Texas, and from 1998 until 2000, Ms. Dwyer-Van Zandt
was affiliated with WHY USA Real Estate as a Texas franchise developer.
Darren Dwyer. Mr. Dwyer has been a sales agent with Farm & Ranch Health
Care since January 2003. From June 2000 until June 2001, Mr. Dwyer was a driver
for Overnite Transportation, and from November 1999 until May 2000, Mr. Dwyer
was a driver from USA Truck. From March 1999 until May 1999, Mr. Dwyer was an
investor service representative with Janus Mutual Funds.
Douglas Dwyer. Mr. Dwyer has been the President and Chief Operating
Officer for Worldwide Refinishing Systems, Inc. (d/b/a DreamMaker Bath & Kitchen
by Worldwide) since December 1997.
D-3
THE ROLLOVER STOCKHOLDERS
The principal business and office address of each of the Rollover
Stockholders is 1010 North University Parks Drive, Waco, Texas 76707. Each of
the Rollover Stockholders is a citizen of the United States.
None of the Rollover Stockholders (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a
party to any judicial or administrative proceeding (except for matters that were
dismissed without sanctions or settlement) that resulted in a judgment, decree
for final order enjoining further violations of, or prohibiting activities,
subject to, federal or state securities laws or finding any violation of such
federal or state securities laws.
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR EMPLOYMENT DURING PREVIOUS FIVE
YEARS
Additional information about the material occupations, offices or
employment of Theresa Dwyer, Dina Dwyer-Owens, Robert Tunmire, Thomas J.
Buckley, Deborah Wright-Hood, Michael Bidwell and Donald J. Dwyer, Jr. is
provided above under The Dwyer Group, Inc., and additional information about the
material occupations, offices or employment of the general partners of Dwyer
Investments is provided above under Dwyer Investments, Ltd.
David Bethea. Mr. Bethea has been the Vice President -- Franchise Support
of Dwyer since May 2001 and the President of Rainbow since April 2002. From
December 2000 until May 2001, Mr. Bethea was the Chief Operating Officer of
Fiducial, Inc. From August 1999 until November 2000, Mr. Bethea was the
President and Chief Executive Officer of Century Small Business Solutions and
from July 1998 until August 1999 was the Chief Operating Officer of Centruy
Small Business Solutions.
Michael Hawkins. Mr. Hawkins has been the Vice President of Franchise
Sales for the Dwyer since May 1995.
James Johnston, Jr. Mr. Johnston has been the General Counsel for Dwyer
since November 1998 and was appointed as Vice President of Legal & Governmental
Affairs for Dwyer in July 2002.
TDG HOLDING COMPANY
TDG Holding Company is a Delaware corporation that is wholly owned by RCAF
2000. TDG Holding Company was formed for the purpose of holding all of the
capital stock of TDG Merger Co. The principal business and office address of TDG
Holding Company is c/o The Riverside Company, Rockefeller Center, 630 Fifth
Avenue, Suite 1530, New York, New York 10011.
Neither TDG Holding Company, nor to the best of its knowledge, any of its
respective directors, executive officers or controlling persons, (i) have been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) were a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanctions or settlement) that
resulted in a judgment, decree for final order enjoining further violations of,
or prohibiting activities, subject to, federal or state securities laws or
finding any violation of such federal or state securities laws. Each of TDG
Holding Company's executive officers and directors is a U.S. citizen.
EXECUTIVE OFFICERS AND DIRECTORS OF TDG HOLDING COMPANY
<Table>
<Caption>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
Stuart C. Baxter......................... Director and President
Loren J. Schlachet....................... Director, Vice President and Secretary
Bela R. Schwartz......................... Vice President and Treasurer
</Table>
D-4
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR EMPLOYMENT DURING PREVIOUS FIVE
YEARS
Stuart C. Baxter. Mr. Baxter has been Director and President of TDG
Holding Company since its formation in May 2003. Mr. Baxter joined Riverside in
1997. From 1997 to 2000, Mr. Baxter was directly responsible for managing the
investment activities of Riverside Central Europe Fund L.L.C. (a private
investment fund managed by Messrs. Kohl and Szigethy, the managing partners of
RCAF 2000) in the Czech Republic, Hungary and Poland, supervising all
negotiations, legal due diligence and post-acquisition advisory and
restructuring work. From 1995 to 1997, Mr. Baxter was Director of Crimson
Capital's Czech Restructuring and Privatization Group. Prior to that, Mr. Baxter
was President of AI International Corporation, the U.S.-based holding company
for a high-net-worth Kuwaiti family. He spent 12 years at AI International,
managing various operating businesses, venture capital and real estate
portfolios and completing over 30 acquisitions.
Loren J. Schlachet. Mr. Schlachet has been Director, Vice President and
Secretary of TDG Holding Company since its formation in May 2003. Before joining
Riverside in 2000, Mr. Schlachet was an associate for Claremont Capital
Corporation and TCW Capital and an analyst for Deutsche Morgan Grenfell.
Bela R. Schwartz. Mr. Schwartz has been Vice President and Treasurer of
TDG Holding Company since its formation in May 2003. Mr. Schwartz joined
Riverside in 1998 after serving as Vice President Finance at Bassini, Playfair &
Associates LLC, an emerging market private equity firm specializing in Latin
America. Prior to that, Mr. Schwartz was Chief Financial Officer and Treasurer
of The Clipper Group, L.P., Windward Capital Partners, L.P. and Securities
Capital, LLC -- each independent merchant banking affiliates of CS First
Boston -- where he previously was an Assistant Vice President. Before CS First
Boston, Mr. Schwartz spent four years as Budget Director for Institutional
Investor magazine.
TDG MERGER CO.
TDG Merger Co. is a Delaware corporation that is wholly owned by TDG
Holding Company. TDG Merger Co. was formed solely for the purpose of acquiring
all of the outstanding shares of Dwyer common stock. The principal business and
office address of TDG Merger Co. is c/o The Riverside Company, Rockefeller
Center, 630 Fifth Avenue, Suite 1530, New York, New York 10011.
Neither TDG Merger Co., nor to the best of its knowledge, any of its
respective directors, executive officers or controlling persons, (i) have been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) were a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanctions or settlement) that
resulted in a judgment, decree for final order enjoining further violations of,
or prohibiting activities, subject to, federal or state securities laws or
finding any violation of such federal or state securities laws. Each of TDG
Merger Co.'s executive officers and directors is a U.S. citizen.
EXECUTIVE OFFICERS AND DIRECTORS OF TDG MERGER CO.
<Table>
<Caption>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
Stuart C. Baxter......................... Director and President
Loren J. Schlachet....................... Director, Vice President and Secretary
Bela R. Schwartz......................... Vice President and Treasurer
</Table>
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR EMPLOYMENT DURING PREVIOUS FIVE
YEARS
The material occupations, positions, officers or employment of the
directors and executive officers of TDG Merger Co. are provided above under TDG
Holding Company.
D-5
2000 RIVERSIDE CAPITAL APPRECIATION FUND, L.P.
RCAF 2000 is a Delaware limited partnership, whose principal business is
searching for, negotiating, structuring, acquiring, holding, selling and
refinancing equity interests in operating businesses on behalf of itself and its
affiliates and performing all things incidental to or growing out of such
activities. TDG Holding Company is wholly owned by RCAF 2000. The principal
business and office address of RCAF 2000 is c/o The Riverside Company,
Rockefeller Center, 630 Fifth Avenue, Suite 1530, New York, New York 10011, and
the telephone number of RCAF 2000 is (212) 265-6575.
Neither RCAF 2000, nor to the best of its knowledge, any of its respective
partners, executive officers or controlling persons, (i) have been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) were a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanctions or settlement) that resulted in a
judgment, decree for final order enjoining further violations of, or prohibiting
activities, subject to, federal or state securities laws or finding any
violation of such federal or state securities laws. Each of RCAF 2000's managing
general partners is a U.S. citizen.
EXECUTIVE OFFICERS AND MANAGING PARTNERS OF THE GENERAL PARTNER
<Table>
<Caption>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
Stuart A. Kohl........................... Managing General Partner
Bela Szigethy............................ Managing General Partner
</Table>
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR EMPLOYMENT DURING PREVIOUS FIVE
YEARS
Stuart A. Kohl. Since its formation in 2000, Mr. Kohl has been a Managing
General Partner of RCAF 2000. Mr. Kohl has 15 years of leveraged buyout
investing experience, including eight years with Riverside. Prior to joining
Riverside in 1993, he was a Vice President of Citicorp Venture Capital, where he
worked for five years. Before that, he was Chief Operating Officer of the
National Cooperative Business Association in Washington, D.C.
Bela Szigethy. Since its formation in 2000, Mr. Szigethy has been a
Managing General Partner of RCAF 2000. Mr. Szigethy has 20 years of corporate
finance experience, including 14 years as a leveraged buyout investor with
Riverside. Prior to founding Riverside in 1988, he was a Vice President in the
leveraged acquisition department of Citibank, N.A., where he worked for seven
years.
There are no executive officers of RCAF 2000 because it is controlled by
its general partner, Riverside Capital Associates 2000, LLC.
RIVERSIDE CAPITAL ASSOCIATES 2000, LLC
The general partner of RCAF 2000 is Riverside Capital Associates 2000, LLC
(the "General Partner"), a Delaware limited liability company, whose principal
business is searching for, negotiating, structuring, acquiring, holding, selling
and refinancing equity interests in operating businesses on behalf of itself and
its affiliates and performing all things incidental to or growing out of such
activities. The principal business and office address of the General Partner is
c/o The Riverside Company, Rockefeller Center, 630 Fifth Avenue, Suite 1530, New
York, New York 10011, and the telephone number of the General Partner is (212)
265-6575.
Neither the General Partner, nor to the best of its knowledge, any of its
respective members, executive officers or controlling persons, (i) have been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) were a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanctions or settlement) that
resulted in a judgment, decree for final order enjoining further violations of,
or prohibiting activities, subject to, federal or state securities laws or
finding any violation of such federal or state securities laws. Each of the
General Partner's members and executive officers is a U.S. citizen.
D-6
EXECUTIVE OFFICERS AND MEMBERS OF THE GENERAL PARTNER
<Table>
<Caption>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
Stuart A. Kohl............................ Managing Member and Co-Chief Executive Officer
Bela Szigethy............................. Managing Member and Co-Chief Executive Officer
Bela R. Schwartz.......................... Vice President and Secretary
</Table>
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR EMPLOYMENT DURING PREVIOUS FIVE
YEARS
Stuart A. Kohl. Since its formation in 2000, Mr. Kohl has been a Managing
Member and Co-Chief Executive Officer of General Partner. Additional information
about the material occupations, offices or employment of Mr. Kohl are provided
above under RCAF 2000.
Bela Szigethy. Since its formation in 2000, Mr. Szigethy has been a
Managing Member and Co-Chief Executive Officer of General Partner. Additional
information about the material occupations, offices or employment of Mr.
Szigethy are provided above under RCAF 2000.
Bela R. Schwartz. Since its formation, Mr. Schwartz has been the Vice
President and Secretary of General Partner. Additional information about the
material occupations, offices or employment of Mr. Schwartz are provided above
under TDG Holding Company.
D-7