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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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LITCHFIELD FINANCIAL CORPORATION
(NAME OF SUBJECT COMPANY)
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
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536619 10 9
(CUSIP NUMBER OF CLASS OF SECURITIES)
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RICHARD A. STRATTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LITCHFIELD FINANCIAL CORPORATION
430 MAIN STREET
WILLIAMSTOWN, MASSACHUSETTS 01267
(413) 458-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
JAMES WESTRA, ESQ.
HUTCHINS, WHEELER & DITTMAR
A PROFESSIONAL CORPORATION
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(617) 951-6600
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Litchfield Financial Corporation, a
Massachusetts corporation (the "Company"), and the address of the principal
executive offices of the Company is 430 Main Street, Williamstown, Massachusetts
01267. The title of the class of equity securities to which this statement
relates is the common stock, $.01 par value per share, of the Company (the
"Common Stock").
ITEM 2. TENDER OFFER OF ACQUISITION.
This statement relates to a cash tender offer by Textron Financial
Corporation, a Delaware corporation ("Parent"), and its wholly-owned subsidiary,
Lighthouse Acquisition Corp., a Massachusetts corporation ("Acquisition"),
disclosed in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"),
dated September 29, 1999, to purchase all of the issued and outstanding shares
of Common Stock (the "Shares") at a price of $24.50 per share (such amount, or
any greater amount per share paid pursuant to the Offer, being hereafter
referred to as the "Per Share Amount"), net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
September 29, 1999 (the "Offer to Purchase"), and the related Letter of
Transmittal (which together constitute the "Offer"). Textron Financial
Corporation is a wholly-owned subsidiary of Textron Inc., a Delaware corporation
("Textron").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 22, 1999 (the "Merger Agreement"), by and among Parent,
Acquisition and the Company. The Merger Agreement provides that, among other
things, as soon as practicable after the consummation of the Offer and
satisfaction or waiver of all conditions to the Merger (as defined in the Merger
Agreement), subject to conditions set forth below in the section entitled
"Meeting of Stockholders; Proxy Statement," Acquisition will be merged with and
into the Company, with the Company surviving the Merger. A copy of the Merger
Agreement is filed herewith as Exhibit 1, and is incorporated herein by
reference.
Based on the information in the Offer to Purchase, the principal executive
offices of Parent and Acquisition are located at 40 Westminster Street,
Providence, Rhode Island 02903.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth below, none of the officers or directors of the
Company is presently a party to any transaction with the Company or its
affiliates (other than for services as employees, officers and directors),
including without limitation any material contract, agreement, arrangement or
understanding (i) providing for the furnishing of services to or by, (ii)
providing for rental of real or personal property to or from, or (iii) otherwise
requiring payments to or from, any officer or director, any member of the family
of any officer or director or any corporation, partnership, trust or other
entity in which any officer or director has a substantial interest or is an
officer, director, trustee or partner.
STOCK OPTIONS
As of the Effective Time, each outstanding, unexercised stock option to
purchase shares of the Company's Common Stock (a "Company Stock Option") issued
under the Company's 1990 Stock Option Plan, as amended (the "1990 Plan") and the
1995 Stock Option Plan for Non-Employee Directors, as amended (the "Director
Plan") shall terminate and be canceled and each holder of a Company Stock Option
shall be entitled to receive, in consideration therefor, a cash payment from the
Company equal to the product of (a) the excess, if any, of (x) the Merger
Consideration over (y) the per share exercise price of such Company Stock
Option, times (b) the number of Shares (as defined in the Merger Agreement)
subject to the Company Stock Option (whether or not then exercisable or vested).
As of September 22, 1999, there were options covering 913,720 shares outstanding
at exercise prices ranging from $1.44 to $23.25. With respect to Company Stock
Options, including those accelerated pursuant to the Merger Agreement, the
executive officers and directors of the Company will respectively receive the
following approximate amounts: Richard A.
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Stratton will receive $3,575,169; Heather A. Sica will receive $2,467,907;
Ronald E. Rabidou will receive $746,098; John Costa will receive $310,812; John
J. Malloy will receive $255,625; Joseph Weingarten will receive $681,562; Gerald
Segel will receive $405,769; James Westra will receive $100,755; James Zinn will
receive $42,317; Eugene McMahon will receive $42,317; and Grant Wilson will
receive $42,317.
CERTAIN CONTRACTS
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its executive officers, directors or
affiliates are described under the heading "Employment Agreements, Change of
Control Severance Agreements, Stock Option Plans" in the Information Statement
pursuant to Section 14(f) of the Securities Exchange Act of 1934, attached as
Annex A hereto and incorporated by reference herein.
CHANGE OF CONTROL SEVERANCE AGREEMENTS
On September 22, 1999, the Board of Directors of the Company approved a
Severance Agreement (the "Severance Agreement") to be entered into by the
Company and Joseph Weingarten (the "Executive"). On January 1, 1999, the Company
executed severance agreements with each of Richard A. Stratton, Heather A. Sica
and Ronald E. Rabidou, each containing substantially the same terms and
conditions as the Severance Agreement. On March 22, 1999, the Company executed a
Severance Agreement with John Costa containing substantially the same terms and
conditions as the Severance Agreement. Pursuant to a separate arrangement with
Mr. Costa entered into at the commencement of Mr. Costa's employment with the
Company, Mr. Costa will be entitled to an additional payment of $71,250 upon the
completion of the Merger. The Severance Agreement provides that if, following a
Transaction (as defined in the Severance Agreement), the Executive's employment
has been terminated by the Company for any reason, other than Cause (as such
term is defined therein) or the death or disability of the Executive, or by the
Executive for Good Reason (as such term is defined therein), then the Company
will pay the Executive, a lump sum equal to the higher of (i) the Executive's
total salary and bonus for the most recently completed fiscal year, and (ii) the
Executive's total annualized salary and bonus, based on the partial fiscal year
in which the date of termination occurs (the "Severance Payments"). In addition
to such lump-sum severance payment, the Executive shall (i) be entitled to
participate in the Company's medical insurance plan for a period of twelve
months following the termination date at the Company's expense, after which the
Executive will have COBRA rights as provided by law and (ii) for a period of
twelve months, be permitted to participate in any of the Company's other benefit
plans in which the Executive is participating as of the termination date
pursuant to Company policy. The foregoing summary of certain provisions of the
Severance Agreement is qualified in its entirety by reference to the form of
Severance Agreement, which is incorporated herein by reference, and a copy of
which is filed herewith as Exhibit 2.
The Severance Agreement further provides that, in the event that the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any penalty or excise tax subsequently imposed by law applies
to any payment or benefit received or to be received by the Executive in
connection with a Transaction or the termination of the Executive's employment
(whether pursuant to the terms of the Severance Agreement or any other plan,
arrangement, or agreement with the Company, any Person whose actions result in
the Transaction or any Person affiliated with the Company or such Person) (all
such payments and benefits, including the Severance Payments, being hereinafter
called "Total Payments"), an additional amount shall be paid by the Company to
the Executive such that the aggregate after-tax amount that he shall receive
with respect to the Total Payments, including this section, shall have a present
value equal to the aggregate after-tax amount that he would have received and
retained had such excise or penalty tax (and any interest or penalties in
respect thereof) not applied to him. For this purpose, the Executive shall be
presumed to be subject to tax in each year relevant to the computation at the
then maximum applicable combined Federal and Massachusetts income tax rate, and
the present value of payments to him shall be made consistent with the
principles of Section 280G of the Code.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of which is filed herewith as
Exhibit 1.
The Offer. The Merger Agreement provides that no later than five business
days from the date of initial public announcement of the Merger Agreement,
Acquisition will commence the Offer. The parties to the Merger Agreement have
agreed in the Merger Agreement that the obligations of Acquisition to accept for
payment and pay for Shares tendered pursuant to the Offer will be subject only
to the satisfaction or waiver of the conditions described below under "Offer
Conditions", including the Minimum Condition. Under the Merger Agreement,
Acquisition expressly reserves the right, in its sole discretion, to waive any
such condition (other than the Minimum Condition), provided, that, without the
prior written consent of the Company, Acquisition will not (i) decrease the
amount to be paid per share in the Offer to below $24.50, (ii) change the form
of consideration to be paid in the Offer, (iii) reduce the maximum number of
Shares to be purchased in the Offer or the Minimum Condition, (iv) impose
conditions to the Offer in addition to the Offer Conditions or (v) amend any
other term of the Offer in a manner which, in the Company's reasonable judgment,
is adverse to the holders of the Shares (provided that a waiver by Acquisition
of any condition other than the Minimum Condition shall not be deemed to be
adverse to the holders of the Shares or the Company).
Notwithstanding the foregoing, Acquisition may, without the consent of the
Company, extend the Offer for an aggregate period of up to five business days
beyond the Expiration Date if there shall not have been tendered sufficient
Shares so that the Merger could be effected without a meeting of the Company's
stockholders in accordance with Section 82 of the MBCL. Acquisition shall have
no obligation to pay interest on the purchase price of tendered Shares.
Company Board Representation. The Merger Agreement provides that, promptly
upon purchase by Acquisition of Shares pursuant to the Offer, and from time to
time thereafter, Acquisition shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company as shall give Acquisition representation on the Board of Directors equal
to the product of the total number of directors on such Board (including any
vacancies or unfilled newly-created directorships) multiplied by the percentage
that the aggregate number of Shares beneficially owned by Acquisition or any
affiliate of Acquisition bears to the total number of Shares then outstanding,
and the Company shall amend, or cause to be amended, its by-laws to provide for
the foregoing and shall, at such time, promptly take all action necessary to
cause Acquisition's designees to be so elected, including either increasing the
size of the Board of Directors or securing the resignations of incumbent
directors or both; provided, that there shall at all times be at least two
Disinterested Directors (as defined in the Merger Agreement). The Merger
Agreement further provides that the Company's obligations to appoint designees
to its Board of Directors will be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the Effective Time and in accordance with the
MBCL, Acquisition will be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Acquisition will cease and the
Company will continue as the Surviving Corporation.
The Merger Agreement provides that the Amended and Restated Articles of
Organization of the Company, as in effect immediately prior to the Effective
Time, shall be the articles of organization of the Surviving Corporation until
thereafter amended as provided by law. At the Effective Time, the by-laws of
Acquisition as in effect immediately prior to the Effective Time will be the
by-laws of the Surviving Corporation, until thereafter altered, amended or
repealed as provided by law. The Merger Agreement provides that the directors of
Acquisition immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation and the officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, each to hold office until their respective successor
shall be duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the articles of organization and
by-laws of the Surviving Corporation.
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The Merger Agreement provides that, at the Effective Time, each Share that
is issued and outstanding immediately prior to the Effective Time (other than
Shares owned by the Company or by Parent, Acquisition or any direct or
indirectly wholly-owned subsidiary of the Company, Parent or Acquisition, which
shall be cancelled, and other than Shares, if any (collectively, "Dissenting
Shares"), held by stockholders who have properly exercised appraisal rights
under Section 89 of the MBCL) will, by virtue of the Merger and without any
action on the part of the Company, Acquisition or the holders of the Shares, be
cancelled, extinguished and converted into and become a right to receive $24.50
in cash (the "Merger Consideration"), payable to the holder thereof, without
interest, upon surrender of the certificate formerly representing such Share,
less any required withholding taxes. All Shares that are owned by the Company
(as treasury stock or otherwise) and all Shares owned by Parent, Acquisition or
any direct or indirect wholly-owned subsidiary of the Company, Parent or
Acquisition, if any, will be canceled and retired and cease to exist, and no
cash or other consideration will be delivered in exchange therefore.
The Merger Agreement provides that Shares that are issued and outstanding
immediately prior to the Effective Time and which are held by a stockholder who
has not voted in favor of the Merger and who is otherwise entitled to demand,
and who properly demands appraisal for such Shares in accordance with all the
provisions of the MBCL concerning the rights of holders of Shares to dissent
from the Merger and require appraisal of their Shares, will not be converted
into or exchangeable for the right to receive the Merger Consideration unless
such holder fails to perfect or otherwise effectively withdraws or loses such
holder's right to appraisal, if any. Such holders will be entitled to receive
the appraised value of such Shares held by them in accordance with the
applicable provisions of the MBCL. If, after the Effective Time, such holder
fails to perfect or loses its right to appraisal, each Share of such holder will
be treated as if it had been converted as of the Effective Time into the right
to receive the Merger Consideration, without any interest thereon.
The Merger Agreement provides that each share of common stock of
Acquisition will be converted into one share of common stock of the Surviving
Corporation.
The Merger Agreement provides that each option granted to a Company
employee or director pursuant to the Company's 1990 Stock Option Plan, as
amended, and 1995 Stock Option Plan for Non-Employee Directors, as amended
(together, the "Stock Plans") to acquire shares of Company Common Stock (each
such option hereinafter is referred to as an "Option") that is outstanding
immediately prior to the Effective Time, whether or not then vested or
exercisable, shall, effective as of immediately prior to the Effective Time, be
canceled and the holder thereof shall be entitled to receive at the Effective
Time or as soon as practicable thereafter from the Company in consideration for
such cancellation an amount in cash equal to the product of (1) the number of
Shares previously subject to such Option and (2) the excess, if any, of the
Merger Consideration over the exercise price per share of such Option (subject
to any applicable withholding taxes).
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including,
without limitation, representations and warranties by the Company as to the
Company's organization and authorized capital stock, subsidiaries,
noncontravention and consents, filings with the Commission, financial
statements, no material adverse change, legal proceedings, subsequent events,
commissions and fees, offering documents, employee benefit plans, compliance
with the law, intellectual property, taxes and opinion of financial advisor.
Some of the representations are qualified by the limitation that, in order for
the representation to have been breached, the event breaching the representation
must have a Material Adverse Effect. A "Material Adverse Effect" as to the
Company means any change or effect that would (i) be materially adverse to the
business, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole or (ii) prevent or materially delay the
consummation of the Offer or the Merger; provided, however, that a decline in
the price of the Company's Common Stock as traded on the Nasdaq National Market
as a result of the Company (i) failing to complete contemplated off-balance
sheet financings, (ii) attempting to reacquire assets serviced by the Company
and financed off-balance sheet, or (iii) discontinuing "gain on sale
accounting," shall not be deemed to have a Material Adverse Effect unless it is
otherwise a result of an event or occurrence that is materially adverse to the
business, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
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In addition, the Merger Agreement contains representations and warranties
of Parent and Acquisition concerning their organization, authorization of the
agreement, noncontravention and consents, commissions and fees, and funds.
AGREEMENTS OF THE COMPANY, ACQUISITION AND PARENT.
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
the Company has covenanted and agreed that, prior to the Effective Time, the
Company and its subsidiaries will conduct their operations according to their
ordinary and usual course of business and consistent with past practice. The
Merger Agreement further provides that, without limiting the generality of the
foregoing, and except as expressly contemplated by the Merger Agreement, prior
to the Effective Time, neither the Company nor any of its subsidiaries will,
without the prior written consent of Parent:
(a) amend or otherwise change its articles of organization or by-laws
or equivalent organizational documents;
(b) issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (i)
any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including but not limited
to stock appreciation rights or phantom stock), of the Company or any of
its subsidiaries (except for the issuance of up to 913,720 Shares required
to be issued pursuant to the terms of options outstanding as of September
22, 1999) or (ii) any assets of the Company or any of its subsidiaries,
except in the ordinary course of business and in a manner consistent with
past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than in the ordinary course of business consistent
with past practice) and other than existing committed facilities; (iii)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; or (iv) authorize capital
expenditures (during any three month period) which are, in the aggregate,
in excess of $25,000 for the Company and its subsidiaries taken as a whole;
(f) except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of the
Merger Agreement or as provided in the Merger Agreement, increase the
compensation or fringe benefits of any of its directors, officers or
employees, except for increases in salary or wages of employees of the
Company or its subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice, or grant any
severance or termination pay not currently required to be paid under
existing severance plans to or enter into any employment, consulting or
severance agreement or arrangement with any present or former director,
officer or other employee of the Company or any of its subsidiaries, or
establish, adopt, enter into or amend or terminate any collective
bargaining agreement or employee benefit plan, including, but not limited
to, bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any directors, officers or employees;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it, other than discontinuance of the gain
on sale method;
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(h) make any material tax election change for any annual tax
accounting period, change any method of tax accounting, file any amended
tax return or settle or compromise any material federal, state, local or
foreign tax liability;
(i) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to the transactions contemplated
hereby;
(j) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries not constituting
an inactive subsidiary (other than the Merger);
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (i) in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice and (ii)
of liabilities required to be paid, discharged or satisfied pursuant to the
terms of any contract in existence on the date of the Merger Agreement;
(l) (i) make or commit to make any financial services loan;
(ii) make or commit to make any other loan except as specifically
provided in clauses (iii) through (ix) of this paragraph (l);
(iii) purchase or commit to purchase consumer land loans from a single
dealer exceeding an aggregate amount of (y) $1,000,000 in the case of a
dealer that is an approved dealer as of the date of the Merger Agreement or
(z) $2,500,000 in the case of a dealer that becomes an approved dealer on
or after the date of the Merger Agreement;
(iv) purchase or commit to purchase consumer timeshare loans from a
single seller exceeding an aggregate amount of (y) $500,000 in the case of
a seller that is an approved seller as of the date of the Merger Agreement
or (z) $1,000,000 in the case of a seller that becomes an approved seller
on or after the date of the Merger Agreement;
(v) make or commit to make loans for the acquisition and/or
construction of timeshare units that exceed (y) $2,500,000 in the case of a
new loan to an approved borrower (or group of affiliated borrowers) as of
the date of the Merger Agreement; provided however, that any increase in an
existing commitment shall not exceed $1,000,000, and provided, further,
that any additional loans or increases as described in this clause (y)
shall not cause the aggregate commitments to such borrower to exceed
$2,500,000 or (z) $2,000,000 in the case of a borrower (or group of
affiliated borrowers) which becomes an approved borrower on or after the
date of the Merger Agreement;
(vi) make or commit to make loans for the acquisition and/or
development of landlots that exceed (y) $500,000 in the case of a new loan
to an approved borrower (or group of affiliated borrowers) as of the date
of the Merger Agreement; provided however, that any increase in an existing
commitment shall not exceed $100,000, and provided, further, that any
additional loans or increases as described in this clause (y) shall not
cause the aggregate commitments to such borrower to exceed $1,500,000 or
(z) $1,000,000 in the case of a borrower (or group of affiliated borrowers)
which becomes an approved borrower on or after the date of the Merger
Agreement;
(vii) make or commit to make loans for the finance or purchase of land
(not including consumer loans as provided in clause (iii) of this paragraph
(l)) that exceed (y) $1,000,000 in the case of a new loan to an approved
borrower (or group of affiliated borrowers) as of the date of the Merger
Agreement; provided however, that any increase in an existing commitment
shall not exceed $250,000, and provided, further, that any additional loans
or increases as described in this clause (y) shall not cause the aggregate
commitments to such borrower to exceed $2,500,000 or (z) $500,000 in the
case of a borrower (or group of affiliated borrowers) which becomes an
approved borrower on or after the date of the Merger Agreement;
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(viii) make or commit to make loans for the finance or purchase of
timeshare units (not including consumer loans as provided in clause (iv) of
Section 5.1(l) above) that exceed (y) $5,000,000 in the case of a new loan
to an approved borrower (or group of affiliated borrowers) as of the date
of the Merger Agreement; provided however, that any increase in an existing
commitment shall not exceed $2,500,000, and provided, further, that any
additional loans or increases as described in this clause (y) shall not
cause the aggregate commitments to such borrower to exceed $5,000,000 or
(z) $5,000,000 in the case of a borrower (or group of affiliated borrowers)
which becomes an approved borrower on or after the date of the Merger
Agreement; or
(ix) purchase or commit to purchase any tax lien certificate greater
than $500,000;
provided, that nothing in this paragraph (l) shall prohibit the Company from
honoring any contractual obligation in existence on the date of the Merger
Agreement;
(m) refinance or restructure any existing loan, except in the ordinary
course of business consistent with past practice and prudent lending
practices;
(n) make any material changes in its polices or practices concerning
loan underwriting and credit scoring, or which persons may approve loans or
credit scoring;
(o) except in the ordinary course of business consistent with past
practice and prudent business practices, enter into any securities
transaction for its own account or purchase or otherwise acquire any
investment security for its own account other than (A) securities backed by
the full faith and credit of the United States or an agency thereof and (B)
other readily marketable securities not in excess of $100,000;
(p) foreclose upon or otherwise take title to or possession or control
of any real property (other than residential property) without first
obtaining a phase one environmental report thereon;
(q) enter into any new, or modify, amend or extend the terms of any
existing, contracts relating to the purchase or sale of financial or other
futures, or any put or call option relating to cash, securities or
commodities or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk, except in the ordinary
course of business consistent with past practices and prudent business
practices; or
(r) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in paragraphs (a) through (q) or
any action which would make any of the representations or warranties of the
Company contained in the Merger Agreement untrue and incorrect as of the
date when made if such action had then been taken, or would result in any
of the Offer Conditions not being satisfied.
No Solicitation of Transactions. The Merger Agreement provides that the
Company, its affiliates and their respective officers, directors, employees,
representatives and agents shall immediately cease any existing discussions or
negotiations, if any, with any parties conducted theretofore with respect to any
acquisition or exchange of all or any material portion of the assets of, or any
equity interest in, the Company or any of its subsidiaries or any business
combination with or involving the Company or any of its subsidiaries. The Merger
Agreement also provides that, at any time prior to consummation of the Offer,
the Company may, directly or indirectly, furnish information and access, in each
case only in response to a request for such information or access to any person
made after the date thereof which was not encouraged, solicited or initiated by
the Company or any of its affiliates or any of its or their respective officers,
directors, employees, representatives or agents after the date thereof, pursuant
to appropriate confidentiality agreements, and may participate in discussions
and negotiate with such person concerning any merger, sale of assets, sale of
shares of capital stock or similar transaction (including an exchange of stock
or assets) involving the Company or any subsidiary or division of the Company,
in each case (whether furnishing information and access or participating in
discussions and negotiations) only if such person has submitted a written
proposal to the Board of Directors of the Company relating to any such
transaction and the Board by majority vote determines in good faith, based upon
the advice of outside counsel to the Company, that failing to take such action
would constitute a breach of the Board's fiduciary duty under applicable law.
The Board is required to provide a copy of any such written
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proposal to Parent immediately after receipt thereof, notify Parent immediately
if any proposal (oral or written) is made and in such notice indicate in
reasonable detail the identity of the offeror and the terms and conditions of
any proposal and keep Parent promptly advised of all developments which could
reasonably be expected to culminate in the Board of Directors withdrawing,
modifying or amending its recommendation of the Offer, the Merger and the other
transactions contemplated by the Merger Agreement. Except as set forth in
Section 6.5 of the Merger Agreement, neither the Company or any of its
affiliates, nor any of its or their respective officers, directors, employees,
representatives or agents shall, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent and Acquisition, any affiliate or associate of Parent and
Acquisition or any designees of Parent or Acquisition) concerning any merger,
sale of any material portion of assets, sale of any of the shares of capital
stock or similar transactions (including an exchange of stock or assets)
involving the Company or any subsidiary or division of the Company; provided,
that the Board of Directors of the Company may take, and disclose to the
Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer; provided,
further, that the Board of Directors may not recommend that the stockholders of
the Company tender their Shares in connection with any such tender offer unless
the Board by majority vote shall have determined in good faith, based upon the
advice of outside counsel to the Company, that failing to take such action would
constitute a breach of the Board's fiduciary duty under applicable law. The
Merger Agreement provides that the Company shall not release any third party
from, or waive any provisions of, any confidentiality or standstill agreement to
which the Company is a party, unless the Board by majority vote shall have
determined in good faith, based upon the advice of outside counsel to the
Company, that failing to release such third party or waive such provisions would
constitute a breach of the fiduciary duties of the Board of Directors under
applicable law.
Meeting of Stockholders; Proxy Statement. The Merger Agreement provides
that if required by applicable law in order to consummate the Merger, the
Company will duly call, give notice of, convene and hold a meeting of its
stockholders ("Stockholders Meeting") promptly after the consummation of the
Offer to consider and vote upon the Merger Agreement and the Merger. At the
Stockholders Meeting, Parent and Acquisition will cause all Shares then owned by
them and their subsidiaries to be voted in favor of the approval and adoption of
the Merger Agreement and approval of the Merger. If the Stockholders Meeting is
called, the Company will prepare and file with the Commission a proxy statement
(the "Proxy Statement") to be mailed to the stockholders of the Company in
connection with the meeting of such stockholders to consider and vote upon the
Merger and, except if the Board of Directors by majority vote determines in good
faith, based on the advice of outside legal counsel to the Company that to do so
would constitute a breach of fiduciary duty under applicable law, include in the
Proxy Statement the unanimous recommendation of the Board of Directors that the
stockholders of the Company vote in favor of the approval and adoption of the
Merger Agreement and the transactions contemplated thereby. As soon as
practicable following the consummation of the Offer, the Company will file the
Proxy Statement with the Commission. The Company, Parent and Acquisition will
use their reasonable best efforts to respond promptly to all comments of and
requests by the Commission and to cause the Proxy Statement and all required
amendments and supplements thereto to be mailed to holders of Shares entitled to
vote at the Stockholders Meeting at the earliest practicable time following
expiration or termination of the Offer. The Merger Agreement provides that in
the event that Acquisition shall acquire at least 90% of the outstanding Shares,
the Company will, at the request of Acquisition, take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 82 of the MBCL.
Access to Information; Confidentiality. The Merger Agreement provides
that, prior to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of Parent complete
access, consistent with applicable law, at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities and to all
books and records, and shall furnish Parent with all financial, operating and
other data and information as Parent through its officers, employees or agents
may from time to time reasonably request.
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Information obtained by Parent or Acquisition will be subject to the
confidentiality agreement between the Company and Parent (the "Confidentiality
Agreement").
Public Disclosures. The Merger Agreement provides that Parent and the
Company will consult with each other before issuing any press release or
otherwise making any public statements with respect to the Offer or the Merger
and will not issue any such press release or make any such public statement
prior to such consultation and without the consent of the other party, except as
may be required by applicable law or any listing agreement with its securities
exchange.
Indemnification and Insurance. The Merger Agreement provides that Parent
will use its reasonable best efforts to cause to be maintained in effect for six
years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by the Company (provided that Parent
may substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less advantageous) with respect to
matters occurring prior to the Effective Time to the extent available; provided,
however, that in no event will Parent or the Company be required to expend more
than an amount per year equal to 150% of current annual premiums paid by the
Company (which the Company represented and warranted in the Merger Agreement to
be not more than $46,000) to maintain or procure insurance coverage pursuant to
the Merger Agreement.
The Merger Agreement also provides that, for six years after the Effective
Time, Parent will or will cause the Surviving Corporation to indemnify and hold
harmless each present and former director and officer of the Company, determined
as of the Effective Time and their heirs and representatives (the "Indemnified
Parties"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
(but only to the extent such Costs are not otherwise covered by insurance and
paid) incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative
(collectively, "Claims"), arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
applicable law (and Parent will, or will cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
The Merger Agreement further provides that any Indemnified Party wishing to
claim indemnification as described above, upon learning of any such Claim, shall
promptly notify Parent thereof, but the failure to so notify shall not relieve
Parent of any liability it may have to such Indemnified Party if such failure
does not materially prejudice Parent. In the event of any such Claim (whether
arising before or after the Effective Time), (i) Parent or the Surviving
Corporation shall have the right to assume the defense thereof and Parent shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, except that if Parent or the Surviving
Corporation elects not to assume such defense, or counsel for the Indemnified
Parties advises that there are issues that raise conflicts of interest between
Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that Parent shall be obligated to pay for only one firm of counsel for
all Indemnified Parties in any jurisdiction unless the use of one counsel for
such Indemnified Parties would present such counsel with a conflict of interest,
(ii) the Indemnified Parties will cooperate in the defense of any such matter
and (iii) Parent shall not be liable for any settlement effected without its
prior written consent, which consent shall not be unreasonably withheld; and
provided, further, that Parent shall not have any obligation to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
Further Assurances. The Merger Agreement provides that, subject to the
other provisions of the Merger Agreement, each of the parties will use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to
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consummate and make effective the transactions contemplated by the Merger
Agreement, including, without limitation, the Offer and the Merger, which
efforts shall include, without limitation, using its reasonable best efforts to
promptly make all required regulatory filings and applications including,
without limitation, responding promptly to requests for further information and
to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries and Parent and its subsidiaries as are
necessary for the consummation of the transactions contemplated by the Merger
Agreement and to fulfill the conditions to the Offer and the Merger.
Notice of Subsequent Events. The Merger Agreement provides that each party
will give the other party notice of the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate and any failure of a party to comply or satisfy any covenant,
condition or agreement to be complied with under the Merger Agreement.
Employment; Employee Welfare. The Merger Agreement provides that Parent
will maintain for a period of one year following the Effective Time employee
benefit plans and programs, for the benefit of employees of the Company and its
subsidiaries (other than those employees covered by collective bargaining
arrangements) that are in the aggregate no less favorable than those provided to
Parent's similarly situated employees, under the plans as in effect immediately
prior to the Closing (the "Existing Plans"). Parent will credit the prior
service of all employees of the Company and its subsidiaries for purposes of
determining the eligibility, and vesting under any employee benefit plan
provided by Parent for the benefit of the employees. Employees covered by
collective bargaining agreements shall be provided with such benefits as shall
be required under the terms of any applicable collective bargaining agreement.
In addition, the Surviving Corporation will assume and honor in accordance with
their terms all existing employment and severance agreements and arrangements
which are set forth in the Company Disclosure Schedule.
Offer Conditions. Notwithstanding any other provision of the Offer, but
subject to the terms and conditions of the Merger Agreement, Acquisition shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Acquisition's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for any Shares tendered pursuant to
the Offer, and may postpone the acceptance for payment or, subject to the
restriction referred to above, payment for any Shares tendered pursuant to the
Offer, and may amend or terminate the Offer (whether or not any Shares have
theretofore been purchased or paid for) to the extent permitted by the Merger
Agreement if, (i) at the expiration of the Offer, a number of Shares which
constitutes more than 66 2/3% of the Shares (determined on a fully-diluted
basis) have not been validly tendered and not properly withdrawn pursuant to the
Offer (the "Minimum Condition") or (ii) at any time on or after the date of this
Agreement and prior to the acceptance for payment of Shares, any of the
following conditions occurs or has occurred:
(a) there shall have been entered any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding before
any court or governmental, administrative or regulatory authority or
agency, or any statute, rule or regulation enacted, entered, enforced,
promulgated, amended or issued that is applicable to Parent, Acquisition,
the Company or any subsidiary or affiliate of Acquisition or the Company or
the Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that is
reasonably likely to have the effect of : (i) making illegal or otherwise
directly or indirectly restraining or prohibiting the making of the Offer
in accordance with the terms of the Merger Agreement, the acceptance for
payment of, or payment for, some of or all the Shares by Acquisition or any
of its affiliates or the consummation of the Merger; (ii) prohibiting the
ownership or operation by the Company or any of its subsidiaries, or Parent
or any of its subsidiaries, of all or any material portion of the business
or assets of the Company or any of its subsidiaries, taken as a whole, or
Parent or its subsidiaries, taken as a whole, or (iii) materially limiting
the ownership or operation by the Company or any of its subsidiaries, or
Parent or any of its subsidiaries, of all or any material portion of the
business or assets of the Company or any of its subsidiaries, taken as a
whole, or Parent or its subsidiaries, taken as a whole (other than, in
either case, assets or businesses of the Company or its subsidiaries that
are not material (measured in relation to the combined assets or
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revenues of the Company and its subsidiaries, taken as a whole)) or
compelling Parent or any of its subsidiaries to dispose of or hold separate
all or any portion of the businesses or assets of the Company or any of its
subsidiaries or Parent or any of its subsidiaries (other than, in either
case, assets or businesses of the Company or its subsidiaries that are not
material (measured in relation to the combined assets or revenues of the
Company and its subsidiaries, taken as a whole)), as a result of the
transactions contemplated by the Offer or the Merger Agreement; (iv)
imposing limitations on the ability of Parent, Acquisition or any of
Parent's affiliates effectively to acquire or hold or to exercise full
rights of ownership of the Shares, including without limitation the right
to vote any Shares acquired or owned by Parent or Purchaser or any of its
affiliates on all matters properly presented to the stockholders of the
Company, including without limitation the adoption and approval of the
Merger Agreement and the Merger or the right to vote any shares of capital
stock of any subsidiary directly or indirectly owned by the Company; or (v)
requiring divestiture by Parent or Acquisition or any of their affiliates
of any Shares;
(b) there shall have occurred any event, other than events arising out
of the announcement of the Offer and the transactions contemplated by the
Merger Agreement, that is reasonably likely to have a Material Adverse
Effect;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices (other than suspensions or limitations
triggered on the New York Stock Exchange by price fluctuations on a trading
day) for, securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) any material limitation (whether or not mandatory) by
any government or governmental, administrative or regulatory authority or
agency in the United States on, the extension of credit by banks or other
lending institutions, (iv) a commencement of a war directly involving the
United States and materially adversely affecting (or material delaying) the
consummation of the Offer or (v) in the case of any of the foregoing
existing at the time of commencement of the Offer, a material acceleration
or worsening thereof;
(d) it shall have been publicly disclosed or Acquisition shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of more than 20% of the outstanding Shares has been acquired by any
corporation (including the Company or any of its subsidiaries or
affiliates), partnership, person or other entity or group (as defined in
Section 13(d)(3) of the Exchange Act), other than Parent or any of its
affiliates; or (ii) (A) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Acquisition the approval or recommendation of the Offer, the
Merger or the Merger Agreement, or approved or recommended any takeover
proposal or any other acquisition of Shares other than the Offer and the
Merger, (B) any such corporation, partnership, person or other entity or
group shall have entered into a definitive agreement or an agreement in
principle with the Company with respect to a tender offer or exchange offer
for any Shares or a merger, consolidation or other business combination
with or involving the Company or any of its subsidiaries, or (C) the Board
of Directors of the Company or any committee thereof shall have resolved to
do any of the foregoing;
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified by reference to materiality or a
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be true
and correct in all material respects, in each case as if such
representations and warranties were made at the time of such determination;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company; or
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(h) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer or the Merger, and any applicable waiting
periods under any foreign statutes or regulations, shall not have expired
or been terminated;
(i) the Company shall have terminated the employment agreement of
Richard A. Stratton, without the prior written consent of Acquisition; or
(j) the Company shall not have obtained the consent of each member of
the Board of Directors of the Company to the cancellation of all options
held by such Directors as contemplated by the Merger Agreement;
which, in the reasonable judgment of Acquisition with respect to each and every
matter referred to above and regardless of the circumstances (except for any
action or inaction by Acquisition or any of its affiliates constituting a breach
of the Merger Agreement) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with such acceptance for payment of or payment for
Shares or to proceed with the Merger.
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to effect the Merger is subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions: (i) if required by the MBCL, the Merger Agreement shall have been
adopted by the affirmative vote of the stockholders of the Company by the
requisite vote in accordance with the Company's articles of organization and the
MBCL; (ii) no statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent) shall
have been enacted, entered, promulgated or enforced by any United States,
foreign, federal or state court or governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger; (iii)
Acquisition shall have purchased Shares pursuant to the Offer; and (iv) any
waiting period applicable to the Merger under the HSR Act shall have terminated
or expired.
Termination; Fees and Expenses. The Merger Agreement provides that it may
be terminated at any time and the Offer and Merger may be abandoned at any time
prior to the Effective Time:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent or the Company if any court of competent jurisdiction or
other governmental body located or having jurisdiction within the United
States shall have issued a final order, injunction, decree, judgment or
ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable;
(c) by Parent if due to an occurrence or circumstance which resulted
in a failure to satisfy any of the Offer Conditions, Acquisition shall have
(i) terminated the Offer or (ii) failed to pay for Shares pursuant to the
Offer on or prior to the Outside Date (as defined below);
(d) by the Company (only following the Outside Date, in the case of
clause (ii)(B) of this paragraph) if (i) there shall have been a material
breach of any covenant or agreement on the part of Parent or Acquisition
contained in the Merger Agreement which materially adversely affects
Parent's or Acquisition's ability to consummate (or materially delays
commencement or consummation of) the Offer, and which shall not have been
cured prior to the earlier of (A) 10 business days following notice of such
breach and (B) two business days prior to the date on which the Offer
expires, (ii) Acquisition shall have (A) terminated the Offer or (B) failed
to pay for Shares pursuant to the Offer on or prior to the Outside Date
(unless such termination or failure is caused by or results from the
failure of any representation or warranty of the Company to be true and
correct in any material respect or the failure of the Company to perform in
any material respect any of its covenants or agreements contained in the
Merger Agreement) or (iii) prior to the purchase of Shares pursuant to the
Offer, any person shall have made a bona fide offer to acquire the Company
(A) that the Board of Directors of the Company by majority vote determines
in its good faith judgment is more favorable to the Company and the
Company's stockholders than the Offer and the Merger and (B) as a result of
which the Board of Directors by
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majority vote determines in good faith, based upon the advice of outside
counsel to the Company, that it is obligated by its fiduciary obligations
under applicable law to terminate the Merger Agreement, provided that such
termination under this clause (iii) shall not be effective until the
Company has made payment of the full fee and expense reimbursement required
to be paid as described below; and
(e) by Parent prior to the purchase of Shares pursuant to the Offer,
if (i) there shall have been a breach of any representation, warranty,
covenant or agreement on the part of the Company contained in the Merger
Agreement which is reasonably likely to have a Material Adverse Effect on
the Company or which materially adversely affects (or materially delays)
the consummation of the Offer, which shall not have been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B) two
business days prior to the date on which the Offer expires, (ii) the Board
shall have withdrawn or modified (including by amendment of the Schedule
14D-9) in a manner adverse to Acquisition its approval or recommendation of
the Offer, the Merger Agreement or the Merger or shall have recommended
another offer or transaction, or shall have resolved to effect any of the
foregoing, or (iii) the Minimum Condition shall not have been satisfied by
the expiration date of the Offer as it may have been extended pursuant
hereto and on or prior to such date (A) any person (including the Company
but not including Parent or Acquisition) shall have made a public
announcement, disclosure or communication to the Company with respect to a
Third Party Acquisition (as defined below) or (B) any person (including the
Company or any of its affiliates or subsidiaries), other than Parent or any
of its affiliates shall have become (and remain at the time of termination)
the beneficial owner of 20% or more of the Shares (unless such person shall
have tendered and not withdrawn such person's Shares pursuant to the
Offer). The "Outside Date" is the latest to occur (but in no event later
than 90 days following the date of the Merger Agreement) of (i) the date
that is 60 days following the date of the Merger Agreement and (ii)
provided that the Minimum Condition has been satisfied within 60 days
following the date of the Merger Agreement, the date on which either (x)
the applicable waiting period under the HSR Act shall have expired or been
terminated or (y) the final terms of a consent decree between Parent and
the appropriate governmental authority with respect to the Offer and the
Merger shall have been agreed to.
The Merger Agreement provides that if:
(i) (x) Parent terminates the Merger Agreement pursuant to
paragraph (e)(i) above and (y) prior to such termination a proposal or
offer with respect to a Third Party Acquisition shall have been made to
the Company and (z) within 12 months after such termination, the Company
enters into an agreement with respect to a Third Party Acquisition, or a
Third Party Acquisition occurs; or
(ii) (x) the Company terminates the Merger Agreement pursuant to
paragraph (d)(iii) above or (y) the Company terminates the Merger
Agreement pursuant to paragraph (d)(ii)(B) above and at such time Parent
would have been permitted to terminate the Merger Agreement under
paragraph (e)(ii) or (iii) above or (z) Parent terminates the Merger
Agreement pursuant to paragraph (e)(ii) or (iii) above;
then the Company shall pay to Parent and Acquisition, within three business days
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with any termination contemplated by
paragraph (a)(ii) above, a fee, in cash, of $5.5 million (less any amounts
previously paid as described in the next paragraph, provided, however, that the
Company in no event shall be obligated to pay more than one such fee with
respect to all such agreements and occurrences and such termination. "Third
Party Acquisition" means the occurrence of any of the following events: (i) the
acquisition of the Company by merger or similar business combination by any
person other than Parent, Acquisition or any affiliate thereof (a "Third
Party"); (ii) the acquisition by a Third Party of 20% or more of the book or
fair market value of the consolidated assets of the Company and its
subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 20%
or more of the outstanding Shares.
The Merger Agreement provides that, upon the termination thereof (i) under
circumstances in which Parent shall have been entitled to terminate the
Agreement pursuant to paragraph (e)(i) above (whether or not expressly
terminated on such basis) or (ii) if any of the representations and warranties
of the Company
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contained in the Merger Agreement were untrue or incorrect in any material
respect when made and at the time of termination remained untrue or incorrect in
any material respect and such misrepresentation materially adversely affected
the consummation (or materially delayed commencement or consummation) of the
Offer, then the Company shall reimburse Parent, Acquisition and their affiliates
(not later than three business days after submission of statements therefor) for
all actual documented out-of-pocket fees and expenses actually incurred by any
of them or on their behalf in connection with the Offer and the Merger and the
consummation of all transactions contemplated by the Merger Agreement
(including, without limitation, fees and disbursements payable to financing
sources, investment bankers, counsel to Acquisition or Parent or any of the
foregoing, and accountants) up to a maximum amount of $1,000,000. Unless
required to be paid earlier pursuant to paragraph (d) above, the Company shall
in any event pay the amount requested within three business days of such
request, subject to the Company's right to demand a return of any portion as to
which invoices are not received in due course after request by the Company.
The Merger Agreement further provides that, except as otherwise
specifically provided therein, each party shall bear its own expenses in
connection with the Merger Agreement and the transactions contemplated thereby.
RECEIVABLES PURCHASE AGREEMENT
On September 16, 1999, TBS Business Services, Inc. ("TBS"), an affiliate of
Parent, purchased $49,999,881.48 outstanding principal amount of land loan
receivables from the Company at par pursuant to the terms of a Receivables
Purchase Agreement (the "RPA") dated September 16, 1999 by and between the
Company and TBS. Pursuant to a supplement to the RPA dated September 16, 1999 by
and between the Company and TBS, the Company obtained to the right to repurchase
the land loan receivables sold to TBS pursuant to the RPA at par at any time on
or prior to December 8, 1999.
CONFIDENTIALITY AGREEMENT
In connection with negotiations relating to the Offer and as a condition to
the Company providing any non-public information to Parent, the Company (through
its agent, CIBC World Markets Corp.) and Parent entered into a Confidentiality
Agreement, dated July 20, 1999 (the "Confidentiality Agreement"), which
generally provides that Parent and its representatives will keep confidential
any non-public information furnished to them by the Company. The foregoing
summary of certain provisions of the Confidentiality Agreement is qualified in
its entirety by reference to the Confidentiality Agreement, which is
incorporated herein by reference, and a copy of which is filed herewith as
Exhibit 3.
ACTUAL OR POTENTIAL CONFLICTS OF INTEREST
Indemnification of Officers and Directors and Insurance. Under the Merger
Agreement, the Company will indemnify each person who at any time has been or
becomes a director or officer prior to the Effective Time, and his heirs and
personal representatives, against all expenses incurred in connection with any
proceeding arising out of or pertaining to any action or omission occurring
prior to the Effective Time to the full extent permitted under Massachusetts law
and the Surviving Corporation's By-Laws in effect as of the Effective Time or
under any indemnification agreement in effect as of the date of the Merger
Agreement. Parent or the Surviving Corporation will, for a period of not less
than six (6) years following the Effective Time, maintain directors' and
officers' liability insurance covering each person presently covered by the
Company's officers' and directors' liability insurance or who will be so covered
at the Effective Time with respect to actions or omissions occurring prior to
the Effective Time, on terms no less favorable than such insurance maintained in
effect by the Company as of the date of the Merger Agreement in terms of
coverage and amounts; provided that the Parent and the Surviving Corporation
will not be required to pay in the aggregate an annual premium for directors'
and officers' liability insurance in excess of 150% of the last annual premium
paid prior to the date of the Merger Agreement; provided that the Parent and the
Surviving Corporation will be obligated to provide as much coverage as may be
obtained for such amount.
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Certain Transactions. James Westra, a director of the Company since April
1995, is a stockholder in the law firm of Hutchins, Wheeler & Dittmar, A
Professional Corporation, which provides counsel to the Company on various
matters including public debt and equity offerings and the Offer and the Merger.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has approved the Merger Agreement and the
transactions contemplated thereby and determined that each of the Offer and the
Merger is fair to, and in the best interests of, the Stockholders of the
Company. The Board of Directors recommends that all holders of Shares accept the
Offer and tender their Shares pursuant to the Offer.
(b) BACKGROUND; REASONS FOR THE RECOMMENDATION.
Reasons for the Transaction; Factors Considered by the Board.
In 1996, the Parent and the Company had discussions regarding a business
combination. The parties determined not to pursue a transaction at such time.
In the summer of 1998, the Company was approached by an investment banker
to consider an acquisition proposal from a commercial bank. After some
discussions with the inquiring bank, the Company retained CIBC World Markets
Corp. ("CIBC World Markets"), in July 1998, to serve as a financial advisor in
that proposed transaction. After a series of meetings with the inquiring bank,
it was concluded that the bank could not provide a form and level of
consideration acceptable to the Company. Due to the downturn in the capital
markets in the fall of 1998, the Company told its advisors that it would not
entertain any additional proposals.
In the spring of 1999, while the Company was developing its five-year
business plan, it decided to ask CIBC World Markets to assist in evaluating
means to fund its operations. The Company was exploring (i) the formation or
acquisition of an industrial loan corporation, a bank or unitary thrift; (ii) a
combination with a like-size specialty financial services company; (iii) a
strategic investment by a financial investor who would provide funding in
exchange for a minority interest in the Company; and (iv) the potential sale of
the Company.
An Offering Memorandum describing the Company was prepared in June of 1999.
CIBC World Markets approached eighty-three (83) large and mid-cap financial
services companies and financial investors in June and July of 1999. Of the
parties contacted by CIBC World Markets, forty-six (46) received a
Confidentiality Agreement, thirty-five (35) signed a Confidentiality Agreement
and thirty-four (34) subsequently received information on the Company. Parent
was not one of the parties to receive such information.
On June 30, 1999, Mr. David Wisen and Mr. Richard Mitterling, executive
officers of Parent, spoke on the telephone with Mr. Richard Stratton, President
and CEO of the Company, regarding an interest in exploring a possible business
combination with, or acquisition of, the Company.
On July 6, 1999, Messrs. Wisen, Mitterling and Stratton met in Hartford,
CT, to follow up their earlier telephonic discussions on the possibility of a
business combination.
On July 20, 1999, Parent executed a Confidentiality Agreement with CIBC
World Markets, as agent for the Company.
On July 22, 1999 Heather Sica and Ronald Rabidou met with representatives
of Parent in Hartford, CT to discuss the possibility of a business combination.
During the week of July 26, 1999 CIBC World Markets asked interested
parties to submit written preliminary non-binding indications of interest.
On August 10, 1999, the Company received a letter from Parent expressing
Parent's interest in acquiring 100% of the Common Stock of the Company for $24
per share in cash, or alternatively, some other amount of non-cash form of
consideration.
On August 18, 1999, Richard Stratton and Joseph Weingarten met with
representatives of Parent in Providence, RI, to further discuss the possibility
of a business combination.
15
17
On August 19, 1999, the Company's Board of Directors had discussions with
representatives of CIBC World Markets, who detailed the efforts of CIBC World
Markets since the spring of 1999 in exploring potential third-party transactions
on behalf of the Company. The CIBC World Markets representatives advised the
Board that it was their belief that the dissemination of information to
interested parties, along with CIBC World Markets' subsequent negotiations with
several of the recipients of that information, constituted a sufficient market
check to determine whether the approximate valuation that Parent placed on the
Company represented fair value to the stockholders of the Company, and that on
the basis of those efforts they felt it was unlikely that a third party would
offer more than the price offered by Parent. Following a discussion among the
members of the Board of Directors with respect to the proposed transaction and
its timing, impact on employees and relation to the market in general, the Board
authorized the Company to enter into a letter of understanding with Parent (the
"Letter of Understanding") providing for the conduct of a due diligence review
by Parent and the concurrent negotiation of an acquisition agreement relating to
a potential acquisition of the Company by Parent, and all the relevant terms of
such an acquisition, including price, and further providing that, in
consideration of the mutual efforts being expended in connection therewith, for
the Company to agree to not solicit other indications of interest for a period
beginning with the acceptance by Parent of the Letter of Understanding and
ending on September 8, 1999; providing, however, that if Textron's Executive
Leadership Team determined to recommend the transaction to Textron's Board of
Directors, the non-solicitation period would extend to September 23, 1999.
On August 20, 1999, Parent executed the Letter of Understanding submitted
by the Company. On September 7, 1999, Parent informed the Company that Textron's
Executive Leadership Team had voted to recommend the proposed transaction to
Textron's Board of Directors, thus extending the non-solicitation period to
September 23, 1999 pursuant to the terms of the Letter of Understanding.
During the two weeks following August 20, 1999, representatives of the
Parent and the Company negotiated the various aspects of the proposed offer. As
a result of these negotiations, the Parent's offer was presented as a cash
tender offer for all of the outstanding shares of the Company's Common Stock,
followed by a merger of Acquisition, a subsidiary of Parent, with and into the
Company. Pursuant to Massachusetts law, such a merger would be subject to the
approval of two-thirds in interest of the holders of the Shares, or, if Parent
was able to obtain at least 90% of the outstanding Shares, the approval of the
Company's Board of Directors. The Parent also completed its due diligence review
of the Company, thereby obviating the need to include a due diligence condition
in the Merger Agreement.
On September 9, 1999, counsel for Parent presented a proposed form of
merger agreement (the "Merger Agreement") to the Company and its
representatives, who distributed it among the members of the Board of Directors
and discussed it with them.
On September 15, 1999, the Board of Directors met with its financial and
legal advisors to consider the proposed transaction. At this meeting, the
Company's advisors and members of senior management reported on the progress of
the proposed transaction, including the status of Parent's due diligence review,
the discussions management had conducted with Parent regarding the conduct of
the business following the consummation of the proposed transaction, the impact
of the proposed transaction on the Company's employees, and the possible roles
for members of current management following the proposed transaction. The
Company's legal advisor then outlined the material provisions of the draft
Merger Agreement from Parent, copies of which had been previously circulated to
the members of the Board. The representatives from CIBC World Markets explained
the approach CIBC World Markets would take over the upcoming week in order to
assess the fairness, from a financial point of view, of the proposed
transaction. A discussion followed among the members of the Board of Directors
with respect to the proposed transaction and its timing, impact on employees,
and relation to the market in general. In particular, they noted that the terms
of the Merger Agreement permitted the Board of Directors, if required in the
exercise of the Board's fiduciary duties, to withdraw its recommendation of the
Merger and to accept an acquisition proposal which is more favorable to the
stockholders of the Company upon payment of a break up fee and expense
reimbursement.
The parties further negotiated the terms of the proposed Merger Agreement
during the following seven days. During this period, the Company continued to
conduct price negotiations with Parent. In addition, Parent negotiated the terms
of an employment agreement with Richard A. Stratton, President and Chief
16
18
Executive Officer of the Company, covering the period following the Merger, with
the understanding that such employment agreement would be signed
contemporaneously with the Merger Agreement.
On September 22, 1999, the Board of Directors of the Company met to discuss
the status of the offer from the Parent. The Directors discussed at length the
changes which had been made to the offer, including the final offering price of
$24.50 per share. CIBC World Markets also delivered to the Directors its oral
opinion that the consideration offered by the Parent was fair to the
Stockholders of the Company from a financial point of view. At approximately
4:45 p.m., by unanimous vote of all of the Directors present, the Board
determined the Merger to be fair and in the bests interests of the Company and
its stockholders, approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and recommended that the
stockholders vote in favor of approval and adoption of the Merger Agreement and
the transactions contemplated thereby. The Company and the Parent issued a joint
press release to such effect prior to the opening of the market on the following
day. The Board of Directors also considered whether it was appropriate to
approve a severance agreement for Joseph Weingarten. After careful
consideration, the Board of Directors determined that it was in the best
interest of the Stockholders to insure that all members of senior management be
given appropriate assurances that they would receive severance benefits in the
event that their employments were terminated following an acquisition by the
Parent. Accordingly, the Board of Directors authorized the execution of the
severance agreement with Mr. Weingarten pursuant to which he will be entitled to
receive the same severance benefits as all other members of the Company's senior
management.
The Board of Directors, by unanimous vote of all of the Directors present,
approved the Merger Agreement and the transactions contemplated thereby and
determined that each of the Offer and the Merger is fair to, and in the best
interest of, the stockholders of the Company. The Board of Directors recommends
that all stockholders tender their Shares in response to the Offer and vote
their Shares in favor of the Merger.
In approving the Merger Agreement and the transactions contemplated
thereunder, and recommending that all stockholders tender their Shares in
response to the Offer and vote for Shares in favor of the Merger Agreement, the
Board of Directors considered the following material factors:
The Board of Directors and the Company's senior management have reviewed
the Company's strategic position in the specialty finance industry, the near and
longer term prospects for that industry, the consolidation trends within that
industry and the strategic alternatives available to the Company, all with a
view to maximizing stockholder value. In conducting its review, the Board of
Directors considered the Company's results of operations for the quarter ended
June 30, 1999, and for the six months then ended. The Board of Directors also
considered the recent trading prices of the Company's Common Stock. In light of
the Board's review of the Company's competitive position, recent operating
results and stock price, anticipated trends in the industry in which the Company
competes, and the price per Share being offered by Parent, the Board of
Directors determined that it would be in the best interest of the Company's
stockholders to approve the Merger Agreement. In approving the Merger Agreement
and the transactions contemplated thereby and recommending that all holders of
Shares of the Company's Common Stock tender their Shares pursuant to the Offer,
the Board of Directors considered the following material factors:
(i) the terms of the Merger Agreement, and the fact that they were the
product of arm's length negotiations among the parties;
(ii) the trading price of shares of the Company's Common Stock since
its initial public offering, recent trends and the expected trading prices
for the foreseeable future;
(iii) the Company's projected financial performance, competitive
position and current trends in the specialty finance industry;
(iv) the results of the Company's discussions during 1998 and 1999,
and the results of the process undertaken by the Company in 1998 and 1999,
with respect to a potential sale of the Company, and the low likelihood
that a third party would propose a cash price higher than Parent's $24.50
per share;
(v) the fact that Textron's offer was not subject to a financing
contingency or a contingency linked to the condition of the securities or
financial markets generally, but rather was subject only to the usual and
customary conditions;
17
19
(vi) views expressed by senior management at the meetings of the Board
of Directors held on August 19, 1999, September 15, 1999 and September 22,
1999 with respect to the results of operations of the Company;
(vii) the financial presentation of CIBC World Markets to the Board in
connection with the Offer and Merger, including its written opinion dated
September 22, 1999, to the effect that, as of such date and based upon and
subject to certain matters stated in its opinion, the $24.50 per Share cash
consideration to be received in the Offer and Merger by holders (other than
Parent and its affiliates) of Shares pursuant to the Merger Agreement was
fair, from a financial point of view, to such holders. The full text of
CIBC World Markets' written opinion dated September 22, 1999, which sets
forth the assumptions made and matters considered, is attached hereto as
Exhibit 5, and is incorporated herein by reference. CIBC World Markets'
opinion is directed only to fairness, from a financial point of view, of
the $24.50 per Share cash consideration to be received by holders of Shares
(other than Parent and its affiliates) pursuant to the Offer and the Merger
Agreement, and is not intended to constitute, and does not constitute, a
recommendation as to whether any stockholder should tender Shares pursuant
to the Offer. HOLDERS OF SHARES ARE URGED TO READ THE OPINION OF CIBC WORLD
MARKETS CAREFULLY IN ITS ENTIRETY;
(viii) the fact that the terms of the Merger Agreement allow the Board
of Directors, if required by the Board's fiduciary duties, to withdraw its
recommendation of the Merger to accept an acquisition proposal which is
more favorable to the stockholders upon payment of a reasonable breakup fee
and reimbursement of expenses;
(ix) the fact that an affirmative vote of two-thirds of the
outstanding shares of the Company is required to approve and adopt the
Merger Agreement; and
(x) the availability of the dissenters' rights of appraisal in the
Merger.
The Board of Directors did not assign relative weight to the above factors
or determine that any factor was of particular importance. Rather, the Board of
Directors viewed its position and recommendations as being based on the totality
of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
For its services in connection with the Merger, the Company shall pay CIBC
World Markets a total transaction fee of approximately $2,286,250 (the
"Transaction Fee"). Of the Transaction Fee, $50,000 was paid upon the execution
of the engagement letter with CIBC World Markets, $250,000 was paid upon
delivery of CIBC World Markets' oral opinion as the fairness, from a financial
point of view, of the consideration to be received by the Company's stockholders
(the "Opinion Fee") and the balance becomes payable upon consummation of the
Merger. The Company also has agreed to reimburse CIBC World Markets for its
reasonable out-of-pocket expenses, including the fees and expenses of legal
counsel and other advisors, and to indemnify CIBC World Markets and certain
related persons or entities against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its engagement.
In the ordinary course of its business, CIBC World Markets and its affiliates
may actively trade the debt and equity securities of Parent for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past sixty
(60) days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company, other than
the following: (i) on August 19, 1999, the Company granted options for the
purchase of 645 Shares, with an exercise price of $18.00 per Share, to each of
James Zinn, Jim Westra, Gerald Segel, Grant Wilson and Eugene McMahon, (ii) on
August 19, 1999, the Company granted an option for the purchase of 10,000
Shares, with an exercise price of $18.00 per Share, to Joseph Weingarten, and
(iii) on
18
20
September 13, 1999, the Company granted an option for the purchase of 100
Shares, with an exercise price of $18.00 per Share, to Michele Bartlett.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares to Parent pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Board of
Directors' resolutions, agreements in principle or signed contracts in response
to the Offer that relate to or would result in one or more of the events
referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex A is being furnished
pursuant to Rule 14f-1 under the Exchange Act in connection with the possible
designation by Parent and Acquisition, pursuant to the Merger Agreement, of
certain persons to be appointed to the Board of Directors other than at a
meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO.
- -----------
Exhibit-1 Agreement and Plan of Merger, dated as of September 22,
1999, by and among Litchfield Financial Corporation, Textron
Financial Corporation and Lighthouse Acquisition Corp.
Exhibit-2 Form of Severance Agreement.
Exhibit-3 Confidentiality Agreement.
Exhibit-4 Chapter 156B, Sections 86 to 98, Massachusetts Business
Corporation Law.
Exhibit-5 Opinion of CIBC World Markets Corp.*
Exhibit-6 Press Release issued by Litchfield Financial Corporation,
dated September 23, 1999.
Exhibit-7 Letter to Stockholders of Litchfield Financial Corporation.*
- ---------------
* Included in copies mailed to Stockholders.
19
21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
LITCHFIELD FINANCIAL CORPORATION
By: /s/ RICHARD A. STRATTON
------------------------------------
Richard A. Stratton
President and Chief Executive
Officer
Dated: September 29, 1999
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22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit-1 Agreement and Plan of Merger, dated as of September 22,
1999, by and among Litchfield Financial Corporation, Textron
Financial Corporation and Lighthouse Acquisition Corp.
Exhibit-2 Form of Severance Agreement.
Exhibit-3 Confidentiality Agreement.
Exhibit-4 Chapter 156B, Sections 86 to 98, Massachusetts Business
Corporation Law.
Exhibit-5 Opinion of CIBC World Markets Corp.*
Exhibit-6 Press Release issued by Litchfield Financial Corporation,
dated September 23, 1999.
Exhibit-7 Letter to Stockholders of Litchfield Financial Corporation.*
- ---------------
* Included in copies mailed to Stockholders.
23
ANNEX A
LITCHFIELD FINANCIAL CORPORATION
430 MAIN STREET
WILLIAMSTOWN, MASSACHUSETTS 01267
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about September 29, 1999,
as part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of the Common Stock of Litchfield Financial
Corporation (the "Corporation"). Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9. You are
receiving this Information Statement in connection with the possible election of
persons (the "Parent Designees") designated by Textron Financial Corporation
(the "Parent") to a majority of the seats on the Board of Directors of the
Corporation.
Pursuant to the Merger Agreement, on September 29, 1999, Lighthouse
Acquisition Corp. commenced the Offer. The Offer is scheduled to expire at 12:00
Midnight on October 27, 1999, unless otherwise extended.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent and Lighthouse
Acquisition Corp. and the Parent Designees has been furnished to the Corporation
by Parent and Lighthouse Acquisition Corp., and the Corporation assumes no
responsibility for the accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE CORPORATION
GENERAL
The common stock, $.01 par value per share ("Common Stock"), is the only
class of voting securities of the Corporation outstanding. Each share of Common
Stock has one vote. As of September 22, 1999, there were 6,984,601 shares of
Common Stock outstanding. The Corporation does not have any treasury shares. The
Board of Directors of the Corporation currently consists of eight (8) members
and there are currently no vacancies on the Board. The Board of Directors has
three classes and each director serves a term of three years until his successor
is duly elected and qualified or until his earlier death, resignation or
removal.
PARENT DESIGNEES
The Merger Agreement provides that effective upon the purchase and payment
for shares by Lighthouse Acquisition Corp., the Parent shall have the right to
designate that portion of the Board of Directors of the Corporation equal to the
percentage of Common Stock owned by Parent and Lighthouse Acquisition Corp.
combined, and such designees shall become directors of the Corporation.
Lighthouse Acquisition Corp. is a wholly owned subsidiary of the Parent. At such
time, certain of the current directors will resign.
A-1
24
DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
DIRECTORS OF THE CORPORATION
The names of the current directors, their ages, their positions with the
Corporation, the period during which they have served as directors and their
principal occupations and other directorships held by them are set forth below.
As indicated above, some of the current directors may resign effective
immediately following the purchase of shares by Lighthouse Acquisition Corp.
pursuant to the Offer.
YEAR FIRST
ELECTED A
NAME OF DIRECTOR AGE DIRECTOR POSITION WITH THE CORPORATION
---------------- --- ---------- -----------------------------
Term ending in 2002:
James Zinn 45 1999 Formerly Chief Financial Officer of LifeMinders.com.
Chief Financial Officer of Capital One Financial
Corporation from 1994 to 1999. Prior to that, a
financial services partner at Ernst & Young, LLP,
consulting on emerging financial services,
accounting, auditing and other business issues.
Gerald Segel 78 1989 Prior to his retirement in May 1990, was Chairman of
Tucker Anthony Incorporated, an investment banking
company, from 1987 through 1990. Also a Director of
Hologic, Inc., Vivid Technologies, Inc. and Boston
Communications Group, Inc. Received his AB from
Harvard College.
Heather A. Sica 37 1995 Executive Vice President of the Company since 1991.
Treasurer of the Company from 1991 to 1998 and Chief
Financial Officer of the Company from 1991 to 1995.
Vice President of the Company from 1989 to 1991.
Prior to joining the Company, was an associate with
the Real Estate Group of General Electric Investment
Corporation and a certified public accountant with
KPMG Peat Marwick. Received her BS in Business
Administration from the University of Vermont and
her MBA from the Wharton School of the University of
Pennsylvania.
Term ending in 2001:
Eugene McMahon 59 1999 Management consultant since 1997, specializing in
financial services consulting. Retired partner from
Ernst & Young, LLP after 32 years, including 21 as a
partner, specializing in the financial services
industry.
Grant Wilson 57 1999 Since 1978, a private investor who organized or
co-founded over 30 businesses. Director of Guilford
Mills, New Balance Athletic Shoes, Austin Financial
Services, Inc. and Cape Air, Inc.
A-2
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YEAR FIRST
ELECTED A
NAME OF DIRECTOR AGE DIRECTOR POSITION WITH THE CORPORATION
---------------- --- ---------- -----------------------------
John A. Costa 43 1995 Executive Vice-President of the Corporation since
March 1999. Previously at Cardholder Management
Services, a credit card servicing business since
1995, serving first as Managing Director of Planning
and Business Development and then as Senior Vice
President. Served as a consultant to corporate
clients from 1992 to 1995 in areas that include
mergers and acquisitions, financial modeling, asset
securitization and lending facility development.
Previously served as Director of Consumer Finance
with U.S. West Financial Services Inc. in 1992 and
as Director of Structured Finance for Arsht &
Company, Inc. from 1990 to 1992. Received his BA
from New York University.
Term ending in 2000:
James Westra 47 1995 Stockholder of the law firm of Hutchins, Wheeler &
Dittmar, A Professional Corporation, where he has
practiced law since 1977. Mr. Westra graduated from
Harvard College in 1973 and from Boston University
Law School in 1977.
Richard A. Stratton 49 1988 Co-founder of the Company and has been the Chief
Executive Officer of the Company since 1996 and
President of the Company since 1988. Prior to
joining the Company, served as Vice President of
Finance for Patton Corporation and Vice President of
Marketing for Summit Software Technology, Inc. and
held senior marketing and management positions with
the Gillette Company and the American Appraisal
Company in Boston, Massachusetts. Graduate of The
College of The Holy Cross.
There are no family relationships among any of the directors or executive
officers of the Corporation.
INFORMATION CONCERNING THE BOARD OF DIRECTORS OF THE CORPORATION
During fiscal 1998, there were four (4) meetings of the Board of Directors
of the Corporation and, additionally, the Board acted by unanimous written
consent four (4) times. All of the directors attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors during
which they served as director and (ii) the total number of meetings held by
committees of the Board of Directors on which they served. The Board of
Directors has established an Audit Committee, a Stock Option Committee and a
Compensation Committee. The Board of Directors does not have a Nominating
Committee.
During fiscal 1998 there was one (1) meeting of the Audit Committee of the
Board of Directors. The Audit Committee of the Board of Directors reviews, with
the Corporation's independent auditors, the scope of the audit for the year, the
results of the audit when completed, and the independent auditors' fees for
services performed. The Audit Committee also recommends independent auditors to
the Board of Directors and reviews, with management, various matters related to
its internal accounting controls. The present members of the Audit Committee are
James Zinn, Eugene McMahon and Gerald Segel.
The Corporation also has a Stock Option Committee, whose purpose is to
administer the Corporation's 1990 Stock Option Plan. The present members of the
Stock Option Committee are John Costa, Gerald Segel and James Westra. The Stock
Option Committee met on one occasion in 1998 and granted options to purchase an
aggregate of 159,952 shares to employees of the Corporation.
A-3
26
The Corporation also has a Compensation Committee whose functions include
reviewing and approving the compensation of directors, officers and key
employees. The present members of the Compensation Committee are Gerald Segel,
Grant Wilson and Richard Stratton. The Compensation Committee met one time
during fiscal 1998.
EXECUTIVE OFFICERS OF THE CORPORATION
The names of the current executive officers, their ages, their positions
with the Corporation and their prior business experience during the past five
years are set forth below.
Richard A. Stratton, 49 years old, has been the Chief Executive Officer of
the Company since 1996 and President of the Company since 1998. See "Directors
of the Corporation" above.
Heather A. Sica, 37 years old, has been an Executive Vice President of the
Company since 1991. See "Directors of the Corporation" above.
Ronald E. Rabidou, 48 years old, has been an Executive Vice President and
Treasurer since 1998 and Chief Financial Officer of the Company since May 1995.
Prior to joining the Company, Mr. Rabidou was a certified public accountant with
Ernst & Young LLP from 1987 to May 1995. Mr. Rabidou received his MBA and BA
from the University of Massachusetts.
Joseph S. Weingarten, 34 years old, has been an Executive Vice President of
the Company since 1998. He served as a Senior Vice President of the Company from
1997 to 1998. Prior to joining the Company, Mr. Weingarten served from 1993 to
1997 in the Structured Finance Group of ING Capital, most recently a Vice
President, originating and managing structured leading and asset-backed
securitization transactions, with an emphasis on specialty finance companies.
Previously, he served as the Manager of Portfolio Administration for US West
Financial Services, Inc., and as a certified public accountant for Arthur
Anderson & Company. Mr. Weingarten received his BA from New York University.
John A. Costa, 43 years old, has been an Executive Vice President of the
Company since March 1999. See "Directors of the Corporation" above.
Wayne M. Greenholtz, 58 years old, has been a Senior Vice President of the
Company since April 1995. Prior to joining the Company, Mr. Greenholtz was the
Senior Vice President of Operations for Government Employees Financial
Corporation, a subsidiary of GEICO Corporation, from 1989 to 1995. Mr.
Greenholtz is a graduate of the University of Maryland.
John J. Malloy, 42 years old, has been a Senior Vice President and General
Counsel of the Company since January 1998. Prior to joining the Company, Mr.
Malloy was an attorney in private practice from 1986 to 1997 at Battle Fowler
LLP, New York, New York, where he was a partner in the corporate department. Mr.
Malloy received his BA from Carleton College and his JD from Rutgers University
School of Law.
James Shippee, 38 years old, has been Senior Vice President of Mortgage
Operations since 1989. Prior to joining the Company, Mr. Shippee was Vice
President of Patten Financial Services from 1987 to 1989.
James Yearwood, 51 years old, has been a Senior Vice President of the
Company since 1998 after joining the Company in 1992 as a Vice President in
charge of vacation ownership receivable funding. He served as a First Vice
President of the Company from 1996 to 1998. Prior to joining the Company, Mr.
Yearwood was a Vice President with Del-Val Capital Corporation from 1989 to 1991
where he specialized in vacation ownership receivable lending. Mr. Yearwood
graduated from Southern Connecticut State University.
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27
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer and each of the other Named
Executive Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION(A)
NAME AND POSITION YEAR ($) ($) (#) ($)
----------------- ---- -------- -------- ------------ ---------------
Richard A. Stratton............ 1998 $245,000 $190,000 -- $ 8,000
Chief Executive Officer 1997 175,000 225,000 -- 8,000
1996 215,000 248,646 94,501 7,500
Ronald E. Rabidou.............. 1998 $130,000 $ 70,000 32,500 $ 8,000
Executive Vice President, 1997 125,000 32,500 -- 7,729
Chief Financial Officer and 1996 115,000 30,000 5,250 6,490
Treasurer
Heather A. Sica................ 1998 $150,000 $ 75,000 15,000 $ 8,000
Executive Vice President 1997 150,000 50,000 -- 8,000
1996 115,000 30,000 5,250 6,400
Joseph S. Weingarten(b)........ 1998 $132,500 $165,000 30,000 $ 8,000
Executive Vice President 1997 86,000 90,000 30,000 66,000
John J. Malloy(c).............. 1998 $150,000 $ 35,000 35,000 $79,750
Senior Vice President,
General Counsel and Clerk
- ---------------
(a) Represents contributions to Litchfield Financial Corporation Employee 401(k)
Plan in 1998. In the case of Mr. Weingarten, also includes $66,000 of
reimbursement to Mr. Weingarten for relocation expenses in 1997. In the case
of Mr. Malloy, also includes $76,000 of reimbursement to Mr. Malloy for
relocation expenses in 1998.
(b) Mr. Weingarten joined the Company in April of 1997.
(c) Mr. Malloy joined the Company in January of 1998.
GRANTS OF STOCK OPTION
The following tale sets forth certain information with respect to
individual grants of stock options to the Named Executive Officers during the
year ended December 31, 1998.
1998 OPTION GRANTS
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF % OF VALUE AT ASSUMED
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION ---------------------
(#) IN 1998 ($/SH) DATE 5%($) 10%($)
---------- ---------- -------- ---------- --------- ---------
Ronald E. Rabidou................ 7,500(b) 4.7% $21.00 2/5/08 $ 99,068 $251,055
Executive Vice President, Chief 25,000(a) 15.7 12.69 10/13/08 199,511 505,597
Financial Officer And Treasurer
A-5
28
1998 OPTION GRANTS
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF % OF VALUE AT ASSUMED
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION ---------------------
(#) IN 1998 ($/SH) DATE 5%($) 10%($)
---------- ---------- -------- ---------- --------- ---------
Heather A. Sica.................. 15,000(a) 9.4 12.69 10/13/08 119,707 303,358
Executive Vice President
Joseph S. Weingarten............. 5,000(b) 3.1 21.00 2/5/08 66,045 167,370
Executive Vice President 25,000(a) 15.7 12.69 10/13/08 199,511 505,597
John J. Malloy................... 25,000(c) 15.7 19.00 1/8/08 298,775 757,150
Senior Vice President, General 10,000(a) 6.3 12.69 10/13/08 79,804 202,239
Counsel and Clerk
- ---------------
(a) The options will vest 33.33% each year on December 31, 1999, 2000 and 2001,
subject to certain performance related requirements, and in any case, ten
years from the grant date. The assumed annual rates of appreciation of five
and ten percent would result in the price of the Company's stock increasing
to $20.67 and $32.91, respectively.
(b) The options vested 33.33% on December 31, 1998 and will best 33.33% each
year on December 31, 1999 and 2000, subject to certain performance related
requirements, and in any case, ten years from the grant date. The assumed
annual rates of appreciation of five and ten percent would result in the
price of the Company's stock increasing to $34.21 and $54.47, respectively.
(c) The options will vest 25% each year on January 1, 1999, 2000, 2001 and 2002.
The assumed annual rates of appreciation of five and ten percent would
result in the price of the Company's stock increasing to $30.95 and $49.29,
respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
Set forth in the table below is information concerning the value of stock
options held at the end of the year ended December 31, 1998 by Named Executive
Officers of the Company.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE 1998 DECEMBER 31, 1998
----------- -------- --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) ($) (#) (#) ($) ($)
----------- -------- ----------- ------------- ----------- -------------
Richard A. Stratton........... -- -- 268,393 -- $2,099,003 --
Chief Executive Officer
and President
Heather A. Sica............... -- -- 139,283 15,000 $1,524,663 $ 94,688
Executive Vice President
Ronald E. Rabidou............. -- -- 28,422 36,891 $ 192,828 $209,049
Executive Vice President
Chief Financial Officer
and Treasurer
Joseph S. Weingarten.......... -- -- 9,167 50,833 $ 34,688 $261,875
Executive Vice President
John J. Malloy................ -- -- -- 35,000 -- $ 63,125
Senior Vice President,
General Counsel and Clerk
A-6
29
COMPENSATION OF DIRECTORS
Each outside director receives an annual retainer of $6,000, a $750 fee for
each meeting attended and reimbursement of expenses. In addition, Mr. Segel has
been granted options to purchase 8,682, 8,682, 1,448, 1,838, 2,000, 2,000, 2,000
and 645 shares of Common Stock at exercise prices of $4.61, $6.19, $11.23,
$12.02, $20.38, $22.00, $17.25, and $18.00 per share, respectively. Mr. Westra
has been granted options to purchase 5,513, 2,000, 2,000, 2,000 and 645 shares
of Common Stock at exercise prices of $12.02, $20.38, $22.00, $17.25 and $18.00
per share, respectively. Mr. Costa has been granted options to purchase 5,513,
2,000 and 2,000 shares of Common Stock at exercise prices of $12.02, $20.38 and
$22.00 per share, respectively. Each of Messrs. Zinn, Wilson and McMahon has
been granted options to purchase 5,000 and 645 shares of Common Stock at
exercise prices of $16.88 and $18.00 per share, respectively.
EMPLOYEE AGREEMENTS, CHANGE OF CONTROL SEVERANCE AGREEMENTS,
STOCK OPTION PLANS
EMPLOYMENT AGREEMENTS
On July 19, 1996 the Company entered into an amended and restated
employment agreement with Richard A. Stratton. The agreement provided for an
annual base salary of $215,000 from January 1, 1996 to December 31, 1996,
$225,000 from January 1, 1997 to December 31, 1997 and $245,000 from January 1,
1998 to December 31, 1998. By subsequent agreement with the Company, the base
salary for the period January 1, 1997 to December 31, 1997 was reduced to
$175,000. The agreement also provided that the Company shall pay to Mr. Stratton
a bonus with respect to the year ended December 31, 1996 equal to 2.9% of the
Company's pretax income (as defined therein) for that year, if the earnings per
share (as defined therein) of the Company for that year was equal to at least
115% of the earnings per share of the Company for the immediately preceding
year. Additionally, the employment agreement provided the Company shall pay to
Mr. Stratton a bonus with respect to each of the years ended December 31, 1997
and 1998 equal to his base salary (prior to the reduction in 1997 described
above), if the earnings per share of such year equal at least 118% of earnings
per share of the Company for the immediately preceding year. For the year ended
December 31, 1998, the maximum bonus Mr. Stratton could have received amounted
to $245,000, since the earnings per share of the Company for 1998 equaled at
least 118% of the earnings per share of the Company for the immediately
preceding year. A bonus of $190,000 was accrued in 1998 pursuant to this
agreement.
The amended and restated agreement also provided that upon election by the
Company, by written notice to the employee within 30 days following termination
of employment for any reason, Mr. Stratton would not engage in any business or
render any services to any business in the United States with which the Company
had a current relationship or pending relationship at the date of termination in
any capacity for a period of the first to occur of 12 months (18 months in
certain circumstances) following (i) termination or (ii) December 31, 1998 if
such business is competitive with any product or service being developed,
produced or marketed by the Company at the time of such termination. If the
Company elected to enforce the non-competition provision, it would have paid Mr.
Stratton his base salary in effect on the date of termination and one-half of
the bonus paid to Mr. Stratton for the year immediately preceding the year in
which termination occurred during the non-competition period. The agreement
expired on December 31, 1998.
On July 19, 1996, the Company entered into an employment agreement with
Heather A. Sica which called for Ms. Sica to receive a base salary of $150,000
per year through December 31, 1998. In addition, Ms. Sica received a bonus for
each of the years ended December 31, 1996, 1997 and 1998 equal to one half of
the aggregate base salary and bonus paid or payable to Richard A. Stratton for
that year reduced by the base salary paid to her for that year. A bonus of
$75,000 was accrued in 1998 pursuant to this agreement. Ms. Sica's agreement
contained a non-competition provision substantially the same as Mr. Stratton's
agreement. The agreement expired on December 31, 1998.
On March 17, 1997, the Company entered into an employment agreement with
Joseph S. Weingarten pursuant to which Mr. Weingarten serves as an Executive
Vice President of the Company. The term of Mr. Weingarten's employment under
this agreement is from April 7, 1997 to March 30, 2000. The agreement
A-7
30
provides for an annual salary at a rate of $125,000 from April 7, 1997 to March
30, 1998, $135,000 from April 1, 1998 to March 30, 1999, and $145,000 from April
1, 1999 to March 30, 2000. In addition, Mr. Weingarten was eligible for a total
bonus of $120,000 in 1997 and is eligible for total bonuses of $135,000 and
$145,000 in 1998 and 1999, respectively. The bonuses are comprised of a
discretionary portion based on performance versus agreed upon goals and a
mandatory portion based on earnings per share growth (as defined therein) to the
extent the earnings per share growth exceeds 10%. The discretionary portions are
$40,000, $45,000 and $45,000 for 1997, 1998 and 1999, respectively. For each
percentage increase in earnings per share over 10% but less than 15%, Mr.
Weingarten will receive bonuses of $7,500, $8,500 and $9,500 in 1997, 1998 and
1999 respectively. For each percentage increase in earnings per share from 15%
to 20%, Mr. Weingarten will receive bonuses of $8,500, $9,500 and $10,500, in
1997, 1998 and 1999, respectively. In 1998, a bonus of $30,000 was paid and a
bonus of $135,000 was accrued pursuant to this agreement.
Mr. Weingarten's employment agreement provides that upon election by the
Company, by written notice to the employee within 30 days following termination
of employment for any reason, Mr. Weingarten will not engage in any business or
render any services to any business in the United States with which the Company
has a current relationship or pending relationship at the date of termination in
any capacity for a period of the first to occur of 12 months (18 months in
certain circumstances) following (i) termination or (ii) March 30, 2000 if such
business is competitive with any product or service being developed, produced or
marketed by the Company at the time of such termination. If the Company elects
to enforce the non-competition provision, it has agreed to pay Mr. Weingarten
his base salary in effect on the date of termination and one-half of the bonus
paid to Mr. Weingarten for the year immediately preceding the year in which
termination occurs during the non-competition period.
On January 1, 1998, the Company entered into an employment agreement with
John J. Malloy, pursuant to which Mr. Malloy serves as a Senior Vice President
and General Counsel of the Company. The term of Mr. Malloy's employment under
this agreement is from January 1, 1998 until December 31, 2000. The agreement
provides for an annual salary at a rate of $150,000 from January 1, 1998 to
December 31, 1998, $155,000 from January 1, 1999 to December 31, 1999 and
$160,000 from January 1, 2000 until December 31, 2000. In addition, Mr. Malloy
was eligible for a total bonus of $15,000 in 1998 and is eligible for total
bonuses of $20,000 and $25,000 in 1999 and 2000, respectively. The bonuses are
based on earnings per share growth (as defined therein) to the extent earnings
per share growth exceeds 10%. For each percentage increase in earnings per share
over 10% but less than 15%, Mr. Malloy will receive bonuses of $1,250, $1,750
and $2,250 in 1998, 1999 and 2000, respectively. For each percentage increase in
earnings per share from 15% to 20%, Mr. Malloy will receive bonuses of $1,500,
$2,000 and $2,500 in 1998, 1999 and 2000, respectively. A bonus of $35,000 was
accrued in 1998 pursuant to this agreement. Mr. Malloy's agreement contains a
non-competition provision substantially the same as Mr. Weingarten's.
CHANGE OF CONTROL SEVERANCE AGREEMENTS
On July 19, 1996, the Company entered into an agreement with Ronald E.
Rabidou which calls for the Company to pay Mr. Rabidou severance compensation
equal to his total annual compensation including benefits in the event his
position is eliminated, his responsibilities are materially altered or his
compensation is diminished following a sale or change in control of the Company.
On January 1, 1999, the Company entered into Severance Agreements (the
"Severance Agreements") with each of Richard A. Stratton, Heather A. Sica and
Ronald E. Rabidou (the "Executives"). On March 22, 1999, the Company entered
into a severance agreement with John Costa containing substantially the same
terms and conditions as the Severance Agreements. Each Severance Agreement
provides that if, following a Transaction (as defined in the Severance
Agreement), the Executive's employment has been terminated by the Company for
any reason, other than Cause (as such term is defined therein) or the death or
disability of the Executive, or by the Executive for Good Reason (as such term
is defined therein), then the Company will pay the Executive, a lump sum equal
to the higher of (i) the Executive's total salary and bonus for the most
recently completed fiscal year, and (ii) the Executive's total annualized salary
and bonus, based on the partial fiscal year in which the date of termination
occurs (the "Severance Payment"). In addition to such lump-sum severance
payment, the Executive shall (i) be entitled to participate in the Company's
medical insurance plan
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31
for a period of twelve months following the termination date at the Company's
expense, after which the Executive will have COBRA rights as provided by law and
(ii) for a period of twelve months, be permitted to participate in any of the
Company's other benefit plans in which the Executive is participating as of the
termination date pursuant to Company policy.
The Severance Agreements further provides that, in the event that the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any penalty or excise tax subsequently imposed by law
applies to any payment or benefit received or to be received by the Executive in
connection with a Transaction or the termination of the Executive's employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement,
or agreement with the Company, any Person whose actions result in the
Transaction or any Person affiliated with the Company or such Person) (all such
payments and benefits, including the Severance Payments, being hereinafter
called "Total Payments"), an additional amount shall be paid by the Company to
the Executive such that the aggregate after-tax amount that he shall receive
with respect to the Total Payments, including this section, shall have a present
value equal to the aggregate after-tax amount that he would have received and
retained had such excise or penalty tax (and any interest or penalties in
respect thereof) not applied to him. For this purpose, the Executive shall be
assumed to be subject to tax in each year relevant to the computation at the
then maximum applicable combined Federal and Massachusetts income tax rate, and
the present value of payments to him shall be made consistent with the
principles of Section 280G of the Code.
OPTION PLANS
The Company's 1990 Stock Option Plan, as amended (the "1990 Plan"), enables
a committee of the Board of Directors (the "Option Committee") to grant options
to employees, directors or consultants of the Company for the purchase of up to
an aggregate of 1,422,319 shares of Common Stock. The 1990 Plan is administered
by the Option Committee which has complete discretion to select the eligible
individuals who receive option grants. In determining the eligibility of an
individual to be granted an option, as well as in determining the number of
options to be granted to an individual, the Option Committee considers the
position and responsibilities of the individual being considered, the nature and
value to the Company of his or her service and accomplishments, his or her
present and potential contribution to the success of the Company and such other
factors as the Option Committee may deem relevant. The 1990 Plan provides for
the issuance of either non-qualified options or incentive stock options,
provided that incentive stock options must be granted with an exercise price of
not less than fair market value at the time of grant. All options are non-
transferable other than by will or the laws of descent and distribution. Options
are exercisable for a period of up to ten years from the date of grant, provided
the optionee remains an employee of the Company, or prior to the last day of the
third month following the date of termination of employment. If an optionee dies
or becomes disabled while in the employ of the Company, the option is
exercisable prior to the last day of the twelfth month following the date of
termination of employment. Any options which are exercisable following
termination of employment are only exercisable to the extent the optionee was
entitled to exercise the option on the date of termination. Options currently
outstanding vest over a three or four-year period.
Since the inception of the 1990 Plan, options to purchase a total of
1,234,182 shares of Common Stock have been granted to certain employees and
options to purchase a total of 54,306 shares have been granted to certain
directors. All options to date have been granted at the fair market value of the
underlying shares at the date of grant, ranging from $1.15 to $23.25 per share.
As of September 22, 1999, options for an aggregate of 66,709 shares with a
weighted average exercise price of $8.42 per share have been canceled due to the
termination of employment of the option holder. As of September 22, 1999,
options for an aggregate of 349,048 shares with a weighted average exercise
price of $8.22 per share have been exercised. As of September 22, 1999, options
for a total of 872,631 shares of Common Stock were outstanding. During 1999,
options for an aggregate of 42,050 shares were granted with an average exercise
price of $17.17 per share. Of such amount, options for an aggregate 40,000
shares were granted to executive officers.
On April 28, 1995, the Company's stockholders approved a Stock Option Plan
for Non-Employee Directors (the "Non-Employee Directors' Plan") which provides
for the grant of non-qualified options for the purchase of 5,513 shares of the
Company's Common Stock to each non-employee director of the Company
A-9
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serving on the Board at the time the Non-Employee Directors' Plan was approved,
and to each new non-employee director elected in the five-year period commencing
on the date of the adoption of the Non-Employee Directors' Plan. On February 5,
1998, the Board of Directors amended the Plan granting discretion to the Board
or a committee consisting of two or more members of the Board to administer the
Non-Employee Directors' Plan, and authorizing the Board to grant options for
additional shares of the Company's common stock, $.01 par value ("Common Stock")
to any non-employee director. No options have been cancelled under this plan. As
of September 22, 1999, options for an aggregate of 9,188 shares with a weighted
average exercise price of $12.02 per share have been exercised. During 1999,
options for an aggregate of 22,225 shares were granted with an exercise price of
$17.11 per share. As of September 22, 1999, 41,089 of such options were
outstanding. The exercise price of the options granted under the Non-Employee
Directors' Plan is the fair market value of the shares of Common Stock covered
by the option on the date of grant. Options granted under the Non-Employee
Directors' Plan are not exercisable prior to the first year anniversary of the
date of grant, and are exercisable thereafter on a cumulative basis as to
one-third of the shares covered thereby on each of the first, second and third
anniversaries of the date of grant. No option is exercisable after ten years
from the date of grant. Options granted under the Non-Employee Directors' Plan
are not assignable or transferable by the optionee otherwise than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order. The exercise price of the options granted under the Non-Employee
Directors' Plan must be paid in full, in cash or shares of Common Stock of the
Company already owned for a period of at least six months by the person
exercising the option, valued at fair market value on the date of exercise. In
the event of death or disability of an optionee, the option may be exercised
within one year after the date of death or termination of the optionee's
directorship with the Company on account of disability or, if earlier, prior to
the date on which the option expires by its terms. In the event the optionee
ceases to be a director of the Company other than by reason of death or
disability, the option may be exercised within one month after the optionee
ceases to be a director of the Company, unless such termination was for cause,
in which case the option shall terminate at the time the optionee ceases to be a
director of the Company. In no event may an option be exercised except to the
extent that the right to exercise has accrued and is in effect at the time of
death or termination of service as a director.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
INTERLOCKS AND INSIDER PARTICIPATION
GENERAL
Messrs. Segel, Costa and Stratton served as members of the Compensation
Committee of the Board of Directors during all of fiscal 1998 and participated
in deliberations on executive compensation. Mr. Stratton served as President and
Chief Executive Officer during fiscal 1998. Mr. Segel and Mr. Costa were not
officers or employees of the Corporation or any of its subsidiaries during
fiscal 1998. In March 1999, Mr. Costa became an Executive Vice-President of the
Corporation, and resigned from the Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James Westra, who became a director of the Company in April 1995, is a
stockholder in the law firm of Hutchins, Wheeler & Dittmar, A Professional
Corporation, which provides counsel to the Company on various matters including
public debt and equity offerings, the Offer and the Merger.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee has provided the following Board Compensation
Committee Report:
The Company's executive compensation is supervised by the Compensation
Committee of the Board of Directors. The Company seeks to provide executive
compensation that will support the achievement of the Company's financial goals
while attracting and retaining talented executives and rewarding superior
performance.
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33
In general, the Company compensates its executive officers through a
combination of base salary, annual incentive compensation in the form of cash
bonuses and long-term incentive compensation in the form of stock options. In
addition, executive officers participate in benefit plans, including medical and
retirement plans, that are available generally to the Company's employees.
CHIEF EXECUTIVE OFFICER AND PRESIDENT COMPENSATION
Mr. Stratton's compensation is intended to provide levels of base
compensation comparable with standard market compensation practices for
executive officers in other companies within the financial services industry or
other companies of comparable size, taking into consideration the position's
complexity, responsibility and need for special expertise.
At the same time, the Compensation Committee has sought to link a larger
percentage of the salary of Mr. Stratton to annual earnings per share growth.
For the years ended December 31, 1997 and 1998, the Company's bonus plan for Mr.
Stratton provides for the payment of a bonus equal to his base salary for such
year if the Company's earnings per share for such year equal 118% of the
earnings per share of the Company for the previous year. A bonus totaling
$190,000 was accrued in 1998 pursuant to this agreement.
ANNUAL COMPENSATION
The Company sets base salary levels for other executive officers comparable
to the salary levels of executive officers in other companies within the
financial services industry or other companies of comparable size, taking into
consideration the position's complexity, responsibility and need for special
expertise. Management sets targets based on growth in earnings per share, for
earning incentive compensation.
LONG-TERM INCENTIVE COMPENSATION
The Company provides long-term incentive compensation through its stock
option plan. The number of shares covered by a grant were determined by the
Stock Option Committee considering observed market practices for similar
positions in similar industries and individual performance and responsibilities.
COMPENSATION COMMITTEE
Gerald Segel
Richard Stratton
Grant Wilson
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PERFORMANCE GRAPH
The Stock Price Performance Graph set forth below compares the cumulative
total stockholder return to the Company's stockholders for the period commencing
February 24, 1992, the date shares of common stock were first registered under
Section 12 of the Securities and Exchange Act of 1934, as amended, to August 31,
1999, with the cumulative return on the NASDAQ Composite Index and a peer group
index (NASDAQ Financial Stock Index):
[STOCK PERFORMANCE GRAPH]
NASDAQ STOCK MARKET
LITCHFIELD (US) NASDAQ FINANCIAL STOCKS
---------- ------------------- -----------------------
'1992' 100.00 100.00 100.00
'1993' 174.23 114.77 116.22
'1994' 175.42 112.18 116.50
'1995' 218.23 158.68 169.72
'1996' 247.61 195.23 217.88
'1997' 325.25 239.23 333.31
'1998' 318.95 337.14 323.55
'1999' 316.85 422.63 320.68
The stock performance graph assumes $100 was invested on February 25, 1992.
A-12
35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock of the Company, as of June 30, 1999 by all
stockholders of the Company known to be beneficial owners of more than 5% of the
outstanding Common Stock of the Company, by each director, each of the Named
Executive Officers (as defined herein) and all directors and officers of the
Company as a group:
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME OWNERSHIP(A) OF CLASS
- ---- ----------------- ----------
John McStay Investments................................ 777,813 11.1%
5949 Sherry Lane
Dallas, TX 75225
JP Morgan.............................................. 719,900 10.3%
522 Fifth Avenue -- 14th Floor
New York, NY 10036
Arthur D. Charpentier.................................. 592,779 8.5%
660 White Plains Road, Suite 400
Tarrytown, NY 10591
Munder Capital Management.............................. 387,580 5.6%
480 Pierce Street
Birmingham, MI 48009
Wellington Management Co. ............................. 361,200 5.2%
75 State Street
Boston, MA 02109
Richard A. Stratton(b)................................. 383,556(c) 5.3%
Chief Executive Officer, President and
Director
Heather A. Sica(b)..................................... 141,598(d) 2.0%
Executive Vice President and Director
Ronald E. Rabidou(b)................................... 35,313(e) *
Executive Vice President, Chief Financial
Officer and Treasurer
Gerald Segel........................................... 21,983(f) *
Director
Tucker Anthony
One Beacon Street
Boston, MA 02108
Joseph S. Weingarten(b)................................ 16,667(g) *
Executive Vice President
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36
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME OWNERSHIP(A) OF CLASS
- ---- ----------------- ----------
James Westra................................................ 8,582(h) *
Director
Hutchins, Wheeler & Dittmar,
A Professional Corporation
101 Federal Street
John Costa(b)............................................... 7,840(h) *
Executive Vice President and Director
John J. Malloy(b)........................................... 6,250(i) *
Senior Vice President, General Counsel and Clerk
All directors and executive officers as a group (11
persons).................................................. 687,246(j) 9.1%
- ---------------
* Less than one percent.
(a) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes general voting power and/or
investment power with respect to securities. Shares of commons stock
subject to options currently exercisable or exercisable within 60 days of
June 30, 1999 are deemed outstanding for computing the percentage of a
person holding such options but are not deemed outstanding for computing
the percentage of any other person. The persons named in the table above
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
(b) Address: 430 Main Street, Williamstown, Massachusetts, 01267.
(c) Includes 268,393 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(d) Includes 139,283 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(e) Includes 35,313 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(f) Includes 21,983 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(g) Includes 16,667 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(h) Includes 6,847 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(i) Includes 6,250 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(j) In addition to the shares of Common Stock and options to purchase Common
Stock deemed to be beneficially owned by the directors and officers, as set
forth above, includes options to purchase Common Stock held by the
following executive officers in the following amounts: James Shippee --
35,279 shares; Wayne M. Greenholtz -- 16,608 shares; and James Yearwood --
13,570 shares. Such options are exercisable currently or within 60 days.
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COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers and Directors and persons owning more than 10% of the outstanding
common stock of the Company to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, Directors and
greater than 10% holders of common stock are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or
written representations that no such forms were required, the Company believes
that during the fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its officers, Directors and owners of greater than
10% of its common stock were met.
INFORMATION WITH RESPECT TO PARENT DESIGNEES
PURCHASER DESIGNEES
The Company has been advised by Parent that Acquisition will choose the
Parent Designees from among the directors and officers of Parent and Acquisition
listed in Schedule I of the Offer to Purchase, a copy of which is being mailed
to stockholders of the Company together with this Schedule 14D-9. The
information on such Schedule I with respect to such directors and officers is
incorporated herein by reference. Parent has advised the Company that all such
persons have consented to serve as director if so designated. Parent has
informed the Company that none of the Parent Designees (i) is currently a
director of, or holds any position with, the Company, (ii) has a familial
relationship with any of the directors or executive officers of the Company, or
(iii) to the best knowledge of Parent and Acquisition, beneficially owns any
securities (or rights to acquire any securities) of the Company. The Company has
been advised by Parent that, to the best knowledge of Parent and Acquisition,
none of the Parent Designees has been involved in any transactions with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules and regulations of the Commission
except as may be disclosed herein or in the Schedule 14D-9.
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